e10vkt
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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or
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þ
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period from
July 1, 2010 to December 31, 2010
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Commission file number:
001-32875
BURGER KING HOLDINGS,
INC.
(Exact name of Registrant as
Specified in Its Charter)
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Delaware
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75-3095469
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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5505 Blue Lagoon Drive, Miami, Florida
(Address of Principal
Executive Offices)
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33126
(Zip Code)
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Registrants telephone number, including area code
(305) 378-3000
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes þ No o
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes o No þ*
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of March 23, 2011, there were 100,000 shares of the
Registrants Common Stock outstanding, all of which were
owned by Burger King Worldwide Holdings, Inc., the
Registrants parent holding company. The Registrants
Common Stock is not publicly traded.
DOCUMENTS
INCORPORATED BY REFERENCE:
None
*The registrant has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, but is not subject to such
filing requirements.
BURGER
KING HOLDINGS, INC.
2010
FORM 10-K
TRANSITION REPORT
TABLE OF
CONTENTS
Burger
King®,
Whopper®,
Whopper
Jr.®,
Have It Your
Way®,
Burger King Bun Halves and Crescent
Logo®,
BK®
Value Menu,
BK®
Breakfast Muffin Sandwich,
BK®
Kids Meal, Home of the
Whopper®,
Hungry
Jacks®,
BK®
Fire-Grilled Ribs, BK Positive
Stepstm,
BK Stuffed
Steakhousetm,
BK Whopper
Bartm,
King
Dealstm,
Steakhouse
XTtmand
BKtm
Breakfast Bowl, are trademarks of Burger King
Corporation. References to fiscal 2010, fiscal 2009 and fiscal
2008 in this
Form 10-K
are to the fiscal years ended June 30, 2010, 2009 and 2008,
respectively, references to the Transition Period are to the six
months ended December 31, 2010 and references to fiscal
2011 are to the fiscal year ending December 31, 2011.
Unless the context otherwise requires, all references to
we, us, our and
Company refer to Burger King Holdings, Inc. and its
subsidiaries.
In this document, we rely on and refer to information
regarding the restaurant industry, the quick service restaurant
segment and the fast food hamburger restaurant category that has
been prepared by the industry research firm The NPD Group, Inc.
(which prepares and disseminates Consumer Reported Eating Share
Trends, or
CREST®
data) or compiled from market research reports, analyst reports
and other publicly available information. All industry and
market data that are not cited as being from a specified source
are from internal analysis based upon data available from known
sources or other proprietary research and analysis.
2
Overview
Burger King Holdings, Inc. (we or the
Company) is a Delaware corporation formed on
July 23, 2002. Our restaurant system includes restaurants
owned by the Company and by franchisees. We are the worlds
second largest fast food hamburger restaurant, or FFHR, chain as
measured by the total number of restaurants and system-wide
sales. As of December 31, 2010, we owned or franchised a
total of 12,251 restaurants in 76 countries and
U.S. territories, of which 1,344 restaurants were Company
restaurants and 10,907 were owned by our franchisees. Of these
restaurants, 4,701, or 38%, are located outside the United
States and Canada and account for over 33% of our revenue. Our
restaurants feature flame-broiled hamburgers, chicken and other
specialty sandwiches, french fries, soft drinks and other
affordably-priced food items. During our more than 50 years
of operating history, we have developed a scalable and
cost-efficient quick service hamburger restaurant model that
offers customers fast food at affordable prices.
We generate revenues from three sources: (1) retail sales
at Company restaurants; (2) franchise revenues, consisting
of royalties based on a percentage of sales reported by
franchise restaurants and franchise fees paid by franchisees;
and (3) property income from restaurants that we lease or
sublease to franchisees. Approximately 90% of our current
restaurants are franchised and we have a higher percentage of
franchise restaurants to Company restaurants than our major
competitors in the FFHR category. We believe that this
restaurant ownership mix provides us with a strategic advantage
because the capital required to grow and maintain the Burger
King®
system is funded primarily by franchisees, while still giving us
a base of Company restaurants to demonstrate credibility with
franchisees in launching new initiatives. As a result of the
high percentage of franchise restaurants in our system, we
believe we have lower capital requirements compared to our major
competitors. However, our franchise dominated business model
also presents a number of drawbacks and risks, such as our
limited control over franchisees and limited ability to
facilitate changes in restaurant ownership. In addition, our
operating results are closely tied to the success of our
franchisees, and we are dependent on franchisees to open new
restaurants as part of our growth strategy.
On November 5, 2010 our Board of Directors approved a
change in fiscal year end from June 30 to December 31.
Unless otherwise noted, all references to years in
this report refer to the twelve-month fiscal year, which prior
to July 1, 2010 ended on June 30, and beginning with
December 31, 2010 ends on December 31 of each year. This
Form 10-K
covers the transition period of July 1, 2010 through
December 31, 2010 (the Transition Period).
Our
History
Our history dates back more than a half-century, having been
founded in 1954 when James McLamore and David Edgerton opened
the first Burger King restaurant in Miami, Florida. The
Whopper®
sandwich was introduced in 1957. Our founders sold the
Company to The Pillsbury Company in 1967, taking it from a small
privately held franchised chain to a subsidiary of a large food
conglomerate. Pillsbury was later purchased by Grand
Metropolitan plc, which in turn merged with Guinness plc to
form Diageo plc. In December 2002, we were acquired by
private equity funds controlled by TPG Capital, Bain Capital
Partners and Goldman Sachs & Co. In 2006, we completed
a successful initial public offering, and on October 19,
2010, we were acquired by 3G Special Situations Fund II,
L.P. (3G), an affiliate of 3G Capital Partners,
Ltd., an investment firm based in New York (3G
Capital or the Sponsor). As a result of the
acquisition, our common stock ceased to be traded on the New
York Stock Exchange after close of market on October 19,
2010.
Our
Industry
We operate in the FFHR category of the quick service restaurant,
or QSR, segment of the restaurant industry. In the United
States, the QSR segment is the largest segment of the restaurant
industry and has demonstrated steady growth over a long period
of time. According to The NPD Group, Inc., which prepares and
disseminates
CREST®
data, QSR sales have grown at an annual rate of 3% over the past
10 years, totaling approximately $233.6 billion for
the 12-month
period ended December 2010 and are projected to increase at an
annual rate of 3% between 2010 and 2015.
3
According to The NPD Group, Inc., the FFHR category is the
largest category in the QSR segment, generating sales of
$63.2 billion in the United States for the
12-month
period ended December 2010, representing 27% of total QSR sales.
According to The NPD Group, Inc., sales for the FFHR category
are expected to increase at an average rate of 5% per year over
the next five years. For the
12-month
period ended December 2010, Burger King accounted for
approximately 13% of total FFHR sales in the United States.
Our
Business Strategy
We believe there are significant opportunities ahead for our
Company and the entire Burger King system by:
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Expanding worldwide development: The
geographical expansion of our restaurant network and an increase
in the number of new restaurants are key components of our
growth plan. We expect that most of our new restaurant growth
will come from franchisees. Consequently, our development
strategy centers on ensuring that franchisees in each of our
markets have the resources and incentives to grow. We expect to
focus our international expansion plans on (1) markets
where we already have an established presence but which have
significant growth potential, such as Brazil, Spain, United
Kingdom (U.K.), Germany and Turkey; (2) markets in which we
have a small presence, but which we believe offer significant
opportunities for development, such as China, Russia, Argentina,
Colombia, Japan, Taiwan, Hong Kong and Italy; and
(3) financially attractive new markets in the Middle East,
Eastern Europe and throughout Asia. In addition, we have
invested in joint ventures with franchisees to drive development
in Taiwan and Northern China, and we expect to continue to use
this investment vehicle as one of the strategies to increase our
presence globally.
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Focusing on
BK®
brand equities and optimizing our menu: The
strength of our menu has been built on our brand equities of
allowing consumers to customize their hamburgers their
way and using our distinct flame-broiled cooking platform
to make better tasting hamburgers. Our menu strategy seeks to
optimize our menu by focusing on core products, such as our
flagship Whopper sandwich and french fries, while
improving menu variety through new product launches, such as the
BK Stuffed
Steakhousetm
Burger, the first stuffed burger in the QSR segment. We have
introduced, and will continue to introduce, new breakfast,
dessert, beverage and snack menu offerings which will complement
our core products. We will continue to employ innovative and
creative marketing strategies to increase our restaurant traffic
and comparable sales, and support new product launches. This
includes integrated marketing campaigns utilizing social media,
which we believe will resonate with our core consumer and expand
our consumer base.
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Enhancing restaurant-level margins and
profitability: We believe we have a substantial
opportunity to improve margins in our restaurants through both
top line growth and cost management initiatives. We believe
that, once implemented, these initiatives will help to increase
Company restaurant profitability to the levels of our most
successful franchisees. We also intend to work with our
franchisees to improve the profitability of the entire system.
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We plan to improve average restaurant sales in our system by
(1) focusing on enhancing our guest experience, where we
continued to observe improvements to our guest satisfaction
scores during the Transition Period, and (2) rolling out a
more efficient cost-effective remodel solution to drive
meaningful sales lifts and maximize return on capital for
ourselves and our franchisees.
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We are highly focused on improving restaurant level
profitability through continued deployment of equipment and
tools aimed at improving restaurant level performance, such as
our point of sale cash register systems which we believe will
reduce labor costs and waste, as well as improving inventory
management. Our new POS systems are required to be installed
system-wide by January 2014. In the kitchen, our revolutionary
flexible batch broiler greatly improves cooking flexibility and
facilitates a broader menu selection while reducing energy
costs. The flexible batch broiler is currently installed in 91%
of our Company restaurants and 71% of franchise restaurants
worldwide.
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Driving corporate-level G&A
efficiencies: We are highly focused on reducing
our corporate general and administrative (G&A)
expenses by (1) implementing a restructuring plan to drive
efficiencies and create fiscal resources that will be reinvested
in our business, (2) implementing a Zero Based
Budgeting program, which is a method of annual planning
designed to build a strong ownership culture by requiring
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departmental budgets to estimate and justify costs and
expenditures from a zero base, rather than focusing
on the prior years base, and (3) tying a portion of
managements incentive compensation specifically to our
G&A budget. As a result of the initial implementation of
our Zero Based Budgeting program, we expect to significantly
reduce other corporate general and administrative expenses,
including travel, technology, rental, maintenance, recruiting,
utilities, training and communication costs, as well as
professional fees. See Managements Discussion and
Analysis of Results of Operations in Part II,
Item 7 of this
Form 10-K.
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Selectively pursuing refranchising
opportunities: We will focus on selectively
refranchising Company restaurants to new and existing
franchisees to rationalize our Company restaurant portfolio,
further improve our profitability and cash flow through reduced
capital expenditures and increased royalty revenues, and provide
new opportunities for franchisees. In fiscal 2010, we
refranchised 37 Company restaurants in Germany and 54
restaurants in the U.S., and during the Transition Period we
refranchised all of our Company restaurants in the Netherlands
to a new franchisee. We expect to refranchise up to half of our
Company restaurant portfolio over the next three to five years.
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Focusing on cash flow generation and debt
paydown: We intend to tie a portion of
managements incentive compensation to profitability and
free cash flow generation, focusing on rapid deleveraging. We
believe this compensation plan will foster an ownership
mentality for management to encourage strong operational
efficiencies and top line growth which will ultimately build the
business for the long term.
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Global
Operations
We operate in three reportable segments: (i) the United
States and Canada; (ii) Europe, the Middle East, Africa and
Asia Pacific, or EMEA/APAC; and (iii) Latin America.
Additional financial information about geographic segments is
incorporated herein by reference to Managements
Discussion and Analysis of Financial Condition and Results of
Operations in Part II, Item 7 and Segment
Reporting in Part II, Item 8 in Note 22 of this
Form 10-K.
Our restaurants are limited-service restaurants of distinctive
design and are generally located in high-traffic areas. We
believe our restaurants appeal to a broad spectrum of consumers,
with multiple day parts appealing to different customer groups.
United
States and Canada
As of December 31, 2010, we had 984 Company restaurants and
6,566 franchise restaurants operating in the United States and
Canada.
Company restaurants. Our Company restaurants
in the United States and Canada generated $599.1 million in
revenues during the Transition Period, or 75% of our total
United States and Canada revenues and 51% of our total worldwide
revenues. Our Company restaurants in the United States and
Canada account for 73% of Company restaurants worldwide.
5
The following table details the top ten locations of our Company
restaurants in the United States and Canada as of
December 31, 2010:
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Company
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% of Total U.S. and
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Restaurant
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Canada Company
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Rank
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State/Province
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Count
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Restaurants
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1
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Florida
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256
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26
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%
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2
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North Carolina
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112
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11
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%
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3
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Indiana
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68
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7
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%
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4
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Ontario
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58
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6
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%
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5
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Virginia
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50
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5
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%
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6
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Massachusetts
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43
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4
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%
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7
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Georgia
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42
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4
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%
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7
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Nebraska
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42
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4
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%
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8
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Ohio
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38
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4
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%
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9
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Connecticut
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33
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3
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%
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9
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Quebec
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33
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3
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%
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10
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New York
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32
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3
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%
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Franchise Restaurants. We grant franchises to
operate restaurants using Burger King trademarks, trade
dress and other intellectual property, uniform operating
procedures, consistent quality of products and services and
standard procedures for inventory control and management.
Our growth and success have been built, in significant part,
upon our substantial franchise operations. We franchised our
first restaurant in 1961, and as of December 31, 2010,
there were 6,566 franchise restaurants, owned by 733 franchise
operators, in the United States and Canada. We earned
$152.3 million in franchise revenues in the United States
and Canada during the Transition Period, or 54% of our total
worldwide franchise revenues. Franchisees report gross sales on
a monthly basis and pay royalties based on reported sales. The
five largest franchisees in the United States and Canada in
terms of restaurant count represented in the aggregate
approximately 17% of our franchise restaurants in this segment
as of December 31, 2010.
The following table details the top ten locations of our
franchisees restaurants in the United States and Canada as
of December 31, 2010:
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Franchise
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% of Total U.S. and
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Restaurant
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Canada Franchise
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Rank
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State/Province
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Count
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Restaurants
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1
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California
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672
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10
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%
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2
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Texas
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464
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7
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%
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3
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Michigan
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328
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5
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%
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4
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New York
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311
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5
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%
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5
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Ohio
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309
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5
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%
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6
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Illinois
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303
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5
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%
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7
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Florida
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295
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4
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%
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8
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Pennsylvania
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237
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4
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%
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9
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Georgia
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214
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3
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%
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10
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New Jersey
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183
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3
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%
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6
The following is a list of the five largest franchisees in terms
of restaurant count in the United States and Canada as of
December 31, 2010:
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Restaurant
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Rank
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Name
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Count
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Location
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1
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Carrols Corporation
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305
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Northeast, Midwest, and Southeast
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2
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Stategic Restaurants Acquisition Company, LLC
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282
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West Coast and South-Central
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3
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Heartland Food Corp.
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256
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Midwest and Canada
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4
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Army Air Force Exchange Services
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132
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Multiple USA
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5
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Bravokilo, Inc./Bravo Grande, Inc.
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116
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Midwest
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Europe,
the Middle East and Africa/Asia Pacific
(EMEA/APAC)
EMEA. EMEA is the second largest region in the
Burger King system behind the United States, as measured
by number of restaurants. As of December 31, 2010, EMEA had
2,728 restaurants in 34 countries and territories, including 203
Company restaurants located in Germany, the U.K., Spain and
Italy. While Germany continues to be the largest market in EMEA
with 687 restaurants as of December 31, 2010, Turkey is one
of our fastest growing markets with net openings of 54
restaurants during the trailing twelve months ended
December 31, 2010. We have expanded our network of
restaurants in EMEA over the past two years via contiguous
growth in Central and Eastern Europe and the Middle East and
Africa, including entry into the Czech Republic, Russia and
Oman. Throughout the EMEA region, we continue to evaluate
franchise opportunities and prospective new franchisees.
APAC. As of December 31, 2010, APAC had
833 restaurants in 13 countries and territories, including
China, Singapore, Malaysia, Thailand, Australia, Philippines,
New Zealand, South Korea, Indonesia and Japan. In APAC, we have
61 Company restaurants, all of which are located in China and
Singapore. Australia is the largest market in APAC, with 343
restaurants as of December 31, 2010, 279 of which are
franchised and operated under Hungry
Jacks®,
a brand that we own in Australia and New Zealand. Australia
is the only market in which we operate under a brand other than
Burger King. We believe there is significant opportunity
to grow the brand in existing and new markets in APAC.
Company restaurants. As of December 31,
2010, 203 (or 7%) of the restaurants in EMEA were Company
restaurants. During the trailing twelve months ended
December 31, 2010, we refranchised 74 Company restaurants,
50 in our Germany market, 22 in the Netherlands, our entire
Company restaurant portfolio in that country, and two in the
U.K. As of December 31, 2010, there were 61 Company
restaurants in APAC, of which 19 were located in China and 42 in
Singapore. During the trailing twelve-months ended
December 31, 2010, we acquired 35 restaurants from a
franchisee in Singapore.
The following table details Company restaurant locations in
EMEA/APAC as of December 31, 2010:
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% of Total
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Company
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EMEA/APAC
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Restaurant
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Company
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Rank
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Country
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Count
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Restaurants
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1
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Germany
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93
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35
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%
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2
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United Kingdom
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61
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23
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%
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3
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Spain
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45
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17
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%
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4
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Singapore
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42
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16
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%
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5
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China
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19
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7
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%
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6
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Italy
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4
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2
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%
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Franchise Restaurants. We earned
$101.0 million in franchise revenues in EMEA/APAC during
the Transition Period, or 36% of our total worldwide franchise
revenues. Many of our EMEA/APAC markets, including Hungary,
Portugal, South Korea and the Philippines, are operated by a
single franchisee, while others, such as the U.K., Germany and
Spain, have multiple franchisees.
7
The following is a list of the five largest franchisees in terms
of restaurant count in EMEA/APAC as of December 31, 2010:
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Restaurant
|
|
|
Rank
|
|
Name
|
|
Count
|
|
Location
|
|
|
1
|
|
|
Tab Gida
|
|
|
336
|
|
|
Turkey
|
|
2
|
|
|
Hungry Jacks Pty Ltd.
|
|
|
279
|
|
|
Australia
|
|
3
|
|
|
Olayan Food Service Company
|
|
|
132
|
|
|
Saudi Arabia /UAE/Egypt/Oman
|
|
4
|
|
|
System Restaurant Service Korea Co. Ltd.
|
|
|
114
|
|
|
Korea
|
|
5
|
|
|
Al-Homaizi Foodstuff Company
|
|
|
91
|
|
|
United Kingdom/Kuwait
|
Latin
America
As of December 31, 2010, we had 1,140 restaurants in 27
countries and territories in Latin America. There were 96
Company restaurants in Latin America, all located in Mexico, and
1,044 franchise restaurants in the segment as of
December 31, 2010. Mexico is the largest market in this
segment, with a total of 414 restaurants as of December 31,
2010, or 36% of the region.
We believe that there are significant growth opportunities in
South America. For example, we entered the Brazil market five
years ago, and, as of December 31, 2010, had 102
restaurants in the country. For the trailing twelve-months ended
December 31, 2010, we opened 71 new restaurants in Latin
America.
The following is a list of the five largest franchisees in terms
of restaurant count in Latin America as of December 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant
|
|
|
Rank
|
|
Name
|
|
Count
|
|
Location
|
|
|
1
|
|
|
Alsea and Affiliates
|
|
|
196
|
|
|
Mexico/Argentina/Chile/Colombia
|
|
2
|
|
|
Caribbean Restaurants, Inc.
|
|
|
175
|
|
|
Puerto Rico
|
|
3
|
|
|
Geboy de Tijuana, S.A. de C.V.
|
|
|
66
|
|
|
Mexico
|
|
4
|
|
|
Operadora Exe S.A. de C.V.
|
|
|
48
|
|
|
Mexico
|
|
5
|
|
|
B & A S.A.
|
|
|
42
|
|
|
Guatemala
|
Franchise
Agreements
General. We grant franchises to operate
restaurants using Burger King trademarks, trade dress and
other intellectual property, uniform operating procedures,
consistent quality of products and services and standard
procedures for inventory control and management. For each
franchise restaurant, we generally enter into a franchise
agreement covering a standard set of terms and conditions.
Recurring fees consist of monthly royalty and advertising
payments. Franchise agreements are not assignable without our
consent, and we have a right of first refusal if a franchisee
proposes to sell a restaurant. Defaults (including non-payment
of royalties or advertising contributions, or failure to operate
in compliance with the terms of the Manual of Operating Data)
can lead to termination of the franchise agreement. We can
control the growth of our franchisees because we have the right
to approve any restaurant acquisition or new restaurant opening.
These transactions must meet our minimum approval criteria to
ensure that franchisees are adequately capitalized and that they
satisfy certain other requirements.
United States and Canada. In the United States
and Canada, we typically enter into a separate franchise
agreement for each restaurant. The typical franchise agreement
in the United States and Canada has a
20-year term
(for both initial grants and renewals of franchises) and
contemplates a one-time franchise fee of $50,000 which must be
paid in full before the restaurant opens for business, or in the
case of renewal, before expiration of the current franchise
term. In recent years, in connection with limited term incentive
programs, we have offered franchisees reduced upfront franchise
fees and/or
limited-term royalty reductions to accelerate the development of
new restaurants and restaurant remodeling. Most existing
franchise restaurants in the United States and Canada pay a
royalty of 3.5% and 4% of gross sales, respectively. Since June
2003, most new franchise restaurants opened and
8
franchise agreements renewed in the United States generate
royalties at the rate of 4.5% of gross sales for the full
franchise term. The weighted average royalty rate in the United
States and Canada was 3.9% as of December 31, 2010. In
addition to their royalties, franchisees in the United States
and Canada are generally required to make a contribution to the
advertising fund equal to a percentage of gross sales, typically
4%, on a monthly basis.
International. Internationally, we typically
enter into franchise agreements for each restaurant with an up
front franchise fee of $50,000 per restaurant and monthly
royalties and advertising contributions each of up to 5% of
gross sales. However, in many of our international markets, we
have granted either master franchise agreements or development
agreements that provide franchisees broader development rights
and obligations. In Australia and Turkey, we have entered into
master franchise agreements with a franchisee in each country
which permits that franchisee to
sub-franchise
restaurants within its territory. In New Zealand and certain
Middle East and Persian Gulf countries, we have entered into
arrangements with franchisees under which they have agreed to
nominate third party franchisees to develop and operate
restaurants within their respective territories under franchise
agreements with us. As part of these arrangements, the
franchisees have agreed to provide certain support services to
third party franchisees on our behalf, and we have agreed to
share the franchise fees and, in some cases, royalties paid by
such third party franchisees. We have also entered into
exclusive development agreements with franchisees in a number of
international markets. In addition, we have invested in joint
ventures with franchisees to drive development in Taiwan and
Northern China, and we expect to continue to use this investment
vehicle as one of the strategies to increase our presence
globally.
Franchise Restaurant Leases. Unlike some of
our competitors, we typically do not own the land or the
building associated with our franchise restaurants and our
standard franchise agreement does not contain a lease component.
Rather, to the extent that we lease or sublease the property to
a franchisee, we will enter into a separate lease agreement. For
properties that we lease from third-party landlords and sublease
to franchisees, leases generally provide for fixed rental
payments and may provide for contingent rental payments based on
a restaurants annual gross sales. Franchisees who lease
land only or land and building from us do so on a triple
net basis. Under these triple net leases, the franchisee
is obligated to pay all costs and expenses, including all real
property taxes and assessments, repairs and maintenance and
insurance. As of December 31, 2010, we leased or subleased
to franchisees 976 properties in the United States and Canada
and 88 properties in EMEA, primarily sites located in the U.K.
and Germany. These properties represented approximately 15% and
3%, respectively, of our total franchise restaurant count in
such regions. We do not own or lease any properties to
franchisees in APAC or Latin America.
Product Offerings and Development. The
strength of our menu has been built on the brand equities of
allowing consumers to customize their hamburgers their
way and using our distinct flame-broiled cooking platform
to make better tasting hamburgers. In 2011, we intend to focus
on our core products, such as our flagship Whopper
sandwich and french fries, to drive average check and
traffic, while improving menu variety through new product
launches. We have introduced, and expect to continue to
introduce, new breakfast, dessert, beverage and snack menu
offerings which will complement our core products. During the
Transition Period, we launched our enhanced breakfast platform
in the United States and Canada that included several new
breakfast products and featured Seattles Best
Coffee®.
We operate product research and development facilities or
test kitchens at our headquarters in Miami and at
certain other regional locations. Independent suppliers also
conduct research and development activities for the benefit of
the Burger King system. Product innovation begins with an
intensive research and development process that analyzes each
potential new menu item, including market tests to gauge
consumer taste preferences, and includes an ongoing analysis of
the economics of food cost, margin and final price point. We
believe new product development is critical to our long-term
success.
Company restaurants play a key role in the development of new
products and initiatives because we can use them to test and
perfect new products, equipment and programs before introducing
them to franchisees, which we believe gives us credibility with
our franchisees in launching new initiatives. This strategy also
allows us to keep research and development costs down and
simultaneously facilitates the ability to sell new products and
to launch initiatives both internally to franchisees and
externally to guests.
We have developed a flexible batch broiler that is significantly
smaller, less expensive and easier to maintain than the previous
broiler used in our restaurants. The flexible batch broiler is
currently installed in 91% of our
9
Company restaurants, and the broiler has been ordered or
installed in approximately 71% of franchise restaurants
worldwide. Over the past 12 months, we launched the
Steakhouse
XTtm
burger line,
BK®
Fire-Grilled Ribs and, most recently, the BK Stuffed
Steakhouse Burger, the first-ever stuffed burger in the QSR
segment, each of which is prepared on the flexible broiler, and
we expect to launch other innovative products using this new
cooking platform during fiscal 2011. We have filed patent
applications to protect our worldwide rights with respect to the
flexible batch broiler technology. We have licensed one of our
equipment vendors on an exclusive basis to manufacture and
supply the flexible batch broiler to the Burger King
system throughout the world.
As part of our commitment to providing nutritional alternatives
to our customers with children, we joined the Council for Better
Business Bureaus (CBBB) Food and Beverage Advertising
Initiative (CFBAI) in 2007 and pledged to restrict
100 percent of national advertising aimed at children under
12 to
BK®
Kids Meals that meet stringent nutrition criteria. In the
U.S. we currently have three existing BK Kids Meal
lunch/dinner options that meet these strict nutritional criteria
and, in August 2010, introduced a breakfast meal for children.
Burger King Corporation (BKC) also provides BK
Positive
Stepstm
nutrition materials in restaurants nationwide, has transitioned
to zero grams of artificial trans fat in all ingredients and
cooking oils in the U.S., and has partnered with USDA to promote
MyPyramid information to both kids and adults.
Operating
Procedures
All of our restaurants must adhere to strict standardized
operating procedures and requirements which we believe are
critical to the image and success of the Burger King
brand. Each restaurant in the United States and Canada is
required to follow the Manual of Operating Data, an extensive
operations manual containing mandatory restaurant operating
standards, specifications and procedures prescribed from time to
time to assure uniformity of operations and consistently high
quality products at Burger King restaurants. Among the
requirements contained in the Manual of Operating Data are
standard design, equipment system, color scheme and signage,
operating procedures, hours of operation, value menu and
standards of quality for products and services. Internationally,
Company and franchise restaurants generally adhere to the
standardized operating procedures and requirements; however,
regional and country-specific market conditions often require
some variation in our standards and procedures.
Restaurant
Design and Image
System-wide, our restaurants consist of several different
building types with various seating capacities, including
free-standing buildings, as well as restaurants located in
airports, strip malls and shopping malls, toll road rest areas
and educational and sports facilities. The traditional Burger
King restaurant is free-standing, ranging in size from
approximately 1,900 to 4,300 square feet, with seating
capacity of 40 to 120 guests, drive-thru facilities and adjacent
parking areas. In fiscal 2005, we developed new, smaller
restaurant designs where the seating capacity is between 40 and
80 guests. We believe this seating capacity is adequate since
approximately 64% of our U.S. Company restaurant sales are
made at the drive-thru.
In todays environment, restaurant experience is now as
important as value and quality. We believe that image
complements visibility via curb appeal driving
capture rates and traffic, while interior image and experience
expands frequency of visit and overall guest satisfaction and
increases comparable sales. Consequently, in fiscal 2008, we
launched a system-wide initiative to roll-out our
20/20 design. The classic and contemporary
20/20 design draws inspiration from our signature
flame-broiled cooking process and incorporates a variety of new,
innovative elements to a backdrop that evokes the industrial
look of corrugated metal, brick, wood and concrete. The
20/20 design options include a series of liquid
crystal display (LCD) menu screens, graphics that reflect
the famous brand promise, highly visible Home of the
Whopper®
signage, a prominent red flame parapet dining area anchored by a
flame chandelier, and an array of Have it Your
Way®
seating options bar, banquette, booth, or table.
New
Restaurant Development
United States and Canada. We employ a
sophisticated and disciplined market planning and site selection
process through which we identify trade areas and approve
restaurant sites throughout the United States and Canada that we
believe provides for quality expansion. We have established a
development committee to oversee all new
10
restaurant development within the United States and Canada. Our
development committees objective is to ensure that every
proposed new restaurant location is carefully reviewed and that
each location meets the stringent requirements established by
the committee, which include factors such as site accessibility
and visibility, traffic patterns, signage, parking, site size in
relation to building type and certain demographic factors. Our
model for evaluating sites accounts for potential changes to the
site, such as road reconfiguration and traffic pattern
alterations. Each franchisee wishing to develop a new restaurant
is responsible for selecting a new site location and bears the
risk if the new site does not meet the franchisees
investment expectations. However, we work closely with our
franchisees to assist them in selecting sites. Each restaurant
site selected is required to be within an identified trade area
and our development committee reviews all selections, provides
input based on the same factors that it uses to select Company
restaurants, and grants final approval. We have instituted
several initiatives to accelerate restaurant development in the
United States, including reduced royalties and upfront franchise
fees.
International. In those international markets
that are not allocated to a single franchisee, our market
planning and site selection process is managed by regional
teams, who are knowledgeable about the local market. In several
of our markets, there is typically a single franchisee that owns
and operates all of the restaurants within a country.
Advertising
and Promotion
We believe sales in the QSR segment can be significantly
affected by the frequency and quality of advertising and
promotional programs. We believe that three of our major
competitive advantages are our strong brand equity, market
position and our global franchise network which allow us to
drive sales through our advertising and promotional programs.
Our current global marketing strategy is based upon marketing
campaigns and menu options that focus on core products like our
flagship Whopper sandwich and french fries and affordable
items to offer more choices to our guests, grow our market share
and improve our operating margins. We concentrate our marketing
on television advertising, which we believe is the most
effective way to reach our customers. We also use radio and
internet advertising and other marketing tools on a more limited
basis.
In the United States and Canada and those international markets
where we operate Company restaurants, we and our franchisees
make monthly contributions, generally 4% to 5% of restaurant
gross sales, to Company managed advertising funds. In those
markets where we do not have Company restaurants, franchisees
make this contribution into a franchisee managed advertising
fund. As part of our global marketing strategy, we provide these
franchisees with advertising support and guidance in order to
deliver a consistent global brand message. Advertising
contributions are used to pay for expenses relating to
marketing, advertising and promotion, including market research,
production, advertising costs, sales promotions and other
support functions. In addition to the mandated advertising fund
contributions, U.S. franchisees may elect to participate in
certain local advertising campaigns at the Designated Market
Area level by making contributions beyond those required for
participation in the national advertising fund.
In the United States and in those other countries where we have
Company restaurants, we coordinate the development, budgeting
and expenditures for all marketing programs, as well as the
allocation of advertising and media contributions, among
national, regional and local markets, subject in the United
States to minimum expenditure requirements for media costs and
certain restrictions as to new media channels. We are required,
however, under our U.S. franchise agreements, to discuss
the types of media in our advertising campaigns and the
percentage of the advertising fund to be spent on media with the
recognized franchisee association, currently the National
Franchisee Association, Inc. In the United States and certain
other markets, we typically conduct a non-binding poll of our
franchisees before introducing any nationally- or
locally-advertised price or discount promotion to gauge the
level of support for the campaign.
Supply
and Distribution
We establish the standards and specifications for most of the
goods used in the development and operation of our restaurants
and for the direct and indirect sources of supply of most of
those items. These requirements help us assure the quality and
consistency of the food products sold at our restaurants and
protect and enhance the image of the Burger King system
and the Burger King brand.
11
In general, we approve the manufacturers of the food, packaging
and equipment products and other products used in Burger King
restaurants, as well as the distributors of these products
to Burger King restaurants. Franchisees are generally
required to purchase these products from approved suppliers and
distributors. We consider a range of criteria in evaluating
existing and potential suppliers and distributors, including
product and service consistency, delivery timeliness and
financial condition. Approved suppliers and distributors must
maintain standards and satisfy other criteria on a continuing
basis and are subject to continuing review. Approved suppliers
may be required to bear development, testing and other costs
associated with our evaluation and review.
Restaurant Services, Inc., or RSI, is a
not-for-profit,
independent purchasing cooperative formed in 1992 to leverage
the purchasing power of the Burger King system in the
United States. As the purchasing agent for the Burger King
system in the United States, RSI negotiates the purchase
terms for most equipment, food, beverages (other than branded
soft drinks) and other products such as promotional toys and
paper products used in our restaurants. RSI is also authorized
to purchase and manage distribution services on behalf of the
Company restaurants and other franchisees who appoint RSI as
their agent for these purposes. As of December 31, 2010,
RSI was appointed the distribution manager for approximately 94%
of the restaurants in the United States. A subsidiary of RSI
acts as purchasing agent for food and paper products for our
Company and franchise restaurants in Canada under a contract
with us. As of December 31, 2010, four distributors service
approximately 85% of the U.S. system restaurants and the
loss of any one of these distributors would likely adversely
affect our business.
There is currently no designated purchasing agent that
represents franchisees in our international regions. However, we
are working with our franchisees to implement programs that
leverage our global purchasing power and to negotiate lower
product costs and savings for our restaurants outside of the
United States and Canada. We approve suppliers and distributors
and use similar standards and criteria to evaluate international
suppliers that we use for U.S. suppliers. Franchisees may
propose additional suppliers, subject to our approval and
established business criteria.
In fiscal 2000, we entered into long-term exclusive contracts
with The
Coca-Cola
Company and Dr Pepper/Seven Up, Inc. to supply Company
restaurants and franchise restaurants with their products, which
obligate Burger King restaurants in the United States to
purchase a specified number of gallons of soft drink syrup.
These volume commitments are not subject to any time limit. As
of December 31, 2010, we estimate that it will take
approximately 14 years to complete the
Coca-Cola
and Dr Pepper/Seven Up, Inc. purchase commitments. If these
agreements were terminated, we would be obligated to pay
significant termination fees and certain other costs.
Management
Information Systems
Company and franchise restaurants typically use a point of sale,
or POS, cash register system to record all sales transactions at
the restaurant. We have not historically required franchisees to
use a particular brand or model of hardware or software
components for their restaurant system and franchisees have
traditionally reported summary sales data manually, which
limited our ability to verify sales data electronically. We have
the right under our franchise agreement to audit franchisees to
verify sales information provided to us.
In January 2006, we established POS specifications to reduce
costs, improve service and allow better data analysis and
approved three global POS vendors and one regional vendor for
each of our three segments to sell these systems to our
restaurants. As of December 31, 2010, we had installed
these new POS systems in all Company restaurants and in 65% of
franchise restaurants. Once fully implemented, these POS systems
will make it possible for restaurants to submit their sales and
transaction level details to us in near-real-time in a common
format, allowing us to maintain one common database of sales
information and to make better marketing and pricing decisions.
Franchisees are required to replace legacy POS systems with the
approved POS systems over the next few years, depending on the
age of the legacy system. All franchisees must have the new POS
systems in their restaurants by no later than January 1,
2014.
Quality
Assurance
We are focused on achieving a high level of guest satisfaction
through the periodic monitoring of restaurants for compliance
with our key operations platforms: Clean & Safe,
Hot & Fresh and Friendly & Fast. We measure
our customer experience principally through Guest
Tracsm,
a rating system based on survey data submitted by our
12
customers. We review the overall performance of our operations
platforms through an Operations Excellence Review, or OER, which
focuses on evaluating and improving restaurant operations and
guest satisfaction.
We and an independent outside vendor administer the Restaurant
Food Safety certification, which is intended to bring heightened
awareness to food safety, and includes immediate
follow-up
procedures to take any action needed to protect the safety of
our customers.
We have uniform operating standards and specifications relating
to selection of menu items, maintenance and cleanliness of the
premises and employee conduct. In addition, all Burger
King restaurants are required to be operated in accordance
with quality assurance and health standards which we establish,
as well as standards set by federal, state and local
governmental laws and regulations. These standards include food
preparation rules regarding, among other things, minimum cooking
and holding times and temperatures, sanitation and cleanliness.
We closely supervise the operation of all of our Company
restaurants to help ensure that standards and policies are
followed and that product quality, guest service and cleanliness
of the restaurants are maintained. Detailed reports from
management information systems are tabulated and distributed to
management on a regular basis to help maintain compliance. In
addition, we conduct scheduled and unscheduled inspections of
Company and franchise restaurants throughout the Burger King
system.
Intellectual
Property
We own valuable intellectual property including trademarks,
service marks, patents, copyrights, trade secrets and other
proprietary information. As of December 31, 2010, we owned
approximately 2,735 trademark and service mark registrations and
applications and approximately 962 domain name registrations
around the world, some of which are of material importance to
our business. Depending on the jurisdiction, trademarks and
service marks generally are valid as long as they are used
and/or
registered. We also have established the standards and
specifications for most of the goods and services used in the
development, improvement and operation of Burger King
restaurants. These proprietary standards, specifications and
restaurant operating procedures are trade secrets owned by us.
Additionally, we own certain patents relating to equipment used
in our restaurants and provide proprietary product and labor
management software to our franchisees. Patents are of varying
duration.
Management
Substantially all of our executive management, finance,
marketing, legal and operations support functions are conducted
from our global restaurant support center in Miami, Florida. In
addition, we operate restaurant support centers domestically and
internationally to support both franchised operations and
Company restaurants. In the United States and Canada, our
franchise operations are organized into six divisions, each of
which is headed by a division vice president supported by field
personnel who interact directly with the franchisees. Our EMEA
headquarters are located in Zug, Switzerland and our APAC
headquarters are located in Singapore. In addition, we operate
restaurant support centers located in Madrid, Slough (U.K.),
Munich, Istanbul and Gothenburg (for EMEA), and Singapore and
Shanghai (for APAC). These centers are staffed by teams who
support both franchised operations and Company restaurants. Our
Latin American headquarters are located at our corporate offices
in Miami, Florida; however, we operate restaurant support
centers in Mexico and Brazil.
Management of a franchise restaurant is the responsibility of
the franchisee, who is trained in our techniques and is
responsible for ensuring that the
day-to-day
operations of the restaurant are in compliance with the Manual
of Operating Data.
Competition
We operate in the FFHR category of the QSR segment of the
broader restaurant industry. We compete in the United States and
internationally with many well-established food service
companies on the basis of product choice, quality,
affordability, service and location. Our competitors include a
variety of independent local operators, in addition to
well-capitalized regional, national and international restaurant
chains and franchises. In the FFHR industry our principal
competitors are McDonalds Corporation, or McDonalds
and Wendys/Arbys Group, Inc., or Wendys, as
well as regional hamburger restaurant chains, such as
Carls Jr., Jack in the Box and Sonic. To a lesser
13
extent, we also compete for consumer dining dollars with
national, regional and local (i) quick service restaurants
that offer alternative menus, (ii) casual and fast
casual restaurant chains, and (iii) convenience
stores and grocery stores that offer menu items comparable to
those of Burger King restaurants. Furthermore, the
restaurant industry has few barriers to entry, and therefore new
competitors may emerge at any time.
Government
Regulation
We are subject to various federal, state and local laws
affecting the operation of our business, as are our franchisees.
Each Burger King restaurant is subject to licensing and
regulation by a number of governmental authorities, which
include zoning, health, safety, sanitation, building and fire
agencies in the jurisdiction in which the restaurant is located.
Difficulties in obtaining, or the failure to obtain, required
licenses or approvals can delay or prevent the opening of a new
restaurant in a particular area.
In the United States, we are subject to the rules and
regulations of the Federal Trade Commission, or the FTC, and
various state laws regulating the offer and sale of franchises.
The FTC and various state laws require that we furnish to
certain prospective franchisees a franchise disclosure document
containing prescribed information. A number of states, in which
we are currently franchising, regulate the sale of franchises
and require registration of the franchise disclosure document
with state authorities and the delivery of a franchise
disclosure document to prospective franchisees. We are currently
operating under exemptions from registration in several of these
states based upon our net worth and experience. Substantive
state laws that regulate the franchisor/franchisee relationship
presently exist in a substantial number of states. These state
laws often limit, among other things, the duration and scope of
non-competition provisions, the ability of a franchisor to
terminate or refuse to renew a franchise and the ability of a
franchisor to designate sources of supply.
Company restaurant operations and our relationships with
franchisees are subject to federal and state antitrust laws and
federal and state laws governing such matters as consumer
protection, privacy, wages, union organizing, working
conditions, work authorization requirements, health insurance
and overtime. Some states have set minimum wage requirements
higher than the federal level. We are also subject to the
regulations of the U.S. Citizenship and Immigration
Services and U.S. Customs and Immigration Enforcement.
Our facilities must comply with the federal Fair Labor Standards
Act and the Americans with Disabilities Act, or the ADA, which
requires that all public accommodations and commercial
facilities meet federal requirements related to access and use
by disabled persons. As described more fully under
Item 3. Legal Proceedings, we were sued in
California in an action alleging that all of the Burger
King restaurants in California leased by the Company and
operated by franchisees violated accessibility requirements
under federal and state law.
As a manufacturer and distributor of food products, we are
subject to a number of food safety regulations, including the
Federal Food, Drug and Cosmetic Act and regulations adopted by
the U.S. Food and Drug Administration. This comprehensive
regulatory framework governs the manufacture (including
composition and ingredients), labeling, packaging and safety of
food in the United States.
In addition, we may become subject to legislation or regulation
seeking to tax
and/or
regulate high-fat, high-calorie and high-sodium foods,
particularly in the United States, the U.K. and Spain. Certain
counties, states and municipalities, such as California,
Vermont, New York City, and King County, Washington, have
approved menu labeling legislation that requires restaurant
chains to provide caloric information on menu boards, and menu
labeling legislation has also been adopted on the federal level.
In addition, public interest groups have focused attention on
the marketing of high calorie, high-fat and high-sodium foods to
children in a stated effort to combat childhood obesity. As a
result, laws have been enacted in certain places that limit
distribution of free toy premiums only to customers purchasing
kids meals that meet certain nutritional requirements. We
may not have kids meals that meet these nutritional
requirements and we may need to cease offering free toy premiums
in these areas.
Internationally, our Company and franchise restaurants are
subject to national and local laws and regulations, which are
generally similar to those affecting our U.S. restaurants,
including laws and regulations concerning franchises, labor,
health, privacy, sanitation and safety. For example, regulators
in the U.K. have adopted restrictions on television advertising
of foods high in fat, salt or sugar targeted at children. In
addition, the Spanish government and certain industry
organizations have focused on reducing advertisements that
promote large portion sizes.
14
Regulators in Canada and in other countries are proposing to
take steps to reduce the level of exposure to acrylamide, a
potential carcinogen that naturally occurs in the preparation of
foods such as french fries. The federal public attorney in Sao
Paulo, Brazil has filed a civil lawsuit against Burger King and
other fast food restaurant companies to prohibit promotional
sales of toys in our restaurants in Brazil. We have signed the
EU Pledge, which is a voluntary commitment to the European
Commission to change our advertising to children under the age
of 12 in the European Union. Our international restaurants are
also subject to tariffs and regulations on imported commodities
and equipment and laws regulating foreign investment.
Environmental
Matters
We are subject to various federal, state and local environmental
regulations. Various laws concerning the handling, storage and
disposal of hazardous materials and restaurant waste and the
operation of restaurants in environmentally sensitive locations
may impact aspects of our operations; however, compliance with
applicable environmental regulations is not believed to have a
material effect on capital expenditures, financial condition,
results of operations, or our competitive position. Increased
focus by U.S. and overseas governmental authorities on
environmental matters is likely to lead to new governmental
initiatives, particularly in the area of climate change. To the
extent that these initiatives caused an increase in our supplies
or distribution costs, they may impact our business both
directly and indirectly. Furthermore, climate change may
exacerbate adverse weather conditions which could adversely
impact our operations
and/or
increase the cost of our food and other supplies in ways which
we cannot predict at this time.
Seasonal
Operations
Our business is moderately seasonal. Restaurant sales are
typically higher in the spring and summer months when weather is
warmer than in the fall and winter months. Restaurant sales
during the winter are typically highest in December, during the
holiday shopping season. Our restaurant sales and Company
restaurant margins are typically lowest during the winter
months, which include February, the shortest month of the year.
Furthermore, adverse weather conditions can have material
adverse effects on restaurant sales. The timing of religious
holidays may also impact restaurant sales. Because our business
is moderately seasonal, results for any one quarter are not
necessarily indicative of the results that may be achieved for
any other quarter or for the full fiscal year.
Our
Employees
As of December 31, 2010, we had approximately
35,020 employees in our Company restaurants, our field
management offices and our global headquarters. As franchisees
are independent business owners, they and their employees are
not included in our employee count. We consider our relationship
with our employees to be good. We have recently implemented a
restructuring plan that resulted in work force reductions
throughout our global organization. These work force reductions
will not impact the number of employees at our Company
restaurants.
Financial
Information about Business Segments and Regions
Financial information about our business segments
(U.S. & Canada, EMEA/APAC and Latin America) is
incorporated herein by reference from Managements
Discussion and Analysis of Financial Condition and Results of
Operations in Part II, Item 7 and in Financial
Statements and Supplementary Data in Part II,
Item 8 of this
Form 10-K.
Available
Information
The Company makes available free of charge on or through the
Investor Relations section of its internet website at
www.bk.com, this transition report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports as soon as reasonably
practicable after electronically filing such material with the
Securities and Exchange Commission (SEC). This
information is also available at www.sec.gov, an internet
site maintained by the SEC that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC. The material may also be
read and copied by visiting the Public Reference Room of the SEC
at 100 F Street, NE, Washington, DC 20549. Information
15
on the operation of the public reference room may be obtained by
calling the SEC at
1-800-SEC-0330.
The references to our website address and the SECs website
address do not constitute incorporation by reference of the
information contained in these websites and should not be
considered part of this document.
Special
Note Regarding Forward-Looking Statements
Certain statements made in this report that reflect
managements expectations regarding future events and
economic performance are forward-looking in nature and,
accordingly, are subject to risks and uncertainties. These
forward-looking statements include statements regarding our
intent to focus on sales growth and profitability; our intent to
focus on international expansion to increase the number of new
restaurants; our beliefs and expectations regarding the mix of
franchise restaurants and Company restaurants, including our
expectations that the percentage of franchise restaurants will
increase over the next few years; our beliefs and expectations
regarding our newly developed restaurant design; our beliefs and
expectations regarding the strength of our menu and our ability
to optimize our menu by focusing on core products while
improving menu variety through new product launches; our
expectations regarding opportunities to enhance restaurant-level
margins and profitability; our intention to continue to employ
innovative and creative marketing strategies to increase our
restaurant traffic and comparable sales; our intention to focus
on enhancing the guest experience and improve average restaurant
sales by rolling out a more efficient cost-effective remodel
solution to drive meaningful sales lifts and maximize return on
capital for ourselves and our franchisees; our beliefs and
expectations regarding our ability to reduce our general and
administrative expenses; our beliefs and expectations regarding
our ability to refranchise up to half of our current Company
restaurant portfolio within the next three to five years; our
ability to manage fluctuations in foreign currency exchange and
interest rates; our estimates regarding our liquidity, capital
expenditures and sources of both, and our ability to fund future
operations and obligations; our estimates regarding the
fulfillment of certain volume purchase commitments; our
expectations regarding the impact of accounting pronouncements;
our intention to renew hedging contracts; and our expectations
regarding unrecognized tax benefits. These forward-looking
statements are only predictions based on our current
expectations and projections about future events. Important
factors could cause our actual results, level of activity,
performance or achievements to differ materially from those
expressed or implied by these forward-looking statements,
including, but not limited to, the risks and uncertainties
discussed below.
Risks
related to our business
Our
success depends on our ability to compete with our major
competitors.
The restaurant industry is intensely competitive and we compete
in the United States and internationally with many
well-established food service companies on the basis of product
choice, quality, affordability, service and location. Our
competitors include a variety of independent local operators, in
addition to well-capitalized regional, national and
international restaurant chains and franchises. In the FFHR
industry our principal competitors are McDonalds and
Wendys as well as regional hamburger restaurant chains,
such as Carls Jr., Jack in the Box and Sonic. To a lesser
extent, we also compete for consumer dining dollars with
national, regional and local (i) quick service restaurants
that offer alternative menus, (ii) casual and fast
casual restaurant chains, and (iii) convenience
stores and grocery stores that offer menu items comparable to
that of Burger King restaurants. Furthermore, the
restaurant industry has few barriers to entry, and therefore new
competitors may emerge at any time.
Our ability to compete will depend on the success of our plans
to improve existing products, to develop and roll-out new
products and product line extensions, to effectively respond to
consumer preferences and to manage the complexity of our
restaurant operations as well as the impact of our
competitors actions. To the extent that one of our
existing or future competitors offers items that are better
priced or more appealing to consumer tastes, increases the
number of restaurants it operates in one of our key markets,
reimages its restaurant portfolio to better enhance the
restaurant experience, or has more effective advertising and
marketing programs than we do, this product and price
competition could adversely affect our revenues and those of our
franchisees.
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Some
of our competitors have significantly greater resources than we
do, and therefore we may be at a disadvantage in competing with
them.
Some of our competitors have substantially greater financial
resources, higher revenues and greater economies of scale than
we do. These advantages may allow them to react to changes in
pricing, marketing and the QSR segment in general more quickly
and more effectively than we can. Some of these competitors
spend significantly more on advertising, marketing and other
promotional activities than we do, which may give them a
competitive advantage through higher levels of brand awareness
among consumers. In addition, our major competitors may be able
to devote greater resources to accelerate their restaurant
remodeling and rebuilding efforts, rapidly expand new product
introductions or implement aggressive product discounting, which
could give them a competitive advantage and adversely affect
traffic, sales or profitability at our system restaurants.
Moreover, certain of our major competitors have completed the
reimaging of a significant percentage of their store base.
Furthermore, in a difficult economy we believe that these
competitive advantages arising from greater financial resources
and economies of scale may intensify thereby permitting our
competitors to gain market share. Such competition may adversely
affect our revenues and profits by reducing revenues of Company
restaurants and royalty payments from franchise restaurants.
The market for retail real estate is highly competitive. Based
on their size advantage
and/or their
greater financial resources, some of our competitors may have
the ability to negotiate more favorable ground lease terms than
we can and some landlords and developers may offer priority or
grant exclusivity to some of our competitors for desirable
locations. As a result, we may not be able to obtain new leases
or renew existing leases on acceptable terms, if at all, which
could adversely affect our sales and brand-building initiatives.
Economic
conditions are adversely affecting consumer discretionary
spending and may continue to negatively impact our business and
operating results.
We believe that our sales, guest traffic and profitability are
strongly correlated to consumer discretionary spending, which is
influenced by general economic conditions, unemployment levels,
the availability of discretionary income and, ultimately,
consumer confidence. A protracted economic slowdown, increased
unemployment and underemployment of our customer base, decreased
salaries and wage rates, increased energy prices, inflation,
foreclosures, rising interest rates or other industry-wide cost
pressures adversely affect consumer behavior and decrease
consumer spending for restaurant dining occasions. The current
global economic environment has weakened consumer confidence and
impacted the publics ability and desire to spend
discretionary dollars, resulting in lower levels of guest
traffic in restaurants located in some of our major markets and
a reduction in the average amount guests spend in our
restaurants. This has, in turn, reduced our revenues and
resulted in sales deleverage, spreading fixed costs across a
lower level of sales and causing downward pressure on our
profitability. These factors have also reduced sales at
franchise restaurants, resulting in lower royalty payments from
franchisees, and could reduce profitability of franchise
restaurants.
If this difficult economic situation continues for a prolonged
period of time or deepens in magnitude, our business and results
of operations could be materially and adversely affected.
Specifically, we may be required to incur non-cash impairment or
other charges, reduce the number
and/or
frequency of new restaurant openings, close or sell Company
restaurants,
and/or slow
our Company restaurant reimaging program. As long as the
difficult economic situation continues we expect our sales,
guest traffic, profitability and overall operating results to be
adversely affected.
Our
substantial indebtedness could adversely affect our financial
condition and prevent us from fulfilling our debt
obligations.
BKC, our wholly-owned subsidiary, has incurred a significant
amount of indebtedness, which we have guaranteed. As of
December 31, 2010, we had aggregate outstanding
indebtedness of $2,699.1 million (excluding original issue
discount on our senior secured credit facilities), including
$800 million of
97/8% senior
notes due 2018 (the Senior Notes), and we had
commitments under our revolving credit facility available to us
of $150.0 million (not giving effect to approximately
$33.9 million of outstanding letters of credit).
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Subject to the limits contained in the indenture governing our
Senior Notes (the Senior Notes Indenture), the
credit agreement with respect to our senior secured credit
facilities (the New Credit Agreement) and our other
debt instruments, we may be able to incur substantial additional
debt from time to time to finance working capital, capital
expenditures, investments or acquisitions, or for other
purposes. If we do so, the risks related to our high level of
debt could intensify. Specifically, our high level of debt could
have important consequences, including:
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limiting our ability to obtain additional financing to fund
future working capital, capital expenditures, acquisitions or
other general corporate requirements;
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requiring a substantial portion of our cash flows to be
dedicated to debt service payments instead of other purposes,
thereby reducing the amount of cash flows available for working
capital, capital expenditures, acquisitions and other general
corporate purposes;
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increasing our vulnerability to adverse changes in general
economic, industry and competitive conditions;
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exposing us to the risk of increased interest rates as certain
of our borrowings, including borrowings under our senior secured
credit facilities, are at variable rates of interest;
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limiting our flexibility in planning for and reacting to changes
in the industry in which we compete;
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placing us at a disadvantage compared to other, less leveraged
competitors; and
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increasing our cost of borrowing.
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In addition, the Senior Notes Indenture and the New Credit
Agreement contain restrictive covenants that limit our ability
to engage in activities that may be in our long-term best
interest. Our failure to comply with those covenants could
result in an event of default which, if not cured or waived,
could result in the acceleration of substantially all of our
debt.
The occurrence of certain defaults by us, including a default in
our payment obligations, could have serious consequences for us.
The holders of our Senior Notes may accelerate our obligations
which, in turn, could result in our insolvency or bankruptcy.
We may
not be able to generate sufficient cash to service all of our
indebtedness, and may be forced to take other actions to satisfy
our obligations under our indebtedness, which may not be
successful.
Our ability to make scheduled payments on or refinance our debt
obligations depends on our financial condition and operating
performance, which are subject to prevailing economic, industry
and competitive conditions and to certain financial, business,
legislative, regulatory and other factors beyond our control. We
may be unable to maintain a level of cash flows from operating
activities sufficient to permit us to pay the principal,
premium, if any, and interest on our indebtedness. If our cash
flows and capital resources are insufficient to fund our debt
service obligations, we could face substantial liquidity
problems and could be forced to reduce or delay investments and
capital expenditures or to dispose of material assets or
operations, seek additional debt or equity capital or
restructure or refinance our indebtedness, including the notes.
We may not be able to effect any such alternative measures on
commercially reasonable terms or at all and, even if successful,
those alternative actions may not allow us to meet our scheduled
debt service obligations. The Senior Notes Indenture and the New
Credit Agreement restrict our ability to dispose of assets and
use the proceeds from those dispositions and also restrict our
ability to raise debt or equity capital to be used to repay
other indebtedness when it becomes due. We may not be able to
consummate those dispositions or to obtain proceeds in an amount
sufficient to meet any debt service obligations then due.
In addition, we conduct a substantial portion of our operations
through our subsidiaries. Accordingly, repayment of our
indebtedness is dependent on the generation of cash flow by our
subsidiaries and their ability to make such cash available to
us, by dividend, debt repayment or otherwise. Our subsidiaries
do not have any obligation to pay amounts due on our
indebtedness (unless they are guarantors thereof) or to make
funds available for that purpose. Our subsidiaries may not be
able to, or may not be permitted to, make distributions to
enable us to make payments in respect of our indebtedness. Each
subsidiary is a distinct legal entity, and, under certain
18
circumstances, legal and contractual restrictions may limit our
ability to obtain cash from our subsidiaries. While the Senior
Notes Indenture and the agreements governing certain of our
other existing indebtedness limit the ability of our
subsidiaries to incur consensual restrictions on their ability
to pay dividends or make other intercompany payments to us,
these limitations are subject to qualifications and exceptions.
In the event that we do not receive distributions from our
subsidiaries, we may be unable to make required principal and
interest payments on our indebtedness.
Our inability to generate sufficient cash flows to satisfy our
debt obligations, or to refinance our indebtedness on
commercially reasonable terms or at all, would materially and
adversely affect our financial position and results of
operations and our ability to satisfy our obligations under our
indebtedness. If we cannot make scheduled payments on our debt,
we will be in default and holders of the Senior Notes could
declare all outstanding principal and interest to be due and
payable, the lenders under our senior secured credit facilities
could terminate their commitments to loan money, our secured
lenders could foreclose against the assets securing their
borrowings and we could be forced into bankruptcy or liquidation.
The
terms of our Senior Notes Indenture and the New Credit Agreement
restrict our current and future operations, particularly our
ability to respond to changes or to take certain
actions.
The Senior Notes Indenture and the New Credit Agreement contain
a number of restrictive covenants that impose significant
operating and financial restrictions on us and may limit our
ability to engage in acts that may be in our best interest,
including restrictions on our ability to:
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incur additional indebtedness and guarantee indebtedness;
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pay dividends or make other distributions in respect of, or
repurchase or redeem, capital stock;
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prepay, redeem or repurchase certain debt;
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make loans and investments;
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sell or otherwise dispose of assets;
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incur liens;
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enter into transactions with affiliates;
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alter the businesses we conduct;
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enter into agreements restricting our subsidiaries ability
to pay dividends; and
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consolidate, merge or sell all or substantially all of our
assets.
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In addition, the restrictive covenants in the New Credit
Agreement require BKC to maintain specified financial ratios.
Our ability to meet those financial ratios can be affected by
events beyond our control.
The restrictions contained in the Senior Notes Indenture and the
New Credit Agreement could adversely affect our ability to:
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finance our operations;
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make needed capital expenditures;
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make strategic acquisitions or investments or enter into joint
ventures;
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withstand a future downturn in our business, the industry or the
economy in general;
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engage in business activities, including future opportunities,
that may be in our interest; and
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plan for or react to market conditions or otherwise execute our
business strategies.
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These restrictions may affect our ability to grow in accordance
with our plans.
A breach of the covenants under the Senior Notes Indenture and
the New Credit Agreement could result in an event of default
under the applicable indebtedness. Such a default may allow the
creditors to accelerate the related
19
debt and may result in the acceleration of any other debt to
which a cross-acceleration or cross-default provision applies.
In addition, an event of default under the New Credit Agreement
would permit the lenders under our senior secured credit
facilities to terminate all commitments to extend further credit
under that facility. Furthermore, if we were unable to repay the
amounts due and payable under our senior secured credit
facilities, those lenders could proceed against the collateral
granted to them to secure that indebtedness. In the event our
lenders or noteholders accelerate the repayment of our
borrowings, we and our subsidiaries may not have sufficient
assets to repay that indebtedness.
The
concentration of our restaurants in limited geographic areas
subjects us to additional risk.
Our results of operations are substantially affected not only by
global economic conditions, but also by the local economic
conditions in the markets in which we have significant
operations. In the United States, 50% of our Company restaurants
are located in three states, Florida, North Carolina and
Indiana. In EMEA/APAC, over 75% of our Company restaurants and
45% of our franchise restaurants are located in three countries,
Germany, the U.K. and Spain, with these markets representing 19%
of our total revenues for the Transition Period. In Latin
America, 100% of our Company restaurants and 30% of our
franchise restaurants are located in Mexico. Many of the markets
in which we and our franchisees operate have been particularly
affected by the economic downturn and the timing and strength of
any economic recovery is uncertain in many of our most important
markets.
Our geographic concentration increases vulnerability to general
adverse economic and industry conditions and may have a
disproportionate effect on our overall results of operations as
compared to some of our competitors that may have less
restaurant concentration.
Over the past 24 months, we have experienced, and may
continue to experience, declining sales and operating losses in
Germany, primarily due to competitive factors. Germany is our
second largest market, and this restaurant concentration has
negatively impacted our operating results. If we are unable to
strengthen the operating performance of the German restaurants,
we could incur a decrease in our revenues and earnings which
could negatively impact our financial condition and our future
revenue growth.
Our
business is subject to fluctuations in foreign currency exchange
and interest rates.
Our international operations are impacted by fluctuations in
currency exchange rates and changes in currency regulations. In
countries outside of the United States where we operate Company
restaurants, we generally generate revenues and incur operating
expenses and selling, general and administrative expenses
denominated in local currencies. These revenues and expenses are
translated using the average rates during the period in which
they are recognized and are impacted by changes in currency
exchange rates. Further, in some of our international markets,
such as Canada, Mexico and the U.K., our suppliers purchase
goods in currencies other than the local currency in which they
operate and pass all or a portion of the currency exchange
impact on to us. In many countries where we do not have Company
restaurants, our franchisees pay royalties to us in currencies
other than the local currency in which they operate. However, as
the royalties are calculated based on local currency sales, our
revenues are still impacted by fluctuations in currency exchange
rates. In the Transition Period, income from operations would
have decreased or increased $5.3 million if all foreign
currencies uniformly weakened or strengthened by 10% relative to
the U.S. dollar. However, different regions experience
varied currency fluctuations. As a result, if a region in which
we have a high concentration of restaurants experiences a
weakening in its currency, it could adversely affect our income
from operations even if other foreign currencies did not weaken.
Fluctuations in interest rates may also affect our business. We
attempt to minimize this risk and lower our overall borrowing
costs through the utilization of derivative financial
instruments, primarily interest rate caps. These instruments are
entered into with financial institutions and have reset dates
and critical terms that match those of our forecasted interest
payments. Accordingly, any changes in interest rates we pay are
partially offset by changes in the market value associated with
derivative financial instruments. We do not attempt to hedge all
of our debt and, as a result, may incur higher interest costs
for portions of our debt which are not hedged. In addition, we
enter into forward contracts to reduce our exposure to
volatility from foreign currency fluctuations associated with
certain foreign currency-denominated assets, and from time to
time we also hedge forecasted cash flows denominated in
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Canadian and Australian dollars. However, for a variety of
reasons, we do not hedge our revenue exposure in other
currencies. Therefore, we are exposed to volatility in those
other currencies, and this volatility may differ from period to
period. As a result, the foreign currency impact on our
operating results for one period may not be indicative of future
results.
As a result of entering into these hedging contracts with major
financial institutions, we may be subject to counterparty
nonperformance risk. Should there be a counterparty default, we
could be exposed to the net losses on the hedged arrangements or
be unable to recover anticipated net gains from the transactions.
Our
quarterly results of operations are subject to fluctuations due
to the seasonality of our business and other
events.
Our business is moderately seasonal. Restaurant sales are
typically higher in the spring and summer months when weather is
warmer than in the fall and winter months. Restaurant sales
during the winter are typically highest in December, during the
holiday shopping season. Our restaurant sales and Company
restaurant margins are typically lowest during the winter
months, which include February, the shortest month of the year.
Furthermore, adverse weather conditions can have, and have had
in the past, a material adverse effect on restaurant sales.
Because our business is moderately seasonal, results for any one
quarter are not necessarily indicative of the results that may
be achieved for any other quarter or for the full fiscal year.
Increases
in the cost of food, paper products and energy could harm our
profitability and operating results.
Our profitability depends in part on our ability to anticipate
and react to changes in food and supply costs. Any increase in
food prices, especially those of beef or chicken, could
adversely affect our operating results. The market for beef and
chicken is particularly volatile and is subject to significant
price fluctuations due to seasonal shifts, climate conditions,
demand for corn (a key ingredient of cattle and chicken feed),
corn ethanol policy, industry demand, international commodity
markets, food safety concerns, product recalls, government
regulation and other factors, all of which are beyond our
control and, in many instances unpredictable. If the price of
beef, chicken or other products that we use in our restaurants
increases in the future and we choose not to pass, or cannot
pass, these increases on to our guests, our operating margins
would decrease. In recent fiscal quarters, a rise in the price
of beef has negatively impacted our restaurant margins and we
expect these elevated price levels to persist into fiscal 2011.
Our exposure to risks from increases in food and supply costs
may be greater than that of some of our competitors as we do not
have ultimate control over the purchasing of these products in
the United States or Canada. In the United States, we have
established a cooperative with our franchisees to negotiate food
prices on behalf of all Company and franchise restaurants. This
cooperative does not utilize commodity option or future
contracts to hedge commodity prices for beef or other food
products and does not typically enter into long-term pricing
arrangements. Furthermore, we do not hedge commodity prices in
markets outside the United States. As a result, we typically
purchase beef and many other commodities at market prices, which
fluctuate on a daily basis. Increases in commodity prices could
result in higher restaurant operating costs, and the highly
competitive nature of our industry may limit our ability to pass
increased costs on to our guests.
Increases in energy costs for our Company restaurants,
principally electricity for lighting restaurants and natural gas
for our broilers, could adversely affect our operating margins
and our financial results if we choose not to pass, or cannot
pass, these increased costs to our guests. In addition, our
distributors purchase gasoline needed to transport food and
other supplies to us. Any significant increases in energy costs
could result in the imposition of fuel surcharges by our
distributors that could adversely affect our operating margins
and financial results if we chose not to pass, or cannot pass,
theses increased costs to our guests.
Increases
in labor costs could slow our growth or harm our
business.
We are an extremely labor intensive business. Consequently, our
success depends in part upon our ability to manage our labor
costs and its impact on our margins. We currently seek to
minimize the long-term trend toward higher wages in both mature
and developing markets through increases in labor efficiencies,
however we may not be successful.
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Furthermore, we must continue to attract, motivate and retain
regional operational and restaurant general managers with the
qualifications to succeed in our industry and the motivation to
apply our core service philosophy. If we are unable to continue
to recruit and retain sufficiently qualified managers or to
motivate our employees to sustain high service levels, our
business and our growth could be adversely affected. Despite
current economic conditions, attracting and retaining qualified
managers and employees remains challenging and our inability to
meet these challenges could require us to pay higher wages
and/or
additional costs associated with high turnover. In addition,
increases in the minimum wage or labor regulations and the
potential impact of union organizing efforts in the countries in
which we operate could increase our labor costs. Additional
labor costs could adversely affect our margins.
Our
operating results depend on the effectiveness of our marketing
and advertising programs.
Our revenues are heavily influenced by brand marketing and
advertising. Our marketing and advertising programs may not be
successful, which may lead us to fail to attract new guests and
retain existing guests. If our marketing and advertising
programs are unsuccessful, our results of operations could be
materially and adversely affected. Moreover, because franchisees
and Company restaurants contribute to our advertising fund based
on a percentage of their gross sales, our advertising fund
expenditures are dependent upon sales volumes at system-wide
restaurants. If system-wide sales decline, there will be a
reduced amount available for our marketing and advertising
programs. In addition, in response to the recession, we have
emphasized certain value offerings in our marketing and
advertising programs to drive traffic at our stores. The
disadvantage of value offerings is that the low-price offerings
may condition our guests to resist higher prices in a more
favorable economic environment.
Our
future prospects depend on our ability to implement our strategy
of increasing our restaurant portfolio.
We plan to significantly increase worldwide restaurant count. A
significant component of our future growth strategy involves
increasing our net restaurant count in our international
markets. We and our franchisees face many challenges in opening
new restaurants, including, among others:
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the selection and availability of suitable restaurant locations;
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the impact of local tax, zoning, land use and environmental
rules and regulations on our ability and the ability of our
franchisees to develop restaurants, and the impact of any
material difficulties or failures that we and our franchisees
experience in obtaining the necessary licenses and approvals for
new restaurants;
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the negotiation of acceptable lease terms;
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the availability of bank credit and, for franchise restaurants,
the ability of franchisees to obtain acceptable financing terms;
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securing acceptable suppliers;
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employing and training qualified personnel; and
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consumer preferences and local market conditions.
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We expect that most of our growth will be accomplished through
the opening of additional franchise restaurants. However, our
franchisees may be unwilling or unable to increase their
investment in our system by opening new restaurants,
particularly if their existing restaurants are not generating
positive financial results. Moreover, opening new franchise
restaurants depends, in part, upon the availability of
prospective franchisees with the experience and financial
resources to be effective operators of Burger King
restaurants. In the past, we have approved franchisees that
were unsuccessful in implementing their expansion plans,
particularly in new markets. There can be no assurance that we
will be able to identify franchisees who meet our criteria, or
if we identify such franchisees, that they will successfully
implement their expansion plans.
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Approximately
90% of our current restaurants are franchised and this
restaurant ownership mix presents a number of disadvantages and
risks.
Approximately 90% of our current restaurants are franchised and
we intend to reduce the percentage of Company restaurants over
the next five years. Although we believe that this restaurant
ownership mix is beneficial to us because the capital required
to grow and maintain our system is funded primarily by
franchisees, it also presents a number of drawbacks, such as our
limited influence over franchisees and reliance on franchisees
to implement major initiatives, limited ability to facilitate
changes in restaurant ownership, limitations on enforcement of
franchise obligations due to bankruptcy or insolvency
proceedings and inability or unwillingness of franchisees to
participate in our strategic initiatives. For example, our
success in executing one of our key strategies (reimaging our
store base) will be dependent on the ability and willingness of
our franchisees to reinvest in remodeling or rebuilding their
stores. Moreover, as the percentage of franchise restaurants
increases, the problems associated with these drawbacks may be
exacerbated and may present a significant challenge for
management.
Our principal competitors may have greater influence over their
respective restaurant systems than we do because of their
significantly higher percentage of Company restaurants
and/or
ownership of franchisee real estate. McDonalds and
Wendys have a higher percentage of Company restaurants
than we do, and, as a result, they may have a greater ability to
implement operational initiatives and business strategies,
including their marketing and advertising programs.
Franchisee
support of our marketing and advertising programs is critical
for our success.
The support of our franchisees is critical for the success of
our marketing programs and any new capital intensive or other
strategic initiatives we seek to undertake, and the successful
execution of these initiatives will depend on our ability to
maintain alignment with our franchisees. While we can mandate
certain strategic initiatives through enforcement of our
franchise agreements, we need the active support of our
franchisees if the implementation of these initiatives is to be
successful. In addition, our efforts to build alignment with
franchisees may result in a delay in the implementation of our
marketing and advertising programs and other key initiatives.
Our franchisees may not continue to support our marketing
programs and strategic initiatives or franchisees may not be
supportive of the ownership change. We were sued by four
franchisees in Florida over extended hours of operation, which
is one of our important initiatives to drive higher sales. We
were also sued by the National Franchisee Association over our
ability to set maximum price points for the
BK®
Value Menu. The failure of our franchisees to support our
marketing programs and strategic initiatives could adversely
affect our ability to implement our business strategy and could
materially harm our business, results of operations and
financial condition.
Our
operating results are closely tied to the success of our
franchisees; however, our franchisees are independent operators
and we have limited influence over their restaurant
operations.
We receive revenues in the form of royalties and fees from our
franchisees. As a result, our operating results substantially
depend upon our franchisees sales volumes, restaurant
profitability and financial viability. However, our franchisees
are independent operators and we cannot control many factors
that impact the profitability of their restaurants. Pursuant to
the franchise agreements and our Manual of Operating Data, we
can, among other things, mandate menu items, signage, equipment,
hours of operation and value menu, establish operating
procedures and approve suppliers, distributors and products.
However, the quality of franchise restaurant operations may be
diminished by any number of factors beyond our control.
Consequently, franchisees may not successfully operate
restaurants in a manner consistent with our standards and
requirements, such as our cleanliness standards, or standards
set by federal, state and local governmental laws and
regulations. In addition, franchisees may not hire and train
qualified managers and other restaurant personnel. While we
ultimately can take action to terminate franchisees that do not
comply with the standards contained in our franchise agreements
and our Manual of Operating Data, we may not be able to identify
problems and take action quickly enough and, as a result, our
image and reputation may suffer, and our franchise revenues and
results of operations could decline.
We have experienced seven consecutive quarters of negative
comparable sales in the United States and Canada, and this trend
has impacted the sales volumes, restaurant profitability and
financial viability of a number of our franchisees. If
comparable sales do not improve in the short term, the number of
franchisees in financial distress
23
will likely increase, which could result in, among other things,
restaurant closures, delayed or reduced payments to us of
royalties, advertising contributions and rents, and an inability
for such franchisees to obtain financing to fund development,
restaurant remodels or equipment initiatives on acceptable terms
or at all.
In connection with sales of Company restaurants to franchisees,
we have guaranteed certain lease payments of franchisees arising
from leases assigned to the franchisees as part of the sale, by
remaining secondarily liable for base and contingent rents under
the assigned leases of varying terms. The aggregate contingent
obligation arising from these assigned lease guarantees,
excluding contingent rent, was $68.6 million as of
December 31, 2010, including $39.0 million in the
U.K., expiring over an average period of seven years.
We
have limited influence over the decision of franchisees to
invest in other businesses or incur excessive
indebtedness.
Our franchisees are independent operators and, therefore, we
have limited influence over their ability to invest in other
businesses or incur excessive indebtedness. Some of our
franchisees have invested in other businesses, including other
restaurant concepts. In some cases, these franchisees have used
the cash generated by their Burger King restaurants to
expand their non Burger King businesses or to subsidize
losses incurred by such businesses. Additionally, as independent
operators, franchisees do not require our consent to incur
indebtedness. Consequently, our franchisees have in the past,
and may in the future, experience financial distress as a result
of over-leveraging. To the extent that our franchisees use the
cash from their Burger King restaurants to subsidize
their other businesses or experience financial distress, due to
over-leverage or otherwise, it could negatively affect
(1) our operating results as a result of delayed or reduced
payments of royalties, advertising fund contributions and rents
for properties we lease to them, (2) our future revenue,
earnings and cash flow growth, (3) our financial condition
and (4) the speed of our reimaging program. In addition,
lenders to our franchisees which were adversely affected by
franchisees who defaulted on their indebtedness may be less
likely to provide current or prospective franchisees necessary
financing on favorable terms or at all.
If we
fail to successfully implement our restaurant reimaging
initiative, our ability to increase our revenues and operating
profits may be adversely affected.
Over the past several years, we have embarked on a program to
remodel or rebuild our Company restaurants in the United States
and Canada. In order to maximize the benefits of this program,
we use a methodology to select the Company restaurants in our
portfolio that we expect will achieve the highest return on
investment, thereby optimizing the use of our limited capital
resources. We anticipate implementing a more cost effective
remodeling solution which will focus spending on improvements
that we believe will drive meaningful sales lifts to maximize
the return on capital for ourselves and our franchisees.
However, the restaurants that we select may not achieve the
expected return on investment. Additionally, there can be no
assurance that our restaurant remodeling efforts will have the
impact on average restaurant sales or on return on investment
that we anticipate. If our restaurant remodeling efforts are
unsuccessful, our ability to increase our revenues and operating
profits would be adversely affected.
Furthermore, our restaurant reimaging initiative depends on the
ability, and willingness, of franchisees to accelerate the
remodeling of their existing restaurants. Our franchisees may
not be willing to commit to our new more efficient,
cost-effective remodeling solution until we can demonstrate the
positive impact on average restaurant sales. Once they are
committed to engaging in such remodeling, many of our
franchisees will need to borrow funds in order to finance these
capital expenditures. We do not provide our franchisees with
financing and therefore their ability to access borrowed funds
depends on their independent relationships with various regional
and national financial institutions. If our franchisees are
unable to obtain financing at commercially reasonable rates, or
not at all, they may be unwilling or unable to invest in the
reimaging of their existing restaurants, and our future growth
could be adversely affected. We have in the past offered, and
may in the future decide to offer, our franchisees financial
incentives to accelerate our restaurant development and
reimaging initiatives. However, the cost of these financial
incentives may have an adverse impact on our franchise revenues
and operating results.
24
Our
portfolio management program may adversely affect our results of
operations and may not yield the long-term financial results
that we expect.
We believe that our future growth and profitability will depend
on our ability to successfully implement our portfolio
management program, including refranchising Company restaurants
and closing underperforming restaurants. As part of our
portfolio management program we expect to accelerate the pace of
refranchisings of our current Company restaurant portfolio
within the next three to five years. However, refranchisings may
have unexpected and negative short term effects on our results
of operations. For example, (i) our Company restaurant
margins could be adversely affected if the refranchised
restaurants were more profitable than our average Company
restaurant, (ii) our general and administrative expenses
may increase as a result of severance and other termination
costs incurred in connection with refranchisings and may
continue to increase as a percentage of revenues unless we are
able to identify costs to eliminate as a result of the
transaction, or (iii) we may be required to recognize
accounting or tax gains or losses on refranchising transactions,
which could adversely affect our results of operations for a
specific period.
Our ability to achieve the long-term benefits of our
refranchising transactions will depend on (i) our ability
to identify new or existing franchisees that are willing and
able to pay commercially reasonable prices for such restaurants,
(ii) our ability to sell Company restaurants in those
markets where we desire to reduce our geographic concentration,
(iii) our ability to reduce our overhead and fixed costs to
reflect our lower restaurant count, and (iv) the ability
and willingness of these new and existing franchisees to remodel
the refranchised restaurants and develop new restaurants within
the markets of the refranchised restaurants, and the pace of
such remodeling and development activity. Our ability to
recognize the long term benefits of any acquisition we may make
as part of our portfolio management program will depend on our
capacity to successfully identify acquisition targets, negotiate
and close such transactions on commercially reasonable terms and
integrate the operations of the acquired restaurants into our
system. If we and our new franchisees are not successful, then
we may not achieve the long-term financial results anticipated.
In addition, our ability to implement our portfolio management
program in certain geographical areas may be limited by tax,
accounting or other regulatory considerations.
Our
international operations subject us to additional risks and
costs and may cause our profitability to decline.
As of December 31, 2010, our restaurants were operated,
directly by us or by franchisees, in 76 countries and
U.S. territories (including Guam and Puerto Rico, which are
considered part of our international business). During the
Transition Period and fiscal 2010, our revenues from
international operations represented 39% and 38%, respectively,
of total revenues and we intend to continue expansion of our
international operations. As a result, our business is
increasingly exposed to risks inherent in foreign operations.
These risks, which can vary substantially by market, are
described in many of the risk factors discussed in the section
and include the following:
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governmental laws, regulations and policies adopted to manage
national economic conditions, such as increases in taxes,
austerity measures that impact consumer spending, monetary
policies that may impact inflation rates and currency
fluctuations;
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the risk of single franchisee markets and single distributor
markets;
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the risk of markets in which we have granted subfranchising
rights;
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the effects of legal and regulatory changes and the burdens and
costs of our compliance with a variety of foreign laws;
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changes in the laws and policies that govern foreign investment
and trade in the countries in which we operate;
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risks and costs associated with political and economic
instability, corruption,
anti-American
sentiment and social and ethnic unrest in the countries in which
we operate;
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the risks of operating in developing or emerging markets in
which there are significant uncertainties regarding the
interpretation, application and enforceability of laws and
regulations and the enforceability of contract rights and
intellectual property rights;
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risks arising from the significant and rapid fluctuations in
currency exchange markets and the decisions and positions that
we take to hedge such volatility;
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changing labor conditions and difficulties in staffing our
international operations;
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the impact of labor costs on our margins given our
labor-intensive business model and the long-term trend toward
higher wages in both mature and developing markets and the
potential impact of union organizing efforts on
day-to-day
operations of our restaurants;
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the effects of increases in the taxes we pay and other changes
in applicable tax laws;
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whether we can develop effective initiatives in underperforming
markets that may be experiencing challenges such as low consumer
confidence levels, negative consumer perceptions about our
foods, slow economic growth or a highly competitive operating
environment;
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the nature and timing of decisions about underperforming markets
or assets, including decisions that result in significant
impairment charges that reduce our earnings; and
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our ability to identify and secure appropriate real estate sites
and to manage the costs and profitability of our growth in light
of competitive pressures and other operating conditions that may
limit pricing flexibility.
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These factors may increase in importance as we expect to open
new Company and franchise restaurants in international markets
as part of our growth strategy.
Franchisees
may not be willing or able to renew their franchise agreements
with us.
Our franchise agreements typically have a
20-year
term, and our franchisees may not be willing or able to renew
their franchise agreements with us. For example, franchisees may
decide not to renew due to low sales volumes, or high real
estate costs, or may be unable to renew due to the failure to
secure lease renewals. In order for a franchisee to renew its
franchise agreement with us, it typically must pay a $50,000
franchise fee, remodel its restaurant to conform to our current
standards and, in many cases, renew its property lease with its
landlord. The average cost to remodel a stand-alone restaurant
in the United States ranges from $200,000 to $525,000 and the
average cost to replace the existing building with a new
building is approximately $1.1 million. Franchisees
generally require additional capital to undertake the required
remodeling, which may not be available to the franchisee on
acceptable terms or at all. If a substantial number of our
franchisees cannot or decide not to, renew their franchise
agreements with us, then our results of operations and financial
condition would be adversely affected.
Our
business is affected by changes in consumer preferences and
perceptions.
The restaurant industry is affected by consumer preferences and
perceptions. If prevailing health or dietary preferences and
perceptions cause consumers to avoid our products in favor of
alternative food options, our business could suffer. In
addition, negative publicity about our products could materially
harm our business, results of operations and financial
condition. In recent years, numerous companies in the fast food
industry have introduced products positioned to capitalize on
the growing consumer preference for food products that are, or
are perceived to be, healthful, nutritious, and low in calories,
sodium and fat content. Our success will depend in part on our
ability to anticipate and respond to changing consumer
preferences, tastes and eating and purchasing habits.
Food
safety and food-borne illness concerns may have an adverse
effect on our business.
Food safety is a top priority, and we dedicate substantial
resources to ensure that our customers enjoy safe, quality food
products. However, food-borne illnesses, such as E. coli, bovine
spongiform encephalopathy or mad cow disease,
hepatitis A, trichinosis or salmonella, and food safety issues
have occurred in the food industry in the past, and could occur
in the future. Furthermore, our reliance on third-party food
suppliers and distributors increases
26
the risk that food-borne illness incidents could be caused by
factors outside of our control and that multiple locations would
be affected rather than a single restaurant. New illnesses
resistant to any precautions may develop in the future, or
diseases with long incubation periods could arise, such as mad
cow disease, which could give rise to claims or allegations on a
retroactive basis. Any report or publicity linking us or one of
our franchisees to instances of food-borne illness or other food
safety issues, including food tampering or contamination, could
adversely affect our brands and reputation as well as our
revenues and profits. Outbreaks of disease, as well as
influenza, could reduce traffic in our stores. If our customers
become ill from food-borne illnesses, we could also be forced to
temporarily close some restaurants. In addition, instances of
food-borne illness, food tampering or food contamination
occurring solely at restaurants of competitors could adversely
affect our sales as a result of negative publicity about the
foodservice industry generally.
The occurrence of food-borne illnesses or food safety issues
could also adversely affect the price and availability of
affected ingredients, which could result in disruptions in our
supply chain, significantly increase our costs
and/or lower
margins for us and our franchisees. In addition, our industry
has long been subject to the threat of food tampering by
suppliers, employees or guests, such as the addition of foreign
objects in the food that we sell. Reports, whether or not true,
of injuries caused by food tampering have in the past severely
injured the reputations of restaurant chains in the quick
service restaurant segment and could affect us in the future as
well.
Our
results can be adversely affected by unforeseen events, such as
adverse weather conditions, natural disasters or catastrophic
events.
Unforeseen events, such as adverse weather conditions, natural
disasters or catastrophic events, can adversely impact our
restaurant sales. Natural disasters such as earthquakes,
hurricanes, and severe adverse weather conditions and health
pandemics, such as the outbreak of the H1N1 flu, whether
occurring in the United States or abroad, can keep customers in
the affected area from dining out and result in lost
opportunities for our restaurants. For example, worldwide
comparable sales in January and February 2010 were severely
impacted by inclement weather conditions in the Northeast
U.S. and Europe, while the outbreak of the H1N1 flu
pandemic in Mexico during fiscal 2009 resulted in the temporary
closure of many of our restaurants in and around Mexico City and
adversely affected our revenues and financial results. Because a
significant portion of our restaurant operating costs is fixed
or semi-fixed in nature, the loss of sales during these periods
hurts our operating margins and can result in restaurant
operating losses.
Shortages
or interruptions in the availability and delivery of food,
beverages and other supplies may increase costs or reduce
revenues.
We and our franchisees are dependent upon third parties to make
frequent deliveries of perishable food products that meet our
specifications. Shortages or interruptions in the supply of food
items and other supplies to our restaurants could adversely
affect the availability, quality and cost of items we buy and
the operations of our restaurants. Such shortages or disruptions
could be caused by inclement weather, natural disasters such as
floods, drought and hurricanes, increased demand, problems in
production or distribution, the inability of our vendors to
obtain credit, food safety warnings or advisories or the
prospect of such pronouncements, or other conditions beyond our
control. A shortage or interruption in the availability of
certain food products or supplies could increase costs and limit
the availability of products critical to restaurant operations.
Four distributors service approximately 85% of our
U.S. system restaurants and in many of our international
markets, including the U.K., we have a sole distributor that
delivers products to all of our restaurants. Our distributors
operate in a competitive and low-margin business environment. If
one of our principal distributors is in financial distress and
therefore unable to continue to supply us and our franchisees
with needed products, we may need to take steps to ensure the
continued supply of products to restaurants in the affected
markets, which could result in increased costs to distribute
needed products. If a principal distributor for our Company
restaurants
and/or our
franchisees fails to meet its service requirements for any
reason, it could lead to a disruption of service or supply until
a new distributor is engaged, which could have an adverse effect
on our business.
27
The
loss of key management personnel or our inability to attract and
retain new qualified personnel could hurt our business and
inhibit our ability to operate and grow
successfully.
We are dependent on the efforts and abilities of our senior
management, and our success will also depend on our ability to
attract and retain additional qualified employees. Failure to
attract personnel sufficiently qualified to execute our
strategy, or to retain existing key personnel, could have a
material adverse effect on our business.
Changes
in tax laws and unanticipated tax liabilities could adversely
affect the taxes we pay and our profitability.
We are subject to income and other taxes in the United States
and numerous foreign jurisdictions. Our effective income tax
rate in the future could be adversely affected by a number of
factors, including: changes in the mix of earnings in countries
with different statutory tax rates; changes in the valuation of
deferred tax assets and liabilities; continued losses in certain
international Company restaurant markets that could trigger a
valuation allowance; changes in tax laws; the outcome of income
tax audits in various jurisdictions around the world; taxes
imposed upon sales of Company restaurants to franchisees; and
any repatriation of
non-U.S. earnings
for which we have not previously provided for U.S. taxes.
Although we believe our tax estimates are reasonable, the final
determination of tax audits and any related litigation could be
materially different from our historical income tax provisions
and accruals. The results of a tax audit or related litigation
could have a material effect on our income tax provision, net
income (loss) or cash flows in the period or periods for which
that determination is made.
In addition, as a result of our recent issuance of high yield
notes and our new credit facility, our effective tax rate and
our ability to utilize our foreign tax credits may be adversely
impacted.
Leasing
and ownership of a significant portfolio of real estate exposes
us and our franchisees to possible liabilities and
losses.
Many of our Company and franchise restaurants are presently
located on leased premises. As leases underlying our Company and
franchisee restaurants expire, we or our franchisees may be
unable to negotiate a new lease or lease extension, either on
commercially acceptable terms or at all, which could cause us or
our franchisees to close restaurants in desirable locations. As
a result, our sales and our brand building initiatives could be
adversely affected.
We generally cannot cancel these leases; therefore, if an
existing or future restaurant is not profitable, and we decide
to close it, we may nonetheless be committed to perform our
obligations under the applicable lease including, among other
things, paying the base rent for the balance of the lease term.
In the U.K., we have approximately 27 leases for properties that
we sublease to franchisees in which the lease term with our
landlords is longer than the sublease. As a result, we may be
liable for lease obligations if such franchisees do not renew
their subleases or if we cannot find substitute tenants.
We may
not be able to adequately protect our intellectual property,
which could harm the value of our brand and branded products and
adversely affect our business.
We depend in large part on our brand, which represents 37% of
the total assets on our balance sheet as of December 31,
2010 (which percentage may materially change upon completion of
the valuation of our assets as part of acquisition accounting),
and we believe that our brand is very important to our success
and our competitive position. We rely on a combination of
trademarks, copyrights, service marks, trade secrets, patents
and other intellectual property rights to protect our brand and
branded products. The success of our business depends on our
continued ability to use our existing trademarks and service
marks in order to increase brand awareness and further develop
our branded products in both domestic and international markets.
We have registered certain trademarks and have other trademark
registrations pending in the United States and foreign
jurisdictions. Not all of the trademarks that we currently use
have been registered in all of the countries in which we do
business, and they may never be registered in all of these
countries. We may not be able to adequately protect our
trademarks, and our use of these trademarks may result in
liability for trademark infringement, trademark dilution or
unfair competition. The
28
steps we have taken to protect our intellectual property in the
United States and in foreign countries may not be adequate and
our proprietary rights could be challenged, circumvented,
infringed or invalidated. In addition, the laws of some foreign
countries do not protect intellectual property rights to the
same extent as the laws of the United States.
We may not be able to prevent third parties from infringing our
intellectual property rights, and we may, from time to time, be
required to institute litigation to enforce our trademarks or
other intellectual property rights or to protect our trade
secrets. Further, third parties may assert or prosecute
infringement claims against us and we may or may not be able to
successfully defend these claims. Any such litigation could
result in substantial costs and diversion of resources and could
negatively affect our revenue, profitability and prospects
regardless of whether we are able to successfully enforce our
rights.
We
face risks of litigation and pressure tactics, such as strikes,
boycotts and negative publicity from restaurant customers,
franchisees, suppliers, employees and others, which could divert
our financial and management resources and which may negatively
impact our financial condition and results of
operations.
Class action lawsuits have been filed, and may continue to be
filed, against various quick service restaurants alleging, among
other things, that quick service restaurants have failed to
disclose the health risks associated with high-fat or
high-sodium foods and that quick service restaurant marketing
practices have targeted children and encouraged obesity. Adverse
publicity about these allegations may negatively affect us and
our franchisees, regardless of whether the allegations are true,
by discouraging customers from buying our products. In addition,
we face the risk of lawsuits and negative publicity resulting
from illnesses and injuries, including injuries to infants and
children, allegedly caused by our products, toys and other
promotional items available in our restaurants or our playground
equipment.
In addition to decreasing our revenue and profitability and
diverting our management resources, adverse publicity or a
substantial judgment against us could negatively impact our
business, results of operations, financial condition and brand
reputation, hindering our ability to attract and retain
franchisees and grow our business in the United States and
internationally.
In addition, activist groups, including animal rights activists
and groups acting on behalf of franchisees, the workers who work
for our suppliers and others, have in the past, and may in the
future, use pressure tactics to generate adverse publicity about
us by alleging, for example, inhumane treatment of animals by
our suppliers, deforestation of the rainforest by our suppliers,
poor working conditions or unfair purchasing policies. These
groups may be able to coordinate their actions with other
groups, threaten strikes or boycotts or enlist the support of
well-known persons or organizations in order to increase the
pressure on us to achieve their stated aims. In the future,
these actions or the threat of these actions may force us to
change our business practices or pricing policies, which may
have a material adverse effect on our business, results of
operations and financial condition.
Further, we may be subject to employee, franchisee, customer and
other claims in the future based on, among other things,
mismanagement of the system, unfair or unequal treatment,
discrimination, harassment, violations of privacy and consumer
credit laws, wrongful termination, and wage, rest break and meal
break issues, including those relating to overtime compensation.
We have been subject to these types of claims in the past and if
one or more of these claims were to be successful or if there is
a significant increase in the number of these claims, our
business, results of operations and financial condition could be
harmed.
Our
products are subject to numerous and changing government
regulations, and failure to comply with such existing or future
government regulations could negatively affect our sales,
revenues and earnings.
Our products are subject to numerous and changing government
regulations, and failure to comply with such existing or future
government regulations could negatively affect our sales,
revenues and earnings. In many of our markets, including the
United States and Europe, we are subject to increasing
regulation regarding our products, which may significantly
increase our cost of doing business.
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Many governmental bodies, particularly those in the United
States, the U.K. and Spain, have considered or begun to enact
legislation to regulate high-fat, high-calorie and high-sodium
foods as a way of combating concerns about obesity and health.
Public interest groups have also focused attention on the
marketing of high-fat, high-calorie and high-sodium foods to
children in a stated effort to combat childhood obesity. As a
result, laws have been enacted in certain places that limit
distribution of free toy premiums only to customers purchasing
kids meals that meet certain nutritional requirements. We
may not have kids meals that meet these nutritional
requirements and we may need to cease offering free toy premiums
in these areas. Further, regulators in the U.K. have adopted
restrictions on television advertising of foods high in fat,
salt or sugar targeted at children. In addition, the Spanish
government and certain industry organizations have focused on
reducing advertisements that promote large portion sizes. We
have made voluntary commitments to change our advertising to
children under the age of 12 in the United States, Brazil
and European Union. Regulators in Canada and in other countries
are proposing to take steps to reduce the level of exposure to
acrylamide, a potential carcinogen that naturally occurs in the
preparation of foods such as french fries. In the State of
California, we are required to warn about the presence of
acrylamide and other potential carcinogens in our foods. The
cost of complying with these regulations could increase our
expenses and the negative publicity arising from such
legislative initiatives could reduce our future sales.
Changes
in governmental regulations may adversely affect restaurant
operations and our financial results.
In the United States, each of our Company and franchise
restaurants is subject to licensing and regulation by health,
sanitation, safety and other agencies in the state
and/or
municipality in which the restaurant is located. State and local
government authorities may enact laws, rules or regulations that
impact restaurant operations and the cost of conducting those
operations. In many of our markets, including the United States
and Europe, we are subject to increasing regulation regarding
our operations, which may significantly increase our cost of
doing business. In developing markets, we face the risks
associated with new and untested laws and judicial systems.
Among the more important regulatory risks regarding our
operations we face are the following:
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the impact of the Fair Labor Standards Act, which governs such
matters as minimum wage, overtime and other working conditions,
family leave mandates and a variety of other laws enacted by
states that govern these and other employment matters;
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the impact of immigration and other local and foreign laws and
regulations on our business;
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disruptions in our operations or price volatility in a market
that can result from governmental actions, including price
controls, currency and repatriation controls, limitations on the
import or export of commodities we use or government-mandated
closure of our or our vendors operations;
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the impact of recent efforts to require the listing of specified
nutritional information on menus and menu boards on consumer
demand for our products;
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the risks of operating in foreign markets in which there are
significant uncertainties, including with respect to the
application of legal requirements and the enforceability of laws
and contractual obligations; and
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the impact of costs of compliance with privacy, consumer
protection and other laws, the impact of costs resulting from
consumer fraud and the impact on our margins as the use of
cashless payments increases.
|
We are also subject to a Federal Trade Commission rule and to
various state and foreign laws that govern the offer and sale of
franchises. Various state and foreign laws regulate certain
aspects of the franchise relationship, including terminations
and the refusal to renew franchises. The failure to comply with
these laws and regulations in any jurisdiction or to obtain
required government approvals could result in a ban or temporary
suspension on future franchise sales, fines, other penalties or
require us to make offers of rescission or restitution, any of
which could adversely affect our business and operating results.
We could also face lawsuits by our franchisees based upon
alleged violations of these laws.
The Americans with Disabilities Act (ADA), prohibits
discrimination on the basis of disability in public
accommodations and employment. We have, in the past, been
required to make certain modifications to our restaurants
pursuant to the ADA. We recently settled a lawsuit regarding
alleged ADA violations in 10 of the Burger
30
King restaurants that we lease to franchisees in
California. The plaintiffs in that case recently filed suit
against us with respect to the remaining 86 restaurants that we
currently lease or leased in California. In addition, future
mandated modifications to our facilities to make different
accommodations for disabled persons and modifications required
under the ADA could result in material unanticipated expense to
us and our franchisees.
If we fail to comply with existing or future laws and
regulations, we may be subject to governmental or judicial fines
or sanctions. In addition, our and our franchisees capital
expenditures could increase due to remediation measures that may
be required if we are found to be noncompliant with any of these
laws or regulations.
We are
subject to risks related to the provision of employee health
care benefits.
We use a combination of insurance and self-insurance for
workers compensation coverage and health care plans. We
record expenses under those plans based on estimates of the
costs of expected claims, administrative costs, stop-loss
insurance premiums and expected health care trends. These
estimates are then adjusted each year to reflect actual costs
incurred. Actual costs under these plans are subject to
variability that is dependent upon participant enrollment,
demographics and the actual costs of claims made. In the event
our cost estimates differ from actual costs, we could incur
additional unplanned health care costs, which could adversely
impact our financial condition.
In March 2010, comprehensive health care reform legislation
under the Patient Protection and Affordable Care Act (HR
3590) and Health Care Education and Affordability
Reconciliation Act (HR 4872) (collectively, the
Acts) was passed and signed into law. Among other
things, the health care reform legislation includes guaranteed
coverage requirements, eliminates pre-existing condition
exclusions and annual and lifetime maximum limits, restricts the
extent to which policies can be rescinded, and imposes new and
significant taxes on health insurers and health care benefits.
Provisions of the health care reform legislation become
effective at various dates over the next several years. The
Department of Health and Human Services, the National
Association of Insurance Commissioners, the Department of Labor
and the Treasury Department have yet to issue necessary enabling
regulations and guidance with respect to the health care reform
legislation.
Due to the breadth and complexity of the health care reform
legislation, the lack of implementing regulations and
interpretive guidance, and the phased-in nature of the
implementation, it is difficult to predict the overall impact of
the health care reform legislation on our business and the
businesses of our U.S. franchisees over the coming years.
Possible adverse effects of the health care reform legislation
include reduced revenues, increased costs, exposure to expanded
liability and requirements for us to revise the ways in which we
conduct business or risk of loss of business. In addition, our
results of operations, financial position and cash flows could
be materially adversely affected. Our U.S. franchisees face
the potential of similar adverse effects, and many of them are
small business owners who may have significant difficulty
absorbing the increased costs.
The
personal information that we collect may be vulnerable to
breach, theft or loss that could adversely affect our
reputation, results of operation and financial
condition.
In the ordinary course of our business, we collect, process,
transmit and retain personal information regarding our employees
and their families, franchisees, vendors and consumers,
including social security numbers, banking and tax ID
information, health care information and credit card
information. Some of this personal information is held and
managed by certain of our vendors. Although we use security and
business controls to limit access and use of personal
information, a third party may be able to circumvent those
security and business controls, which could result in a breach
of employee, consumer or franchisee privacy. A major breach,
theft or loss of personal information regarding our employees
and their families, our franchisees, vendors or consumers that
is held by us or our vendors could result in substantial fines,
penalties and potential litigation against us which could
negatively impact our results of operations and financial
condition. Furthermore, as a result of legislative and
regulatory rules, we may be required to notify the owners of the
personal information of any data breaches, which could harm our
reputation and financial results, as well as subject us to
litigation or actions by regulatory authorities.
31
Information
technology system failures or interruptions or breaches of our
network security may interrupt our operations, subject us to
increased operating costs and expose us to
litigation.
We rely heavily on our computer systems and network
infrastructure across our operations including, but not limited
to,
point-of-sale
processing at our restaurants. Despite our implementation of
security measures, all of our technology systems are vulnerable
to damage, disability or failures due to physical theft, fire,
power loss, telecommunications failure or other catastrophic
events, as well as from internal and external security breaches,
denial of service attacks, viruses, worms and other disruptive
problems caused by hackers. If our technology systems were to
fail, and we were unable to recover in a timely way, we could
experience an interruption in our operations which could have a
material adverse effect on our financial condition and results
of operations. Furthermore, to the extent that some of our
worldwide reporting systems require or rely on manual processes,
it could increase the risk of a breach.
In addition, a number of our systems and processes are not fully
integrated worldwide and, as a result, require us to manually
estimate and consolidate certain information that we use to
manage our business. To the extent that we are not able to
obtain transparency into our operations from our systems, it
could impair the ability of our management to react quickly to
changes in the business or economic environment.
Compliance
with or cleanup activities required by environmental laws may
hurt our business.
We are subject to various federal, state, local and foreign
environmental laws and regulations. These laws and regulations
govern, among other things, discharges of pollutants into the
air and water as well as the presence, handling, release and
disposal of and exposure to, hazardous substances. These laws
and regulations provide for significant fines and penalties for
noncompliance. If we fail to comply with these laws or
regulations, we could be fined or otherwise sanctioned by
regulators. Third parties may also make personal injury,
property damage or other claims against owners or operators of
properties associated with releases of, or actual or alleged
exposure to, hazardous substances at, on or from our properties.
Environmental conditions relating to prior, existing or future
restaurants or restaurant sites, including franchised sites, may
have a material adverse effect on us. Moreover, the adoption of
new or more stringent environmental laws or regulations could
result in a material environmental liability to us and the
current environmental condition of the properties could be
harmed by tenants or other third parties or by the condition of
land or operations in the vicinity of our properties.
We may
not properly effectuate our restructuring plan or we may not
realize our anticipated cost savings from our significant cost
savings initiatives.
We have recently implemented a restructuring plan throughout our
global organization. We have undertaken the restructuring as
part of our on-going cost reduction efforts with the goal of
driving efficiencies and creating fiscal resources that will be
reinvested into our business. In addition, we are also focused
on reducing other corporate general and administrative expenses,
including travel, technology, rental, maintenance, recruiting,
utilities, training and communication costs, as well as
professional fees and services. While we expect to benefit from
the implementation of the restructuring plan and such other cost
saving initiatives, estimates of cost savings are inherently
uncertain, and we may not be able to achieve these cost savings
within the periods we have projected or at all. In addition, our
implementation of the restructuring plan and these cost saving
initiatives is expected to require up front costs. Our ability
to successfully realize cost savings and the timing of any
realization may be affected by factors such as the need to
ensure continuity in our operations, contracts, regulations
and/or
statutes governing employee/employer relationships, our ability
to renegotiate supply contracts or find alternative suppliers
and other factors. We may not be able to successfully effectuate
our restructuring plan or contain our expenses. Our estimates of
the expenses necessary to achieve the cost savings we have
identified may not prove accurate, and any increase in such
expenses may affect our ability to achieve our anticipated cost
savings within the period we have projected, or at all. This may
result in a material adverse effect on our financial position,
results of operations and cash flows.
32
We are
owned and controlled by 3G Capital and its interests may
conflict with other stakeholders.
We are 100% owned by 3G, which in turn is controlled by 3G
Capital. As a result 3G Capital has the power to elect all of
the members of our board of directors and effectively has
control over major decisions regardless of whether other
stakeholders believe that any such decisions are in their own
best interests. The interests of 3G Capital as equity holder may
conflict with the interests of the other stakeholders. 3G
Capital may have an incentive to increase the value of its
investment or cause us to distribute funds at the expense of our
financial condition and affect our ability to make payments on
the Senior Notes. In addition, 3G Capital may have an interest
in pursuing acquisitions, divestitures, financings, capital
expenditures or other transactions that it believes could
enhance its equity investments even though such transactions
might involve risks to other stakeholders. 3G Capital is in the
business of making investments in companies and may from time to
time acquire and hold interests in businesses that compete
directly or indirectly with us.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Our global restaurant support center and U.S. headquarters
is located in Miami, Florida and consists of approximately
213,000 square feet which we lease. We extended the Miami
lease for our global restaurant support center in May 2008
through September 2018 with an option to renew for one five-year
period. We lease properties for our EMEA headquarters in Zug,
Switzerland and our APAC headquarters in Singapore. We believe
that our existing headquarters and other leased and owned
facilities are adequate to meet our current requirements.
The following table presents information regarding our
restaurant properties as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased
|
|
|
|
|
|
|
|
|
|
|
|
|
Building/Land &
|
|
|
Total
|
|
|
|
|
|
|
Owned(1)
|
|
|
Land
|
|
|
Building
|
|
|
Leases
|
|
|
Total
|
|
|
United States and Canada:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurants
|
|
|
320
|
|
|
|
211
|
|
|
|
453
|
|
|
|
664
|
|
|
|
984
|
|
Franchisee-operated properties
|
|
|
455
|
|
|
|
317
|
|
|
|
204
|
|
|
|
521
|
|
|
|
976
|
|
Non-operating restaurant locations
|
|
|
37
|
|
|
|
14
|
|
|
|
20
|
|
|
|
34
|
|
|
|
71
|
|
Offices and other(2)
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
812
|
|
|
|
542
|
|
|
|
683
|
|
|
|
1,225
|
|
|
|
2,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurants
|
|
|
14
|
|
|
|
48
|
|
|
|
298
|
|
|
|
346
|
|
|
|
360
|
|
Franchisee-operated properties
|
|
|
3
|
|
|
|
3
|
|
|
|
82
|
|
|
|
85
|
|
|
|
88
|
|
Non-operating restaurant locations
|
|
|
4
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
|
|
14
|
|
Offices and other(2)
|
|
|
2
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
23
|
|
|
|
51
|
|
|
|
400
|
|
|
|
451
|
|
|
|
474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Owned refers to properties where we own the land and the
building. |
|
(2) |
|
Other properties include a consumer research center and storage
facilities. |
|
|
Item 3.
|
Legal
Proceedings
|
Ramalco Corp. et al. v. Burger King Corporation,
No. 09-43704CA05
(Circuit Court of the Eleventh Judicial Circuit, Dade County,
Florida). On July 30, 2008, BKC was sued by four Florida
franchisees over our decision to mandate extended operating
hours in the United States. The plaintiffs seek damages,
declaratory relief and injunctive relief. The court dismissed
the plaintiffs original complaint in November 2008. In
December 2008, the plaintiffs filed an amended complaint. In
August 2010, the court entered an order reaffirming the legal
bases for
33
dismissal of the original complaint, again holding that BKC had
the authority under its franchise agreements to mandate extended
operating hours. The court held a hearing on December 7,
2010 and stated that, in light of the ruling that the hours
clause was unambiguous, it would grant BKCs motion to
dismiss, with prejudice, on seven of the eight claims in the
amended complaint. The court denied the motion to dismiss on one
claim in the amended complaint, that the hours clause was
unconscionable under Florida law. The case will now
continue through the discovery process on that remaining claim.
Castenada v. Burger King Corp. and Burger King
Corporation.,
No. CV08-4262
(U.S. District Court for the Northern District of
California). On September 10, 2008, a class action lawsuit
was filed against the Company in the United States District
Court for the Northern District of California. The complaint
alleged that all 96 Burger King restaurants in California
leased by the Company and operated by franchisees violate
accessibility requirements under federal and state law. In
September 2009, the court issued a decision on the
plaintiffs motion for class certification. In its
decision, the court limited the class action to the 10
restaurants visited by the named plaintiffs, with a separate
class of plaintiffs for each of the 10 restaurants and 10
separate trials. In March 2010, the Company agreed to settle the
lawsuit with respect to the 10 restaurants and, in July 2010,
the court gave final approval to the settlement. In February
2011, a class action lawsuit styled Vallabhapurapu v.
Burger King Corporation,
No. C11-00667
(U.S. District Court for the Northern District of
California) was filed with respect to the other 86 restaurants.
The Company intends to vigorously defend against all claims in
the lawsuit, but the Company is unable to predict the ultimate
outcome of this litigation.
National Franchisee Association v. Burger King
Corporation,
No. 09-CV-23435
(U.S. District Court for the Southern District of Florida)
and Family Dining, Inc. v. Burger King Corporation,
No. 10-CV-21964
(U.S. District Court for the Southern District of Florida).
The National Franchisee Association, Inc. and several individual
franchisees filed these class action lawsuits on
November 10, 2009, and June 15, 2010, respectively,
claiming to represent Burger King franchisees. The
lawsuits seek a judicial declaration that the franchise
agreements between BKC and its franchisees do not obligate the
franchisees to comply with maximum price points set by BKC for
products on the BK Value Menu sold by the franchisees,
specifically the
1/4
lb. Double Cheeseburger and the Buck Double. The Family
Dining plaintiffs also seek monetary damages for financial
loss incurred by franchisees who were required to sell those
products for no more than $1.00. In May 2010, the court entered
an order in the National Franchisee Association case granting in
part BKCs motion to dismiss. The court held that BKC
had the authority under its franchise agreements to set maximum
prices but that, for purposes of a motion to dismiss, the NFA
had asserted a plausible claim that BKCs
decision may not have been made in good faith. Both cases were
consolidated into a single consolidated class action complaint
which BKC moved to dismiss on September 22, 2010. On
November 19, 2010, the court issued an order granting
BKCs motion to dismiss on all claims in the consolidated
complaint with prejudice. On December 14, 2010, the
plaintiffs filed a motion asking the court to reconsider its
decision, and on December 17, 2010, the plaintiffs filed a
notice of appeal to the U.S. Circuit Court of Appeals. On
February 2, 2011, the court permitted the plaintiffs to
file an amended complaint. Discovery is now complete, and the
court has instructed BKC to file a motion for summary judgment
by April 1, 2011.
On September 3, 2010, four purported class action
complaints were filed in the Circuit Court for the County of
Miami-Dade, Florida, captioned Darcy Newman v. Burger
King Holdings, Inc. et. al., Case
No. 10-48422CA30,
Belle Cohen v. David A. Brandon, et. al.,
Case
No. 10-48395CA32,
Melissa Nemeth v. Burger King Holdings, Inc. et.
al., Case
No. 10-48424CA05
and Vijayalakshmi Venkataraman v. John W. Chidsey,
et. al., Case
No. 10-48402CA13,
by purported shareholders of the Company, in connection with the
tender offer and the Merger (as defined below). Each of the four
complaints (collectively, the Florida Actions) names
as defendants the Company, each member of the Companys
board of directors (the Individual Defendants) and
3G Capital. The suits generally allege that the Individual
Defendants breached their fiduciary duties to the Companys
shareholders in connection with the proposed sale of the Company
and that 3G Capital and the Company aided and abetted the
purported breaches of fiduciary duties.
On September 8, 2010, another putative shareholder class
action suit captioned Roberto S. Queiroz v. Burger King
Holdings, Inc., et al., Case
No. 5808-VCP
was filed in the Delaware Court of Chancery against the
Individual Defendants, the Company, 3G, 3G Capital, Blue
Acquisition Holding Corporation and Blue Acquisition Sub, Inc.
The complaint generally alleges that the Individual Defendants
breached their fiduciary duty to maximize shareholder value by
entering into the proposed transaction via an unfair process and
at an unfair price, and that
34
the merger agreement contains provisions that unreasonably
dissuade potential suitors from making competing offers. On
September 27, 2010, another putative shareholder class
action suit captioned Robert Debardelaben v. Burger King
Holdings, Inc., et al, Court of Chancery of the State of
Delaware, Case
No. 5850-UA
was filed in the Delaware Court of Chancery against the
Individual Defendants. Like the first Delaware Action, the
Debardelaben complaint asserts that the Companys
directors breached their fiduciary duties in connection with the
tender offer, and that the Company and 3G Capital aided and
abetted that breach. This action also seeks both monetary and
injunctive relief. On September 29, 2010, the Delaware
court entered an order consolidating the Debardelaben and
Queiroz actions (Delaware Actions).
On December 30, 2010, a proposed settlement was reached
with the plaintiffs in the Florida Actions and Delaware Actions.
The principal terms of the proposed settlement include
additional disclosures about the Merger that were provided to
Burger King shareholders in the Companys amended
schedule 14D-9,
dismissal of the Florida and Delaware actions, mutual releases
and the payment of up to $1 million in attorneys fees
and expenses to Plaintiffs counsel.
On March 16, 2011, the Florida court preliminarily approved
the proposed settlement and ordered that the class be provided
with notice of the proposed settlement.
From time to time, we are involved in other legal proceedings
arising in the ordinary course of business relating to matters
including, but not limited to, disputes with franchisees,
suppliers, employees and customers, as well as disputes over our
intellectual property.
Part II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
for Our Common Stock
Prior to our acquisition by 3G, our common stock was listed on
the New York Stock Exchange under the ticker symbol
BKC. As a result of the acquisition, our common
stock ceased to be traded on the New York Stock Exchange after
close of market on October 19, 2010. The terms of our
Senior Notes Indenture require that we continue to file periodic
reports that we would be required to file with the SEC if we
were subject to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the Exchange Act).
See Note 11 to our audited Consolidated Financial
Statements included in Part II, Item 8 Financial
Statements and Supplementary Data.
Dividend
Policy
We paid a quarterly cash dividend of $0.0625 per share on
September 30, 2010 to our shareholders of record at the
close of business on September 14, 2010, prior to the
effective date of the Merger.
Although we do not currently have a dividend policy, we may
declare dividends opportunistically if the Board of Directors of
the Company determines that it is in the best interests of the
shareholders. The terms of the New Credit Agreement and the
Senior Notes Indenture limit our ability to pay cash dividends
in certain circumstances. In addition, because we are a holding
company, our ability to pay cash dividends on shares (including
fractional shares) of our common stock may be limited by
restrictions on our ability to obtain sufficient funds through
dividends from our subsidiaries, including the restrictions
under the New Credit Agreement and the Senior Notes Indenture.
Subject to the foregoing, the payment of cash dividends in the
future, if any, will be at the discretion of our Board of
Directors and will depend upon such factors as earnings levels,
capital requirements, our overall financial condition and any
other factors deemed relevant by our Board of Directors.
35
|
|
Item 6.
|
Selected
Financial Data
|
On October 19, 2010, we were acquired by an affiliate of
3G Capital in a transaction accounted for as a business
combination. Unless the context otherwise requires, all
references to we, us, our
and Successor refer to Burger King Holdings, Inc.
and all its subsidiaries, including BKC, for the period
subsequent to this acquisition. All references to our
Predecessor refer to Burger King Holdings, Inc. and
all its subsidiaries, including BKC, for all periods prior to
the acquisition, which operated under a different ownership and
capital structure. In addition, the acquisition was accounted
for under the acquisition method of accounting, which resulted
in purchase price allocations that affect the comparability of
results of operations for periods before and after the
acquisition.
The following tables present selected consolidated financial and
other data for us and our Predecessor for each of the periods
indicated. The selected historical financial data as of
December 31, 2010 and for the period October 19, 2010
to December 31, 2010 have been derived from our audited
consolidated financial statements and notes thereto included in
this report. The selected historical financial data for our
Predecessor as of June 30, 2010 and 2009 and for the period
July 1, 2010 to October 18, 2010 and fiscal years
ended June 30, 2010, 2009 and 2008 have been derived from
our Predecessors audited consolidated financial statements
and the notes thereto included in this report. The selected
historical financial data for our Predecessor as of
June 30, 2008, 2007 and 2006 and for fiscal years ended
June 30, 2007 and 2006 have been derived from the audited
consolidated financial statements and the notes thereto of our
Predecessor, which are not included in this report.
The combined financial data for the combined period of
July 1, 2010 to December 31, 2010 have been derived
from the audited consolidated financial statements of our
Predecessor and us, but have not been audited on a combined
basis, do not comply with generally accepted accounting
principles and are not intended to represent what our operating
results would have been if the Merger (as defined below) had
occurred at the beginning of the period. The other operating
data for the period of October 19, 2010 to
December 31, 2010 has been derived from our internal
records. The other operating data for the period of July 1,
2010 to October 18, 2010 and for the fiscal years ended
June 30, 2010, 2009, 2008, 2007 and 2006 were derived from
the internal records of our Predecessor.
The selected consolidated financial and other operating data
presented below contain all normal recurring adjustments that,
in the opinion of management, are necessary to present fairly
our financial position and results of operations as of and for
the periods presented. The selected historical consolidated
financial and other operating data included below and elsewhere
in this report are not necessarily indicative of future results.
The information presented below should be read in conjunction
with Managements Discussion and Analysis of
Financial Condition and Results of Operations in
Part II, Item 7 and Financial Statements and
Supplementary Data in Part II, Item 8 of
this report.
As of October 19, 2010, all of our common shares were
indirectly held by 3G; therefore we have not reported earnings
per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
Successor
|
|
|
Predecessor
|
|
|
|
|
For the Period of
|
|
|
For the Period of
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
October 19, 2010 to
|
|
|
July 1, 2010 to
|
|
For the Fiscal Years Ended June 30,
|
|
|
December 31, 2010
|
|
December 31, 2010
|
|
|
October 18, 2010
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
(In millions, except per share data)
|
Statement of Operations Data:
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant revenues
|
|
$
|
846.2
|
|
|
$
|
331.7
|
|
|
|
$
|
514.5
|
|
|
$
|
1,839.3
|
|
|
$
|
1,880.5
|
|
|
$
|
1,795.9
|
|
|
$
|
1,658.0
|
|
|
$
|
1,515.6
|
|
Franchise revenues
|
|
|
280.7
|
|
|
|
111.5
|
|
|
|
|
169.2
|
|
|
|
549.2
|
|
|
|
543.4
|
|
|
|
537.2
|
|
|
|
459.5
|
|
|
|
419.8
|
|
Property revenues
|
|
|
56.6
|
|
|
|
22.6
|
|
|
|
|
34.0
|
|
|
|
113.7
|
|
|
|
113.5
|
|
|
|
121.6
|
|
|
|
116.2
|
|
|
|
112.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,183.5
|
|
|
|
465.8
|
|
|
|
|
717.7
|
|
|
|
2,502.2
|
|
|
|
2,537.4
|
|
|
|
2,454.7
|
|
|
|
2,233.7
|
|
|
|
2,047.8
|
|
Income (loss) from operations(1)
|
|
|
30.0
|
|
|
|
(71.5
|
)
|
|
|
|
101.5
|
|
|
|
332.9
|
|
|
|
339.4
|
|
|
|
354.2
|
|
|
|
294.6
|
|
|
|
171.3
|
|
Net income (loss)
|
|
$
|
(34.5
|
)
|
|
$
|
(105.6
|
)
|
|
|
$
|
71.1
|
|
|
$
|
186.8
|
|
|
$
|
200.1
|
|
|
$
|
189.6
|
|
|
$
|
148.1
|
|
|
$
|
27.1
|
|
Cash dividends per common share(2)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
$
|
0.06
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.13
|
|
|
$
|
3.42
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
Successor
|
|
|
Predecessor
|
|
|
|
|
For the Period of
|
|
|
For the Period of
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
October 19, 2010 to
|
|
|
July 1, 2010 to
|
|
For the Fiscal Years Ended June 30,
|
|
|
December 31, 2010
|
|
December 31, 2010
|
|
|
October 18, 2010
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by operating activities
|
|
$
|
(6.9
|
)
|
|
$
|
(128.2
|
)
|
|
|
|
121.3
|
|
|
$
|
310.4
|
|
|
$
|
310.8
|
|
|
$
|
243.4
|
|
|
$
|
110.4
|
|
|
$
|
67.0
|
|
Net cash used for investing activities
|
|
|
(3,350.1
|
)
|
|
|
(3,345.3
|
)
|
|
|
|
(4.8
|
)
|
|
|
(134.9
|
)
|
|
|
(242.0
|
)
|
|
|
(199.3
|
)
|
|
|
(77.4
|
)
|
|
|
(66.7
|
)
|
Net cash provided by (used for) financing activities
|
|
|
3,366.8
|
|
|
|
3,396.4
|
|
|
|
|
(29.6
|
)
|
|
|
(96.9
|
)
|
|
|
(105.5
|
)
|
|
|
(62.0
|
)
|
|
|
(126.9
|
)
|
|
|
(172.6
|
)
|
Capital expenditures
|
|
|
46.6
|
|
|
|
28.4
|
|
|
|
|
18.2
|
|
|
|
150.3
|
|
|
|
204.0
|
|
|
|
178.2
|
|
|
|
87.3
|
|
|
|
85.1
|
|
Adjusted EBITDA(3)
|
|
|
230.0
|
|
|
|
95.1
|
|
|
|
|
134.9
|
|
|
|
460.9
|
|
|
|
455.6
|
|
|
|
460.6
|
|
|
|
387.3
|
|
|
|
345.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
As of December 31,
|
|
|
As of June 30,
|
|
|
2010
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
207.0
|
|
|
|
$
|
187.6
|
|
|
$
|
121.7
|
|
|
$
|
166.0
|
|
|
$
|
169.4
|
|
|
$
|
258.8
|
|
Total assets(4)
|
|
|
5,559.4
|
|
|
|
|
2,747.2
|
|
|
|
2,707.1
|
|
|
|
2,686.5
|
|
|
|
2,516.8
|
|
|
|
2,552.0
|
|
Total debt and capital lease obligations(4)
|
|
|
2,748.6
|
|
|
|
|
826.3
|
|
|
|
888.9
|
|
|
|
947.4
|
|
|
|
942.5
|
|
|
|
1,064.3
|
|
Total liabilities(4)
|
|
|
4,104.4
|
|
|
|
|
1,618.8
|
|
|
|
1,732.3
|
|
|
|
1,842.0
|
|
|
|
1,801.2
|
|
|
|
1,984.5
|
|
Total stockholders equity(4)
|
|
|
1,455.0
|
|
|
|
|
1,128.4
|
|
|
|
974.8
|
|
|
|
844.5
|
|
|
|
715.6
|
|
|
|
566.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
Predecessor
|
|
|
For the Six Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended December 31,
|
|
For the Fiscal Years Ended June 30,
|
|
|
2010
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
Other Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable sales growth(5)(6)(7)
|
|
|
(2.7
|
)%
|
|
|
(2.3
|
)%
|
|
|
1.2
|
%
|
|
|
5.4
|
%
|
|
|
3.4
|
%
|
|
|
1.9
|
%
|
Sales growth(5)(6)
|
|
|
2.2
|
%
|
|
|
2.1
|
%
|
|
|
4.2
|
%
|
|
|
8.3
|
%
|
|
|
4.9
|
%
|
|
|
2.1
|
%
|
Average restaurant sales (in thousands)(6)
|
|
$
|
622
|
|
|
$
|
1,244
|
|
|
$
|
1,259
|
|
|
$
|
1,301
|
|
|
$
|
1,193
|
|
|
$
|
1,126
|
|
|
|
|
(1) |
|
Amount includes $77.7 million of transaction costs,
$67.2 million of restructuring costs and $11.8 million
of acquisition accounting adjustments for the period from
October 19, 2010 to December 31, 2010. |
|
(2) |
|
The cash dividend paid in fiscal 2006 represents a special
dividend paid prior to our Predecessors initial public
offering. |
|
(3) |
|
EBITDA is defined as earnings (net income or loss) before
interest, taxes, depreciation and amortization, and is used by
management to measure operating performance of the business.
Adjusted EBITDA represents EBITDA as further adjusted to exclude
specifically identified items that management believes do not
directly reflect our core operations. Adjusted EBITDA is a tool
intended to assist our management in comparing our performance
on a consistent basis for purposes of business decision-making
by removing the impact of certain items that management believes
do not directly reflect our core operations. We also believe
that EBITDA and Adjusted EBITDA improve the comparability of
Predecessor and Successor results of operations because the
application of acquisition accounting resulted in non-comparable
depreciation and amortization for Predecessor and Successor
periods. Additionally, we incurred significant expenses in
connection with the Transactions and our Restructuring Plan in
the period October 19, 2010 to December 31, 2010,
which we reflect as adjustments to EBITDA. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Factors
Affecting Comparability of Results of Operations. |
37
|
|
|
|
|
EBITDA and Adjusted EBITDA are used as part of our incentive
compensation program for our executive officers and others and
are factors in our tangible and intangible asset impairment
tests. EBITDA and Adjusted EBITDA are intended to provide
additional information only and do not have any standard meaning
prescribed by generally accepted accounting principles in the
U.S., or U.S. GAAP. |
|
|
|
We also believe EBITDA and Adjusted EBITDA are useful to
investors, analysts and other external users of our consolidated
financial statements because they are widely used by investors
to measure operating performance without regard to items such as
income taxes, net interest expense, depreciation and
amortization, non-cash stock compensation expense and other
infrequent or unusual items, which can vary substantially from
company to company depending upon accounting methods and book
value of assets, financing methods, capital structure and the
method by which assets were acquired. |
|
|
|
EBITDA and Adjusted EBITDA have limitations as analytic tools,
and you should not consider such measures either in isolation or
as substitutes for analyzing our results of operations as
reported under GAAP. Some of these limitations are: |
|
|
|
|
|
EBITDA and Adjusted EBITDA do not reflect changes in, or cash
requirements for, our working capital needs; |
|
|
|
EBITDA and Adjusted EBITDA do not reflect our interest expense,
or cash requirements necessary to service interest or principal
payments, on our debt; |
|
|
|
EBITDA and Adjusted EBITDA do not reflect our tax expense or
cash requirements to pay our taxes; |
|
|
|
EBITDA and Adjusted EBITDA do not reflect historical cash
expenditures or future requirements for capital expenditures or
contractual commitments; |
|
|
|
EBITDA and Adjusted EBITDA do not reflect our significant
pension and post-retirement obligations; |
|
|
|
although depreciation and amortization are non-cash charges, the
assets being depreciated and amortized will often have to be
replaced in the future, and EBITDA and Adjusted EBITDA do not
reflect cash requirements for such replacements; and |
|
|
|
other companies in our industry may calculate EBITDA and
Adjusted EBITDA differently, limiting their usefulness as
comparative measures. |
Because of these limitations, EBITDA and Adjusted EBITDA should
not be considered as discretionary cash available to us to
reinvest in the growth of our business or as a measure of cash
that will be available to us to meet our obligations. Moreover,
our presentation of Adjusted EBITDA is different than Adjusted
EBITDA as defined in our debt financing agreements.
38
The following table is a reconciliation of our net income (loss)
to EBITDA and Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
Successor
|
|
|
Predecessor
|
|
|
|
|
For the Period from
|
|
|
For the Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
October 19, 2010 to
|
|
|
July 1, 2010 to
|
|
For the Fiscal Years Ended June 30,
|
|
|
December 31, 2010
|
|
December 31, 2010
|
|
|
October 18, 2010
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
Net income (loss)
|
|
$
|
(34.5
|
)
|
|
$
|
(105.6
|
)
|
|
|
$
|
71.1
|
|
|
$
|
186.8
|
|
|
$
|
200.1
|
|
|
$
|
189.6
|
|
|
$
|
148.1
|
|
|
$
|
27.1
|
|
Interest expense, net
|
|
|
75.6
|
|
|
|
61.0
|
|
|
|
|
14.6
|
|
|
|
48.6
|
|
|
|
54.6
|
|
|
|
61.2
|
|
|
|
67.8
|
|
|
|
89.8
|
|
Income tax expense (benefit)
|
|
|
(11.1
|
)
|
|
|
(26.9
|
)
|
|
|
|
15.8
|
|
|
|
97.5
|
|
|
|
84.7
|
|
|
|
103.4
|
|
|
|
78.7
|
|
|
|
54.4
|
|
Depreciation and amortization
|
|
|
64.6
|
|
|
|
33.4
|
|
|
|
|
31.2
|
|
|
|
111.7
|
|
|
|
98.1
|
|
|
|
95.6
|
|
|
|
88.8
|
|
|
|
87.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
94.6
|
|
|
|
(38.1
|
)
|
|
|
|
132.7
|
|
|
|
444.6
|
|
|
|
437.5
|
|
|
|
449.8
|
|
|
|
383.4
|
|
|
|
259.2
|
|
Stock-based compensation expense(a)
|
|
|
5.8
|
|
|
|
|
|
|
|
|
5.8
|
|
|
|
17.0
|
|
|
|
16.2
|
|
|
|
11.4
|
|
|
|
4.9
|
|
|
|
0.5
|
|
Other operating (income) expense, net(b)
|
|
|
(15.3
|
)
|
|
|
(11.7
|
)
|
|
|
|
(3.6
|
)
|
|
|
(0.7
|
)
|
|
|
1.9
|
|
|
|
(0.6
|
)
|
|
|
(1.0
|
)
|
|
|
(2.1
|
)
|
Compensation-related costs of the Transactions(c)
|
|
|
34.5
|
|
|
|
34.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction costs(d)
|
|
|
43.2
|
|
|
|
43.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring Plan and Realignment(e)
|
|
|
67.2
|
|
|
|
67.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.0
|
|
Compensatory make-whole payment(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34.0
|
|
Management fees and management agreement termination fee(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
230.0
|
|
|
$
|
95.1
|
|
|
|
$
|
134.9
|
|
|
$
|
460.9
|
|
|
$
|
455.6
|
|
|
$
|
460.6
|
|
|
$
|
387.3
|
|
|
$
|
345.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Stock-based compensation expense related to expense for stock
option plans, restricted stock units and restricted stock awards
for employees of the Company. For the period from July 1,
2010 to October 18, 2010 and for fiscal years ended
June 30, 2010, 2009, 2008, 2007 and 2006, the Company
recognized stock-based compensation cost based on the grant date
estimated fair value of each award, net of estimated
forfeitures, over the employees requisite service period,
which is generally the vesting period of the equity award. |
|
(b) |
|
Represents income and expenses that are not directly derived
from the Companys primary business such as gains and
losses on asset and business disposals, write-offs associated
with Company restaurant closures, impairment charges, charges
recorded in connection with acquisitions of franchise
operations, gains and losses on currency transactions, gains and
losses on foreign currency forward contracts and other
miscellaneous items. |
|
(c) |
|
Represents the compensation-related expenses associated with the
Transactions (as defined below). See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Factors Affecting Comparability of
Results of Operations The Transactions in
Part II, Item 7 of this report. |
|
(d) |
|
Represents the transaction expenses associated with the
Transactions, consisting principally of investment banking fees
and legal fees. See Managements Discussion and
Analysis of Financial Condition and Results of
Operations Factors Affecting Comparability of
Results of Operations The Transactions in
Part II, Item 7 of this report. |
|
(e) |
|
In the period October 19, 2010 to December 31, 2010,
we recorded charges totaling $67.2 million for severance
and other compensation-related items in connection with our
restructuring plan. See Managements Discussion
and Analysis of Financial Condition and Results of
Operations Factors Affecting Comparability of
Results of Operations Restructuring Plan
in Part II, Item 7 of this report. In fiscal 2006, we
recorded expenses totaling $15 million in connection with a
global realignment and executive severance. |
|
(f) |
|
Represents a payment to stock option and restricted stock
holders in connection with a February 2006 financing transaction
and dividend payment. |
39
|
|
|
(g) |
|
In February 2006, we entered into an agreement to terminate a
management fee with the previous owners of our equity interests
in exchange for a fee of $30 million. Prior to the
termination, we paid management fees equal to 0.5% of our annual
revenue. |
|
|
|
(4) |
|
Amounts include acquisition accounting adjustments as a result
of the Merger. Refer to Note 1 to our audited Consolidated
Financial Statements included in Part II, Item 8
Financial Statements and Supplementary Data. |
|
(5) |
|
Comparable sales growth and sales growth are analyzed on a
constant currency basis, which means they are calculated by
translating current year results at prior year average exchange
rates, to remove the effects of currency fluctuations from these
trend analyses. We believe these constant currency measures
provide a more meaningful analysis of our business by
identifying the underlying business trends, without distortion
from the effect of foreign currency movements. |
|
(6) |
|
Unless otherwise stated, comparable sales growth, sales growth
and average restaurant sales are presented on a system-wide
basis, which means they include Company restaurants and
franchise restaurants. Franchise sales represent sales at all
franchise restaurants and are revenues to our franchisees. We do
not record franchise sales as revenues. However, our royalty
revenues are calculated based on a percentage of franchise
sales. See Managements Discussion and Analysis of
Financial Condition and Results of Operations Key
Business Measures in Part II, Item 7 of this
report. |
|
(7) |
|
Comparable sales growth refers to the change in restaurant sales
in one period from the same period in the prior year for
restaurants that have been open for thirteen months or longer. |
Burger
King Holdings, Inc. and Subsidiaries Restaurant Count
The following table presents information relating to the
analysis of our restaurant count for the geographic areas and
periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
As of December 31,
|
|
|
|
As of December 31,
|
|
|
As of June 30,
|
|
|
|
2010
|
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Number of Company restaurants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. & Canada
|
|
|
984
|
|
|
|
|
1,029
|
|
|
|
987
|
|
|
|
1,043
|
|
EMEA/APAC
|
|
|
264
|
|
|
|
|
299
|
|
|
|
303
|
|
|
|
294
|
|
Latin America
|
|
|
96
|
|
|
|
|
94
|
|
|
|
97
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company restaurants
|
|
|
1,344
|
|
|
|
|
1,422
|
|
|
|
1,387
|
|
|
|
1,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of franchise restaurants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. & Canada
|
|
|
6,566
|
|
|
|
|
6,516
|
|
|
|
6,562
|
|
|
|
6,491
|
|
EMEA/APAC
|
|
|
3,297
|
|
|
|
|
3,129
|
|
|
|
3,184
|
|
|
|
3,019
|
|
Latin America
|
|
|
1,044
|
|
|
|
|
1,011
|
|
|
|
1,041
|
|
|
|
986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total franchise restaurants
|
|
|
10,907
|
|
|
|
|
10,656
|
|
|
|
10,787
|
|
|
|
10,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of system-wide restaurants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. & Canada
|
|
|
7,550
|
|
|
|
|
7,545
|
|
|
|
7,549
|
|
|
|
7,534
|
|
EMEA/APAC
|
|
|
3,561
|
|
|
|
|
3,428
|
|
|
|
3,487
|
|
|
|
3,313
|
|
Latin America
|
|
|
1,140
|
|
|
|
|
1,105
|
|
|
|
1,138
|
|
|
|
1,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total system-wide restaurants
|
|
|
12,251
|
|
|
|
|
12,078
|
|
|
|
12,174
|
|
|
|
11,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
You should read the following discussion together with
Part II, Item 6 Selected Financial Data
and our audited Consolidated Financial Statements and the
related notes thereto included in Item 8 Financial
Statements and Supplementary Data. In addition to
historical consolidated financial information, this discussion
contains forward-looking statements that reflect our plans,
estimates and beliefs. Actual results could differ from these
expectations as a result of factors including those described
under Item 1A, Risk Factors, Special Note
Regarding Forward-Looking Statements and elsewhere in this
report.
All references to the Transition Period in this section are
to the six months ended December 31, 2010, derived by
adding the audited results of operations of our Predecessor from
July 1, 2010 to October 18, 2010 to our audited
results of operations from October 19, 2010 to
December 31, 2010. The combined financial data for the
Transition Period do not comply with generally accepted
accounting principles and are not intended to represent what our
operating results would have been if the acquisition had
occurred at the beginning of the period because the periods
being combined are under two different bases of accounting as a
result of the acquisition on October 19, 2010. See
Factors Affecting Comparability The
Transactions. References to fiscal 2010, fiscal 2009 and
fiscal 2008 in this section are to our Predecessors fiscal
years ended June 30, 2010, 2009 and 2008, respectively.
Unless otherwise stated, comparable sales growth, average
restaurant sales and sales growth are presented on a system-wide
basis, which means that these measures include sales at both
Company restaurants and franchise restaurants. Franchise sales
represent sales at all franchise restaurants and are revenues to
our franchisees. We do not record franchise sales as revenues;
however, our franchise revenues include royalties based on
franchise sales. System-wide results are driven primarily by our
franchise restaurants, as approximately 90% of our current
system-wide restaurants are franchised.
Overview
We operate in the fast food hamburger restaurant, or FFHR,
category of the quick service restaurant, or QSR, segment of the
restaurant industry. We are the second largest FFHR chain in the
world as measured by number of restaurants and system-wide
sales. Our system of restaurants includes restaurants owned by
us, as well as our franchisees. Our business operates in three
reportable segments: (1) the United States and Canada;
(2) Europe, the Middle East, Africa and Asia Pacific, or
EMEA/APAC; and (3) Latin America.
Approximately 90% of our current restaurants are franchised, but
we expect the percentage of franchise restaurants to increase as
we implement our portfolio management strategy of refranchising
up to half of our Company restaurants within the next three to
five years. The current 90/10 ratio of franchise restaurants to
Company restaurants applies on a worldwide basis, but may not
reflect the ratio of franchise restaurants to Company
restaurants in any specific market or region. We believe that a
restaurant ownership mix that is heavily weighted to franchise
restaurants is beneficial to us because the capital required to
grow and maintain our system is funded primarily by franchisees
while giving us a base of Company restaurants to demonstrate
credibility with franchisees in launching new initiatives.
However, our franchise dominated business model also presents a
number of drawbacks and risks, such as our limited control over
franchisees and limited ability to facilitate changes in
restaurant ownership. In addition, our operating results are
closely tied to the success of our franchisees, and we are
dependent on franchisees to open new restaurants as part of our
growth strategy.
Our international operations are impacted by fluctuations in
currency exchange rates. In Company markets located outside of
the United States, we generate revenues and incur expenses
denominated in local currencies. These revenues and expenses are
translated using the average rates during the period in which
they are recognized, and are impacted by changes in currency
exchange rates. In many of our franchise markets, our
franchisees pay royalties to us in currencies other than the
local currency in which they operate; however, as the royalties
are calculated based on local currency sales, our revenues are
still impacted by fluctuations in currency exchange rates. We
review and analyze business results excluding the effect of
currency translation and calculate certain incentive
compensation for management and corporate level employees based
on these results believing this better represents our underlying
business trends.
41
Recent
Developments
Merger
and Acquisition Financing Transactions
On October 19, 2010, we completed a merger (the
Merger) with Blue Acquisition Sub, Inc., a Delaware
corporation (Merger Sub) and a wholly-owned
subsidiary of Burger King Worldwide Holdings, Inc., formerly
known as Blue Acquisition Holding Corporation, a Delaware
corporation (the Parent). Parent is wholly-owned by
3G Special Situations Fund II, L.P. (3G), which
is an affiliate of 3G Capital Partners, Ltd., an investment firm
based in New York (3G Capital or the
Sponsor). In accordance with the terms of the Merger
Agreement, Merger Sub completed its acquisition of 100% of the
Companys equity (the Acquisition) and merged
with and into the Company, with the Company continuing as the
surviving corporation. We became a wholly-owned subsidiary of
Parent, and our common stock ceased to be traded on the New York
Stock Exchange after close of market on October 19, 2010.
In connection with the Merger and as part of the financing for
the consideration paid in the Merger, on October 19, 2010,
(i) BKC, as borrower, entered into a Credit Agreement dated
as of October 19, 2010 with JPMorgan Chase Bank, N.A., as
administrative agent, Barclays Capital, as syndication agent,
and the lenders party thereto from time to time (the New
Credit Agreement), and (ii) Merger Sub issued and BKC
assumed $800.0 million of
97/8% Senior
Notes due 2018 (the Senior Notes). The issuance of
the Senior Notes and the entering into of the New Credit
Agreement are collectively referred to herein as the
Acquisition Financing Transactions. We refer to the
Acquisition, the Merger and the Acquisition Financing
Transactions collectively as the Transactions.
Change
in Fiscal Year
On November 5, 2010, our Board of Directors approved a
change in fiscal year end from June 30 to December 31. The
change became effective at the end of the quarter ended
December 31, 2010. All references to fiscal
years, unless otherwise noted, refer to the twelve-month
fiscal year, which prior to July 1, 2010, ended on
June 30.
Restructuring
plan
We have recently implemented a global restructuring plan that
has resulted in work force reductions throughout our
organization. In the United States, approximately 375 corporate
and field positions were eliminated, the majority of which were
based at our headquarters in Miami, Florida. In addition,
approximately 250 corporate and field positions were eliminated
in Canada, Latin America, EMEA and APAC. The restructuring is
part of our on-going cost reduction efforts with the goal of
driving efficiencies and creating fiscal resources that will be
reinvested into our business.
As a result of these work force reductions in North America and
Latin America, we incurred total charges of approximately
$41 million related to severance benefits and other
severance-related expenses, which we recorded as selling,
general and administrative expenses in the quarter ended
December 31, 2010. These restructuring charges will result
in future cash expenditures. We estimate that overall salary and
fringe expense classified as part of general and administrative
expenses (G&A) in North America and Latin
America will decrease on an annual run rate basis by
approximately $40 million to $50 million. We expect to
see the benefit of these cost reductions beginning in the first
quarter of fiscal 2011. If we are not able to maintain our
operations with a reduced workforce, we may incur additional
G&A and therefore may not achieve these estimated cost
reductions.
As a result of the work force reductions in EMEA and APAC, we
have incurred total charges of approximately $16 million to
date related to severance benefits and other severance-related
expenses, which we recorded as selling, general and
administrative expenses in the quarter ended December 31,
2010. These restructuring charges will result in future cash
expenditures. We estimate that overall salary and fringe expense
in these regions will decrease on an annual run rate basis by
approximately $15 million to $20 million as a result
of these work force reductions. However, we are unable to
determine the expected timing of the benefits from these cost
reductions.
The above-described work force reductions will not impact the
number of employees at the Burger King restaurants that
we operate in any of our business segments.
42
Key
Business Measures
We use three key business measures as indicators of our
operational performance: comparable sales growth, average
restaurant sales and sales growth. These measures are important
indicators of the overall direction, trends of sales and the
effectiveness of our advertising, marketing and operating
initiatives and the impact of these on the entire Burger King
system. Comparable sales growth and sales growth are
provided by reportable segments and are analyzed on a constant
currency basis, which means they are calculated by translating
current year results at prior year average exchange rates to
remove the effects of currency fluctuations from these trend
analyses. We believe these constant currency measures provide a
more meaningful analysis of our business by identifying the
underlying business trend, without distortion from the effect of
currency movements.
Comparable
Sales Growth
Comparable sales growth refers to the change in restaurant sales
in one period from the same period in the prior year for
restaurants that have been open for 13 months or longer as
of the end of the most recent period. Company comparable sales
growth refers to comparable sales growth for Company restaurants
and franchise comparable sales growth refers to comparable sales
growth for franchise restaurants. We believe comparable sales
growth is a key indicator of our performance, as influenced by
our strategic initiatives and those of our competitors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six
|
|
|
|
|
Months Ended
|
|
For the Fiscal Years
|
|
|
December 31,
|
|
Ended June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
2008
|
|
|
(In constant currencies)
|
|
Company Comparable Sales Growth:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. & Canada
|
|
|
(4.9
|
)%
|
|
|
(2.1
|
)%
|
|
|
(2.4
|
)%
|
|
|
0.5
|
%
|
|
|
2.6
|
%
|
EMEA/APAC
|
|
|
(0.7
|
)%
|
|
|
(1.2
|
)%
|
|
|
(2.1
|
)%
|
|
|
0.1
|
%
|
|
|
3.8
|
%
|
Latin America
|
|
|
(3.1
|
)%
|
|
|
(5.3
|
)%
|
|
|
(4.1
|
)%
|
|
|
(3.2
|
)%
|
|
|
1.8
|
%
|
Total Company Comparable Sales Growth
|
|
|
(3.8
|
)%
|
|
|
(2.0
|
)%
|
|
|
(2.4
|
)%
|
|
|
0.3
|
%
|
|
|
2.9
|
%
|
Franchise Comparable Sales Growth:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. & Canada
|
|
|
(5.0
|
)%
|
|
|
(4.3
|
)%
|
|
|
(4.1
|
)%
|
|
|
0.4
|
%
|
|
|
5.8
|
%
|
EMEA/APAC
|
|
|
(0.2
|
)%
|
|
|
1.2
|
%
|
|
|
1.2
|
%
|
|
|
3.3
|
%
|
|
|
5.6
|
%
|
Latin America
|
|
|
6.8
|
%
|
|
|
(3.5
|
)%
|
|
|
(1.1
|
)%
|
|
|
2.3
|
%
|
|
|
4.5
|
%
|
Total Franchise Comparable Sales Growth
|
|
|
(2.5
|
)%
|
|
|
(2.6
|
)%
|
|
|
(2.3
|
)%
|
|
|
1.4
|
%
|
|
|
5.7
|
%
|
System-wide Comparable Sales Growth:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. & Canada
|
|
|
(5.0
|
)%
|
|
|
(4.0
|
)%
|
|
|
(3.9
|
)%
|
|
|
0.4
|
%
|
|
|
5.4
|
%
|
EMEA/APAC
|
|
|
(0.2
|
)%
|
|
|
1.0
|
%
|
|
|
0.8
|
%
|
|
|
2.9
|
%
|
|
|
5.4
|
%
|
Latin America
|
|
|
6.2
|
%
|
|
|
(3.6
|
)%
|
|
|
(1.3
|
)%
|
|
|
1.9
|
%
|
|
|
4.3
|
%
|
Total System-wide Comparable Sales Growth
|
|
|
(2.7
|
)%
|
|
|
(2.5
|
)%
|
|
|
(2.3
|
)%
|
|
|
1.2
|
%
|
|
|
5.4
|
%
|
We experienced negative system-wide comparable sales growth of
2.7% (in constant currencies) for the Transition Period, driven
primarily by negative comparable sales growth in the
U.S. and Canada of 5.0%, largely due to lower traffic
compared to the six months ended December 31, 2009, when
traffic was supported by value promotions, such as our
1/4
lb. Double Cheeseburger promotion. Traffic declines in the
U.S. and Canada were partially offset by an increase in
average ticket, driven by discontinued value promotions and the
successful launch of higher-priced premium products, such as the
Steakhouse XT. Additionally, our U.S. and Canada
comparable sales during the breakfast day part benefited from
the successful introduction of our new
BK®
Breakfast Menu. The negative comparable sales growth in the
U.S. and Canada was partially offset by positive comparable
sales growth in Latin America, which was driven by results in
Brazil, Puerto Rico, Argentina and Central America, partially
offset by negative comparable sales growth in Mexico. EMEA/APAC
comparable sales were slightly negative for the Transition
Period, as negative comparable sales growth in Germany and the
U.K. were partially offset by positive comparable sales growth
in the Netherlands, Turkey, Australia and China.
43
Negative system-wide comparable sales growth of 2.3% (in
constant currencies) for the fiscal year ended June 30,
2010, was primarily driven by negative comparable sales growth
in the U.S. and Canada, resulting from continued
macroeconomic weakness, including high levels of unemployment
and underemployment, and lower average check as consumer
purchases shifted toward value menu options and value promotions
in the U.S., such as the
1/4
lb. Double Cheeseburger, Buck Double and $1
BK®
Breakfast Muffin Sandwich promotions. These factors were
partially offset by increased traffic and the successful
introduction of higher-priced premium products, such as the
Steakhouse XT burger line, BK Fire-Grilled Ribs
limited-time offer and
BKtm
Breakfast Bowl. In addition, system-wide comparable sales growth
for the fiscal year was adversely affected by negative
comparable sales growth in the Latin America segment and adverse
weather conditions in the U.S., U.K. and Germany, which severely
impacted sales and traffic during the months of January and
February. Negative comparable sales growth in the U.S. and
Canada and Latin America segments was partially offset by
positive comparable sales growth in EMEA/APAC, primarily driven
by positive comparable sales growth in Spain, the U.K., Turkey,
Australia and New Zealand, partially offset by negative
comparable sales growth in Germany.
Positive system-wide comparable sales growth of 1.2% (in
constant currencies) for the fiscal year ended June 30,
2009, was due to positive comparable sales growth across all
reportable segments, driven by the EMEA/APAC segment. Positive
comparable sales were primarily driven by our strategic pricing
initiatives, operational improvements, value-driven promotions
such as the King
Dealstm
in Germany, the U.K. and Spain and the Whopper sandwich
and Whopper
Jr.®
sandwich value meal promotions in Australia, as well as high
quality premium products such as Whopper sandwich limited
time offers throughout the segment. Although comparable sales
for the period were positive in the U.S. and Canada,
comparable sales for the period were negatively impacted by
significant traffic declines during the third and fourth fiscal
quarters, driven by continued adverse macroeconomic conditions,
including higher unemployment, more customers eating at home and
heavy discounting by other restaurant chains. In Latin America,
although comparable sales increased, our sales performance was
negatively impacted by significant traffic declines in the third
and fourth fiscal quarters, particularly in Mexico, due to
continued adverse socioeconomic conditions and the resulting
slowdown in tourism, the H1N1 flu pandemic in Mexico and South
America, the devaluation of local currencies and lower influx of
remittances from the U.S. Comparable sales in fiscal 2009
were also adversely affected by softer performance in Puerto
Rico due to the introduction of a VAT tax, which negatively
affected disposable income.
Average
Restaurant Sales
Average restaurant sales at all Company and franchise
restaurants, or ARS, is an important measure of the financial
performance of our restaurants and changes in the overall
direction and trends of sales. ARS is influenced mostly by
comparable sales performance and restaurant openings and
closures and also includes the impact of movement in currency
exchange rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
|
|
|
|
|
|
|
|
|
December 31,
|
|
For the Fiscal Years Ended June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
2008
|
|
|
(In thousands)
|
|
System-wide Average Restaurant Sales
|
|
$
|
622
|
|
|
$
|
641
|
|
|
$
|
1,244
|
|
|
$
|
1,259
|
|
|
$
|
1,301
|
|
System-wide ARS decreased during the Transition Period,
primarily as a result of negative system-wide comparable sales
growth of 2.7% (in constant currencies) and $4,000 of
unfavorable impact from the movement of currency exchange rates.
System-wide ARS decreased during fiscal 2010, primarily as a
result of negative system-wide comparable sales growth of 2.3%
(in constant currencies) partially offset by $15,000 of
favorable impact from the movement of currency exchange rates.
System-wide ARS decreased during fiscal 2009, primarily a result
of $55,000 of unfavorable impact from the movement of currency
exchange rates, partially offset by system-wide comparable sales
growth of 1.2% (in constant currencies).
44
Sales
Growth
Sales growth refers to the change in sales at all Company and
franchise restaurants in one period from the same period in the
prior year. Sales growth is an important indicator of the
overall direction and trends of sales and income from operations
on a system-wide basis. Sales growth is influenced by restaurant
openings and closures and comparable sales growth, as well as
the effectiveness of our advertising and marketing initiatives
and featured products.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
|
|
For the Fiscal Years Ended
|
|
|
December 31,
|
|
June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
2008
|
|
|
(In constant currencies)
|
|
Sales Growth:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
|
(4.4
|
)%
|
|
|
(3.1
|
)%
|
|
|
(3.1
|
)%
|
|
|
1.2
|
%
|
|
|
6.0
|
%
|
EMEA/APAC
|
|
|
11.0
|
%
|
|
|
8.0
|
%
|
|
|
13.1
|
%
|
|
|
9.7
|
%
|
|
|
12.6
|
%
|
Latin America
|
|
|
18.6
|
%
|
|
|
(0.1
|
)%
|
|
|
4.8
|
%
|
|
|
8.5
|
%
|
|
|
13.1
|
%
|
Total System-wide Sales Growth
|
|
|
2.2
|
%
|
|
|
0.4
|
%
|
|
|
2.1
|
%
|
|
|
4.2
|
%
|
|
|
8.3
|
%
|
System-wide sales growth for the Transition Period was positive,
primarily as a result of a net increase of 173 restaurants
during the trailing twelve-month period and positive comparable
sales growth in Latin America, partially offset by negative
comparable sales growth in the U.S. and Canada segment.
System-wide sales growth for the fiscal year ended June 30,
2010 was positive, primarily as result of a net increase of 249
restaurants in fiscal 2010 and positive comparable sales growth
in EMEA/APAC, partially offset by negative comparable sales
growth in the U.S. and Canada and Latin America.
System-wide sales growth for the fiscal year ended June 30,
2009 was positive, primarily due to a net increase of 360
restaurants in fiscal 2009 and positive system-wide comparable
sales growth driven by EMEA/APAC.
Factors
Affecting Comparability of Results of Operations
The
Transactions
The Acquisition was accounted for using the acquisition method
of accounting, or acquisition accounting, in accordance with
Financial Accounting Standard Board (FASB)
Accounting Standard Codification (ASC) Topic 805,
Business Combinations. Acquisition accounting provides a
period of up to one year to obtain the information necessary to
finalize the fair value of all assets acquired and liabilities
assumed at October 19, 2010. As of December 31, 2010
we have recorded preliminary acquisition accounting allocations.
Acquisition accounting resulted in certain items that affect the
comparability of the results of operations between us and our
Predecessor, including changes in asset carrying values (and
related depreciation and amortization), changes in favorable and
unfavorable leases (and related amortization) and expenses
related to incurring the debt that financed the Acquisition that
were capitalized and amortize as interest expense. Refer to
Note 1 of the accompanying audited Consolidated Financial
Statements included in Part II, Item 8 Financial
Statements and Supplementary Data describing the
preliminary allocation of consideration to the net tangible and
intangible assets acquired and liabilities assumed.
In connection with the Transactions, fees and expenses related
to the Transactions totaled $91.2 million, including
(1) $43.2 million consisting principally of investment
banking and legal fees, (2) compensation related expenses
of $34.5 million (which are included as a component of our
general and administrative expenses) and (3) commitment
fees of $13.5 million associated with the bridge loan
available at the closing of the Transactions, which are included
as a component of our interest expense.
Additionally, our interest expense is significantly higher
following the Transactions than experienced by our Predecessor
in prior periods due to the higher principal amount of debt
outstanding during the Transition Period.
45
Restructuring
Plan
As discussed above, on December 6, 2010, we began the
implementation of a global restructuring plan that resulted in
work force reductions throughout our organization. As a result
of the work force reductions in North America and Latin America,
we incurred total charges of approximately $41 million
related to severance benefits and other severance-related
expenses during the quarter ended December 31, 2010.
Additionally, as of December 31, 2010 we incurred total
charges of approximately $16 million related to severance
benefits and other severance-related expenses in our EMEA and
APAC regions.
The table below summarizes the factors affecting comparability
of results of operations due to acquisition accounting, the
restructuring plan and transaction costs incurred in connection
with the Transactions.
|
|
|
|
|
|
|
Successor
|
|
|
|
For the Period from
|
|
|
|
October 19, 2010 to
|
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
The Transactions:
|
|
|
|
|
Revenues:
|
|
|
|
|
Property revenues
|
|
$
|
0.2
|
|
|
|
|
|
|
Total effect on revenues
|
|
$
|
0.2
|
|
|
|
|
|
|
Occupancy and other operating costs:
|
|
|
|
|
Depreciation building and leasehold improvements
|
|
$
|
2.4
|
|
Amortization favorable/unfavorable leases
|
|
|
1.5
|
|
Lease straightline adjustment
|
|
|
0.3
|
|
|
|
|
|
|
Total effect on occcupancy and other operating costs
|
|
$
|
4.2
|
|
|
|
|
|
|
Selling, general and administrative expenses:
|
|
|
|
|
Amortization of franchise agreements
|
|
$
|
6.2
|
|
Compensation related
|
|
|
34.5
|
|
Transaction costs
|
|
|
43.2
|
|
|
|
|
|
|
Total effect on selling, general and administrative expenses
|
|
$
|
83.9
|
|
|
|
|
|
|
Property expenses:
|
|
|
|
|
Depreciation building and leasehold improvements
|
|
$
|
0.5
|
|
Amortization favorable/unfavorable leases
|
|
|
0.9
|
|
Lease straightline adjustment
|
|
|
0.2
|
|
|
|
|
|
|
Total effect on property expenses
|
|
$
|
1.6
|
|
|
|
|
|
|
Total effect of the Transactions on Income (loss) from
Operations
|
|
$
|
(89.5
|
)
|
|
|
|
|
|
Restructuring:
|
|
|
|
|
Selling, general and administrative expenses:
|
|
|
|
|
Compensation related
|
|
$
|
10.1
|
|
Severance
|
|
|
57.1
|
|
|
|
|
|
|
Total effect of restructuring on Income (loss) from
Operations
|
|
$
|
(67.2
|
)
|
|
|
|
|
|
Total effect on Income (loss) from Operations
|
|
$
|
(156.7
|
)
|
|
|
|
|
|
Total effect on Interest expense
|
|
$
|
53.8
|
|
|
|
|
|
|
46
Results
of Operations
The following table presents our results of operations for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
|
For the Period of
|
|
|
|
For the Period of
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
October 19, 2010 to
|
|
|
|
July 1, 2010 to
|
|
|
Six Months Ended
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2010
|
|
|
|
October 18, 2010
|
|
|
December 31, 2009
|
|
|
Increase/
|
|
|
|
Amount
|
|
|
Amount
|
|
|
|
Amount
|
|
|
Amount
|
|
|
(Decrease)
|
|
|
|
(In millions, except percentages)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant revenues
|
|
$
|
846.2
|
|
|
$
|
331.7
|
|
|
|
$
|
514.5
|
|
|
$
|
946.0
|
|
|
|
(11
|
)%
|
Franchise revenues
|
|
|
280.7
|
|
|
|
111.5
|
|
|
|
|
169.2
|
|
|
|
279.0
|
|
|
|
1
|
%
|
Property revenues
|
|
|
56.6
|
|
|
|
22.6
|
|
|
|
|
34.0
|
|
|
|
57.3
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,183.5
|
|
|
|
465.8
|
|
|
|
|
717.7
|
|
|
|
1,282.3
|
|
|
|
(8
|
)%
|
Company restaurant expenses
|
|
|
738.6
|
|
|
|
294.1
|
|
|
|
|
444.5
|
|
|
|
819.6
|
|
|
|
(10
|
)%
|
Selling, general and administrative expenses
|
|
|
397.0
|
|
|
|
240.2
|
|
|
|
|
156.8
|
|
|
|
256.9
|
|
|
|
55
|
%
|
Property expenses
|
|
|
33.2
|
|
|
|
14.7
|
|
|
|
|
18.5
|
|
|
|
29.5
|
|
|
|
13
|
%
|
Other operating (income) expenses, net
|
|
|
(15.3
|
)
|
|
|
(11.7
|
)
|
|
|
|
(3.6
|
)
|
|
|
5.1
|
|
|
|
(NM
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
1,153.5
|
|
|
|
537.3
|
|
|
|
|
616.2
|
|
|
|
1,111.1
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
30.0
|
|
|
|
(71.5
|
)
|
|
|
|
101.5
|
|
|
|
171.2
|
|
|
|
(82
|
)%
|
Interest expense, net
|
|
|
75.6
|
|
|
|
61.0
|
|
|
|
|
14.6
|
|
|
|
24.7
|
|
|
|
206
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(45.6
|
)
|
|
|
(132.5
|
)
|
|
|
|
86.9
|
|
|
|
146.5
|
|
|
|
(131
|
)%
|
Income tax expense (benefit)
|
|
|
(11.1
|
)
|
|
|
(26.9
|
)
|
|
|
|
15.8
|
|
|
|
49.7
|
|
|
|
(122
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(34.5
|
)
|
|
$
|
(105.6
|
)
|
|
|
$
|
71.1
|
|
|
$
|
96.8
|
|
|
|
(136
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM Not meaningful
Six
Months Ended December 31, 2010 Compared to the Six Months
Ended December 31, 2009
The combined financial data for the Transition Period do not
comply with generally accepted accounting principles and are not
intended to represent what our operating results would have been
if the Transactions had occurred at the beginning of the period
because the periods being combined are under two different bases
of accounting as a result of the Merger on October 19,
2010. See Factors Affecting Comparability The
Transactions.
Revenues
Company
restaurant revenues
Total Company restaurant revenues decreased by
$99.8 million, or 11%, to $846.2 million for the
Transition Period, compared to the same period in the prior
year, primarily due to a net decrease of 78 Company restaurants
during the trailing twelve-month period ended December 31,
2010 (net of closures and sales of Company restaurants to
franchisees, or refranchisings), including the net
refranchising of 82 Company restaurants as part of our ongoing
portfolio management initiative. Company restaurant revenues
also decreased as a result of negative worldwide Company
comparable sales growth of 3.8% (in constant currencies) and
$8.9 million of unfavorable impact from the movement of
currency exchange rates.
In the U.S. and Canada, Company restaurant revenues
decreased by $57.9 million, or 9%, to $599.1 million
for the Transition Period, compared to the same period in the
prior year. This decrease was the result of negative Company
comparable sales growth of 4.9% (in constant currencies) and a
net decrease of 45 Company restaurants during the trailing
twelve-month period ended December 31, 2010, including the
net refranchising of 44 Company
47
restaurants as part of our ongoing portfolio management
initiative. These factors were partially offset by
$3.3 million of favorable impact from the movement of
currency exchange rates in Canada.
In EMEA/APAC, Company restaurant revenues decreased by
$42.8 million, or 17%, to $215.7 million for the
Transition Period, compared to the same period in the prior
year, primarily due to $13.5 million of unfavorable impact
from the movement of currency exchange rates, a net decrease of
35 Company restaurants during the trailing twelve-month period
ended December 31, 2010, including the net refranchising of
38 Company restaurants as part of our ongoing portfolio
management initiative, and negative Company comparable sales
growth of 0.7% (in constant currencies).
In Latin America, where all Company restaurants are located in
Mexico, Company restaurant revenues increased by
$0.9 million, or 3%, to $31.4 million for the
Transition Period, compared to the same period in the prior
year. The increase was primarily the result of a net increase of
two Company restaurants during the trailing twelve-month period
ended December 31, 2010 and $1.4 million of favorable
impact from the movement of currency exchange rates, partially
offset by negative Company comparable sales growth of 3.1% (in
constant currencies).
Franchise
revenues
Franchise revenues consist of royalties based on a percentage of
sales reported by franchise restaurants and franchise fees paid
to us by our franchisees. Total franchise revenues increased by
$1.7 million, or 1%, to $280.7 million for the
Transition Period, compared to the same period in the prior
year, primarily due to a net increase of 251 franchise
restaurants during the trailing twelve-month period ended
December 31, 2010, including the net refranchising of 82
Company restaurants, and a higher effective royalty rate in
EMEA. These factors were partially offset by negative worldwide
franchise comparable sales growth of 2.5% (in constant
currencies), $3.2 million of unfavorable impact from the
movement of currency exchange rates and a $0.5 million
reduction in initial franchise fees.
In the U.S. and Canada, franchise revenues decreased by
$6.5 million, or 4%, to $152.3 million for the
Transition Period, compared to the same period in the prior
year. This decrease was primarily the result of negative
franchise comparable sales growth in the U.S. and Canada of
5.0% (in constant currencies), an $0.8 million reduction in
renewal franchise fees and a $0.7 million reduction in
initial franchise fees primarily in the U.S. These factors
were partially offset by a net increase of 50 franchise
restaurants, including the net refranchising of 44 Company
restaurants during the trailing twelve-month period ended
December 31, 2010. The impact from the movement of currency
exchange rates was not significant in this segment for the
period.
Franchise revenues in EMEA/APAC increased by $4.4 million,
or 5%, to $101.0 million for the Transition Period,
compared to the same period in the prior year. This increase was
primarily due to a net increase of 168 franchise
restaurants during the trailing twelve-month period ended
December 31, 2010, including the net refranchising of 38
Company restaurants, and a higher effective royalty rate in EMEA
driven by refranchisings in Germany and the Netherlands.
Partially offsetting these factors was $3.8 million of
unfavorable impact from the movement of currency exchange rates
and negative franchise comparable sales growth of 0.2% (in
constant currencies) due to negative comparable sales growth in
EMEA of 0.6% (in constant currencies), partially offset by
positive comparable sales growth in APAC of 1.2% (in constant
currencies).
Latin America franchise revenues increased by $3.8 million,
or 16%, to $27.4 million for the Transition Period,
compared to the same period in the prior year. The increase was
primarily the result of a net increase of 33 franchise
restaurants during the trailing twelve-month period ended
December 31, 2010, positive franchise comparable sales
growth of 6.8% (in constant currencies), a $0.4 million
increase in initial franchise fees primarily in Brazil and
$0.5 million of favorable impact from the movement of
currency exchange rates.
Property
Revenues
Property revenues are derived from restaurants that we lease or
sublease to franchisees. Total property revenues decreased by
$0.7 million, or 1%, to $56.6 million for the
Transition Period, compared to the same period in the prior
year. Total property revenues decreased due to the net effect of
changes to our portfolio of properties leased to franchisees,
decreased revenues from percentage rents as a result of negative
franchise comparable sales
48
growth in the U.S. and $0.5 million of unfavorable
impact from the movement of currency exchange rates, partially
offset by acquisition accounting adjustments of
$0.2 million.
In the U.S. and Canada, property revenues increased by
$0.9 million, or 2%, to $46.3 million for the
Transition Period, compared to the same period in the prior
year. This increase was primarily due to an increase in the
number of properties in our portfolio of properties leased to
franchisees in the U.S., which includes the impact of
refranchising Company restaurants and opening new restaurants
leased or subleased to franchisees, and acquisition accounting
adjustments of $0.2 million. These increases were partially
offset by decreased revenues from percentage rents as a result
of negative franchise comparable sales growth in the U.S.
Property revenues in EMEA/APAC decreased by $1.6 million,
or 13%, to $10.3 million for the Transition Period,
compared to the same period in the prior year, due to a
reduction in the number of properties in our portfolio of
properties leased to franchisees and $0.6 million of
unfavorable impact from the movement of currency exchange rates.
Operating
Costs and Expenses
Food,
paper and product costs
Total food, paper and product costs decreased by
$34.6 million, or 12%, to $265.2 million during the
Transition Period, compared to the same period in the prior
year, primarily as a result of an 11% decrease in Company
restaurant revenues and $2.1 million of favorable impact
from the movement of currency exchange rates, primarily in EMEA.
These factors were partially offset by higher commodity prices
in the U.S. We expect these elevated price levels to
persist into fiscal 2011.
As a percentage of Company restaurant revenues, total food,
paper and product costs decreased 0.4% to 31.3% during the
Transition Period, compared to the same period in the prior
year. The benefits realized from strategic pricing initiatives
in the U.S. and Canada segment and changes in product mix
in Latin America were partially offset by increased food cost as
a percentage of revenue in EMEA/APAC.
In the U.S. and Canada, food, paper and product costs
decreased by $23.3 million, or 11%, to $189.5 million
during the Transition Period, compared to the same period in the
prior year, primarily as a result of a 9% decrease in Company
restaurant revenues. These factors were partially offset by
higher commodity prices in the U.S. and $1.1 million
of unfavorable impact from the movement of currency exchange
rates in Canada. Food, paper and product costs in the
U.S. and Canada as a percentage of Company restaurant
revenues decreased by 0.8% to 31.6%, primarily due to
discontinued value promotions, such as the
1/4
lb. Double Cheeseburger, and the successful launch of
higher-priced premium products, partially offset by higher
commodity prices in the U.S.
In EMEA/APAC, food, paper and product costs decreased by
$11.4 million, or 15%, to $63.5 million for the
Transition Period, compared to the same period in the prior
year, primarily as a result of a 17% decrease in Company
restaurant revenues and $3.7 million of favorable impact
from the movement of currency exchange rates, primarily in EMEA.
Food, paper and product costs as a percentage of Company
restaurant revenues increased by 0.4% to 29.4%, primarily due
the refranchising of 22 Company restaurants in the Netherlands
that historically generated higher margins than the rest of the
region.
In Latin America, food, paper and product costs increased by
$0.1 million, or 0.8%, to $12.2 million for the
Transition Period, compared to the same period in the prior
year, primarily as a result of $0.5 million of unfavorable
impact from the movement of currency exchange rates, partially
offset by a 3% decrease in Company restaurant revenues. Food,
paper and product costs as a percentage of Company restaurant
revenues decreased by 0.8% to 38.9%, primarily due to changes in
product mix.
Payroll
and employee benefits costs
Payroll and employee benefits costs represent the wages paid to
Company restaurant managers and staff, as well as the cost of
their health insurance, other benefits and training. Total
payroll and employee benefits costs decreased by
$38.7 million, or 13%, to $252.5 million for the
Transition Period, compared to the same period in the prior
year. This decrease was primarily due to the net decrease of 78
Company restaurants during the trailing twelve-
49
month period ended December 31, 2010, including the net
refranchising of 82 Company restaurants, $3.4 million of
favorable impact from the movement of currency exchange rates
and improved labor efficiencies in the U.S. and Canada and
EMEA/APAC segments.
As a percentage of Company restaurant revenues, total payroll
and employee benefits costs decreased by 1.0% to 29.8%,
primarily due to benefits realized from improvements in variable
labor controls and scheduling in our U.S. restaurants, as
well as improved labor efficiencies in APAC and the U.K. These
factors were partially offset by the adverse impact of sales
deleverage on our fixed labor costs due to negative Company
comparable sales growth across all segments.
In the U.S. and Canada, payroll and employee benefits costs
decreased by $18.7 million, or 9%, to $184.8 million
during the Transition Period, compared to the same period in the
prior year, primarily due the net reduction of 45 Company
restaurants during the trailing twelve-month period ended
December 31, 2010, including the net refranchising of 44
Company restaurants, and improvements in variable labor controls
and scheduling in our U.S. restaurants. These factors were
partially offset by $1.1 million of unfavorable impact from
the movement of currency exchange rates and a statutory increase
in the hourly wage rate in Canada. As a percentage of Company
restaurant revenues, payroll and employee benefits costs
decreased by 0.2% to 30.8%, with the benefits realized from
improvements in variable labor controls and scheduling in our
U.S. restaurants largely offset by the adverse impact of
sales deleverage on our fixed labor costs and an increase in the
hourly wage rate in Canada.
In EMEA/APAC, payroll and employee benefits costs decreased by
$20.0 million, or 24%, to $63.9 million during the
Transition Period, compared to the same period in the prior
year, primarily as a result of $4.7 million of favorable
impact from the movement of currency exchange rates and the net
decrease of 35 Company restaurants during the trailing
twelve-month period ended December 31, 2010, including the
net refranchising of 38 Company restaurants. Payroll and
employee benefits costs also decreased due to improved labor
efficiencies in APAC and the U.K. As a percentage of Company
restaurant revenues, payroll and employee benefit costs
decreased by 2.9% to 29.6% primarily as a result of an increase
in the number of restaurants in Singapore, where labor rates are
generally lower than the rest of EMEA/APAC, as a result of the
acquisition of 35 restaurants in Singapore in March 2010, and
improved labor efficiencies in APAC and the U.K.
In Latin America, payroll and employee benefits costs remained
unchanged at $3.8 million during the Transition Period,
compared to the same period in the prior year, primarily as a
result of improved labor efficiencies offset by the net increase
of two Company restaurants during the trailing twelve-month
period ended December 31, 2010. As a percentage of Company
restaurant revenues, payroll and employee benefit costs
decreased by 0.4% to 12.1% primarily as a result improved labor
efficiencies.
Occupancy
and other operating costs
Occupancy and other operating costs represent rent, utility
costs, insurance, repairs and maintenance costs, depreciation
for restaurant property and other operating costs. Total
occupancy and other operating costs decreased by
$7.7 million, or 3%, to $220.9 million during the
Transition Period, compared to the same period in the prior
year, primarily due to the net decrease of 78 Company
restaurants during the trailing twelve-month period ended
December 31, 2010, including the net refranchising of 82
Company restaurants, and a $2.0 million of favorable impact
from the movement of currency exchange rates. The decrease in
occupancy and other operating costs was also due to a favorable
adjustment to the self-insurance reserve in the U.S. and
Canada and a decrease in start up expenses due to fewer openings
in the current period compared to same period in the prior year.
These factors were partially offset by a $4.2 million
negative impact resulting from preliminary acquisition
accounting adjustments.
As a percentage of Company restaurant revenues, total occupancy
and other operating costs increased by 2.0% to 26.1% during the
Transition Period, compared to the same period in the prior
year, primarily as a result of the adverse impact of sales
deleverage on our fixed occupancy and other operating costs, due
to negative Company comparable sales growth across all segments,
and the impact of acquisition accounting adjustments, partially
offset by a favorable adjustment to the self-insurance reserve
in the U.S. and Canada.
50
In the U.S. and Canada, occupancy and other operating costs
decreased by $2.7 million, or 2%, to $145.2 million
during the Transition Period, compared to the same period in the
prior year. This decrease was primarily driven by the net
reduction of 45 Company restaurants during the trailing twelve
months ended December 31, 2010, including the net
refranchising of 44 Company restaurants. Occupancy and other
operating costs also decreased due to favorable adjustments to
the self-insurance reserve. We made a $1.5 million
favorable adjustment to the self insurance reserve to adjust our
incurred but not reported confidence level and an additional
$3.2 million favorable adjustment to the self insurance
reserve as a result of favorable developments in our claim
trends. Refer to Note 21 of the accompanying audited
Consolidated Financial Statements included in Part II,
Item 8 Financial Statements and Supplementary
Data. These factors were partially offset by a
$3.5 million effect of preliminary acquisition accounting
and $0.8 million of unfavorable impact from the movement of
currency exchange rates in Canada. As a percentage of Company
restaurant revenues, occupancy and other operating costs
increased by 1.7% to 24.2% due to the adverse impact of sales
deleverage on our fixed occupancy and other operating costs and
the impact of acquisition accounting partially offset by
favorable adjustments to the self-insurance reserve.
In EMEA/APAC, occupancy and other operating costs decreased by
$6.3 million, or 9%, to $65.8 million during the
Transition Period, compared to the same period in the prior
year. The decrease was primarily due to the net decrease of 35
Company restaurants during the trailing twelve-month period
ended December 31, 2010, including the net refranchising of
38 Company restaurants, and $3.2 million of favorable
impact from the movement of currency exchange rates, primarily
in EMEA. Occupancy and other operating costs also decreased due
to a decrease in start up expenses attributable to fewer
openings in the current period compared to same period in the
prior year. These decreases were partially offset by acquisition
accounting adjustments of $0.6 million. As a percentage of
Company restaurant revenues, occupancy and other operating costs
increased by 2.7% to 30.5%, primarily due to the adverse impact
of sales deleverage on our fixed occupancy and other operating
costs in EMEA and the impact of acquisition accounting
adjustments, partially offset by positive Company comparable
sales growth in APAC.
In Latin America, occupancy and other operating costs increased
by $1.3 million, or 15%, to $9.9 million during the
Transition Period, compared to the same period in the prior
year, primarily attributable to $0.4 million of unfavorable
impact from the movement of currency exchange rates, higher
utility costs primarily due to a non-recurring charge in the
current period, the net increase of two Company restaurants
during the trailing twelve-month period ended December 31,
2010 and acquisition accounting adjustments of
$0.1 million. As a percentage of Company restaurant
revenues, occupancy and other operating costs increased by 3.4%
to 31.5%, primarily as a result of the negative impact of sales
deleverage on our fixed occupancy and other operating costs and
higher utility costs.
Selling,
general and administrative expenses
Our selling, general and administrative expenses include the
costs of field management for Company and franchise restaurants,
costs of our operational excellence programs (including program
staffing, training and restaurant food safety certifications),
corporate overhead including corporate salaries and facilities,
advertising and bad debt expense, net of recoveries and
amortization of franchise agreements.
Selling expenses decreased by $5.1 million, or 11%, to
$42.0 million for the Transition Period, compared to the
same period in the prior year, primarily due to a
$4.1 million reduction in contributions to the marketing
funds in our Company restaurant markets as a result of an 11%
decrease in Company restaurant revenues, a $0.8 million
decrease in sales promotions and $0.5 million of favorable
impact from the movement of currency exchange rates for the
Transition Period.
General and administrative expenses increased by
$145.2 million, or 69%, to $355.0 million for the
Transition Period, driven by a $151.1 million increase
attributable to the Transactions and the one-time costs
associated with implementation of our restructuring plan.
Additionally, an increase in bad debt expense of $3.6 and a
$1.6 million increase in a sales tax audit reserve compared
to the same period in the prior year were partially offset by
savings from reductions in travel and meetings of
$3.6 million, a decrease in stock based compensation of
$3.1 million and a
51
decrease in office operating expense of $1.6 million. The
increase in general and administrative expenses also reflects
$6.3 million of favorable impact from the movement of
currency exchange rates for the Transition Period.
As a result of the restructuring plan, we estimate that the
overall salary and fringe expense included in general and
administrative expenses will decrease on an annual run rate
basis by approximately $55 million to $70 million.
Additionally, as a result of the initial implementation of our
Zero Based Budgeting program, we expect to significantly reduce
other corporate general and administrative expenses, including
travel, technology, rental, maintenance, recruiting, utilities,
training and communication costs, as well as professional fees.
However, we are unable to determine the expected timing of the
benefits from theses cost reductions. Additionally, if we are
unable to maintain our operations with a reduced workforce, we
may incur additional general and administrative expenses and
therefore may not achieve these estimated cost reductions.
Property
Expenses
Property expenses include costs of depreciation and rent on
properties we lease and sublease to franchisees. Total property
expenses increased by $3.7 million, or 13%, to
$33.2 million for the Transition Period, compared to the
same period in the prior year, primarily attributable to a
$1.6 million effect from preliminary acquisition
accounting, increased rent expense resulting from the net effect
of changes to our property portfolio in the U.S. and an
increase in bad debt expense of $0.9 million. These factors
were partially offset by $0.5 million of favorable impact
from the movement of currency exchange rates and decreased rent
expense from a reduction in the number of properties leased to
franchisees in EMEA.
Other
operating (income) expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
For the
|
|
|
For the Period of
|
|
|
|
For the Period of
|
|
|
For the
|
|
|
|
Six Months Ended
|
|
|
October 19, 2010 to
|
|
|
|
July 1, 2010 to
|
|
|
Six Months Ended
|
|
|
|
December 31, 2010
|
|
|
December 31, 2010
|
|
|
|
October 18, 2010
|
|
|
December 31, 2009
|
|
Net (gains) losses on disposal of assets, restaurant closures
and refranchisings
|
|
$
|
(0.2
|
)
|
|
$
|
3.0
|
|
|
|
$
|
(3.2
|
)
|
|
$
|
1.0
|
|
Litigation settlements and reserves, net
|
|
|
6.3
|
|
|
|
4.8
|
|
|
|
|
1.5
|
|
|
|
0.7
|
|
Foreign exchange net (gains) losses
|
|
|
(20.2
|
)
|
|
|
(18.8
|
)
|
|
|
|
(1.4
|
)
|
|
|
1.1
|
|
Other, net
|
|
|
(1.2
|
)
|
|
|
(0.7
|
)
|
|
|
|
(0.5
|
)
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating (income) expense, net
|
|
$
|
(15.3
|
)
|
|
$
|
(11.7
|
)
|
|
|
$
|
(3.6
|
)
|
|
$
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts included in litigation settlements and reserves, net
represent amounts reserved as our best estimate of losses to be
incurred in connection with the disposition of the litigation
matters further discussed in Note 21 of the accompanying
audited Consolidated Financial Statements included in
Part II, Item 8 Financial Statements and
Supplementary Data.
The increase in foreign exchange net (gains) losses for the
Transition Period compared to the same period in the prior year
is primarily due to the foreign exchange impact of the
250 million New Term Loan Facility. See Note 11
of the accompanying audited Consolidated Financial Statements
included in Part II, Item 8 Financial Statements
and Supplementary Data.
52
Income
(loss) from Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
For the
|
|
|
For the Period of
|
|
|
|
For the Period of
|
|
|
For the
|
|
|
|
Six Months Ended
|
|
|
October 19, 2010 to
|
|
|
|
July 1, 2010 to
|
|
|
Six Months Ended
|
|
|
|
December 31, 2010
|
|
|
December 31, 2010
|
|
|
|
October 18, 2010
|
|
|
December 31, 2009
|
|
Income (loss) from Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
$
|
177.9
|
|
|
$
|
59.1
|
|
|
|
$
|
118.8
|
|
|
$
|
181.3
|
|
EMEA/APAC
|
|
|
29.7
|
|
|
|
(2.9
|
)
|
|
|
|
32.6
|
|
|
|
42.8
|
|
Latin America
|
|
|
17.3
|
|
|
|
6.9
|
|
|
|
|
10.4
|
|
|
|
18.8
|
|
Unallocated
|
|
|
(194.9
|
)
|
|
|
(134.6
|
)
|
|
|
|
(60.3
|
)
|
|
|
(71.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) from operations
|
|
$
|
30.0
|
|
|
$
|
(71.5
|
)
|
|
|
$
|
101.5
|
|
|
$
|
171.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations decreased by $141.2 million, or 82%,
to $30.0 million during the Transition Period, compared to
the same period in the prior year, due to a $140.1 million
increase in selling, general and administrative expenses
primarily related to the impact of the Transactions and the
one-time costs associated with the implementation of our
restructuring plan, an $18.8 million decrease in Company
restaurant margin and a $4.4 million decrease in net
property revenue. These factors were partially offset by a
$20.4 million increase in other operating income, net and a
$1.7 million increase in franchise revenues. (See
Note 22 of the accompanying audited Consolidated Financial
Statements included in Part II, Item 8 Financial
Statements and Supplementary Data for segment information
disclosures).
For the Transition Period, the unfavorable impact on revenues
from the movement of currency exchange rates was partially
offset by the favorable impact of currency exchange rates on
Company restaurant expenses and selling, general and
administrative expenses, resulting in a net favorable impact on
income from operations of $2.1 million.
Interest
Expense, net
Interest expense, net increased by $50.9 million during the
Transition Period, compared to the same period in the prior
year, reflecting a $13.5 million bridge loan fee incurred
in connection with the Transactions, a $2.4 million loss on
early extinguishment of debt related to unamortized deferred
financing costs associated with the Predecessors term
loans and the effects of an increase in borrowings during the
period resulting from the Transactions as well as higher
interest rates, including the effect of the issuance of our
Senior Notes which bear interest at 9.875%. The weighted average
interest rate for the period of July 1, 2010 to
October 18, 2010 was 4.4% which included the impact of
interest rate swaps on 77% of our term debt. The weighted
average interest rate for the period of October 19, 2010 to
December 31, 2010, related to the $1,510.0 million
tranche and 250.0 million tranche under the New Term
Loan Facility was 6.82% and 7.11% for the period of
October 19, 2010 to December 31, 2010, respectively,
which included the effect of interest rate caps on 100% of our
term debt. We expect the interest expense associated with our
New Term Loan Facility to decrease as a result of the recent
refinancing of this facility, which lowered our interest rate
margins. However, aggregate interest expense will be
significantly higher in future periods than experienced by our
Predecessor in comparable periods as a result of our increased
indebtedness.
Income
Tax Benefit/Expense
Income tax benefit was $11.1 million for the Transition
Period, resulting in an effective tax rate of 24.3%, primarily
as a result of the Transactions and the current mix of income
from multiple tax jurisdictions. Income tax expense was
$49.7 million for the six months ended December 31,
2009, resulting in an effective tax rate of 33.9%, primarily as
a result of the mix of income from multiple tax jurisdictions
and currency fluctuations.
See Note 15 of the accompanying audited Consolidated
Financial Statements included in Part II, Item 8
Financial Statements and Supplementary Data for
further information regarding our effective tax rate.
53
Net
Loss/Income
Our net income (loss) decreased by $131.3 million, or 136%,
to a $34.5 million loss during the Transition Period,
compared to the same period in the prior year, driven by an
increase in selling, general and administrative expenses of
$140.1 million, primarily as a result of the Transactions
and the implementation of our restructuring plan, a
$50.9 million increase in interest expense, net, an
$18.8 million decrease in Company restaurant margin and a
$4.4 million decrease in net property revenue. These
factors were partially offset by a decrease in income tax
expense of $60.8 million, a $20.4 million increase in
other operating income, net and a $1.7 million increase in
franchise revenues.
The following table presents our results of operations for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
For the Fiscal Years Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
|
|
|
Increase/
|
|
|
|
Amount
|
|
|
Amount
|
|
|
(Decrease)
|
|
|
Amount
|
|
|
(Decrease)
|
|
|
|
(In millions, except percentages)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant revenues
|
|
$
|
1,839.3
|
|
|
$
|
1,880.5
|
|
|
|
(2
|
)%
|
|
$
|
1,795.9
|
|
|
|
5
|
%
|
Franchise revenues
|
|
|
549.2
|
|
|
|
543.4
|
|
|
|
1
|
%
|
|
|
537.2
|
|
|
|
1
|
%
|
Property revenues
|
|
|
113.7
|
|
|
|
113.5
|
|
|
|
0
|
%
|
|
|
121.6
|
|
|
|
(7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,502.2
|
|
|
|
2,537.4
|
|
|
|
(1
|
)%
|
|
|
2,454.7
|
|
|
|
3
|
%
|
Company restaurant expenses
|
|
|
1,614.8
|
|
|
|
1,643.7
|
|
|
|
(2
|
)%
|
|
|
1,538.0
|
|
|
|
7
|
%
|
Selling, general and administrative expenses
|
|
|
495.8
|
|
|
|
494.3
|
|
|
|
0
|
%
|
|
|
501.0
|
|
|
|
(1
|
)%
|
Property expenses
|
|
|
59.4
|
|
|
|
58.1
|
|
|
|
2
|
%
|
|
|
62.1
|
|
|
|
(6
|
)%
|
Other operating (income) expenses, net
|
|
|
(0.7
|
)
|
|
|
1.9
|
|
|
|
NM
|
|
|
|
(0.6
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
2,169.3
|
|
|
|
2,198.0
|
|
|
|
(1
|
)%
|
|
|
2,100.5
|
|
|
|
5
|
%
|
Income from operations
|
|
|
332.9
|
|
|
|
339.4
|
|
|
|
(2
|
)%
|
|
|
354.2
|
|
|
|
(4
|
)%
|
Interest expense, net
|
|
|
48.6
|
|
|
|
54.6
|
|
|
|
(11
|
)%
|
|
|
61.2
|
|
|
|
(11
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
284.3
|
|
|
|
284.8
|
|
|
|
(0
|
)%
|
|
|
293.0
|
|
|
|
(3
|
)%
|
Income tax expense
|
|
|
97.5
|
|
|
|
84.7
|
|
|
|
15
|
%
|
|
|
103.4
|
|
|
|
(18
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
186.8
|
|
|
$
|
200.1
|
|
|
|
(7
|
)%
|
|
$
|
189.6
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM Not meaningful
Fiscal
Year Ended June 30, 2010 Compared to Fiscal Year Ended
June 30, 2009
Revenues
Company
restaurant revenues
Total Company restaurant revenues decreased by
$41.2 million, or 2%, to $1,839.3 million for the
fiscal year ended June 30, 2010, compared to the prior
fiscal year, primarily due to negative worldwide Company
comparable sales growth of 2.4% (in constant currencies) for the
period and the impact of a net decrease in the number of Company
restaurants during the fiscal year ended June 30, 2010,
principally due to the refranchising of 91 restaurants,
primarily in the U.S. and Germany, during the fiscal year
ended June 30, 2010. These factors were partially offset by
a $15.1 million favorable impact from the movement of
currency exchange rates for the period.
In the U.S. and Canada, Company restaurant revenues
decreased by $42.3 million, or 3%, to
$1,289.5 million, for the fiscal year ended June 30,
2010, compared to the prior fiscal year. The decrease was the
result of negative Company comparable sales growth in the
U.S. and Canada segment of 2.4% (in constant currencies)
for the fiscal
54
year ended June 30, 2010, primarily driven by negative
Company comparable sales growth in the U.S., partially offset by
positive Company comparable sales growth in Canada. Company
restaurant revenues also declined due to the impact of a net
decrease in the number of Company restaurants during the fiscal
year ended June 30, 2010 compared to the prior fiscal year,
driven primarily by the refranchising of 54 restaurants in the
U.S. during fiscal 2010. These factors were partially
offset by the favorable impact of $12.2 million from the
movement of currency exchange rates in Canada for the period.
Company restaurant revenues in EMEA/APAC remained relatively
unchanged at $489.2 million for the fiscal year ended
June 30, 2010, compared to the prior fiscal year, due to a
$4.6 million favorable impact from the movement of currency
exchange rates and the impact of a net increase in the number of
Company restaurants during the fiscal year. These factors were
partially offset by negative Company comparable sales growth in
EMEA/APAC of 2.1% (in constant currencies), primarily driven by
negative Company comparable sales growth in Germany, partially
offset by positive Company comparable sales growth in China,
Spain and the U.K.
In Latin America, where all Company restaurants are located in
Mexico, Company restaurant revenues increased by
$0.5 million, or 1%, to $60.6 million for the fiscal
year ended June 30, 2010, compared to the prior fiscal
year. The increase was primarily the result of the impact of a
net increase in the number of Company restaurants during the
fiscal year ended June 30, 2010, partially offset by
negative Company comparable sales growth of 4.1% (in constant
currencies) and a $1.7 million unfavorable impact from the
movement of currency exchange rates for the period.
Franchise
revenues
Total franchise revenues increased by $5.8 million, or 1%,
to $549.2 million for the fiscal year ended June 30,
2010, compared to the prior fiscal year. Total franchise
revenues increased as a result of a $5.6 million favorable
impact from the movement of currency exchange rates for the
period, the impact of a net increase in the number of franchise
restaurants during the fiscal year ended June 30, 2010 and
a higher effective royalty rate in the U.S., partially offset by
the unfavorable impact of negative worldwide franchise
comparable sales growth of 2.3% (in constant currencies) for the
period. Additionally, renewal franchise fees decreased by
$3.2 million, or 31%, compared to the prior fiscal year,
primarily due to fewer franchise agreement expirations and
temporary extensions of expired franchise agreements in the
U.S. Initial franchise fees decreased by $2.3 million,
or 16%, compared to the prior fiscal year, due to fewer
franchise restaurant openings, particularly in EMEA/APAC,
primarily as a result of a slow-down in commercial construction
due to the global recession.
In the U.S. and Canada, franchise revenues decreased by
$8.5 million, or 3%, to $314.6 million for fiscal year
ended June 30, 2010, compared to the prior fiscal year. The
decrease was primarily the result of negative franchise
comparable sales growth in the U.S. and Canada segment of
4.1% (in constant currencies) for the fiscal year ended
June 30, 2010, and a reduction in renewal franchise fees of
$2.9 million, or 31%, for the fiscal year ended
June 30, 2010, compared to the prior fiscal year. Renewal
franchise fees decreased primarily due to fewer franchise
agreement expirations and temporary extensions of expired
franchise agreements in the U.S. as discussed above. These
factors were partially offset by the impact of a net increase in
the number of franchise restaurants during the fiscal year ended
June 30, 2010 as well as an increase in the effective
royalty rate in the U.S. The impact from the movement of
currency exchange rates was not significant in this segment for
the period.
Franchise revenues in EMEA/APAC increased by $12.8 million,
or 7%, to $186.2 million for the fiscal year ended
June 30, 2010, compared to the prior fiscal year, due to
positive franchise comparable sales growth in EMEA/APAC of 1.2%
(in constant currencies), reflecting strong performance in
markets such as Turkey, Spain, Italy, Australia, New Zealand,
and Korea, a $4.3 million favorable impact from the
movement of currency exchange rates and the impact of a net
increase in the number of franchise restaurants during fiscal
2010. Partially offsetting these factors were negative franchise
comparable sales growth in Germany and the Netherlands and a
$2.0 million decrease in initial franchise fees due to
fewer franchise restaurant openings compared to the prior fiscal
year.
Latin America franchise revenues increased by $1.5 million,
or 3%, to $48.4 million for the fiscal year ended
June 30, 2010, compared to the prior fiscal year. The
increase was primarily the result of the favorable impact of
$0.7 million from the movement of currency exchange rates
for the fiscal year ended June 30, 2010, and the impact of
a net increase in the number of franchise restaurants during
fiscal 2010.
55
Property
Revenues
Total property revenues for the fiscal year ended June 30,
2010, remained relatively unchanged compared to the prior fiscal
year, reflecting the net effect of changes to our property
portfolio, which includes the impact of refranchising certain
Company restaurants and opening new restaurants leased or
subleased to franchisees, offset by reduced revenues from
percentage rents as a result of negative franchise comparable
sales growth in the U.S.
In the U.S. and Canada, property revenues increased by
$3.0 million, or 3%, to $91.1 million for the fiscal
year ended June 30, 2010, compared to the prior fiscal
year. The increase was primarily due to an increase in the
number of properties in our property portfolio in the
U.S. during the fiscal year, resulting primarily from
refranchisings and the favorable impact of $0.5 million
from the movement of currency exchange rates in Canada,
partially offset by decreased revenues from percentage rents
resulting from negative franchise comparable sales growth in the
U.S.
Property revenues in EMEA/APAC decreased by $2.8 million,
or 11%, to $22.6 million for the fiscal year ended
June 30, 2010, compared to the prior fiscal year. The
decrease was primarily driven by a reduction in the number of
properties in our property portfolio and a $0.3 million
unfavorable impact from the movement of currency exchange rates
for the period.
Operating
Costs and Expenses
Food,
paper and product costs
Total food, paper and product costs decreased by
$18.7 million, or 3%, to $585.0 million for the fiscal
year ended June 30, 2010, compared to the prior fiscal
year, primarily due to the reduction in Company restaurant
revenues discussed above and net decreases in commodity costs in
the U.S. and Canada segment for the fiscal year. These
factors were partially offset by the unfavorable impact from the
movement of currency exchange rates of $4.6 million. As a
percentage of Company restaurant revenues, total food, paper and
product costs decreased by 0.3% to 31.8% for the fiscal year
ended June 30, 2010, primarily due to lower commodity costs
in the U.S. and Canada segment and the benefits realized
from strategic pricing initiatives across all segments.
In the U.S. and Canada, food, paper and product costs
decreased by $20.4 million, or 5% to $419.6 million
for the fiscal year ended June 30, 2010, compared to the
prior fiscal year. The decrease was primarily due to the
reduction in Company restaurant revenues discussed above and
lower commodity costs in the U.S. for the fiscal year.
These factors were partially offset by the unfavorable impact
from the movement of currency exchange rates in Canada of
$4.0 million. Food, paper and product costs in the
U.S. and Canada as a percentage of Company restaurant
revenues decreased by 0.5% to 32.5%, primarily due to lower
commodity costs and the benefits realized from strategic pricing
initiatives.
In EMEA/APAC, food, paper and product costs increased by
$1.2 million, or 1%, to $141.8 million for the fiscal
year ended June 30, 2010, compared to the prior fiscal
year, primarily due to the unfavorable impact from the movement
of currency exchange rates of $1.3 million and a net
increase in the number of Company restaurants during the fiscal
year ended June 30, 2010. Food, paper and product costs as
a percentage of Company restaurant revenues remained relatively
unchanged at 29.0%.
In Latin America, food, paper and product costs increased
$0.5 million, or 2%, to $23.6 million for the fiscal
year ended June 30, 2010, compared to the same period in
the prior year, primarily as a result of the increase in Company
restaurant revenues discussed above and the favorable impact
from the movement of currency exchange rates of
$0.7 million, partially offset by increased commodity
costs. Food, paper and product costs as a percentage of Company
restaurant revenues increased by 0.5% to 38.9%, primarily as a
result of the higher commodity costs noted above, partially
offset by the benefits realized from strategic pricing
initiatives.
Payroll
and employee benefits costs
Total payroll and employee benefits costs decreased by
$13.5 million, or 2%, to $568.7 million for the fiscal
year ended June 30, 2010, compared to the prior fiscal
year. The decrease was primarily due to efficiencies gained from
improvements in variable labor controls and scheduling in our
U.S. and Canada segment and a net decrease in the number of
Company restaurants during the fiscal year ended June 30,
2010, partially offset by the unfavorable
56
impact from the movement of currency exchange rates of
$5.2 million. As a percentage of Company restaurant
revenues, total payroll and employee benefits costs remained
relatively unchanged at 30.9% during the fiscal year ended
June 30, 2010. The adverse impact of sales deleverage on
our fixed labor costs due to negative Company comparable sales
across all segments was offset by the improvements in variable
labor controls and scheduling in our U.S. and Canada
segment as noted above and labor efficiencies in our EMEA/APAC
segment.
In the U.S. and Canada, payroll and employee benefits costs
decreased by $14.1 million, or 3%, to $400.8 million
for the fiscal year ended June 30, 2010, compared to the
prior fiscal year, primarily due to a net decrease in the number
of Company restaurants and efficiencies gained from improvements
in variable labor controls in our U.S. Company restaurants.
Partially offsetting these factors was the unfavorable impact
from the movement of currency exchange rates of
$4.0 million in Canada and minimum wage increases in
certain U.S. markets. As a percentage of Company restaurant
revenues, payroll and employee benefits costs remained unchanged
at 31.1% due to the improvements in variable labor controls
noted above which were offset by the unfavorable impact of sales
deleverage on our fixed costs due to negative Company comparable
sales growth in the U.S. and minimum wage increases in
certain markets.
In EMEA/APAC, payroll and employee benefits costs increased by
$0.6 million, or 0.4%, to $160.5 million for the
fiscal year ended June 30, 2010, compared to the prior
fiscal year, primarily due to a $1.5 million unfavorable
impact from the movement of currency exchange rates, primarily
in EMEA, and a net increase in the number of Company restaurants
during the fiscal year as noted above. As a percentage of
Company restaurant revenues, payroll and employee benefit costs
increased by 0.1% to 32.8%, primarily due to the adverse impact
of sales deleverage on our fixed labor costs due to negative
comparable sales in Germany, partially offset by improved labor
productivity, primarily in APAC.
There was no significant change in payroll and employee benefits
costs in Latin America for the fiscal year ended June 30,
2010, compared to the prior fiscal year.
Occupancy
and other operating costs
Total occupancy and other operating costs increased by
$3.3 million, or 1%, to $461.1 million for the fiscal
year ended June 30, 2010, compared to the prior fiscal
year, primarily due to a $4.0 million unfavorable impact
from the movement of currency exchange rates, additional
depreciation expense resulting from an increase in depreciable
assets and accelerated depreciation associated with strategic
initiatives, such as our restaurant reimaging program and our
new POS system. These factors were partially offset by a net
decrease in the number of Company restaurants during the fiscal
year ended June 30, 2010, favorable adjustments to the
self-insurance reserve in the U.S., lower utility costs and
lower
start-up
expenses as a result of fewer Company restaurant openings and
acquisitions.
As a percentage of Company restaurant revenues, occupancy and
other operating costs increased by 0.8% to 25.1% for the fiscal
year ended June 30, 2010, compared to the prior fiscal
year, primarily as a result of the adverse impact of sales
deleverage on our fixed occupancy and other operating costs due
to negative Company comparable sales across all segments and the
increases in occupancy and other operating costs discussed
above. These factors were partially offset by the benefits
realized from favorable adjustments to the self-insurance
reserve in the U.S. as noted above.
In the U.S. and Canada, occupancy and other operating costs
decreased by $8.2 million, or 3%, to $298.6 million
for the fiscal year ended June 30, 2010, compared to the
prior fiscal year. The decrease was primarily driven by a net
reduction in the number of Company restaurants during the fiscal
year, favorable adjustments to the self-insurance reserve in the
U.S., lower utility costs and lower
start-up
expenses as a result of fewer Company restaurant openings and
acquisitions. These factors were partially offset by additional
depreciation expense resulting from an increase in depreciable
assets and accelerated depreciation associated with the
strategic initiatives discussed above, and a $3.0 million
unfavorable impact from the movement of currency exchange rates.
As a percentage of Company restaurant revenues, occupancy and
other operating costs increased by 0.1% to 23.2%, primarily due
to the adverse impact of sales deleverage on our fixed occupancy
and other operating costs and increased depreciation expense as
noted above, partially offset by the benefits realized from
adjustments to the self-insurance reserve in the U.S.
57
In EMEA/APAC, occupancy and other operating costs increased by
$11.5 million, or 9%, to $144.7 million for the fiscal
year ended June 30, 2010, compared to the prior fiscal
year. The increase was primarily due to a net increase in the
number of Company restaurants during the fiscal year, a
$1.4 million unfavorable impact from the movement of
currency exchange rates, primarily in EMEA, an increase in
start-up
expenses related to new restaurant openings and higher repair
and maintenance costs, primarily in Germany in conjunction with
our refranchising initiative. As a percentage of Company
restaurant revenues, occupancy and other operating costs
increased by 2.3% to 29.6%, primarily due to the adverse impact
of sales deleverage on our fixed occupancy and other operating
costs.
There was no significant change in occupancy and other operating
costs in Latin America for the fiscal year ended June 30,
2010, compared to the prior fiscal year.
Selling,
general and administrative expenses
Selling expenses decreased by $2.0 million, or 2%, to
$91.3 million for the fiscal year ended June 30, 2010,
compared to the prior fiscal year, primarily due to a
$3.5 million reduction in contributions to the marketing
funds in our Company restaurant markets as a result of lower
Company restaurants revenues. Partially offsetting this decrease
was an increase of $1.0 million of higher local marketing
expenditures aimed at driving incremental sales and
$0.6 million from the movement of currency exchange rates
for the period.
General and administrative expenses increased by
$3.5 million, or 1%, to $404.5 million for the fiscal
year ended June 30, 2010, compared to the prior fiscal
year, largely driven by an increase in professional fees of
$4.7 million, primarily related to information technology
initiatives, incremental depreciation expense of
$2.6 million due to a higher depreciable asset base
compared to prior year, and higher salary and fringe benefit
costs of $3.0 million including share-based compensation.
These items were partially offset by savings from reductions in
travel and meetings of $4.1 million and office operating
expenses of $3.2 million. These fluctuations include the
unfavorable impact from the movement of currency exchange rates
of $4.3 million for the fiscal year ended June 30,
2010.
Property
Expenses
Total property expenses increased by $1.3 million, or 2%,
to $59.4 million for the fiscal year ended June 30,
2010, compared to the prior fiscal year, primarily attributable
to increased rent expense resulting from the net effect of
changes to our property portfolio in the U.S. & Canada
segment, which includes the impact of refranchisings of Company
restaurants and opening new restaurants leased to franchisees.
These factors were partially offset by decreased rent expense
from a reduction in the number of properties leased to
franchisees in EMEA.
Other
operating (income) expense, net
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
For the Fiscal Years Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Net (gains) losses on disposal of assets restaurant closures and
refranchisings
|
|
$
|
(2.4
|
)
|
|
$
|
(8.5
|
)
|
Litigation settlements and reserves, net
|
|
|
(0.2
|
)
|
|
|
0.2
|
|
Foreign exchange net (gains) losses
|
|
|
(3.3
|
)
|
|
|
8.4
|
|
Other, net
|
|
|
5.2
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
Other operating (income) expense, net
|
|
$
|
(0.7
|
)
|
|
$
|
1.9
|
|
|
|
|
|
|
|
|
|
|
The $5.2 million of other, net within other operating
(income) expense, net for fiscal year ended June 30, 2010
includes a $2.4 million charge related to consumption tax
in EMEA, $1.5 million of severance costs related to
refranchisings in Germany, $1.0 million of franchise
workout costs and a $0.7 million contract termination fee,
partially offset by $1.1 million of income recorded in
connection with the expiration of gift cards in the U.S.
58
The $1.8 million of other, net within other operating
(income) expense, net for the fiscal year ended June 30,
2009 consists primarily of $1.7 million of franchise
workout costs.
Income
from Operations
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
For the Fiscal
|
|
|
|
Years Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Income from Operations:
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
$
|
346.7
|
|
|
$
|
345.7
|
|
EMEA/APAC
|
|
|
84.6
|
|
|
|
83.6
|
|
Latin America
|
|
|
38.2
|
|
|
|
37.8
|
|
Unallocated
|
|
|
(136.6
|
)
|
|
|
(127.7
|
)
|
|
|
|
|
|
|
|
|
|
Total income from operations
|
|
$
|
332.9
|
|
|
$
|
339.4
|
|
|
|
|
|
|
|
|
|
|
Income from operations decreased by $6.5 million, or 2%, to
$332.9 million during the fiscal year ended June 30,
2010, compared to the prior fiscal year, primarily as a result
of a decrease in Company restaurant margin of
$12.3 million, a $1.5 million increase in selling,
general and administrative expenses and a reduction in net
property revenue of $1.1 million, partially offset by a
$5.8 million increase in franchise revenues and a
$2.6 million decrease in other operating expense, net. (See
Note 23 to our audited Consolidated Financial Statements
for segment information disclosures).
For the fiscal year ended June 30, 2010, the favorable
impact on revenues from the movement of currency exchange rates
was partially offset by the unfavorable impact of currency
exchange rates on Company restaurant expenses and selling,
general and administrative expenses, resulting in a net
favorable impact on income from operations of $1.4 million.
In the U.S. and Canada, income from operations increased by
$1.0 million, or 0.3%, to $346.7 million during the
fiscal year ended June 30, 2010, compared to the prior
fiscal year, primarily as a result of a decrease in selling,
general and administrative expenses of $5.8 million, a
decrease in other operating expense, net of $4.9 million
and an increase in Company restaurant margin of
$0.4 million. These factors were partially offset by a
decrease in franchise revenues of $8.5 million and a
reduction in net property income of $1.6 million. The
increase also reflects a $0.3 million favorable impact from
the movement of currency exchange rates in Canada.
In EMEA/APAC, income from operations increased by
$1.0 million, or 1%, to $84.6 million during the
fiscal year ended June 30, 2010, compared to the prior
fiscal year, primarily as a result of a $12.8 million
increase in franchise revenues, a $2.3 million decrease in
selling, general and administrative expenses and an increase in
net property income of $0.5 million, partially offset by a
$12.7 million decrease in Company restaurant margin and a
$1.9 million decrease in other operating income, net. The
decrease also reflects a $0.8 million of favorable impact
from the movement of currency exchange rates.
In Latin America, income from operations increased by
$0.4 million, or 1%, to $38.2 million during the
fiscal year ended June 30, 2010, compared to the prior
fiscal year, primarily as a result of an increase in franchise
revenues of $1.5 million partially offset by a
$0.7 million increase in selling, general and
administrative expenses and $0.4 million increase in other
operating expense, net due to the reversal of a litigation
reserve in fiscal 2009. The increase also reflects a
$0.3 million favorable impact from the movement of currency
exchange rates.
Our unallocated corporate expenses increased by
$8.9 million for the fiscal year ended June 30, 2010,
compared to the prior fiscal year, primarily as a result of a
$6.6 million increase in unallocated payroll and other
expenses that benefit the entire system, a $2.4 million
increase in depreciation expense for corporate assets, a
$1.9 million increase in employee benefits and severance
expense and a $0.8 million increase in share-based
compensation expense, partially offset by a $2.4 million
reduction in incentive compensation and a $0.4 million
decrease in professional fees, primarily related to information
technology initiatives.
59
Interest
Expense, net
Interest expense, net decreased by $6.0 million for the
fiscal year ended June 30, 2010, compared to the prior
fiscal year, reflecting a decrease in borrowings and rates paid
on borrowings during the period. The weighted average interest
rates for the fiscal years ended June 30, 2010 and 2009
were 4.7% and 5.1% respectively, which included the effect of
interest rate swaps on an average of 73% and 71% of our term
debt, respectively.
Income
Tax Expense
Income tax expense was $97.5 million for the fiscal year
ended June 30, 2010, resulting in an effective tax rate of
34.3%, primarily as a result of the current mix of income from
multiple tax jurisdictions and currency fluctuations.
Net
Income
Our net income decreased by $13.3 million, or 7%, to
$186.8 million for the fiscal year ended June 30,
2010, compared to the prior fiscal year, primarily as a result
of a $12.8 million increase in income tax expense, a
decrease in Company restaurant margin of $12.3 million, a
$1.5 million increase in selling, general and
administrative expenses and a reduction in net property revenue
of $1.1 million. These factors were partially offset by a
$6.0 million decrease in interest expense, net, an increase
in franchise revenues of $5.8 million and a
$2.6 million improvement in other operating (income)
expense, net.
Fiscal
Year Ended June 30, 2009 compared to Fiscal Year Ended
June 30, 2008
Revenues
Company
Restaurant Revenues
Company restaurant revenues increased by $84.6 million, or
5%, to $1,880.5 million for the fiscal year ended
June 30, 2009, compared to the prior fiscal year. This
increase was primarily due to a net increase of 69 Company
restaurants, including the net acquisition of 36 franchise
restaurants during fiscal 2009, partially offset by
$80.5 million of unfavorable impact from the significant
movement of currency exchange rates.
In the United States and Canada, Company restaurant revenues
increased by $159.9 million, or 14%, to
$1,331.8 million for the fiscal year ended June 30,
2009, compared to the prior fiscal year. This increase was
primarily a result of a net increase of 59 Company restaurants
during fiscal 2009, including the net acquisition of
42 franchise restaurants, partially offset by
$20.6 million of unfavorable impact from the movement of
currency exchange rates in Canada.
In EMEA/APAC, Company restaurant revenues decreased by
$66.3 million, or 12%, to $488.6 million for the
fiscal year ended June 30, 2009, compared to the prior
fiscal year. This decrease was primarily due to a
$50.0 million unfavorable impact from the movement of
currency exchange rates and lost Company restaurant revenues due
to the refranchising of restaurants in the prior year, primarily
in Germany and the U.K. as part of our ongoing portfolio
management initiative.
In Latin America, Company restaurant revenues decreased by
$9.0 million, or 13%, to $60.1 million for the fiscal
year ended June 30, 2009, compared to the prior fiscal
year, primarily due to $10.0 million of unfavorable impact
from the movement of currency exchange rates and negative
Company comparable sales growth of 3.2% (in constant
currencies). However, this decrease was largely offset by a net
increase of eight Company restaurants during fiscal 2009.
Franchise
Revenues
Total franchise revenues increased by $6.2 million, or 1%,
to $543.4 million for the fiscal year ended June 30,
2009, compared to the prior fiscal year, primarily due to the
net increase of 291 franchise restaurants during fiscal 2009,
worldwide franchise comparable sales growth of 1.4% (in constant
currencies) and a higher effective royalty rate in the
U.S. These factors were partially offset by a
$24.2 million unfavorable impact from the movement of
currency exchange rates.
60
In the United States and Canada, franchise revenues increased by
$5.2 million, or 2%, to $323.1 million for the fiscal
year ended June 30, 2009, compared to the prior fiscal
year. This increase was the result of a higher effective royalty
rate in the U.S., partially offset by the loss of royalties from
37 fewer franchise restaurants compared to the same period in
the prior year, primarily due to the net acquisition of 42
franchise restaurants by the Company, and a $1.0 million
unfavorable impact from the movement of currency exchange rates
in Canada.
In EMEA/APAC, franchise revenues increased by $0.4 million,
or 0.2%, to $173.4 million for the fiscal year ended
June 30, 2009, compared the prior fiscal year. This
increase was primarily driven by a net increase of
260 franchise restaurants during fiscal 2009 and franchise
comparable sales growth of 3.3% (in constant currencies). These
factors were largely offset by a $20.4 million unfavorable
impact from the movement of currency exchange rates.
Latin America franchise revenues increased by $0.6 million,
or 1%, to $46.9 million for the fiscal year ended
June 30, 2009, compared to the prior fiscal year. This
increase was primarily a result of the net addition of
68 franchise restaurants during fiscal 2009 and franchise
comparable sales growth of 2.3% (in constant currencies).
However, these factors were largely offset by a
$2.8 million unfavorable impact from the movement of
currency exchange rates.
Property
Revenues
Total property revenues decreased by $8.1 million, or 7%,
to $113.5 million for the fiscal year ended June 30,
2009, compared to the prior fiscal year, primarily due to a
$5.9 million unfavorable impact from the movement of
currency exchange rates and the reduction in the number of
properties in our portfolio, which includes the impact of the
closure or acquisition of restaurants leased to franchisees.
These factors were partially offset by positive worldwide
franchise comparable sales growth, which resulted in increased
revenues from percentage rents.
In the United States and Canada, property revenues decreased by
$0.6 million, or 1%, to $88.1 million for the fiscal
year ended June 30, 2009, compared to the prior fiscal
year, primarily as a result of the reduction in the number of
properties in our portfolio and a $0.7 million unfavorable
impact from the movement of currency exchange rates. This
decrease was partially offset by increased revenues from
percentage rents as a result of positive franchise comparable
sales growth.
In EMEA/APAC, property revenues decreased by $7.5 million,
or 23%, to $25.4 million for the fiscal year ended
June 30, 2009, compared to the prior year, primarily due to
a $5.2 million unfavorable impact from the movement of
currency exchange rates and the reduction in the number of
properties in our portfolio. These factors were partially offset
by increased revenues from percentage rents as a result of
positive franchise comparable sales growth.
Operating
Costs and Expenses
Food,
Paper and Product Costs
Total food, paper and product costs increased by
$39.4 million, or 7%, to $603.7 million for the fiscal
year ended June 30, 2009, primarily as a result of the net
addition of 69 Company restaurants during the twelve months
ended June 30, 2009, and significant increases in commodity
costs, including the negative currency exchange impact of cross
border purchases which occurs in Canada, Mexico and the U.K.
when our suppliers purchase goods in currency other than the
local currency in which they operate and pass on all, or a
portion of the currency exchange impact to us. These factors
were partially offset by a $26.1 million favorable impact
from the movement of currency exchange rates. As a percentage of
Company restaurant revenues, food, paper and product costs
increased by 0.7% to 32.1%, primarily due to the increase in
commodity costs noted above, partially offset by the impact of
strategic pricing initiatives.
In the United States and Canada, food, paper and product costs
increased by $58.8 million, or 15%, to $440.0 million
for the fiscal year ended June 30, 2009, primarily as a
result of the net addition of 59 Company restaurants during
fiscal 2009, as well as significant increases in commodity
costs, including the negative currency exchange impact of cross
border purchases in Canada, partially offset by a
$7.4 million favorable impact from the movement of currency
exchange rates. Food, paper and product costs as a percentage of
Company restaurant
61
revenues increased 0.5% to 33.0%, primarily due to an increase
in the cost of beef, cheese, chicken and other food costs,
including the currency exchange impact of cross border purchases
in Canada, partially offset by the impact of strategic pricing
initiatives.
The cost of many of our core commodities reached historical
highs in the United States and Canada during the first quarter
of fiscal 2009; however, commodity and other food costs
moderated throughout the remainder of fiscal 2009.
In EMEA/APAC, food, paper and product costs decreased by
$17.6 million, or 11%, to $140.6 million for the
fiscal year ended June 30, 2009, primarily as a result of
the favorable impact from the movement of currency exchange
rates of $14.7 million and the refranchising of Company
restaurants in the prior year, primarily in Germany and the
U.K., partially offset by an increase in commodity costs,
including the negative currency exchange impact of cross border
purchases. Food, paper and product costs as a percentage of
Company restaurant revenues increased 0.3% to 28.8%, primarily
due to a significant increase in commodity costs, partially
offset by the impact of strategic pricing initiatives.
In Latin America, food, paper and product costs decreased by
$1.8 million, or 7%, to $23.1 million for the fiscal
year ended June 30, 2009, compared to the same period in
the prior year, as a result of the benefits derived from the
favorable impact from the movement of currency exchange rates of
$4.0 million, offset by the net addition of eight Company
restaurants during fiscal 2009 and an increase in commodity
costs, including the negative currency exchange impact of cross
border purchases in Mexico and the indexing of local purchases
to the U.S. dollar. Food, paper and product costs as a
percentage of Company restaurant revenues increased by 1.7% to
38.4% primarily due to the increase in commodity costs as noted
above, partially offset by the impact of strategic pricing
initiatives.
Payroll
and Employee Benefits Costs
Total payroll and employee benefits costs increased by
$47.5 million, or 9%, to $582.2 million for the fiscal
year ended June 30, 2009, primarily due to the net addition
of 69 Company restaurants during fiscal 2009, as well as
increased labor costs in the United States and Canada and EMEA,
partially offset by a $24.0 million favorable impact from
the movement of currency exchange rates. As a percentage of
Company restaurant revenues, payroll and employee benefits costs
increased by 1.2% to 31.0%, primarily as a result of increased
labor costs in EMEA and the United States and Canada, partially
offset by positive worldwide Company comparable sales growth of
0.3% (in constant currencies).
In the United States and Canada, payroll and employee benefits
costs increased by $58.2 million, or 16%, to
$414.9 million for the fiscal year ended June 30,
2009, primarily as a result of the net addition of 59 Company
restaurants during fiscal 2009 and increased labor costs
resulting from the negative impact from decreased traffic and
increased staffing and training on acquired restaurants,
partially offset by a $6.8 million favorable impact from
the movement of currency exchange rates in Canada. As a
percentage of Company restaurant revenues, payroll and employee
benefits costs increased by 0.6% to 31.1%, primarily due to
labor inefficiencies noted above, partially offset by benefits
derived from positive Company comparable sales growth of 0.5%
(in constant currencies).
In EMEA/APAC, payroll and employee benefits costs decreased by
$9.8 million, or 6% to $159.9 million for the fiscal
year ended June 30, 2009, primarily as a result of a
$16.0 million favorable impact from the movement of
currency exchange rates and the refranchising of Company
restaurants in the prior year, primarily in Germany and the
U.K., partially offset by government mandated and contractual
wage and benefits increases in Germany. As a percentage of
Company restaurant revenues, payroll and employee benefits costs
increased by 2.2% to 32.7%, primarily as a result of increases
in labor costs in Germany.
In Latin America, payroll and employee benefits costs decreased
by $0.9 million, or 11% to $7.4 million for the fiscal
year ended June 30, 2009, compared to the same period in
the prior fiscal year as a result of a $1.2 million
favorable impact from the movement of currency exchange rates,
partially offset by the net addition of eight Company
restaurants during fiscal 2009. Payroll and employee benefits
costs as a percentage of Company restaurant revenues increased
by 0.5% to 12.3%, primarily as a result of negative Company
comparable sales growth of 3.2% (in constant currencies).
62
Occupancy
and Other Operating Costs
Occupancy and other operating costs increased by
$18.8 million, or 4%, to $457.8 million for the fiscal
year ended June 30, 2009, primarily as a result of the net
addition of 69 Company restaurants during fiscal 2009, increased
rents and utility costs,
start-up
costs related to new and acquired Company restaurants in the
U.S. and the write-off of unfavorable leases in the prior
year, primarily in Mexico, partially offset by a reduction in
the amount of accelerated depreciation related to the reimaging
of Company restaurants in the United States and Canada and a
$22.4 million favorable impact from the movement of
currency exchange rates. As a percentage of Company restaurant
revenues, occupancy and other operating costs remained
relatively unchanged at 24.3%, primarily as a result of the
benefits derived from positive worldwide Company comparable
sales growth of 0.3% (in constant currencies) and the prior year
accelerated depreciation expense noted above, offset by
increased rents and the write-off of unfavorable leases in the
prior year, as noted above.
In the United States and Canada, occupancy and other operating
costs increased by $35.7 million, or 13%, to
$306.8 million for the fiscal year ended June 30,
2009, primarily as a result of the net addition of 59 Company
restaurants during fiscal 2009, which represents a 6% increase
in the number of Company restaurants in this segment year over
year, increased rents and utility costs, increased repairs and
maintenance costs, increased casualty insurance and
start-up
costs related to new and acquired Company restaurants, partially
offset by a reduction in the amount of accelerated depreciation
as noted above and a $5.2 million favorable impact from the
movement of currency exchange rates in Canada. As a percentage
of Company restaurant revenues, occupancy and other operating
costs remained unchanged at 23.1% with the benefits derived from
positive Company comparable sales growth of 0.5% (in constant
currencies) and the prior year accelerated depreciation expense
noted above, offset by increased rents and
start-up
costs related to new and acquired Company restaurants.
In EMEA/APAC, occupancy and other operating costs decreased by
$16.7 million, or 11%, to $133.2 million for the
fiscal year ended June 30, 2009, primarily due to a
$14.4 million favorable impact from the movement in
currency exchange rates, a reduction in payments made to third
parties for services currently performed by our employees,
decreased repairs and maintenance costs and the refranchising of
Company restaurants in the prior year, primarily in Germany and
the U.K., partially offset by increased rents. As a percentage
of Company restaurant revenues, occupancy and other operating
costs remained relatively unchanged at 27.3%, with the benefits
from reduced payments for services performed by third parties in
the prior year as noted above, decreased repairs and maintenance
costs and the closure of under-performing restaurants and
refranchising of Company restaurants in the U.K. (including
benefits from the release of unfavorable lease obligations),
offset by increased rents.
In Latin America, occupancy and other operating costs decreased
by $0.2 million, or 1%, to $17.8 million for the
fiscal year ended June 30, 2009, primarily as a result of a
$2.8 million favorable impact from the movement in currency
exchange rates, partially offset by the net addition of eight
Company restaurants during fiscal 2009, increased rents and
utility costs and the write-off of unfavorable leases in the
prior year. As a percentage of Company restaurant revenues,
occupancy and other operating costs increased by 3.6% to 29.7%
as a result of increased utility costs, the write-off of
unfavorable leases as noted above, and negative Company
comparable sales growth of 3.2% (in constant currencies).
Selling,
General and Administrative Expenses
Selling expenses increased by $1.8 million, or 2%, to
$93.3 million for the fiscal year ended June 30, 2009,
compared to the prior fiscal year. The increase, which was
primarily driven by an increase in sales and promotional
expenses of $8.2 million as a result of increased sales at
our Company restaurants, was partially offset by a
$4.0 million favorable impact from the movement of currency
exchange rates and $2.5 million due to lower local
marketing expenditures primarily in EMEA.
General and administrative expenses decreased by
$8.5 million, or 2%, to $401.0 million for the fiscal
year ended June 30, 2009, compared to the prior fiscal
year. The decrease was primarily a result of a
$14.9 million favorable impact from the movement of
currency exchange rates, a $1.8 million decrease in travel
and meeting expenses and $2.5 million of other
miscellaneous benefits. These factors were partially offset by
an increase in stock compensation of $5.0 million, an
incremental increase of $3.1 million in amortization of
intangible assets
63
associated with the acquisition of restaurants, and a decrease
in the amount of bad debt recoveries, net of $2.6 million.
Property
Expenses
Total property expenses decreased by $4.0 million, or 6.4%,
to $58.1 million for the fiscal year ended June 30,
2009, compared to the same period in the prior fiscal year,
primarily as a result of a $5.2 million favorable impact
from the movement of currency exchange rates and the net effect
of changes to our property portfolio, which includes the impact
of the closure or acquisition of restaurants leased to
franchisees, partially offset by an increase in percentage rent
expense generated by worldwide comparable franchise sales growth
of 1.4% (in constant currencies).
Other
Operating (Income) Expense, Net
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
For the Fiscal Years Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net (gains) losses on disposal of assets restaurant closures and
refranchisings
|
|
$
|
(8.5
|
)
|
|
$
|
(9.8
|
)
|
Litigation settlements and reserves, net
|
|
|
0.2
|
|
|
|
1.1
|
|
Foreign exchange net (gains) losses
|
|
|
8.4
|
|
|
|
2.3
|
|
Other, net
|
|
|
1.8
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
Other operating (income) expense, net
|
|
$
|
1.9
|
|
|
$
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
The $1.8 million of other, net within other operating
(income) expense, net for the fiscal year ended June 30,
2009 consists primarily of $1.7 million of franchise
workout costs.
The $5.8 million of other, net within other operating
(income) expenses, net for the year ended June 30, 2008
includes $3.1 million of franchise workout costs and
$1.9 million of settlement losses associated with the
acquisition of franchise restaurants.
Income
from Operations
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
For the Fiscal
|
|
|
|
Years Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Income from Operations:
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
$
|
345.7
|
|
|
$
|
349.7
|
|
EMEA/APAC
|
|
|
83.6
|
|
|
|
91.8
|
|
Latin America
|
|
|
37.8
|
|
|
|
41.4
|
|
Unallocated
|
|
|
(127.7
|
)
|
|
|
(128.7
|
)
|
|
|
|
|
|
|
|
|
|
Total Income from Operations
|
|
$
|
339.4
|
|
|
$
|
354.2
|
|
|
|
|
|
|
|
|
|
|
Income from operations decreased by $14.8 million, or 4%,
to $339.4 million for the fiscal year ended June 30,
2009, primarily as a result of an increase in other operating
expense, net of $2.5 million, a decrease in Company
restaurant margin of $21.1 million and a decrease in net
property income of $4.1 million. The decrease in income
from operations was partially offset by a $6.2 million
increase in franchise revenues, reflecting franchise comparable
sales growth of 1.4% (in constant currencies) and an increase in
the effective royalty rate in the U.S. and a $6.7 million
decrease in selling, general and administrative expenses. (See
Note 23 to our audited consolidated financial statements
for segment information disclosures).
64
For fiscal 2009, the unfavorable impact on revenues from the
movement of currency exchange rates was offset by the favorable
impact of currency exchange rates on Company restaurant expenses
and selling, general and administrative expenses, resulting in a
net unfavorable impact on income from operations of
$14.9 million.
In the United States and Canada, income from operations
decreased by $4.0 million, or 1%, to $345.7 million
for the fiscal year ended June 30, 2009, compared to the
same period in the prior fiscal year, primarily as a result of
an increase in other operating expense, net of
$6.9 million, an increase in selling, general and
administrative expenses of $9.7 million and a decrease in
net property income of $0.4 million, partially offset by an
increase in Company restaurant margin of $7.2 million and
$5.2 million increase in franchise revenues, reflecting
franchise comparable sales growth of 0.4% (in constant
currencies) and an increase in the effective royalty rate in the
U.S.
In EMEA/APAC, income from operations decreased by
$8.2 million, or 9%, to $83.6 million for the fiscal
year ended June 30, 2009, primarily as a result of a
decrease in Company restaurant margin of $22.2 million, and
a decrease in net property income of $2.0 million,
partially offset by an increase in other operating income, net
of $3.5 million, a $12.2 million decrease in selling,
general and administrative expenses and a $0.4 million
increase in franchise revenues, reflecting franchise comparable
sales growth of 3.3% (in constant currencies). These factors
reflect an $11.9 million unfavorable impact from the
movement of currency exchange rates.
In Latin America, income from operations decreased by
$3.6 million, or 9%, to $37.8 million for the fiscal
year ended June 30, 2009, primarily as a result of a
decrease in Company restaurant margin of $6.1 million,
partially offset by a $0.9 million decrease in selling,
general and administrative expenses, a decrease in other
operating expense, net of $0.9 million and a
$0.6 million increase in franchise revenues, which reflects
franchise comparable sales growth of 2.3% (in constant
currencies). These factors reflect a $2.9 million
unfavorable impact from the movement of currency exchange rates.
Our unallocated corporate expenses decreased by
$1.0 million for the fiscal year ended June 30, 2009,
compared to the same period in the prior fiscal year, primarily
as a result of a decrease in general and administrative expenses
attributable to savings from cost containment initiatives.
Interest
Expense, Net
Interest expense, net decreased by $6.6 million for the
fiscal year ended June 30, 2009, compared to the prior
fiscal year, primarily reflecting a decrease in rates paid on
borrowings during the period. The weighted average interest
rates for the fiscal years ended June 30, 2009 and 2008
were 5.1% and 6.0%, respectively, which included the effect of
interest rate swaps on 71% and 56% of our term debt,
respectively.
Income
Tax Expense
Income tax expense was $84.7 million for the fiscal year
ended June 30, 2009, resulting in an effective tax rate of
29.7% primarily due to the resolution of federal and state
audits and tax benefits realized from the dissolution of dormant
foreign entities.
Net
Income
Our net income increased by $10.5 million, or 6%, to
$200.1 million in fiscal 2009, compared to the same period
in the prior fiscal year, primarily as a result of an
$18.7 million decrease in income tax expense, increased
franchise revenues of $6.2 million, driven by a net
increase in restaurants and positive franchise comparable sales
growth, a $6.7 million decrease in selling, general and
administrative expenses and the benefit from a $6.6 million
decrease in interest expense, net. These factors were partially
offset by a net change of $2.5 million in other operating
expense, net, a decrease in Company restaurant margin of
$21.1 million and a decrease in net property income of
$4.1 million.
65
Liquidity
and Capital Resources
Overview
The Transactions required total cash of approximately
$4.3 billion, which was used (i) to fund the cash
consideration payable to our stockholders and equity award
holders pursuant to the Merger Agreement, (ii) to repay
existing indebtedness and accrued interest and prepayment
premiums associated therewith, (iii) to settle a portion of
our interest rate swaps existing on the Merger Date and
(iv) to pay fees and expenses associated with the
Transactions. These cash requirements were principally financed
through $69.4 million of cash on hand, the equity
contribution of 3G, borrowings under the New Term Loan Facility
and the net proceeds from the issuance of our Senior Notes. See
Note 1 of our accompanying audited Consolidated Financial
Statements included in Part II, Item 8 Financial
Statements and Supplementary Data for further information
about the Transactions.
At December 31, 2010, we had cash and cash equivalents of
$207.0 million and working capital of $82.4 million.
We have historically operated with minimal positive working
capital or negative working capital, like many restaurant
companies, since our guests pay for their purchases in cash or
by credit card at the time of purchase. Although we have
significant receivables from franchisees, we also receive trade
credit based upon negotiated terms in purchasing food and
supplies and funds available from cash sales not needed
immediately to pay for food and supplies or to finance
receivables or inventories historically have typically been used
for capital expenditures
and/or to
repay debt. In addition at December 31, 2010, we had a
borrowing capacity of $116.1 million under our New
Revolving Credit Facility, net of $33.9 million of
irrevocable standby letters of credit outstanding. Cash used for
operations was $6.9 million for the Transition Period
compared to $122.1 million cash provided for operations
during the six months ended December 31, 2009.
Our primary sources of liquidity are cash generated by
operations and occasional borrowings under our New Revolving
Credit Facility. Our primary uses of cash are for debt service
requirements, payments due under lease agreements, capital
expenditures and the payment of income taxes. Based on our
current level of operations and available cash, we believe our
cash flow from operations, combined with availability under our
New Revolving Credit Facility, will provide sufficient liquidity
to fund our current obligations, debt service requirements and
capital spending requirements over the next twelve months and
the foreseeable future. We cannot assure you, however, that our
business will generate sufficient cash flows from operations or
that future borrowings will be available to us under our New
Revolving Credit Facility in an amount sufficient to enable us
to pay our indebtedness or to fund our other liquidity needs.
Our ability to do so will depend on our achievement of
forecasted levels of revenue and cash flows, which are dependent
on many factors, many of which are beyond our control, including
our marketing initiatives and restructuring activities designed
to reduce our operating costs, as well as on prevailing economic
conditions. If our cash flow and capital resources are
insufficient to fund our debt service, lease and income tax
obligations, we may be forced to reduce planned capital
expenditures, sell assets, seek additional capital or
restructure or refinance our indebtedness. However, in such an
event, we cannot assure you that we will be able to mitigate a
resource shortfall by selling assets or raising new capital, or
that we will be able to restructure or refinance any of our
indebtedness, including our New Term Loan Facility, New
Revolving Credit Facility or our Senior Notes, on commercially
reasonably terms or at all. Any future acquisitions, joint
ventures or other similar transactions will likely require
additional capital and there can be no assurance that any such
capital will be available to us on acceptable terms or at all.
In addition, upon the occurrence of certain events, such as a
change in control, we could be required to repay or refinance
our indebtedness.
As a result of the Transactions, we are highly leveraged. Our
liquidity requirements will be significant, primarily due to
debt service requirements.
Indebtedness
New
Credit Facilities
Concurrently with the consummation of the Merger, BKC, as
borrower, entered into a credit agreement dated as of
October 19, 2010 with JPMorgan Chase Bank, N.A., as
administrative agent, Barclays Capital, as syndication agent,
and the lenders party thereto from time to time (the New
Credit Agreement). The New Credit Agreement provides for
(i) two tranches of term loans in an aggregate principal
amount of $1,510.0 million and 250.0 million,
66
respectively, each under a term loan facility (the New
Term Loan Facility) and (ii) a new senior revolving
credit facility for up to $150 million of revolving
extensions of credit outstanding at any time (including
revolving loans, swingline loans and letters of credit) (the
New Revolving Credit Facility, and together with the
New Term Loan Facility, the New Credit Facilities).
Concurrently with the consummation of the Merger, the full
amount of the two term loans was drawn, no revolving loans were
drawn and replacement letters of credit were issued in order to
backstop, replace or roll-over existing letters of credit under
our prior credit agreement, which was repaid as of the
consummation of the Merger. On February 15, 2011, the New
Credit Agreement was amended and restated (the Amended
Credit Agreement). Under the Amended Credit Agreement, the
aggregate principal amount of term loans denominated in
U.S. dollars was increased to $1,600.0 million and the
amount of term loans denominated in Euros was reduced to
200.0 million. The amount of the New Revolving Credit
Facility remains unchanged.
The New Term Loan Facility has a six-year maturity. The New
Revolving Credit Facility has a five-year maturity. The
principal amount of the New Term Loan Facility amortizes in
quarterly installments equal to 0.25% of the original principal
amount of the New Term Loan Facility for the first five and
three-quarter years, with the balance payable at maturity. The
New Credit Facilities contain customary provisions relating to
mandatory prepayments, voluntary prepayments, affirmative
covenants, negative covenants and events of default.
For the period of October 19, 2010 through
February 15, 2011, the interest rate per annum applicable
to loans under the New Credit Facilities was based on, at
BKCs election, a fluctuating rate of interest determined
by reference to either (i) a base rate determined by
reference to the higher of (a) the prime rate of JPMorgan
Chase Bank, N.A., (b) the federal funds effective rate plus
0.50% and (c) the Eurodollar rate applicable for an
interest period of one month plus 1.00%, plus a margin of 3.50%
or (ii) a Eurocurrency rate determined by reference to
EURIBOR for the Euro denominated tranche and LIBOR for the
U.S. dollar denominated tranche and New Revolving Credit
Facility, adjusted for statutory reserve requirements, plus a
margin of 4.75% for loans under the Euro denominated tranche of
the New Term Loan Facility and 4.50% for loans under the
U.S. dollar denominated tranche of the New Term Loan
Facility and borrowings under the New Revolving Credit Facility.
Prior to the February 2011 amendment, borrowings under the New
Term Loan Facility were subject to a LIBOR floor of 1.75%. The
effective interest rates related to the $1,510.0 million
tranche and 250.0 million tranche under the New Term
Loan Facility were 6.8% and 7.1% for the period from
October 19, 2010 to December 31, 2010, respectively,
which included the effect of interest rate caps on 100% of our
term debt.
Under the Amended Credit Agreement, at BKCs election, the
interest rate per annum applicable to the loans is based on a
fluctuating rate of interest determined by reference to either
(i) a base rate determined by reference to the higher of
(a) the prime rate of JPMorgan Chase Bank, N.A.,
(b) the federal funds effective rate plus 0.50% and
(c) the Eurocurrency rate applicable for an interest period
of one month plus 1.00%, plus an applicable margin equal to
2.00% for loans under the U.S. dollar denominated tranche
of the New Term Loan Facility and 2.25% for loans under the New
Revolving Credit Facility, or (ii) a Eurocurrency rate
determined by reference to EURIBOR for the Euro denominated
tranche and LIBOR for the U.S. dollar denominated tranche
and New Revolving Credit Facility, adjusted for statutory
reserve requirements, plus an applicable margin equal to 3.25%
for loans under the Euro denominated tranche of the New Term
Loan Facility, 3.00% for loans under the U.S. dollar
denominated tranche of the New Term Loan Facility and 3.25% for
loans under the New Revolving Credit Facility. Borrowings under
the Amended Credit Agreement will be subject to a LIBOR floor of
1.50%.
Following the end of each fiscal year, commencing with the year
ending December 31, 2011, we will be required to prepay the
term loans in an amount equal to 50% of Excess Cash Flow (as
defined in the Amended Credit Agreement and with stepdowns to
25% and 0% based on achievement of specified total leverage
ratios), minus the amount of any voluntary prepayments of the
term loans during such fiscal year. Additionally, subject to
certain exceptions, the New Credit Facilities are subject to
mandatory prepayment in the event of non-ordinary course or
other dispositions of assets (subject to customary reinvestment
provisions), or in the event of issuances or incurrence of debt
by BKC or any of its subsidiaries (other than certain
indebtedness permitted by the New Credit Facilities).
We may prepay the term loans in whole or in part at any time. A
1% premium applies if the prepayment is made in connection with
an interest rate re-pricing event.
All obligations under the New Credit Facilities are guaranteed
by us and each direct and indirect, existing and future,
material domestic wholly-owned subsidiary of BKC. The New Credit
Facilities and any derivative
67
instrument contracts and cash management arrangements provided
by any lender party to the New Credit Facilities or any of its
affiliates are secured on a first priority basis by a perfected
security interest in substantially all of BKCs and each
guarantors tangible and intangible assets (subject to
certain exceptions), including U.S. registered intellectual
property and of all the capital stock of BKC and each of its
direct and indirect subsidiaries (limited, in the case of
foreign subsidiaries, to 65% of the capital stock of the first
tier foreign subsidiaries).
Under the New Credit Facilities, BKC is required to comply with
specified financial ratios, including the following:
BKCs Interest Coverage Ratio, defined as the ratio
of Consolidated EBITDA to Consolidated Interest Expense shall
not be less than 1.60 to 1.00 for Test Periods ending between
March 31, 2011 through September 30, 2011, 1.70 to
1.00 for Test Periods ending between December 31, 2011
through June 30, 2013, 1.80 to 1.00 for Test Periods ending
between September 30, 2013 through June 30, 2014, 1.90
to 1.00 for Test Periods ending between September 30, 2014
and June 30, 2015, and 2.00 to 1.00 for Test Periods ending
thereafter.
Consolidated EBITDA is defined in the Amended Credit Agreement
as earnings before interest, taxes, depreciation and
amortization, adjusted for certain items, as specified in the
Amended Credit Agreement. Consolidated Interest Expense is
defined in the Amended Credit Agreement as cash payments for
interest, including (net of) payments made (received) pursuant
to interest rate derivatives with respect to Indebtedness, net
of cash received for interest income and certain other items
specified in the Amended Credit Agreement. The Test Period is
defined in the Amended Credit Agreement as the most recently
completed four consecutive fiscal quarters ending on such date.
BKCs Total Leverage Ratio, defined as the ratio of
Consolidated Total Debt to Consolidated EBITDA shall not be
greater than 7.50 to 1.00 for Test Periods ending between
March 31, 2011 through June 30, 2011, 7.25 to 1.00 for
the Test Period ending September 30, 2011 and 7.00 to 1.00
for the Test Period ending December 31, 2011. The maximum
Total Leverage Ratio declines to 6.75 to 1.00 for Test Periods
ending March 31, 2012 through June 30, 2012 and 6.25
to 1.00 for Test Periods ending September 30, 2012 through
December 31, 2012 and further declines thereafter until
reaching 4.50 to 1.00 for Test Periods ending after
June 30, 2016.
The Amended Credit Agreement also contains a number of customary
affirmative and negative covenants that, among other things,
will limit or restrict the ability of BKC and its subsidiaries
to (i) incur additional indebtedness (including guarantee
obligations) or liens, (ii) engage in mergers,
consolidations, liquidations or dissolutions, sell assets (with
certain exceptions, including sales of company-owned restaurants
to franchisees), (iii) make capital expenditures,
acquisitions, investments, loans and advances, (iv) pay and
modify the terms of certain indebtedness, (v) engage in
certain transactions with affiliates, (vi) enter into
certain speculative hedging arrangements, negative pledge
clauses and clauses restricting subsidiary distributions and
(vii) change its line of business. In addition, the ability
of BKC and its subsidiaries to pay dividends or other
distributions, or to repurchase, redeem or retire equity is
restricted by the Amended Credit Agreement, including the
payment of dividends to the Company.
BKCs capital expenditures are limited to $160 million
to $220 million, with the annual limitation based on
BKCs Rent-Adjusted Leverage Ratio of the most recently
ended fiscal year. Up to 50% of the unused amount for the prior
fiscal year (less the amount carried forward into the prior
fiscal year) is allowed to be carried forward into the next
fiscal year.
The New Credit Facilities contain customary events of default,
including, but not limited to, nonpayment of principal,
interest, fees or other amounts, violation of a covenant,
cross-default to material indebtedness, bankruptcy and a change
of control. Our ability to borrow under the New Credit
Facilities will be dependent on, among other things, BKCs
compliance with the above referenced financial ratios. Failure
to comply with these ratios or other provisions of the Amended
Credit Agreement (subject to grace periods) could, absent a
waiver or an amendment from the lenders under such agreement,
restrict the availability of the New Revolving Credit Facility
and permit the acceleration of all outstanding borrowings under
Amended Credit Agreement.
68
Senior
Notes
On October 19, 2010, Merger Sub, as the initial issuer, and
Wilmington Trust FSB, as trustee, executed the Senior Notes
Indenture pursuant to which the Senior Notes were issued. Upon
the consummation of the Merger, Merger Sub, BKC, the Company, as
a guarantor, and the other guarantors entered into a
supplemental indenture (the Supplemental Indenture)
pursuant to which BKC assumed the obligations of Merger Sub
under the Senior Notes Indenture and the Senior Notes and the
Company and the other guarantors guaranteed the Senior Notes on
a senior basis. The Senior Notes bear interest at a rate of
9.875% per annum, which is payable semi-annually on October 15
and April 15 of each year, commencing on April 15, 2011.
The Senior Notes mature on October 15, 2018.
The Senior Notes are general unsecured senior obligations of BKC
that rank pari passu in right of payment with all existing and
future senior indebtedness of BKC. The Senior Notes are
effectively subordinated to all Secured Indebtedness of BKC
(including the New Credit Facilities) to the extent of the value
of the assets securing such indebtedness and are structurally
subordinated to all indebtedness and other liabilities,
including preferred stock, of non-guarantor subsidiaries.
The Senior Notes are guaranteed by the Company and all existing
direct and indirect subsidiaries that borrow under or guarantee
any indebtedness or indebtedness of another guarantor. Under
certain circumstances, subsidiary guarantors may be released
from their guarantees without the consent of the holders of the
Senior Notes.
At any time prior to October 15, 2013, BKC may redeem up to
35% of the original principal amount of the Senior Notes with
the proceeds of certain equity offerings at a redemption price
equal to 109.875% of the principal amount of the Senior Notes,
together with any accrued and unpaid interest, if any, to the
date of redemption.
The Senior Notes will be redeemable at BKCs option, in
whole or in part, at any time on or after October 15, 2014
at 104.938% of the principal amount, at any time on or after
October 15, 2015 at 102.469% of the principal amount or at
any time on or after October 15, 2016 at 100% of the
principal amount.
The occurrence of a change in control will require us to offer
to purchase all or a portion of the Senior Notes at a price
equal to 101% of the principal amount, together with accrued and
unpaid interest, if any, to the date of purchase. Certain asset
dispositions will also require us to use the proceeds from those
asset dispositions to make an offer to purchase the Senior Notes
at 100% of their principal amount, if such proceeds are not
otherwise used within a specified period to repay indebtedness
or to invest in capital assets related to our business or
capital stock of a restricted subsidiary.
The Senior Notes Indenture contains certain covenants that BKC
must meet during the term of the Senior Notes, including, but
not limited to, limitations on restricted payments (as defined
in the Senior Notes Indenture), incurrence of indebtedness,
issuance of disqualified stock and preferred stock, asset sales,
mergers and consolidations, transactions with affiliates, and
guarantees of indebtedness by subsidiaries.
The Senior Notes Indenture includes customary events of default
including, but not limited to, nonpayment of principal,
interest, premiums or other amounts due under the Senior Notes
Indenture, violation of a covenant, cross-default to material
indebtedness, bankruptcy and a change of control. Failure to
comply with the covenants or other provision of the Senior Notes
Indenture (subject to grace periods) could, absent a waiver or
an amendment from the lenders under such Senior Notes Indenture,
permit the acceleration of all outstanding borrowings under such
credit agreement.
Interest
Rate Cap Agreements
Following the Transactions, we entered into two deferred premium
interest rate caps, one of which was denominated in
U.S. dollars (notional amount of $1.5 billion) and the
other denominated in Euros (notional amount of
250 million) (the Cap Agreements). The
six year Cap Agreements are a series of 25 individual caplets
that reset and settle on the same dates as the New Credit
Facilities. The deferred premium associated with the Cap
Agreements was $47.7 million for the U.S. dollar
denominated exposure and 9.4 million for the Euro
denominated exposure. After we entered into the Amended Credit
Agreement, we modified our interest rate cap denominated in
Euros to reduce its notional amount by 50 million
throughout the life of the caplets. Additionally, we entered
into a new deferred premium interest rate cap agreement
denominated in U.S. dollars (notional amount of
$90 million)
69
with a strike price of 1.50% (the New Cap
Agreement). The terms of the New Cap Agreement are
substantially similar to those described above and the Cap
Agreements were not otherwise revised by these modifications.
Under the terms of the Cap Agreements, if LIBOR/EURIBOR resets
above a strike price of 1.75% (1.50% for the New Cap Agreement),
we will receive the net difference between the rate and the
strike price. In addition, on the quarterly settlement dates, we
will remit the deferred premium payment (plus interest) to the
counterparty. If LIBOR/EURIBOR resets below the strike price no
payment is made by the counterparty. However, we would still be
responsible for the deferred premium and interest.
The interest rate cap contracts are designated as cash flow
hedges and to the extent they are effective in offsetting the
variability of the variable interest payments, changes in the
derivatives fair value are not included in current
earnings but are included in accumulated other comprehensive
income (AOCI) in the accompanying consolidated balance sheets.
At each cap maturity date, the portion of fair value
attributable to the matured cap will be reclassified from AOCI
into earnings as a component of interest expense.
Predecessor
Liquidity and Capital Resources
We had cash and cash equivalents of $187.6 million and
$121.7 million as of June 30, 2010 and 2009,
respectively. In addition, as of June 30, 2010, we had
borrowing capacity of $115.8 million under our previous
$150.0 million revolving credit facility, which was
extinguished in connection with the Transactions. Cash provided
by operations was $310.4 million in fiscal 2010 compared to
$310.8 million in fiscal 2009.
In each of the years ended June 30, 2010 and 2009, we paid
four quarterly dividends of $0.0625 per share of common stock,
resulting in $34.2 million and $34.1 million,
respectively, of cash payments to shareholders of record. During
the quarter ended September 30, 2010, we declared a
quarterly dividend of $0.0625 per share of common stock that was
paid on September 30, 2010 to shareholders of record on
September 14, 2010.
Comparative
Cash Flows
Operating
Activities
Cash used for operating activities was $6.9 million during
the Transition Period, compared to $122.1 million provided
during the same period in the prior year. The decrease in cash
provided by operating activities during the Transition Period
resulted primarily from a decrease in earnings, as adjusted for
non-cash items, such as depreciation and amortization, gains and
losses on the remeasurement of foreign denominated transactions
and other non-cash income and expenses, primarily due to cash
payments related to the Transaction costs discussed above and
changes in working capital of $3.1 million.
Cash provided by operating activities was $310.4 million in
fiscal 2010, compared to $310.8 million in fiscal 2009 and
$243.4 million in fiscal 2008. The increase in cash
provided by operating activities in fiscal 2009 compared to
fiscal 2008 resulted primarily from an increase in earnings, as
adjusted for non-cash items, such as depreciation and
amortization, gains and losses on the remeasurement of foreign
denominated transactions and other non-cash income and expenses,
partially offset by cash used as a result of changes in working
capital, primarily due to the timing of tax payments, including
the benefits derived from the dissolution of dormant foreign
entities.
Investing
Activities
Cash used in investing activities increased to
$3,350.1 million during the Transition Period, compared to
$53.6 million during the same period in the prior year,
primarily as a result of $3,325.4 million paid for the
acquisition of the Company, partially offset by a
$17.2 million decrease in capital expenditures and
$10.0 million increase in cash generated from
refranchisings and dispositions of assets.
Cash used in investing activities decreased to
$134.9 million in fiscal 2010, compared to
$242.0 million in fiscal 2009, primarily as a result of a
$53.7 million decrease in capital expenditures and
$53.9 million decrease in cash used for the acquisition of
franchise restaurants.
70
Cash used in investing activities increased to
$242.0 million in fiscal 2009, compared to
$199.3 million in fiscal 2008, primarily as a result of a
$25.8 million increase in capital expenditures and a
$13.7 million increase in cash used for the acquisition of
franchise restaurants.
Capital expenditures for new restaurants include the costs to
build new Company restaurants as well as properties for new
restaurants that we lease to franchisees. Capital expenditures
for existing restaurants consist of the purchase of real estate
related to existing restaurants, as well as renovations to
Company restaurants, including restaurants acquired from
franchisees, investments in new equipment and normal annual
capital investments for each Company restaurant to maintain its
appearance in accordance with our standards. Capital
expenditures for existing restaurants also include investments
in improvements to properties we lease and sublease to
franchisees, including contributions we make toward leasehold
improvements completed by franchisees on properties we own.
Other capital expenditures include investments in information
technology systems and corporate furniture and fixtures. The
following table presents capital expenditures by type of
expenditure:
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Sucessor
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|
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Predecessor
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|
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For the Period of
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|
For the Period of
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For the Fiscal Years
|
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|
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October 19, 2010 to
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July 1, 2010 to
|
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Ended June 30,
|
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December 31, 2010
|
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|
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October 18, 2010
|
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2010
|
|
|
2009
|
|
|
2008
|
|
|
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(In millions)
|
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New restaurants
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$
|
6.7
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|
|
|
$
|
1.8
|
|
|
$
|
41.1
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|
|
$
|
65.4
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|
|
$
|
55.4
|
|
Existing restaurants
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16.7
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|
|
|
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11.1
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|
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91.7
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|
|
|
110.1
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|
|
102.0
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Other, including corporate
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5.0
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|
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5.3
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|
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17.5
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|
|
|
28.5
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|
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20.8
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Total
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$
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28.4
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$
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18.2
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$
|
150.3
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|
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$
|
204.0
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|
|
$
|
178.2
|
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|
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For 2011, we expect capital expenditures of approximately
$75 million to $85 million to develop new restaurants
and properties, to fund our restaurant reimaging program and to
make improvements to restaurants we acquire, for operational
initiatives in our restaurants and for other corporate
expenditures.
Financing
Activities
Cash provided by financing activities increased to
$3,366.9 million during the Transition Period, compared to
cash usage of $51.9 million during the same period in the
prior year. The increase in cash provided by financing
activities was primarily a result of a capital contribution from
3G of $1,563.5 million associated with the Transactions,
the issuance of the Senior Notes and borrowings under the New
Term Loan Facility to fund the Transactions as discussed above,
an $8.5 million decrease in dividends paid and
$3.5 million increase in proceeds from stock option
exercises. These increases in cash were partially offset by a
$731.8 million principal repayment of Term Loans A and B
under our prior credit facility as a result of the Transactions.
Cash used in financing activities decreased to
$96.9 million in fiscal 2010, compared to
$105.5 million in fiscal 2009, primarily as a result of a
$17.6 million decrease in cash used for repurchases of
common stock, partially offset by a $10.3 million increase
in repayments of long-term debt and capital leases, net of
borrowings under our prior revolving credit facility.
Cash used in financing activities increased to
$105.5 million in fiscal 2009, compared to
$62.0 million in fiscal 2008, primarily as a result of a
$51.9 million increase in repayments of long-term debt and
capital leases, net of borrowings under our prior revolving
credit facility, and a $6.0 million decrease in excess tax
benefits from stock-based compensation. Partially offsetting
these factors was a $15.1 million decrease in cash used for
repurchases of common stock.
71
Contractual
Obligations and Commitments
The following table presents information relating to our
contractual obligations as of December 31, 2010:
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Payment Due by Period
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Less Than
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More Than
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Contractual Obligations
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Total
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1 Year
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1-3 Years
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3-5 Years
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5 Years
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(In millions)
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Capital lease obligations
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$
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128.8
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|
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$
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15.4
|
|
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$
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30.2
|
|
|
$
|
26.5
|
|
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$
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56.7
|
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Operating lease obligations(1)
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1,402.5
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|
|
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155.8
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|
|
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291.1
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|
|
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255.6
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|
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700.0
|
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Unrecognized tax benefits(2)
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15.5
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|
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Term debt, including current portion, interest and interest rate
cap premiums(3)
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2,588.7
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|
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145.4
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|
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287.5
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282.5
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|
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1,873.3
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Senior Notes, including interest
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1,432.0
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|
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79.0
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|
|
|
158.0
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|
|
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158.0
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1,037.0
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Severance and severance-related costs
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64.7
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|
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61.8
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|
|
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2.9
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|
|
|
|
|
|
|
|
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Purchase commitments(4)
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|
|
155.1
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|
|
|
153.1
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|
|
|
2.0
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|
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|
|
|
|
|
|
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|
|
|
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Total
|
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$
|
5,787.3
|
|
|
$
|
610.5
|
|
|
$
|
771.7
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|
|
$
|
722.6
|
|
|
$
|
3,667.0
|
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|
|
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(1) |
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Operating lease obligations have not been reduced by minimum
sublease rentals of $317.5 million due in the future under
noncancelable subleases. |
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(2) |
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We have provided only a total in the table above since the
timing of the unrecognized tax benefit payments is unknown. |
|
(3) |
|
We have estimated our interest payments through the maturity of
our New Credit Facilities and the Senior Notes based on
(i) current LIBOR rates, (ii) the portion of our debt
we converted to fixed rates through interest rate caps
(iii) the fixed interest rate on the Senior Notes and
(iv) the amortization schedules in our New Term Loan
Facility and Senior Notes Indenture to the Senior Notes. Term
debt payments also reflect the payment of liabilities under our
interest rate swap contracts, the final contract of which expire
in September 2011. |
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(4) |
|
Includes open purchase orders, as well as commitments to
purchase advertising and other marketing services from third
parties in advance on behalf of the Burger King system
and obligations related to information technology and service
agreements. During the year ended June 30, 2000, we entered
into long-term, exclusive contracts with The
Coca-Cola
Company and with Dr Pepper/Seven Up, Inc. to supply us and our
franchise restaurants with their products and obligating
Burger King restaurants in the United States to purchase
a specified number of gallons of soft drink syrup. These volume
commitments are not subject to any time limit. As of
December 31, 2010, the Company estimates that it will take
approximately 14 years to complete the
Coca-Cola
and Dr Pepper/Seven Up, Inc. purchase commitments. We did not
include these purchase commitments in our contractual
obligations table since they apply to both Company and franchise
restaurants and payments by us are dependent upon the volume and
timing of purchases by Company restaurants in the United States. |
For information about unrecognized tax benefits, our leasing
arrangements and information on these commitments and contingent
obligations, see Notes 15, 17 and 21, respectively, of the
accompanying audited Consolidated Financial Statements included
in Part II, Item 8 Financial Statements and
Supplementary Data.
As of December 31, 2010, the projected benefit obligation
of our U.S. and international defined benefit pension plans
and U.S. medical plan exceeded pension assets by
$86.9 million. The discount rate used in the calculation of
the benefit obligation at December 31, 2010 for the
U.S. Plans is derived from a yield curve comprised of the
yields of an index of 250 equally-weighted corporate bonds,
rated AA or better by Moodys, which approximates the
duration of the U.S. Plans. We made contributions totaling
$0.6 million into our pension plans and benefit payments of
$4.4 million out of these plans during the Transition
Period. Estimated net contributions to our pension plans in 2011
are $9.1 million and estimated benefit payments out of
theses plans in 2011 are $8.5 million. Estimates of
reasonably likely future pension contributions are dependent on
pension asset performance, future interest rates, future tax law
changes, and future changes in regulatory funding requirements.
72
Other
Commercial Commitments and Off-Balance Sheet
Arrangements
We issue guarantees and letters of credit in our normal course
of business in connection with vendor relationships, litigation
and our insurance programs. For information on these
commitments and contingent obligations, see Note 21 of the
accompanying audited Consolidated Financial Statements included
in Part II, Item 8 Financial Statements and
Supplementary Data.
Impact of
Inflation
We believe that our results of operations are not materially
impacted by moderate changes in the inflation rate. Inflation
did not have a material impact on our operations in the
Transition Period, fiscal 2010, fiscal 2009 or fiscal 2008.
Severe increases in inflation, however, could affect the global
and U.S. economies and could have an adverse impact on our
business, financial condition and results of operations.
Critical
Accounting Policies and Estimates
This discussion and analysis of financial condition and results
of operations is based on our audited Consolidated Financial
Statements, which have been prepared in accordance with
U.S. generally accepted accounting principles. The
preparation of these financial statements requires our
management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues, and expenses,
as well as related disclosures of contingent assets and
liabilities. We evaluate our estimates on an ongoing basis and
we base our estimates on historical experience and various other
assumptions we deem reasonable to the situation. These estimates
and assumptions form the basis for making judgments about the
carrying values of assets and liabilities that are not readily
apparent from other sources. Volatile credit, equity, foreign
currency and energy markets, and declines in consumer spending
have increased and may continue to create uncertainty inherent
in such estimates and assumptions. As future events and their
effects cannot be determined with precision, actual results
could differ significantly from these estimates. Changes in our
estimates could materially impact our results of operations and
financial condition in any particular period.
We consider our critical accounting policies and estimates to be
as follows based on the high degree of judgment or complexity in
their application:
Business
Combinations
The Acquisition was accounted for using the acquisition method
of accounting, or acquisition accounting, in accordance with ASC
Topic 805, Business Combinations. The acquisition method of
accounting involves the allocation of the purchase price to the
estimated fair values of the assets acquired and liabilities
assumed. This allocation process involves the use of estimates
and assumptions to derive fair values and to complete the
allocation. Acquisition accounting allows for up to one year to
obtain the information necessary to finalize the fair value of
all assets acquired and liabilities assumed at October 19,
2010. As of December 31, 2010 we have recorded preliminary
acquisition accounting allocations, which are subject to
revision as we obtain additional information necessary to
complete the fair value studies and acquisition accounting.
In the event that actual results vary from any of the estimates
or assumptions used in the valuation or allocation process, we
may be required to record an impairment charge or an increase in
depreciation or amortization in future periods, or both.
Goodwill
and Intangible Assets Not Subject to Amortization
Goodwill represents the excess of the purchase price over the
fair value of assets acquired and liabilities assumed in
connection with transactions accounted for as business
combinations. Our indefinite-lived intangible asset consists of
the Burger King brand (the Brand).
We test goodwill and the Brand for impairment on an annual basis
and more often if an event occurs or circumstances change that
indicates impairment might exist.
73
Our impairment test for goodwill requires us to compare the
carrying value of reporting units with assigned goodwill to fair
value. If the carrying value of a reporting unit exceeds its
fair value, we may be required to record an impairment charge to
goodwill. Our impairment test for the Brand consists of a
comparison of the carrying value of the Brand to its fair value
on a consolidated basis, with impairment equal to the amount by
which the carrying value of the Brand exceeds its fair value.
When testing goodwill and the Brand for impairment, we make
assumptions regarding the amount and the timing of estimated
future cash flows similar to those when testing long-lived
assets for impairment, as described below. In the event that our
estimates or related assumptions change in the future, we may be
required to record an impairment charge.
Estimated goodwill arising as a result of the Acquisition has
not yet been allocated to reporting units for goodwill
impairment testing purposes, but will be allocated upon
completion of the fair value studies in 2011. We changed our
annual goodwill impairment testing date from April 1 to October
1 of each year. This change is being made to better align
impairment testing procedures with the Companys new fiscal
year, related year-end financial reporting and the annual
business planning and budgeting process, which are performed
during the fourth quarter of each year. As a result, the
goodwill impairment testing will reflect the result of input
from business and other operating personnel in the development
of the budget.
The Predecessors goodwill impairment test was completed as
of April 1, 2010, in accordance with our previously
established annual timeline, and no impairment resulted. Our
next goodwill and Brand impairments test will be performed as of
October 1, 2011.
See Note 2 to our audited Consolidated Financial
Statements included in Part II, Item 8 Financial
Statements and Supplementary Data for additional
information about goodwill and intangible assets not subject to
amortization.
Long-lived
Assets
Long-lived assets (including definite-lived intangible assets)
are tested for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Some of the events or changes in
circumstances that would trigger an impairment test include, but
are not limited to:
|
|
|
|
|
significant under-performance relative to expected
and/or
historical results (negative comparable sales growth or
operating cash flows for two consecutive years);
|
|
|
|
significant negative industry or economic trends;
|
|
|
|
knowledge of transactions involving the sale of similar property
at amounts below our carrying value; or
|
|
|
|
our expectation to dispose of long-lived assets before the end
of their estimated useful lives, even though the assets do not
meet the criteria to be classified as held for sale.
|
The impairment test for long-lived assets requires us to assess
the recoverability of our long-lived assets by comparing their
net carrying value to the sum of undiscounted estimated future
cash flows directly associated with and arising from our use and
eventual disposition of the assets. If the net carrying value of
a group of long-lived assets exceeds the sum of related
undiscounted estimated future cash flows, we would be required
to record an impairment charge equal to the excess, if any, of
net carrying value over fair value.
When assessing the recoverability of our long-lived assets, we
make assumptions regarding estimated future cash flows and other
factors. Some of these assumptions involve a high degree of
judgment and also bear a significant impact on the assessment
conclusions. Included among these assumptions are estimating
undiscounted future cash flows, including the projection of
comparable sales, restaurant operating expenses, capital
requirements for maintaining property and equipment and residual
value of asset groups. We formulate estimates from historical
experience and assumptions of future performance, based on
business plans and forecasts, recent economic and business
trends, and competitive conditions. In the event that our
estimates or related assumptions change in the future, we may be
required to record an impairment charge.
74
See Note 2 of the accompanying audited Consolidated
Financial Statements included in Part II, Item 8
Financial Statements and Supplementary Data for
additional information about accounting for long-lived
assets.
Accounting
for Income Taxes
We record income tax liabilities utilizing known obligations and
estimates of potential obligations. A deferred tax asset or
liability is recognized whenever there are future tax effects
from existing temporary differences and operating loss and tax
credit carry-forwards. When considered necessary, we record a
valuation allowance to reduce deferred tax assets to the balance
that is more likely than not to be realized. We must make
estimates and judgments on future taxable income, considering
feasible tax planning strategies and taking into account
existing facts and circumstances, to determine the proper
valuation allowance. When we determine that deferred tax assets
could be realized in greater or lesser amounts than recorded,
the asset balance and income statement reflect the change in the
period such determination is made. Due to changes in facts and
circumstances and the estimates and judgments that are involved
in determining the proper valuation allowance, differences
between actual future events and prior estimates and judgments
could result in adjustments to this valuation allowance.
We file income tax returns, including returns for our
subsidiaries, with federal, state, local and foreign
jurisdictions. We are subject to routine examination by taxing
authorities in these jurisdictions. We apply a two-step approach
to recognizing and measuring uncertain tax positions. The first
step is to evaluate available evidence to determine if it
appears more likely than not that an uncertain tax position will
be sustained on an audit by a taxing authority, based solely on
the technical merits of the tax position. The second step is to
measure the tax benefit as the largest amount that is more than
50% likely of being realized upon settling the uncertain tax
position.
Although we believe we have adequately accounted for our
uncertain tax positions, from time to time, audits result in
proposed assessments where the ultimate resolution may result in
us owing additional taxes. We adjust our uncertain tax positions
in light of changing facts and circumstances, such as the
completion of a tax audit, expiration of a statute of
limitations, the refinement of an estimate, and interest
accruals associated with uncertain tax positions until they are
resolved. We believe that our tax positions comply with
applicable tax law and that we have adequately provided for
these matters. However, to the extent that the final tax outcome
of these matters is different than the amounts recorded, such
differences will impact the provision for income taxes in the
period in which such determination is made.
We use an estimate of the annual effective tax rate at each
interim period based on the facts and circumstances available at
that time, while the actual effective tax rate is calculated at
fiscal year-end.
See Note 15 of the accompanying audited Consolidated
Financial Statements included in Part II, Item 8
Financial Statements and Supplementary Data for
additional information about accounting for income taxes.
Insurance
Reserves
We carry insurance to cover claims such as workers
compensation, general liability, automotive liability, executive
risk and property, and we are self-insured for healthcare claims
for eligible participating employees. Through the use of
insurance program deductibles (ranging from $0.1 million to
$2.5 million) and self insurance, we retain a significant
portion of the expected losses under these programs. Insurance
reserves have been recorded based on our estimates of the
anticipated ultimate costs to settle all claims, both reported
and incurred-but-not-reported (IBNR).
Our accounting policies regarding these insurance programs
include judgments and independent actuarial assumptions about
economic conditions, the frequency or severity of claims and
claim development patterns and claim reserve, management and
settlement practices. Since there are many estimates and
assumptions involved in recording insurance reserves,
differences between actual future events and prior estimates and
assumptions could result in adjustments to these reserves.
See Note 21 of the accompanying audited Consolidated
Financial Statements included in Part II, Item 8
Financial Statements and Supplementary Data for
additional information about accounting for our insurance
reserves.
75
New
Financial Accounting Standards Board (FASB) Accounting Standards
Updates Issued But Not Yet Adopted
In July 2010, the FASB issued Accounting Standards Update
(ASU)
No. 2010-20,
Receivables (Topic 310): Disclosures about the Credit Quality
of Financing Receivables and the Allowance for Credit
Losses. This ASU amends ASC Topic 310 by requiring
additional disclosures about the credit quality of financing
receivables and the related allowance for credit losses. The
disclosures required by this ASU are effective for non-public
entities for annual reporting periods ending on or after
December 15, 2011, which for us will be December 31,
2011. The amendments in this ASU will affect only disclosures
and are not expected to have a significant impact on the Company.
On December 20, 2010, the FASB issued ASU
No. 2010-28,
Intangibles-Goodwill and Other (Topic 350): When to
Perform Step 2 of the Goodwill Impairment Test for Reporting
Units with Zero or Negative Carrying Amounts. This ASU is a
consensus of the FASB Emerging Issues Task Force (EITF) and
requires an entity to perform Step 2 of the goodwill impairment
test if it is more likely than not that a goodwill impairment
exists for reporting units with zero or negative carrying
amounts. An entity should consider whether there are any adverse
qualitative factors indicating that impairment may exist. If the
entity determines that it is more likely than not that the
goodwill is impaired, Step 2 should be performed. Any resulting
goodwill impairment should be recorded as a cumulative-effect
adjustment to beginning retained earnings in the period of
adoption. Any impairments occurring after initial adoptions
should be included in earnings. The amendments in this ASU are
effective for non-public entities for fiscal years, and interim
periods, beginning after December 15, 2011, which for us
will be January 1, 2012. Early adoption is not permitted.
We have not yet determined the impact, if any, that the adoption
of this ASU will have on the Company.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Market
Risk
We are exposed to market risks associated with currency exchange
rates, interest rates and commodity prices. In the normal course
of business and in accordance with our policies, we manage these
risks through a variety of strategies, which may include the use
of derivative financial instruments to hedge our underlying
exposures. Our policies prohibit the use of derivative
instruments for speculative purposes, and we have procedures in
place to monitor and control their use.
Currency
Exchange Risk
Movements in currency exchange rates may affect the translated
value of our earnings and cash flow associated with our foreign
operations, as well as the translation of net asset or liability
positions that are denominated in foreign currencies. In
countries outside of the United States where we operate Company
restaurants, we generally generate revenues and incur operating
expenses and selling, general and administrative expenses
denominated in local currencies. These revenues and expenses are
translated using the average rates during the period in which
they are recognized and are impacted by changes in currency
exchange rates. In many countries where we do not have Company
restaurants our franchisees pay royalties to us in currencies
other than the local currency in which they operate. However, as
the royalties are calculated based on local currency sales, our
revenues are still impacted by fluctuations in exchange rates.
The portion of the New Term Loan Facility denominated in Euros
will serve as a natural hedge against net assets denominated in
Euros. Additionally, from time to time, we have entered into
foreign currency forward contracts intended to economically
hedge our income statement exposure to fluctuations in exchange
rates associated with our intercompany loans denominated in
foreign currencies and certain foreign currency-denominated
assets. These forward contracts are primarily denominated in
Euros but are also denominated in British pounds, Canadian
dollars and Singapore dollars. Fluctuations in the value of
these forward contracts are recognized in our consolidated
statements of operations as incurred. However, the fluctuations
in the value of these forward contracts largely offset the
impact of changes in the value of the underlying risk that they
are intended to hedge, which is also reflected in our
consolidated statements of operations. As December 31,
2010, we had net foreign currency forward contracts to hedge the
U.S. dollar equivalent of $1.7 million of foreign
currency denominated assets.
76
From time to time we have also entered into foreign currency
forward contracts to hedge our exposure to fluctuations in
exchange rates associated with the receipt of forecasted
foreign-denominated royalty cash flows. At December 31,
2010, we had foreign currency forward contracts to hedge
Canadian royalty payments with an aggregate notional value of
$0.4 million.
We are exposed to losses in the event of nonperformance by
counterparties on these forward contracts. We attempt to
minimize this risk by selecting counterparties with investment
grade credit ratings and regularly monitoring our market
position with each counterparty.
During the Transition Period, income from operations would have
decreased or increased $5.3 million if all foreign
currencies uniformly weakened or strengthened 10% relative to
the U.S. dollar, holding other variables constant,
including sales volumes. The effect of a uniform movement of all
currencies by 10% is provided to illustrate a hypothetical
scenario and related effect on operating income. Actual results
will differ as foreign currencies may move in uniform or
different directions and in different magnitudes.
Interest
Rate Risk
We are exposed to changes in interest rates related to our term
loans and revolving credit facility, which bear interest at
LIBOR/EURIBOR plus a spread, subject to a LIBOR/EURIBOR floor
(1.75% at December 31, 2010, subsequently modified to
1.50%), as discussed in Note 11 of the accompanying audited
Consolidated Financial Statements included in Part II,
Item 8 Financial Statements and Supplementary
Data. Generally, interest rate changes could impact the
amount of our interest paid and, therefore, our future earnings
and cash flows, assuming other factors are held constant. To
mitigate the impact of changes in LIBOR/EURIBOR, we entered into
two deferred premium interest rate caps, one of which was
denominated in U.S. dollars (notional amount of
$1.5 billion) and the other denominated in Euros (notional
amount of 250 million) (the Cap
Agreements). As discussed in Note 13 of the
accompanying audited Consolidated Financial Statements included
in Part II, Item 8 Financial Statements and
Supplementary Data, after we amended the New Credit
Agreement in February 2011, we modified our interest rate cap
denominated in Euros to reduce its notional amount by
50 million throughout the life of the caplets.
Additionally, we entered into a new deferred premium interest
rate cap agreement denominated in U.S. dollars (notional
amount of $90 million) with a strike price of 1.50% (the
New Cap Agreement). The terms of the New Cap
Agreement are substantially similar to those described above and
the Cap Agreements were not otherwise revised by these
modifications.
The six year Cap Agreements are a series of 25 individual
caplets that reset and settle on the same dates as the New
Credit Facilities. The deferred premium associated with the Cap
Agreements was $47.7 million for the U.S. dollar
denominated exposure and 9.4 million for the Euro
denominated exposure. Under the terms of the Cap Agreements, if
LIBOR/EURIBOR resets above a strike price of 1.75%, we will
receive the net difference between the rate and the strike
price. In addition, on the quarterly settlement dates, we will
remit the deferred premium payment (plus interest) to the
counterparty. If LIBOR/EURIBOR resets below the strike price no
payment is made by the counterparty. However, we would still be
responsible for the deferred premium and interest.
Based on our variable rate borrowings at December 31, 2010,
a 1% increase in LIBOR/EURIBOR would have increased interest
expense for the period of October 19, 2010 to
December 31, 2010 by approximately $0.2 million
(approximately $0.8 million on an annual basis), which
would have been mitigated by payments we receive under the Cap
Agreements. Future increases in LIBOR/EURIBOR above 1.75% (1.5%
in the case of the New Cap Agreement) are also expected to be
mitigated by payments we receive under the Cap Agreements. To
the extent LIBOR/EURIBOR moves between the floor in the credit
agreement and the strike prices in the Cap Agreements, we are
exposed to volatility that will not be mitigated by payments
received under the Cap Agreements. We are also exposed to losses
in the event of nonperformance by the counterparty to these Cap
Agreements. We attempt to minimize this risk by selecting a
counterparty with investment grade credit ratings and regularly
monitoring our market position with the counterparty.
A portion of the interest rate swaps associated with our
previous credit facility was not terminated by counterparties in
connection with the Merger. These remaining swaps are classified
as a liability on our consolidated balance sheet and have a
notional value of $75 million as of December 31, 2010.
The final contract expires
77
September 2011. Future fluctuations in the fair value of
remaining interest rate swaps will be included in the
determination of net income (loss) until the final contract
expires in September 2011.
Commodity
Price Risk
We purchase certain products, including beef, chicken, cheese,
french fries, tomatoes and other commodities which are subject
to price volatility that is caused by weather, market conditions
and other factors that are not considered predictable or within
our control. Additionally, our ability to recover increased
costs is typically limited by the competitive environment in
which we operate. We do not utilize commodity option or future
contracts to hedge commodity prices and do not have long-term
pricing arrangements other than for chicken, which expires in
January 2012. As a result, we purchase beef and other
commodities at market prices, which fluctuate on a daily basis
and may differ between different geographic regions, where local
regulations may affect the volatility of commodity prices.
The estimated change in Company restaurant food, paper and
product costs from a hypothetical 10% change in average prices
of our commodities would have been approximately
$26.5 million for the six months ended December 31,
2010. The hypothetical change in food, paper and product costs
could be positively or negatively affected by changes in prices
or product sales mix.
78
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
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Page
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80
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81
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82
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|
|
|
|
83
|
|
|
|
|
84
|
|
|
|
|
86
|
|
|
|
|
87
|
|
79
Managements
Report on Internal Control Over Financial
Reporting
Management is responsible for the preparation, integrity and
fair presentation of the consolidated financial statements,
related notes and other information included in this transition
report. The financial statements were prepared in accordance
with accounting principles generally accepted in the United
States of America and include certain amounts based on
managements estimates and assumptions. Other financial
information presented is consistent with the financial
statements.
Management is also responsible for establishing and maintaining
adequate internal control over financial reporting, and for
performing an assessment of the effectiveness of internal
control over financial reporting as of December 31, 2010.
Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles. The Companys system of internal
control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of
management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
financial statements.
Management performed an assessment of the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2010 based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on our assessment and those criteria,
management determined that the Companys internal control
over financial reporting was effective as of December 31,
2010.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
80
Report
of Independent Registered Public Accounting Firm
The Board of Directors and Stockholder
Burger King Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of
Burger King Holdings, Inc. and subsidiaries as of
December 31, 2010 (Successor Entity) and June 30 2010 and
2009 (Predecessor Entity), and the related consolidated
statements of operations, stockholders equity and
comprehensive income (loss), and cash flows for the period from
October 19, 2010 to December 31, 2010 (Successor
Entity), the period from July 1, 2010 to October 18,
2010 (Predecessor Entity) and for each of the years in the
three-year period ended June 30, 2010 (Predecessor Entity).
These consolidated financial statements are the responsibility
of Burger King Holdings, Inc. and subsidiaries management.
Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Burger King Holdings, Inc and subsidiaries as of
December 31, 2010 (Successor Entity), June 30, 2010
and 2009 (Predecessor Entity), and the results of its their
operations and their cash flows for the period from
October 19, 2010 to December 31, 2010 (Successor
Entity), the period from July 1, 2010 to October 18,
2010 (Predecessor Entity) and for each of the years in the
three-year period ended June 30, 2010 (Predecessor Entity),
in conformity with U.S. generally accepted accounting
principles.
(signed)
Miami, Florida
March 23, 2011
Certified Public Accountants
81
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
As of December 31,
|
|
|
|
As of June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions, except share data)
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
207.0
|
|
|
|
$
|
187.6
|
|
|
$
|
121.7
|
|
Trade and notes receivable, net
|
|
|
148.0
|
|
|
|
|
142.9
|
|
|
|
130.0
|
|
Prepaids and other current assets, net
|
|
|
159.2
|
|
|
|
|
88.4
|
|
|
|
86.4
|
|
Deferred income taxes, net
|
|
|
23.2
|
|
|
|
|
15.1
|
|
|
|
32.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
537.4
|
|
|
|
|
434.0
|
|
|
|
370.6
|
|
Property and equipment, net
|
|
|
1,193.6
|
|
|
|
|
1,014.1
|
|
|
|
1,013.2
|
|
Intangible assets, net
|
|
|
2,931.9
|
|
|
|
|
1,025.4
|
|
|
|
1,062.7
|
|
Goodwill
|
|
|
529.9
|
|
|
|
|
31.0
|
|
|
|
26.4
|
|
Net investment in property leased to franchisees
|
|
|
140.0
|
|
|
|
|
138.5
|
|
|
|
135.3
|
|
Other assets, net
|
|
|
226.6
|
|
|
|
|
104.2
|
|
|
|
98.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,559.4
|
|
|
|
$
|
2,747.2
|
|
|
$
|
2,707.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and drafts payable
|
|
$
|
90.2
|
|
|
|
$
|
106.9
|
|
|
$
|
127.0
|
|
Accrued advertising
|
|
|
82.5
|
|
|
|
|
71.9
|
|
|
|
67.8
|
|
Other accrued liabilities
|
|
|
249.4
|
|
|
|
|
200.9
|
|
|
|
220.0
|
|
Current portion of long term debt and capital leases
|
|
|
32.9
|
|
|
|
|
93.3
|
|
|
|
67.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
455.0
|
|
|
|
|
473.0
|
|
|
|
482.3
|
|
Term debt, net of current portion
|
|
|
2,652.0
|
|
|
|
|
667.7
|
|
|
|
755.6
|
|
Capital leases, net of current portion
|
|
|
63.7
|
|
|
|
|
65.3
|
|
|
|
65.8
|
|
Other liabilities, net
|
|
|
208.2
|
|
|
|
|
344.6
|
|
|
|
354.5
|
|
Deferred income taxes, net
|
|
|
725.5
|
|
|
|
|
68.2
|
|
|
|
74.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,104.4
|
|
|
|
|
1,618.8
|
|
|
|
1,732.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 22)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 200,000 shares
authorized at December 31, 2010 and 300,000,000 shares
authorized at June 30, 2010 and 2009; 100,000, 135,814,644
and 134,792,121 shares issued and outstanding at
December 31, 2010, June 30, 2010 and 2009, respectively
|
|
|
|
|
|
|
|
1.4
|
|
|
|
1.4
|
|
Additional paid-in capital
|
|
|
1,563.5
|
|
|
|
|
647.2
|
|
|
|
623.4
|
|
(Accumulated deficit)/retained earnings
|
|
|
(105.6
|
)
|
|
|
|
608.0
|
|
|
|
455.4
|
|
Accumulated other comprehensive income (loss)
|
|
|
(2.9
|
)
|
|
|
|
(66.9
|
)
|
|
|
(45.9
|
)
|
Treasury stock, at cost; 0 shares at December 31,
2010, 2,972,738 and 2,884,223 shares at June 30, 2010
and 2009, respectively
|
|
|
|
|
|
|
|
(61.3
|
)
|
|
|
(59.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,455.0
|
|
|
|
|
1,128.4
|
|
|
|
974.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
5,559.4
|
|
|
|
$
|
2,747.2
|
|
|
$
|
2,707.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
82
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19, 2010 to
|
|
|
|
July 1, 2010 to
|
|
|
Fiscal Years Ended June 30,
|
|
|
|
December 31, 2010
|
|
|
|
October 18, 2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant revenues
|
|
$
|
331.7
|
|
|
|
$
|
514.5
|
|
|
$
|
1,839.3
|
|
|
$
|
1,880.5
|
|
|
$
|
1,795.9
|
|
Franchise revenues
|
|
|
111.5
|
|
|
|
|
169.2
|
|
|
|
549.2
|
|
|
|
543.4
|
|
|
|
537.2
|
|
Property revenues
|
|
|
22.6
|
|
|
|
|
34.0
|
|
|
|
113.7
|
|
|
|
113.5
|
|
|
|
121.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
465.8
|
|
|
|
|
717.7
|
|
|
|
2,502.2
|
|
|
|
2,537.4
|
|
|
|
2,454.7
|
|
Company restaurant expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food, paper and product costs
|
|
|
102.6
|
|
|
|
|
162.6
|
|
|
|
585.0
|
|
|
|
603.7
|
|
|
|
564.3
|
|
Payroll and employee benefits
|
|
|
98.3
|
|
|
|
|
154.2
|
|
|
|
568.7
|
|
|
|
582.2
|
|
|
|
534.7
|
|
Occupancy and other operating costs
|
|
|
93.2
|
|
|
|
|
127.7
|
|
|
|
461.1
|
|
|
|
457.8
|
|
|
|
439.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company restaurant expenses
|
|
|
294.1
|
|
|
|
|
444.5
|
|
|
|
1,614.8
|
|
|
|
1,643.7
|
|
|
|
1,538.0
|
|
Selling, general and administrative expenses
|
|
|
240.2
|
|
|
|
|
156.8
|
|
|
|
495.8
|
|
|
|
494.3
|
|
|
|
501.0
|
|
Property expenses
|
|
|
14.7
|
|
|
|
|
18.5
|
|
|
|
59.4
|
|
|
|
58.1
|
|
|
|
62.1
|
|
Other operating (income) expenses, net
|
|
|
(11.7
|
)
|
|
|
|
(3.6
|
)
|
|
|
(0.7
|
)
|
|
|
1.9
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
537.3
|
|
|
|
|
616.2
|
|
|
|
2,169.3
|
|
|
|
2,198.0
|
|
|
|
2,100.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(71.5
|
)
|
|
|
|
101.5
|
|
|
|
332.9
|
|
|
|
339.4
|
|
|
|
354.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
61.2
|
|
|
|
|
14.9
|
|
|
|
49.6
|
|
|
|
57.3
|
|
|
|
67.1
|
|
Interest income
|
|
|
(0.2
|
)
|
|
|
|
(0.3
|
)
|
|
|
(1.0
|
)
|
|
|
(2.7
|
)
|
|
|
(5.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense, net
|
|
|
61.0
|
|
|
|
|
14.6
|
|
|
|
48.6
|
|
|
|
54.6
|
|
|
|
61.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(132.5
|
)
|
|
|
|
86.9
|
|
|
|
284.3
|
|
|
|
284.8
|
|
|
|
293.0
|
|
Income tax expense (benefit)
|
|
|
(26.9
|
)
|
|
|
|
15.8
|
|
|
|
97.5
|
|
|
|
84.7
|
|
|
|
103.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(105.6
|
)
|
|
|
$
|
71.1
|
|
|
$
|
186.8
|
|
|
$
|
200.1
|
|
|
$
|
189.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
83
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
Issued
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Restricted
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Units
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Stock
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2007
|
|
|
135.2
|
|
|
$
|
1.4
|
|
|
$
|
2.8
|
|
|
$
|
573.6
|
|
|
$
|
134.4
|
|
|
$
|
7.5
|
|
|
$
|
(3.8
|
)
|
|
$
|
715.9
|
|
Stock option exercises
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.8
|
|
Stock option tax benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.3
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.4
|
|
Treasury stock purchases
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35.4
|
)
|
|
|
(35.4
|
)
|
Issuance of shares upon settlement of restricted stock units
|
|
|
|
|
|
|
|
|
|
|
(2.8
|
)
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend paid on common shares ($0.25 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(34.2
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189.6
|
|
|
|
|
|
|
|
|
|
|
|
189.6
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
(1.7
|
)
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of derivatives, net of tax of
$3.9 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.4
|
)
|
|
|
|
|
|
|
(6.4
|
)
|
Amounts reclassified to earnings during the period from
terminated swaps, net of tax of $1.1 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
(1.3
|
)
|
Pension and post-retirement benefit plans, net of tax of
$4.5 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.5
|
)
|
|
|
|
|
|
|
(6.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2008
|
|
|
135.0
|
|
|
$
|
1.4
|
|
|
$
|
|
|
|
$
|
600.9
|
|
|
$
|
289.8
|
|
|
$
|
(8.4
|
)
|
|
$
|
(39.2
|
)
|
|
$
|
844.5
|
|
Stock option exercises
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
Stock option tax benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.3
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.2
|
|
Treasury stock purchases
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20.3
|
)
|
|
|
(20.3
|
)
|
Dividend paid on common shares ($0.25 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(34.1
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200.1
|
|
|
|
|
|
|
|
|
|
|
|
200.1
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
(6.0
|
)
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of derivatives, net of tax of
$10.6 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16.8
|
)
|
|
|
|
|
|
|
(16.8
|
)
|
Amounts reclassified to earnings during the period from
terminated swaps, net of tax of $0.4 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
(0.9
|
)
|
Pension and post-retirement benefit plans, net of tax of
$9.2 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13.8
|
)
|
|
|
|
|
|
|
(13.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162.6
|
|
Adjustment to adopt re-measurement provision under SFAS No
158, net of tax of $0.2 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2009
|
|
|
134.8
|
|
|
$
|
1.4
|
|
|
$
|
|
|
|
$
|
623.4
|
|
|
$
|
455.4
|
|
|
$
|
(45.9
|
)
|
|
$
|
(59.5
|
)
|
|
$
|
974.8
|
|
Stock option exercises
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.2
|
|
Stock option tax benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.0
|
|
Treasury stock purchases
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
(2.7
|
)
|
Dividend paid on common shares ($0.25 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(34.2
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186.8
|
|
|
|
|
|
|
|
|
|
|
|
186.8
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.4
|
)
|
|
|
|
|
|
|
(4.4
|
)
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of derivatives, net of tax of
$2.6 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.1
|
|
|
|
|
|
|
|
4.1
|
|
Amounts reclassified to earnings during the period from
terminated swaps, net of tax of $0.6 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
(1.0
|
)
|
Pension and post-retirement benefit plans, net of tax of
$11.3 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19.7
|
)
|
|
|
|
|
|
|
(19.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2010
|
|
|
135.8
|
|
|
$
|
1.4
|
|
|
$
|
|
|
|
$
|
647.2
|
|
|
$
|
608.0
|
|
|
$
|
(66.9
|
)
|
|
$
|
(61.3
|
)
|
|
$
|
1,128.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
84
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Consolidated
Statements of Stockholders Equity and Comprehensive Income
(Loss) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
Issued
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Restricted
|
|
|
Additional
|
|
|
Earnings/
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Stock
|
|
|
Paid-In
|
|
|
(Accumulated
|
|
|
Income
|
|
|
Treasury
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Units
|
|
|
Capital
|
|
|
Deficit)
|
|
|
(Loss)
|
|
|
Stock
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Balances at June 30, 2010
|
|
|
135.8
|
|
|
$
|
1.4
|
|
|
$
|
|
|
|
$
|
647.2
|
|
|
$
|
608.0
|
|
|
$
|
(66.9
|
)
|
|
$
|
(61.3
|
)
|
|
$
|
1,128.4
|
|
Stock option exercises
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.0
|
|
Stock option tax benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.8
|
|
Treasury stock purchases
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(2.2
|
)
|
|
|
(2.5
|
)
|
Dividend paid on common shares ($0.25 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(8.6
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71.1
|
|
|
|
|
|
|
|
|
|
|
|
71.1
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.3
|
|
|
|
|
|
|
|
13.3
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of derivatives, net of tax of
$1.1 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
|
1.7
|
|
Amounts reclassified to earnings during the period from
terminated swaps, net of tax of $0.2 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
Pension and post-retirement benefit plans, net of tax of
$3.1 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.8
|
|
|
|
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at October 18, 2010
|
|
|
136.6
|
|
|
$
|
1.4
|
|
|
$
|
|
|
|
$
|
656.3
|
|
|
$
|
670.5
|
|
|
$
|
(46.3
|
)
|
|
$
|
(63.5
|
)
|
|
$
|
1,218.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at October 19, 2010
|
|
|
0.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,563.5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,563.5
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(105.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(105.6
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33.6
|
)
|
|
|
|
|
|
|
(33.6
|
)
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of derivatives, net of tax of
$13.9 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.9
|
|
|
|
|
|
|
|
21.9
|
|
Pension and post-retirement benefit plans, net of tax of
$3.9 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.8
|
|
|
|
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(108.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2010
|
|
|
0.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,563.5
|
|
|
$
|
(105.6
|
)
|
|
$
|
(2.9
|
)
|
|
$
|
|
|
|
$
|
1,455.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
85
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19, 2010 to
|
|
|
|
July 1, 2010 to
|
|
|
Years Ended June 30,
|
|
|
|
December 31, 2010
|
|
|
|
October 18, 2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(105.6
|
)
|
|
|
$
|
71.1
|
|
|
$
|
186.8
|
|
|
$
|
200.1
|
|
|
$
|
189.6
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
33.4
|
|
|
|
|
31.2
|
|
|
|
111.7
|
|
|
|
98.1
|
|
|
|
95.6
|
|
Loss on early extinguishment of debt
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing cost and debt issuance
discount
|
|
|
2.6
|
|
|
|
|
0.6
|
|
|
|
2.1
|
|
|
|
1.9
|
|
|
|
2.4
|
|
Impairment of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
Impairment on non-restaurant properties
|
|
|
|
|
|
|
|
0.1
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
Gain on hedging activities
|
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
(1.6
|
)
|
|
|
(1.3
|
)
|
|
|
(2.0
|
)
|
(Gain) loss on remeasurement of foreign denominated transactions
|
|
|
(3.2
|
)
|
|
|
|
(41.5
|
)
|
|
|
40.9
|
|
|
|
50.1
|
|
|
|
(55.6
|
)
|
Loss (gain) on refranchisings and dispositions of assets
|
|
|
0.8
|
|
|
|
|
(4.6
|
)
|
|
|
(9.5
|
)
|
|
|
(11.0
|
)
|
|
|
(16.8
|
)
|
Bad debt expense (recoveries), net
|
|
|
2.8
|
|
|
|
|
2.1
|
|
|
|
0.8
|
|
|
|
0.7
|
|
|
|
(2.7
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
5.8
|
|
|
|
17.0
|
|
|
|
16.2
|
|
|
|
11.4
|
|
Deferred income taxes
|
|
|
13.9
|
|
|
|
|
(1.4
|
)
|
|
|
16.9
|
|
|
|
12.1
|
|
|
|
20.3
|
|
Changes in current assets and liabilities, excluding
acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and notes receivable
|
|
|
(34.3
|
)
|
|
|
|
32.0
|
|
|
|
(15.9
|
)
|
|
|
2.1
|
|
|
|
(8.6
|
)
|
Prepaids and other current assets
|
|
|
(57.3
|
)
|
|
|
|
(2.2
|
)
|
|
|
(1.4
|
)
|
|
|
(35.4
|
)
|
|
|
14.9
|
|
Accounts and drafts payable
|
|
|
(26.5
|
)
|
|
|
|
9.0
|
|
|
|
(20.8
|
)
|
|
|
3.3
|
|
|
|
20.8
|
|
Accrued advertising
|
|
|
6.8
|
|
|
|
|
1.3
|
|
|
|
6.4
|
|
|
|
(7.7
|
)
|
|
|
11.1
|
|
Other accrued liabilities
|
|
|
44.9
|
|
|
|
|
29.4
|
|
|
|
(22.3
|
)
|
|
|
(20.8
|
)
|
|
|
(6.2
|
)
|
Other long-term assets and liabilities, net
|
|
|
(8.9
|
)
|
|
|
|
(11.2
|
)
|
|
|
(3.6
|
)
|
|
|
1.9
|
|
|
|
(30.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by operating activities
|
|
|
(128.2
|
)
|
|
|
|
121.3
|
|
|
|
310.4
|
|
|
|
310.8
|
|
|
|
243.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property and equipment
|
|
|
(28.4
|
)
|
|
|
|
(18.2
|
)
|
|
|
(150.3
|
)
|
|
|
(204.0
|
)
|
|
|
(178.2
|
)
|
Proceeds from refranchisings, disposition of asset and
restaurant closures
|
|
|
5.7
|
|
|
|
|
9.6
|
|
|
|
21.5
|
|
|
|
26.4
|
|
|
|
27.0
|
|
Payments for acquired franchisee operations, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
|
(14.0
|
)
|
|
|
(67.9
|
)
|
|
|
(54.2
|
)
|
Return of investment on direct financing leases
|
|
|
1.4
|
|
|
|
|
2.6
|
|
|
|
8.2
|
|
|
|
7.9
|
|
|
|
7.4
|
|
Other investing activities
|
|
|
1.4
|
|
|
|
|
1.2
|
|
|
|
(0.3
|
)
|
|
|
(4.4
|
)
|
|
|
(1.3
|
)
|
Net payment for purchase of BKH
|
|
|
(3,325.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(3,345.3
|
)
|
|
|
|
(4.8
|
)
|
|
|
(134.9
|
)
|
|
|
(242.0
|
)
|
|
|
(199.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of debt and capital leases
|
|
|
(3.2
|
)
|
|
|
|
(23.5
|
)
|
|
|
(67.7
|
)
|
|
|
(7.4
|
)
|
|
|
(55.5
|
)
|
Extinguishment of debt
|
|
|
(731.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit facility and other
|
|
|
|
|
|
|
|
|
|
|
|
38.5
|
|
|
|
94.3
|
|
|
|
50.0
|
|
Proceeds from New Term Loans and other debt
|
|
|
1,837.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Senior Notes
|
|
|
800.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of deferred financing cost
|
|
|
(69.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of revolving credit facility
|
|
|
|
|
|
|
|
|
|
|
|
(38.5
|
)
|
|
|
(144.3
|
)
|
|
|
|
|
Proceeds from stock option exercises
|
|
|
|
|
|
|
|
4.0
|
|
|
|
4.2
|
|
|
|
3.0
|
|
|
|
3.8
|
|
Dividends paid on common stock
|
|
|
|
|
|
|
|
(8.6
|
)
|
|
|
(34.2
|
)
|
|
|
(34.1
|
)
|
|
|
(34.2
|
)
|
Excess tax benefits from stock-based compensation
|
|
|
|
|
|
|
|
1.1
|
|
|
|
3.5
|
|
|
|
3.3
|
|
|
|
9.3
|
|
Repurchases of common stock
|
|
|
|
|
|
|
|
(2.5
|
)
|
|
|
(2.7
|
)
|
|
|
(20.3
|
)
|
|
|
(35.4
|
)
|
Capital contribution from 3G
|
|
|
1,563.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities
|
|
|
3,396.4
|
|
|
|
|
(29.5
|
)
|
|
|
(96.9
|
)
|
|
|
(105.5
|
)
|
|
|
(62.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
(2.3
|
)
|
|
|
|
11.8
|
|
|
|
(12.7
|
)
|
|
|
(7.6
|
)
|
|
|
14.4
|
|
Increase (Decrease) in cash and cash equivalents
|
|
|
(79.4
|
)
|
|
|
|
98.8
|
|
|
|
65.9
|
|
|
|
(44.3
|
)
|
|
|
(3.5
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
286.4
|
|
|
|
|
187.6
|
|
|
|
121.7
|
|
|
|
166.0
|
|
|
|
169.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
207.0
|
|
|
|
$
|
286.4
|
|
|
$
|
187.6
|
|
|
$
|
121.7
|
|
|
$
|
166.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cashflow disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
28.0
|
|
|
|
$
|
13.7
|
|
|
$
|
48.7
|
|
|
$
|
56.0
|
|
|
$
|
64.6
|
|
Income taxes paid
|
|
$
|
4.5
|
|
|
|
$
|
24.4
|
|
|
$
|
54.3
|
|
|
$
|
112.3
|
|
|
$
|
73.5
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property with capital lease obligations
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
3.7
|
|
|
$
|
2.2
|
|
|
$
|
9.3
|
|
Net investment in direct financing leases
|
|
$
|
1.3
|
|
|
|
$
|
4.4
|
|
|
$
|
11.0
|
|
|
$
|
12.2
|
|
|
$
|
2.3
|
|
Deferred premium interest rate caps
|
|
$
|
56.1
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
See accompanying notes to consolidated financial statements.
86
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
|
|
Note 1.
|
Description
of Business and Organization
|
Description
of Business
Burger King Holdings, Inc. (BKH or the
Company) is a Delaware corporation formed on
July 23, 2002. The Company is the parent of Burger King
Corporation (BKC), a Florida corporation that
franchises and operates fast food hamburger restaurants,
principally under the Burger King brand (the
Brand).
The Company generates revenues from three sources:
(i) retail sales at Company restaurants;
(ii) franchise revenues, consisting of royalties based on a
percentage of sales reported by franchise restaurants and
franchise fees paid by franchisees; and (iii) property
income from restaurants that the Company leases or subleases to
franchisees.
Restaurant sales are affected by the timing and effectiveness of
the Companys advertising, new products and promotional
programs. The Companys results of operations also
fluctuate from quarter to quarter as a result of seasonal trends
and other factors, such as the timing of restaurant openings and
closings and the acquisition of franchise restaurants, as well
as variability of the weather. Restaurant sales are typically
higher in the spring and summer months when the weather is
warmer than in the fall and winter months. Restaurant sales
during the winter are typically highest in December, during the
holiday shopping season. Our restaurant sales and Company
restaurant margin are typically lowest during the winter months,
which include February, the shortest month of the year.
Furthermore, adverse weather conditions can have material
adverse effects on restaurant sales. The timing of religious
holidays may also impact restaurant sales.
Acquisition
of the Company
On September 2, 2010, the Company entered into an Agreement
and Plan of Merger (the Merger Agreement) with
Burger King Worldwide Holdings, Inc., formerly known as Blue
Acquisition Holding Corporation, a Delaware corporation
(Parent) and Blue Acquisition Sub, Inc., a Delaware
corporation (Merger Sub), a wholly owned subsidiary
of Parent established as an acquisition vehicle for the purpose
of acquiring the Company. In accordance with the terms of the
Merger Agreement, on October 19, 2010 (the Merger
Date), Merger Sub completed its acquisition of 100% of the
Companys equity (the Acquisition) and merged
with and into the Company, with the Company continuing as the
surviving corporation (the Merger).
Parent is wholly-owned by 3G Special Situations Fund II,
L.P. (3G), which is an affiliate of 3G Capital
Partners Ltd., an investment firm based in New York City
(3G Capital or the Sponsor). The
Acquisition has been accounted for as a business combination
using the acquisition method of accounting. In addition,
Financial Accounting Standard Board (FASB)
Accounting Standard Codification (ASC)
805-50-S99-1
Business Combinations Related Issues
requires the application of push down accounting in
situations where the ownership of an entity has changed. As a
result, the post-merger financial statements of the Company
reflect the new basis of accounting.
The Acquisition, Merger and Financing Transactions (collectively
referred to as the Transactions) required total cash
of approximately $4.3 billion, including transaction costs,
and were financed with $1.56 billion in equity contributed
by 3G, proceeds from the issuance of new term loans consisting
of a $1.51 billion tranche denominated in U.S. dollars
and a 250 million tranche denominated in Euros (as
further discussed in Note 11), the net proceeds from the
issuance of $800 million of Senior Notes (as further
discussed in Note 11) and $69.4 million of cash
on hand.
Fees and expenses related to the Transactions totaled
$91.2 million, including (1) $43.2 million
consisting principally of investment banking fees and legal
fees, (2) compensation related expenses of
$34.5 million (which are included as a component of
selling, general and administrative expenses) and
(3) commitment fees of $13.5 million associated with
the bridge loan available at the closing of the Transactions,
which are included as a component of interest expense in the
Companys consolidated statement of operations for the
period of October 19, 2010 to December 31, 2010. Debt
issuance costs capitalized in connection with the issuance of
debt to
87
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
fund the Transactions totaled $69.2 million and are
reflected in Other Assets in the Companys consolidated
balance sheet at December 31, 2010.
The preliminary allocation of consideration to the net tangible
and intangible assets acquired and liabilities assumed in the
table below reflect various preliminary fair value estimates and
analyses, including preliminary work performed by third-party
valuation specialists, which are subject to change within the
measurement period as valuations are finalized. The primary
areas of the preliminary purchase price allocations that are not
yet finalized relate to the fair values of certain tangible
assets acquired and liabilities assumed, the valuation of
intangible assets acquired, income and non-income based taxes
and goodwill. The Company expects to continue to obtain
information to assist in determining the fair value of the net
assets acquired at the Merger Date during the measurement
period. Measurement period adjustments that the Company
determines to be material will be applied retrospectively to the
Merger Date.
The preliminary computations of consideration and the allocation
of consideration to the net tangible and intangible assets
acquired and liabilities assumed is presented in the table below
(in millions):
|
|
|
|
|
Cash paid for shares outstanding(1)
|
|
$
|
3,277.3
|
|
Settlement of outstanding stock-based compensation
|
|
|
48.1
|
|
|
|
|
|
|
Total consideration
|
|
$
|
3,325.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/19/10
|
|
|
Current assets
|
|
|
508.0
|
|
Property and equipment
|
|
|
1,200.0
|
|
Intangibles assets
|
|
|
2,982.5
|
|
Net investment in property leased to franchisees
|
|
|
140.3
|
|
Other assets, net
|
|
|
87.3
|
|
Current liabilities
|
|
|
(460.3
|
)
|
Term debt
|
|
|
(667.4
|
)
|
Capital leases
|
|
|
(64.4
|
)
|
Other liabilities
|
|
|
(214.2
|
)
|
Deferred income taxes, net
|
|
|
(716.7
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
2,795.1
|
|
|
|
|
|
|
Excess purchase price attributed to goodwill
|
|
$
|
530.3
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents cash paid, based on a $24.00 per share price, for
136,555,642 outstanding shares. |
Intangible assets include the Brand, franchise agreements and
favorable leases. The Brand has been assigned an indefinite life
and, therefore, will not be amortized, but tested at least
annually for impairment. Franchise agreements have a weighted
average amortization period of approximately 23 years.
Favorable and unfavorable leases have weighted average
amortization periods of approximately 12 years.
Estimated goodwill has not yet been allocated to reporting units
for goodwill impairment testing purposes at December 31,
2010. The Company will allocate goodwill to reporting units upon
completion of the fair value studies in 2011. None of the
goodwill is expected to be deductible for income tax purposes.
88
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The following information represents the unaudited supplemental
pro forma results of the Companys consolidated operations
as if the Transactions occurred on July 1, 2009, after
giving effect to certain adjustments, including depreciation and
amortization of the assets acquired and liabilities assumed
based on their estimated fair values and changes in interest
expenses resulting from changes in consolidated debt:
|
|
|
|
|
|
|
|
|
|
|
Transition
|
|
|
|
|
|
|
Period
|
|
|
Fiscal Year
|
|
|
|
July 1, 2010
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Revenue
|
|
$
|
1,183.8
|
|
|
$
|
2,503.0
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(58.6
|
)
|
|
$
|
85.4
|
|
|
|
|
|
|
|
|
|
|
The pro forma information does not purport to be indicative of
what the Companys results of operations would have been if
the Transactions had in fact occurred at the beginning of the
period presented and is not intended to be a projection of the
Companys future results of operations.
Financial information through but not including the Merger Date
is referred to as Predecessor company information,
which has been prepared using the Companys previous basis
of accounting. The financial information beginning
October 19, 2010 is referred to as Successor
company information and reflects the financial statement effects
of recording fair value adjustments and the capital structure
resulting from the Transactions. Black lines have been drawn to
separate the Successors financial information from that of
the Predecessor since their financial statements are not
comparable as a result of the application of acquisition
accounting and the Companys capital structure resulting
from the Transactions.
Restructuring
Plan
On December 6, 2010, the Company began the implementation
of a global restructuring plan that resulted in work force
reductions throughout the organization. In the United States,
approximately 375 corporate and field positions were eliminated,
the majority of which were based at its headquarters in Miami,
Florida. In addition, approximately 250 corporate and field
positions in Canada, Latin America, EMEA and APAC were
eliminated. As a result of the work force reductions in North
America and Latin America, the Company incurred total charges of
approximately $41 million which are included in selling,
general and administrative expenses for the period of
October 19, 2010 to December 31, 2010. These
restructuring charges will result in future cash expenditures.
In addition, for the period of October 19, 2010 to
December 31, 2010, the Company incurred total charges of
approximately $16 million in the EMEA and APAC regions
which are included in selling, general and administrative
expenses.
|
|
Note 2.
|
Summary
of Significant Accounting Policies
|
Change
in Fiscal Year End
On November 5, 2010 the BKH Board of Directors approved a
change in fiscal year end from June 30 to December 31. The
change became effective at the end of the quarter ended
December 31, 2010. All references to fiscal
years, unless otherwise noted, refer to the twelve-month
fiscal year, which prior to July 1, 2010 ended on
June 30. This
Form 10-K
covers the transition period of July 1, 2010 through
December 31, 2010 (the Transition Period).
89
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
For comparative purposes, Condensed Consolidated Statements of
Operations for the six months ended December 31, 2010 and
2009 are presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
(Unaudited)
|
|
|
|
For the Period of
|
|
|
|
For the Period of
|
|
|
Predecessor
|
|
|
|
October 19, 2010 to
|
|
|
|
July 1, 2010 to
|
|
|
Six Months Ended
|
|
|
|
December 31, 2010
|
|
|
|
October 18, 2010
|
|
|
December 31, 2009
|
|
|
|
(In millions)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant revenues
|
|
$
|
331.7
|
|
|
|
$
|
514.5
|
|
|
$
|
946.0
|
|
Franchise revenues
|
|
|
111.5
|
|
|
|
|
169.2
|
|
|
|
279.0
|
|
Property revenues
|
|
|
22.6
|
|
|
|
|
34.0
|
|
|
|
57.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
465.8
|
|
|
|
|
717.7
|
|
|
|
1,282.3
|
|
Company restaurant expenses
|
|
|
294.1
|
|
|
|
|
444.5
|
|
|
|
819.6
|
|
Selling, general and administrative expenses
|
|
|
240.2
|
|
|
|
|
156.8
|
|
|
|
256.9
|
|
Property expenses
|
|
|
14.7
|
|
|
|
|
18.5
|
|
|
|
29.5
|
|
Other operating (income) expenses, net
|
|
|
(11.7
|
)
|
|
|
|
(3.6
|
)
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
537.3
|
|
|
|
|
616.2
|
|
|
|
1,111.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(71.5
|
)
|
|
|
|
101.5
|
|
|
|
171.2
|
|
Interest expense, net
|
|
|
61.0
|
|
|
|
|
14.6
|
|
|
|
24.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(132.5
|
)
|
|
|
|
86.9
|
|
|
|
146.5
|
|
Income tax expense (benefit)
|
|
|
(26.9
|
)
|
|
|
|
15.8
|
|
|
|
49.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(105.6
|
)
|
|
|
$
|
71.1
|
|
|
$
|
96.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis
of Presentation and Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All material
intercompany balances and transactions have been eliminated in
consolidation. Investments in affiliates owned 50% or less are
accounted for by the equity method. These investments were not
significant as of December 31, 2010.
Certain prior year amounts in the accompanying Financial
Statements and Notes to the Financial Statements have been
reclassified in order to be comparable with the current year
classifications. These reclassifications had no effect on
previously reported net income (loss).
Concentrations
of Risk
The Companys operations include Company and franchise
restaurants located in 76 countries and U.S. territories.
Of the 12,251 restaurants in operation as of December 31,
2010, 1,344 were Company restaurants and 10,907 were franchise
restaurants.
Four distributors service approximately 85% of our
U.S. system restaurants and the loss of any one of these
distributors would likely adversely affect our business. In many
of the Companys international markets, a single
distributor services all the Burger King restaurants in
the market. The loss of any of one of these distributors would
likely have an adverse effect on the market impacted, and
depending on the market, could have an adverse impact on the
Companys financial results.
90
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
(GAAP) requires management to make estimates and
assumptions that affect the amounts reported in the
Companys consolidated financial statements and
accompanying notes. Management adjusts such estimates and
assumptions when facts and circumstances dictate. Volatile
credit, equity, foreign currency, and energy markets and
declines in consumer spending may continue to affect the
uncertainty inherent in such estimates and assumptions. As
future events and their effects cannot be determined with
precision, actual results could differ significantly from these
estimates.
Foreign
Currency Translation
The functional currency of each foreign subsidiary is generally
the local currency. Foreign currency balance sheets are
translated using the end of period exchange rates, and
statements of operations are translated at the average exchange
rates for each period. The translation adjustments resulting
from the translation of foreign currency financial statements
are recorded in accumulated other comprehensive income (loss)
within stockholders equity.
Foreign
Currency Transaction Gain or Losses
Foreign currency transaction gains or losses resulting from the
re-measurement of foreign-denominated assets and liabilities of
the Company or its subsidiaries are reflected in earnings in the
period when the exchange rates change and are included within
other operating (income) expenses, net in the consolidated
statements of operations.
Cash
and Cash Equivalents
Cash and cash equivalents include short-term, highly liquid
investments with original maturities of three months or less and
credit card receivables.
Allowance
for Doubtful Accounts
The Company evaluates the collectibility of its trade accounts
receivable from franchisees based on a combination of factors,
including the length of time the receivables are past due and
the probability of collection from litigation or default
proceedings, where applicable. The Company records a specific
allowance for doubtful accounts in an amount required to adjust
the carrying values of such balances to the amount that the
Company estimates to be net realizable value. The Company writes
off a specific account when (a) the Company enters into an
agreement with a franchisee that releases the franchisee from
outstanding obligations, (b) franchise agreements are
terminated and the projected costs of collections exceed the
benefits expected to be received from pursuing the balance owed
through legal action, or (c) franchisees do not have the
financial wherewithal or unprotected assets from which
collection is reasonably assured.
Notes receivable represent loans made to franchisees arising
from refranchisings of Company restaurants, sales of property,
and in certain cases when past due trade receivables from
franchisees are restructured into an interest-bearing note.
Trade receivables which are restructured to interest-bearing
notes are generally already fully reserved, and as a result, are
transferred to notes receivable at a net carrying value of zero.
Notes receivable with a carrying value greater than zero are
written down to net realizable value when it is probable or
likely that the Company is unable to collect all amounts due
under the contractual terms of the loan agreement.
Inventories
Inventories are stated at the lower of cost
(first-in,
first-out) or net realizable value, and consist primarily of
restaurant food items and paper supplies. Inventories are
included in prepaids and other current assets in the
accompanying consolidated balance sheets.
91
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Property
and Equipment, net
Property and equipment, net, owned by the Company are recorded
at historical cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using
the straight-line method based on the estimated useful lives of
the assets. Leasehold improvements to properties where the
Company is the lessee are amortized over the lesser of the
remaining term of the lease or the estimated useful life of the
improvement. When we commit to a plan to close a restaurant, we
adjust the depreciable lives of the restaurants long-lived
assets based on the expected date of closure.
Leases
The Company defines lease term as the initial term of the lease,
plus any renewals covered by bargain renewal options or that are
reasonably assured of exercise because non-renewal would create
an economic penalty. Once determined, lease term is used
consistently by the Company for lease classification, rent
expense recognition, amortization of leasehold improvements and
minimum rent commitment purposes.
Assets acquired by the Company as lessee under capital leases
are stated at the lower of the present value of future minimum
lease payments or fair market value at the date of inception of
the lease. Capital lease assets are depreciated using the
straight-line method over the shorter of the useful life of the
asset or the underlying lease term.
The Company also enters into capital leases as lessor. Capital
leases meeting the criteria of direct financing leases are
recorded on a net basis, consisting of the gross investment and
residual value in the lease less the unearned income. Unearned
income is recognized over the lease term yielding a constant
periodic rate of return on the net investment in the lease.
Direct financing leases are reviewed for impairment whenever
events or circumstances indicate that the carrying amount of an
asset may not be recoverable based on the payment history under
the lease.
The Company records rent expense and income from operating
leases that contain rent holidays or scheduled rent increases on
a straight-line basis over the lease term. Contingent rentals
are generally based on sales levels in excess of stipulated
amounts, and thus are not considered minimum lease payments.
Favorable and unfavorable operating leases are recorded in
connection with acquisition accounting. The Company amortizes
favorable and unfavorable leases on a straight-line basis over
the remaining term of the leases. Upon early termination of a
lease, the write-off of the favorable or unfavorable lease
carrying value associated with the lease is recognized as a loss
or gain in the consolidated statements of operations. (See
Note 18.)
Goodwill
and Intangible Assets Not Subject to Amortization
Goodwill represents the excess of the purchase price over the
fair value of assets acquired and liabilities assumed and
goodwill at December 31, 2010 was recorded in connection
with the Sponsors acquisition of the Company, which was
accounted for as business combination. Additional goodwill may
arise in future periods in connection with the Companys
acquisitions of franchise restaurants. The Companys
indefinite-lived intangible asset consists of the Brand.
Goodwill and the Brand are not amortized, but are tested for
impairment on an annual basis and more often if an event occurs
or circumstances change that indicates impairment might exist.
The impairment test for goodwill requires the Company to compare
the carrying value of reporting units (with assigned goodwill)
to fair value. If the carrying value of a reporting unit with
assigned goodwill exceeds its estimated fair value, the Company
may be required to record an impairment charge to goodwill. The
Company will allocate goodwill to reporting units upon
completion of the fair value studies in 2011.
When the Company disposes of a restaurant business within six
months of acquisition, the goodwill recorded in connection with
the acquisition is written off. Otherwise, goodwill is written
off based on the relative fair value of the business sold to the
reporting unit when disposals occur more than six months after
acquisition.
92
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The impairment test for the Brand consists of a comparison of
the carrying value of the Brand to its fair value on a
consolidated basis, with impairment, if any, equal to the amount
by which the carrying value exceeds its fair value.
During the quarter ended December 31, 2010, the Company
changed its annual goodwill impairment testing date from April 1
to October 1 of each year. This change is being made to better
align impairment testing procedures with the Companys new
fiscal year, related year-end financial reporting and the annual
business planning and budgeting process, which are performed
during the fourth quarter of each year. As a result, goodwill
impairment testing will reflect the result of input from
business and other operating personnel in the development of the
budget. Accordingly, management considers this accounting change
preferable. This change does not accelerate, delay, avoid, or
cause an impairment charge, nor does this change result in
adjustments to previously issued financial statements.
The Predecessors goodwill impairment test was completed as
of April 1, 2010, in accordance with our previously
established annual timeline and no impairment resulted. As a
result of the Merger on the Merger Date, and the related
application of acquisition accounting, the Company revalued the
Brand and recorded a preliminary estimate of goodwill as of that
date. As further discussed in Note 1, our purchase price
allocation has not been finalized. Our next goodwill impairment
test will be performed as of October 1, 2011.
Long-Lived
Assets
Long-lived assets, such as property and equipment and intangible
assets subject to amortization, are tested for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Some of the
events or changes in circumstances that would trigger an
impairment review include, but are not limited to, a significant
under-performance relative to expected
and/or
historical results (two consecutive years of negative comparable
sales or operating cash flows), significant negative industry or
economic trends; knowledge of transactions involving the sale of
similar property at amounts below the carrying value; or our
expectation to dispose of long-lived assets before the end of
their estimated useful lives. The impairment test for long-lived
assets requires the Company to assess the recoverability of
long-lived assets by comparing their net carrying value to the
sum of undiscounted estimated future cash flows directly
associated with and arising from use and eventual disposition of
the assets. If the net carrying value of a group of long-lived
assets exceeds the sum of related undiscounted estimated future
cash flows, the Company must record an impairment charge equal
to the excess, if any, of net carrying value over fair value.
Long-lived assets are grouped for recognition and measurement of
impairment at the lowest level for which identifiable cash flows
are largely independent of the cash flows of other assets.
Certain long-lived assets and related liabilities are grouped
together for impairment testing at the operating market level
(based on geographic areas) in the case of the United States,
Canada, the U.K. and Germany. The operating market groupings
within the United States and Canada are predominantly based on
major metropolitan areas within the United States and Canada.
Similarly, operating markets within the other foreign countries
with large asset concentrations (the U.K. and Germany) are
comprised of geographic regions within those countries (three in
the U.K. and two in Germany). These operating market definitions
are based upon the following primary factors:
|
|
|
|
|
management views profitability of the restaurants within the
operating markets as a whole, based on cash flows generated by a
portfolio of restaurants, rather than by individual restaurants,
and area managers receive incentives on this basis; and
|
|
|
|
the Company does not evaluate individual restaurants to build,
acquire or close independent of an analysis of other restaurants
in these operating markets.
|
In countries in which the Company has a smaller number of
restaurants, most operating functions and advertising are
performed at the country level, and shared by all restaurants in
the country. As a result, the Company has defined operating
markets as the entire country in the case of Spain, Italy,
Mexico, Singapore and China.
93
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Other
Comprehensive Income (Loss)
Other comprehensive income (loss) refers to revenues, expenses,
gains and losses that are included in comprehensive income
(loss), but are excluded from net income (loss) as these amounts
are recorded directly as an adjustment to stockholders
equity, net of tax. The Companys other comprehensive
income (loss) is comprised of unrealized gains and losses on
foreign currency translation adjustments, unrealized gains and
losses on hedging activity, net of tax, and minimum pension
liability adjustments, net of tax.
Derivative
Financial Instruments
Gains or losses resulting from changes in the fair value of
derivatives are recognized in earnings or recorded in other
comprehensive income (loss) and recognized in the statements of
operations when the hedged item affects earnings, depending on
the purpose of the derivatives and whether they qualify for, and
the Company has applied hedge accounting treatment.
When applying hedge accounting, the Companys policy is to
designate, at a derivatives inception, the specific
assets, liabilities or future commitments being hedged, and to
assess the hedges effectiveness at inception and on an
ongoing basis. The Company may elect not to designate the
derivative as a hedging instrument where the same financial
impact is achieved in the financial statements. The Company does
not enter into or hold derivatives for speculative purposes.
Disclosures
About Fair Value of Financial Instruments
Certain assets and liabilities are not measured at fair value on
an ongoing basis but are subject to fair value adjustment in
certain circumstances. For the Company these items primarily
include long-lived assets, goodwill and intangible assets for
which fair value is determined as part of the related impairment
tests and asset retirement obligations initially measured at
fair value. At December 31, 2010, there were no significant
adjustments to fair value or fair value measurements required
for non-financial assets or liabilities.
Fair value is defined by this accounting standard as the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
in the principal market, or if none exists, the most
advantageous market, for the specific asset or liability at the
measurement date (the exit price). The fair value should be
based on assumptions that market participants would use when
pricing the asset or liability. This accounting standard
establishes a fair value hierarchy known as the valuation
hierarchy that prioritizes the information used in
measuring fair value as follows:
Level 1 Observable inputs that reflect
quoted prices (unadjusted) for identical assets or liabilities
in active markets
Level 2 Inputs other than quoted prices
included in Level 1 that are observable for the asset or
liability either directly or indirectly
Level 3 Unobservable inputs reflecting
managements own assumptions about the inputs used in
pricing the asset or liability.
Certain of the Companys derivatives are valued using
various pricing models or discounted cash flow analyses that
incorporate observable market parameters, such as interest rate
yield curves and currency rates, classified as Level 2
within the valuation hierarchy. Derivative valuations
incorporate credit risk adjustments that are necessary to
reflect the probability of default by the counterparty or the
Company.
The carrying amounts for cash and equivalents, trade accounts
and notes receivable and accounts and drafts payable approximate
fair value based on the short-term nature of these accounts.
Restricted investments, consisting of investment securities held
in a rabbi trust to invest compensation deferred under the
Companys Executive Retirement Plan and fund future
deferred compensation obligations, are carried at
94
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
fair value, with net unrealized gains and losses recorded in the
Companys consolidated statements of operations. The fair
value of these investment securities are determined using quoted
market prices in active markets classified as Level 1
within the fair value hierarchy.
Fair value of variable rate term debt was estimated using inputs
based on bid and offer prices and are Level 2 inputs within
the fair value hierarchy.
Revenue
Recognition
Revenues include retail sales at Company restaurants and
franchise and property revenues. Franchise revenues include
royalties and initial and renewal franchise fees. Property
revenues include rental income from operating lease rentals and
earned income on direct financing leases on property leased or
subleased to franchisees. Retail sales at Company restaurants
are recognized at the point of sale and royalties from
franchisees are based on a percentage of retail sales reported
by franchisees. The Company presents sales net of sales tax and
other sales-related taxes. Royalties are recognized when
collectibility is reasonably assured. Initial franchise fees are
recognized as revenue when the related restaurant begins
operations. A franchisee may pay a renewal franchise fee and
renew its franchise for an additional term. Renewal franchise
fees are recognized as revenue upon receipt of the
non-refundable fee and execution of a new franchise agreement.
The cost recovery accounting method is used to recognize
revenues for franchisees for whom collectibility is not
reasonably assured. Rental income on operating lease rentals and
earned income on direct financing leases are recognized when
collectibility is reasonably assured.
Advertising
and Promotional Costs
The Company expenses the production costs of advertising when
the advertisements are first aired or displayed. All other
advertising and promotional costs are expensed in the period
incurred.
Franchise restaurants and Company restaurants contribute to
advertising funds managed by the Company in the United States
and certain international markets where Company restaurants
operate. Under the Companys franchise agreements,
contributions received from franchisees must be spent on
advertising, marketing and related activities, and result in no
gross profit recognized by the Company. Advertising expense, net
of franchisee contributions, totaled $16.7 million for the
period of October 19, 2010 through December 31, 2010,
$25.3 million for the period of July 1, 2010 through
October 18, 2010, $91.3 million for the year ended
June 30, 2010, $93.3 million for the year ended
June 30, 2009, and $91.5 million for the year ended
June 30, 2008, and is included in selling, general and
administrative expenses in the accompanying consolidated
statements of operations.
To the extent that contributions received exceed advertising and
promotional expenditures, the excess contributions are accounted
for as a deferred liability and are recorded in accrued
advertising in the accompanying consolidated balance sheets.
Franchisees in markets where no Company restaurants operate
contribute to advertising funds not managed by the Company. Such
contributions and related fund expenditures are not reflected in
the Companys results of operations or financial position.
Litigation
accruals
From time to time, the Company is subject to proceedings,
lawsuits and other claims related to competitors, customers,
employees, franchisees, government agencies and suppliers. The
Company is required to assess the likelihood of any adverse
judgments or outcomes to these matters as well as potential
ranges of probable losses. A determination of the amount of
accrual required, if any, for theses contingencies is made after
careful analysis of each matter. The required accrual may change
in the future due to new developments in settlement strategy in
dealing with these matters.
95
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Income
Taxes
For the period of October 19, 2010 to December 31,
2010 the Company will file a consolidated U.S. Federal
income tax return with Burger King Worldwide Holdings, Inc. The
income tax provision for the Successor has been calculated as
though the Company filed a separate return.
Amounts in the financial statements related to income taxes are
calculated using the principles of FASB ASC Topic 740,
Income Taxes. Under these principles,
deferred tax assets and liabilities reflect the impact of
temporary differences between the amounts of assets and
liabilities recognized for financial reporting purposes and the
amounts recognized for tax purposes, as well as tax credit
carryforwards and loss carryforwards. These deferred taxes are
measured by applying currently enacted tax rates. A deferred tax
asset is recognized when it is considered more likely than not
to be realized. The effects of changes in tax rates on deferred
tax assets and liabilities are recognized in income in the year
in which the law is enacted. A valuation allowance reduces
deferred tax assets when it is more likely than not that some
portion or all of the deferred tax assets will not be recognized.
Income tax benefits credited to stockholders equity relate
to tax benefits associated with amounts that are deductible for
income tax purposes but do not affect earnings. These benefits
are principally generated from employee exercises of
nonqualified stock options and settlement of restricted stock
awards.
The Company recognizes positions taken or expected to be taken
in a tax return, in the financial statements when it is more
likely than not (i.e., a likelihood of more than fifty percent)
that the position would be sustained upon examination by tax
authorities. A recognized tax position is then measured at the
largest amount of benefit with greater than fifty percent
likelihood of being realized upon ultimate settlement.
Transaction gains and losses resulting from the remeasurement of
foreign deferred tax assets or liabilities are classified as
other operating (income) expense, net in the consolidated
statements of operations.
Stock-based
Compensation
The Company recognizes share-based compensation cost based on
the grant date estimated fair value of each award, net of
estimated forfeitures, over the employees requisite
service period, which is generally the vesting period of the
equity grant.
Stock options and restricted stock and restricted stock units
(RSU) granted by the Company typically contain only
a service condition for vesting. For performance-based
restricted stock and restricted stock units (PBRS)
vesting is based both on a performance condition and a service
condition. For awards that have a cliff-vesting schedule,
stock-based compensation cost is recognized ratably over the
requisite service period. For awards with a graded vesting
schedule, where the award vests in increments during the
requisite service period, the Company has elected to record
stock-based compensation cost over the requisite service period
for the entire award. As of December 31, 2010, there were
no stock options or other equity awards outstanding.
Retirement
Plans
Gains or losses and prior service costs or credits related to
the Companys pension plans are being recognized as they
arise as a component of other comprehensive income (loss) to the
extent they have not been recognized as a component of net
periodic benefit cost. In the fourth quarter of fiscal year
2009, the Company adopted the measurement date provisions of
FASB ASC Topic 715 Compensation Retirement
Benefits and recorded a decrease to retained earnings
of $0.4 million after tax related to its pension plans and
postretirement medical plan.
The Company sponsors the Burger King Savings Plan (the
Savings Plan), a defined contribution plan under the
provisions of section 401(k) of the Internal Revenue Code.
The Savings Plan is voluntary and is provided to all employees
who meet the eligibility requirements. A participant can elect
to contribute up to 50% of their compensation, subject to IRS
limits, and the Company matches 100% of the first 6% of employee
compensation.
96
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The Company also maintains an Executive Retirement Plan
(ERP) for all officers and senior management.
Officers and senior management may elect to defer up to 75% of
base pay once 401(k) limits are reached and up to 100% of
incentive pay on a before-tax basis under the ERP. BKC provides
a
dollar-for-dollar
match up to the first 6% of base pay.
The Company established a rabbi trust to invest compensation
deferred under the ERP and fund future deferred compensation
obligations. The rabbi trust is subject to creditor claims in
the event of insolvency, but the assets held in the rabbi trust
are not available for general corporate purposes and are
classified as restricted investments within other assets, net in
the Companys consolidated balance sheets. The rabbi trust
is required to be consolidated into the Companys
consolidated financial statements. Participants receive returns
on amounts they deferred under the deferred compensation plan
based on investment elections they make.
In the quarter ended September 30, 2009, the Company
elected to cease future participant deferrals and Company
contributions into the rabbi trust; however, participant
deferrals and Company contributions have been credited with a
hypothetical rate of return based on the investment options and
allocations in various mutual funds selected by each participant
(the unfunded portion of the ERP liability). The
deferred compensation expense related to the unfunded portion of
the ERP liability is included as a component of selling, general
and administrative expenses and was not significant. The total
deferred compensation liability related to the ERP was
$27.0 million, $22.6 million and $17.9 million at
December 31, 2010, June 30, 2010 and 2009,
respectively.
The investment securities in the rabbi trust have been
designated by the Company as trading securities and are carried
at fair value as restricted investments within other assets, net
in the Companys consolidated balance sheets, with
unrealized trading gains and losses recorded in earnings. The
fair value of the investment securities held in the rabbi trust
was $22.2 million, $19.9 million and
$17.9 million as of December 31, 2010, June 30,
2010 and 2009, respectively. The Company records the net (gains)
losses related to the change in value of these investments in
selling, general and administrative expenses, along with an
offsetting amount related to the increase (decrease) in deferred
compensation, in selling, general and administrative expenses in
the accompanying consolidated statements of operations.
The following table presents net (gains) and losses related to
the investments held in the rabbi trust and the offsetting
increase (decrease) in deferred compensation expense related to
the ERP liability as a component of selling, general and
administrative expenses (in millions):
|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19, 2010 to
|
|
|
|
July 1, 2010 to
|
|
|
Years Ended June 30,
|
|
|
|
December 31, 2010
|
|
|
|
October 18, 2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Net (gains) losses on investments held in the rabbi trust
|
|
$
|
(0.9
|
)
|
|
|
$
|
(2.1
|
)
|
|
$
|
(3.7
|
)
|
|
$
|
3.9
|
|
|
$
|
1.5
|
|
Increase (decrease) in deferred compensation funded
portion
|
|
|
0.8
|
|
|
|
|
2.3
|
|
|
|
3.7
|
|
|
|
(3.9
|
)
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact
|
|
$
|
(0.1
|
)
|
|
|
$
|
0.2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recorded in the consolidated statements of operations
representing the Companys contributions to the Savings
Plan and the ERP on behalf of restaurant and corporate employees
for the period of October 19, 2010 through
December 31, 2010 were $0.8 million, $2.7 million
for the period of July 1, 2010 through October 18,
2010 and $6.7 million, $6.4 million and
$6.9 million, the years ended June 30, 2010, 2009 and
2008, respectively. Company contributions made on behalf of
restaurant employees are classified as payroll and employee
benefit expenses in our consolidated statements of operations,
while Company contributions made on behalf of corporate
employees are classified as selling, general and administrative
expenses in our consolidated statements of operations.
97
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
Note 3.
|
Stock-based
Compensation
|
As a result of the Acquisition (see Note 1
Acquisition of the Company), the Predecessors unvested
share-based compensation awards were accelerated to vest and,
together with previously vested awards, were cancelled and
settled in cash using the $24.00 purchase price per share of
common stock paid by 3G in the Acquisition. The Company made
aggregate cash payments (including payroll-related taxes)
totaling $88.6 million to plan participants following
consummation of the Acquisition, as follows:
|
|
|
|
|
|
|
|
|
|
|
Shares/Units Settled
|
|
|
Cash Payments
|
|
|
|
|
|
|
(In millions)
|
|
|
Stock options
|
|
|
7,446,364
|
|
|
$
|
50.1
|
|
PBRS
|
|
|
1,073,640
|
|
|
|
25.8
|
|
RSUs
|
|
|
529,790
|
|
|
|
12.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
88.6
|
|
|
|
|
|
|
|
|
|
|
Compensation expense resulting from the accelerated vesting of
plan awards related to non-vested awards at the Merger Date
totaling $30.4 million is included in selling, general and
administrative expenses in the Companys consolidated
statements of operations for the period of October 19, 2010
to December 31, 2010. An additional $48.1 million
relating to vested awards at the Merger Date was accounted for
as a component of purchase price consideration. The remaining
$10.1 million of cash payments related to that portion of
the accelerated awards which were put in trust and are payable
over a two-year period if such employee is employed on such date
(unless earlier terminated by the Company); these amounts were
recorded as deferred compensation cost and are classified as an
asset (current and long term) at the Merger Date. As of
December 31, 2010, $4.2 million of deferred
compensation cost remains as an asset in the consolidated
balance sheets as the restructuring plan resulted in the
reduction of employees whose funds were held in trust. This
amount will be amortized on a straight-line basis over the
requisite service period of two years.
Predecessor
In August 2010, the Predecessor granted non-qualified stock
options (stock options) covering approximately
1.7 million shares to eligible employees. In August 2010,
the Predecessor also granted restricted stock and PBRS awards
covering approximately 0.2 million and 0.5 million
shares of common stock, respectively, to eligible employees. The
restricted stock awards were to have a three year vesting
period. The PBRS awards were to have a three year vesting
period, which included the one-year performance period. The
number of PBRS awards that actually vested was to be determined
based on achievement of a Predecessor performance target during
the one-year performance period. As a result of the Acquisition,
these awards were accelerated to vest on the Merger Date at the
target performance level and were cancelled and settled in cash.
The Predecessor recorded $5.8 million of stock-based
compensation expense from July 1, 2010 through
October 18, 2010, and $17.0 million,
$16.2 million and $11.4 million of stock-based
compensation expense in the years ended June 30, 2010, 2009
and 2008, respectively, in selling, general and administrative
expenses.
Equity
Incentive Plan and 2006 Omnibus Incentive Plan
The Predecessors Equity Incentive Plan and 2006 Omnibus
Incentive Plan (collectively, the Plans) permitted
the grant of stock-based compensation awards including stock
options, RSUs, deferred shares and PBRS to participants
for up to 20.8 million shares of the Predecessors
common stock. As a result of the Acquisition, all awards under
the Plans were accelerated to vest, cancelled and settled in
cash using the $24.00 purchase price per common share paid by 3G
in the Acquisition.
Prior to the Acquisition, stock-based compensation expense for
stock options was estimated on the grant date using a
Black-Scholes option pricing model. The Predecessors
specific weighted-average assumptions for the risk-
98
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
free interest rate, expected term, expected volatility and
expected dividend yield are discussed below. Additionally, the
Predecessor was required to estimate pre-vesting forfeitures for
purposes of determining compensation expense to be recognized.
Future expense amounts for any quarterly or annual period could
have been affected by changes in the Predecessors
assumptions or changes in market conditions.
The Predecessor determined the expected term of stock options
granted using the simplified method. Based on the results of
applying the simplified method, the Predecessor determined that
6.25 years was an appropriate expected term for awards with
four-year graded vesting.
The fair value of each stock option granted under the Plans
during July 1, 2010 through October 18, 2010 and for
the years ended June 30, 2010, 2009, and 2008 was estimated
on the date of grant using the Black-Scholes option pricing
model based on the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
October 19, 2010 to
|
|
|
July 1, 2010 to
|
|
Years Ended June 30,
|
|
|
December 31, 2010
|
|
|
October 18, 2010
|
|
2010
|
|
2009
|
|
2008
|
Risk-free interest rate
|
|
|
N/A
|
|
|
|
|
1.83
|
%
|
|
|
2.92
|
%
|
|
|
3.33
|
%
|
|
|
4.40
|
%
|
Expected term (in years)
|
|
|
N/A
|
|
|
|
|
6.25
|
|
|
|
6.25
|
|
|
|
6.25
|
|
|
|
6.25
|
|
Expected volatility
|
|
|
N/A
|
|
|
|
|
38.34
|
%
|
|
|
37.15
|
%
|
|
|
31.80
|
%
|
|
|
29.35
|
%
|
Expected dividend yield
|
|
|
N/A
|
|
|
|
|
1.43
|
%
|
|
|
1.37
|
%
|
|
|
0.96
|
%
|
|
|
1.07
|
%
|
A summary of stock option activity under the Plans as of and for
the period from July 1, 2010 through October 18, 2010:
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Remaining
|
|
|
|
Total Number of
|
|
|
Exercise
|
|
|
Total Intrinsic
|
|
|
Contractual
|
|
|
|
Options
|
|
|
Price
|
|
|
Value
|
|
|
Term (Yrs)
|
|
|
|
(In 000s)
|
|
|
|
|
|
(In 000s)
|
|
|
|
|
|
Options outstanding as of June 30, 2010
|
|
|
6,358.6
|
|
|
$
|
17.16
|
|
|
$
|
18,954.0
|
|
|
|
6.72
|
|
Granted
|
|
|
1,662.6
|
|
|
$
|
17.51
|
|
|
|
|
|
|
|
|
|
Pre-vest cancels
|
|
|
(144.6
|
)
|
|
$
|
19.24
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(370.5
|
)
|
|
$
|
10.50
|
|
|
|
|
|
|
|
|
|
Post-vest cancels
|
|
|
(84.9
|
)
|
|
$
|
23.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of October 18, 2010
|
|
|
7,421.2
|
|
|
$
|
17.43
|
|
|
$
|
51,113.1
|
|
|
|
7.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable as of October 18, 2010(1)
|
|
|
3,679.8
|
|
|
$
|
15.38
|
|
|
$
|
32,831.7
|
|
|
|
5.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All options were accelerated to vest and settled in connection
with the Acquisition. |
The weighted average grant date fair value of stock options
granted was $6.02 during the period July 1, 2010 through
October 18, 2010 and $6.56, $8.54, and $7.99 during the
years ended June 30, 2010, 2009 and 2008, respectively.
During the period July 1, 2010 through October 18,
2010 and the years ended June 30, 2010, 2009 and 2008, the
total intrinsic value of stock options exercised was
$3.2 million, $8.1 million, $11.4 million and
$14.4 million, respectively. The related excess tax
benefits from stock options exercised were $1.1 million
offset by $1.5 million shortfalls recorded as operating
cash flows for the period July 1, 2010 through
October 18, 2010, and $3.5 million, $3.3 million
and $9.3 million, for the years ended June 30, 2010,
2009 and 2008, respectively.
For the period July 1, 2010 through October 18, 2010
and the years ended June 30, 2010, 2009 and 2008, proceeds
from stock options exercised were $4.0 million,
$4.2 million, $3.0 million and $3.8 million,
respectively.
99
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
A summary of nonvested share activity under the Plans, which
includes RSUs, deferred shares, and PBRS awards, as of and
for the period from July 1, 2010 through October 18,
2010 is as follows:
Predecessor
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Weighted
|
|
|
|
Nonvested
|
|
|
Average Grant
|
|
|
|
Shares
|
|
|
Date Fair Value
|
|
|
|
(In 000s)
|
|
|
|
|
|
Nonvested shares outstanding as of July 1, 2010
|
|
|
1,643.9
|
|
|
$
|
20.94
|
|
Granted
|
|
|
652.7
|
|
|
$
|
16.96
|
|
Vested & settled
|
|
|
(525.3
|
)
|
|
$
|
21.57
|
|
Pre-vest cancels
|
|
|
(41.7
|
)
|
|
$
|
20.41
|
|
|
|
|
|
|
|
|
|
|
Nonvested shares outstanding as of October 18, 2010
|
|
|
1,729.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested shares unvested as of October 18, 2010(1)
|
|
|
1,617.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All nonvested shares were accelerated to vest and settled in
connection with the Acquisition. |
The weighted average grant date fair value of nonvested shares
granted was $16.96 during the period July 1, 2010 through
October 18, 2010 and $18.35, $25.10 and $23.95 in the years
ended June 30, 2010, 2009 and 2008, respectively. The total
intrinsic value of grants which vested and settled was
$9.1 million during the period July 1, 2010 through
October 18, 2010 and $9.6 million, $1.1 million
and $14.3 million in the years ended June 30, 2010,
2009 and 2008, respectively.
During the period July 1, 2010 through October 18,
2010 the fair value of shares withheld by the Company to meet
employees minimum statutory withholding tax requirements
on the settlement of RSUs was $2.5 million. For the
years ended June 30, 2010, 2009 and 2008, the fair value of
shares withheld by the Company to meet employees minimum
statutory withholding tax requirements on the settlement of
RSUs was $2.7 million, $0.3 million and
$4.1 million, respectively.
|
|
Note 4.
|
Restaurant
Acquisitions, Closures and Dispositions
|
Acquisitions
Restaurant acquisitions are summarized as follows (in millions,
except for number of restaurants):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19, 2010 to
|
|
|
|
July 1, 2010 to
|
|
|
Years Ended June 30,
|
|
|
|
December 31, 2010
|
|
|
|
October 18, 2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Number of restaurants acquired
|
|
|
|
|
|
|
|
1
|
|
|
|
39
|
|
|
|
87
|
|
|
|
83
|
|
Prepaids and other current assets
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
1.8
|
|
|
$
|
1.0
|
|
|
$
|
1.0
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
4.9
|
|
|
|
14.6
|
|
|
|
13.3
|
|
Goodwill and other intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
7.6
|
|
|
|
55.7
|
|
|
|
47.5
|
|
Other assets, net
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
Assumed liabilities
|
|
|
|
|
|
|
|
|
|
|
|
(2.4
|
)
|
|
|
(3.4
|
)
|
|
|
(7.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
14.0
|
|
|
$
|
67.9
|
|
|
$
|
54.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Closures
and Dispositions
Gains and losses on closures and dispositions represent sales of
Company properties and other costs related to restaurant
closures and sales of Company restaurants to franchisees,
referred to as refranchisings, and are recorded in
other operating (income) expenses, net in the accompanying
consolidated statements of operations. Gains and losses
recognized in the current period may reflect closures and
refranchisings that occurred in previous periods.
Closures and dispositions are summarized as follows (in
millions, except for number of restaurants):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
October 19, 2010 to
|
|
|
July 1, 2010 to
|
|
Years Ended June 30,
|
|
|
December 31, 2010
|
|
|
October 18, 2010
|
|
2010
|
|
2009
|
|
2008
|
Number of restaurant closures
|
|
|
5
|
|
|
|
|
8
|
|
|
|
34
|
|
|
|
19
|
|
|
|
29
|
|
Number of refranchisings
|
|
|
5
|
|
|
|
|
35
|
|
|
|
91
|
|
|
|
51
|
|
|
|
38
|
|
Net loss (gain) on restaurant closures, refranchisings and
dispositions of assets
|
|
$
|
3.0
|
|
|
|
$
|
(3.2
|
)
|
|
$
|
(2.4
|
)
|
|
$
|
(8.5
|
)
|
|
$
|
(9.8
|
)
|
The $3.0 million net loss on restaurant closures,
refranchisings and dispositions of assets for the period
October 19, 2010 to December 31, 2010 primarily
relates to the abandonment of assets.
Included in the net gain on restaurant closures, refranchisings
and dispositions of assets for the period of July 1, 2010
to October 18, 2010 is a gain from the refranchising of
Company restaurants primarily in the Netherlands offset by a
loss from the refranchising of Company restaurants primarily in
Germany.
Included in the net gain on restaurant closures, refranchisings
and dispositions of assets for the years ended June 30,
2010 and 2009 is a $2.3 million and $5.4 million gain,
respectively, from the refranchising of Company restaurants in
the U.S. and Germany. Included in the net gain on
restaurant closures, refranchisings and dispositions of assets
for the year ended June 30, 2008 is a $9.0 million
gain from the refranchising of Company restaurants, primarily in
Germany.
|
|
Note 5.
|
Franchise
Revenues
|
Franchise revenues consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19, 2010 to
|
|
|
|
July 1, 2010 to
|
|
|
Years Ended June 30,
|
|
|
|
December 31, 2010
|
|
|
|
October 18, 2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Franchise royalties
|
|
$
|
107.4
|
|
|
|
$
|
165.2
|
|
|
$
|
529.5
|
|
|
$
|
518.2
|
|
|
$
|
512.6
|
|
Initial franchise fees
|
|
|
2.5
|
|
|
|
|
1.7
|
|
|
|
10.9
|
|
|
|
13.8
|
|
|
|
13.2
|
|
Renewal franchise fees and other related fees
|
|
|
1.6
|
|
|
|
|
2.3
|
|
|
|
8.8
|
|
|
|
11.4
|
|
|
|
11.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
111.5
|
|
|
|
$
|
169.2
|
|
|
$
|
549.2
|
|
|
$
|
543.4
|
|
|
$
|
537.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
Note 6.
|
Trade and
Notes Receivable, net
|
Trade and notes receivable, net, consists of the following (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
As of December 31,
|
|
|
|
As of June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
Trade accounts receivable
|
|
$
|
165.9
|
|
|
|
$
|
158.7
|
|
|
$
|
146.3
|
|
Notes receivable, current portion
|
|
|
8.0
|
|
|
|
|
4.8
|
|
|
|
5.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173.9
|
|
|
|
|
163.5
|
|
|
|
151.8
|
|
Allowance for doubtful accounts
|
|
|
(25.9
|
)
|
|
|
|
(20.6
|
)
|
|
|
(21.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, net
|
|
$
|
148.0
|
|
|
|
$
|
142.9
|
|
|
$
|
130.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in allowances for doubtful accounts is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19, 2010 to
|
|
|
|
July 1, 2010 to
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
October 18, 2010
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Beginning balance
|
|
$
|
21.0
|
|
|
|
$
|
20.6
|
|
|
$
|
21.8
|
|
|
$
|
23.0
|
|
|
$
|
28.6
|
|
Bad debt expense (recoveries), net
|
|
|
2.8
|
|
|
|
|
2.1
|
|
|
|
0.8
|
|
|
|
0.7
|
|
|
|
(2.7
|
)
|
Write-offs and other
|
|
|
2.1
|
|
|
|
|
(1.7
|
)
|
|
|
(2.0
|
)
|
|
|
(1.9
|
)
|
|
|
(2.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
25.9
|
|
|
|
$
|
21.0
|
|
|
$
|
20.6
|
|
|
$
|
21.8
|
|
|
$
|
23.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7.
|
Prepaids
and Other Current Assets, net
|
Included in prepaids and other current assets, net were prepaid
expenses of $38.7 million, $33.1 million and
$31.0 million, inventories totaling $15.6 million,
$15.4 million and $15.8 million, foreign currency
forward contracts of $7.9 million, $25.9 million and
$0.3 million, and refundable income taxes of
$85.9 million, $14.0 million and $39.3 million as
of December 31, 2010 and June 30, 2010 and 2009,
respectively. The increase in refundable income taxes is
primarily due to the loss generated during the period of
October 19, 2010 through December 31, 2010.
In addition, during the Successor period the Company entered
into two interest rate cap agreements which have a current asset
balance of $11.1 million as of December 31, 2010. The
remaining interest rate cap balance of $80.0 million is
classified as long term and is included in other assets, net as
of December 31, 2010.
102
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
Note 8.
|
Property
and Equipment, net
|
Property and equipment, net, along with their estimated useful
lives, consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
As of June 30,
|
|
|
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
Land
|
|
|
|
|
|
$
|
438.8
|
|
|
|
$
|
386.0
|
|
|
$
|
390.3
|
|
Buildings and improvements(1)
|
|
|
(up to 40 years
|
)
|
|
|
555.0
|
|
|
|
|
756.2
|
|
|
|
721.2
|
|
Machinery and equipment(2)
|
|
|
(up to 18 years
|
)
|
|
|
175.8
|
|
|
|
|
347.3
|
|
|
|
327.9
|
|
Furniture, fixtures, and other
|
|
|
(up to 10 years
|
)
|
|
|
33.7
|
|
|
|
|
149.0
|
|
|
|
132.8
|
|
Construction in progress
|
|
|
|
|
|
|
16.4
|
|
|
|
|
42.5
|
|
|
|
48.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,219.7
|
|
|
|
$
|
1,681.0
|
|
|
$
|
1,620.6
|
|
Accumulated depreciation and amortization(3)
|
|
|
|
|
|
|
(26.1
|
)
|
|
|
|
(666.9
|
)
|
|
|
(607.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
$
|
1,193.6
|
|
|
|
$
|
1,014.1
|
|
|
$
|
1,013.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Buildings and improvements include assets under capital leases
of $37.6 million, $76.6 million and $75.6 million
as of December 31, 2010 and June 30, 2010 and 2009,
respectively. |
|
(2) |
|
Machinery and equipment include assets under capital leases of
$0.5 million, $1.9 million and $1.8 million as of
December 31, 2010 and June 30, 2010 and 2009,
respectively. |
|
(3) |
|
Accumulated depreciation related to capital leases totaled
$0.8 million, $38.6 million and $34.1 million as
of December 31, 2010 and June 30, 2010 and 2009,
respectively. |
Depreciation and amortization expense on property and equipment
totaled $26.1 million for the period of October 19,
2010 to December 31, 2010, $33.2 million for the
period of July 1, 2010 to October 18, 2010 and
$120.6 million, $110.1 million and $116.6 million
for the years ended June 30, 2010, 2009 and 2008,
respectively.
Construction in progress represents new restaurant construction,
reimaging (demolish and rebuild) and remodeling of existing and
acquired restaurants.
|
|
Note 9.
|
Intangible
Assets, net and Goodwill
|
As a result of the Merger on October 19, 2010, and the
related application of acquisition accounting, the Company
completed a preliminary valuation of the Brand and other
identifiable intangible assets as of that date. As of
December 31, 2010, the Brand, the Companys only
intangible asset with an indefinite life, had a carrying value
of $2.1 billion. As of December 31, 2010, goodwill had
a carrying value of $529.9 million. The goodwill is
attributable to preliminary acquisition accounting and will be
allocated to reporting units upon completion of the fair value
studies in 2011. The decrease in carrying value of goodwill
between October 19, 2010 and December 31, 2010 is
attributable to foreign currency translation.
Prior to the Acquisition and application of acquisition
accounting, the Burger King Brand had a carrying value of
$874.0 million and $905.1 million as of June 30,
2010 and 2009, respectively. Similarly, goodwill had a carrying
value of $31.0 million and $26.4 million as of
June 30, 2010 and 2009, respectively, and arose as a result
of previous acquisitions of franchise restaurants.
103
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The tables below present intangible assets subject to
amortization, along with their useful lives (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
As of December 31,
|
|
|
|
As of June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
Franchise agreements(1)
|
|
$
|
859.4
|
|
|
|
$
|
142.2
|
|
|
$
|
140.6
|
|
Accumulated amortization
|
|
|
(7.2
|
)
|
|
|
|
(25.3
|
)
|
|
|
(19.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, Net
|
|
$
|
852.2
|
|
|
|
$
|
116.9
|
|
|
$
|
121.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes reacquired franchise rights as of June 30, 2010
and 2009. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
As of December 31,
|
|
|
|
As of June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
Favorable leases
|
|
$
|
26.8
|
|
|
|
|
49.1
|
|
|
|
48.8
|
|
Accumulated amortization
|
|
|
(0.7
|
)
|
|
|
|
(14.6
|
)
|
|
|
(12.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, Net
|
|
$
|
26.1
|
|
|
|
$
|
34.5
|
|
|
$
|
36.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded amortization expense on intangible assets
of $7.9 million for the period of October 19, 2010 to
December 31, 2010. The Predecessor recorded amortization
expense on intangible assets of $2.7 million,
$8.7 million, $8.8 million and $5.0 million for
the period July 1, 2010 to October 18, 2010, and
fiscal years ended June 30, 2010, 2009, and 2008,
respectively.
As of December 31, 2010, estimated future amortization
expense on intangible assets for the years ended December 31 is
$39.4 million in 2011, $39.2 million in each of 2012,
2013, and 2014, $39.1 million in 2015 and
$689.7 million thereafter.
Franchise agreements and favorable leases have weighted average
amortization periods of approximately 23 years and
12 years, respectively. The total intangible asset weighted
average amortization period is approximately 23 years.
|
|
Note 10.
|
Other
Accrued Liabilities and Other Liabilities
|
Included in other accrued liabilities (current) as of
December 31, 2010, June 30, 2010 and June 30,
2009, were accrued payroll and employee-related benefit costs
totaling $34.4 million, $58.5 million and
$69.4 million, respectively; accrued severance of
$42.8 million, $2.3 million and $1.1 million,
respectively; interest payable of $16.2 million,
$0.1 million and $0.1 million respectively; and
foreign currency forward contracts of $7.6 million,
$2.6 million and $20.3 million, respectively. The
increase in accrued severance of $40.5 million is due to
the Companys restructuring plan, as compared to the prior
fiscal year.
Included in other liabilities (non-current) as of
December 31, 2010, June 30, 2010 and June 30,
2009, were accrued pension liabilities of $60.1 million,
$79.4 million and $54.0 million, respectively;
interest rate swap liabilities of zero, $26.1 million and
$32.4 million, respectively; casualty insurance reserves of
$22.3 million, $25.5 million and $27.7 million,
respectively; retiree health benefits of $25.1 million,
$25.0 million and $21.1 million, respectively; and
liabilities for unfavorable leases of $38.6 million,
$127.3 million and $155.5 million, respectively. The
decrease in unfavorable leases primarily relates to the
acquisition accounting adjustments. Refer to Note 1.
104
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Long-term debt is comprised of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
Interest Rates(a)
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
|
As of
|
|
|
|
As of
|
|
|
October 19, 2010 to
|
|
|
|
July 1, 2010 to
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
|
December 31,
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
October 18,
|
|
|
|
|
|
|
|
|
|
Dates
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
Secured Term Loan USD tranche(b)
|
|
|
2016
|
|
|
$
|
1,510.0
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
6.82
|
%
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Secured Term Loan Euro tranche(b)
|
|
|
2016
|
|
|
|
334.2
|
|
|
|
|
|
|
|
|
|
|
|
|
7.11
|
%
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
97/8
% Senior Notes
|
|
|
2018
|
|
|
|
800.0
|
|
|
|
|
|
|
|
|
|
|
|
|
10.19
|
%
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Deferred Premiums on interest rate caps USD (See
Note 13)
|
|
|
2016
|
|
|
|
42.4
|
|
|
|
|
|
|
|
|
|
|
|
|
2.52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Premiums on interest rate caps EUR (See
Note 13)
|
|
|
2016
|
|
|
|
11.1
|
|
|
|
|
|
|
|
|
|
|
|
|
2.86
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Revolving Credit Facility
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Credit Facility(c)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loans(c)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
753.7
|
|
|
|
816.2
|
|
|
|
N/A
|
|
|
|
|
4.4
|
%
|
|
|
4.7
|
%
|
|
|
5.1
|
%
|
Other
|
|
|
|
|
|
|
1.4
|
|
|
|
|
1.7
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
|
|
|
|
2,699.1
|
|
|
|
|
755.4
|
|
|
|
818.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: current maturities of debt
|
|
|
|
|
|
|
(27.0
|
)
|
|
|
|
(87.7
|
)
|
|
|
(62.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
|
|
|
$
|
2,672.1
|
|
|
|
$
|
667.7
|
|
|
$
|
755.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the effective interest rate for the instrument
computed on a quarterly basis, including the amortization of
deferred debt issuance costs and discount on New Term Loan
Facility, and in the case of the Companys Secured Term
Loans, the effect of interest rate caps. |
|
(b) |
|
Principal face amount herein is presented gross of a 1%
discount, $16.8 million on the USD tranche and
$3.3 million on the Euro tranche. |
|
(c) |
|
The Revolving Credit Facility and Term Loans were repaid and
terminated in connection with the Transactions. |
Successor
New
Credit Facilities
Concurrently with the consummation of the Merger, BKC, as
borrower, entered into a credit agreement dated as of
October 19, 2010 with JPMorgan Chase Bank, N.A., as
administrative agent, Barclays Capital, as syndication agent,
and the lenders party thereto from time to time (the New
Credit Agreement). The New Credit Agreement provides for
(i) two tranches of term loans in an aggregate principal
amount of $1,510.0 million and 250.0 million,
respectively, each under a new term loan facility (the New
Term Loan Facility) and (ii) a new senior secured
revolving credit facility for up to $150 million of
revolving extensions of credit outstanding at any time
(including revolving loans, swingline loans and letters of
credit) (the New Revolving Credit Facility, and
together with the
105
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
New Term Loan Facility, the New Credit Facilities).
Concurrently with the consummation of the Merger, the full
amount of the two term loans was drawn, no revolving loans were
drawn and replacement letters of credit were issued in order to
backstop, replace or roll-over existing letters of credit under
the Companys prior credit agreement, which was repaid as
of the consummation of the Merger.
The New Term Loan Facility has a six-year maturity. The New
Revolving Credit Facility has a five-year maturity. The
principal amount of the New Term Loan Facility amortizes in
quarterly installments equal to 0.25% of the original principal
amount of the New Term Loan Facility for the first five and
three-quarter years, with the balance payable at maturity. The
New Credit Facilities contain customary provisions relating to
mandatory prepayments, voluntary prepayments, affirmative
covenants, negative covenants and events of default.
At the Companys election, the interest rate per annum
applicable to loans under the New Credit Facilities will be
based on a fluctuating rate of interest determined by reference
to either (i) a base rate determined by reference to the
higher of (a) the prime rate of JPMorgan Chase Bank, N.A.,
(b) the federal funds effective rate plus 0.50% and
(c) the Eurodollar rate applicable for an interest period
of one month plus 1.00%, plus a margin of 3.50% or (ii) a
Eurocurrency rate determined by reference to EURIBOR for the
Euro denominated tranche and LIBOR for the U.S. dollar
denominated tranche and New Revolving Credit Facility, adjusted
for statutory reserve requirements, plus a margin of 4.75% for
loans under the Euro denominated tranche of the New Term Loan
Facility and 4.50% for loans under the U.S. dollar
denominated tranche of the New Revolving Credit Facility.
Borrowings under the New Term Loan Facility will be subject to a
LIBOR floor of 1.75%.
Following the end of each fiscal year, commencing with the year
ending December 31, 2011, the Company will be required to
prepay the Term Loans in an amount equal to 50% of Excess Cash
Flow (as defined in the New Credit Agreement and with stepdowns
to 25% and 0% based on achievement of specified total leverage
ratios), minus the amount of any voluntary prepayments of the
Term Loans during such fiscal year. Additionally, subject to
certain exceptions, the New Credit Facilities are subject to
mandatory prepayment in the event of non-ordinary course or
other dispositions of assets (subject to customary reinvestment
provisions), or in the event of issuances or incurrence of debt
by BKC or any of its subsidiaries (other than certain
indebtedness permitted by the New Credit Facilities).
The Company may prepay the term loans in whole or in part at any
time. A 1% premium applies if the prepayment is made in
connection with an interest rate re-pricing event.
All obligations under the New Credit Facilities are guaranteed
by BKH and each direct and indirect, existing and future,
material domestic wholly-owned subsidiary of BKC. The New Credit
Facilities and any derivative instrument contracts and cash
management arrangements provided by any revolving lender party
to the New Credit Facilities or any of its affiliates are
secured on a first priority basis by a perfected security
interest in substantially all of BKCs and each
guarantors tangible and intangible assets (subject to
certain exceptions), including U.S. registered intellectual
property, owned real property and of all the capital stock of
BKC and each of its direct and indirect subsidiaries (limited,
in the case of foreign subsidiaries, to 65% of the capital stock
of the first tier foreign subsidiaries).
Under the New Credit Facilities, BKC is required to comply with
specified financial ratios, including the following:
BKCs Interest Coverage Ratio, defined as the ratio
of Consolidated EBITDA to Consolidated Interest Expense shall
not be less than:
|
|
|
|
|
1.60 to 1.00 for Test Periods ending between March 31, 2011
through September 30, 2011,
|
|
|
|
1.70 to 1.00 for Test Periods ending between December 31,
2011 through June 30, 2013,
|
|
|
|
1.80 to 1.00 for Test Periods ending between September 30,
2013 through June 30, 2014,
|
|
|
|
1.90 to 1.00 for Test Periods ending between September 30,
2014 and June 30, 2015, and
|
|
|
|
2.00 to 1.00 for Test Periods ending thereafter.
|
106
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Consolidated EBITDA is defined in the New Credit Agreement as
earnings before interest, taxes, depreciation and amortization,
adjusted for certain items, as specified in the New Credit
Agreement. Consolidated Interest Expense is defined in the New
Credit Agreement as cash payments for interest, including (net
of) payments made (received) pursuant to interest rate
derivatives with respect to Indebtedness, net of cash received
for interest income and certain other items specified in the New
Credit Agreement. The Test Period is defined in the New Credit
Agreement as the most recently completed four consecutive fiscal
quarters ending on such date.
BKCs Total Leverage Ratio, defined in the New Credit
Agreement as the ratio of Consolidated Total Debt to
Consolidated EBITDA shall not be greater than:
|
|
|
|
|
7.50 to 1.00 for Test Periods ending between March 31, 2011
through June 30, 2011,
|
|
|
|
7.25 to 1.00 for the Test Period ending September 30, 2011,
|
|
|
|
7.00 to 1.00 for the Test Period ending December 31, 2011,
|
|
|
|
6.75 to 1.00 for Test Periods ending March 31, 2012 through
June 30, 2012,
|
|
|
|
6.25 to 1.00 for Test Periods ending September 30, 2012
through December 31, 2012,
|
|
|
|
6.00 to 1.00 for Test Periods ending March 31, 2013 through
June 30, 2013,
|
|
|
|
5.75 to 1.00 for Test Periods ending September 30, 2013
through March 31, 2014,
|
|
|
|
5.25 to 1.00 for Test Periods ending June 30, 2014 through
June 30, 2015,
|
|
|
|
4.75 to 1.00 for Test Periods ending September 30, 2015
through June 30, 2016, and
|
|
|
|
4.50 to 1.00 for Test Period ending thereafter.
|
The New Credit Facilities also contain a number of customary
affirmative and negative covenants that, among other things,
will limit or restrict the ability of BKC and its subsidiaries
to (i) incur additional indebtedness (including guarantee
obligations) or liens, (ii) engage in mergers,
consolidations, liquidations or dissolutions, sell assets (with
certain exceptions, including sales of company-owned restaurants
to franchisees), (iii) make capital expenditures,
acquisitions, investments loans and advances, (iv) pay and
modify the terms of certain indebtedness, (v) engage in
certain transactions with affiliates, (vi) enter into
certain speculative hedging arrangements, negative pledge
clauses and clauses restricting subsidiary distributions and
(vii) change the its line of business. In addition, the
ability of BKC and its subsidiaries to pay dividends or other
distributions, or to repurchase, redeem or retire equity is
restricted by the New Credit Agreement, including the payment of
dividends to BKH.
BKCs capital expenditures are limited to $160 million
to $220 million, with the annual limitation based on our
Rent-Adjusted Leverage Ratio of our most recently ended fiscal
year. Up to 50% of the unused amount for the prior fiscal year
(less the amount carried forward into the prior fiscal year) is
allowed to be carried forward into the next fiscal year.
The New Credit Facilities contain customary events of default,
including, but not limited to, nonpayment of principal,
interest, fees or other amount, violation of a covenant,
cross-default to material indebtedness, bankruptcy and a change
of control. The Companys ability to borrow under the New
Credit Facilities will be dependent on, among other things,
BKCs compliance with the above-referenced financial
ratios. Failure to comply with these ratios or other provisions
of the credit agreement for the New Credit Facilities (subject
to grace periods) could, absent a waiver or an amendment from
the lenders under such agreement, restrict the availability of
the New Revolving Credit Facility and permit the acceleration of
all outstanding borrowings under such credit agreement.
In addition to paying interest on outstanding principal under
the New Credit Facility, the Company is required to pay certain
recurring fees with respect to the New Credit Facilities,
including (i) fees on the unused commitments of the lenders
under the revolving facility, (ii) letters of credit fees
on the aggregate face amounts of outstanding letters of credit
plus a fronting fee to the issuing bank and
(iii) administration fees.
107
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
On February 15, 2011, BKC entered into a Credit Agreement
dated as of October 19, 2010, as amended and restated as of
February 15, 2011 (the Amended Credit
Agreement), with JPMorgan Chase Bank, N.A., as
administrative agent, Barclays Capital, as syndication agent,
and the lenders party thereto from time to time which amended
and restated the New Credit Agreement. Under the Amended Credit
Agreement, the aggregate principal amount of term loans
denominated in U.S. dollars was increased to
$1,600.0 million and the amount of term loans denominated
in Euros was reduced to 200.0 million. The Amended
Credit Agreement also provides for a senior secured revolving
credit facility for up to $150.0 million of revolving
extensions of credit outstanding at any time (including
revolving loans, swingline loans and letters of credit), the
amount of which is unchanged from the amount available under the
New Revolving Credit Facility.
Under the Amended Credit Agreement, at BKCs election, the
interest rate per annum applicable to the loans is based on a
fluctuating rate of interest determined by reference to either
(i) a base rate determined by reference to the higher of
(a) the prime rate of JPMorgan Chase Bank, N.A.,
(b) the federal funds effective rate plus 0.50% and
(c) the Eurocurrency rate applicable for an interest period
of one month plus 1.00%, plus an applicable margin equal to
2.00% for loans under the U.S. dollar denominated tranche
of the New Term Loan Facility and 2.25% for loans under the
Revolving Credit Facility, or (ii) a Eurocurrency rate
determined by reference to EURIBOR for the Euro denominated
tranche and LIBOR for the U.S. dollar denominated tranche
and New Revolving Credit Facility, adjusted for statutory
reserve requirements, plus an applicable margin equal to 3.25%
for loans under the Euro denominated tranche of the New Term
Loan Facility, 3.00% for loans under the U.S. dollar
denominated tranche of the Term Loan Facility and 3.25% for
loans under the New Revolving Credit Facility. Borrowings under
the Amended Credit Agreement will be subject to a LIBOR floor of
1.50%.
The Amended Credit Agreement contains the same financial
covenants, negative covenants, affirmative covenants, maturity
dates, prepayment events and events of default as the New Credit
Agreement.
97/8% Senior
Notes
On October 19, 2010, Merger Sub, as the initial issuer, and
Wilmington Trust FSB, as trustee, executed an indenture
pursuant to which the senior notes (the Senior
Notes) were issued (the Senior Notes
Indenture). Upon the consummation of the Merger, Merger
Sub, BKC, the Company, as a guarantor, and the other guarantors
entered into a supplemental indenture (the Supplemental
Indenture) pursuant to which BKC assumed the obligations
of Merger Sub under the Senior Notes Indenture and the Senior
Notes and the Company and the other guarantors guaranteed the
Senior Notes on a senior basis. The Senior Notes bear interest
at a rate of 9.875% per annum, which is payable semi-annually on
October 15 and April 15 of each year, commencing on
April 15, 2011. The Senior Notes mature on October 15,
2018.
The Senior Notes are general unsecured senior obligations of BKC
that rank pari passu in right of payment with all
existing and future senior indebtedness of the Company. The
Senior Notes are effectively subordinated to all Secured
Indebtedness of the Company (including the New Credit
Facilities) to the extent of the value of the assets securing
such indebtedness and are structurally subordinated to all
indebtedness and other liabilities, including preferred stock,
of Non-Guarantor Subsidiaries.
The Senior Notes are guaranteed by BKH and all existing direct
and indirect subsidiaries that borrow under or guarantee any
indebtedness or indebtedness of another guarantor. Under certain
circumstances, subsidiary guarantors may be released from their
guarantees without the consent of the holders of the Senior
Notes.
At any time prior to October 15, 2013, we may redeem up to
35% of the original principal amount of the Senior Notes with
the proceeds of certain equity offerings at a redemption price
equal to 109.875% of the principal amount of the Senior Notes,
together with any accrued and unpaid interest, if any, to the
date of redemption.
The Senior Notes will be redeemable at the Companys
option, in whole or in part, at any time on or after
October 15, 2014 at 104.938% of the principal amount, at
any time on or after October 15, 2015 at 102.469% of the
principal amount or at any time on or after October 15,
2016 at 100% of the principal amount.
108
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The occurrence of a change in control will require the Company
to offer to purchase all or a portion of the Senior Notes at a
price equal to 101% of the principal amount, together with
accrued and unpaid interest, if any, to the date of purchase.
Certain asset dispositions will also require the Company to use
the proceeds from those asset dispositions to make an offer to
purchase the Senior Notes at 100% of their principal amount, if
such proceeds are not otherwise used within a specified period
to repay indebtedness or to invest in capital assets related to
the Companys business or capital stock of a restricted
subsidiary.
The Senior Notes Indenture contains certain covenants that the
Company must meet during the term of the Senior Notes,
including, but not limited to, limitations on restricted
payments (as defined in the Senior Notes Indenture), incurrence
of indebtedness, issuance of disqualified stock and preferred
stock, asset sales, mergers and consolidations, transactions
with affiliates, guarantees of indebtedness by subsidiaries and
activities of BKH.
The Senior Notes Indenture includes customary events of default
including, but not limited to, nonpayment of principal,
interest, premiums or other amounts due under the Senior Notes
Indenture, violation of a covenant, cross-default to material
indebtedness, bankruptcy and a change of control. Failure to
comply with the covenants or other provision of the Senior Notes
Indenture (subject to grace periods) could, absent a waiver or
an amendment from the lenders under such Senior Notes Indenture,
permit the acceleration of all outstanding borrowings under such
credit agreement.
The aggregate maturities of long-term debt, including the
amounts due under the New Term Loan Facility, the Senior Notes,
and other debt as of December 31, 2010, are as follows (in
millions):
|
|
|
|
|
|
|
Principal
|
|
Year Ended December 31,
|
|
Amount
|
|
|
2011
|
|
$
|
27.0
|
|
2012
|
|
|
27.0
|
|
2013
|
|
|
27.6
|
|
2014
|
|
|
27.5
|
|
2015
|
|
|
28.1
|
|
Thereafter
|
|
|
2,561.9
|
|
|
|
|
|
|
Total
|
|
$
|
2,699.1
|
|
|
|
|
|
|
The Company also has lines of credit with foreign banks, which
can also be used to provide guarantees, in the amount of
$3.3 million as of December 31, 2010. There were
$1.2 million of guarantees issued against these lines of
credit as of December 31, 2010.
Predecessor
Prior to the Merger, the Companys previous credit facility
consisted of Term Loans A and B-1 and a $150.0 million
revolving credit facility (the Previous Credit
Facility). In connection with the Merger, on
October 19, 2010, the Company refinanced the amounts due
under the Previous Credit Facility with the New Credit Facility
and Notes described above.
The interest rate under Term Loan A and the revolving credit
facility was, at the Companys option, either (a) the
greater of the federal funds effective rate plus 0.50% or the
prime rate (ABR), plus a rate not to exceed 0.75%,
which varied according to the Companys leverage ratio or
(b) LIBOR plus a rate not to exceed 1.75%, which varied
according to Companys leverage ratio. The interest rate
for Term Loan B-1 was, at the Companys option, either
(a) ABR, plus a rate of 0.50% or (b) LIBOR plus 1.50%,
in each case so long as the Companys leverage ratio
remained at or below certain levels (but in any event not to
exceed 0.75% in the case of ABR loans and 1.75% in the case of
LIBOR loans). The weighted average interest rates related to the
Companys term debt was 4.4% for the period July 1,
2010 to October 18, 2010 and 4.7% and 5.1% for the years
ended June 30, 2010 and
109
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
June 30, 2009, respectively, which included the impact of
interest rate swaps on 77%, 73% and 71% of the Companys
term debt, respectively.
The Previous Credit Facility contained certain customary
financial and non-financial covenants. These covenants imposed
restrictions on additional indebtedness, liens, investments,
advances, guarantees and mergers and acquisitions. These
covenants also placed restrictions on asset sales, sale and
leaseback transactions, dividends, payments between the Company
and its subsidiaries and certain transactions with affiliates.
The unamortized amount of debt issuance costs incurred in
connection with the Previous Credit Facility of
$2.4 million as of October 18, 2010 was written off
when the amounts due under the Previous Credit Facility were
paid in full in connection with the Transactions.
|
|
Note 12.
|
Fair
Value Measurements
|
Fair
Value Measurements
The following table presents (in millions) financial assets and
liabilities measured at fair value on a recurring basis, which
include derivatives designated as cash flow hedging instruments,
derivatives not designated as hedging instruments, and other
investments, which consist of money market accounts and mutual
funds held in a rabbi trust established by the Company to fund a
portion of the Companys current and future obligations
under its Executive Retirement Plan, as well as their location
on the Companys consolidated balance sheets as of
December 31, 2010, June 30, 2010 and 2009 respectively:
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
Fair Value Measurements at December 31, 2010
|
|
|
|
Carrying Value and Balance Sheet Location
|
|
|
Assets (Liabilities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
Prepaid
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
Other
|
|
|
|
|
|
Other
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Current
|
|
|
Other
|
|
|
Accrued
|
|
|
Other
|
|
|
Instruments
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
Assets
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Liabilities
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Derivatives designated as cash flow hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps(1)
|
|
$
|
11.1
|
|
|
$
|
80.0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
91.1
|
|
|
$
|
|
|
Foreign currency forward contracts (asset)
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11.2
|
|
|
$
|
80.0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
91.2
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2.6
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2.6
|
)
|
|
$
|
|
|
Foreign currency forward contracts (asset)
|
|
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.8
|
|
|
|
|
|
Foreign currency forward contracts (liability)
|
|
|
|
|
|
|
|
|
|
|
(7.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(7.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7.8
|
|
|
$
|
|
|
|
$
|
(10.2
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2.4
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in a rabbi trust
|
|
$
|
|
|
|
$
|
22.2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
22.2
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
22.2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
22.2
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Refer to Note 13 for the discussion surrounding the change
in balance in comparison to June 30, 2010. |
110
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010
|
|
|
Fair Value Measurements at June 30, 2010
|
|
|
|
Carrying Value and Balance Sheet Location
|
|
|
Assets (Liabilities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
Prepaid and
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
Other
|
|
|
|
|
|
Other
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Current
|
|
|
Other
|
|
|
Accrued
|
|
|
Other
|
|
|
Instruments
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
Assets
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Liabilities
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Derivatives designated as cash flow hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(26.1
|
)
|
|
$
|
|
|
|
$
|
(26.1
|
)
|
|
$
|
|
|
Foreign currency forward contracts (asset)
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
Foreign currency forward contracts (liability)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(26.1
|
)
|
|
$
|
|
|
|
$
|
(26.0
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts (asset)
|
|
$
|
25.8
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
25.8
|
|
|
$
|
|
|
Foreign currency forward contracts (liability)
|
|
|
|
|
|
|
|
|
|
|
(2.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(2.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25.8
|
|
|
$
|
|
|
|
$
|
(2.6
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
23.2
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in a rabbi trust
|
|
$
|
|
|
|
$
|
19.9
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19.9
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
19.9
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19.9
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009
|
|
|
Fair Value Measurements at June 30, 2009
|
|
|
|
Carrying Value and Balance Sheet Location
|
|
|
Assets (Liabilities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
Prepaid
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
Other
|
|
|
|
|
|
Other
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Current
|
|
|
Other
|
|
|
Accrued
|
|
|
Other
|
|
|
Instruments
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
Assets
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Liabilities
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Derivatives designated as cash flow hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(32.4
|
)
|
|
$
|
|
|
|
$
|
(32.4
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(32.4
|
)
|
|
$
|
|
|
|
$
|
(32.4
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts (asset)
|
|
$
|
0.3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.3
|
|
|
$
|
|
|
Foreign currency forward contracts (liability)
|
|
|
|
|
|
|
|
|
|
|
(20.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(20.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.3
|
|
|
$
|
|
|
|
$
|
(20.3
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(20.0
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in a rabbi trust
|
|
$
|
|
|
|
$
|
17.9
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
17.9
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
17.9
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
17.9
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The Companys derivatives are valued using a discounted
cash flow analysis that incorporates observable market
parameters, such as interest rate yield curves and currency
rates, classified as Level 2 within the valuation
hierarchy. Derivative valuations incorporate credit risk
adjustments that are necessary to reflect the probability of
default by the counterparty or the Company.
At December 31, 2010, the fair value of the Companys
variable rate term debt and bonds were estimated at
$2,731.0 million, compared to a carrying amount of
$2,624.1 million, net of original issuance discount. At
June 30, 2010, the fair value of the Companys
variable rate term debt was estimated at $744.4 million,
compared to a carrying amount of $753.7 million. At
June 30, 2009, the fair value of the Companys
variable rate term debt was estimated at $791.9 million,
compared to a carrying amount of $816.2 million. Refer to
Note 2 for inputs used to estimate fair value.
Certain nonfinancial assets and liabilities are measured at fair
value on a nonrecurring basis, that is these assets and
liabilities are not measured at fair value on an ongoing basis
but are subject to periodic impairment tests. For the Company,
these items primarily include long- lived assets, goodwill and
other intangible assets. Refer to Note 2 for inputs and
valuation techniques used to measure fair value of these
nonfinancial assets.
|
|
Note 13.
|
Derivative
Instruments
|
Disclosures
about Derivative Instruments and Hedging
Activities
The Company enters into derivative instruments for risk
management purposes, including derivatives designated as hedging
instruments and those utilized as economic hedges. The Company
uses derivatives to manage exposure to fluctuations in interest
rates and currency exchange rates.
Interest
Rate Caps
Following the Transactions, the Company entered into two
deferred premium interest rate caps, one of which was
denominated in U.S. dollars (notional amount of
$1.5 billion) and the other denominated in Euros (notional
amount of 250 million) (the Cap
Agreements). The six year Cap Agreements are a series of
25 individual caplets that reset and settle on the same dates as
the New Credit Facilities. The deferred premium associated with
the Cap Agreements was $47.7 million for the
U.S. dollar denominated exposure and 9.4 million
for the Euro denominated exposure. Following the
February 15, 2011 amendment to the New Credit Agreement, we
modified our interest rate cap denominated in Euros to reduce
its notional amount by 50 million throughout the life
of the caplets. Additionally, we entered into a new deferred
premium interest rate cap agreement denominated in
U.S. dollars (notional amount of $90 million) with a
strike price of 1.50% (the New Cap Agreement). The
terms of the New Cap Agreement are substantially similar to
those described above and the Cap Agreements were not otherwise
revised by these modifications.
Under the terms of the Cap Agreements, if LIBOR/EURIBOR resets
above a strike price of 1.75% (1.50% for the New Cap Agreement),
the Company will receive the net difference between the rate and
the strike price. In addition, on the quarterly settlement
dates, the Company will remit the deferred premium payment (plus
interest) to the counterparty. If LIBOR/EURIBOR resets below the
strike price no payment is made by the counterparty. However, we
would still be responsible for the deferred premium and interest.
The interest rate cap contracts are designated as cash flow
hedges and to the extent they are effective in offsetting the
variability of the variable rate interest payments, changes in
the derivatives fair value are not included in current
earnings but are included in accumulated other comprehensive
income (AOCI) in the accompanying consolidated balance sheets.
At each cap maturity date, the portion of fair value
attributable to the matured cap will be reclassified from AOCI
into earnings as a component of interest expense.
112
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Interest
Rate Swaps
The Predecessor entered into receive-variable, pay-fixed
interest rate swap contracts to hedge a portion of the
Predecessors forecasted variable-rate interest payments on
its underlying Term Loan A and Term Loan B-1 debt (the
Predecessors Term Debt). Interest payments on
the Predecessors Term Debt were made quarterly and the
variable rate on the Predecessors Term Debt was reset at
the end of each fiscal quarter. The interest rate swap contracts
were designated as cash flow hedges and to the extent they were
effective in offsetting the variability of the variable-rate
interest payments, changes in the derivatives fair value
were not included in current earnings but in accumulated other
comprehensive income (AOCI) in the accompanying consolidated
balance sheets. These changes in fair value were subsequently
reclassified into earnings as a component of interest expense
each quarter as interest payments were made on the
Predecessors Term Debt.
In connection with the Transactions, interest rate swaps with a
notional value of $500 million were terminated by
counterparties. The remaining interest rate swaps that were not
terminated by counterparties have a notional value of
$75 million and remain classified as a liability on the
Companys consolidated balance sheet as of
December 31, 2010. The final contract expires September
2011. Future fluctuations in the fair value of remaining
interest rate swaps will be included in the determination of net
income (loss) until the final contract expires in September 2011.
Foreign
Currency Forward Contracts
The Company enters into foreign currency forward contracts,
which typically have maturities between one and nine months, to
economically hedge the remeasurement of certain foreign
currency-denominated intercompany loans receivable and other
foreign-currency denominated assets recorded in the
Companys consolidated balance sheets. Remeasurement
represents changes in the expected amount of cash flows to be
received or paid upon settlement of the intercompany loan
receivables and other foreign-currency denominated assets and
liabilities resulting from a change in currency exchange rates.
The Company also enters into foreign currency forward contracts
in order to manage the foreign exchange variability in
forecasted royalty cash flows due to fluctuations in exchange
rates. At December 31, 2010, foreign currency forward
contracts with a net notional amount of $2.1 million were
outstanding.
Credit
Risk
By entering into derivative instrument contracts, the Company
exposes itself, from time to time, to counterparty credit risk.
Counterparty credit risk is the failure of the counterparty to
perform under the terms of the derivative contract. When the
fair value of a derivative contract is in an asset position, the
counterparty has a liability to the Company, which creates
credit risk for the Company. The Company attempts to minimize
this risk by selecting counterparties with investment grade
credit ratings and regularly monitoring its market position with
each counterparty.
Credit-Risk
Related Contingent Features
The Companys derivative instruments do not contain any
credit-risk related contingent features.
113
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The following table presents the required quantitative
disclosures for the Companys derivative instruments (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19, 2010 to December 31, 2010
|
|
|
|
July 1, 2010 to October 18, 2010
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
Interest
|
|
|
Interest
|
|
|
Currency
|
|
|
|
|
|
|
Interest
|
|
|
Currency
|
|
|
|
|
|
|
Rate
|
|
|
Rate
|
|
|
Forward
|
|
|
|
|
|
|
Rate
|
|
|
Forward
|
|
|
|
|
|
|
Caps
|
|
|
Swaps
|
|
|
Contracts
|
|
|
Total
|
|
|
|
Swaps
|
|
|
Contracts
|
|
|
Total
|
|
Derivatives designated as cash flow hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in other comprehensive income (effective
portion)
|
|
$
|
35.8
|
|
|
$
|
|
|
|
$
|
0.1
|
|
|
$
|
35.9
|
|
|
|
$
|
(2.4
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
(2.5
|
)
|
Gain (loss) reclassified from AOCI into interest expense, net(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
$
|
(4.9
|
)
|
|
$
|
|
|
|
$
|
(4.9
|
)
|
Gain (loss) reclassified from AOCI into royalty income
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Gain (loss) recognized in interest expense, net (ineffective
portion)(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Gain (loss) recognized in royalty income, net (ineffective
portion)(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in other operating expense, net
|
|
$
|
|
|
|
$
|
(0.2
|
)
|
|
$
|
17.2
|
|
|
$
|
17.0
|
|
|
|
$
|
|
|
|
$
|
(42.4
|
)
|
|
$
|
(42.4
|
)
|
|
|
|
(1) |
|
Includes $0.4 million of gain for the period of
July 1, 2010 to October 18, 2010 related to terminated
hedges and zero for the period October 19, 2010 to
December 31, 2010. |
|
(2) |
|
The amount of ineffectiveness related to interest rate swaps
recorded during the period July 1, 2010 to October 18,
2010 was not significant. No ineffectiveness was recorded
related to interest rate cap contracts for the period
October 19, 2010 to December 31, 2010. |
114
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
For the Year Ended
|
|
For the Year Ended
|
|
|
June 30, 2010
|
|
June 30, 2009
|
|
|
|
|
Foreign
|
|
|
|
|
|
Foreign
|
|
|
|
|
Interest
|
|
Currency
|
|
|
|
Interest
|
|
Currency
|
|
|
|
|
Rate
|
|
Forward
|
|
|
|
Rate
|
|
Forward
|
|
|
|
|
Swaps
|
|
Contracts
|
|
Total
|
|
Swaps
|
|
Contracts
|
|
Total
|
|
Derivatives designated as cash flow hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in other comprehensive income (effective
portion)
|
|
$
|
(16.4
|
)
|
|
$
|
(0.6
|
)
|
|
$
|
(17.0
|
)
|
|
$
|
(39.2
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
(39.3
|
)
|
Gain (loss) reclassified from AOCI into interest expense, net(3)
|
|
$
|
(21.1
|
)
|
|
$
|
|
|
|
$
|
(21.1
|
)
|
|
$
|
(10.5
|
)
|
|
$
|
|
|
|
$
|
(10.5
|
)
|
Gain (loss) reclassified from AOCI into royalty income
|
|
$
|
|
|
|
$
|
(0.8
|
)
|
|
$
|
(0.8
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Gain (loss) recognized in interest expense, net (ineffective
portion)(4)
|
|
$
|
(0.2
|
)
|
|
$
|
|
|
|
$
|
(0.2
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Gain (loss) recognized in royalty income, net (ineffective
portion)(4)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in other operating expense, net
|
|
$
|
|
|
|
$
|
44.6
|
|
|
$
|
44.6
|
|
|
$
|
|
|
|
$
|
43.2
|
|
|
$
|
43.2
|
|
|
|
|
(3) |
|
Includes $1.6 million and $1.3 million of gain for the
fiscal years ended June 30, 2010 and 2009, respectively,
related to the terminated hedges. |
|
(4) |
|
The amount of ineffectiveness recorded in earnings during the
fiscal year ended June 30, 2009 was not significant. |
|
|
Note 14.
|
Interest
Expense
|
Interest expense consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19, 2010 to
|
|
|
|
July 1, 2010 to
|
|
|
Years Ended June 30,
|
|
|
|
December 31, 2010
|
|
|
|
October 18, 2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Secured Term Loan USD tranche
|
|
$
|
19.1
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Secured Term Loan Euro tranche
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97/8
% Senior Notes
|
|
|
16.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans, interest rate swaps, interest rate caps and other(1)
|
|
|
19.8
|
|
|
|
|
12.0
|
|
|
|
39.4
|
|
|
|
47.2
|
|
|
|
56.4
|
|
Capital lease obligations
|
|
|
2.0
|
|
|
|
|
2.9
|
|
|
|
10.2
|
|
|
|
10.1
|
|
|
|
10.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
61.2
|
|
|
|
$
|
14.9
|
|
|
$
|
49.6
|
|
|
$
|
57.3
|
|
|
$
|
67.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amount includes commitment fees of $13.5 million associated
with the bridge loan available at the closing of the
Transactions, amortization of original debt issuance discount on
the New Term Loan Facility of $0.5 million and interest
expense related to the deferred premium interest rate caps of
$0.4 million for the period October 19, 2010 to
December 31, 2010. See Note 11. In addition, the
Company recorded a $2.4 million loss on early
extinguishment of debt related to unamortized deferred financing
costs associated with the Predecessors Term loans. |
115
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The Company had $67.2 million, $2.9 million and
$4.9 million of unamortized deferred financing costs at
December 31, 2010, June 30, 2010 and 2009,
respectively. These fees are classified in other assets, net and
are amortized over the term of the debt into interest expense on
term debt using the effective interest method. The increase in
unamortized deferred financing cost is associated with the New
Credit Facilities. See Note 11. The amortization of
deferred financing cost included in interest expense for the
period October 19, 2010 to December 31, 2010 was
$2.1 million, $0.6 million for the period July 1,
2010 to October 18, 2010 and $2.1 million,
$1.9 million and zero for the three years ended
June 30, 2010, 2009 and 2008, respectively.
Income (loss) before income taxes, classified by source of
income (loss), is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19, 2010 to
|
|
|
|
July 1, 2010 to
|
|
|
Years Ended June 30,
|
|
|
|
December 31, 2010
|
|
|
|
October 18, 2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Domestic
|
|
$
|
(121.6
|
)
|
|
|
$
|
61.4
|
|
|
$
|
228.4
|
|
|
$
|
241.4
|
|
|
$
|
245.1
|
|
Foreign
|
|
|
(10.9
|
)
|
|
|
|
25.5
|
|
|
|
55.9
|
|
|
|
43.4
|
|
|
|
47.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
(132.5
|
)
|
|
|
$
|
86.9
|
|
|
$
|
284.3
|
|
|
$
|
284.8
|
|
|
$
|
293.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) attributable to income from
continuing operations consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19, 2010 to
|
|
|
|
July 1, 2010 to
|
|
|
Years Ended June 30,
|
|
|
|
December 31, 2010
|
|
|
|
October 18, 2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(44.0
|
)
|
|
|
$
|
7.1
|
|
|
$
|
64.7
|
|
|
$
|
57.0
|
|
|
$
|
64.5
|
|
State, net of federal income tax benefit
|
|
|
(0.9
|
)
|
|
|
|
1.7
|
|
|
|
4.6
|
|
|
|
6.1
|
|
|
|
8.3
|
|
Foreign
|
|
|
2.2
|
|
|
|
|
3.5
|
|
|
|
11.3
|
|
|
|
9.5
|
|
|
|
10.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(42.7
|
)
|
|
|
$
|
12.3
|
|
|
$
|
80.6
|
|
|
$
|
72.6
|
|
|
$
|
83.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
8.2
|
|
|
|
$
|
9.2
|
|
|
$
|
14.4
|
|
|
$
|
9.1
|
|
|
$
|
9.8
|
|
State, net of federal income tax benefit
|
|
|
(3.0
|
)
|
|
|
|
1.2
|
|
|
|
3.1
|
|
|
|
6.2
|
|
|
|
1.3
|
|
Foreign
|
|
|
10.6
|
|
|
|
|
(6.9
|
)
|
|
|
(0.6
|
)
|
|
|
(3.2
|
)
|
|
|
9.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15.8
|
|
|
|
$
|
3.5
|
|
|
$
|
16.9
|
|
|
$
|
12.1
|
|
|
$
|
20.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(26.9
|
)
|
|
|
$
|
15.8
|
|
|
$
|
97.5
|
|
|
$
|
84.7
|
|
|
$
|
103.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The U.S. Federal tax statutory rate reconciles to the
effective tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19, 2010 to
|
|
|
|
July 1, 2010 to
|
|
|
Years Ended June 30,
|
|
|
|
December 31, 2010
|
|
|
|
October 18, 2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
U.S. Federal income tax rate
|
|
|
35.0
|
%
|
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal income tax benefit
|
|
|
3.3
|
|
|
|
|
3.0
|
|
|
|
3.4
|
|
|
|
2.8
|
|
|
|
2.6
|
|
Costs/(Benefits) and taxes related to foreign operations
|
|
|
(11.5
|
)
|
|
|
|
(2.5
|
)
|
|
|
1.7
|
|
|
|
(4.7
|
)
|
|
|
7.4
|
|
Foreign tax rate differential
|
|
|
(0.4
|
)
|
|
|
|
(8.8
|
)
|
|
|
(5.6
|
)
|
|
|
(4.9
|
)
|
|
|
(5.3
|
)
|
Foreign exchange differential on tax benefits
|
|
|
(0.2
|
)
|
|
|
|
(0.6
|
)
|
|
|
0.3
|
|
|
|
0.7
|
|
|
|
(0.6
|
)
|
Change in valuation allowance
|
|
|
(2.5
|
)
|
|
|
|
(4.5
|
)
|
|
|
(0.6
|
)
|
|
|
1.1
|
|
|
|
(3.1
|
)
|
Change in accrual for tax uncertainties
|
|
|
(0.2
|
)
|
|
|
|
(2.6
|
)
|
|
|
0.2
|
|
|
|
(1.3
|
)
|
|
|
(0.1
|
)
|
Non Deductible Transaction Costs
|
|
|
(3.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
0.4
|
|
|
|
|
(0.8
|
)
|
|
|
(0.1
|
)
|
|
|
1.0
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
20.3
|
%
|
|
|
|
18.2
|
%
|
|
|
34.3
|
%
|
|
|
29.7
|
%
|
|
|
35.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys effective tax rate was 20.3% for the period
from October 19, 2010 through December 31, 2010 and
18.2% for the period from July 1, 2010 through
October 18, 2010, primarily as a result of the Transactions
and the current mix of income from multiple tax jurisdictions.
The Companys effective tax rate was 34.3% for the fiscal
year ended June 30, 2010, primarily as a result of the
current mix of income from multiple tax jurisdictions and
currency fluctuations. The Companys effective tax rate was
29.7% for the fiscal year ended June 30, 2009, primarily as
a result of the resolution of federal and state audits and tax
benefits realized from the dissolution of dormant entities. The
Companys effective tax rate was 35.3% for the fiscal year
ended June 30, 2008, primarily as a result of the
resolution of federal, state and international audits,
dissolution of a foreign partnership, and changes in state and
foreign tax law.
Income tax expense/(benefit) includes an increase in valuation
allowance related to foreign tax credit carryforwards and
deferred tax assets in foreign countries of $3.3 million
for the period from October 19, 2010 through
December 31, 2010, a decrease in valuation allowance
related to deferred tax assets in foreign countries of $3.8 for
the period from July 1, 2010 through October 18, 2010,
a decrease of $1.7 million for the year ended June 30,
2010, an increase of $3.0 million for the year ended
June 30, 2009 and a decrease of $7.1 million for the
year ended June 30, 2008.
117
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The following table provides the amount of income tax expense
(benefit) allocated to continuing operations and amounts
separately allocated to other items (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19, 2010 to
|
|
|
|
July 1, 2010 to
|
|
|
Years Ended June 30,
|
|
|
|
December 31, 2010
|
|
|
|
October 18, 2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Income tax expense (benefit) from continuing operations
|
|
$
|
(26.9
|
)
|
|
|
$
|
15.8
|
|
|
$
|
97.5
|
|
|
$
|
84.7
|
|
|
$
|
103.4
|
|
Interest rate caps in accumulated other comprehensive income
(loss)
|
|
|
13.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps in accumulated other comprehensive income
(loss)
|
|
|
|
|
|
|
|
0.9
|
|
|
|
2.0
|
|
|
|
(11.0
|
)
|
|
|
(5.0
|
)
|
Pension liability in accumulated other comprehensive income
(loss)
|
|
|
3.9
|
|
|
|
|
3.1
|
|
|
|
(11.3
|
)
|
|
|
(9.4
|
)
|
|
|
(4.5
|
)
|
Adjustments to deferred income taxes related to Brand
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
(2.4
|
)
|
Adjustments to the valuation allowance related to Brand
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
(6.5
|
)
|
Stock option tax benefit in additional paid-in capital
|
|
|
|
|
|
|
|
0.4
|
|
|
|
(3.5
|
)
|
|
|
(3.3
|
)
|
|
|
(9.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(9.1
|
)
|
|
|
$
|
20.2
|
|
|
$
|
84.7
|
|
|
$
|
60.5
|
|
|
$
|
75.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The significant components of deferred income tax expense
(benefit) attributable to income from continuing operations are
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19, 2010 to
|
|
|
|
July 1, 2010 to
|
|
|
Years Ended June 30,
|
|
|
|
December 31, 2010
|
|
|
|
October 18, 2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Deferred income tax expense (exclusive of the effects of
components listed below)
|
|
$
|
13.5
|
|
|
|
$
|
8.3
|
|
|
$
|
15.7
|
|
|
$
|
3.2
|
|
|
$
|
20.3
|
|
Change in valuation allowance (net of amounts allocated as
adjustments to purchase accounting in 2009 and 2008)
|
|
|
3.3
|
|
|
|
|
(3.8
|
)
|
|
|
(1.7
|
)
|
|
|
3.0
|
|
|
|
(7.1
|
)
|
Change in effective state income tax rate
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
|
|
4.5
|
|
|
|
|
|
Change in effective foreign income tax rate
|
|
|
(1.0
|
)
|
|
|
|
(1.0
|
)
|
|
|
2.1
|
|
|
|
1.4
|
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15.8
|
|
|
|
$
|
3.5
|
|
|
$
|
16.9
|
|
|
$
|
12.1
|
|
|
$
|
20.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities are presented below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
As of December 31,
|
|
|
|
As of June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and notes receivable, principally due to allowance for
doubtful accounts
|
|
$
|
16.4
|
|
|
|
$
|
14.6
|
|
|
$
|
12.7
|
|
Accrued employee benefits
|
|
|
53.6
|
|
|
|
|
63.8
|
|
|
|
49.6
|
|
Unfavorable leases
|
|
|
14.2
|
|
|
|
|
53.9
|
|
|
|
71.9
|
|
Liabilities not currently deductible for tax
|
|
|
10.3
|
|
|
|
|
42.2
|
|
|
|
52.7
|
|
Tax loss and credit carryforwards
|
|
|
150.1
|
|
|
|
|
138.5
|
|
|
|
111.3
|
|
Property and equipment, principally due to differences in
depreciation
|
|
|
|
|
|
|
|
53.0
|
|
|
|
61.6
|
|
Other
|
|
|
3.8
|
|
|
|
|
3.4
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
248.4
|
|
|
|
|
369.4
|
|
|
|
363.2
|
|
Valuation allowance
|
|
|
(121.8
|
)
|
|
|
|
(74.6
|
)
|
|
|
(78.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
126.6
|
|
|
|
|
294.8
|
|
|
|
284.5
|
|
Less deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, principally due to differences in
depreciation
|
|
|
43.4
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
706.7
|
|
|
|
|
249.7
|
|
|
|
237.3
|
|
Leases
|
|
|
54.3
|
|
|
|
|
53.1
|
|
|
|
55.1
|
|
Statutory Impairment
|
|
|
14.8
|
|
|
|
|
12.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
819.2
|
|
|
|
|
315.0
|
|
|
|
292.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
692.6
|
|
|
|
$
|
20.2
|
|
|
$
|
7.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Transition Period, the valuation allowance increased by
$47.2 million primarily as a result of changes in the
projected utilization of foreign tax credits, deferred tax
assets in foreign jurisdictions and changes in currency
fluctuations. Of this increase, $44.1 million was recorded
in goodwill as part of the acquisition accounting adjustments.
The decrease in valuation allowance for the year ended
June 30, 2010 is primarily the result of changes in the
projected utilization of deferred tax assets in foreign
jurisdictions and changes in currency exchange rates.
119
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Changes in valuation allowance are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19, 2010 to
|
|
|
|
July 1, 2010 to
|
|
|
Years Ended June 30,
|
|
|
|
December 31, 2010
|
|
|
|
October 18, 2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Beginning balance
|
|
$
|
119.7
|
|
|
|
$
|
74.6
|
|
|
$
|
78.7
|
|
|
$
|
87.9
|
|
|
$
|
97.8
|
|
Change in estimates recorded to deferred income tax expense
|
|
|
3.3
|
|
|
|
|
(3.8
|
)
|
|
|
(1.7
|
)
|
|
|
3.0
|
|
|
|
(7.1
|
)
|
Change in estimates in valuation allowance recorded to
intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
(6.5
|
)
|
Changes from foreign currency exchange rates
|
|
|
(0.4
|
)
|
|
|
|
4.8
|
|
|
|
(3.1
|
)
|
|
|
(11.9
|
)
|
|
|
4.6
|
|
Other
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
121.8
|
|
|
|
$
|
75.6
|
|
|
$
|
74.6
|
|
|
$
|
78.7
|
|
|
$
|
87.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company generated a federal net operating loss of
approximately $172.9 million during the period from October
19, 2010 through December 31, 2010. This loss can be
carried forward for 20 years and back 2 years. The
Company has a state net operating loss carryforward of
approximately $6.6 million, expiring between 2015 and 2030.
In addition, the Company has foreign loss carryforwards of
$391.0 million expiring between 2011 and 2030, and foreign
loss carryforwards of $159.4 million that do not expire. As
of December 31, 2010, the Company has a foreign tax credit
carryforward balance of $56.1 million. The Company has
recorded valuation allowances related to certain foreign and
state losses and foreign tax credit carry forwards since it is
more likely than not to expire unutilized.
Deferred taxes have not been provided on basis differences
related to investments in foreign subsidiaries. These
differences consist primarily of $172.6 million of
undistributed earnings, which are considered to be permanently
reinvested in the operations of such subsidiaries outside the
United States. Determination of the deferred income tax
liability on these unremitted earnings is not practicable. Such
liability, if any, depends on circumstances existing if and when
remittance occurs.
The Company had $12.2 million, $14.2 million and
$15.5 million of unrecognized tax benefits at
December 31, 2010, June 30, 2010 and 2009,
respectively, which if recognized, would affect the effective
income tax rate. A reconciliation of the beginning and ending
amounts of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19, 2010 to
|
|
|
|
July 1, 2010 to
|
|
|
Years Ended June 30,
|
|
|
|
December 31, 2010
|
|
|
|
October 18, 2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Beginning balance
|
|
$
|
12.0
|
|
|
|
$
|
14.2
|
|
|
$
|
15.5
|
|
|
|
18.3
|
|
|
|
18.9
|
|
Additions on tax position related to the current year
|
|
|
0.3
|
|
|
|
|
0.3
|
|
|
|
1.2
|
|
|
|
4.5
|
|
|
|
3.7
|
|
Additions for tax positions of prior years
|
|
|
|
|
|
|
|
0.3
|
|
|
|
2.7
|
|
|
|
1.9
|
|
|
|
0.6
|
|
Reductions for tax positions of prior years
|
|
|
(0.1
|
)
|
|
|
|
(2.6
|
)
|
|
|
(2.0
|
)
|
|
|
(7.7
|
)
|
|
|
(3.9
|
)
|
Reductions for settlements
|
|
|
|
|
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
Reductions due to statute expiration
|
|
|
|
|
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
(1.3
|
)
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
12.2
|
|
|
|
$
|
12.2
|
|
|
$
|
14.2
|
|
|
$
|
15.5
|
|
|
$
|
18.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
During the twelve months beginning January 1, 2011, it is
reasonably possible the Company will reduce unrecognized tax
benefits by approximately $0.2 million, primarily as a
result of the expiration of certain statutes of limitations.
The Company recognizes interest and penalties related to
unrecognized tax benefits in income tax expense. The total
amount of accrued interest and penalties at December 31,
2010 and June 30, 2010 and 2009 was $3.2 million,
$2.9 million and $3.7 million, respectively. Potential
interest and penalties associated with uncertain tax positions
recognized during the periods October 19, 2010 through
December 31, 2010, July 1, 2010 through
October 18, 2010 and the years ended June 30, 2010,
2009 and 2008 were $0.1 million, $0.1 million,
$0.6 million, $0.6 million and $1.5 million,
respectively. To the extent interest and penalties are not
assessed with respect to uncertain tax positions, amounts
accrued will be reduced and reflected as a reduction of the
overall income tax provision.
The Company files income tax returns, including returns for its
subsidiaries, with federal, state, local and foreign
jurisdictions. Generally the Company is subject to routine
examination by taxing authorities in these jurisdictions,
including significant international tax jurisdictions, such as
the United Kingdom, Germany, Spain, Switzerland, Singapore and
Mexico. None of the foreign jurisdictions should be individually
material. The Company has various state and foreign income tax
returns in the process of examination. From time to time, these
audits result in proposed assessments where the ultimate
resolution may result in the Company owing additional taxes. The
Company believes that its tax positions comply with applicable
tax law and that it has adequately provided for these matters.
|
|
Note 16.
|
Related
Party Transactions
|
The Company paid $1.1 million in registration expenses
relating to the secondary offerings during the year ended
June 30, 2008. This amount included registration and filing
fees, printing fees, external accounting fees, all reasonable
fees and disbursements of one law firm selected by our previous
sponsors and all expenses related to the road show for the
secondary offerings.
As of December 31, 2010, the Company leased or subleased
1,149 restaurant properties to franchisees and non-restaurant
properties to third parties under capital and operating leases.
The building and leasehold improvements of the leases with
franchisees are usually accounted for as direct financing leases
and recorded as a net investment in property leased to
franchisees, while the land is recorded as operating leases.
Most leases to franchisees provide for fixed payments with
contingent rent when sales exceed certain levels. Lease terms
generally range from 10 to 20 years. The franchisees bear
the cost of maintenance, insurance and property taxes.
Property and equipment, net leased to franchisees and other
third parties under operating leases was as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
As of December 31,
|
|
|
|
As of June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
Land
|
|
$
|
255.7
|
|
|
|
$
|
198.3
|
|
|
$
|
195.8
|
|
Buildings and improvements
|
|
|
119.9
|
|
|
|
|
116.2
|
|
|
|
114.0
|
|
Restaurant equipment
|
|
|
1.7
|
|
|
|
|
5.0
|
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
377.3
|
|
|
|
$
|
319.5
|
|
|
$
|
314.9
|
|
Accumulated depreciation
|
|
|
(2.5
|
)
|
|
|
|
(46.0
|
)
|
|
|
(40.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
374.8
|
|
|
|
$
|
273.5
|
|
|
$
|
274.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Net investment in property leased to franchisees and other third
parties under direct financing leases was as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
As of December 31,
|
|
|
|
As of June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
Future minimum rents to be received
|
|
$
|
327.2
|
|
|
|
$
|
316.6
|
|
|
$
|
306.4
|
|
Estimated unguaranteed residual value
|
|
|
3.5
|
|
|
|
|
3.7
|
|
|
|
4.0
|
|
Unearned income
|
|
|
(180.6
|
)
|
|
|
|
(172.3
|
)
|
|
|
(166.2
|
)
|
Allowance on direct financing leases
|
|
|
(0.6
|
)
|
|
|
|
(0.6
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
149.5
|
|
|
|
$
|
147.4
|
|
|
$
|
144.0
|
|
Current portion included within trade receivables
|
|
|
(9.5
|
)
|
|
|
|
(8.9
|
)
|
|
|
(8.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in property leased to franchisees
|
|
$
|
140.0
|
|
|
|
$
|
138.5
|
|
|
$
|
135.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, the Company is the lessee on land, building,
equipment, office space and warehouse leases, including 257
restaurant buildings under capital leases. Initial lease terms
are generally 10 to 20 years. Most leases provide for fixed
monthly payments. Many of these leases provide for future rent
escalations and renewal options. Certain leases require
contingent rent, determined as a percentage of sales, generally
when annual sales exceed specific levels. Most leases also
obligate the Company to pay the cost of maintenance, insurance
and property taxes.
As of December 31, 2010, future minimum lease receipts and
commitments were as follows (in millions):
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Receipts
|
|
|
Lease Commitments(a)
|
|
|
|
Direct
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
|
|
|
Operating
|
|
|
Capital
|
|
|
Operating
|
|
|
|
Leases
|
|
|
Leases
|
|
|
Leases
|
|
|
Leases
|
|
|
2011
|
|
$
|
30.4
|
|
|
$
|
68.5
|
|
|
$
|
(15.4
|
)
|
|
$
|
(155.8
|
)
|
2012
|
|
|
29.7
|
|
|
|
64.8
|
|
|
|
(15.1
|
)
|
|
|
(150.6
|
)
|
2013
|
|
|
29.1
|
|
|
|
62.4
|
|
|
|
(15.1
|
)
|
|
|
(140.5
|
)
|
2014
|
|
|
28.4
|
|
|
|
58.1
|
|
|
|
(14.1
|
)
|
|
|
(133.7
|
)
|
2015
|
|
|
28.0
|
|
|
|
52.1
|
|
|
|
(12.4
|
)
|
|
|
(121.9
|
)
|
Thereafter
|
|
|
181.6
|
|
|
|
338.4
|
|
|
|
(56.7
|
)
|
|
|
(700.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
327.2
|
|
|
$
|
644.3
|
|
|
$
|
(128.8
|
)
|
|
$
|
(1,402.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Lease commitments under operating leases have not been reduced
by minimum sublease rentals of $317.5 million due in the
future under noncancelable subleases. |
The Companys total minimum obligations under capital
leases are $128.8 million, $134.1 million and
$138.1 million as of December 31, 2010 and
June 30, 2010 and 2009, respectively. Of these amounts,
$59.2 million, $63.2 million and $67.5 million
represents interest as of December 31, 2010 and
June 30, 2010 and 2009, respectively. The remaining balance
of $69.6 million, $70.9 million and $70.6 million
is reflected as capital lease obligations recorded in the
Companys consolidated balance sheet, of which
$5.9 million, $5.6 million and $4.8 million is
classified as current portion of long-term debt and capital
leases as of December 31, 2010 and June 30, 2010 and
2009, respectively.
122
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Property revenues comprise primarily rental income from
operating leases and earned income on direct financing leases
with franchisees as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19, 2010 to
|
|
|
|
July 1, 2010 to
|
|
|
Years Ended June 30,
|
|
|
|
December 31, 2010
|
|
|
|
October 18, 2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Rental income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
$
|
15.0
|
|
|
|
$
|
21.9
|
|
|
$
|
73.1
|
|
|
$
|
69.9
|
|
|
$
|
78.9
|
|
Contingent
|
|
|
2.8
|
|
|
|
|
4.9
|
|
|
|
17.9
|
|
|
|
20.6
|
|
|
|
20.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental income
|
|
|
17.8
|
|
|
|
|
26.8
|
|
|
|
91.0
|
|
|
|
90.5
|
|
|
|
99.6
|
|
Earned income on direct financing leases
|
|
|
4.8
|
|
|
|
|
7.2
|
|
|
|
22.7
|
|
|
|
23.0
|
|
|
|
22.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property revenues
|
|
$
|
22.6
|
|
|
|
$
|
34.0
|
|
|
$
|
113.7
|
|
|
$
|
113.5
|
|
|
$
|
121.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense associated with the lease commitments is as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19, 2010 to
|
|
|
|
July 1, 2010 to
|
|
|
Years Ended June 30,
|
|
|
|
December 31, 2010
|
|
|
|
October 18, 2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Rental expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
$
|
30.9
|
|
|
|
$
|
47.4
|
|
|
$
|
168.9
|
|
|
$
|
166.5
|
|
|
$
|
150.2
|
|
Contingent
|
|
|
1.3
|
|
|
|
|
2.0
|
|
|
|
7.4
|
|
|
|
7.7
|
|
|
|
7.4
|
|
Amortization of favorable and unfavorable leases contracts, net
|
|
|
(0.1
|
)
|
|
|
|
(3.8
|
)
|
|
|
(15.0
|
)
|
|
|
(18.2
|
)
|
|
|
(24.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental expense
|
|
$
|
32.1
|
|
|
|
$
|
45.6
|
|
|
$
|
161.3
|
|
|
$
|
156.0
|
|
|
$
|
133.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable leases are amortized on a straight line basis over a
weighted average period of approximately 12 years, with
amortization expense included in occupancy and other operating
costs and property expenses in the consolidated statements of
operations. Unfavorable leases are amortized over a weighted
average period of approximately 12 years as a reduction in
occupancy and other operating costs and property expenses in the
consolidated statements of operations.
Amortization of favorable leases totaled $0.4 million for
the period October 19, 2010 to December 31, 2010.
Amortization of favorable leases totaled $0.8 million for
the period July 1, 2010 to October 18, 2010 and
$2.6 million, $2.6 million and $1.8 million for
the years ended June 30, 2010, 2009 and 2008, respectively.
Amortization of unfavorable leases totaled $0.5 million for
the period October 19, 2010 to December 31, 2010.
Amortization of unfavorable leases totaled $4.6 million for
the period July 1, 2010 to October 18, 2010 and
$17.6 million, $20.8 million and $26.0 million
for the years ended June 30, 2010, 2009 and 2008,
respectively.
Favorable leases, net of accumulated amortization totaled
$26.1 million, $34.4 million and $36.5 million as
of December 31, 2010, June 30, 2010 and June 30,
2009, respectively, and are classified as intangible assets in
the accompanying consolidated balance sheets. Unfavorable
leases, net of accumulated amortization totaled
$38.6 million, $127.3 million and $155.5 million
as of December 31, 2010, June 30, 2010 and
June 30, 2009, respectively, and are classified within
other liabilities in the accompanying consolidated balance
sheets.
As of December 31, 2010, estimated future amortization
expense of favorable lease contracts subject to amortization for
each of the years ended December 31 is $2.7 million in
2011, $2.5 million in each of 2012, 2013 and 2014,
$2.4 million in 2015 and $13.2 million thereafter. As
of December 31, 2010, estimated future amortization expense
of unfavorable lease contracts subject to amortization for each
of the years ended
123
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
December 31 is $5.1 million in 2011, $4.4 million
in 2012, $4.1 million in 2013, $3.6 million in 2014,
$2.8 million in 2015 and $18.4 million thereafter.
|
|
Note 18.
|
Stockholders
Equity
|
Dividends
Paid
We paid a quarterly cash dividend of $0.0625 per share on
September 30, 2010 to the Predecessors shareholders
of record at the close of business on September 14, 2010.
Total dividends paid by the Predecessor during the period
July 1, 2010 to October 18, 2010 were
$8.6 million.
During each of the years ended June 30, 2010, 2009 and
2008, the Company declared four quarterly cash dividends of
$0.0625 per share on its common stock. Total dividends paid by
the Company during each of the years ended June 30, 2010,
2009 and 2008 were $34.2 million, $34.1 million and
$34.2 million, respectively.
Although we do not currently have a dividend policy, we may
declare dividends opportunistically if the Board of Directors of
the Company determines that it is in the best interests of the
shareholders. The terms of the New Credit Agreement and the
Senior Notes Indenture limit our ability to pay cash dividends
in certain circumstances. In addition, because we are a holding
company, our ability to pay cash dividends on shares (including
fractional shares) of our common stock may be limited by
restrictions on our ability to obtain sufficient funds through
dividends from our subsidiaries, including the restrictions
under the Amended Credit Agreement and the Senior Notes
Indenture. Subject to the foregoing, the payment of cash
dividends in the future, if any, will be at the discretion of
our Board of Directors and will depend upon such factors as
earnings levels, capital requirements, our overall financial
condition and any other factors deemed relevant by our Board of
Directors.
124
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Accumulated
Other Comprehensive Income (Loss)
The following table displays the change in the components of
accumulated other comprehensive income (loss) (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
Comprehensive
|
|
|
|
Derivatives
|
|
|
Pensions
|
|
|
Translation
|
|
|
Income (Loss)
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2007
|
|
$
|
7.6
|
|
|
$
|
4.5
|
|
|
$
|
(4.6
|
)
|
|
$
|
7.5
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
(1.7
|
)
|
|
|
(1.7
|
)
|
Net change in fair value of derivatives, net of tax of
$3.9 million
|
|
|
(6.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(6.4
|
)
|
Amounts reclassified to earnings during the period from
terminated swaps, net of tax of $1.1 million
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.3
|
)
|
Pension and post-retirement benefit plans, net of tax of
$4.5 million
|
|
|
|
|
|
|
(6.5
|
)
|
|
|
|
|
|
|
(6.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2008
|
|
|
(0.1
|
)
|
|
|
(2.0
|
)
|
|
|
(6.3
|
)
|
|
|
(8.4
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
(6.0
|
)
|
|
|
(6.0
|
)
|
Net change in fair value of derivatives, net of tax of
$10.6 million
|
|
|
(16.8
|
)
|
|
|
|
|
|
|
|
|
|
|
(16.8
|
)
|
Amounts reclassified to earnings during the period from
terminated swaps, net of tax of $0.4 million
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.9
|
)
|
Pension and post-retirement benefit plans, net of tax of
$9.2 million
|
|
|
|
|
|
|
(13.8
|
)
|
|
|
|
|
|
|
(13.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2009
|
|
|
(17.8
|
)
|
|
|
(15.8
|
)
|
|
|
(12.3
|
)
|
|
|
(45.9
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
(4.4
|
)
|
|
|
(4.4
|
)
|
Net change in fair value of derivatives, net of tax of
$2.6 million
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
4.1
|
|
Amounts reclassified to earnings during the period from
terminated swaps, net of tax of $0.6 million
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.0
|
)
|
Pension and post-retirement benefit plans, net of tax of
$11.3 million
|
|
|
|
|
|
|
(19.7
|
)
|
|
|
|
|
|
|
(19.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2010
|
|
$
|
(14.7
|
)
|
|
$
|
(35.5
|
)
|
|
$
|
(16.7
|
)
|
|
$
|
(66.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
13.3
|
|
|
|
13.3
|
|
Net change in fair value of derivatives, net of tax of
$1.1 million
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
Amounts reclassified to earnings during the period from
terminated swaps, net of tax of $0.2 million
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
Pension and post-retirement benefit plans, net of tax of
$3.1 million
|
|
|
|
|
|
|
5.8
|
|
|
|
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at October 18, 2010
|
|
$
|
(13.2
|
)
|
|
$
|
(29.7
|
)
|
|
$
|
(3.4
|
)
|
|
$
|
(46.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at October 19, 2010
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
(33.6
|
)
|
|
|
(33.6
|
)
|
Net change in fair value of derivatives, net of tax of
$13.9 million
|
|
|
21.9
|
|
|
|
|
|
|
|
|
|
|
|
21.9
|
|
Pension and post-retirement benefit plans, net of tax of
$3.9 million
|
|
|
|
|
|
|
8.8
|
|
|
|
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2010
|
|
$
|
21.9
|
|
|
$
|
8.8
|
|
|
$
|
(33.6
|
)
|
|
$
|
(2.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
Note 19.
|
Pension
and Post Retirement Medical Benefits
|
Pension
Benefits
The Company sponsors noncontributory defined benefit pension
plans for its salaried employees in the United States (the
U.S. Pension Plans) and certain employees in
the United Kingdom, Germany and Switzerland (the
International Pension Plans). Effective
December 31, 2005, all benefits accrued under the
U.S. Pension Plans were frozen at the benefit level
attained as of that date.
Postretirement
Medical Benefits
The Companys postretirement medical plan (the
U.S. Retiree Medical Plan) provides medical,
dental and life insurance benefits to U.S. salaried
retirees hired prior to June 30, 2001 and who were
age 40 or older as of June 30, 2001, and their
eligible dependents. The amount of retirement health care
coverage an employee will receive depends upon the length of
credited service with the Company, multiplied by an annual
factor to determine the value of the post-retirement health care
coverage.
Obligations
and Funded Status
The following table sets forth the change in benefit
obligations, fair value of plan assets and amounts recognized in
the balance sheets for the U.S. Pension Plans,
International Pension Plans and U.S. Retiree Medical Plan
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plan
|
|
|
U.S. Retiree Medical Plan
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19,
|
|
|
|
|
|
|
|
|
|
|
|
|
October 19,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 to
|
|
|
|
July 1, 2010 to
|
|
|
|
|
|
|
|
|
2010 to
|
|
|
|
July 1, 2010 to
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 18,
|
|
|
As of June 30,
|
|
|
December 31,
|
|
|
|
October 18,
|
|
|
As of June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
183.4
|
|
|
|
$
|
179.0
|
|
|
$
|
146.0
|
|
|
$
|
147.8
|
|
|
$
|
26.8
|
|
|
|
$
|
26.0
|
|
|
$
|
22.1
|
|
|
$
|
22.3
|
|
Service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
0.1
|
|
|
|
0.4
|
|
|
|
0.6
|
|
Interest cost
|
|
|
1.9
|
|
|
|
|
2.7
|
|
|
|
9.1
|
|
|
|
11.0
|
|
|
|
0.3
|
|
|
|
|
0.4
|
|
|
|
1.3
|
|
|
|
1.7
|
|
Actuarial (gains) losses
|
|
|
(6.9
|
)
|
|
|
|
3.4
|
|
|
|
29.0
|
|
|
|
(6.4
|
)
|
|
|
(1.1
|
)
|
|
|
|
0.4
|
|
|
|
2.7
|
|
|
|
(1.8
|
)
|
Part D Rx Subsidy Received
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Benefits paid
|
|
|
(1.9
|
)
|
|
|
|
(1.7
|
)
|
|
|
(5.1
|
)
|
|
|
(6.4
|
)
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(0.6
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
176.5
|
|
|
|
$
|
183.4
|
|
|
$
|
179.0
|
|
|
$
|
146.0
|
|
|
$
|
26.1
|
|
|
|
$
|
26.8
|
|
|
$
|
26.0
|
|
|
$
|
22.1
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
120.7
|
|
|
|
$
|
109.7
|
|
|
$
|
97.9
|
|
|
$
|
99.0
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
3.3
|
|
|
|
|
12.7
|
|
|
|
14.6
|
|
|
|
(19.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
|
|
|
|
|
|
|
|
|
2.3
|
|
|
|
24.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(1.9
|
)
|
|
|
|
(1.7
|
)
|
|
|
(5.1
|
)
|
|
|
(6.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
122.1
|
|
|
|
$
|
120.7
|
|
|
$
|
109.7
|
|
|
$
|
97.9
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of plan
|
|
$
|
(54.4
|
)
|
|
|
$
|
(62.7
|
)
|
|
$
|
(69.3
|
)
|
|
$
|
(48.1
|
)
|
|
$
|
(26.1
|
)
|
|
|
$
|
(26.8
|
)
|
|
$
|
(26.0
|
)
|
|
$
|
(22.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
(1.4
|
)
|
|
|
$
|
(1.2
|
)
|
|
$
|
(1.1
|
)
|
|
$
|
(1.0
|
)
|
|
$
|
(1.0
|
)
|
|
|
$
|
(1.0
|
)
|
|
$
|
(1.0
|
)
|
|
$
|
(1.0
|
)
|
Noncurrent liabilities
|
|
|
(53.0
|
)
|
|
|
|
(61.5
|
)
|
|
|
(68.2
|
)
|
|
|
(47.1
|
)
|
|
|
(25.1
|
)
|
|
|
|
(25.8
|
)
|
|
|
(25.0
|
)
|
|
|
(21.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pension liability, end of fiscal year
|
|
$
|
(54.4
|
)
|
|
|
$
|
(62.7
|
)
|
|
$
|
(69.3
|
)
|
|
$
|
(48.1
|
)
|
|
$
|
(26.1
|
)
|
|
|
$
|
(26.8
|
)
|
|
$
|
(26.0
|
)
|
|
$
|
(22.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income
(AOCI)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized actuarial loss (gain)
|
|
$
|
(8.2
|
)
|
|
|
$
|
47.9
|
|
|
$
|
55.1
|
|
|
$
|
31.2
|
|
|
$
|
(1.1
|
)
|
|
|
$
|
(1.9
|
)
|
|
$
|
(2.3
|
)
|
|
$
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AOCI (before tax)
|
|
$
|
(8.2
|
)
|
|
|
$
|
47.9
|
|
|
$
|
55.1
|
|
|
$
|
31.2
|
|
|
$
|
(1.1
|
)
|
|
|
$
|
(1.9
|
)
|
|
$
|
(2.3
|
)
|
|
$
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Pension Plans
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 to
|
|
|
|
July 1, 2010 to
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 18,
|
|
|
As of June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
32.9
|
|
|
|
$
|
29.6
|
|
|
$
|
23.6
|
|
|
$
|
27.0
|
|
Service cost
|
|
|
0.4
|
|
|
|
|
0.7
|
|
|
|
1.8
|
|
|
|
2.1
|
|
Interest cost
|
|
|
0.2
|
|
|
|
|
0.6
|
|
|
|
1.3
|
|
|
|
1.6
|
|
Actuarial (gains) losses
|
|
|
(3.4
|
)
|
|
|
|
(0.3
|
)
|
|
|
5.6
|
|
|
|
(3.3
|
)
|
Employee Contributions
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
0.3
|
|
Foreign currency exchange rate changes
|
|
|
(1.0
|
)
|
|
|
|
2.5
|
|
|
|
(2.3
|
)
|
|
|
(4.1
|
)
|
Benefits paid
|
|
|
(0.6
|
)
|
|
|
|
(0.2
|
)
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
28.5
|
|
|
|
$
|
32.9
|
|
|
$
|
29.6
|
|
|
$
|
23.6
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
22.1
|
|
|
|
$
|
18.3
|
|
|
$
|
16.6
|
|
|
$
|
20.8
|
|
Actual return on plan assets
|
|
|
0.4
|
|
|
|
|
0.5
|
|
|
|
1.1
|
|
|
|
1.2
|
|
Employer contributions
|
|
|
0.2
|
|
|
|
|
0.4
|
|
|
|
1.2
|
|
|
|
0.9
|
|
Employee Contributions
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
0.3
|
|
Actuarial gain/loss
|
|
|
0.6
|
|
|
|
|
1.6
|
|
|
|
1.7
|
|
|
|
(3.5
|
)
|
Benefits paid
|
|
|
(0.6
|
)
|
|
|
|
(0.2
|
)
|
|
|
(0.5
|
)
|
|
|
0.1
|
|
Foreign currency exchange rate changes
|
|
|
(0.6
|
)
|
|
|
|
1.5
|
|
|
|
(2.0
|
)
|
|
|
(3.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
22.1
|
|
|
|
$
|
22.1
|
|
|
$
|
18.3
|
|
|
$
|
16.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of plan
|
|
$
|
(6.4
|
)
|
|
|
$
|
(10.8
|
)
|
|
$
|
(11.3
|
)
|
|
$
|
(7.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent Assets
|
|
$
|
0.8
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Current liabilities
|
|
|
(0.1
|
)
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Noncurrent liabilities
|
|
|
(7.1
|
)
|
|
|
|
(10.7
|
)
|
|
|
(11.2
|
)
|
|
|
(6.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pension liability, end of fiscal year
|
|
$
|
(6.4
|
)
|
|
|
$
|
(10.8
|
)
|
|
$
|
(11.3
|
)
|
|
$
|
(7.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income
(AOCI)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized actuarial loss (gain)
|
|
$
|
(3.4
|
)
|
|
|
$
|
0.6
|
|
|
$
|
2.7
|
|
|
$
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AOCI (before tax)
|
|
$
|
(3.4
|
)
|
|
|
$
|
0.6
|
|
|
$
|
2.7
|
|
|
$
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Additional
year-end information for the U.S. Pension Plans, International
Pension Plans and U.S. Medical Plan with accumulated
benefit obligations in excess of plan assets
The following sets forth the projected benefit obligation,
accumulated benefit obligation and fair value of plan assets for
the U.S. Pension Plans, International Pension Plans and
U.S. Retiree Medical Plan with accumulated benefit
obligations in excess of plan assets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plan
|
|
U.S. Retiree Medical Plan
|
|
|
Successor
|
|
|
Predecessor
|
|
Successor
|
|
|
Predecessor
|
|
|
As of
|
|
|
|
|
As of
|
|
|
|
|
|
December 31,
|
|
|
As of June 30,
|
|
December 31,
|
|
|
As of June 30,
|
|
|
2010
|
|
|
2010
|
|
2009
|
|
2010
|
|
|
2010
|
|
2009
|
Projected benefit obligation
|
|
$
|
176.5
|
|
|
|
$
|
179.0
|
|
|
$
|
146.0
|
|
|
$
|
26.1
|
|
|
|
$
|
26.0
|
|
|
$
|
22.1
|
|
Accumulated benefit obligation
|
|
$
|
176.5
|
|
|
|
$
|
179.0
|
|
|
$
|
146.0
|
|
|
$
|
26.1
|
|
|
|
$
|
26.0
|
|
|
$
|
22.1
|
|
Fair value of plan assets
|
|
$
|
122.1
|
|
|
|
$
|
109.7
|
|
|
$
|
97.9
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Pension Plans
|
|
|
Successor
|
|
|
Predecessor
|
|
|
As of December
|
|
|
|
|
|
31,
|
|
|
As of June 30,
|
|
|
2010
|
|
|
2010
|
|
2009
|
Projected benefit obligation
|
|
$
|
6.9
|
|
|
|
$
|
8.8
|
|
|
$
|
7.3
|
|
Accumulated benefit obligation
|
|
$
|
6.9
|
|
|
|
$
|
1.6
|
|
|
$
|
6.4
|
|
Fair value of plan assets
|
|
$
|
|
|
|
|
$
|
1.3
|
|
|
$
|
1.3
|
|
Components
of Net Periodic Benefit Cost
A summary of the components of net periodic benefit cost for the
U.S. Pension Plans and U.S. Retiree Medical Plan and
International Pension Plans is presented below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plan
|
|
|
U.S. Retiree Medical Plan
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19,
|
|
|
|
July 1,
|
|
|
|
|
|
|
|
|
|
|
|
October 19,
|
|
|
|
July 1,
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 to
|
|
|
|
2010 to
|
|
|
|
|
|
|
|
|
|
|
|
2010 to
|
|
|
|
2010 to
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 18,
|
|
|
Years Ended June 30,
|
|
|
December 31,
|
|
|
|
October 18,
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Service cost
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.1
|
|
|
|
$
|
0.1
|
|
|
$
|
0.4
|
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
Interest cost
|
|
|
1.8
|
|
|
|
|
2.7
|
|
|
|
9.1
|
|
|
|
8.8
|
|
|
|
8.7
|
|
|
|
0.3
|
|
|
|
|
0.4
|
|
|
|
1.4
|
|
|
|
1.3
|
|
|
|
1.3
|
|
Expected return on plan assets
|
|
|
(1.8
|
)
|
|
|
|
(2.8
|
)
|
|
|
(9.6
|
)
|
|
|
(8.8
|
)
|
|
|
(8.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized net actuarial (gain) loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
Amortization of unrecognized net (gain) loss
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
|
|
|
|
$
|
0.6
|
|
|
$
|
(0.5
|
)
|
|
$
|
|
|
|
$
|
0.5
|
|
|
$
|
0.4
|
|
|
|
$
|
0.5
|
|
|
$
|
1.4
|
|
|
$
|
1.6
|
|
|
$
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Pension Plans
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19,
|
|
|
|
July 1,
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 to
|
|
|
|
2010 to
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 18,
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Service cost
|
|
$
|
0.4
|
|
|
|
$
|
0.7
|
|
|
$
|
1.3
|
|
|
$
|
1.3
|
|
|
$
|
1.6
|
|
Interest cost
|
|
|
0.3
|
|
|
|
|
0.6
|
|
|
|
0.8
|
|
|
|
0.8
|
|
|
|
1.2
|
|
Expected return on plan assets
|
|
|
(0.3
|
)
|
|
|
|
(0.4
|
)
|
|
|
(0.4
|
)
|
|
|
(0.5
|
)
|
|
|
(1.3
|
)
|
Recognized net actuarial (gain) loss
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
0.4
|
|
|
|
$
|
1.1
|
|
|
$
|
1.7
|
|
|
$
|
1.6
|
|
|
$
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Changes in Plan Assets and Projected Benefit Obligation
Recognized in Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans
|
|
|
U.S. Retiree Medical Plan
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19,
|
|
|
|
July 1,
|
|
|
|
|
|
|
|
|
|
|
|
October 19,
|
|
|
|
July 1,
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 to
|
|
|
|
2010 to
|
|
|
|
|
|
|
|
|
|
|
|
2010 to
|
|
|
|
2010 to
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 18,
|
|
|
Years Ended June 30,
|
|
|
December 31,
|
|
|
|
October 18,
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Unrecognized actuarial (gain) loss
|
|
$
|
(8.2
|
)
|
|
|
$
|
(6.5
|
)
|
|
$
|
23.9
|
|
|
$
|
24.1
|
|
|
$
|
8.4
|
|
|
$
|
(1.1
|
)
|
|
|
$
|
0.4
|
|
|
$
|
2.7
|
|
|
$
|
(1.7
|
)
|
|
$
|
(0.8
|
)
|
Recognized net actuarial gain (loss)
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in OCI
|
|
$
|
(8.2
|
)
|
|
|
$
|
(7.2
|
)
|
|
$
|
23.9
|
|
|
$
|
24.1
|
|
|
$
|
8.4
|
|
|
$
|
(1.1
|
)
|
|
|
$
|
0.4
|
|
|
$
|
3.1
|
|
|
$
|
(1.5
|
)
|
|
$
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Pension Plans
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19,
|
|
|
|
July 1,
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 to
|
|
|
|
2010 to
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 18,
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized actuarial (gain) loss
|
|
$
|
(3.4
|
)
|
|
|
$
|
(2.1
|
)
|
|
$
|
4.0
|
|
|
$
|
0.4
|
|
|
$
|
4.0
|
|
Recognized net actuarial gain (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in OCI
|
|
$
|
(3.4
|
)
|
|
|
$
|
(2.1
|
)
|
|
$
|
4.0
|
|
|
$
|
0.4
|
|
|
$
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, for the combined U.S. and
international pension plans, the Company expected to amortize
during fiscal 2011 from accumulated other comprehensive
income/(loss) into net periodic pension cost an estimated
$0.1 million of net actuarial loss.
129
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Assumptions
The weighted-average assumptions used in computing the benefit
obligations of the U.S. Pension Plans and U.S. Retiree
Medical Plan are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plan
|
|
|
U.S. Retiree Medical Plan
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19,
|
|
|
|
July 1,
|
|
|
|
|
|
|
|
|
|
|
|
October 19,
|
|
|
|
July 1,
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 to
|
|
|
|
2010 to
|
|
|
|
|
|
|
|
|
|
|
|
2010 to
|
|
|
|
2010 to
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 18,
|
|
|
Years Ended June 30,
|
|
|
December 31,
|
|
|
|
October 18,
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Discount rate as of year-end
|
|
|
5.35
|
%
|
|
|
|
5.06
|
%
|
|
|
5.20
|
%
|
|
|
6.37
|
%
|
|
|
6.10
|
%
|
|
|
5.35
|
%
|
|
|
|
5.06
|
%
|
|
|
5.20
|
%
|
|
|
6.37
|
%
|
|
|
6.10
|
%
|
Range of compensation rate increase
|
|
|
N/A*
|
|
|
|
|
N/A*
|
|
|
|
N/A*
|
|
|
|
N/A*
|
|
|
|
N/A*
|
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
* |
|
The Company curtailed the U.S. Pension Plans during the year
ended June 30, 2006. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Pension Plans
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19,
|
|
|
|
July 1,
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 to
|
|
|
|
2010 to
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 18,
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Discount rate as of year-end
|
|
|
5.35
|
%
|
|
|
|
4.98
|
%
|
|
|
5.17
|
%
|
|
|
6.00
|
%
|
|
|
6.10
|
%
|
Range of compensation rate increase
|
|
|
3.80
|
%
|
|
|
|
3.52
|
%
|
|
|
3.71
|
%
|
|
|
3.53
|
%
|
|
|
4.15
|
%
|
The discount rate used in the calculation of the benefit
obligation at December 31, 2010 for the U.S. Plans is
derived from a yield curve comprised of the yields of an index
of 250 equally-weighted corporate bonds, rated AA or better by
Moodys, which approximates the duration of the
U.S. Plans.
The weighted-average assumptions used in computing the net
periodic benefit cost of the U.S. Pension Plans and the
U.S. Retiree Medical Plan are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plan
|
|
|
U.S. Retiree Medical Plan
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19,
|
|
|
|
July 1,
|
|
|
|
|
|
|
|
|
|
|
|
October 19,
|
|
|
|
July 1,
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 to
|
|
|
|
2010 to
|
|
|
|
|
|
|
|
|
|
|
|
2010 to
|
|
|
|
2010 to
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 18,
|
|
|
Years Ended June 30,
|
|
|
December 31,
|
|
|
|
October 18,
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Discount rate
|
|
|
5.06
|
%
|
|
|
|
5.16
|
%
|
|
|
6.37
|
%
|
|
|
6.10
|
%
|
|
|
6.07
|
%
|
|
|
5.06
|
%
|
|
|
|
5.16
|
%
|
|
|
6.37
|
%
|
|
|
6.10
|
%
|
|
|
6.07
|
%
|
Range of compensation rate increase
|
|
|
N/A
|
*
|
|
|
|
N/A
|
*
|
|
|
N/A
|
*
|
|
|
N/A
|
*
|
|
|
N/A
|
*
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Expected long-term rate of return on plan assets
|
|
|
7.50
|
%
|
|
|
|
7.50
|
%
|
|
|
7.50
|
%
|
|
|
8.25
|
%
|
|
|
8.25
|
%
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
* |
|
The Company curtailed the U.S. Pension Plans during the year
ended June 30, 2006. |
130
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Pension Plans
|
|
|
Successor
|
|
|
Predecessor
|
|
|
October 19,
|
|
|
July 1,
|
|
|
|
|
|
|
|
|
2010 to
|
|
|
2010 to
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
October 18,
|
|
Years Ended June 30,
|
|
|
2010
|
|
|
2010
|
|
2010
|
|
2009
|
|
2008
|
Discount rate
|
|
|
5.15
|
%
|
|
|
|
5.09
|
%
|
|
|
6.07
|
%
|
|
|
5.89
|
%
|
|
|
5.39
|
%
|
Range of compensation rate increase
|
|
|
3.66
|
%
|
|
|
|
3.58
|
%
|
|
|
3.57
|
%
|
|
|
3.88
|
%
|
|
|
3.61
|
%
|
Expected long-term rate of return on plan assets
|
|
|
6.10
|
%
|
|
|
|
6.37
|
%
|
|
|
6.42
|
%
|
|
|
6.51
|
%
|
|
|
7.00
|
%
|
The expected long-term rate of return on plan assets is
determined by expected future returns on the asset categories in
target investment allocation. These expected returns are based
on historical returns for each assets category adjusted
for an assessment of current market conditions.
The assumed healthcare cost trend rates are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
October 19,
|
|
|
July 1,
|
|
|
|
|
|
|
|
|
2010 to
|
|
|
2010 to
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
October 18,
|
|
Years Ended June 30,
|
|
|
2010
|
|
|
2010
|
|
2010
|
|
2009
|
|
2008
|
Healthcare cost trend rate assumed for next year
|
|
|
8.00
|
%
|
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.50
|
%
|
|
|
9.00
|
%
|
Rate to which the cost trend rate is assumed to decline (the
ultimate trend rate)
|
|
|
5.00
|
%
|
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
Year that the rate reaches the ultimate trend rate
|
|
|
2020
|
|
|
|
|
2020
|
|
|
|
2020
|
|
|
|
2016
|
|
|
|
2016
|
|
Assumed healthcare cost trend rates do not have a significant
effect on the amounts reported for the postretirement healthcare
plans, since a one-percentage point increase or decrease in the
assumed healthcare cost trend rate would have a minimal effect
on service and interest cost for the postretirement obligation.
131
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Plan
Assets
The fair value of the major categories of pension plan assets
for U.S. and International Pension Plans at
December 31, 2010 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
International
|
|
|
|
U.S.
|
|
|
International
|
|
|
|
Pension Plan
|
|
|
Pension Plans
|
|
|
|
Pension Plan
|
|
|
Pension Plans
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
As of December 31,
|
|
|
|
As of June 30,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
Level 2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash equivalents(a)
|
|
$
|
8.0
|
|
|
$
|
0.2
|
|
|
|
$
|
7.7
|
|
|
$
|
0.3
|
|
Equity Securities(b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
58.1
|
|
|
|
4.0
|
|
|
|
|
49.2
|
|
|
|
3.2
|
|
Non U.S.
|
|
|
13.6
|
|
|
|
10.7
|
|
|
|
|
11.8
|
|
|
|
8.3
|
|
Fixed Income(b) :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Bonds and Notes
|
|
|
24.1
|
|
|
|
|
|
|
|
|
20.6
|
|
|
|
|
|
U.S. Government Treasuries
|
|
|
7.2
|
|
|
|
|
|
|
|
|
6.3
|
|
|
|
|
|
International Debt
|
|
|
5.7
|
|
|
|
|
|
|
|
|
4.9
|
|
|
|
|
|
Mortgage-Backed Securities
|
|
|
0.8
|
|
|
|
|
|
|
|
|
4.5
|
|
|
|
|
|
U.S. Government Agencies
|
|
|
1.8
|
|
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
Asset-Backed Securities
|
|
|
0.3
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
Municipal Bonds
|
|
|
1.1
|
|
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
Non- U.S. Bonds
|
|
|
0.3
|
|
|
|
6.8
|
|
|
|
|
0.2
|
|
|
|
6.2
|
|
Other(c)
|
|
|
1.1
|
|
|
|
0.4
|
|
|
|
|
0.8
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of plan assets
|
|
$
|
122.1
|
|
|
$
|
22.1
|
|
|
|
$
|
109.7
|
|
|
$
|
18.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Short-term investments in money market funds and short term
receivables for investments sold |
|
(b) |
|
Securities held in common commingled trust funds |
|
(c) |
|
Other securities held in common commingled trust funds including
interest rate swaps and foreign currency contracts |
The Company categorizes plan assets within a three level fair
value hierarchy as described in Note 2. Pooled funds are
primarily classified as Level 2 and are valued using net
asset values of participation units held in common collective
trusts, as reported by the managers of the trusts and as
supported by the unit prices of actual purchase and sale
transactions. The fair value of plan assets for
U.S. Pension Plan and International Pension Plans as of
June 30, 2009 was $97.9 million and
$16.6 million, respectively.
The investment objective for the U.S. Pension Plans and
International Pension Plans is to secure the benefit obligations
to participants while minimizing costs to the Company. The goal
is to optimize the long-term return on plan assets at an average
level of risk. The portfolio of equity securities, currently
targeted at 60% for U.S. Pension Plan and 70% for
International Plan, includes primarily large-capitalization
companies with a mix of small-capitalization U.S. and
foreign companies well diversified by industry. The portfolio of
fixed income asset allocation, currently targeted at 40% for
U.S. Plan and 30% for International Plan, is actively
managed and consists of long duration fixed income securities
primarily in U.S. debt markets and non
U.S. bonds with long-term maturities that help to reduce
exposure to interest variation and to better correlate asset
maturities with obligations.
132
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Estimated
Future Cash Flows
Total contributions to the U.S. Pension Plans and
International Pension Plans were $0.2 million for the
period October 19, 2010 to December 31, 2010,
$0.4 million for the period July 1, 2010 to
October 18, 2010, and $3.5 million, $25.7 million
and $6.1 million for the years ended June 30, 2010,
2009 and 2008, respectively.
The U.S. and International Pension Plans and
U.S. Retiree Medical Plans expected contributions to
be paid in the next fiscal year, the projected benefit payments
for each of the next five fiscal years and the total aggregate
amount for the subsequent five fiscal years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension
|
|
International
|
|
U.S. Retiree
|
|
|
Plans
|
|
Pension Plans
|
|
Medical Plan*
|
|
Estimated Net Contributions During Fiscal 2011:
|
|
$
|
6.9
|
|
|
$
|
1.2
|
|
|
$
|
1.0
|
|
Estimated Future Year Benefit Payments During Years Ended
December 31,:
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
7.0
|
|
|
$
|
0.5
|
|
|
$
|
1.0
|
|
2012
|
|
$
|
7.2
|
|
|
$
|
0.6
|
|
|
$
|
1.1
|
|
2013
|
|
$
|
8.0
|
|
|
$
|
0.6
|
|
|
$
|
1.3
|
|
2014
|
|
$
|
8.5
|
|
|
$
|
0.7
|
|
|
$
|
1.5
|
|
2015
|
|
$
|
9.4
|
|
|
$
|
0.7
|
|
|
$
|
1.8
|
|
2016 2020
|
|
$
|
57.3
|
|
|
$
|
4.9
|
|
|
$
|
11.0
|
|
|
|
Note 20.
|
Other
Operating (Income) Expenses, Net
|
Other operating (income) expenses, net, consist of the following
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19,
|
|
|
|
July 1,
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 to
|
|
|
|
2010 to
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 18,
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Net (gains) losses on disposal of assets restaurant closures and
refranchisings
|
|
$
|
3.0
|
|
|
|
$
|
(3.2
|
)
|
|
$
|
(2.4
|
)
|
|
$
|
(8.5
|
)
|
|
$
|
(9.8
|
)
|
Litigation settlements and reserves, net
|
|
|
4.8
|
|
|
|
|
1.5
|
|
|
|
(0.2
|
)
|
|
|
0.2
|
|
|
|
1.1
|
|
Foreign exchange net (gains) losses
|
|
|
(18.8
|
)
|
|
|
|
(1.4
|
)
|
|
|
(3.3
|
)
|
|
|
8.4
|
|
|
|
2.3
|
|
Other, net
|
|
|
(0.7
|
)
|
|
|
|
(0.5
|
)
|
|
|
5.2
|
|
|
|
1.8
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating (income) expense, net
|
|
$
|
(11.7
|
)
|
|
|
$
|
(3.6
|
)
|
|
$
|
(0.7
|
)
|
|
$
|
1.9
|
|
|
$
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts included in litigation settlements and reserves,
net, represent amounts reserved as the Companys best
estimate of losses to be incurred in connection with the
disposition of the litigation matters further discussed in
Note 21.
The increase in foreign exchange net (gains) losses for the
period of October 19, 2010 through December 31, 2010
is primarily due to the foreign exchange impact of the
250 million tranche of the New Term Loan Facility.
See Note 13.
The $5.2 million of other, net within other operating
(income) expense, net for year ended June 30, 2010 includes
a $2.4 million charge related to consumption tax in EMEA,
$1.5 million of severance costs related to refranchisings
in Germany, $1.0 million of franchise workout costs and a
$0.7 million contract termination fee, partially offset by
$1.1 million of income recorded in connection with the
expiration of gift cards in the U.S.
133
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The $1.8 million of other, net within other operating
(income) expense, net for the year ended June 30, 2009
consists primarily of $1.7 million of franchise workout
costs.
The $5.8 million of other, net within other operating
(income) expenses, net for the year ended June 30, 2008
includes $3.1 million of franchise workout costs and
$1.9 million of settlement losses associated with the
acquisition of franchise restaurants.
|
|
Note 21.
|
Commitments
and Contingencies
|
Guarantees
The Company guarantees certain lease payments of franchisees
arising from leases assigned in connection with sales of Company
restaurants to franchisees, by remaining secondarily liable for
base and contingent rents under the assigned leases of varying
terms. The maximum contingent rent amount is not determinable as
the amount is based on future revenues. In the event of default
by the franchisees, the Company has typically retained the right
to acquire possession of the related restaurants, subject to
landlord consent. The aggregate contingent obligation arising
from these assigned lease guarantees, excluding contingent
rents, was $68.6 million as of December 31, 2010,
expiring over an average period of seven years.
Other commitments arising out of normal business operations were
$6.2 million as of December 31, 2010, of which
$6.1 million was guaranteed under bank guarantee
arrangements.
Letters
of Credit
As of December 31, 2010, the Company had $38.0 million
in irrevocable standby letters of credit outstanding, which were
issued primarily to certain insurance carriers to guarantee
payments of deductibles for various insurance programs, such as
health and commercial liability insurance. Such letters of
credit are secured by the collateral under the Companys
revolving credit facility. As of December 31, 2010, no
amounts had been drawn on any of these irrevocable standby
letters of credit.
As of December 31, 2010, the Company had posted bonds
totaling $3.9 million, which related to certain utility
deposits and capital projects.
Vendor
Relationships
During the year ended June 30, 2000, the Company entered
into long-term, exclusive contracts with The
Coca-Cola
Company and with Dr Pepper/Seven Up, Inc. to supply the Company
and its franchise restaurants with their products and obligating
Burger
King®
restaurants in the United States to purchase a specified number
of gallons of soft drink syrup. These volume commitments are not
subject to any time limit. As of December 31, 2010, the
Company estimates that it will take approximately 14 years
to complete the
Coca-Cola
and Dr Pepper/Seven Up, Inc. purchase commitments. In the event
of early termination of these arrangements, the Company may be
required to make termination payments that could be material to
the Companys results of operations and financial position.
Additionally, in connection with these contracts, the Company
received upfront fees, which are being amortized over the term
of the contracts. As of December 31, 2010 the deferred
amounts totaled $14.4 million and as of June 30, 2010
and 2009 the deferred amounts totaled $14.9 million and
$16.1 million, respectively. These deferred amounts are
amortized as a reduction to food, paper and product costs in the
accompanying consolidated statements of operations.
As of December 31, 2010, the Company had $11.9 million
in aggregate contractual obligations for the year ended
December 31, 2010 with vendors providing information
technology and telecommunication services under multiple
arrangements. These contracts extend up to five years with a
termination fee ranging from $0.5 million to
$2.1 million during those years. The Company also has
separate arrangements for telecommunication services with an
aggregate contractual obligation of $4.8 million over five
years with no early termination fee.
134
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The Company also enters into commitments to purchase
advertising. As of December 31, 2010, commitments to
purchase advertising totaled $104.3 million and run through
December 2012.
Litigation
On July 30, 2008, BKC was sued by four Florida franchisees
over its decision to mandate extended operating hours in the
United States. The plaintiffs seek damages, declaratory relief
and injunctive relief. The court dismissed the plaintiffs
original complaint in November 2008. In December 2008, the
plaintiffs filed an amended complaint. In August 2010, the court
entered an order reaffirming the legal bases for dismissal of
the original complaint, again holding that BKC had the authority
under its franchise agreements to mandate extended operating
hours. The court held a hearing on December 7, 2010 and
stated that, in light of the ruling that the hours clause was
unambiguous, it would grant BKCs motion to dismiss, with
prejudice, on seven of the eight claims in the amended
complaint. The court denied the motion to dismiss on one claim
in the amended complaint, that the hours clause was
unconscionable under Florida law. The case will now
continue through the discovery process on that remaining claim.
On September 10, 2008, a class action lawsuit was filed
against the Company in the United States District Court for the
Northern District of California. The complaint alleged that all
96 Burger King restaurants in California leased by the Company
and operated by franchisees violate accessibility requirements
under federal and state law. In September 2009, the court issued
a decision on the plaintiffs motion for class
certification. In its decision, the court limited the class
action to the 10 restaurants visited by the named plaintiffs,
with a separate class of plaintiffs for each of the 10
restaurants and 10 separate trials. In March 2010, the Company
agreed to settle the lawsuit with respect to the 10 restaurants
and, in July 2010, the court gave final approval to the
settlement. In February 2011, a class action lawsuit was filed
with respect to the other 86 restaurants. The Company intends to
vigorously defend against all claims in the lawsuit, but the
Company is unable to predict the ultimate outcome of this
litigation.
The National Franchisee Association, Inc. and several individual
franchisees filed two class action lawsuits on November 10,
2009, and June 15, 2010, respectively, claiming to
represent Burger King franchisees. The lawsuits seek a judicial
declaration that the franchise agreements between BKC and its
franchisees do not obligate the franchisees to comply with
maximum price points set by BKC for products on the BK
Value Menu sold by the franchisees, specifically the
1/4
lb. Double Cheeseburger and the Buck Double. The Family
Dining plaintiffs also seek monetary damages for financial
loss incurred by franchisees who were required to sell those
products for no more than $1.00. In May 2010, the court entered
an order in the National Franchisee Association case granting in
part BKCs motion to dismiss. The court held that BKC had
the authority under its franchise agreements to set maximum
prices but that, for purposes of a motion to dismiss, the NFA
had asserted a plausible claim that BKCs
decision may not have been made in good faith. Both cases were
consolidated into a single consolidated class action complaint
which BKC moved to dismiss on September 22, 2010. On
November 19, 2010, the court issued an order granting
BKCs motion to dismiss on all claims in the consolidated
complaint with prejudice. On December 14, 2010, the
plaintiffs filed a motion asking the court to reconsider its
decision, and on December 17, 2010, the plaintiffs filed a
notice of appeal to the U.S. Circuit Court of Appeals. On
February 2, 2011, the court permitted the plaintiffs to
file an amended complaint. Discovery is now complete, and the
court has instructed BKC to file a motion for summary judgment
by April 1, 2011.
On September 3, 2010, four purported class action
complaints were filed in the Circuit Court for the County of
Miami-Dade, Florida, by purported shareholders of the Company,
in connection with the tender offer and the merger. Each of the
four complaints (collectively, the Florida Actions)
names as defendants the Company, each member of the
Companys board of directors (the Individual
Defendants) and 3G Capital. The suits generally allege
that the Individual Defendants breached their fiduciary duties
to the Companys shareholders in connection with the
proposed sale of the Company and that 3G Capital and the Company
aided and abetted the purported breaches of fiduciary duties.
On September 8, 2010, another putative shareholder class
action suit was filed in the Delaware Court of Chancery against
the Individual Defendants, the Company, 3G, 3G Capital, Blue
Acquisition Holding Corporation
135
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
and Blue Acquisition Sub, Inc. The complaint generally alleges
that the Individual Defendants breached their fiduciary duty to
maximize shareholder value by entering into the proposed
transaction via an unfair process and at an unfair price, and
that the merger agreement contains provisions that unreasonably
dissuade potential suitors from making competing offers. On
September 27, 2010, another putative shareholder class
action suit was filed in the Delaware Court of Chancery against
the Individual Defendants. Like the first Delaware Action, the
Debardelaben complaint asserts that the Companys
directors breached their fiduciary duties in connection with the
tender offer, and that the Company and 3G Capital aided and
abetted that breach. This action also seeks both monetary and
injunctive relief. On September 29, 2010, the Delaware
court entered an order consolidating the Debardelaben and
Queiroz actions (Delaware Actions).
On December 30, 2010, a proposed settlement was reached
with the plaintiffs in the Florida Actions and Delaware Actions.
The principal terms of the proposed settlement include
additional disclosures about the Merger that were provided to
Burger King shareholders in the Companys 14D-9, dismissal
of the Florida and Delaware actions, mutual releases and the
payment of up to $1 million in attorneys fees and
expenses to Plaintiffs counsel.
On March 16, 2011, the Florida court will rule on a motion
to preliminarily approve the proposed settlement. If the court
grants the motion, it will order that the class be provided with
notice of the proposed settlement, provide a timetable for any
objections to it, and set a date for a hearing on whether to
finally approve the settlement.
From time to time, the Company is involved in other legal
proceedings arising in the ordinary course of business relating
to matters including, but not limited to, disputes with
franchisees, suppliers, employees and customers, as well as
disputes over our intellectual property.
At December 31, 2010 and June 30, 2010 and 2009,
liabilities totaling $3.2 million, $0.2 million and
$3.2 million, respectively, were included in the
Companys consolidated balance sheets to reflect the
Companys best estimate of the loss to be incurred in
connection with the disposition of the matters noted above.
Although it is reasonably possible that the loss will exceed
this amount, the Company does not believe any such matter
currently being reviewed will have a material adverse effect on
its financial condition or results of operations.
Other
The Company carries insurance programs to cover claims such as
workers compensation, general liability, automotive
liability, executive risk and property, and is self-insured for
healthcare claims for eligible participating employees. Through
the use of insurance program deductibles (ranging from
$0.1 million to $2.5 million) and self insurance, the
Company retains a significant portion of the expected losses
under these programs.
Insurance reserves have been recorded based on the
Companys estimate of the anticipated ultimate costs to
settle all claims, both reported and incurred-but-not-reported
(IBNR), and such reserves include judgments and independent
actuarial assumptions about economic conditions, the frequency
or severity of claims and claim development patterns, and claim
reserve, management and settlement practices. As of
December 31, 2010 and June 30, 2010 and 2009, the
Company had $34.4 million, $37.1 million and
$39.5 million, respectively, in accrued liabilities for
such claims.
|
|
Note 22.
|
Segment
Reporting
|
The Company operates in the fast food hamburger category of the
quick service segment of the restaurant industry. Revenues
include retail sales at Company restaurants, franchise revenues,
consisting of royalties based on a percentage of sales reported
by franchise restaurants and franchise fees paid by franchisees,
and property revenues. The business is managed in three distinct
geographic segments: (1) United States and Canada;
(2) Europe, the Middle East and Africa and Asia Pacific
(EMEA/APAC); and (3) Latin America.
The unallocated amounts reflected in certain tables below
include corporate support costs in areas such as facilities,
finance, human resources, information technology, legal,
marketing and supply chain management,
136
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
which benefit all of the Companys geographic segments and
system-wide restaurants and are not allocated specifically to
any of the geographic segments.
The following tables present revenues, income from operations,
depreciation and amortization, total assets, long-lived assets
and capital expenditures by geographic segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19,
|
|
|
|
July 1,
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 to
|
|
|
|
2010 to
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 18,
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
$
|
314.5
|
|
|
|
$
|
483.2
|
|
|
$
|
1,695.2
|
|
|
$
|
1,743.0
|
|
|
$
|
1,578.5
|
|
EMEA/APAC
|
|
|
126.5
|
|
|
|
|
200.5
|
|
|
|
698.0
|
|
|
|
687.4
|
|
|
|
760.8
|
|
Latin America
|
|
|
24.8
|
|
|
|
|
34.0
|
|
|
|
109.0
|
|
|
|
107.0
|
|
|
|
115.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
465.8
|
|
|
|
$
|
717.7
|
|
|
$
|
2,502.2
|
|
|
$
|
2,537.4
|
|
|
$
|
2,454.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the periods of October 19, 2010 to December 31,
2010 and July 1, 2010 to October 18, 2010, other than
the United States, no other individual country represented 10%
or more of the Companys total revenues. Revenues in the
United States totaled $282.7 million and
$437.4 million, for the periods of October 19, 2010 to
December 31, 2010 and July 1, 2010 to October 18,
2010, respectively, and $1.5 billion, $1.6 billion and
$1.4 billion for the years ended June 30, 2010, 2009
and 2008, respectively.
During the fiscal years ended June 30, 2010, 2009 and 2008,
revenues in Germany represented 10% or more of the
Companys total revenues and totaled $281.9 million,
$307.2 million and $349.5 million, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 to
|
|
|
|
July 1, 2010 to
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 18,
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Income (loss) from Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
$
|
59.1
|
|
|
|
$
|
118.8
|
|
|
$
|
346.7
|
|
|
$
|
345.7
|
|
|
$
|
349.7
|
|
EMEA/APAC
|
|
|
(2.9
|
)
|
|
|
|
32.6
|
|
|
|
84.6
|
|
|
|
83.6
|
|
|
|
91.8
|
|
Latin America
|
|
|
6.9
|
|
|
|
|
10.4
|
|
|
|
38.2
|
|
|
|
37.8
|
|
|
|
41.4
|
|
Unallocated
|
|
|
(134.6
|
)
|
|
|
|
(60.3
|
)
|
|
|
(136.6
|
)
|
|
|
(127.7
|
)
|
|
|
(128.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) from operations
|
|
|
(71.5
|
)
|
|
|
|
101.5
|
|
|
|
332.9
|
|
|
|
339.4
|
|
|
|
354.2
|
|
Interest expense, net
|
|
|
61.0
|
|
|
|
|
14.6
|
|
|
|
48.6
|
|
|
|
54.6
|
|
|
|
61.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(132.5
|
)
|
|
|
|
86.9
|
|
|
|
284.3
|
|
|
|
284.8
|
|
|
|
293.0
|
|
Income tax expense (benefit)
|
|
|
(26.9
|
)
|
|
|
|
15.8
|
|
|
|
97.5
|
|
|
|
84.7
|
|
|
|
103.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(105.6
|
)
|
|
|
$
|
71.1
|
|
|
$
|
186.8
|
|
|
$
|
200.1
|
|
|
$
|
189.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 to
|
|
|
|
July 1, 2010 to
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 18,
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
$
|
21.1
|
|
|
|
$
|
20.2
|
|
|
$
|
72.8
|
|
|
$
|
63.4
|
|
|
$
|
64.0
|
|
EMEA/APAC
|
|
|
8.1
|
|
|
|
|
5.0
|
|
|
|
18.0
|
|
|
|
15.7
|
|
|
|
14.1
|
|
Latin America
|
|
|
1.1
|
|
|
|
|
1.5
|
|
|
|
4.9
|
|
|
|
5.6
|
|
|
|
4.5
|
|
Unallocated
|
|
|
3.1
|
|
|
|
|
4.5
|
|
|
|
16.0
|
|
|
|
13.4
|
|
|
|
13.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
33.4
|
|
|
|
$
|
31.2
|
|
|
$
|
111.7
|
|
|
$
|
98.1
|
|
|
$
|
95.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
As of December 31,
|
|
|
|
As of June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
$
|
3,442.0
|
|
|
|
$
|
2,047.6
|
|
|
$
|
2,004.3
|
|
EMEA/APAC
|
|
|
1,486.9
|
|
|
|
|
592.5
|
|
|
|
598.2
|
|
Latin America
|
|
|
63.2
|
|
|
|
|
66.8
|
|
|
|
59.5
|
|
Unallocated
|
|
|
567.3
|
|
|
|
|
40.3
|
|
|
|
45.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,559.4
|
|
|
|
$
|
2,747.2
|
|
|
$
|
2,707.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The goodwill reflected in the Companys consolidated
balance sheets of $529.9 million as of December 31,
2010 has not yet been allocated to reporting units and is
therefore included in unallocated. The goodwill reflected in the
Companys consolidated balance sheets of $31.0 million
and $26.4 million as of June 30, 2010 and 2009,
respectively, was primarily attributable to the Companys
United States and Canada geographic segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
As of December 31,
|
|
|
|
As of June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
Long-Lived Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
$
|
1,147.2
|
|
|
|
$
|
960.7
|
|
|
$
|
945.0
|
|
EMEA/APAC
|
|
|
106.0
|
|
|
|
|
113.6
|
|
|
|
121.3
|
|
Latin America
|
|
|
38.3
|
|
|
|
|
38.0
|
|
|
|
37.1
|
|
Unallocated
|
|
|
42.1
|
|
|
|
|
40.3
|
|
|
|
45.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
1,333.6
|
|
|
|
$
|
1,152.6
|
|
|
$
|
1,148.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets include property and equipment, net, and net
investment in property leased to franchisees. Only the United
States represented 10% or more of the Companys total
long-lived assets as of December 31, 2010 and June 30,
2010 and 2009. Long-lived assets in the United States, including
the unallocated portion, totaled $1,102.3 million,
$923.2 million and $917.1 million as of
December 31, 2010 and June 30, 2010 and 2009,
respectively. Refer to Note 1 for the impact of acquisition
accounting adjustments.
138
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 19,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 to
|
|
|
|
July 1, 2010 to
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 18,
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
$
|
17.4
|
|
|
|
$
|
11.0
|
|
|
$
|
99.9
|
|
|
$
|
146.9
|
|
|
$
|
121.9
|
|
EMEA/APAC
|
|
|
5.4
|
|
|
|
|
3.2
|
|
|
|
30.9
|
|
|
|
30.7
|
|
|
|
28.6
|
|
Latin America
|
|
|
1.1
|
|
|
|
|
0.3
|
|
|
|
5.4
|
|
|
|
7.6
|
|
|
|
9.4
|
|
Unallocated
|
|
|
4.5
|
|
|
|
|
3.7
|
|
|
|
14.1
|
|
|
|
18.8
|
|
|
|
18.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
28.4
|
|
|
|
$
|
18.2
|
|
|
$
|
150.3
|
|
|
$
|
204.0
|
|
|
$
|
178.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 23.
|
Supplemental
Financial Information
|
On October 19, 2010, BKC issued $800 million of
97/8% Senior
Notes due 2018. These Notes are irrevocably and unconditionally
guaranteed, jointly and severally, on a senior unsecured basis
by the Company and the U.S. subsidiaries of BKC (the
Guarantors).
The following represent the condensed consolidating financial
information for the Issuer, the Guarantors and the non-U.S.
subsidiaries of BKC (the Non-Guarantors), together
with eliminations, as of and for the periods indicated. The
consolidating financial information may not necessarily be
indicative of the financial position, results of operations or
cash flows had BKC, Guarantors and Non-Guarantors operated as
independent entities.
139
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Successor
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Condensed
Consolidating Balance Sheets
As Of
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
132.9
|
|
|
$
|
0.7
|
|
|
$
|
73.4
|
|
|
|
|
|
|
$
|
207.0
|
|
Trade and notes receivable, net
|
|
|
94.4
|
|
|
|
|
|
|
|
53.6
|
|
|
|
|
|
|
|
148.0
|
|
Prepaids and other current assets
|
|
|
131.5
|
|
|
|
|
|
|
|
27.7
|
|
|
|
|
|
|
|
159.2
|
|
Deferred income taxes, net
|
|
|
22.3
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
23.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
381.1
|
|
|
|
0.7
|
|
|
|
155.6
|
|
|
|
|
|
|
|
537.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of accumulated depreciation
|
|
|
973.8
|
|
|
|
|
|
|
|
219.8
|
|
|
|
|
|
|
|
1,193.6
|
|
Intangible assets, net
|
|
|
1,782.9
|
|
|
|
34.1
|
|
|
|
1,114.9
|
|
|
|
|
|
|
|
2,931.9
|
|
Goodwill
|
|
|
529.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
529.9
|
|
Net investment in property leased to franchisees
|
|
|
128.4
|
|
|
|
|
|
|
|
11.6
|
|
|
|
|
|
|
|
140.0
|
|
Intercompany receivable
|
|
|
454.1
|
|
|
|
|
|
|
|
|
|
|
|
(454.1
|
)
|
|
|
|
|
Investment in subsidiaries
|
|
|
911.8
|
|
|
|
1,505.5
|
|
|
|
|
|
|
|
(2,417.3
|
)
|
|
|
|
|
Other assets, net
|
|
|
194.5
|
|
|
|
|
|
|
|
32.1
|
|
|
|
|
|
|
|
226.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,356.5
|
|
|
$
|
1,540.3
|
|
|
$
|
1,534.0
|
|
|
$
|
(2,871.4
|
)
|
|
$
|
5,559.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and drafts payable
|
|
$
|
58.5
|
|
|
$
|
|
|
|
$
|
31.7
|
|
|
|
|
|
|
$
|
90.2
|
|
Accrued advertising
|
|
|
62.6
|
|
|
|
|
|
|
|
19.9
|
|
|
|
|
|
|
|
82.5
|
|
Other accrued liabilities
|
|
|
166.3
|
|
|
|
0.1
|
|
|
|
83.0
|
|
|
|
|
|
|
|
249.4
|
|
Current portion of long term debt and capital leases
|
|
|
31.0
|
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
|
|
32.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
318.4
|
|
|
|
0.1
|
|
|
|
136.5
|
|
|
|
|
|
|
|
455.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term debt, net of current portion
|
|
|
2,652.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,652.0
|
|
Capital leases, net of current portion
|
|
|
45.2
|
|
|
|
|
|
|
|
18.5
|
|
|
|
|
|
|
|
63.7
|
|
Other liabilities, net
|
|
|
191.3
|
|
|
|
0.1
|
|
|
|
16.8
|
|
|
|
|
|
|
|
208.2
|
|
Payables to affiliates
|
|
|
|
|
|
|
85.1
|
|
|
|
369.0
|
|
|
|
(454.1
|
)
|
|
|
|
|
Deferred income taxes, net
|
|
|
644.1
|
|
|
|
|
|
|
|
81.4
|
|
|
|
|
|
|
|
725.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,851.0
|
|
|
|
85.3
|
|
|
|
622.2
|
|
|
|
(454.1
|
)
|
|
|
4,104.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
1,613.0
|
|
|
|
1,563.5
|
|
|
|
965.7
|
|
|
|
(2,578.7
|
)
|
|
|
1,563.5
|
|
Accumulated Deficit
|
|
|
(104.6
|
)
|
|
|
(105.6
|
)
|
|
|
(23.6
|
)
|
|
|
128.2
|
|
|
|
(105.6
|
)
|
Accumulated other comprehensive loss
|
|
|
(2.9
|
)
|
|
|
(2.9
|
)
|
|
|
(30.3
|
)
|
|
|
33.2
|
|
|
|
(2.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,505.5
|
|
|
|
1,455.0
|
|
|
|
911.8
|
|
|
|
(2,417.3
|
)
|
|
|
1,455.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
5,356.5
|
|
|
$
|
1,540.3
|
|
|
$
|
1,534.0
|
|
|
$
|
(2,871.4
|
)
|
|
$
|
5,559.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Predecessor
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Condensed
Consolidating Balance Sheets
As of
June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
70.2
|
|
|
$
|
|
|
|
$
|
117.4
|
|
|
$
|
|
|
|
$
|
187.6
|
|
Trade and notes receivable, net
|
|
|
101.0
|
|
|
|
|
|
|
|
41.9
|
|
|
|
|
|
|
|
142.9
|
|
Prepaids and other current assets
|
|
|
63.8
|
|
|
|
|
|
|
|
24.6
|
|
|
|
|
|
|
|
88.4
|
|
Deferred income taxes, net
|
|
|
14.0
|
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
15.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
249.0
|
|
|
|
|
|
|
|
185.0
|
|
|
|
|
|
|
|
434.0
|
|
Property and equipment, net of accumulated depreciation
|
|
|
796.0
|
|
|
|
|
|
|
|
218.1
|
|
|
|
|
|
|
|
1,014.1
|
|
Intangible assets, net
|
|
|
748.6
|
|
|
|
|
|
|
|
276.8
|
|
|
|
|
|
|
|
1,025.4
|
|
Goodwill
|
|
|
25.6
|
|
|
|
|
|
|
|
5.4
|
|
|
|
|
|
|
|
31.0
|
|
Net investment in property leased to franchisees
|
|
|
127.3
|
|
|
|
|
|
|
|
11.2
|
|
|
|
|
|
|
|
138.5
|
|
Intercompany receivable
|
|
|
477.2
|
|
|
|
|
|
|
|
|
|
|
|
(477.2
|
)
|
|
|
|
|
Investment in subsidiaries
|
|
|
135.7
|
|
|
|
1,205.0
|
|
|
|
|
|
|
|
(1,340.7
|
)
|
|
|
|
|
Other assets, net
|
|
|
52.2
|
|
|
|
|
|
|
|
52.0
|
|
|
|
|
|
|
|
104.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,611.6
|
|
|
$
|
1,205.0
|
|
|
$
|
748.5
|
|
|
$
|
(1,817.9
|
)
|
|
$
|
2,747.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and drafts payable
|
|
$
|
72.9
|
|
|
$
|
|
|
|
$
|
34.0
|
|
|
|
|
|
|
$
|
106.9
|
|
Accrued advertising
|
|
|
42.5
|
|
|
|
|
|
|
|
29.4
|
|
|
|
|
|
|
|
71.9
|
|
Other accrued liabilities
|
|
|
137.4
|
|
|
|
0.5
|
|
|
|
63.0
|
|
|
|
|
|
|
|
200.9
|
|
Current portion of long term debt and capital leases
|
|
|
91.6
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
|
93.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
344.4
|
|
|
|
0.5
|
|
|
|
128.1
|
|
|
|
|
|
|
|
473.0
|
|
Term debt, net of current portion
|
|
|
667.4
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
667.7
|
|
Capital leases, net of current portion
|
|
|
47.1
|
|
|
|
|
|
|
|
18.2
|
|
|
|
|
|
|
|
65.3
|
|
Other liabilities, net
|
|
|
281.3
|
|
|
|
0.3
|
|
|
|
63.0
|
|
|
|
|
|
|
|
344.6
|
|
Payables to Affiliates
|
|
|
|
|
|
|
75.8
|
|
|
|
401.4
|
|
|
|
(477.2
|
)
|
|
|
|
|
Deferred income taxes, net
|
|
|
66.4
|
|
|
|
|
|
|
|
1.8
|
|
|
|
|
|
|
|
68.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,406.6
|
|
|
|
76.6
|
|
|
|
612.8
|
|
|
|
(477.2
|
)
|
|
|
1,618.8
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
Additional paid-in capital
|
|
|
571.3
|
|
|
|
647.2
|
|
|
|
53.8
|
|
|
|
(625.1
|
)
|
|
|
647.2
|
|
Retained earnings
|
|
|
700.6
|
|
|
|
608.0
|
|
|
|
99.7
|
|
|
|
(800.3
|
)
|
|
|
608.0
|
|
Accumulated other comprehensive loss
|
|
|
(66.9
|
)
|
|
|
(66.9
|
)
|
|
|
(17.8
|
)
|
|
|
84.7
|
|
|
|
(66.9
|
)
|
Treasury Stock
|
|
|
|
|
|
|
(61.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(61.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,205.0
|
|
|
|
1,128.4
|
|
|
|
135.7
|
|
|
|
(1,340.7
|
)
|
|
|
1,128.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,611.6
|
|
|
$
|
1,205.0
|
|
|
$
|
748.5
|
|
|
$
|
(1,817.9
|
)
|
|
$
|
2,747.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Predecessor
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Condensed
Consolidating Balance Sheets
As of
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
19.1
|
|
|
$
|
|
|
|
$
|
102.6
|
|
|
|
|
|
|
$
|
121.7
|
|
Trade and notes receivable, net
|
|
|
89.3
|
|
|
|
|
|
|
|
40.7
|
|
|
|
|
|
|
|
130.0
|
|
Prepaids and other current assets
|
|
|
63.9
|
|
|
|
|
|
|
|
22.5
|
|
|
|
|
|
|
|
86.4
|
|
Deferred income taxes, net
|
|
|
30.9
|
|
|
|
|
|
|
|
1.6
|
|
|
|
|
|
|
|
32.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
203.2
|
|
|
|
|
|
|
|
167.4
|
|
|
|
|
|
|
|
370.6
|
|
Property and equipment, net of accumulated depreciation
|
|
|
793.1
|
|
|
|
|
|
|
|
220.1
|
|
|
|
|
|
|
|
1,013.2
|
|
Intangible assets, net
|
|
|
756.5
|
|
|
|
|
|
|
|
306.2
|
|
|
|
|
|
|
|
1,062.7
|
|
Goodwill
|
|
|
25.9
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
26.4
|
|
Net investment in property leased to franchisees
|
|
|
124.0
|
|
|
|
|
|
|
|
11.3
|
|
|
|
|
|
|
|
135.3
|
|
Intercompany receivable
|
|
|
493.6
|
|
|
|
|
|
|
|
|
|
|
|
(493.6
|
)
|
|
|
|
|
Investment in subsidiaries
|
|
|
73.8
|
|
|
|
1,018.7
|
|
|
|
|
|
|
|
(1,092.5
|
)
|
|
|
|
|
Other assets, net
|
|
|
55.8
|
|
|
|
|
|
|
|
43.1
|
|
|
|
|
|
|
|
98.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,525.9
|
|
|
$
|
1,018.7
|
|
|
$
|
748.6
|
|
|
$
|
(1,586.1
|
)
|
|
$
|
2,707.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and drafts payable
|
|
$
|
91.7
|
|
|
$
|
|
|
|
$
|
35.3
|
|
|
|
|
|
|
$
|
127.0
|
|
Accrued advertising
|
|
|
43.1
|
|
|
|
|
|
|
|
24.7
|
|
|
|
|
|
|
|
67.8
|
|
Other accrued liabilities
|
|
|
152.3
|
|
|
|
|
|
|
|
67.7
|
|
|
|
|
|
|
|
220.0
|
|
Current portion of long term debt and capital leases
|
|
|
66.1
|
|
|
|
|
|
|
|
1.4
|
|
|
|
|
|
|
|
67.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
353.2
|
|
|
|
|
|
|
|
129.1
|
|
|
|
|
|
|
|
482.3
|
|
Term debt, net of current portion
|
|
|
755.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
755.6
|
|
Capital leases, net of current portion
|
|
|
48.6
|
|
|
|
|
|
|
|
17.2
|
|
|
|
|
|
|
|
65.8
|
|
Other liabilities, net
|
|
|
276.9
|
|
|
|
0.8
|
|
|
|
76.8
|
|
|
|
|
|
|
|
354.5
|
|
Payables to Affiliates
|
|
|
|
|
|
|
43.1
|
|
|
|
450.5
|
|
|
|
(493.6
|
)
|
|
|
|
|
Deferred income taxes, net
|
|
|
72.9
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
74.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,507.2
|
|
|
|
43.9
|
|
|
|
674.8
|
|
|
|
(493.6
|
)
|
|
|
1,732.3
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
Additional paid-in capital
|
|
|
550.8
|
|
|
|
623.4
|
|
|
|
28.6
|
|
|
|
(579.4
|
)
|
|
|
623.4
|
|
Retained earnings
|
|
|
513.8
|
|
|
|
455.4
|
|
|
|
56.0
|
|
|
|
(569.8
|
)
|
|
|
455.4
|
|
Accumulated other comprehensive loss
|
|
|
(45.9
|
)
|
|
|
(45.9
|
)
|
|
|
(10.8
|
)
|
|
|
56.7
|
|
|
|
(45.9
|
)
|
Treasury Stock
|
|
|
|
|
|
|
(59.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(59.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,018.7
|
|
|
|
974.8
|
|
|
|
73.8
|
|
|
|
(1,092.5
|
)
|
|
|
974.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,525.9
|
|
|
$
|
1,018.7
|
|
|
$
|
748.6
|
|
|
$
|
(1,586.1
|
)
|
|
$
|
2,707.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Successor
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Condensed
Consolidating Statements of Operations
For The
Period from October 19, 2010 through December 31,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant revenues
|
|
$
|
208.2
|
|
|
$
|
|
|
|
$
|
123.5
|
|
|
$
|
|
|
|
$
|
331.7
|
|
Franchise revenues
|
|
|
69.7
|
|
|
|
|
|
|
|
41.8
|
|
|
|
|
|
|
|
111.5
|
|
Intercompany revenues
|
|
|
1.3
|
|
|
|
|
|
|
|
1.4
|
|
|
|
(2.7
|
)
|
|
|
|
|
Property revenues
|
|
|
17.1
|
|
|
|
|
|
|
|
5.5
|
|
|
|
|
|
|
|
22.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
296.3
|
|
|
|
|
|
|
|
172.2
|
|
|
|
(2.7
|
)
|
|
|
465.8
|
|
Company restaurant expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food, paper and product costs
|
|
|
63.7
|
|
|
|
|
|
|
|
38.9
|
|
|
|
|
|
|
|
102.6
|
|
Payroll and employee benefits
|
|
|
63.1
|
|
|
|
|
|
|
|
35.2
|
|
|
|
|
|
|
|
98.3
|
|
Occupancy and other operating costs
|
|
|
55.0
|
|
|
|
|
|
|
|
38.2
|
|
|
|
|
|
|
|
93.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total company restaurant expenses
|
|
|
181.8
|
|
|
|
|
|
|
|
112.3
|
|
|
|
|
|
|
|
294.1
|
|
Selling, general and administrative expenses
|
|
|
176.4
|
|
|
|
0.9
|
|
|
|
62.9
|
|
|
|
|
|
|
|
240.2
|
|
Intercompany expenses
|
|
|
1.4
|
|
|
|
|
|
|
|
1.3
|
|
|
|
(2.7
|
)
|
|
|
|
|
Property expenses
|
|
|
9.7
|
|
|
|
|
|
|
|
5.0
|
|
|
|
|
|
|
|
14.7
|
|
Other operating (income) expense, net
|
|
|
(10.7
|
)
|
|
|
0.1
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
(11.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
358.6
|
|
|
|
1.0
|
|
|
|
180.4
|
|
|
|
(2.7
|
)
|
|
|
537.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(62.3
|
)
|
|
|
(1.0
|
)
|
|
|
(8.2
|
)
|
|
|
|
|
|
|
(71.5
|
)
|
Interest expense
|
|
|
60.6
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
61.2
|
|
Intercompany interest (income) expense
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense, net
|
|
|
58.5
|
|
|
|
|
|
|
|
2.5
|
|
|
|
|
|
|
|
61.0
|
|
Income (loss) before income taxes
|
|
|
(120.8
|
)
|
|
|
(1.0
|
)
|
|
|
(10.7
|
)
|
|
|
|
|
|
|
(132.5
|
)
|
Income tax expense (benefit)
|
|
|
(39.8
|
)
|
|
|
|
|
|
|
12.9
|
|
|
|
|
|
|
|
(26.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(81.0
|
)
|
|
|
(1.0
|
)
|
|
|
(23.6
|
)
|
|
|
|
|
|
|
(105.6
|
)
|
Equity in earnings of subsidiaries
|
|
|
(23.6
|
)
|
|
|
(104.6
|
)
|
|
|
|
|
|
|
128.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(104.6
|
)
|
|
$
|
(105.6
|
)
|
|
$
|
(23.6
|
)
|
|
$
|
128.2
|
|
|
$
|
(105.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Predecessor
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Condensed
Consolidating Statements of Operations
For The
Period from July 1, 2010 through October 18,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant revenues
|
|
$
|
320.7
|
|
|
$
|
|
|
|
$
|
193.8
|
|
|
$
|
|
|
|
$
|
514.5
|
|
Franchise revenues
|
|
|
107.4
|
|
|
|
|
|
|
|
61.8
|
|
|
|
|
|
|
|
169.2
|
|
Intercompany revenues
|
|
|
1.9
|
|
|
|
|
|
|
|
2.6
|
|
|
|
(4.5
|
)
|
|
|
|
|
Property revenues
|
|
|
25.8
|
|
|
|
|
|
|
|
8.2
|
|
|
|
|
|
|
|
34.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
455.8
|
|
|
|
|
|
|
|
266.4
|
|
|
|
(4.5
|
)
|
|
|
717.7
|
|
Company restaurant expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food, paper and product costs
|
|
|
102.6
|
|
|
|
|
|
|
|
60.0
|
|
|
|
|
|
|
|
162.6
|
|
Payroll and employee benefits
|
|
|
98.0
|
|
|
|
|
|
|
|
56.2
|
|
|
|
|
|
|
|
154.2
|
|
Occupancy and other operating costs
|
|
|
73.1
|
|
|
|
|
|
|
|
54.6
|
|
|
|
|
|
|
|
127.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total company restaurant expenses
|
|
|
273.7
|
|
|
|
|
|
|
|
170.8
|
|
|
|
|
|
|
|
444.5
|
|
Selling, general and administrative expenses
|
|
|
100.2
|
|
|
|
|
|
|
|
56.6
|
|
|
|
|
|
|
|
156.8
|
|
Intercompany expenses
|
|
|
2.6
|
|
|
|
|
|
|
|
1.9
|
|
|
|
(4.5
|
)
|
|
|
|
|
Property expenses
|
|
|
11.2
|
|
|
|
|
|
|
|
7.3
|
|
|
|
|
|
|
|
18.5
|
|
Other operating (income) expense, net
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
(3.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
383.7
|
|
|
|
|
|
|
|
237.0
|
|
|
|
(4.5
|
)
|
|
|
616.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
72.1
|
|
|
|
|
|
|
|
29.4
|
|
|
|
|
|
|
|
101.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
14.0
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
14.9
|
|
Intercompany interest (income) expense
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense, net
|
|
|
10.9
|
|
|
|
|
|
|
|
3.7
|
|
|
|
|
|
|
|
14.6
|
|
Income before income taxes
|
|
|
61.2
|
|
|
|
|
|
|
|
25.7
|
|
|
|
|
|
|
|
86.9
|
|
Income tax expense
|
|
|
19.6
|
|
|
|
|
|
|
|
(3.8
|
)
|
|
|
|
|
|
|
15.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
41.6
|
|
|
|
|
|
|
|
29.5
|
|
|
|
|
|
|
|
71.1
|
|
Equity in earnings of subsidiaries
|
|
|
29.5
|
|
|
|
71.1
|
|
|
|
|
|
|
|
(100.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
71.1
|
|
|
$
|
71.1
|
|
|
$
|
29.5
|
|
|
$
|
(100.6
|
)
|
|
$
|
71.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Predecessor
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Condensed
Consolidating Statements of Operations
For The
Year Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant revenues
|
|
$
|
1,153.1
|
|
|
$
|
|
|
|
$
|
686.2
|
|
|
$
|
|
|
|
$
|
1,839.3
|
|
Franchise revenues
|
|
|
358.7
|
|
|
|
|
|
|
|
190.5
|
|
|
|
|
|
|
|
549.2
|
|
Intercompany royalties
|
|
|
6.0
|
|
|
|
|
|
|
|
6.6
|
|
|
|
(12.6
|
)
|
|
|
|
|
Property revenues
|
|
|
84.9
|
|
|
|
|
|
|
|
28.8
|
|
|
|
|
|
|
|
113.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,602.7
|
|
|
|
|
|
|
|
912.1
|
|
|
|
(12.6
|
)
|
|
|
2,502.2
|
|
Company restaurant expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food, paper and product costs
|
|
|
373.6
|
|
|
|
|
|
|
|
211.4
|
|
|
|
|
|
|
|
585.0
|
|
Payroll and employee benefits
|
|
|
356.3
|
|
|
|
|
|
|
|
212.4
|
|
|
|
|
|
|
|
568.7
|
|
Occupancy and other operating costs
|
|
|
265.4
|
|
|
|
|
|
|
|
195.7
|
|
|
|
|
|
|
|
461.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total company restaurant expenses
|
|
|
995.3
|
|
|
|
|
|
|
|
619.5
|
|
|
|
|
|
|
|
1,614.8
|
|
Selling, general and administrative expenses
|
|
|
301.9
|
|
|
|
|
|
|
|
193.9
|
|
|
|
|
|
|
|
495.8
|
|
Intercompany selling, general and administrative expenses
|
|
|
6.6
|
|
|
|
|
|
|
|
6.0
|
|
|
|
(12.6
|
)
|
|
|
|
|
Property expenses
|
|
|
34.4
|
|
|
|
|
|
|
|
25.0
|
|
|
|
|
|
|
|
59.4
|
|
Other operating (income) expense, net
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
1,337.7
|
|
|
|
|
|
|
|
844.2
|
|
|
|
(12.6
|
)
|
|
|
2,169.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
265.0
|
|
|
|
|
|
|
|
67.9
|
|
|
|
|
|
|
|
332.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
46.9
|
|
|
|
|
|
|
|
2.7
|
|
|
|
|
|
|
|
49.6
|
|
Intercompany interest (income) expense
|
|
|
(10.3
|
)
|
|
|
|
|
|
|
10.3
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense, net
|
|
|
36.6
|
|
|
|
|
|
|
|
12.0
|
|
|
|
|
|
|
|
48.6
|
|
Income before income taxes
|
|
|
228.4
|
|
|
|
|
|
|
|
55.9
|
|
|
|
|
|
|
|
284.3
|
|
Income tax expense
|
|
|
85.4
|
|
|
|
|
|
|
|
12.1
|
|
|
|
|
|
|
|
97.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
143.0
|
|
|
|
|
|
|
|
43.8
|
|
|
|
|
|
|
|
186.8
|
|
Equity in earnings of subsidiaries
|
|
|
43.8
|
|
|
|
186.8
|
|
|
|
|
|
|
|
(230.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
186.8
|
|
|
$
|
186.8
|
|
|
$
|
43.8
|
|
|
|
(230.6
|
)
|
|
$
|
186.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Predecessor
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Condensed
Consolidating Statements of Operations
For The
Year Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant revenues
|
|
$
|
1,192.9
|
|
|
$
|
|
|
|
$
|
687.6
|
|
|
$
|
|
|
|
$
|
1,880.5
|
|
Franchise revenues
|
|
|
366.3
|
|
|
|
|
|
|
|
177.1
|
|
|
|
|
|
|
|
543.4
|
|
Intercompany royalties
|
|
|
14.3
|
|
|
|
|
|
|
|
|
|
|
|
(14.3
|
)
|
|
|
|
|
Property revenues
|
|
|
83.5
|
|
|
|
|
|
|
|
30.0
|
|
|
|
|
|
|
|
113.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,657.0
|
|
|
|
|
|
|
|
894.7
|
|
|
|
(14.3
|
)
|
|
|
2,537.4
|
|
Company restaurant expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food, paper and product costs
|
|
|
389.6
|
|
|
|
|
|
|
|
214.1
|
|
|
|
|
|
|
|
603.7
|
|
Payroll and employee benefits
|
|
|
369.8
|
|
|
|
|
|
|
|
212.4
|
|
|
|
|
|
|
|
582.2
|
|
Occupancy and other operating costs
|
|
|
272.3
|
|
|
|
|
|
|
|
185.5
|
|
|
|
|
|
|
|
457.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total company restaurant expenses
|
|
|
1,031.7
|
|
|
|
|
|
|
|
612.0
|
|
|
|
|
|
|
|
1,643.7
|
|
Selling, general and administrative expenses
|
|
|
315.4
|
|
|
|
|
|
|
|
178.9
|
|
|
|
|
|
|
|
494.3
|
|
Intercompany selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
14.3
|
|
|
|
(14.3
|
)
|
|
|
|
|
Property expenses
|
|
|
30.7
|
|
|
|
|
|
|
|
27.4
|
|
|
|
|
|
|
|
58.1
|
|
Other operating (income) expense, net
|
|
|
6.4
|
|
|
|
|
|
|
|
(4.5
|
)
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
1,384.2
|
|
|
|
|
|
|
|
828.1
|
|
|
|
(14.3
|
)
|
|
|
2,198.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
272.8
|
|
|
|
|
|
|
|
66.6
|
|
|
|
|
|
|
|
339.4
|
|
Interest expense
|
|
|
54.8
|
|
|
|
|
|
|
|
2.5
|
|
|
|
|
|
|
|
57.3
|
|
Intercompany interest (income) expense
|
|
|
(21.0
|
)
|
|
|
|
|
|
|
21.0
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense, net
|
|
|
32.2
|
|
|
|
|
|
|
|
22.4
|
|
|
|
|
|
|
|
54.6
|
|
Income before income taxes
|
|
|
240.6
|
|
|
|
|
|
|
|
44.2
|
|
|
|
|
|
|
|
284.8
|
|
Income tax expense
|
|
|
78.4
|
|
|
|
|
|
|
|
6.3
|
|
|
|
|
|
|
|
84.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
162.2
|
|
|
|
|
|
|
|
37.9
|
|
|
|
|
|
|
|
200.1
|
|
Equity in earnings of subsidiaries
|
|
|
37.9
|
|
|
|
200.1
|
|
|
|
|
|
|
|
(238.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
200.1
|
|
|
$
|
200.1
|
|
|
$
|
37.9
|
|
|
|
(238.0
|
)
|
|
$
|
200.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Predecessor
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Condensed
Consolidating Statements of Operations
For The
Year Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant revenues
|
|
$
|
1,017.2
|
|
|
$
|
|
|
|
$
|
778.7
|
|
|
$
|
|
|
|
$
|
1,795.9
|
|
Franchise revenues
|
|
|
359.4
|
|
|
|
|
|
|
|
177.8
|
|
|
|
|
|
|
|
537.2
|
|
Intercompany Royalties
|
|
|
20.5
|
|
|
|
|
|
|
|
|
|
|
|
(20.5
|
)
|
|
|
|
|
Property revenues
|
|
|
84.6
|
|
|
|
|
|
|
|
37.0
|
|
|
|
|
|
|
|
121.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,481.7
|
|
|
|
|
|
|
|
993.5
|
|
|
|
(20.5
|
)
|
|
|
2,454.7
|
|
Company restaurant expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food, paper and product costs
|
|
|
327.1
|
|
|
|
|
|
|
|
237.2
|
|
|
|
|
|
|
|
564.3
|
|
Payroll and employee benefits
|
|
|
308.6
|
|
|
|
|
|
|
|
226.1
|
|
|
|
|
|
|
|
534.7
|
|
Occupancy and other operating costs
|
|
|
232.9
|
|
|
|
|
|
|
|
206.1
|
|
|
|
|
|
|
|
439.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total company restaurant expenses
|
|
|
868.6
|
|
|
|
|
|
|
|
669.4
|
|
|
|
|
|
|
|
1,538.0
|
|
Selling, general and administrative expenses
|
|
|
308.0
|
|
|
|
|
|
|
|
193.0
|
|
|
|
|
|
|
|
501.0
|
|
Intercompany expenses
|
|
|
|
|
|
|
|
|
|
|
20.5
|
|
|
|
(20.5
|
)
|
|
|
|
|
Property expenses
|
|
|
30.7
|
|
|
|
|
|
|
|
31.4
|
|
|
|
|
|
|
|
62.1
|
|
Other operating (income) expense, net
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
1.4
|
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
1,205.3
|
|
|
|
|
|
|
|
915.7
|
|
|
|
(20.5
|
)
|
|
|
2,100.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
276.4
|
|
|
|
|
|
|
|
77.8
|
|
|
|
|
|
|
|
354.2
|
|
Interest expense
|
|
|
64.1
|
|
|
|
|
|
|
|
3.0
|
|
|
|
|
|
|
|
67.1
|
|
Intercompany interest
|
|
|
(28.7
|
)
|
|
|
|
|
|
|
28.7
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(3.7
|
)
|
|
|
|
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
(5.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense, net
|
|
|
31.7
|
|
|
|
|
|
|
|
29.5
|
|
|
|
|
|
|
|
61.2
|
|
Income before income taxes
|
|
|
244.7
|
|
|
|
|
|
|
|
48.3
|
|
|
|
|
|
|
|
293.0
|
|
Income tax expense
|
|
|
83.7
|
|
|
|
|
|
|
|
19.7
|
|
|
|
|
|
|
|
103.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
161.0
|
|
|
|
|
|
|
|
28.6
|
|
|
|
|
|
|
|
189.6
|
|
Equity in earnings of subsidiaries
|
|
|
28.6
|
|
|
|
189.6
|
|
|
|
|
|
|
|
(218.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
189.6
|
|
|
$
|
189.6
|
|
|
$
|
28.6
|
|
|
$
|
(218.2
|
)
|
|
$
|
189.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Successor
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
For The
Period From October 19, 2010 through December 31,
2010
Condensed
Consolidating Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(104.6
|
)
|
|
$
|
(105.6
|
)
|
|
$
|
(23.6
|
)
|
|
$
|
128.2
|
|
|
$
|
(105.6
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiary
|
|
|
23.6
|
|
|
|
104.6
|
|
|
|
|
|
|
|
(128.2
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
22.4
|
|
|
|
|
|
|
|
11.0
|
|
|
|
|
|
|
|
33.4
|
|
Loss on early extinguishment of debt
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.4
|
|
Amortization of deferred financing cost and debt issuance
discount
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.6
|
|
Gain on hedging activities
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on remeasurement of foreign denominated transactions
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
(3.2
|
)
|
Loss on refranchisings, dispositions of assets and release of
unfavorable lease obligation
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
Bad debt expense, net of recoveries
|
|
|
2.1
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
|
|
2.8
|
|
Deferred income taxes
|
|
|
3.3
|
|
|
|
|
|
|
|
10.6
|
|
|
|
|
|
|
|
13.9
|
|
Changes in current assets and liabilities, excluding
acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and notes receivables
|
|
|
(27.6
|
)
|
|
|
|
|
|
|
(6.7
|
)
|
|
|
|
|
|
|
(34.3
|
)
|
Prepaids and other current assets
|
|
|
(59.3
|
)
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
(57.3
|
)
|
Accounts and drafts payable
|
|
|
(35.4
|
)
|
|
|
|
|
|
|
8.9
|
|
|
|
|
|
|
|
(26.5
|
)
|
Accrued advertising
|
|
|
9.1
|
|
|
|
|
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
6.8
|
|
Other accrued liabilities
|
|
|
35.4
|
|
|
|
0.1
|
|
|
|
9.4
|
|
|
|
|
|
|
|
44.9
|
|
Other long-term assets and liabilities
|
|
|
(5.5
|
)
|
|
|
|
|
|
|
(3.2
|
)
|
|
|
(0.2
|
)
|
|
|
(8.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by operating activities
|
|
|
(132.7
|
)
|
|
|
(0.9
|
)
|
|
|
5.6
|
|
|
|
(0.2
|
)
|
|
|
(128.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property and equipment
|
|
|
(18.4
|
)
|
|
|
|
|
|
|
(10.0
|
)
|
|
|
|
|
|
|
(28.4
|
)
|
Proceeds from refranchisings, disposition of assets and
restaurant closures
|
|
|
2.2
|
|
|
|
|
|
|
|
3.5
|
|
|
|
|
|
|
|
5.7
|
|
Payments for acquired franchisee operations, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return of investment on direct financing leases
|
|
|
1.3
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
1.4
|
|
Other investing activities
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
Net payment for purchase of BKH
|
|
|
|
|
|
|
(3,325.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,325.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(13.5
|
)
|
|
|
(3,325.4
|
)
|
|
|
(6.4
|
)
|
|
|
|
|
|
|
(3,345.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of term debt and capital leases
|
|
|
(3.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.2
|
)
|
Proceeds from New Term Loans and other debt
|
|
|
|
|
|
|
1,837.1
|
|
|
|
|
|
|
|
|
|
|
|
1,837.1
|
|
Proceeds from Senior Notes
|
|
|
|
|
|
|
800.0
|
|
|
|
|
|
|
|
|
|
|
|
800.0
|
|
Payment of deferred financing cost
|
|
|
(69.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69.2
|
)
|
Extinguishment of debt
|
|
|
(731.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(731.8
|
)
|
Capital contribution from 3G
|
|
|
|
|
|
|
1,563.5
|
|
|
|
|
|
|
|
|
|
|
|
1,563.5
|
|
Capital distribution from Parent
|
|
|
875.2
|
|
|
|
(875.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany Financing
|
|
|
(3.9
|
)
|
|
|
0.9
|
|
|
|
2.8
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
67.1
|
|
|
|
3,326.3
|
|
|
|
2.8
|
|
|
|
0.2
|
|
|
|
3,396.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
(2.3
|
)
|
Decrease in cash and cash equivalents
|
|
|
(79.3
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(79.4
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
212.2
|
|
|
|
0.7
|
|
|
|
73.5
|
|
|
|
|
|
|
|
286.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
132.9
|
|
|
$
|
0.7
|
|
|
$
|
73.4
|
|
|
$
|
|
|
|
$
|
207.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Predecessor
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
For The
Period From July 1, 2010 through October 18, 2010
Condensed
Consolidating Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
71.1
|
|
|
$
|
71.1
|
|
|
$
|
29.5
|
|
|
$
|
(100.6
|
)
|
|
$
|
71.1
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiary
|
|
|
(29.5
|
)
|
|
|
(71.1
|
)
|
|
|
|
|
|
|
100.6
|
|
|
|
|
|
Depreciation and amortization
|
|
|
22.4
|
|
|
|
|
|
|
|
8.8
|
|
|
|
|
|
|
|
31.2
|
|
Amortization of deferred financing cost
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
Impairment on non-restaurant properties
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
Gain on hedging activities
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
(Gain) loss on remeasurement of foreign denominated transactions
|
|
|
(43.2
|
)
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
|
(41.5
|
)
|
Gain on refranchisings, dispositions of assets and release of
unfavorable lease obligation
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
(3.5
|
)
|
|
|
|
|
|
|
(4.6
|
)
|
Bad debt expense, net of recoveries
|
|
|
1.2
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
2.1
|
|
Stock-based compensation
|
|
|
5.2
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
5.8
|
|
Deferred income taxes
|
|
|
5.8
|
|
|
|
|
|
|
|
(7.2
|
)
|
|
|
|
|
|
|
(1.4
|
)
|
Changes in current assets and liabilities, excluding
acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and notes receivables
|
|
|
29.7
|
|
|
|
|
|
|
|
2.3
|
|
|
|
|
|
|
|
32.0
|
|
Prepaids and other current assets
|
|
|
1.8
|
|
|
|
|
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
(2.2
|
)
|
Accounts and drafts payable
|
|
|
21.0
|
|
|
|
|
|
|
|
(12.0
|
)
|
|
|
|
|
|
|
9.0
|
|
Accrued advertising
|
|
|
11.0
|
|
|
|
|
|
|
|
(9.7
|
)
|
|
|
|
|
|
|
1.3
|
|
Other accrued liabilities
|
|
|
21.0
|
|
|
|
|
|
|
|
8.4
|
|
|
|
|
|
|
|
29.4
|
|
Other long-term assets and liabilities
|
|
|
(4.3
|
)
|
|
|
(0.8
|
)
|
|
|
(3.8
|
)
|
|
|
(2.3
|
)
|
|
|
(11.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) operating activities
|
|
|
112.4
|
|
|
|
(0.8
|
)
|
|
|
12.0
|
|
|
|
(2.3
|
)
|
|
|
121.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property and equipment
|
|
|
(13.4
|
)
|
|
|
|
|
|
|
(4.8
|
)
|
|
|
|
|
|
|
(18.2
|
)
|
Proceeds from refranchisings, disposition of assets and
restaurant closures
|
|
|
2.9
|
|
|
|
|
|
|
|
6.7
|
|
|
|
|
|
|
|
9.6
|
|
Return of investment on direct financing leases
|
|
|
2.3
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
2.6
|
|
Other investing activities
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by investing activities
|
|
|
(7.0
|
)
|
|
|
|
|
|
|
2.2
|
|
|
|
|
|
|
|
(4.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of term debt and capital leases
|
|
|
(23.1
|
)
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
(23.5
|
)
|
Dividends paid on common stock
|
|
|
|
|
|
|
(8.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(8.6
|
)
|
Proceeds from stock option exercises
|
|
|
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
4.0
|
|
Excess tax benefits from share-based compensation
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
Repurchases of common stock
|
|
|
|
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(2.5
|
)
|
Intercompany Financing
|
|
|
61.6
|
|
|
|
8.6
|
|
|
|
(72.5
|
)
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities
|
|
|
39.6
|
|
|
|
1.5
|
|
|
|
(72.9
|
)
|
|
|
2.3
|
|
|
|
(29.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
14.8
|
|
|
|
|
|
|
|
11.8
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
142.0
|
|
|
|
0.7
|
|
|
|
(43.9
|
)
|
|
|
|
|
|
|
98.8
|
|
Cash and cash equivalents at beginning of period
|
|
|
70.2
|
|
|
|
|
|
|
|
117.4
|
|
|
|
|
|
|
|
187.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
212.2
|
|
|
$
|
0.7
|
|
|
$
|
73.5
|
|
|
$
|
|
|
|
$
|
286.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Predecessor
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
For The
Year Ended June 30, 2010
Condensed
Consolidating Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
186.8
|
|
|
$
|
186.8
|
|
|
$
|
43.8
|
|
|
$
|
(230.6
|
)
|
|
$
|
186.8
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiary
|
|
|
(43.8
|
)
|
|
|
(186.8
|
)
|
|
|
|
|
|
|
230.6
|
|
|
|
|
|
Depreciation and amortization
|
|
|
81.0
|
|
|
|
|
|
|
|
30.7
|
|
|
|
|
|
|
|
111.7
|
|
Amortization of deferred financing cost
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
Impairment on non-restaurant properties
|
|
|
2.3
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
2.9
|
|
Gain on hedging activities
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.6
|
)
|
Loss (gain) on remeasurement of foreign denominated transactions
|
|
|
44.4
|
|
|
|
|
|
|
|
(3.5
|
)
|
|
|
|
|
|
|
40.9
|
|
Gain on refranchisings, dispositions of assets and release of
unfavorable lease obligation
|
|
|
(3.3
|
)
|
|
|
|
|
|
|
(6.2
|
)
|
|
|
|
|
|
|
(9.5
|
)
|
Bad debt expense, net of recoveries
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
0.8
|
|
Stock-based compensation
|
|
|
14.3
|
|
|
|
|
|
|
|
2.7
|
|
|
|
|
|
|
|
17.0
|
|
Deferred income taxes
|
|
|
16.0
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
16.9
|
|
Changes in current assets and liabilities, excluding
acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and notes receivables
|
|
|
(9.8
|
)
|
|
|
|
|
|
|
(6.1
|
)
|
|
|
|
|
|
|
(15.9
|
)
|
Prepaids and other current assets
|
|
|
0.2
|
|
|
|
|
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
(1.4
|
)
|
Accounts and drafts payable
|
|
|
(18.9
|
)
|
|
|
|
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
(20.8
|
)
|
Accrued advertising
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
6.9
|
|
|
|
|
|
|
|
6.4
|
|
Other accrued liabilities
|
|
|
(20.6
|
)
|
|
|
|
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
(22.3
|
)
|
Other long-term assets and liabilities
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
(0.7
|
)
|
|
|
(3.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
245.7
|
|
|
|
|
|
|
|
65.4
|
|
|
|
(0.7
|
)
|
|
|
310.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property and equipment
|
|
|
(106.6
|
)
|
|
|
|
|
|
|
(43.7
|
)
|
|
|
|
|
|
|
(150.3
|
)
|
Proceeds from refranchisings, disposition of assets and
restaurant closures
|
|
|
12.7
|
|
|
|
|
|
|
|
8.8
|
|
|
|
|
|
|
|
21.5
|
|
Payments for acquired franchisee operations, net of cash acquired
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(13.90
|
)
|
|
|
|
|
|
|
(14.00
|
)
|
Return of investment on direct financing leases
|
|
|
7.4
|
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
8.2
|
|
Other investing activities
|
|
|
2.7
|
|
|
|
|
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(83.9
|
)
|
|
|
|
|
|
|
(51.0
|
)
|
|
|
|
|
|
|
(134.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of term debt and capital leases
|
|
|
(66.1
|
)
|
|
|
|
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
(67.7
|
)
|
Borrowings under revolving credit facility
|
|
|
38.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38.5
|
|
Repayments of revolving credit facility
|
|
|
(38.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38.5
|
)
|
Capital contributions from Parent
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
Dividends paid on common stock
|
|
|
|
|
|
|
(34.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(34.2
|
)
|
Proceeds from stock option exercises
|
|
|
|
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
4.2
|
|
Excess tax benefits from share-based compensation
|
|
|
3.4
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
3.5
|
|
Repurchases of common stock
|
|
|
|
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(2.7
|
)
|
Intercompany Financing
|
|
|
(45.4
|
)
|
|
|
32.7
|
|
|
|
12.0
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by financing activities
|
|
|
(110.8
|
)
|
|
|
|
|
|
|
13.2
|
|
|
|
0.7
|
|
|
|
(96.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
0.1
|
|
|
|
|
|
|
|
(12.8
|
)
|
|
|
|
|
|
|
(12.7
|
)
|
Increase in cash and cash equivalents
|
|
|
51.1
|
|
|
|
|
|
|
|
14.8
|
|
|
|
|
|
|
|
65.9
|
|
Cash and cash equivalents at beginning of period
|
|
|
19.1
|
|
|
|
|
|
|
|
102.6
|
|
|
|
|
|
|
|
121.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
70.2
|
|
|
$
|
|
|
|
$
|
117.4
|
|
|
$
|
|
|
|
$
|
187.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Predecessor
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
For The
Year Ended June 30, 2009
Condensed
Consolidating Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
200.1
|
|
|
$
|
200.1
|
|
|
$
|
37.9
|
|
|
$
|
(238.0
|
)
|
|
$
|
200.1
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiary
|
|
|
(37.9
|
)
|
|
|
(200.1
|
)
|
|
|
|
|
|
|
238.0
|
|
|
|
|
|
Depreciation and amortization
|
|
|
70.3
|
|
|
|
|
|
|
|
27.8
|
|
|
|
|
|
|
|
98.1
|
|
Amortization of deferred financing cost
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9
|
|
Impairment on non-restaurant properties
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
0.5
|
|
Gain on hedging activities
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.3
|
)
|
Loss on remeasurement of foreign denominated transactions
|
|
|
50.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50.1
|
|
Gain on refranchisings, dispositions of assets and release of
unfavorable lease obligation
|
|
|
(4.8
|
)
|
|
|
|
|
|
|
(6.2
|
)
|
|
|
|
|
|
|
(11.0
|
)
|
Bad debt expense, net of recoveries
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
2.4
|
|
|
|
|
|
|
|
0.7
|
|
Stock-based compensation
|
|
|
14.3
|
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
|
|
16.2
|
|
Deferred income taxes
|
|
|
15.5
|
|
|
|
|
|
|
|
(3.4
|
)
|
|
|
|
|
|
|
12.1
|
|
Changes in current assets and liabilities, excluding
acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and notes receivables
|
|
|
4.6
|
|
|
|
|
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
2.1
|
|
Prepaids and other current assets
|
|
|
(35.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35.4
|
)
|
Accounts and drafts payable
|
|
|
7.4
|
|
|
|
|
|
|
|
(4.1
|
)
|
|
|
|
|
|
|
3.3
|
|
Accrued advertising
|
|
|
(19.7
|
)
|
|
|
|
|
|
|
12.0
|
|
|
|
|
|
|
|
(7.7
|
)
|
Other accrued liabilities
|
|
|
(11.4
|
)
|
|
|
|
|
|
|
(9.4
|
)
|
|
|
|
|
|
|
(20.8
|
)
|
Other long-term assets and liabilities
|
|
|
(2.5
|
)
|
|
|
0.4
|
|
|
|
3.2
|
|
|
|
0.8
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
249.5
|
|
|
|
0.4
|
|
|
|
60.1
|
|
|
|
0.8
|
|
|
|
310.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property and equipment
|
|
|
(150.9
|
)
|
|
|
|
|
|
|
(53.1
|
)
|
|
|
|
|
|
|
(204.0
|
)
|
Proceeds from refranchisings, disposition of assets and
restaurant closures
|
|
|
19.2
|
|
|
|
|
|
|
|
7.2
|
|
|
|
|
|
|
|
26.4
|
|
Payments for acquired franchisee operations, net of cash acquired
|
|
|
(67.0
|
)
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
(67.9
|
)
|
Return of investment on direct financing leases
|
|
|
7.4
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
7.9
|
|
Other investing activities
|
|
|
0.9
|
|
|
|
|
|
|
|
(5.3
|
)
|
|
|
|
|
|
|
(4.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(190.4
|
)
|
|
|
|
|
|
|
(51.6
|
)
|
|
|
|
|
|
|
(242.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of term debt and capital leases
|
|
|
(6.2
|
)
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
(7.4
|
)
|
Borrowings under revolving credit facility
|
|
|
94.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94.3
|
|
Repayments of revolving credit facility
|
|
|
(144.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(144.3
|
)
|
Capital contributions from Parent
|
|
|
(3.9
|
)
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
Dividends paid on common stock
|
|
|
|
|
|
|
(34.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(34.1
|
)
|
Proceeds from stock option exercises
|
|
|
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
Excess tax benefits from share-based compensation
|
|
|
3.9
|
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
3.3
|
|
Repurchases of common stock
|
|
|
|
|
|
|
(20.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(20.3
|
)
|
Intercompany Financing
|
|
|
(33.2
|
)
|
|
|
51.0
|
|
|
|
(17.0
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(89.4
|
)
|
|
|
(0.4
|
)
|
|
|
(14.9
|
)
|
|
|
(0.8
|
)
|
|
|
(105.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(7.5
|
)
|
|
|
|
|
|
|
(7.6
|
)
|
Decrease in cash and cash equivalents
|
|
|
(30.4
|
)
|
|
|
|
|
|
|
(13.9
|
)
|
|
|
|
|
|
|
(44.3
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
49.5
|
|
|
|
|
|
|
|
116.5
|
|
|
|
|
|
|
|
166.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
19.1
|
|
|
$
|
|
|
|
$
|
102.6
|
|
|
$
|
|
|
|
$
|
121.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Predecessor
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
For The
Year Ended June 30, 2008
Condensed
Consolidating Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
189.6
|
|
|
$
|
189.6
|
|
|
$
|
28.6
|
|
|
|
(218.2
|
)
|
|
$
|
189.6
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiary
|
|
|
(28.6
|
)
|
|
|
(189.6
|
)
|
|
|
|
|
|
|
218.2
|
|
|
|
|
|
Depreciation and amortization
|
|
|
69.8
|
|
|
|
|
|
|
|
25.8
|
|
|
|
|
|
|
|
95.6
|
|
Gain on hedging activities
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.0
|
)
|
Gain (loss) on remeasurement of foreign denominated transactions
|
|
|
(57.2
|
)
|
|
|
|
|
|
|
1.6
|
|
|
|
|
|
|
|
(55.6
|
)
|
Gain on refranchisings, dispositions of assets and release of
unfavorable lease obligation
|
|
|
(6.1
|
)
|
|
|
|
|
|
|
(10.7
|
)
|
|
|
|
|
|
|
(16.8
|
)
|
Bad debt expense, net of recoveries
|
|
|
(4.5
|
)
|
|
|
|
|
|
|
1.8
|
|
|
|
|
|
|
|
(2.7
|
)
|
Stock-based compensation
|
|
|
11.4
|
|
|
|
|
|
|
|
|
|
|
|
11.4
|
|
|
|
|
|
Deferred income taxes
|
|
|
11.8
|
|
|
|
|
|
|
|
8.5
|
|
|
|
|
|
|
|
20.3
|
|
Changes in current assets and liabilities, excluding
acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and notes receivables
|
|
|
(4.9
|
)
|
|
|
|
|
|
|
(3.7
|
)
|
|
|
|
|
|
|
(8.6
|
)
|
Prepaids and other current assets
|
|
|
15.1
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
14.9
|
|
Accounts and drafts payable
|
|
|
15.5
|
|
|
|
|
|
|
|
5.3
|
|
|
|
|
|
|
|
20.8
|
|
Accrued advertising
|
|
|
14.8
|
|
|
|
|
|
|
|
(3.7
|
)
|
|
|
|
|
|
|
11.1
|
|
Other accrued liabilities
|
|
|
(6.7
|
)
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
(6.2
|
)
|
Other long-term assets and liabilities
|
|
|
(20.2
|
)
|
|
|
0.1
|
|
|
|
(3.3
|
)
|
|
|
(5.0
|
)
|
|
|
(28.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
197.8
|
|
|
|
0.1
|
|
|
|
50.5
|
|
|
|
(5.0
|
)
|
|
|
243.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property and equipment
|
|
|
(128.3
|
)
|
|
|
|
|
|
|
(49.9
|
)
|
|
|
|
|
|
|
(178.2
|
)
|
Proceeds from refranchisings, disposition of assets and
restaurant closures
|
|
|
12.5
|
|
|
|
|
|
|
|
14.5
|
|
|
|
|
|
|
|
27.0
|
|
Payments for acquired franchisee operations, net of cash acquired
|
|
|
(53.6
|
)
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
(54.2
|
)
|
Return of investment on direct financing leases
|
|
|
7.0
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
7.4
|
|
Other investing activities
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(162.6
|
)
|
|
|
|
|
|
|
(36.7
|
)
|
|
|
|
|
|
|
(199.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of term debt and capital leases
|
|
|
(54.3
|
)
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
(55.5
|
)
|
Borrowings under revolving credit facility
|
|
|
50.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50.0
|
|
Dividends paid on common stock
|
|
|
|
|
|
|
(34.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(34.2
|
)
|
Proceeds from stock option exercises
|
|
|
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
3.8
|
|
Excess tax benefits from share-based compensation
|
|
|
9.1
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
9.3
|
|
Repurchases of common stock
|
|
|
|
|
|
|
(35.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(35.4
|
)
|
Intercompany Financing
|
|
|
(76.4
|
)
|
|
|
65.7
|
|
|
|
5.7
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by financing activities
|
|
|
(71.6
|
)
|
|
|
(0.1
|
)
|
|
|
4.7
|
|
|
|
5.0
|
|
|
|
(62.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
4.0
|
|
|
|
|
|
|
|
10.4
|
|
|
|
|
|
|
|
14.4
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(32.4
|
)
|
|
|
|
|
|
|
28.9
|
|
|
|
|
|
|
|
(3.5
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
81.9
|
|
|
|
|
|
|
|
87.6
|
|
|
|
|
|
|
|
169.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
49.5
|
|
|
$
|
|
|
|
$
|
116.5
|
|
|
$
|
|
|
|
$
|
166.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152
BURGER
KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
Note 24.
|
Subsequent
Events
|
Amended
and Restated Credit Agreement
As discussed in Note 11, on February 15, 2011, the New
Credit Agreement was amended and restated.
Following the February 15, 2011 amendment to the New Credit
Agreement, we modified our interest rate cap denominated in
Euros to reduce its notional amount by 50 million
throughout the life of the caplets. Additionally, we entered
into a new deferred premium interest rate cap agreement
denominated in U.S. dollars (notional amount of
$90 million) with a strike price of 1.50% (the New
Cap Agreement).
2011
Omnibus Plan
On February 2, 2011, the Board of Directors of the Parent
approved and adopted the Burger King Worldwide Holdings, Inc.
2011 Omnibus Incentive Plan (the Plan). The Plan
generally provides for the grant of awards to employees,
directors, consultants and other persons who provide services to
the Parent and its subsidiaries, with respect to an aggregate of
5,000 shares (5 million millishares or .001 of one
full share) of common stock. The Plan permits the grant of
several types of awards with respect to the common stock,
including stock options, restricted stock units, restricted
stock and performance shares.
On February 3, 2011, the Parent granted options to purchase
up to 3,634 shares (3,634,616 millishares) to key employees
and members of the Board of Directors of the Parent. The
exercise price per millishare is $15.82, and the options vest
100% on October 19, 2015, provided the employee is
continuously employed by BKC or one of its subsidiaries and the
director remains on the board of the Parent.
153
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
An evaluation was conducted under the supervision and with the
participation of the Companys management, including the
Chief Executive Officer (CEO) and Chief Financial Officer (CFO),
of the effectiveness of the design and operation of the
Companys disclosure controls and procedures as of
December 31, 2010. Based on that evaluation, the CEO and
CFO concluded that the Companys disclosure controls and
procedures were effective as of such date to ensure that
information required to be disclosed in the reports that it
files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in SEC
rules and forms.
Internal
Control Over Financial Reporting
The Companys management, including the CEO and CFO,
confirm that there were no changes in the Companys
internal control over financial reporting during the Transition
Period that have materially affected, or are reasonably likely
to materially affect, the Companys internal control over
financial reporting.
Managements
Report on Internal Control Over Financial Reporting
Managements Report on Internal Control Over Financial
Reporting is set forth in Part II, Item 8 of this
Form 10-K.
Part III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
DIRECTORS
AND EXECUTIVE OFFICERS
Directors
Our Bylaws provide that the number of directors constituting the
Board of Directors shall be one or more, which number may be
increased or decreased from time to time by resolution of the
Board or the holders of a majority of the shares then entitled
to vote at an election of directors. The term of office of each
director is one year and each director continues in office until
he resigns or until a successor has been elected and qualified.
Alexandre Behring, John W. Chidsey, Paul J. Fribourg, Peter
Harf, Bernardo Hees, Carlos Alberto Sicupira and Marcel Herrmann
Telles currently serve as directors of the Company. On
March 11, 2011, Mr. Chidsey advised the Company that
he will be resigning from the Board effective April 18,
2011. Mr. Behring is the managing director of 3G Capital,
and Messrs. Behring, Hees, Sicupira and Telles are
directors of 3G Capital. 3G Capital indirectly controls Burger
King Worldwide Holdings, Inc., the sole shareholder of the
Company (the Parent). Messrs. Behring, Sicupira
and Telles are members of the five-member investment committee
of 3G Capital, which is empowered to make decisions with respect
to 3G Capitals investments, including the Company. This
investment committee has the power to vote, dispose of or sell
all of the shares of the Company.
154
The following table sets forth the name, age, principal
occupation of, and other information regarding each of the
current directors of the Company:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Alexandre Behring
|
|
|
44
|
|
|
Co-Chairman
|
John W. Chidsey
|
|
|
48
|
|
|
Co-Chairman
|
Paul J. Fribourg
|
|
|
57
|
|
|
Director
|
Peter Harf
|
|
|
64
|
|
|
Director
|
Bernardo Hees
|
|
|
41
|
|
|
Chief Executive Officer and Director
|
Carlos Alberto Sicupira
|
|
|
62
|
|
|
Director
|
Marcel Herrmann Telles
|
|
|
61
|
|
|
Director
|
Biographical information concerning the directors of the Company
is set forth below.
Alexandre Behring. Mr. Behring serves as
a co-Chairman of our Board. Since 2004, Mr. Behring has
also served as the managing partner and director of 3G Capital.
Previously, Mr. Behring spent 10 years at
GP Investments, Latin Americas largest private-equity
firm, including eight years as a partner and member of the
firms Investment Committee. He served for seven years,
from 1998 through 2004, as CEO of ALL. He continues to serve as
a director of ALL and is a member of the boards Management
Committee. Mr. Behring also serves as an alternate director
of Lojas Americanas S.A., a retail chain operator based in
Brazil, and as a director of CSX Corporation, a
U.S. rail-based transportation company.
John W. Chidsey. Mr. Chidsey serves as a
co-Chairman of our Board. Prior to the consummation of the
Merger, Mr. Chidsey served as Chairman of our Board since
July 1, 2008 and served as Chief Executive Officer from
April 2006 to October 2010. From September 2005 until April
2006, he served as our President and Chief Financial Officer and
from June 2004 until September 2005, he was our President, North
America. Mr. Chidsey joined us as Executive Vice President,
Chief Administrative and Financial Officer in March 2004 and
held that position until June 2004. From January 1996 to March
2003, Mr. Chidsey served in numerous positions at Cendant
Corporation, including Chief Executive Officer of the Vehicle
Services Division and the Financial Services Division.
Mr. Chidsey is a director of HealthSouth Corporation and is
also a member of the Board of Trustees of Davidson College.
Paul J. Fribourg. Mr. Fribourg has served
as the Chairman and Chief Executive Officer of Continental Grain
Company, an international agribusiness and investment company
with investments in poultry, pork and beef businesses, since
1997. Prior to taking this role, he held a variety of positions
with increasing responsibility, from Merchandiser and Product
Line Manager to Group President and Chief Operating Officer.
Mr. Fribourg has been a director of Loews Corporation, a
large diversified holding company, since 1997. Mr. Fribourg
is also a director of Estee Lauder Companies, Inc. and Apollo
Global Management, LLC. He was a director of Smithfield Foods,
Inc. from 2007 until 2009, Power Corporation of Canada from 2005
until 2008, Premium Standard Farms, Inc. from 1998 until 2006
and Vivendi Universal, S.A. from 2003 until 2006.
Peter Harf. Mr. Harf has served as an
independent Board member of Anheuser-Busch InBev since 2002 and
as Chairman since 2006. Mr. Harf has served as Chief
Executive Officer of Joh. A. Benckiser, a German manufacturer
and marketer of household and personal care products since 1988.
Since 1996 he has served as Chairman of Coty, Inc., a global
cosmetics group, which is owned by Joh A. Benckiser, Chairman of
Labelux, a producer of luxury goods based in Switzerland and
since 2006 as Deputy Chairman of Reckitt Benckiser, a leading
fast moving consumer goods company located in the United Kingdom.
Bernardo Hees. Mr. Hees is a member of
our Board of Directors and serves as our Chief Executive
Officer. Mr. Hees previously served as Chief Executive
Officer of America Latina Logistica (ALL), Latin Americas
largest railroad and logistics company, from January 2005 until
September 2010 and continues to serve as a member of its Board
of Directors. Mr. Hees joined ALL in 1998 as a logistics
analyst, subsequently holding various positions, including
operational planning manager, chief financial officer and
commercial officer, and, in 2004, held the position of
Director-Superintendent. Mr. Hees holds a degree in
Economics from the Pontifícia Universidade
155
Católica (Rio de Janeiro), an MBA from the University of
Warwick, England, and, in 2005, he concluded an
Owner/President
Management course at Harvard Business School.
Carlos Alberto Sicupira. Mr. Sicupira is
one of the founding Principal Partners of 3G Capital and
continues to serve as a board member. Mr. Sicupira has also
served as a member of the Board of Directors of Anheuser-Busch
InBev since 2004. Mr. Sicupira has been Chairman of Lojas
Americanas, one of South Americas largest retailers, since
1981, where he served as Chief Executive Officer until 1992. He
has been a board member of Quilmes since 2002, and a member of
the Board of Deans Advisors of Harvard Business School
since 1998. He also serves on the boards of Fundacao Brava and
Fundacao Estudar,
not-for-profit
foundations.
Marcel Herrmann Telles. Mr. Telles is one
of the founding Principal Partners of 3G Capital and continues
to serve as a board member. He has also served as a member of
the Board of Directors of Anheuser-Busch InBev since 2000. He is
the Co-Chairman of the Board of Directors of AmBev where he has
served as a director since 2000 and is currently a member of the
Board of Directors of Lojas Americanas S.A. He also served as
Chief Executive Officer of Companhia Cervejaria Brahma (which
became AmBev in 2002) from 1989 to 1999. He has also served
as a Director of Quilmes Industrial S.A. Since 2009, he has been
a member of the Advisory Board of
ITAU-UNIBANCO,
a banking conglomerate based in Brazil.
In an Order issued on June 11, 2008, the Federal District
Court for the Southern District of New York in CSX
Corporation v. The Childrens Investment
Fund Management (UK) LLP et al., (i) held that the
reporting group, including 3G Capital, 3G Capital, Inc., 3G
Fund, L.P. and Mr. Behring, failed to timely file a
Schedule 13D in connection with its formation of a group
under Section 13(d) of the Exchange Act; and
(ii) enjoined the reporting group from future violations of
Section 13(d). The Courts decision is on appeal.
Executive
Officers
The following is information about our executive officers:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Bernardo Hees
|
|
|
41
|
|
|
Chief Executive Officer and Director
|
Daniel S. Schwartz
|
|
|
30
|
|
|
EVP, Chief Financial Officer
|
Jonathan Fitzpatrick
|
|
|
40
|
|
|
EVP, Chief Brand and Operations Officer
|
Anne Chwat
|
|
|
51
|
|
|
EVP, General Counsel and Secretary
|
Steven M. Wiborg
|
|
|
41
|
|
|
EVP and President of North America
|
José E. Cil
|
|
|
41
|
|
|
EVP and President of Europe, Middle East and Africa
|
José D. Tomas
|
|
|
43
|
|
|
President of Latin America, EVP and Chief Human Resources and
Communications Officer
|
David M. Chojnowski
|
|
|
41
|
|
|
SVP, Controller and Chief Accounting Officer
|
Biographical information of our executive officers is set forth
below:
Bernardo Hees. Mr. Hees is a member of
our Board of Directors and serves as our Chief Executive
Officer. Mr. Hees biographical information is set
forth above.
Daniel S. Schwartz. Mr. Schwartz was
appointed as our Executive Vice President and Chief Financial
Officer in December 2010, effective January 1, 2011.
Mr. Schwartz joined the Company in October 2010 as
Executive Vice President, Deputy Chief Financial Officer. From
January 2008 until October 2010, Mr. Schwartz served as a
partner with 3G Capital, where he was responsible for managing
3G Capitals private equity business. He joined 3G Capital
in January 2005 as an analyst and worked with the firms
public and private equity investments. From March 2003 until
January 2005, Mr. Schwartz worked for Altair Capital
Management, a hedge fund located in Stamford, Connecticut, and
served as an analyst in the mergers and acquisitions group at
Credit Suisse First Boston from June 2001 to March 2003.
Jonathan Fitzpatrick. Mr. Fitzpatrick
assumed the newly created role of Executive Vice President,
Chief Brand and Operations Officer in February 2011.
Mr. Fitzpatrick was appointed as our Executive Vice
President, Global Operations in October 2010.
Mr. Fitzpatrick has worked for BKC for 12 years. From
August 2009 to
156
November 2010, Mr. Fitzpatrick served as our Senior Vice
President of Operations, Europe, Middle East and Africa. During
his tenure, Mr. Fitzpatrick has held several positions,
including Senior Vice President, Development and Franchising,
and Vice President of the information technology team.
Anne Chwat. Ms. Chwat has served as our
Executive Vice President, General Counsel and Secretary since
September 2004. In June 2007, Ms. Chwat also began serving
as a board member and President of the Have It your
Way®
Foundation, the charitable arm of the Burger King system.
From September 2000 to September 2004, Ms. Chwat served in
various positions at BMG Music (now Sony Music Entertainment),
including as Senior Vice President, General Counsel and Chief
Ethics and Compliance Officer. Anne Chwat is leaving the Company
at the end of the Executive Transition Period (as defined below).
Steven M. Wiborg. Mr. Wiborg has served
as our Executive Vice President and President of North America
since October 2010. Before joining BKC, Mr. Wiborg was
President and Chief Executive Officer of Heartland Food
Corporation, one of the Burger King systems largest
franchise operators. He held the position of Chief Operating
Officer from 2003 to 2006 and was then named President and Chief
Executive Officer in December 2006. Prior to joining Heartland,
Mr. Wiborg was an owner/operator of 56 Hardees
restaurants.
José E. Cil. Mr. Cil has served as
our Executive Vice President and President of Europe, Middle
East and Africa since October 2010. Prior to this role,
Mr. Cil was Vice President and Regional General Manager for
Wal-Mart
Stores, Inc. in Florida from February 2010 to November 2010.
From September 2008 to January 2010, Mr. Cil served as our
Vice President of Company Operations and from September 2005 to
September 2008, he served as Division Vice President,
Mediterranean and NW Europe Divisions, EMEA.
José D. Tomas. Mr. Tomas was
appointed President of Latin America in February 2011 and has
served as our Executive Vice President and Chief Human Resources
and Communications Officer since November 2010. Mr. Tomas
was previously our vice president of human resources from April
2006. Since joining BKC in November 2004, Mr. Tomas has
held multiple roles with the company, including leading the
human resources teams for our global restaurant support center
in Miami and the Latin America & Caribbean region.
Prior to joining the Company, he held various field and
corporate human resources positions with Ryder System Inc.,
including director of talent acquisition and director of
corporate human resources as well as human resources positions
with Publix Super Markets.
David M. Chojnowski. Mr. Chojnowski was
appointed Senior Vice President, Controller and Principal
Accounting Officer of the Company in December 2010. Prior to
this, he served as Corporate Controller and Vice President of
Finance since February 2009. Prior to joining BKC,
Mr. Chojnowski held various positions with General Motors
Corporation, including serving as Controller, Latin America,
Africa and Middle East from November 2006 through February 2009
and as Corporate Consolidation/SEC Reporting Manager from
October 2004 through November 2006.
Corporate
Governance
Highlights of our corporate governance practices are described
below.
Board
Committees
The Board of Directors has established an Audit Committee, a
Compensation Committee and an Executive Committee. The members
of each committee are appointed by the Board and serve one-year
terms. Each committee has established a written charter which
sets forth the committees purpose, membership criteria,
powers and responsibilities and provides for the annual
evaluation of the committees performance.
Audit
Committee
The Audit Committee assists the Board in its oversight of
(i) the integrity of our financial statements,
(ii) the qualifications, independence and performance of
our independent registered public accounting firm,
(iii) the performance of the internal audit function, and
(iv) compliance by us with legal and regulatory
requirements and our
157
compliance program. The Audit Committee is responsible for the
appointment, compensation and oversight of the work of our
independent registered public accounting firm.
The current members of the Audit Committee are Messrs. John
W. Chidsey (Chairman) and Paul J. Fribourg. On March 11,
2011, Mr. Chidsey advised the Company that he would be
resigning from the Audit Committee, effective April 18,
2011. From July 1, 2010 to October 19, 2010, the Audit
Committee consisted of three members: Messrs. Ronald M.
Dykes (Chairman), Peter R. Formanek and Manuel A. Garcia. These
members resigned effective October 19, 2010 pursuant to the
Merger Agreement. The Board has determined that
Mr. Fribourg is an independent director under the New York
Stock Exchange listing standards (the Independence
Standards) and the independence standards mandated by
Section 301 of the Sarbanes-Oxley Act and those set forth
in
Rule 10A-3
of the Exchange Act (collectively, the Audit Committee
Independence Standards) and that Mr. Chidsey is not
independent. Our Board also has determined that each of
Messrs. Chidsey and Fribourg qualify as an audit
committee financial expert as defined by the applicable
SEC regulations.
Compensation
Committee
See Item 11. Executive Compensation
Compensation Discussion and Analysis for a description of
the roles and responsibilities of our Compensation Committee.
The current members of the Compensation Committee are
Messrs. Alexandre Behring (Chairman), Carlos Alberto
Sicupira and Marcel Herrmann Telles. The Board has determined
that the current members of the Compensation Committee are
independent under the Independence Standards. From July 1,
2010 to October 19, 2010, the Compensation Committee
consisted of three members: Messrs. Stephen G. Pagliuca
(Chairman), Sanjeev Mehra and Peter R. Formanek. These members
resigned effective October 19, 2010 pursuant to the Merger
Agreement.
Executive
Committee
The Executive Committee has authority under its charter to
exercise the powers and rights of the Board and to take any
action that could be taken by the Board (except if prohibited by
applicable law and regulation) if the amounts associated with
such actions do not individually exceed $25 million, other
than intercompany transactions which are unlimited as to amount.
The current members of the Executive Committee are
Messrs. Alexandre Behring (Chairman),
John W. Chidsey and Bernardo Hees. On March 11,
2011, Mr. Chidsey advised the Company that he would be
resigning from the Executive Committee, effective April 18,
2011. From July 1, 2010 to October 19, 2010, the
Executive Committee consisted of five members:
Messrs. Richard W. Boyce (Chairman), John W. Chidsey,
Ronald M. Dykes, Sanjeev K. Mehra and Stephen Pagliuca. These
members resigned effective October 19, 2010 pursuant to the
Merger Agreement.
Codes of
Ethics
Our Code of Business Ethics and Conduct, our Code of Conduct for
Directors and our Code of Business Ethics and Conduct for
Vendors are located within the Investor Relations section of our
internet website at wwww.bk.com. We have also adopted a Code of
Ethics for Executive Officers that applies to our Chief
Executive Officer, Chief Financial Officer and Chief Accounting
Officer, as well as other executive officers. The Code of Ethics
for Executive Officers is located on our website at www.bk.com
under Company Info Investor
Relations Corporate Governance
Governance Documents. We intend to provide disclosure of
any amendments of our Code of Ethics for Executive Officers or
waivers, to the extent that such waiver applies to our Chief
Executive Officer, Chief Financial Officer or Chief Accounting
Officer, on our website within four business days following the
date of the amendment or waiver.
158
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Item 11.
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Executive
Compensation
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Compensation
Discussion and Analysis
General
Overview
This Compensation Discussion and Analysis, or CD&A,
describes our compensation philosophy, how the Compensation
Committee establishes executive compensation, the objectives of
our various compensation programs, how performance metrics are
selected for the various components of our compensation programs
and how the performance of our CEO and other NEOs is evaluated
and results in the level of compensation awarded under the
various components of our compensation program.
As used in this CD&A and the Compensation Tables, the
following terms have the following meanings:
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BKC is Burger King Corporation, a Florida
corporation.
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The CEO is our Chief Executive Officer. From
July 1, 2010 through the Merger Date (as defined below),
our CEO was John W. Chidsey, who also served as Chairman of our
Board of Directors. On November 4, 2010, Bernardo Hees was
appointed CEO, and he has served in this capacity through the
date hereof.
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The NEOs are the following executives:
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Bernardo Hees, a member of the Board of Directors and CEO (since
November 4, 2010);
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John W. Chidsey, former Chairman and CEO (through
October 19, 2010) and a co-chairman of the Board of
Directors (since October 19, 2010);
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Ben K. Wells, former Chief Financial Officer (through
December 31, 2010);
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Anne Chwat, EVP, General Counsel and Secretary (through the
expiration of the Executive Transition Period);
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Jonathan Fitzpatrick, EVP, Chief Brand and Operations Officer
(EVP, Global Operations since October 25, 2010 and Chief
Brand and Operations Officer since February 28, 2011; prior
thereto, Mr. Fitzpatrick was SVP, Operations, Europe,
Middle East and Africa);
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Natalia Franco, former EVP, Global Chief Marketing Officer
(through March 10, 2011);
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Charles M. Fallon, Jr., former President, North America
(through November 30, 2010); and
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Peter C. Smith, former EVP, Chief Human Resources Officer
(through October 19, 2010).
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The Pre-Merger NEOs are the NEOs employed by the
Company prior to the Merger Date. The Pre-Merger NEOs are: John
W. Chidsey, Ben Wells, Anne Chwat, Jonathan Fitzpatrick, Natalia
Franco, Charles M. Fallon, Jr. and Peter C. Smith.
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The CEO Direct Reports are our executives who report
directly to the CEO. All of the NEOs (other than the CEO) are
CEO Direct Reports.
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Total Direct Compensation is annual base salary,
cash incentives and long-term equity incentives.
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On October 19, 2010 (the Merger Date), our
predecessor public company merged with an entity formed by 3G
Capital (the Merger) pursuant to a merger agreement
dated as of September 2, 2010 (the Merger
Agreement). Generally, our compensation program has
continued the overall approach of our pre-Merger compensation
program, modified as appropriate to reflect that we are now a
privately-owned company with public debt. As a privately-owned
company, we are not subject to Section 162(m) of the
Internal Revenue Code and related regulations promulgated
thereunder.
Our compensation philosophy was and continues to be based on
pay-for-performance
and meritocratic principles, which incorporate the
Companys achievement of specific goals as well as
achievement by employees of
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individual performance goals. Our compensation programs are
generally designed to support our business initiatives by:
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rewarding superior financial and operational performance;
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placing a significant portion of compensation at risk if
performance goals are not achieved;
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aligning the interests of the CEO and CEO Direct Reports with
those of our shareholders (and now 3G Capital, which controls
the Parent, our sole shareholder); and
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enabling us to attract, retain and motivate top talent.
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In making determinations about compensation, the Compensation
Committee places a great emphasis on the following factors
specific to the relevant individual and his or her role:
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performance and long-term potential;
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nature and scope of the individuals responsibilities and
his or her effectiveness in supporting our long-term
goals; and
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Total Direct Compensation of the individual in relation to other
CEO Direct Reports.
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We believe that the relative pay of each CEO Direct Report as
compared to the pay of each other CEO Direct Report is one
factor of many to be considered in establishing compensation for
our CEO Direct Reports. We have not established a policy
regarding the numerical ratio of total compensation of the CEO
to that of the CEO Direct Reports, but we do review compensation
levels to ensure that appropriate internal pay equity exists.
The difference between the CEOs compensation and that of
the CEO Direct Reports reflects the significant difference in
the nature and scope of their relative responsibilities. The
CEOs responsibilities for management and oversight of a
global enterprise are significantly higher than those of other
executives. As a result, the CEOs compensation is higher
than the compensation of our CEO Direct Reports.
The Compensation Committee is responsible to the Board of
Directors for establishing and overseeing our compensation
philosophy and for overseeing our executive compensation
policies and programs generally. As part of this responsibility,
the Compensation Committee:
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administers our executive compensation programs;
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evaluates the performance of the CEO and the CEO Direct Reports;
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oversees and sets compensation for the CEO and the CEO Direct
Reports;
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makes decisions relating to the issuance of equity to the CEO,
the CEO Direct Reports and our executive officers; and
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reviews our management succession plan.
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The Compensation Committees charter describes the
Compensation Committees responsibilities. The Compensation
Committee and the Board of Directors review the charter
annually. On November 5, 2010, the Board of Directors
adopted a new Compensation Committee charter that reflects our
status as a private company.
This CD&A is divided into three parts. The first part
discusses our pre-Merger compensation and decisions. The second
part discusses the decisions made by the Compensation Committee
with respect to outstanding cash and equity awards and
employment agreements of the Pre-Merger NEOs in connection with
the Merger, and the compensation paid to our Pre-Merger NEOs as
a result of the Merger. The third part discusses significant
personnel and compensation-related developments since the Merger
Date.
Pre-Merger
Compensation and Decisions
Role
of Compensation Consultant
Under its charter, the Compensation Committee is authorized to
engage the services of outside advisors, experts and others. For
the Transition Period, the Compensation Committee engaged
Compensation Advisory
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Partners (CAP) as an outside compensation consultant
to advise the Compensation Committee on matters related to
executive compensation. During the Transition Period, CAP
assisted the Compensation Committees executive
compensation-setting process by:
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Modeling the share request for the proposed amendment to our
long-term incentive plan and running the RiskMetrics model;
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Reviewing drafts of the amended and restated long-term incentive
plan document;
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Providing advice to the Compensation Committee with respect to
incentive plan parameters and measures;
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Reviewing the executive compensation disclosure included in the
Companys
Schedule 14D-9
filed by the Company in connection with the Merger;
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Providing market data and advice with respect to the level of
severance and the treatment of cash and equity incentives upon a
change in control; and
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Advising the Compensation Committee with respect to 280G issues
related to the Merger.
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Peer
Group Comparison
To establish base salary levels for our CEO and CEO Direct
Reports for the fiscal year ending June 30, 2011
(fiscal 2011), the Compensation Committee compared
our target compensation levels with those of certain
publicly-traded peer companies selected by us. After reviewing
the analysis of the compensation data from our peer group, as
discussed below, the Compensation Committee decided to increase
the base salary of Ben K. Wells, our former Chief Financial
Officer, and Charles M. Fallon, Jr., our former President,
North America.
For the fiscal 2011 analysis, the companies comprising the peer
group were:
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Brinker International, Inc.
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Starbucks Corp.
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Darden Restaurants, Inc.
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Starwood Hotels & Resorts Worldwide, Inc
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Dominos Pizza, Inc.
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The Coca-Cola Company
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Marriott International, Inc.
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Wendys/Arbys Group, Inc.
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McDonalds Corp.
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Wyndham Worldwide Corp.
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Nike, Inc.
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Yum! Brands, Inc.
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PepsiCo, Inc.
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The Compensation Committee decided not to make any other
adjustments to the compensation levels of our Pre-Merger NEOs
because the peer group data did not indicate that changes were
warranted.
Role
of Executives in Establishing Compensation
Prior to the Merger, our Chief Human Resources Officer
administered our retirement, severance and other benefit plans
and trusts, with oversight and supervision by the Compensation
Committee. In addition, our Chief Human Resources Officer made
recommendations to the Compensation Committee regarding job
leveling and grading for the CEO, the CEO Direct Reports and
other senior level employees. Our CEO and Compensation Committee
worked together to review our management succession plan for
these employees. The CEO, Chief Human Resources Officer, General
Counsel and Vice President of Total Rewards attended
Compensation Committee meetings held prior to the Merger,
although they left the meetings during discussions and
deliberations of individual compensation actions affecting them
personally and during the Compensation Committees
executive sessions.
Elements
of Compensation and Benefit Programs
To achieve our policy goals, prior to the Merger, the
Compensation Committee utilized the following components of
compensation: base salary, annual cash incentives, annual
long-term equity incentives, benefits and perquisites. Different
elements of the total compensation package served different
objectives. Competitive base salaries and benefits were designed
to attract and retain employees by providing them with a stable
source of income
161
and security over time. Annual cash incentives and long-term
equity incentives were performance-based and, in the case of
annual cash incentives, were only paid if we achieved our
minimum financial goals for the fiscal year. As a public company
prior to the Merger, the use of equity compensation supported
the objectives of encouraging stock ownership and aligning the
interests of the NEOs with those of our shareholders, as they
would share in both the positive and negative stock price
returns experienced by our shareholders.
Base
Salary
We provide base salaries to recognize the skills, competencies,
experience and individual performance that each NEO brings to
his or her position. The Compensation Committee annually reviews
the base salary of the CEO and each other NEO and submits the
CEOs base salary to the Board of Directors for approval.
In light of continuing economic uncertainty, in July 2010 the
Compensation Committee decided to forego
across-the-board
base salary increases for executive officers and decided to make
targeted base salary increases only in those situations where
the Compensation Committee believed that for retention purposes
it was necessary to bring the executives salary into a
competitive range. As part of these targeted increases, the base
salaries of Messrs. Wells and Fallon were increased by
$30,000 and $62,250, respectively, to $525,000 and $500,000.
These increases were effective as of July 2, 2010.
Annual
Cash Incentive Program
In August 2010, the Compensation Committee approved the annual
performance-based cash bonus program under the BKC Fiscal Year
2011 Restaurant Support Incentive Program (the RSIP)
for fiscal 2011. As in prior years, as part of this process, the
Compensation Committee (1) approved the annual individual
target bonus for each Pre-Merger NEO, (2) approved the
financial metrics that would be used to measure worldwide
Company performance and regional performance and
(3) established threshold, target and maximum performance
levels for each of these metrics.
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Individual Target Bonus. The employment
agreement for each Pre-Merger NEO established the minimum target
bonus for the NEO, expressed as a percentage of his or her then
current base salary. For Mr. Chidsey, this target bonus was
100% of base salary, for each of Messrs. Wells, Fallon and
Smith and Ms. Chwat and Ms. Franco, the target bonus
was 70% of base salary and for Mr. Fitzpatrick, the target
bonus was 60% of base salary. For fiscal 2011, as in prior
years, the Compensation Committee approved these percentages for
each Pre-Merger NEO.
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Financial Metrics. For fiscal 2011, the
Compensation Committee approved using PBT (profit before taxes)
as the measure to determine the Companys worldwide
performance and EBITDA as the measure to determine the
Companys regional performance, and established threshold,
target and maximum performance levels for Worldwide PBT and
EBITDA for each region for purposes of determining the
percentage of target bonus that could be earned.
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As discussed in greater detail below under Compensation
Committee Role in Connection with Merger Related
Compensation, as a result of the negotiations with 3G
Capital as part of the Merger transaction, the Compensation
Committee approved paying all bonus-eligible employees,
including the Pre-Merger NEOs, their pro rata annual bonus,
calculated at the target level of performance, on the Merger
Date. At the target performance level, each
Pre-Merger NEO was entitled to receive 100% of his or her target
bonus for the pro rata period. The actual cash bonus amount paid
to each Pre-Merger NEO on the Merger Date is set forth below
under Compensation Committee Role in Connection with
Merger Related Compensation.
Long-Term
Equity Incentives
In August 2010, as in prior years, the Compensation Committee
decided to award annual long-term equity incentives to the CEO,
the CEO Direct Reports and other executives. The Compensation
Committee discussed the suitability of granting equity awards in
light of the potential transaction with 3G Capital. In this
analysis, the Compensation Committee took into consideration
(i) that no definitive offer had been received,
(ii) that the parties still had not agreed upon price, and
(iii) the potential disruption to the business, employee
morale and retention of key personnel if annual awards were not
awarded in the ordinary course of business. As a result of this
analysis, the
162
Compensation Committee decided to award all employees long-term
equity incentives consistent with its prior practice.
For fiscal 2011, the Compensation Committee decided to award a
combination of equity grants (the August 2010 Equity
Grants) to all of the Pre-Merger NEOs except
Mr. Fitzpatrick, as follows:
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50% of the long-term incentive value (LTI Value)
earned in the form of stock options, which would vest ratably
over four years;
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25% of the LTI Value earned in the form of restricted stock,
which would vest on the third anniversary of the grant
date; and
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25% of the LTI Value earned in the form of performance shares,
which were subject to a one-year performance period and then, to
the extent earned, would vest on the third anniversary of the
grant date.
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As a senior vice president, Mr. Fitzpatrick received 50% of
the LTI Value of the August 2010 Equity Grants in the form of
stock options and 50% of the LTI Value in the form of
performance based restricted stock, which was subject to a
one-year performance period and then, to the extent earned,
would vest on the third anniversary of the grant date.
As in prior years, the Compensation Committee approved PBT as
the financial metric by which Company performance would be
measured for purposes of the performance share and performance
based restricted stock awards and set the threshold, target and
maximum performance levels at the same levels as those used for
the RSIP.
The Compensation Committee established individual target awards
for fiscal 2011 based on the executives level, base
salary, and, for all Pre-Merger NEOs other than the CEO,
the target award was subject to adjustment based on their
individual performance. Pursuant to his employment agreement,
Mr. Chidseys target award was not subject to
adjustment based on his individual performance. For fiscal 2011,
the target equity awards for the Pre-Merger NEOs, after
application of the adjustment based on individual performance
and as a percentage of their base salary, were as follows:
Mr. Chidsey, 400%; Ms. Chwat and Ms. Franco and
Messrs. Wells, Smith and Fallon, 150%; and
Mr. Fitzpatrick, 78.75%.
As discussed in greater detail below under Compensation
Committee Role in Connection with Merger Related
Compensation, as a result of the negotiations with 3G
Capital as part of the Merger transaction, all of the pending
equity awards were accelerated and converted into the right to
receive cash (in the case of the performance shares and
performance based restricted stock calculated at the target
level of performance); however, the net proceeds (after an
assumed tax rate of 40%) of the August 2010 Equity Grants
awarded to vice presidents and above, including all Pre-Merger
NEOs other than Mr. Peter C. Smith, were placed in a
trust and payable over an extended period.
Executive
Benefits and Perquisites
In addition to base salary, annual cash bonuses and long-term
equity incentives, we provided and continue to provide (except
as set forth below) the following executive benefit programs to
our Pre-Merger NEOs and other executives:
Executive
Retirement Program
The Executive Retirement Program (ERP) is a
non-qualified excess benefits program available to
senior-level U.S. employees. This program permits
voluntary deferrals of up to 50% of base salary and 100% of cash
bonus until retirement or termination of employment. Deferrals
become effective once an executive has reached his or her
applicable 401(k) contribution limit. Amounts deferred, up to a
maximum of 6% of base salary, are matched by us on a
dollar-for-dollar
basis. Depending on the level at which we achieve specified
financial performance goals, accounts under the plan also may be
credited by us with up to an additional 4% of base salary at the
target performance level and 6% of base salary at the maximum
performance level. The financial performance goals for fiscal
2011 were based on PBT. However, on the Merger Date, the
Pre-Merger NEOs and the other participants in the ERP received a
cash payment under the ERP at the target performance level. The
ERP contribution paid to each Pre-Merger NEO on the Merger Date
is set forth below under Compensation Committee Role in
Connection with Merger Related Compensation.
163
Executive
Life Insurance Program
The Executive Life Insurance Program provides life insurance
coverage which is paid by us and allows our U.S. executives
to purchase additional life insurance coverage at their own
expense. Coverage for our Pre-Merger NEOs, which is paid by us,
is limited to the lesser of $1.3 million or 2.75 times base
salary. Further details are provided in the All Other
Compensation Table for the Transition Period.
Perquisites
Each Pre-Merger NEO other than Mr. Fitzpatrick was provided
with an annual perquisite allowance to be used at his or her
discretion. The annual perquisite allowance was $63,500 for
Mr. Chidsey and $48,500 for Messrs. Wells, Fallon and
Smith and Ms. Chwat and Ms. Franco. In addition to
Mr. Chidseys annual perquisite allowance, he was
entitled to personal use of private charter jet and private car
service, which were not subject to tax
gross-up.
Additional information regarding perquisites provided to the
NEOs is set forth in the Perquisites Table for the Transition
Period.
Certain
Other Benefits
BKC also maintains a comprehensive benefits program consisting
of retirement income and health and welfare plans. The objective
of the program is to provide full time employees with reasonable
and competitive levels of financial support in the event of
retirement, death, disability or illness, which may interrupt
the eligible employees employment or income received as an
active employee. BKCs health and welfare plans consist of
life, disability and health insurance benefit plans that are
available to all eligible full-time employees. BKC also provides
a 401(k) plan that is available to all eligible full-time
employees. The 401(k) plan includes a matching feature of up to
6% of the employees base salary.
Other
Compensation Committee Actions
From time to time, our Compensation Committee awards special
cash or equity grants for retention purposes or to recognize
extraordinary performance or disparities in pay. On
July 19, 2010, the Compensation Committee approved a
special equity grant with a grant date of August 25, 2010
and an aggregate grant date fair value of $360,000 for
Mr. Wells. The grant consisted of restricted stock that was
scheduled to vest ratably on the anniversary of the grant date
over a three-year period. This equity grant was converted into
cash and paid to Mr. Wells on the Merger Date.
Compensation
Committee Role in Connection with Merger Related
Compensation
In preparation for, and in connection with, the proposed Merger
with 3G Capital, the Compensation Committee took various
actions, including:
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Review and approval of the employment agreement amendments for
each of Messrs. Chidsey, Wells, Smith and Chwat (the
Transition Executives);
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Approval of the acceleration of vesting of all outstanding
equity grants and the treatment of the August 2010 Equity Grants
awarded to vice presidents and above; and
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Approval of a pro-rata payout of the RSIP at the target level of
performance.
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Approval
of Amended Employment Agreements and Transition
Bonuses.
Based on the advice of CAP that the level of severance in
connection with a change in control provided at the time of our
initial public offering was currently below market as compared
to industry peers, the Compensation Committee approved the
employment agreement amendments for vice presidents and above to
bring them in line with industry peers. The Compensation
Committee approved the employment agreement amendments for the
Transition Executives to reflect the transition bonuses
described below and the extension of welfare benefits
continuation from one to two years with respect to
Messrs. Wells and Smith and Ms. Chwat. The
Compensation Committee also authorized amendments to the
employment agreements for Mr. Fallon, Ms. Franco and
certain
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other executives that increased their severance payments to two
times the sum of base salary, benefits or perquisite allowance
(as applicable) and target bonus for the year of termination, to
be effective upon consummation of the Merger. The Compensation
Committee authorized amendments to the employment agreements for
Mr. Fitzpatrick and certain other executives that increased
their severance payments to two times the sum of base salary and
target bonus for the year of termination, to be effective upon
consummation of the Merger. The Compensation Committee approved
the payment, upon effectiveness of the Merger, of pro rata
bonuses for the portion of fiscal 2011 occurring prior to the
Merger Date.
As a result of the negotiations with 3G Capital, each of
Messrs. Chidsey, Wells and Smith and Ms. Chwat
received a transition bonus in respect of his or her
contributions toward the successful completion of the Merger
and, in the case of Messrs. Wells and Chidsey and
Ms. Chwat, as an inducement for his or her agreement to
perform services following the Merger Date. The transition
bonuses were paid on the Merger Date except for
Mr. Chidsey, who received $521,000 of his transition bonus
on the Merger Date, and was originally scheduled to receive
$1,250,000 on the six-month anniversary of the Merger Date and
$1,250,000 on the twelve-month anniversary of the Merger Date,
subject to his continued service or earlier termination of
employment without cause, for good reason, or by reason of his
death or disability. After the expiration of the six-month
transition period on April 18, 2011 (the Executive
Transition Period), Mr. Chidseys employment
agreement amendment provided that he would become a consultant
to the Company for an additional six-month period, which
arrangement was subject to termination by either party upon 30
days notice. However, on March 15, 2011, the Company
notified Mr. Chidsey that it elected to exercise its option
to terminate his consulting arrangement and, as a result,
Mr. Chidsey will not be performing consulting services
after the expiration of the Executive Transition Period. The
Company also agreed that Mr. Chidsey will receive the
balance of his transition bonus, or $2,500,000, within five days
following the expiration of the Executive Transition Period.
Acceleration of Outstanding Equity. As a
result of negotiations with 3G Capital, the Merger Agreement
provided for the accelerated vesting of all stock options,
restricted stock units and performance based stock units held by
the Companys employees, including the Pre-Merger NEOs, on
the Merger Date and the cancellation of such awards in exchange
for cash. The Compensation Committee determined that the
treatment of Company equity awards provided in the Merger
Agreement was consistent with the terms of our equity incentive
plans and approved the cancellation of outstanding equity awards
on the Merger Date in exchange for the consideration to be paid
to holders of such equity awards in accordance with the terms of
the Merger Agreement.
As part of the negotiations with 3G Capital, the Compensation
Committee and the Board of Directors agreed to place in trust
the after tax proceeds of the August 2010 Equity Grants awarded
to officers at the level of vice president and above, including
the Pre-Merger NEOs other than Mr. Peter C. Smith, to serve
as a retention tool for those officers who 3G Capital believed
were important to a successful transition. Specifically, the
parties agreed, and the Compensation Committee approved, that
60% of the proceeds from the August 2010 Equity Grants would be
deposited into a trust account established with a third party
for the officers benefit, and the remaining 40% would be
withheld for taxes. For officers other than the Transition
Executives, if the officer is employed on each of
August 25, 2011 and August 25, 2012, the officer will
receive from the trust an amount equal to 25% of the portion of
the trust account related to such officers stock options,
which mirrors the vesting schedule of the original underlying
option grant. If the officer is actively employed at the end of
the two-year anniversary following the Merger Date, the balance
of the trust will be paid to the officer. If the officer is
terminated without cause prior to any of these payment dates (or
terminates for good reason prior to the payment date, for those
officers who are a party to an employment agreement containing a
definition of good reason), the balance will be paid to such
officer upon such termination. However, if the officer
voluntarily terminates his or her employment (other than for
good reason, for those officers who are a party to an employment
agreement containing a definition of good reason) or is
terminated for cause prior to any of these payment dates, the
officer will forfeit his or her remaining balance in the trust.
Pursuant to these terms, Mr. Fallon received the full
amount of his trust balance upon termination of his employment.
With respect to the Transition Executives, (1) in the case
of Mr. Smith, as his employment was terminated on the
Merger Date, he automatically received on such date the full
amount of the proceeds from his August 2010 Equity Grants,
(2) in the case of each of Mr. Wells and
Ms. Chwat, the amounts in the trust are being released in
six
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substantially equal installments on the first business day of
each of the first six months following the Merger Date and
(3) in the case of Mr. Chidsey, (A) 50% of the
amounts in the trust was originally scheduled to be released and
remitted on the six-month anniversary of the Merger Date and
(B) 50% of the amounts in the trust was originally
scheduled to be released and remitted on the twelve-month
anniversary of the Merger Date, subject to
Mr. Chidseys continued service until such dates
except as provided below. However, as a result of the early
termination of his consulting arrangement, Mr. Chidsey will
receive 100% of the amounts in the trust immediately following
the expiration of the Executive Transition Period.
If Mr. Chidseys employment is terminated due to death
or disability or without cause or if he terminates his
employment for good reason prior to April 18, 2011, the
balance of his trust will be paid upon termination. However, if
Mr. Chidsey voluntarily terminates his employment (other
than for good reason) or is terminated for cause prior to
April 18, 2011, he will forfeit his remaining balance in
trust.
Approval of Pro-Rata Bonuses. As a result of
the negotiations with 3G Capital, as part of the Merger
transaction, the Compensation Committee approved paying all
bonus-eligible employees, including the Pre-Merger NEOs, their
pro rata annual bonus, calculated at the target level of
performance, on the Merger Date.
The following table shows the amount in cash that each
Pre-Merger NEO received in connection with the Merger as a
result of the cancellation of equity awards and the payment of
dividend equivalents, the transition bonus (if applicable), and
the pro rata bonus and ERP contribution:
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Equity
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Dividend
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Cash
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Equivalent
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Transition
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Pro Rata
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ERP
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Name
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Payout
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Payout
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Bonus
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Bonus
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Contribution
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Total
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John W. Chidsey
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27,501,052
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97,017
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521,000
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314,291
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12,572
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|
|
28,445,932
|
|
Ben K. Wells
|
|
|
3,656,318
|
|
|
|
11,594
|
|
|
|
1,308,500
|
|
|
|
110,753
|
|
|
|
6,329
|
|
|
|
5,093,495
|
|
Anne Chwat
|
|
|
2,725,118
|
|
|
|
10,015
|
|
|
|
1,130,619
|
|
|
|
95,118
|
|
|
|
5,435
|
|
|
|
3,966,384
|
|
Jonathan Fitzpatrick
|
|
|
653,987
|
|
|
|
3,373
|
|
|
|
|
|
|
|
47,014
|
|
|
|
3,134
|
|
|
|
707,508
|
|
Natalia Franco
|
|
|
525,916
|
|
|
|
1,326
|
|
|
|
|
|
|
|
73,836
|
|
|
|
4,219
|
|
|
|
605,296
|
|
Charles M. Fallon, Jr.
|
|
|
3,313,288
|
|
|
|
9,656
|
|
|
|
|
|
|
|
105,479
|
|
|
|
6,027
|
|
|
|
3,434,450
|
|
Peter C. Smith
|
|
|
2,274,273
|
|
|
|
9,037
|
|
|
|
1,097,518
|
|
|
|
92,208
|
|
|
|
5,269
|
|
|
|
3,478,305
|
|
Post-Merger
Philosophy, Compensation and Decisions
Subsequent to the closing of the Merger, the Company became a
privately-held company and wholly-owned subsidiary of the
Parent, a privately-held company. Consequently, the Company is
not required to have a compensation committee. However, the
Parent has decided that it will continue with a compensation
committee at both the Company and the Parent levels. The members
of the Parents Compensation Committee and the
Companys Compensation Committee are the same, and these
Compensation Committees act jointly to make compensation
decisions, although the Parents Compensation Committee is
responsible for overseeing, and awarding grants under, the new
equity plan for Company employees.
In connection with the establishment of a new management team,
the Board of Directors of the Company approved the appointment
of the following new executives: (1) Bernardo Hees, Chief
Executive Officer, (2) Daniel S. Schwartz, initially
hired as Deputy Chief Financial Officer and appointed, as of
January 1, 2011, as Chief Financial Officer,
(3) Steven M. Wiborg, Executive Vice President, President
of North America, (4) Heitor Goncalves, Executive Vice
President, Chief Information and Performance Officer,
(5) José E. Cil, Executive Vice President,
President of EMEA, (6) Jonathan Fitzpatrick, Executive Vice
President, Global Operations, and (6) José D.
Tomas, Executive Vice President, Chief Human Resources and
Communications Officer. On February 28, 2011,
Mr. Fitzpatrick was named Executive Vice President, Chief
Brand and Operations Officer, and Mr. Tomas was named
President of Latin America in addition to his other
responsibilities. On February 28, 2011, the Company also
announced that Anne Chwat, Executive Vice President, General
Counsel and Secretary, had informed it of her decision to leave
the Company at the end of the Executive Transition Period, and
that Natalia Franco, Executive Vice President, Chief Global
Marketing Officer, would also be leaving the Company.
166
On November 5, 2010, the Compensation Committee approved
the compensation and other terms of employment of Mr. Hees
and delegated to Mr. Hees the right to determine the
compensation and other terms of employment of the CEO Direct
Reports. Accordingly, the employment terms of each of these
executives were the result of negotiations between Mr. Hees
and the executive. Neither Mr. Hees nor Mr. Schwartz
is a party to an employment agreement, and the Company does not
intend to enter into an employment agreement with either of
these executives.
In addition to their review and approval of the employment terms
of the new CEO, the Compensation Committee
and/or the
Board of Directors have taken the following compensation
decisions since the Merger Date:
|
|
|
|
|
On December 1, 2010, the Compensation Committee decided
that the Company would not pay any cash bonus under the RSIP or
any profit-sharing contribution under the ERP for the period
commencing on the Merger Date and ending on December 31,
2010;
|
|
|
|
On February 2, 2011, the Compensation Committee
discontinued the profit sharing component of the ERP, effective
immediately;
|
|
|
|
On February 2, 2011, the Board of Directors of the Company
terminated the Companys incentive plans in place prior to
the Merger;
|
|
|
|
On February 2, 2011, the Board of Directors of the Parent
adopted the Burger King Worldwide Holdings, Inc. 2011 Omnibus
Incentive Plan (the 2011 Omnibus Plan), and
determined that all future equity grants and cash incentives for
employees of BKC and its subsidiaries would be made pursuant to
the 2011 Omnibus Plan;
|
|
|
|
On February 2, 2011, the Compensation Committee established
the 2011 annual bonus program under the 2011 Omnibus Plan. Under
the 2011 annual bonus program, awards will be payable upon
achievement of Company-wide financial performance and individual
performance. Individual results measure a participants
performance against the individual management business
objectives or MBOs assigned to a participant for the fiscal
year. Under the 2011 annual bonus program, a participant must
achieve at least 50% of his or her overall individual targets
for the fiscal year in order to receive any portion of a bonus
payout for that fiscal year;
|
|
|
|
On February 3, 2011, the Parent granted stock options under
the 2011 Omnibus Plan to certain select executives, including
all of the executive officers. We do not currently anticipate
that additional equity will be issued to our executives on an
annual basis as part of future compensation arrangements. We
anticipate that any future option grants will be
discretionary; and
|
|
|
|
On March 1, 2011, the Parent offered officers of the
Company who had proceeds from the August 2010 Equity Grants
deposited into trust a one-time opportunity to purchase shares
of common stock of the Parent under the 2011 Omnibus Plan
(Investment Shares) at a purchase price of $15.82
per millishare (or .001 of a full share). Any officer who elects
to purchase Investment Shares will also receive an option to
purchase two millishares for each Investment Share purchased, at
an exercise price of $15.82 per millishare.
|
167
Compensation
Committee Report
We have reviewed and discussed the foregoing Compensation
Discussion and Analysis with management. Based on our review and
discussions with management, we have approved the inclusion of
the Compensation Discussion & Analysis in this
Form 10-K.
COMPENSATION COMMITTEE
Alexandre Behring
Marcel Herrmann Telles
Carlos Alberto Sicupira
March 21, 2011
TRANSITION
PERIOD SUMMARY COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Incentive Plan
|
|
All Other
|
|
|
Name and
|
|
|
|
|
|
Bonus
|
|
Awards
|
|
Awards
|
|
Compensation
|
|
Compensation(6)
|
|
|
Principal Position
|
|
Year
|
|
Salary ($)
|
|
(2)($)
|
|
(3)($)
|
|
(4)($)
|
|
(5)($)
|
|
($)
|
|
Total ($)
|
|
Bernardo Hees
|
|
|
2010
|
(1)
|
|
|
86,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,716
|
|
|
|
94,254
|
|
Chief Executive Officer(7)(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John W. Chidsey
|
|
|
2010
|
(1)
|
|
|
521,438
|
|
|
|
521,000
|
|
|
|
2,085,721
|
|
|
|
2,043,802
|
|
|
|
314,291
|
|
|
|
182,594
|
|
|
|
5,668,846
|
|
Chief Executive Officer(7)
|
|
|
2010
|
|
|
|
1,042,875
|
|
|
|
|
|
|
|
2,085,747
|
|
|
|
2,060,614
|
|
|
|
649,967
|
|
|
|
358,419
|
|
|
|
6,197,622
|
|
|
|
|
2009
|
|
|
|
1,034,697
|
|
|
|
|
|
|
|
2,024,993
|
|
|
|
1,967,403
|
|
|
|
803,014
|
|
|
|
316,943
|
|
|
|
6,147,050
|
|
|
|
|
2008
|
|
|
|
1,012,500
|
|
|
|
|
|
|
|
2,024,982
|
|
|
|
1,930,752
|
|
|
|
1,306,125
|
|
|
|
434,190
|
|
|
|
6,708,549
|
|
Ben K. Wells
|
|
|
2010
|
(1)
|
|
|
261,335
|
|
|
|
1,308,500
|
|
|
|
1,113,706
|
|
|
|
385,828
|
|
|
|
110,753
|
|
|
|
52,238
|
|
|
|
3,232,360
|
|
Chief Financial Officer
|
|
|
2010
|
|
|
|
494,709
|
|
|
|
|
|
|
|
371,016
|
|
|
|
366,560
|
|
|
|
215,828
|
|
|
|
115,336
|
|
|
|
1,563,449
|
|
|
|
|
2009
|
|
|
|
490,830
|
|
|
|
50,000
|
|
|
|
360,223
|
|
|
|
349,978
|
|
|
|
266,648
|
|
|
|
115,336
|
|
|
|
1,633,015
|
|
|
|
|
2008
|
|
|
|
479,147
|
|
|
|
|
|
|
|
360,220
|
|
|
|
343,466
|
|
|
|
433,711
|
|
|
|
126,109
|
|
|
|
1,742,653
|
|
Anne Chwat
|
|
|
2010
|
(1)
|
|
|
225,441
|
|
|
|
1,130,619
|
|
|
|
338,153
|
|
|
|
331,359
|
|
|
|
95,118
|
|
|
|
47,291
|
|
|
|
2,167,981
|
|
EVP, General Counsel
|
|
|
2010
|
|
|
|
450,883
|
|
|
|
|
|
|
|
338,149
|
|
|
|
334,088
|
|
|
|
196,708
|
|
|
|
107,033
|
|
|
|
1,426,861
|
|
Jonathan Fitzpatrick
|
|
|
2010
|
(1)
|
|
|
143,846
|
|
|
|
|
|
|
|
102,363
|
|
|
|
100,311
|
|
|
|
47,014
|
|
|
|
444,492
|
|
|
|
838,026
|
|
EVP, Global Operations(7)(8)(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natalia Franco
|
|
|
2010
|
(1)
|
|
|
176,923
|
|
|
|
|
|
|
|
131,237
|
|
|
|
|
|
|
|
73,836
|
|
|
|
148,250
|
|
|
|
530,246
|
|
EVP & Global Chief Marketing Officer(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles M. Fallon, Jr.
|
|
|
2010
|
(1)
|
|
|
224,529
|
|
|
|
|
|
|
|
374,994
|
|
|
|
367,455
|
|
|
|
105,479
|
|
|
|
1,890,617
|
|
|
|
2,963,074
|
|
President, North America(7)
|
|
|
2010
|
|
|
|
437,750
|
|
|
|
|
|
|
|
328,298
|
|
|
|
324,353
|
|
|
|
220,750
|
|
|
|
104,029
|
|
|
|
1,415,180
|
|
|
|
|
2009
|
|
|
|
434,317
|
|
|
|
|
|
|
|
350,622
|
|
|
|
340,652
|
|
|
|
222,158
|
|
|
|
96,527
|
|
|
|
1,444,276
|
|
|
|
|
2008
|
|
|
|
425,000
|
|
|
|
|
|
|
|
318,728
|
|
|
|
303,908
|
|
|
|
391,162
|
|
|
|
128,575
|
|
|
|
1,567,373
|
|
Peter C. Smith
|
|
|
2010
|
(1)
|
|
|
147,938
|
|
|
|
1,097,518
|
|
|
|
327,787
|
|
|
|
321,221
|
|
|
|
92,208
|
|
|
|
528,684
|
|
|
|
2,515,356
|
|
EVP, HR(7)
|
|
|
2010
|
|
|
|
437,091
|
|
|
|
|
|
|
|
327,804
|
|
|
|
323,867
|
|
|
|
190,691
|
|
|
|
104,016
|
|
|
|
1,383,469
|
|
|
|
|
(1) |
|
Refers to the transition period of July 1, 2010 through
December 31, 2010 (the Transition Period). |
|
(2) |
|
Each of Messrs. Chidsey, Wells and Smith and Ms. Chwat
received a transition bonus in respect of his or her
contributions towards the successful completion of the Merger.
Messrs. Wells and Smith and Ms. Chwat received their
respective transition bonus on the Merger Date. Mr. Chidsey
received $521,000 of his transition bonus on the Merger Date,
and will receive $2,500,000 within five days following the
expiration of the Executive Transition Period, subject to his
continued service or earlier termination of employment without
cause, for good reason or by reason of his death or disability. |
|
(3) |
|
Amounts shown in this column include the aggregate grant date
fair value of restricted stock awards, performance-based
restricted stock awards and performance share awards, as
applicable, granted in the Transition Period, fiscal 2010,
fiscal 2009 and fiscal 2008 in accordance with FASB ASC Topic
718. The amounts previously reported for fiscal 2009 and fiscal
2008 have been restated to reflect the aggregate grant date fair
value of the grants in accordance with new SEC rules. The
assumptions and methodology used to |
168
|
|
|
|
|
calculate the grant date fair value for these awards are in
Note 3 to the accompanying audited Consolidated Financial
Statements. In connection with the Merger, the restricted stock
awards, performance based restricted stock and performance share
awards granted in August 2010 to the Pre-Merger NEOs were
accelerated and converted into the right to receive cash (in the
case of the performance share awards and performance based
restricted stock awards at the target level of performance) on
the Merger Date. |
|
(4) |
|
Amounts shown in this column include the aggregate grant date
fair value of option awards granted in the Transition Period,
fiscal 2010, fiscal 2009 and fiscal 2008 in accordance with FASB
ASC Topic 718. Amounts previously reported for fiscal 2010,
fiscal 2009 and fiscal 2008 were also restated to reflect
immaterial differences in the calculation of the grant date fair
value. The assumptions and methodology used to calculate the
grant date fair value for the options are in Note 3 of the
accompanying audited Consolidated Financial Statements. In
connection with the Merger, the options granted in August 2010
to the Pre-Merger NEOs were accelerated and converted into the
right to receive cash on the Merger Date. |
|
(5) |
|
The amounts reported in this column reflect compensation earned
for the Transition Period, fiscal 2010, fiscal 2009 and fiscal
2008 under the RSIP. During fiscal 2010, fiscal 2009 and fiscal
2008, we paid cash incentives under the RSIP in the fiscal year
following the fiscal year in which they were earned. During the
Transition Period, all bonus-eligible employees, including the
Pre-Merger NEOs, received their annual bonus for fiscal 2011 pro
rated for the portion of the fiscal year that occurred prior to
the Merger Date, calculated at the target level of performance,
on the Merger Date. The Compensation Committee decided not to
pay a bonus under the RSIP for the period beginning on the
Merger Date and ending on December 31, 2010. |
|
(6) |
|
This column includes the Transition Period perquisites described
below in the Transition Period Perquisites Table. This column
also includes severance payments for Messrs. Fallon and
Smith, consulting fees for Mr. Smith, expatriate benefits
for Mr. Fitzpatrick, life insurance premiums, dividend
payments and dividend equivalents as described in Footnote 4 to
the Transition Period All Other Compensation Table, the
Companys matching and performance-based contributions to
the Companys 401(k) plan and ERP, as described below in
the Transition Period All Other Compensation Table. |
|
(7) |
|
Mr. Hees was appointed as CEO on November 4, 2010.
Mr. Chidsey served as Chairman and CEO through
October 19, 2010. Mr. Fitzpatrick was appointed EVP,
Global Operations on October 25, 2010 and, on
February 28, 2011, assumed the role of EVP, Chief Brand and
Operations Officer. Mr. Fallon served as EVP and President
of North America until November 30, 2010. Mr. Smith
served as EVP, Global Human Resources Officer until
October 19, 2010. He provided consulting services to the
Company from October 20, 2010 through October 29, 2010
and received $18,321.90 in consulting fees, which are included
in All Other Compensation for the Transition Period. |
|
(8) |
|
Messrs. Hees and Fitzpatrick and Ms. Franco became
Named Executive Officers in the Transition Period. Since they
were not NEOs in fiscal 2010, fiscal 2009 and fiscal 2008, the
Summary Compensation Table only includes their compensation for
the Transition Period. |
|
(9) |
|
The exchange rates used for Mr. Fitzpatricks
expatriate benefits for the Transition Period which were paid in
Swiss Francs are based on the one day average historical rate as
found on OANDA.com on December 31, 2010 as follows: 1 CHF =
1.06288 USD. |
Employment
Agreements
We have employment agreements in place with John W. Chidsey, our
former CEO, and Ben K. Wells, our former CFO, Anne Chwat, our
EVP, General Counsel and Secretary, and Jonathan Fitzpatrick,
our EVP, Chief Brand and Operations Officer.
Messrs. Chidsey and Wells and Ms. Chwat will remain
employees of the Company until the end of the Executive
Transition Period, at which time their employment will terminate
and they will be entitled to the severance payments and benefits
set forth in their respective employment agreement, as amended.
Prior to her departure, we had an employment agreement in place
with Natalia Franco, our former Chief Global Marketing Officer.
The terms of these employment agreements are discussed below.
169
Employment
Agreement with Mr. Chidsey
We initially entered into an employment agreement with
Mr. Chidsey to serve as our Chief Executive Officer on
April 6, 2006, which was amended on December 16, 2008
and further amended on April 1, 2010 and September 1,
2010. Pursuant to the amendment to the employment agreement
entered into on September 1, 2010 in connection with the
Merger, the Company agreed to employ Mr. Chidsey for a six
month period commencing on the Merger Date and ending on
April 18, 2011 (the Executive Transition
Period) and to pay Mr. Chidsey the pro rata bonus at
target on the Merger Date and the transition bonus described
above under Compensation Committee Role in Connection with
Merger Related Compensation. In addition, during the
Executive Transition Period, Mr. Chidsey is entitled to
receive his base salary, a pro rata bonus at target based on the
number of days employed during the Executive Transition Period
to be paid within five days following the end of the Executive
Transition Period, and the various benefits described in the
employment agreement, each as in effect immediately prior to the
Merger Date, subject to his continued employment through the end
of the Executive Transition Period. Pursuant to his employment
agreement, Mr. Chidsey receives an annual salary of
$1,042,875. The employment agreement provides that
Mr. Chidseys target annual cash bonus opportunity is
100% of his base salary. Mr. Chidsey is also entitled to
receive an annual perquisite allowance of $63,500, private
charter jet usage for business travel (and up to $100,000 per
year for personal use) and personal use of a car service.
Additional information regarding Mr. Chidseys private
charter jet usage and car service is set forth in the Transition
Period Perquisites Table.
Following the Executive Transition Period,
Mr. Chidseys employment will terminate, and he will
be entitled to receive an amount equal to six times his base
salary and three times the annual amount of his annual
perquisites allowance. Except for the Safe Harbor
Amount discussed below, the severance amount will be
payable over a period of six months on our regular payroll
dates, commencing on the first business day immediately
following the six month anniversary of the termination date and
ending on the one year anniversary of the termination date. The
portion of the severance equal to two times the lesser of
(1) the sum of Mr. Chidseys annualized
compensation within the meaning of Section 409A of
the Internal Revenue Code and (2) the maximum amount that
may be taken into account under a qualified plan pursuant to
Section 401(a)(17) of the Internal Revenue Code (the
Safe Harbor Amount) is payable two days following
Mr. Chidseys termination date. Mr. Chidsey will
also be entitled to continued coverage under BKCs medical,
dental and life insurance plans for him and his eligible
dependents during the three-year period following termination.
If Mr. Chidseys employment is terminated during the
Executive Transition Period other than for cause or his
voluntary termination without good reason, in addition to the
severance payments and benefits under his employment agreement,
Mr. Chidsey will receive the remaining cash compensation
that would have been paid to him had he performed the services
through the end of the Executive Transition Period. If any
payments due to Mr. Chidsey in connection with a change in
control would be subject to an excise tax, we will provide
Mr. Chidsey with a related tax
gross-up
payment, unless a reduction in Mr. Chidseys payments
by up to 10% would avoid the excise tax.
Employment
Agreement with Mr. Wells and Ms. Chwat
We are party to employment agreements with Mr. Wells and
Ms. Chwat dated December 8, 2008, as amended on
September 1, 2010. Pursuant to their respective employment
agreement amendments entered into on September 1, 2010 in
connection with the Merger, the Company agreed to employ
Mr. Wells and Ms. Chwat for the Executive Transition
Period and to pay them their pro rata bonus at target and
respective transition bonus on the Merger Date described above
under Compensation Committee Role in Connection with
Merger Related Compensation. In addition, during the
Executive Transition Period, each of Mr. Wells and
Ms. Chwat are entitled to receive his or her base salary, a
pro rata bonus at target based on the number of days employed
during the Executive Transition Period to be paid within five
days following the end of the Executive Transition Period, and
the various benefits described in his or her employment
agreement, each as in effect immediately prior to the Merger
Date, subject to his or her continued employment through the end
of the Executive Transition Period. The employment agreement
provides that the target annual cash bonus opportunity for
Mr. Wells and Ms. Chwat is 70% of base salary.
Following the Executive Transition Period, the employment of
Mr. Wells and Ms. Chwat will terminate, and they will
be entitled to receive their current base salary and perquisite
allowance for one year and continued coverage for two years
under BKCs medical, dental and life insurance plans for
the executive and his or her eligible
170
dependents. Except for the Safe Harbor Amount
discussed above, which is payable within two days following the
termination date, the severance amount will be payable in equal
installments over a six-month period beginning on the first
business day following the six month anniversary of the
termination date and ending on the one year anniversary of the
termination date. If the executives employment is
terminated during the Executive Transition Period other than for
cause or his or her voluntary termination without good reason,
in addition to the severance payments and benefits under his or
her employment agreement, the executive will receive the
remaining cash compensation that would have been paid to him or
her had he or she performed the services through the end of the
Executive Transition Period. Mr. Wells and Ms. Chwat
are entitled to receive outplacement services upon termination
of employment without cause or for good reason.
Employment
Agreement with Mr. Fitzpatrick
We have entered into a one-year employment agreement with
Mr. Fitzpatrick. Mr. Fitzpatricks employment
agreement automatically extends for an additional one-year
period and will continue to be so extended unless BKC provides
notice of non-renewal at least 90 days prior to the
expiration of the relevant period. Pursuant to his employment
agreement, Mr. Fitzpatrick is eligible to receive an annual
base salary of $350, 000 which is subject to increase by the
Compensation Committee, in its sole discretion.
Mr. Fitzpatrick was not eligible to receive a cash bonus
for the period commencing on the Merger Date and ending on
December 31, 2010 due to the Compensation Committees
decision that the Company would not pay a cash bonus under the
RSIP during this period.
Commencing January 1, 2011, Mr. Fitzpatrick is
eligible to receive a performance-based annual cash bonus with a
target payment equal to 120% of his annual base salary if we
achieve the target performance goals set by the Compensation
Committee and Mr. Fitzpatrick achieves his individual
management business objectives for a particular fiscal year in
accordance with the terms of our annual bonus program. The
employment agreement further provides for an option grant having
an aggregate grant date fair value of $2 million, which
option grant was made on February 3, 2011.
Pursuant to his employment agreement, if BKC terminates
Mr. Fitzpatricks employment without cause or if he
terminates his employment with good reason (as defined in the
agreement), he will be entitled to receive an amount (the
Severance Amount) equal to two times the sum of
current base salary and target annual bonus for the year of
termination and continued coverage for two years under
BKCs medical, dental and life insurance plans for him and
his eligible dependents. The lesser of the Safe Harbor Amount
(as defined above) and one-quarter of the Severance Amount will
be paid in installments during the period commencing on the
61st day following termination and ending four months
thereafter, with the first installment in an amount equal to the
payments due for the first 60 days following termination
and the remainder in substantially equal installments over the
remaining four-month period. The balance of the Severance Amount
will be paid in equal installments during the period commencing
on the first business day following the six-month anniversary of
the termination date and ending on the second anniversary of the
termination date. At the discretion of BKCs Chief Human
Resources Officer, Mr. Fitzpatrick will receive
outplacement services upon termination of employment.
If Mr. Fitzpatricks employment terminates upon his
death or if the Company terminates as a result of his disability
(as defined in the employment agreement), the Company will pay
to Mr. Fitzpatrick (or, in the event of his death, to his
estate), his pro rata bonus through the termination date the
extent and when the Company pays the bonus for that year.
Employment
Agreement with Ms. Franco
Until her employment terminated on March 10, 2011, the
Company was party to an employment agreement with
Ms. Franco. Pursuant to the terms of her employment
agreement, as amended, Ms. Franco is entitled to receive an
amount (the Severance Amount) equal to two times the
sum of current base salary, prerequisite allowance and target
bonus for the year of termination and continued coverage for two
years under BKCs medical, dental and life insurance plans
for her eligible dependents. Ms. Francos target bonus
is 120% of her base salary. The lesser of the Safe Harbor Amount
(as defined above) and one-quarter of the Severance Amount will
be paid in installments during the period commencing on the
61st day
following termination and ending four months thereafter, with
the first installment in an amount equal to the payments due for
the first 60 days following termination and the
171
remainder in substantially equal installments over the remaining
four-month period. The balance of the Severance Amount will be
paid in equal installments during the period commencing on the
first business day following the six-month anniversary of the
termination date and ending on the second anniversary of the
termination date.
TRANSITION
PERIOD ALL OTHER COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions to
|
|
Dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
Welfare
|
|
Retirement and
|
|
Equivalents
|
|
Expatriate
|
|
|
|
|
|
|
|
|
|
|
Plans
|
|
401(k) Plans(3)
|
|
Earned
|
|
Benefits
|
|
Severance
|
|
|
Name
|
|
Year(1)
|
|
Perquisites ($)
|
|
(2)($)
|
|
($)
|
|
(4)($)
|
|
(5)($)
|
|
(6)($)
|
|
Total ($)
|
|
Bernardo Hees
|
|
|
2010
|
|
|
|
7,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,716
|
|
John W. Chidsey
|
|
|
2010
|
|
|
|
122,361
|
|
|
|
1,168
|
|
|
|
41,452
|
|
|
|
17,613
|
|
|
|
|
|
|
|
|
|
|
|
182,594
|
|
Ben K. Wells
|
|
|
2010
|
|
|
|
24,250
|
|
|
|
3,090
|
|
|
|
20,867
|
|
|
|
4,031
|
|
|
|
|
|
|
|
|
|
|
|
52,238
|
|
Anne Chwat
|
|
|
2010
|
|
|
|
24,250
|
|
|
|
1,557
|
|
|
|
18,961
|
|
|
|
2,523
|
|
|
|
|
|
|
|
|
|
|
|
47,291
|
|
Jonathan Fitzpatrick
|
|
|
2010
|
|
|
|
|
|
|
|
329
|
|
|
|
10,034
|
|
|
|
819
|
|
|
|
433,310
|
|
|
|
|
|
|
|
444,492
|
|
Natalia Franco
|
|
|
2010
|
|
|
|
131,973
|
|
|
|
1,007
|
|
|
|
14,373
|
|
|
|
897
|
|
|
|
|
|
|
|
|
|
|
|
148,250
|
|
Charles M. Fallon, Jr.
|
|
|
2010
|
|
|
|
22,385
|
|
|
|
1,083
|
|
|
|
19,499
|
|
|
|
2,573
|
|
|
|
|
|
|
|
1,845,077
|
|
|
|
1,890,617
|
|
Peter C. Smith
|
|
|
2010
|
|
|
|
24,542
|
|
|
|
2,051
|
|
|
|
14,146
|
|
|
|
2,354
|
|
|
|
|
|
|
|
485,591
|
|
|
|
528,684
|
|
|
|
|
(1) |
|
Refers to the Transition Period. |
|
(2) |
|
Amounts in this column reflect life insurance premiums paid by
us. |
|
(3) |
|
The amounts in this column represent Company matching
contributions to the 401(k) plan and the ERP and the
Companys profit sharing contribution to the ERP for the
Transition Period, as follows: |
Company
Matching Contributions to 401(k) and ERP and
Company Profit Sharing Contribution to ERP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition Period
|
|
|
|
|
|
|
Company Matching
|
|
Transition Period
|
|
Transition Period
|
|
|
Contributions
|
|
Company Matching
|
|
Profit Sharing
|
NEO
|
|
401(k) ($)
|
|
Contributions ERP($)
|
|
Contribution ERP ($)
|
|
Bernardo Hees
|
|
|
|
|
|
|
|
|
|
|
|
|
John W. Chidsey
|
|
|
|
|
|
|
28,880
|
|
|
|
12,572
|
|
Ben K. Wells
|
|
|
|
|
|
|
14,538
|
|
|
|
6,329
|
|
Anne Chwat
|
|
|
719
|
|
|
|
12,807
|
|
|
|
5,435
|
|
Jonathan Fitzpatrick
|
|
|
6,900
|
|
|
|
|
|
|
|
3,134
|
|
Natalia Franco
|
|
|
|
|
|
|
10,154
|
|
|
|
4,219
|
|
Charles M. Fallon, Jr.
|
|
|
1,568
|
|
|
|
11,904
|
|
|
|
6,027
|
|
Peter C. Smith
|
|
|
1,034
|
|
|
|
7,843
|
|
|
|
5,269
|
|
|
|
|
(4) |
|
Quarterly dividends and dividend equivalents in the amount of
$0.0625 per share were paid by the Company to record owners of
shares, in the case of dividends, and accrued by the Company for
the holders of vested and unvested restricted stock units,
restricted stock and performance shares in the case of dividend
equivalents, as of September 14, 2010 in the Transition
Period. The amounts in this column represent accrued dividend
equivalents earned on vested and unvested restricted stock
units, restricted stock, performance shares and performance
based restricted stock, as applicable, during the Transition
Period. All Pre-Merger NEOs had restricted stock units,
restricted stock, performance shares and performance based
restricted stock settle during the period due to the Merger.
Mr. Chidsey was paid $97,017; Mr. Wells was paid
$11,594; Ms. Chwat was paid $10,094; Mr. Fitzpatrick
was paid $3,373; Ms. Franco was paid $1,326;
Mr. Fallon was paid $9,656; and Mr. Smith was paid
$9,037, which represents dividends that accrued on these
restricted stock units, restricted stock, performance shares and
performance based restricted stock during the Transition Period. |
|
(5) |
|
This column represents expatriate benefits received by
Mr. Fitzpatrick during the Transition Period in connection
with his temporary assignment from the U.S. to Switzerland.
Included in the total number is |
172
|
|
|
|
|
$118,275 estimated Swiss individual income taxes, plus tax
gross-up of
$41,025. The amounts included in this column for housing
assistance, estimated Swiss individual income taxes, cost of
living allowance, the cost to the Company of
Mr. Fitzpatricks car in Switzerland and home leave
were paid in Swiss Francs and converted to U.S. dollars based
upon the exchange rate described in Footnote 9 to the Transition
Period Summary Compensation Table. |
|
(6) |
|
Includes severance amounts payable to Messrs. Fallon and
Smith pursuant to their respective employment agreements, as
amended, in connection with their termination of employment
following the Merger. Also includes, for Mr. Smith,
$18,321.90 received for consulting services provided to the
Company from October 20, 2010 through October 29, 2010. |
TRANSITION
PERIOD PERQUISITES TABLE
Our NEOs received the following perquisites during the
Transition Period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perquisite
|
|
|
Personal
|
|
|
Auto Expenses/
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Allowance
|
|
|
Travel
|
|
|
Car Service
|
|
|
Miscellaneous
|
|
|
Perquisites
|
|
Name
|
|
Year(1)
|
|
|
(2)($)
|
|
|
(3)($)
|
|
|
(4)($)
|
|
|
(5)($)
|
|
|
($)
|
|
|
Bernardo Hees
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,716
|
|
|
|
7,716
|
|
John W. Chidsey
|
|
|
2010
|
|
|
|
31,750
|
|
|
|
89,287
|
|
|
|
1,324
|
|
|
|
|
|
|
|
122,361
|
|
Ben K. Wells
|
|
|
2010
|
|
|
|
24,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,250
|
|
Anne Chwat
|
|
|
2010
|
|
|
|
24,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,250
|
|
Jonathan Fitzpatrick
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natalia Franco
|
|
|
2010
|
|
|
|
24,250
|
|
|
|
|
|
|
|
|
|
|
|
107,723
|
|
|
|
131,973
|
|
Charles M. Fallon, Jr.
|
|
|
2010
|
|
|
|
22,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,385
|
|
Peter C. Smith
|
|
|
2010
|
|
|
|
16,788
|
|
|
|
|
|
|
|
|
|
|
|
7,754
|
|
|
|
24,542
|
|
|
|
|
(1) |
|
Refers to the Transition Period. |
|
(2) |
|
These perquisite allowances were paid to the NEOs other than
Mr. Hees and Mr. Fitzpatrick in accordance with their
respective employment agreements. Each such NEO uses the
perquisite allowance at his or her discretion. The amount was
calculated at an annual rate of $63,500 for Mr. Chidsey and
$48,500 for Messrs. Wells, Fallon and Smith and
Ms. Chwat and Ms. Franco. |
|
(3) |
|
Pursuant to his employment agreement, Mr. Chidsey is
entitled to private charter jet usage for personal use of up to
$100,000 per year. However, under his employment agreement, only
hourly charges and fuel surcharges are to be considered for
purposes of this $100,000 allowance. In accordance with SEC
guidance, the amounts included in this column have been
calculated utilizing the actual invoice amount, which we believe
more accurately reflects the incremental cost to the Company for
this perquisite. The aggregate incremental cost to the Company
for Mr. Chidseys personal usage of the Company
aircraft was $89,287, $13,976 of which was for spousal travel,
for the Transition Period. Mr. Chidsey is fully responsible
for all taxes associated with his personal use of the Company
aircraft. |
|
(4) |
|
Mr. Chidsey is entitled to personal use of a car service,
and the charges for this perquisite totaled $1,324.
Mr. Chidsey is fully responsible for all taxes associated
with this perquisite. |
|
(5) |
|
Represents relocation expenses for Mr. Hees and
Ms. Franco and
$7,754 gross-up
on MICA for underreported taxes for Mr. Smith during the
Companys 2007 fiscal year. |
173
TRANSITION
PERIOD GRANTS OF PLAN-BASED AWARDS TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
Option
|
|
Exercise
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Awards:
|
|
or Base
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Number of
|
|
Price of
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Performance Shares Possible
|
|
Number of
|
|
Securities
|
|
Option
|
|
Stock and
|
|
|
|
|
|
|
Estimated Possible Payouts Under
|
|
Payouts Under Equity Incentive
|
|
Shares or
|
|
Underlying
|
|
Awards
|
|
Option
|
|
|
Grant
|
|
Approval
|
|
Non-Equity Incentive Plan Awards(2)
|
|
Plan Awards(3)
|
|
Units
|
|
Options
|
|
($/sh)
|
|
Awards
|
Name
|
|
Date
|
|
Date(1)
|
|
Threshold ($)
|
|
Target ($)
|
|
Maximum ($)
|
|
Threshold (#)
|
|
Target (#)
|
|
Maximum (#)
|
|
(#)(4)
|
|
(#)(6)
|
|
(7)
|
|
($)(8)
|
|
Bernardo Hees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John W. Chidsey
|
|
|
8/25/2010
|
|
|
|
8/18/2010
|
|
|
|
521,438
|
|
|
|
1,042,875
|
|
|
|
2,085,750
|
|
|
|
|
|
|
|
59,558
|
|
|
|
119,116
|
|
|
|
59,558
|
|
|
|
339,502
|
|
|
|
17.51
|
|
|
|
4,129,523
|
|
Ben K. Wells
|
|
|
8/25/2010
|
|
|
|
8/18/2010
|
|
|
|
183,750
|
|
|
|
367,500
|
|
|
|
735,000
|
|
|
|
|
|
|
|
11,243
|
|
|
|
26,984
|
|
|
|
11,243
|
|
|
|
64,091
|
|
|
|
17.51
|
|
|
|
779,558
|
|
Ben K. Wells(5)
|
|
|
8/25/2010
|
|
|
|
7/19/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,559
|
|
|
|
|
|
|
|
17.51
|
|
|
|
359,988
|
|
Anne Chwat
|
|
|
8/25/2010
|
|
|
|
8/18/2010
|
|
|
|
157,809
|
|
|
|
315,618
|
|
|
|
631,236
|
|
|
|
|
|
|
|
9,656
|
|
|
|
23,174
|
|
|
|
9,656
|
|
|
|
55,043
|
|
|
|
17.51
|
|
|
|
669,512
|
|
Jonathan Fitzpatrick
|
|
|
8/25/2010
|
|
|
|
8/18/2010
|
|
|
|
78,000
|
|
|
|
156,000
|
|
|
|
273,000
|
|
|
|
4,676
|
|
|
|
5,846
|
|
|
|
8,017
|
|
|
|
|
|
|
|
16,663
|
|
|
|
17.51
|
|
|
|
202,675
|
|
Natalia Franco
|
|
|
8/25/2010
|
|
|
|
8/18/2010
|
|
|
|
122,500
|
|
|
|
245,000
|
|
|
|
490,000
|
|
|
|
|
|
|
|
7,495
|
|
|
|
17,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131,237
|
|
Charles M. Fallon, Jr.
|
|
|
8/25/2010
|
|
|
|
8/18/2010
|
|
|
|
175,000
|
|
|
|
350,000
|
|
|
|
700,000
|
|
|
|
|
|
|
|
10,708
|
|
|
|
25,698
|
|
|
|
10,708
|
|
|
|
61,039
|
|
|
|
17.51
|
|
|
|
742,449
|
|
Peter C. Smith
|
|
|
8/25/2010
|
|
|
|
8/18/2010
|
|
|
|
152,982
|
|
|
|
305,964
|
|
|
|
611,927
|
|
|
|
|
|
|
|
9,360
|
|
|
|
22,466
|
|
|
|
9,360
|
|
|
|
53,359
|
|
|
|
17.51
|
|
|
|
649,008
|
|
|
|
|
(1) |
|
The Compensation Committee recommended and the Board approved
the fiscal 2011 grants with a grant date of August 25, 2010
at meetings held on August 18, 2010. |
|
(2) |
|
The amounts reported in this column reflect possible payments
based on fiscal 2011 performance under the RSIP at threshold,
target and maximum performance levels, as approved by the
Compensation Committee for the full fiscal year. The
Maximum estimated possible payout reflects what a
Pre-Merger NEO would earn if the Company met or exceeded its
financial performance goals at the maximum level. In connection
with the Merger, all bonus-eligible employees, including the
Pre-Merger NEOs, received their pro rata annual bonus for fiscal
2011 through October 18, 2010, calculated at the target
performance level, on the Merger Date. The actual amounts paid
under the RSIP are the amounts reflected in the Non-Equity
Incentive Plan Compensation column of the Transition Period
Summary Compensation Table. |
|
(3) |
|
In August 2010, we made grants of option, restricted stock and
performance share awards to each Pre-Merger NEO except
Mr. Fitzpatrick. Mr. Fitzpatrick received an option
grant and a grant of performance based restricted stock. The
amounts reported under the Threshold,
Target and Maximum columns above relate
only to the performance share awards and, in the case of
Mr. Fitzpatrick, performance based restricted stock award,
made under our 2006 Omnibus Incentive Plan. The performance
share awards granted to the Pre-Merger NEOs, other than
Messrs. Chidsey and Fitzpatrick, were calculated as
follows: the NEOs current salary, multiplied by the target
equity award as a percentage of base salary, adjusted by the
NEOs individual performance factor (which may result in an
award adjustment of up to plus or minus 20%), divided by four,
then divided by the closing stock price on the grant date. For
Mr. Chidsey, the number of performance shares was
calculated similarly; however, his percentage of base salary was
not subject to adjustment based on his individual performance.
The performance based restricted stock award granted to
Mr. Fitzpatrick was calculated as follows:
Mr. Fitzpatricks current salary, multiplied by the
target equity award as a percentage of base salary, adjusted by
his individual performance factor (which may result in an award
adjustment of up to plus or minus 20%), divided by two, then
divided by the closing stock price on the grant date. The actual
number of performance shares and, in the case of
Mr. Fitzpatrick, performance based restricted stock,
granted is reflected in the Target column above.
Based on decisions made by the Compensation Committee at the
time of the grant, but for the Merger, the Pre-Merger NEOs would
have received the number of performance shares (and, in the case
of Mr. Fitzpatrick, performance based restricted stock)
reflected in the Target column above if the Company
had achieved its target PBT for fiscal 2011. The number of
performance shares that would have been earned by the Pre-Merger
NEOs other than Mr. Fitzpatrick at the end of the one-year
performance period would then have been subject to a decrease of
up to 100% for all NEOs if the Company had achieved PBT between
the Threshold and Target levels or an
increase of up to 200% for all NEOs if the Company had achieved
PBT between the Target and Maximum
levels. Mr. Fitzpatricks performance based restricted
stock were subject to a decrease of up to 20% and an increase of
up to 20% for performance between the levels described in the
preceding sentence. However, in connection with the Merger, the
performance shares and performance based restricted stock were
accelerated and converted into the right to receive cash at the
target level of performance on the Merger Date. |
174
|
|
|
(4) |
|
The restricted stock awards granted in August 2010 were made
under our 2006 Omnibus Incentive Plan. All of the Pre-Merger
NEOs except for Mr. Fitzpatrick received restricted stock
awards in August 2010. The restricted stock awards granted to
these Pre-Merger NEOs, other than Mr. Chidsey, were
calculated as follows: the NEOs current salary, multiplied
by the target equity award as a percentage of base salary,
adjusted by the NEOs individual performance factor (which
may result in an award adjustment of up to plus or minus 20%),
divided by four, then divided by the closing stock price on the
grant date. For Mr. Chidsey, the number of shares of
restricted stock was calculated similarly; however, his
percentage of base salary was not subject to adjustment based on
his individual performance. In connection with the Merger, these
restricted stock awards were accelerated and converted into the
right to receive cash on the Merger Date. |
|
(5) |
|
On July 19, 2010, the Compensation Committee approved a
special equity grant with a grant date of August 25, 2010
and an aggregate grant date fair value of $360,000 for
Mr. Wells. The grant consisted of restricted stock that was
scheduled to vest ratably on the anniversary of the grant date
over a three-year period. The equity grant was converted into
cash and paid to Mr. Wells on the Merger Date. |
|
(6) |
|
The option awards granted in August 2010 were made under our
2006 Omnibus Incentive Plan. The options awarded to the
Pre-Merger NEOs, other than Mr. Chidsey, were calculated as
follows: the NEOs current salary, multiplied by the target
equity award as a percentage of base salary, adjusted by the
NEOs individual performance factor (which may result in an
award adjustment of up to plus or minus 20%), divided by two,
then divided by the economic value of our stock on the grant
date, which was $6.14 per share. For Mr. Chidsey, the
number of options was calculated similarly; however, his
percentage of base salary was not subject to adjustment based on
his individual performance. In connection with the Merger, these
option awards were accelerated and converted into the right to
receive cash on the Merger Date. |
|
(7) |
|
Reflects the closing price of our common stock on the NYSE on
August 25, 2010, the fiscal 2011 annual equity grant date. |
|
(8) |
|
The amounts reflect the fair market value of (1) the
probable payout of performance shares, and (2) the
restricted stock and options awarded (which were not subject to
any increase or decrease based on individual or Company
performance) on August 25, 2010 (the grant date). |
TRANSITION
PERIOD EXERCISES AND STOCK VESTED TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards(3)
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
Stock Awards(3)
|
|
|
Acquired on
|
|
Value Realized on
|
|
Number of Shares
|
|
Value Realized
|
|
|
Exercise
|
|
Exercise
|
|
Acquired on
|
|
on Vesting
|
Name
|
|
(#)
|
|
(1)($)
|
|
Vesting (#)
|
|
(2)($)
|
|
Bernardo Hees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John W. Chidsey
|
|
|
2,091,404
|
|
|
|
20,737,660
|
|
|
|
465,080
|
|
|
|
9,856,649
|
|
Ben K. Wells
|
|
|
445,902
|
|
|
|
2,108,630
|
|
|
|
82,846
|
|
|
|
1,863,646
|
|
Anne Chwat
|
|
|
238,410
|
|
|
|
1,756,262
|
|
|
|
70,748
|
|
|
|
1,481,688
|
|
Jonathan Fitzpatrick
|
|
|
62,139
|
|
|
|
339,467
|
|
|
|
21,122
|
|
|
|
452,493
|
|
Natalia Franco
|
|
|
37,339
|
|
|
|
181,468
|
|
|
|
14,352
|
|
|
|
344,448
|
|
Charles M. Fallon, Jr.
|
|
|
428,184
|
|
|
|
2,325,232
|
|
|
|
57,413
|
|
|
|
1,267,615
|
|
Peter C. Smith
|
|
|
216,805
|
|
|
|
1,370,313
|
|
|
|
67,493
|
|
|
|
1,406,958
|
|
|
|
|
(1) |
|
Represents amounts received by the Pre-Merger NEOs in connection
with the cash-out of options on the Merger Date. In connection
with the Merger, all options granted to the Pre-Merger NEOs were
accelerated and converted into the right to receive an amount in
cash equal to the excess of $24 over the exercise price of the
options, multiplied by the number of shares of common stock
underlying the options. The amounts set forth under the
Value Realized on Exercise column are calculated
based on the difference between the actual exercise prices
underlying the related options, as opposed to the weighted
average exercise price per share. The converted options had a
weighted average exercise price per share of $17.05. |
|
(2) |
|
Represents amounts received in connection with the cash-out of
restricted stock and performance based restricted stock awards
and performance shares on the Merger Date of $6,763,392 for
Mr. Chidsey, $1,547,688 |
175
|
|
|
|
|
for Mr. Wells, $314,520 for Mr. Fitzpatrick, $988,056
for Mr. Fallon, $903,960 for Mr. Smith, $968,856 for
Ms. Chwat and $344,448 for Ms. Franco, all at $24 per
share, in connection with the Merger, except for the following:
287,371 shares that vested on August 21, 2010 and
August 27, 2010 where the closing market price was $16.45
and $17.21, respectively: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
Closing Market
|
|
|
Aquired on Vesting
|
|
Value Realized
|
|
Prices on Vesting
|
Name
|
|
(#)
|
|
on Vesting ($)
|
|
Date ($)
|
|
John W. Chidsey
|
|
|
80,071
|
|
|
|
1,317,168
|
|
|
|
16.45
|
|
John W. Chidsey
|
|
|
103,201
|
|
|
|
1,776,089
|
|
|
|
17.21
|
|
Ben K. Wells
|
|
|
18,359
|
|
|
|
315,958
|
|
|
|
17.21
|
|
Anne Chwat
|
|
|
13,145
|
|
|
|
216,235
|
|
|
|
16.45
|
|
Anne Chwat
|
|
|
17,234
|
|
|
|
296,597
|
|
|
|
17.21
|
|
Jonathan Fitzpatrick
|
|
|
3,854
|
|
|
|
66,327
|
|
|
|
17.21
|
|
Jonathan Fitzpatrick
|
|
|
4,163
|
|
|
|
71,645
|
|
|
|
17.21
|
|
Charles M. Fallon, Jr.
|
|
|
16,244
|
|
|
|
279,559
|
|
|
|
17.21
|
|
Peter C. Smith
|
|
|
13,608
|
|
|
|
223,852
|
|
|
|
16.45
|
|
Peter C. Smith
|
|
|
16,220
|
|
|
|
279,146
|
|
|
|
17.21
|
|
|
|
|
(3) |
|
Pursuant to the Merger, 60% of the proceeds from the grants made
on August 25, 2010 (as disclosed in the Transition Period
Grants of Plan-Based Awards Table) to the Pre-Merger NEOs other
than Mr. Peter C. Smith, were deposited into a trust
account, and the remaining 40% was withheld for taxes. In the
case of each of Mr. Wells and Ms. Chwat, the amounts
in the trust are being released in six substantially equal
installments on the first business day of each of the first six
months following the Merger Date. In the case of
Mr. Chidsey, 100% of the amounts in the trust will be
released and remitted immediately after April 18, 2011. For
Mr. Fitzpatrick, 25% of the portion of the trust account
related to his stock options will be released on August 25,
2011, an additional 25% of the portion of the trust related to
his stock options will be released on August 25, 2012 and
the remaining balance will be released on the second anniversary
of the Merger Date. |
TRANSITION
PERIOD NONQUALIFIED DEFERRED COMPENSATION TABLE
This table reports the Transition Period contributions by the
Pre-Merger NEOs and the Company to the ERP and the aggregate
account balances for the Pre-Merger NEOs. Details of the ERP are
discussed in the CD&A. Further details for the Pre-Merger
NEOs are provided in the Transition Period All Other
Compensation Table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
Company
|
|
Aggregate Earnings
|
|
Aggregate
|
|
Aggregate Balance
|
|
|
Contributions in
|
|
Contributions in
|
|
in Stub Period
|
|
Withdrawals /
|
|
at Stub Period
|
Name
|
|
Stub Period($)
|
|
Stub Period($)(1)
|
|
Year($)(2)
|
|
Distributions ($)
|
|
Year-End ($)
|
|
Bernardo Hees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John W. Chidsey
|
|
|
28,880
|
|
|
|
41,452
|
|
|
|
162,774
|
|
|
|
|
|
|
|
1,083,684
|
|
Ben K. Wells
|
|
|
14,538
|
|
|
|
20,867
|
|
|
|
30,031
|
|
|
|
|
|
|
|
264,761
|
|
Anne Chwat
|
|
|
12,807
|
|
|
|
18,242
|
|
|
|
104,158
|
|
|
|
|
|
|
|
541,967
|
|
Jonathan Fitzpatrick
|
|
|
|
|
|
|
3,134
|
|
|
|
1,992
|
|
|
|
|
|
|
|
82,600
|
|
Natalia Franco
|
|
|
10,154
|
|
|
|
14,373
|
|
|
|
52
|
|
|
|
|
|
|
|
30,199
|
|
Charles M. Fallon, Jr.
|
|
|
67,092
|
|
|
|
17,932
|
|
|
|
149,248
|
|
|
|
|
|
|
|
913,906
|
|
Peter C. Smith
|
|
|
7,843
|
|
|
|
13,112
|
|
|
|
91,776
|
|
|
|
|
|
|
|
548,366
|
|
|
|
|
(1) |
|
Includes the pro rata ERP profit-sharing contribution paid to
the Pre-Merger NEOs at the target performance level on the
Merger Date for the period beginning on July 1, 2010 and
ending on October 18, 2010 as follows: Mr. Chidsey,
$12,572; Mr. Wells, $6,329; Ms. Chwat, $5,435;
Mr. Fitzpatrick, $3,134; Ms. Franco, $4,219;
Mr. Fallon, $6,027 and Mr. Smith, $5,269. |
|
(2) |
|
All amounts deferred by each Pre-Merger NEO, or credited to his
or her account by us, earned interest at a rate that reflects
the performance of investment funds that the NEO selected from a
pool of funds. Each NEO may change his or her selections at any
time, subject to any individual fund restrictions. |
176
TRANSITION
PERIOD POTENTIAL PAYMENTS UPON TERMINATION
OR CHANGE IN CONTROL TABLE
The potential payments and benefits that would be provided to
the NEOs that were employed on December 31, 2010 as a
result of certain termination events are set forth in the table
below. Calculations for this table are based on the assumption
that the termination took place on December 31, 2010 and
that payments were made in accordance with each NEOs
employment agreement. Information regarding severance payments
to Mr. Fallon and Mr. Smith, whose employment
terminated before December 31, 2010, pursuant to the terms
of their employment agreements is included in the Transition
Period All Other Compensation Table. Since Mr. Hees does
not have an employment agreement or other arrangement with the
Company pursuant to which he would receive payments or benefits
upon termination or change in control, he is not included in the
table below.
As a condition to receiving any severance payments and benefits,
the NEO must sign a separation agreement and release in a form
approved by the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination w/o
|
|
|
|
|
|
|
Termination w/o
|
|
Cause or for Good
|
|
|
|
|
|
|
Cause or for Good
|
|
Reason After Change
|
|
Death and
|
|
|
|
|
Reason
|
|
in Control
|
|
Disability
|
Name
|
|
Benefit
|
|
($)(1)
|
|
($) (2)(3)(4)
|
|
($)(5)
|
|
John W. Chidsey
|
|
Salary(6)
|
|
|
|
|
|
|
6,257,250
|
|
|
|
|
|
|
|
Bonus
|
|
|
|
|
|
|
520,009
|
|
|
|
|
|
|
|
Value of Benefits Continuation
|
|
|
|
|
|
|
90,000
|
|
|
|
|
|
|
|
Perquisite Allowance(7)
|
|
|
|
|
|
|
190,500
|
|
|
|
|
|
|
|
Outplacement Services(8)
|
|
|
|
|
|
|
n/a
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
7,057,759
|
|
|
|
|
|
Ben K. Wells
|
|
Salary(6)
|
|
|
|
|
|
|
525,000
|
|
|
|
|
|
|
|
Bonus
|
|
|
|
|
|
|
172,674
|
|
|
|
|
|
|
|
Value of Benefits Continuation
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
|
|
Perquisite Allowance(7)
|
|
|
|
|
|
|
48,500
|
|
|
|
|
|
|
|
Outplacement Services(8)
|
|
|
|
|
|
|
28,500
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
834,674
|
|
|
|
|
|
Anne Chwat
|
|
Salary(6)
|
|
|
|
|
|
|
450,883
|
|
|
|
|
|
|
|
Bonus
|
|
|
|
|
|
|
157,377
|
|
|
|
|
|
|
|
Value of Benefits Continuation
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
|
|
Perquisite Allowance(7)
|
|
|
|
|
|
|
48,500
|
|
|
|
|
|
|
|
Outplacement Services(8)
|
|
|
|
|
|
|
28,500
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
745,260
|
|
|
|
|
|
Jonathan Fitzpatrick
|
|
Salary(6)
|
|
|
700,000
|
|
|
|
700,000
|
|
|
|
n/a
|
|
|
|
Bonus
|
|
|
840,000
|
|
|
|
840,000
|
|
|
|
420,000
|
|
|
|
Value of Benefits Continuation
|
|
|
26,956
|
|
|
|
60,000
|
|
|
|
n/a
|
|
|
|
Perquisite Allowance(7)
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
Outplacement Services(8)
|
|
|
28,500
|
|
|
|
28,500
|
|
|
|
n/a
|
|
|
|
Total
|
|
|
1,595,456
|
|
|
|
1,628,500
|
|
|
|
n/a
|
|
Natalia Franco
|
|
Salary(6)
|
|
|
|
|
|
|
800,000
|
|
|
|
|
|
|
|
Bonus
|
|
|
|
|
|
|
960,000
|
|
|
|
|
|
|
|
Value of Benefits Continuation
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
|
|
Perquisite Allowance(7)
|
|
|
|
|
|
|
97,000
|
|
|
|
|
|
|
|
Outplacement Services(8)
|
|
|
|
|
|
|
28,500
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
1,945,500
|
|
|
|
|
|
177
|
|
|
(1) |
|
If Mr. Fitzpatrick is terminated without cause (as such
term is defined in his employment agreement), he will be
entitled to receive (i) two times his then current base
salary and target annual bonus for the year of termination (the
Severance), and (ii) continued coverage for two
years under our medical, dental and life insurance plans for him
and his eligible dependents. Additionally, Mr. Fitzpatrick
will receive these benefits if his employment is terminated for
good reason (as such term is defined in his employment
agreement). |
|
(2) |
|
Since a change in control has occurred as a result of the
Merger, the amounts on this table for all NEOs other than
Mr. Fitzpatrick reflect only payments that will be made
upon termination without cause or for good reason after a change
in control. A change in control, without a termination of
employment, will not in itself trigger any severance payments. |
|
(3) |
|
The Company agreed to employ Messrs. Chidsey and Wells and
Ms. Chwat for a six-month period commencing on the Merger
Date and ending on April 18, 2011 (the Executive
Transition Period). Following the end of the Executive
Transition Period, the employment of Messrs. Chidsey and
Wells and Ms. Chwat will terminate, and they will receive
the amounts included herein pursuant to their respective
employment agreements, as amended. Mr. Wells and
Ms. Chwat will also be entitled to receive continued
coverage for two years under our medical, dental and life
insurance plans for these executives and their eligible
dependents. Mr. Chidsey will be entitled to such continued
coverage for three years following the end of the Executive
Transition Period. For more information, see the
Employment Agreements section following the
Transition Period Summary Compensation Table. |
|
(4) |
|
As Ms. Francos employment was terminated on March 10,
2011, the amounts included above reflect a termination without
cause after a change in control. Pursuant to her employment
agreement, Ms. Franco will receive (i) two times the
sum of her current base salary, perquisite allowance and annual
target bonus for the fiscal year ending December 31, 2011,
and (ii) continued coverage for two years under our
medical, dental and life insurance plans for her and her
eligible dependents. |
|
(5) |
|
If Mr. Fitzpatrick dies or becomes disabled,
Mr. Fitzpatrick is entitled to receive a prorated bonus
through the termination date to the extent and when we pay the
bonus for that year. The term disability is defined
in Mr. Fitzpatricks employment agreements as a
physical or mental disability that prevents or would prevent the
performance by Mr. Fitzpatrick of his duties under the
employment agreement for a continuous period of six months or
longer. |
|
(6) |
|
Pursuant to the terms of the respective NEOs employment
agreement, each NEO has agreed to non-competition,
non-solicitation and confidentiality restrictions that last for
two years after termination. If the NEO breaches any of these
covenants, we will cease providing any severance and other
benefits to him or her, and we have the right to require him or
her to repay any severance amounts already paid. In addition, as
a condition to receiving the separation benefits, each NEO must
sign a separation agreement and release in a form approved by
us, which includes a waiver of all potential claims. |
|
(7) |
|
The perquisites allowance will be paid to the NEO during the
relevant severance period specified in Footnotes 3 and 4 above. |
|
(8) |
|
Each NEO, other than Mr. Chidsey, is entitled to receive
outplacement services upon termination of employment without
cause or for good reason. As of December 31, 2010, eligible
NEOs are entitled to receive outplacement services from our
third party service provider for up to one year, which is
currently valued at $28,500. |
DIRECTOR
COMPENSATION
Pre-Merger Compensation Program. Under our
director compensation program in effect prior to the Merger,
each non-management director received an annual deferred stock
award with a grant date fair value of $85,000 on the date of our
annual shareholders meeting. The annual deferred stock
grant vested in quarterly installments over a 12 month
period. No annual deferred stock award was granted to the
non-management directors during the Transition Period. In
addition, the non-management directors received an annual
retainer of $65,000. The lead director received an additional
annual cash retainer of $25,000. The chair of the Audit
Committee received an additional $20,000 fee and the chairs of
the Compensation Committee and the Nominating and Corporate
178
Governance Committee each received an additional $10,000 fee.
Directors had the option to receive their annual retainer and
their chair fees either 100% in cash or 100% in shares of
deferred stock. Directors who elected to receive their annual
retainer and chair fees in shares of deferred stock for the 2010
calendar year made their elections prior to January 1,
2010. These awards were typically made on the date of our annual
shareholders meeting. However, as a result of the Merger,
directors who elected to receive their 2010 calendar year annual
retainer
and/or chair
fees in deferred stock received a cash payment in the full
amount of the annual retainer
and/or chair
fees. In addition, all deferred stock grants, whether the annual
grant or deferred stock granted in lieu of a cash retainer or
chair fees, were settled as of the Merger Date.
No separate committee fees were paid and no compensation was
paid to management directors for Board or committee service. All
directors or their employers, in the case of the Sponsor
directors, were reimbursed for reasonable travel and lodging
expenses incurred by them in connection with attending Board and
committee meetings.
TRANSITION
PERIOD DIRECTOR COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
All Other
|
|
|
|
|
Paid in Cash
|
|
Compensation
|
|
Total
|
Name
|
|
(1) ($)
|
|
($)(2)
|
|
($)
|
|
Richard W. Boyce
|
|
|
65,000
|
|
|
|
1,563
|
|
|
|
66,563
|
|
David A. Brandon
|
|
|
65,000
|
|
|
|
1,563
|
|
|
|
66,563
|
|
Ronald M. Dykes
|
|
|
97,500
|
|
|
|
1,495
|
|
|
|
98,995
|
|
Peter R. Formanek
|
|
|
32,500
|
|
|
|
1,094
|
|
|
|
33,594
|
|
Manuel A. Garcia
|
|
|
65,000
|
|
|
|
1,442
|
|
|
|
66,442
|
|
Sanjeev K. Mehra
|
|
|
75,000
|
|
|
|
1,530
|
|
|
|
76,530
|
|
Stephen G. Pagliuca
|
|
|
75,000
|
|
|
|
300
|
|
|
|
75,300
|
|
Brian T. Swette
|
|
|
65,000
|
|
|
|
1,892
|
|
|
|
66,892
|
|
Kneeland C. Youngblood
|
|
|
32,500
|
|
|
|
1,094
|
|
|
|
33,594
|
|
|
|
|
(1) |
|
As a result of the Merger, all board service fees for calendar
2010 were paid in cash. Those directors who elected to receive
their annual retainer and chair fees in deferred stock for
calendar 2010 received a cash payment in the amount of their
retainer and chair fees for all of calendar 2010 during the
Transition Period. |
|
(2) |
|
Quarterly dividends in the amount of $0.0625 per share were paid
by the Company to shareholders of record as of
September 14, 2010. The amounts reflected in this column
represent dividend equivalents accrued on vested and unvested
deferred stock issued by the Company to the directors during the
Transition Period. |
Post-Merger Compensation Program. Under our
director compensation program currently in effect, each
non-management director other than Mr. Alexandre Behring, a
co-Chairman of the Board, is entitled to receive a one-time
option grant with a value of $500,000, and $1,000,000 in the
case of Mr. Behring. For this purpose, Messrs. Chidsey
and Hees are considered management directors and are not
entitled to receive any compensation for Board or committee
service. The options will vest 100% on October 19, 2015. In
addition, non-management directors other than Mr. Behring
are entitled to receive an annual retainer of $50,000, and
Mr. Behring is entitled to receive an annual retainer of
$100,000. Each member of the Audit Committee, Compensation
Committee and Executive Committee is entitled to receive a
committee fee of $10,000. Non-management directors will have the
opportunity to elect to defer their annual retainer and
committee fee and, in lieu of the cash fees, to receive a grant
of restricted stock units with a value of two times the foregone
fees. As of December 31, 2010, the non-management directors
had received no compensation for their participation on the
Board.
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following non-management directors currently serve on the
Compensation Committee of the Board of Directors:
Mr. Alexandre Behring, Mr. Carlos Alberto Sicupira and
Mr. Marcel Herrmann Telles. No directors on the
Compensation Committee are or have been officers or employees of
the Company or any of its subsidiaries.
179
None of our executive officers served on the board of directors
or compensation committee of another entity, one of whose
executive officers served on the Companys Board of
Directors or its Compensation Committee.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
As a result of the Merger, the Parent owns all of our issued and
outstanding capital stock. The Parent is wholly-owned by 3G. 3G
Special Situations Partners, Ltd. serves as the general partner
of 3G. 3G Capital Partners, L.P. is the parent of, and wholly
owns, 3G Special Situations Partners, Ltd. 3G Capital serves as
the general partner of 3G Capital Partners, L.P. Each of the
Parent, 3G, 3G Special Situations Partners, Ltd., 3G Capital
Partners, L.P. and 3G Capital may be deemed to beneficially own,
and to have shared voting and dispositive power with respect to,
all of our issued and outstanding shares of common stock. The
address of each of the 3G entities is 3G Capital, Inc.,
600 Third Avenue, 37th Floor, New York, New York 10016.
Mr. Behring is the managing director of 3G Capital, and
Messrs. Behring, Hees, Sicupira and Telles are directors of
3G Capital. A five member investment committee of 3G Capital is
empowered to make decisions with respect to 3G Capitals
investments, including the Company, and therefore, no individual
member of the committee is deemed to be the beneficial owner of
the shares of the Company beneficially owned indirectly by 3G
Capital. This investment committee has the power to vote,
dispose of or sell all of the shares of the Company.
Messrs. Behring, Sicupira and Telles are members of the
committee and disclaim beneficial ownership of any shares
beneficially owned by 3G Capital.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Related
Person Transactions
In May 2007, our Board of Directors adopted a written related
person transactions policy, which is administered by the Audit
Committee. This policy applies to any transaction or series of
related transactions or any material amendment to any such
transaction involving a related person and the Company or any
subsidiary of the Company. For purposes of the policy,
related persons consist of executive officers,
directors, director nominees, any shareholder beneficially
owning more than 5% of the Companys common stock, and
immediate family members of any such persons. In reviewing
related person transactions, the Audit Committee takes into
account all factors that it deems appropriate, including whether
the transaction is on terms no less favorable than terms
generally available to an unaffiliated third party under the
same or similar circumstances and the extent of the related
persons interest in the transaction. No member of the
Audit Committee may participate in any review, consideration or
approval of any related person transaction in which the director
or any of his immediate family members is the related person.
Peter Harf, a member of our Board, is the beneficial owner of
Senior Notes in the principal amount of $2 million.
Christina Harf, his wife, owns Senior Notes in the principal
amount of $300,000. The interest rate on the Senior Notes is
97/8%,
and no interest was paid on the Senior Notes during the
Transition Period.
Steven M. Wiborg, Executive Vice President and President of
North America, is a director and an owner of Aspen Holdings
Group, LLC (Aspen Holdings). Each of two
subsidiaries of Aspen Holdings leases a restaurant to BKC in
Omaha, Nebraska and New Haven, Connecticut for a combined annual
rental payment of $144,276.
Director
Independence
Although the New York Stock Exchange (NYSE) listing
standards, including the Independence Standards, no longer apply
to us since we are a privately held company, the Board of
Directors has applied the Independence Standards to determine
the independence of our directors for purposes of this
Form 10-K.
Under the Independence Standards, a director qualifies as
independent if the Board of Directors affirmatively determines
that the director has no material relationship with us. While
the focus of the inquiry is independence from management, the
Board is required to broadly consider all relevant facts and
circumstances in making an independence determination.
On February 2, 2011, our Board conducted evaluations of
Alexandre Behring, John W. Chidsey, Paul J. Fribourg,
Peter Harf, Bernard Hees, Carlos Alberto Sicupira and Marcel
Herrmann Telles under the Independence Standards. With respect
to Messrs. Behring, Fribourg, Harf, Sicupira and Telles,
the Board affirmatively determined that none of these directors
has a direct or indirect material relationship with us and
180
that each satisfies the Independence Standards. The Board also
determined that Messrs. Chidsey and Hees, as employees of
the Company during the Transition Period, did not satisfy the
Independence Standards.
In conducting its evaluations of Messrs. Behring, Sicupira
and Telles, the Board considered their affiliation with 3G
Capital and Messrs. Sicupiras and Telles
service on the Board of Directors of Anheuser-Busch InBev, a
supplier to certain of our Whopper
Bartm
restaurants. In conducting its evaluation of Mr. Harf, the
Board considered his affiliation with Anheuser-Busch InBev,
where he serves as Chairman of the Board, his beneficial
ownership of Senior Notes and his wifes ownership of
Senior Notes, as noted above. In conducting its evaluation of
Mr. Fribourg, the Board considered his affiliation with
BFG-WLF, LLC, a supplier to one of our Burger King
franchisees in Latin America.
Since John Chidsey and Paul J. Fribourg serve on our Audit
Committee, the Board also considered whether they satisfied the
Audit Committee Independence Standards. As a result of this
evaluation, our Board affirmatively determined that
Mr. Fribourg is independent under the Audit Committee
Independence Standards. Mr. Chidsey, our former Chief
Executive Officer and an employee of the Company, is not
independent under the Independence Standards or the Audit
Committee Independence Standards.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The following table sets forth fees for professional services
rendered by KPMG, LLC for the audit of our financial statements
for the Transition Period and fees billed for other services
rendered by KPMG for such period. There were no fees by KPMG for
the Transition Period that would fall under the categories of
Tax Fees or All Other Fees.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
Transition Period
|
|
June 30, 2010
|
|
|
(In thousands)
|
|
Fee Category
|
|
|
|
|
|
|
|
|
Audit Fees(1)
|
|
$
|
2,464
|
|
|
$
|
3,267
|
|
Audit-Related Fees(2)
|
|
|
66
|
|
|
|
129
|
|
All Other Fees(3)
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
$
|
2,780
|
|
|
$
|
3,396
|
|
|
|
|
(1) |
|
Annual audit fees primarily consist of fees for the audit of the
consolidated financial statements and the review of the interim
condensed quarterly consolidated financial statements. This
category also includes fees for statutory audits required by the
tax authorities of various countries and accounting
consultations and research work necessary to comply with Public
Company Accounting Oversight Board standards. In the fiscal year
ended June 30, 2010, audit fees also included amounts
related to the audit of the effectiveness of internal controls
over financial reporting and attestation services. |
|
(2) |
|
Audit-Related Fees primarily consist of the fees for financial
statement audits of our marketing fund and gift card subsidiary. |
|
(3) |
|
Other Fees primarily consist of fees for the work associated
with disclosure documents. |
Pursuant to its written charter, the Audit Committee
pre-approves all audit services and permitted non-audit services
to be performed by our independent registered public accounting
firm. The Audit Committee has adopted a pre-approval policy
under which the Audit Committee has delegated to its chairman
the authority to approve services valued at up to $50,000 per
engagement. All such decisions to pre-approve audit and
permitted non-audit services are presented to the full Audit
Committee at the next scheduled meeting.
All audit and permitted non-audit services and all fees
associated with such services performed by our independent
registered public accounting firm for the Transition Period were
approved by the full Audit Committee or approved by the chairman
of the Audit Committee consistent with the policy described
above.
181
Part IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
|
|
(1)
|
All
Financial Statements
|
Consolidated financial statements filed as part of this report
are listed under Part II, Item 8 of this
Form 10-K.
|
|
(2)
|
Financial
Statement Schedules
|
No schedules are required because either the required
information is not present or is not present in amounts
sufficient to require submission of the schedule, or because the
information required is included in the consolidated financial
statements or the notes thereto.
The exhibits listed in the accompanying index are filed as part
of this report.
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Where Found
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Burger King
Holdings, Inc.
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed on October 21, 2010
|
|
3
|
.2
|
|
Bylaws of Burger King Holdings, Inc.
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed on October 21, 2010
|
|
4
|
.1
|
|
Indenture, dated October 19, 2010, between Blue Acquisition
Sub, Inc. and Wilmington Trust FSB, as trustee
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed on October 21, 2010
|
|
4
|
.2
|
|
Supplemental Indenture, dated October 19, 2010, among Blue
Acquisition Sub, Inc., Burger King Corporation, Burger King
Holdings, Inc., Wilmington Trust FSB, as trustee, and the
subsidiary guarantors party thereto
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed on October 21, 2010
|
|
4
|
.3
|
|
Form of
97/8% Senior
Notes due 2018 (included in Exhibit 4.2)
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed on October 21, 2010
|
|
10
|
.10
|
|
Burger King Holdings, Inc. Equity Incentive Plan
|
|
Incorporated herein by reference to the Registrants
Registration Statement on Form S-1 (File No. 333-131897)
|
|
10
|
.11
|
|
Burger King Holdings, Inc. 2006 Omnibus Incentive Plan
|
|
Incorporated herein by reference to the Registrants
Registration Statement on Form S-1 (File No. 333-131897)
|
|
10
|
.12
|
|
Burger King Corporation Fiscal Year 2006 Executive Team
Restaurant Support Incentive Plan
|
|
Incorporated herein by reference to the Burger King Holdings,
Inc. Registration Statement on Form S-1 (File No. 333-131897)
|
|
10
|
.27
|
|
Employment Agreement between Peter C. Smith and Burger King
Corporation, dated as of April 20, 2006
|
|
Incorporated herein by reference to the Registrants
Registration Statement on Form S-1 (File No. 333-131897)
|
|
10
|
.30
|
|
Restricted Stock Unit Award Agreement between Burger King
Holdings, Inc. and John W. Chidsey, dated as of May 2006
|
|
Incorporated herein by reference to the Registrants
Registration Statement on Form S-1 (File No. 333-131897)
|
|
10
|
.31
|
|
Form of Restricted Stock Unit Award Agreement under the Burger
King Holdings, Inc. 2006 Omnibus Incentive Plan
|
|
Incorporated herein by reference to the Registrants
Registration Statement on Form S-1 (File No. 333-131897)
|
182
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Where Found
|
|
|
10
|
.32
|
|
Form of Restricted Stock Unit Award Agreement under the Burger
King Holdings, Inc. 2006 Equity Incentive Plan
|
|
Incorporated herein by reference to the Registrants
Registration Statement on Form S-1 (File No. 333-131897)
|
|
10
|
.33
|
|
Form of Option Award Agreement under the Burger King Holdings,
Inc. 2006 Omnibus Incentive Plan
|
|
Incorporated herein by reference to the Registrants
Registration Statement on Form S-1 (File No. 333-131897)
|
|
10
|
.34
|
|
Form of Option Award Agreement under the Burger King Holdings,
Inc. Equity Incentive Plan
|
|
Incorporated herein by reference to the Registrants
Registration Statement on Form S-1 (File No. 333-131897)
|
|
10
|
.35
|
|
Form of Performance Award Agreement under the Burger King
Holdings, Inc. 2006 Omnibus Incentive Plan
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K dated August 14, 2006
|
|
10
|
.36
|
|
Form of Retainer Stock Award Agreement for Directors under the
Burger King Holdings, Inc. 2006 Omnibus Incentive Plan
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K dated August 14, 2006
|
|
10
|
.37
|
|
Form of Annual Deferred Stock Award Agreement for Directors
under the Burger King Holdings, Inc. 2006 Omnibus Incentive Plan
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K dated August 14, 2006
|
|
10
|
.38
|
|
Employment Agreement between Anne Chwat and Burger King
Corporation dated as of April 20, 2006
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q dated February 2, 2007
|
|
10
|
.40
|
|
Burger King Savings Plan, including all amendments thereto
|
|
Incorporated herein by reference to the Registrants
Registration Statement on Form S-8 (File No. 333-144592)
|
|
10
|
.44
|
|
Form of Performance Award Agreement for Restricted Stock Units
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed October 26, 2007
|
|
10
|
.45
|
|
Option Award Agreement between Burger King Holdings, Inc. and
Charles M. Fallon, Jr. dated June 6, 2006
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q filed February 5, 2008
|
|
10
|
.46
|
|
Option Award Agreement between Burger King Holdings, Inc. and
Charles M. Fallon, Jr. dated June 6, 2006
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q filed February 5, 2008
|
|
10
|
.47
|
|
Form of Restricted Stock Unit Agreement under Burger King
Holdings, Inc. 2006 Omnibus Incentive Plan
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q filed May 5, 2008
|
|
10
|
.48
|
|
Employment Agreement between BK AsiaPac, Pte.Ltd. and Peter Tan
dated March 5, 2008
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q filed May 5, 2008
|
|
10
|
.49
|
|
Employment Agreement dated August 22, 2006 between Peter
Robinson and Burger King Corporation
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed November 5, 2008
|
|
10
|
.50
|
|
Assignment Letter dated August 22, 2006 among Peter
Robinson, Burger King Corporation and Burger King Europe GmbH
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed November 5, 2008
|
|
10
|
.51
|
|
Amended and Restated Employment Agreement between John W.
Chidsey and Burger King Corporation dated December 16, 2008
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K filed August 27, 2009
|
|
10
|
.52
|
|
Amended and Restated Employment Agreement between Charles M.
Fallon and Burger King Corporation dated December 8, 2008
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K filed August 27, 2009
|
183
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Where Found
|
|
|
10
|
.54
|
|
Amended and Restated Employment Agreement between Ben K. Wells
and Burger King Corporation dated December 8, 2008
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K filed August 27, 2009
|
|
10
|
.55
|
|
Form of Performance Award Agreement for Restricted Stock Units
under the Burger King Holdings, Inc. 2006 Omnibus Incentive Plan
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K filed August 27, 2009
|
|
10
|
.56
|
|
Form of Performance Award Agreement for Performance Based
Restricted Stock under the Burger King Holdings, Inc. 2006
Omnibus Incentive Plan
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K filed August 27, 2009
|
|
10
|
.57
|
|
First Amendment to Employment Agreement dated as of
September 30, 2009 between Burger King Corporation and
Peter Robinson
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q filed November 2, 2009
|
|
10
|
.58
|
|
Separation Agreement and General Release dated November 5,
2009 between Burger King Corporation and Russell B. Klein
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q filed February 5, 2010
|
|
10
|
.59
|
|
Amended and Restated Employment Agreement between John W.
Chidsey and Burger King Corporation dated April 1, 2010
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q filed April 30, 2010
|
|
10
|
.60
|
|
Form of Restricted Stock Award Agreement under the Burger King
Holdings Inc. 2006 Omnibus Incentive Plan
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K filed on August 26, 2010
|
|
10
|
.61
|
|
Form of Restricted Stock Unit Award Agreement under the Burger
King Holdings, Inc. 2006 Omnibus Incentive Plan
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K filed on August 26, 2010
|
|
10
|
.62
|
|
Amendment No. 1, dated as of September 1, 2010, to the
Amended and Restated Employment Agreement by and between Burger
King Corporation and John W. Chidsey, dated as of April 1,
2010
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed on September 3, 2010
|
|
10
|
.63
|
|
Amendment No. 1, dated as of September 1, 2010, to the
Amended and Restated Employment Agreement by and between Burger
King Corporation and Ben Wells, dated as of December 8, 2008
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed on September 3, 2010
|
|
10
|
.64(a)
|
|
Amended and Restated Employment Agreement by and between Burger
King Corporation and Anne Chwat, dated as of December 8,
2008
|
|
Filed herewith
|
|
10
|
.64(b)
|
|
Amendment No. 1, dated as of September 1, 2010, to the
Amended and Restated Employment Agreement by and between Burger
King Corporation and Anne Chwat, dated as of December 8,
2008
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed on September 3, 2010
|
|
10
|
.65
|
|
Amendment No. 1, dated as of September 1, 2010, to the
Amended and Restated Employment Agreement by and between Burger
King Corporation and Peter Smith, dated as of December 8,
2008
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed on September 3, 2010
|
184
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Where Found
|
|
|
10
|
.66
|
|
Purchase Agreement, dated October 1, 2010, among Blue
Acquisition Sub, Inc. and J.P. Morgan Securities LLC and
Barclays Capital Inc., as representatives of the several initial
purchasers named therein
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed on October 21, 2010
|
|
10
|
.67
|
|
Joinder To Purchase Agreement, dated October 19, 2010,
among Burger King Corporation, Burger King Holdings, Inc., and
the subsidiary guarantors party thereto and J.P. Morgan
Securities LLC and Barclays Capital Inc., as representatives of
the several initial purchasers named therein
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed on October 21, 2010
|
|
10
|
.68
|
|
Registration Rights Agreement, dated October 19, 2010,
among Blue Acquisition Sub, Inc. J.P. Morgan Securities LLC
and Barclays Capital Inc., as representatives of the several
initial purchasers named therein
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed on October 21, 2010
|
|
10
|
.69
|
|
Joinder to Registration Rights Agreement, dated October 19,
2010, among Burger King Corporation, Burger King Holdings, Inc.,
and the subsidiary guarantors party thereto and J.P. Morgan
Securities LLC and Barclays Capital Inc., as representatives of
the several initial purchasers named therein
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed on October 21, 2010
|
|
10
|
.70(a)
|
|
Credit Agreement, dated as of October 19, 2010, among
Burger King Holdings, Inc., Blue Acquisition Sub, Inc., Burger
King Corporation, with JPMorgan Chase Bank, N.A., as
administrative agent, Barclays Capital, as syndication agent,
and the lenders party thereto from time to time
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed on October 21, 2010
|
|
10
|
.70(b)
|
|
Amended and Restated Credit Agreement, dated as of
February 15, 2011, among Burger King Holdings, Inc. and
Burger King Corporation, with JPMorgan Chase Bank, N.A., as
administrative agent, Barclays Capital, as syndication agent,
and the lenders party thereto from time to time
|
|
Filed herewith
|
|
10
|
.71
|
|
Guarantee and Collateral Agreement, dated as of October 19,
2010, among Burger King Holdings, Inc., Blue Acquisition Sub,
Inc., Burger King Corporation and the guarantors identified
therein, in favor of JPMorgan Chase Bank, N.A., as
administrative agent
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed on October 21, 2010
|
|
10
|
.72
|
|
Separation Agreement and General Release dated October 20,
2010 between Burger King Corporation and Peter C. Smith
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed on October 28, 2010
|
|
10
|
.73
|
|
Amendment dated as of September 30, 2010 to the Amended and
Restated Employment Agreement dated as of December 8, 2008
by and between Burger King Corporation and Charles M. Fallon
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q filed on November 9, 2010
|
185
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Where Found
|
|
|
10
|
.74
|
|
Employment Agreement dated as of October 25, 2010 by and
between Burger King Corporation and Jonathan Fitzpatrick
|
|
Filed
herewith
|
|
10
|
.75
|
|
Employment Agreement dated as of May 4, 2010 by and between
Burger King Corporation and Natalia Franco, as amended on
September 30, 2010 and October 25, 2010
|
|
Filed
herewith
|
|
18
|
.1
|
|
Preferability Letter
|
|
Filed
herewith
|
|
21
|
.1
|
|
List of Subsidiaries of the Registrant
|
|
Filed
herewith
|
|
31
|
.1
|
|
Certification of Chief Executive Officer of Burger King
Holdings, Inc. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
Filed
herewith
|
|
31
|
.2
|
|
Certification of Chief Financial Officer of Burger King
Holdings, Inc. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
Filed
herewith
|
|
|
|
|
|
Management contract or compensatory plan or arrangement |
186
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BURGER KING HOLDINGS, INC.
Name: Bernardo Hees
|
|
|
|
Title:
|
Chief Executive Officer and Director
|
Date: March 23, 2011
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Bernardo
Hees
Bernardo
Hees
|
|
Chief Executive Officer and Director
|
|
March 23, 2011
|
|
|
|
|
|
/s/ Daniel
Schwartz
Daniel
Schwartz
|
|
Chief Financial Officer
|
|
March 23, 2011
|
|
|
|
|
|
/s/ David
Chojnowski
David
Chojnowski
|
|
SVP, Chief Accounting Officer
|
|
March 23, 2011
|
|
|
|
|
|
/s/ Alexandre
Behring
Alexandre
Behring
|
|
Co-Chairman
|
|
March 23, 2011
|
|
|
|
|
|
/s/ John
W. Chidsey
John
W. Chidsey
|
|
Co-Chairman
|
|
March 23, 2011
|
|
|
|
|
|
/s/ Peter
Harf
Peter
Harf
|
|
Director
|
|
March 23, 2011
|
|
|
|
|
|
/s/ Paul
J. Fribourg
Paul
J. Fribourg
|
|
Director
|
|
March 23, 2011
|
|
|
|
|
|
/s/ Carlos
Alberto Sicupira
Carlos
Alberto Sicupira
|
|
Director
|
|
March 23,2011
|
|
|
|
|
|
/s/ Marcel
Herrmann Telles
Marcel
Herrmann Telles
|
|
Director
|
|
March 23, 2011
|
187
EXHIBIT
INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.64(a)
|
|
Amended and Restated Employment Agreement by and between Burger
King Corporation and Anne Chwat, dated as of December 8,
2008
|
|
10
|
.70(b)
|
|
Amended and Restated Credit Agreement, dated as of
February 15, 2011, among Burger King Holdings, Inc. and
Burger King Corporation, with JPMorgan Chase Bank, N.A., as
administrative agent, Barclays Capital, as syndication agent,
and the lenders party thereto from time to time
|
|
|
|
|
|
|
10
|
.74
|
|
Employment Agreement dated as of October 25, 2010 by and
between Burger King Corporation and Jonathan Fitzpatrick
|
|
|
|
|
|
|
10
|
.75
|
|
Employment Agreement dated as of May 4, 2010 by and between
Burger King Corporation and Natalia Franco, as amended on
September 30, 2010 and October 25, 2010
|
|
|
|
|
|
|
18
|
.1
|
|
Preferability Letter
|
|
|
|
|
|
|
21
|
.1
|
|
List of Subsidiaries of the Registrant
|
|
|
|
|
|
|
31
|
.1
|
|
Certification of Chief Executive Officer of Burger King
Holdings, Inc. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
31
|
.2
|
|
Certification of Chief Financial Officer of Burger King
Holdings, Inc. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
Management contract or compensatory plan or arrangement |
188