Burger King Holdings Inc.
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2006 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ___________________
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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 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification Number) |
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5505 Blue Lagoon Drive, Miami, Florida
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33126 |
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code
(305) 378-3000
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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act (check one);
Large accelerated filer o Accelerated filer o Non-accelerated filer þ
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 November 1, 2006, there were 133,247,552 shares of the registrants Common Stock
outstanding.
BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
2
Part I
Item 1. Financial Statements
BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
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As of |
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September 30, |
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June 30, |
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2006 |
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2006 |
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(In millions, except share data) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
146 |
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$ |
259 |
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Auction rate securities available for sale |
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11 |
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Trade and notes receivable, net |
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115 |
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109 |
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Prepaids and other current assets, net |
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49 |
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40 |
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Deferred income taxes, net |
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44 |
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45 |
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Total current assets |
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365 |
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453 |
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Property and equipment, net |
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871 |
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886 |
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Intangible assets, net |
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969 |
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975 |
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Goodwill |
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20 |
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20 |
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Net investment in property leased to franchisees |
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146 |
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148 |
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Other assets, net |
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42 |
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70 |
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Total assets |
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$ |
2,413 |
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$ |
2,552 |
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Liabilities and Stockholders Equity |
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Current liabilities: |
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Accounts and drafts payable |
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$ |
61 |
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$ |
100 |
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Accrued advertising |
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68 |
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49 |
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Other accrued liabilities |
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248 |
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338 |
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Current portion of debt and capital leases |
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5 |
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5 |
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Total current liabilities |
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382 |
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492 |
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Long term debt |
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946 |
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997 |
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Capital leases, net of current portion |
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65 |
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63 |
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Other deferrals and liabilities |
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347 |
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349 |
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Deferred income taxes, net |
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74 |
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84 |
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Total liabilities |
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1,814 |
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1,985 |
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Commitments and Contingencies (Note 13) |
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Stockholders equity: |
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Preferred stock, $0.01 par value; 10,000,000 shares authorized; no shares
issued or outstanding |
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Common stock, $0.01 par value; 300,000,000 shares authorized; 133,162,107 and
133,058,640 |
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shares issued and outstanding at September 30, 2006 and June 30, 2006, respectively |
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1 |
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1 |
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Restricted stock units |
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5 |
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5 |
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Additional paid-in capital |
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545 |
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545 |
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Retained earnings |
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43 |
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3 |
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Accumulated other comprehensive income |
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8 |
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15 |
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Treasury stock, at cost; 643,698 and 590,841 shares, at September 30, 2006 and June
30, 2006, respectively |
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(3 |
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(2 |
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Total stockholders equity |
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599 |
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567 |
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Total liabilities and stockholders equity |
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$ |
2,413 |
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$ |
2,552 |
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See accompanying notes to condensed consolidated financial statements.
3
BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended |
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September 30, |
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2006 |
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2005 |
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(In millions, except per share data) |
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Revenues: |
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Company restaurant revenues |
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$ |
405 |
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$ |
375 |
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Franchise revenues |
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113 |
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105 |
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Property revenues |
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28 |
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28 |
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Total revenues |
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546 |
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508 |
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Company restaurant expenses: |
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Food, paper and product costs |
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122 |
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118 |
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Payroll and employee benefits |
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119 |
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110 |
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Occupancy and other operating costs |
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102 |
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91 |
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Total Company restaurant expenses |
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343 |
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319 |
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Selling, general and administrative expenses |
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112 |
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101 |
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Property expenses |
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16 |
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14 |
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Fees paid to affiliates |
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3 |
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Other operating income, net |
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(7 |
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(1 |
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Total operating costs and expenses |
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464 |
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436 |
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Income from operations |
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82 |
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72 |
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Interest expense |
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19 |
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18 |
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Interest income |
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(2 |
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(1 |
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Total interest expense, net |
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17 |
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17 |
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Loss on early extinguishment of debt |
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1 |
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13 |
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Income before income taxes |
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64 |
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42 |
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Income tax expense |
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24 |
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20 |
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Net income |
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$ |
40 |
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$ |
22 |
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Earnings per share: |
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Basic |
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$ |
0.30 |
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$ |
0.20 |
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Diluted |
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$ |
0.30 |
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$ |
0.19 |
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Weighted average shares outstanding: |
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Basic |
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133.1 |
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106.8 |
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Diluted |
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135.9 |
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112.4 |
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See accompanying notes to condensed consolidated financial statements.
4
BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Three Months Ended |
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September 30, |
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2006 |
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2005 |
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(In millions) |
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Cash flows from operating activities: |
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Net income |
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$ |
40 |
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$ |
22 |
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Adjustments to reconcile net income to net cash used for operating activities: |
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Depreciation and amortization |
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22 |
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21 |
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Gain on asset disposals |
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(7 |
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Loss on early extinguishment of debt |
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1 |
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13 |
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Stock-based compensation |
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1 |
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Bad debt recovery |
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(2 |
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Deferred income tax (benefit) expense |
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(2 |
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14 |
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Changes in current assets and liabilities, net of acquisitions: |
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Trade and notes receivables |
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(2 |
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(1 |
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Prepaids and other current assets |
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(10 |
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(13 |
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Accounts and drafts payable |
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(39 |
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(27 |
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Accrued advertising |
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19 |
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13 |
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Other accrued liabilities |
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(80 |
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(33 |
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Payment of interest on PIK notes |
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(103 |
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Other long-term assets and liabilities, net |
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12 |
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16 |
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Net cash used for operating activities |
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$ |
(47 |
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$ |
(78 |
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Cash flows from investing activities: |
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Purchases of available-for-sale securities |
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(268 |
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Proceeds from sale of available-for-sale securities |
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257 |
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Payments for property and equipment |
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(13 |
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(13 |
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Proceeds from asset disposals and restaurant closures |
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12 |
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7 |
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Payments for acquired franchisee operations |
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(2 |
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Investment in franchisee debt |
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(3 |
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(2 |
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Net cash used for investing activities |
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$ |
(15 |
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$ |
(10 |
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Cash flows from financing activities: |
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Proceeds from term debt and credit facility |
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1,047 |
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Repayments of term debt, credit facility and capital leases |
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(51 |
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(1,224 |
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Payments for financing costs |
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(16 |
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Stock-based compensation tax benefits |
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1 |
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Treasury stock purchases |
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(1 |
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Net cash used for financing activities |
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$ |
(51 |
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$ |
(193 |
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Decrease in cash and cash equivalents |
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(113 |
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(281 |
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Cash and cash equivalents at beginning of period |
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259 |
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432 |
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Cash and cash equivalents at end of period |
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$ |
146 |
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$ |
151 |
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See accompanying notes to condensed consolidated financial statements.
5
BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
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Three Months Ended |
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September 30, |
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2006 |
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2005 |
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(In millions) |
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Supplemental cash flow disclosures: |
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Interest paid (1) |
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$ |
9 |
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$ |
120 |
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Income taxes paid |
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$ |
94 |
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$ |
2 |
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Non-cash investing and financing activities: |
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Acquisition of franchisee operations |
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$ |
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$ |
1 |
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Acquisition of property with capital lease obligations |
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$ |
3 |
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$ |
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(1) |
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Amount for the three month period ended September 30, 2006 is net of $11
million received upon settlement of interest rate swaps. Amount for the three
month period ended September 30, 2005 includes $103 million of interest paid on
PIK notes held by affiliates which was included in term debt at June 30, 2005. |
See accompanying notes to condensed consolidated financial statements.
6
BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Organization and Basis of Presentation
Burger King Holdings, Inc. (BKH or the Company) is a Delaware corporation formed on July
23, 2002. It 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 Company is approximately 76% owned by private equity funds controlled by Texas Pacific Group,
the Goldman Sachs Funds and Bain Capital Partners (collectively, the Sponsors).
The Company generates revenues from three sources: (i) sales at restaurants owned by the
Company; (ii) royalties and franchise fees paid by franchisees; and (iii) property income from the
franchise restaurants that the Company leases or subleases to franchisees. The Company receives
monthly royalties and advertising contributions from franchisees based on a percentage of
restaurant sales.
Basis of Presentation and Consolidation
The accompanying Condensed Consolidated Financial Statements should be read in conjunction
with the consolidated financial statements contained in the Companys Annual Report on Form 10-K
for the fiscal year ended June 30, 2006. In the opinion of management, all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation have been included. The results for
the quarter ended September 30, 2006 do not necessarily indicate the results that may be expected
for the full year.
The condensed consolidated financial statements include the accounts of the Company and its
majority-owned subsidiaries. All material intercompany balances and transactions have been
eliminated in consolidation. Investments in affiliates where the Company owns between 20% and 50%
are accounted for under the equity method, except as discussed below.
In December 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No.
46R, Consolidation of Variable Interest Entities an interpretation of ARB No. 51 (FIN 46R).
FIN 46R establishes guidance to identify variable interest entities (VIEs). FIN 46R requires
VIEs to be consolidated by the primary beneficiary who is exposed to the majority of the VIEs
expected losses, expected residual returns, or both. FIN 46R excludes from its scope operating
businesses unless certain conditions exist.
A majority of franchise entities meet the definition of an operating business and, therefore,
are exempt from the scope of FIN 46R. Additionally, there are a number of franchise entities which
do not meet the definition of a business as a result of leasing arrangements and other forms of
subordinated financial support provided by the Company, including certain franchise entities that
participated in the franchisee financial restructuring program (see Note 13) and, therefore, are
considered VIEs. However, the Company is not exposed to the majority of expected losses in any of
these arrangements and, therefore, is not the primary beneficiary required to consolidate any of
these franchisees.
The Company has consolidated one joint venture created in fiscal 2005 that operates
restaurants where the Company is a 49% partner, but is deemed to be the primary beneficiary, as the
joint venture agreement provides protection to the joint venture partner from absorbing expected
losses. The results of operations of this joint venture are not material to the Companys results
of operations and financial position.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts reported
in the Companys condensed consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the prior periods to conform to the current
periods presentation. The reclassifications had no effect on previously reported net income or
stockholders equity.
7
Inventories
Inventories, totaling $13 million and $14 million at September 30, 2006 and June 30, 2006,
respectively, 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 condensed consolidated balance sheets.
Auction Rate Securities Available for Sale
Auction rate securities represent long-term variable rate bonds tied to short-term interest
rates that are reset through a dutch auction process, which occurs every seven to 35 days, and
are classified as available for sale securities. Auction rate notes are considered highly liquid
by market participants because of the auction process. However, because the auction rate securities
have long-term maturity dates and there is no guarantee the holder will be able to liquidate its
holding, they do not meet the definition of cash equivalents in SFAS No. 95, Statement of Cash
Flows and, accordingly, are recorded as investments. Auction rate securities available for sale
totaled $11 million at September 30, 2006. There were no auction rate securities available for
sale at June 30, 2006.
Note 2. Stock-based Compensation
Prior to February 16, 2006, the date the Company filed its Form S-1 registration statement
with the Securities and Exchange Commission (the initial public offering was effective on May 17,
2006), the Company accounted for stock-based compensation in accordance with the intrinsic-value
method of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
(APB No. 25). Under the intrinsic value method of APB No. 25, stock options were granted by the
Company at fair value, with no compensation cost being recognized in the financial statements over
the vesting period. In addition, the Company issued restricted stock units under APB No. 25 and
recognized compensation cost over the vesting period of the awards. For pro forma disclosure
required by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123), compensation expense for stock options was measured using the
minimum value method, which assumed no volatility of the Companys common stock in the
Black-Scholes model used to calculate the options fair value.
As a result of filing the Form S-1 registration statement, the Company transitioned from a
nonpublic entity to a public entity as defined by Statement of Financial Accounting Standards No.
123 (revised 2004), Share-Based Payment (SFAS No. 123R). Since the Company applied SFAS No. 123
pro forma disclosure for stock options using the minimum value method prior to becoming a public
entity, SFAS No. 123R requires that the Company adopt SFAS No. 123R, using a combination of the
prospective and modified prospective transition methods. The Company applied the prospective
transition method for those awards granted prior to the Form S-1 filing date that were measured at
minimum value. The unrecognized compensation cost relating to these awards is recognized in the
financial statements subsequent to the adoption of SFAS No. 123R, using the same method of
recognition and measurement originally applied to those awards. As there was no compensation cost
recognized by the Company in the financial statements for these awards under APB No. 25, no
compensation cost has been, or will be recognized for these awards after the Companys adoption of
SFAS No. 123R on July 1, 2006, unless such awards are modified after that date. For those awards
granted subsequent to the Form S-1 filing date, but prior to the adoption date of July 1, 2006, the
Company applied the modified prospective transition method, under which compensation expense is
recognized for any unvested portion of the awards granted between the Form S-1 filing date and the
adoption date of SFAS 123R over the remaining vesting period of the awards beginning on the
adoption date of July 1, 2006.
On July 1, 2006, the Company adopted SFAS 123R, which requires share-based compensation cost
to be recognized based on the grant date estimated fair value of each award, net of estimated
forfeitures, over the employees requisite service period. As a result of the Company being
required to apply the prospective method to all stock option awards granted prior to its Form S-1
filing date, and the fact that the fair value method used to measure compensation expense for
restricted stock units is the same for APB No. 25 and SFAS No. 123R, the adoption of SFAS No. 123R
did not have a material impact on the Companys operating income, pretax income or net income for
the three months ended September 30, 2006.
Stock option awards granted by the Company expire ten years from the grant date and generally
vest ratably over a five-year service period commencing on the grant date. Restricted stock units
(RSUs) granted by the Company generally vest ratably over a two to five year service period commencing
on the grant date. For those vested and unvested RSUs granted prior to the Companys initial
public offering, settlement of these awards (i.e., the issuance of shares of the Companys common
stock to the recipients) will occur on December 31, 2007 or upon termination of the holders
employment, if earlier. For the quarter ended September 30, 2006, the Company granted
performance-based restricted stock (PBRS) awards of 706,422 shares to eligible employees as
long-term incentive compensation. The actual number of shares earned by the employee depends on
specific performance criteria of the Company during the one-year performance period ended June 30,
2007 and will be adjusted at the end of the performance period. The
8
PBRS awards have a three or four-year service period, which includes a one-year
performance period.
The Company recorded $1 million of pre-tax stock-based compensation expense for the three
months ended September 30, 2006 primarily related to RSUs outstanding at the beginning of the
period and PBRS awards granted during the period.
Equity Incentive Plan and 2006 Omnibus Incentive Plan
The Companys Equity Incentive Plan and 2006 Omnibus Incentive Plan (collectively, the
Plans) permit the grant of stock-based compensation awards including options, RSUs and PBRS
awards to eligible employees for up to 21 million shares of the Companys common stock. Awards are
generally granted with an exercise price equal to the closing price of the Companys common stock on the
date of grant. The number of shares available to be granted under the Plans totaled 8.5 million at
September 30, 2006.
The fair value of each stock option granted under the Plans during the quarter ended September
30, 2006 was estimated on the date of grant using the Black-Scholes option pricing model based on
the following weighted average assumptions:
|
|
|
|
|
Risk-free interest rate |
|
|
5.34 |
% |
Expected term (in years) |
|
|
6.25 |
|
Expected volatility |
|
|
33.01 |
% |
Expected dividend yield |
|
|
0.00 |
% |
A summary of stock option activity under the Plans as of September 30, 2006 and changes during
the quarter ended September 30, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Weighted Average |
|
|
Weighted Average |
|
|
|
|
|
|
Options |
|
|
Exercise Price Per |
|
|
Remaining |
|
|
Aggregate Intrinsic |
|
|
|
(in 000's) |
|
|
Share ($) |
|
|
Contractual Life |
|
|
Value ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Balance at July 1, 2006 |
|
|
7,408 |
|
|
$ |
7.75 |
|
|
|
7.06 |
|
|
$ |
|
|
Granted |
|
|
81 |
|
|
|
14.05 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(5 |
) |
|
|
3.80 |
|
|
|
|
|
|
|
|
|
Canceled |
|
|
(255 |
) |
|
|
6.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
September 30, 2006 |
|
|
7,229 |
|
|
|
7.87 |
|
|
|
6.65 |
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at
September 30, 2006 |
|
|
3,064 |
|
|
$ |
4.79 |
|
|
|
4.31 |
|
|
$ |
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of a stock option is the amount by which the market value of the
underlying stock exceeds the exercise price of the option. For the quarters ended September 30,
2006 and 2005, both the total intrinsic value of stock options exercised and proceeds from stock
options exercised were not significant. For the quarters ended September 30, 2006 and 2005, actual
tax benefits realized for tax deductions from stock options were not significant.
9
A summary of RSU activity under the Plans as of September 30, 2006 and changes during the
quarter ended September 30, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Weighted Average |
|
|
|
RSUs |
|
|
Grant Date Fair |
|
|
|
(in 000s) |
|
|
Value ($) |
|
Balance at July 1, 2006 |
|
|
957 |
|
|
$ |
12.11 |
|
Granted |
|
|
|
|
|
|
|
|
Exercised |
|
|
151 |
|
|
|
5.54 |
|
Canceled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
September 30, 2006 |
|
|
806 |
|
|
|
9.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at
September 30, 2006 |
|
|
453 |
|
|
$ |
5.74 |
|
|
|
|
|
|
|
|
As of September 30, 2006, there was $8 million of total unrecognized compensation cost related
to nonvested share-based compensation arrangements (including stock options and RSU awards) granted
under the Plans. That cost is expected to be recognized over a weighted-average period of 4.59
years. The total fair value of shares vested during the quarters ended September 30, 2006 and 2005
was $12 million and $6 million, respectively.
In August 2006, the Company granted PBRS awards under the plans as long-term incentive
compensation to selected executives and other key employees. PBRS awards are based on 50% of the
calculated value of an individuals total annual long-term incentive target award and the
performance measure will be the Companys profit before taxes for fiscal year 2007.
The fair value of the PBRS awards was the closing price of the Companys common stock on
the grant date and assumes that the performance measures will be achieved. The number of PBRS
awards earned by an employee will be adjusted up or down each reporting period, during the
performance period, based on the Companys probable performance over the performance period. At the
end of the one-year performance period, the value of the PBRS awards will be adjusted to the actual
awards earned based on the performance of the Company. The PBRS awards have a 3 or 4-year cliff
vesting requirement from the grant date, depending on the employee.
A summary of PBRS activity under the Plans as of September 30, 2006 and changes during the
quarter ended September 30, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Weighted Average |
|
|
|
PBRS |
|
|
Grant Date Fair |
|
|
|
(in 000s) |
|
|
Value ($) |
|
Balance at July 1, 2006 |
|
|
|
|
|
$ |
|
|
Granted |
|
|
706 |
|
|
|
14.05 |
|
Exercised |
|
|
|
|
|
|
|
|
Canceled |
|
|
(4 |
) |
|
|
14.05 |
|
|
|
|
|
|
|
|
Outstanding at
September 30, 2006 |
|
|
702 |
|
|
|
14.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at
September 30, 2006 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
As of September 30, 2006, there was $10 million of total unrecognized compensation cost
related to PBRS awards granted under the Plans. That cost is expected to be recognized over a
weighted average period of three years. No performance shares vested during the three months ended
September 30, 2006. Compensation expense recorded during the three months ended September 30, 2006
for performance shares was not significant.
10
Note 3. Closures and Dispositions
Asset and Business Dispositions
Gains on asset and business disposals are comprised primarily of sales of Company-owned
properties related to restaurant closures and sales of Company-owned restaurants to franchisees, or
refranchisings, and are recorded in other operating income, net in the
accompanying condensed consolidated statements of operations. The closures and refranchisings
are summarized as follows (in millions, except for number of restaurants):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Number of restaurant closures |
|
|
4 |
|
|
|
5 |
|
(Gains) on closures and dispositions, net |
|
$ |
(2 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Number of refranchisings |
|
|
1 |
|
|
|
2 |
|
Loss on refranchisings |
|
$ |
|
|
|
$ |
|
|
Note 4. Earnings Per Share
Basic and diluted earnings per share are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Numerator: |
|
|
|
|
|
|
|
|
Numerator for basic and diluted earnings per share: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
40,444,857 |
|
|
$ |
21,795,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Denominator for basic earnings per share: |
|
|
|
|
|
|
|
|
Weighted average shares |
|
|
133,076,542 |
|
|
|
106,759,585 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Restricted stock units |
|
|
435,505 |
|
|
|
556,903 |
|
Performance-based restricted stock units |
|
|
894 |
|
|
|
|
|
Employee stock options |
|
|
2,413,571 |
|
|
|
5,054,970 |
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share |
|
|
135,926,512 |
|
|
|
112,371,458 |
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.30 |
|
|
$ |
0.20 |
|
Diluted earnings per share |
|
$ |
0.30 |
|
|
$ |
0.19 |
|
Unexercised employee stock options to purchase 1.2 million and 1.3 million
shares of the Companys common stock were not included in the computation of diluted earnings per share for the three months ended
September 30, 2006 and 2005, respectively, as their exercise prices were equal to or greater than the average market price of the
Companys common stock during those respective periods, which would have resulted in anti-dilution.
11
Note 5. Comprehensive Income
Comprehensive income is comprised of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Net income |
|
$ |
40 |
|
|
$ |
22 |
|
Translation adjustment |
|
|
2 |
|
|
|
2 |
|
Cash flow hedges: |
|
|
|
|
|
|
|
|
Net change in fair value of derivatives, net of tax (benefit) expense of $5 and $(1) |
|
|
(8 |
) |
|
|
2 |
|
Amounts reclassified to earnings during the period, net of tax |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive (loss) income |
|
|
(7 |
) |
|
|
4 |
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
33 |
|
|
$ |
26 |
|
|
|
|
|
|
|
|
Note 6. Other Accrued Liabilities
Included in other accrued liabilities as of September 30, 2006 and June 30, 2006, were accrued
payroll and employee-related benefit costs totaling $79 million and $101 million, respectively, and
income taxes payable of $26 million and $96 million, respectively.
Note 7. Long-Term Debt
As of September 30, 2006, and June 30, 2006, the Company had $946 million and $997 million,
respectively, of long-term debt outstanding. During the three months ended September 30, 2006, the
Company prepaid $50 million of term debt. As of September 30, 2006, the next scheduled principal
payment on the term debt is December 31, 2008. See Note 15 for information about a prepayment of
term debt made subsequent to September 30, 2006.
Note 8. Derivative Instruments
Interest rate swaps
In September 2005, the Company entered into interest rate swap contracts with a notional value
of $750 million that qualify as cash flow hedges under Statement of Financial Accounting Standards
No. 133, as amended. These swaps were used to convert the floating interest rate component of
certain LIBOR-based debt obligations to fixed rates. In September 2006, the Company terminated
these hedges. The remaining after-tax value of the hedges as of September 30, 2006 was $6 million
and is included in accumulated other comprehensive income to be amortized to earnings over the
remaining life of the term debt underlying the hedge.
In September 2006, the Company entered into interest rate swap contracts with a notional value
of $440 million to hedge forecasted LIBOR-based interest payments on its variable rate debt. These
swaps mature through September 2011. The fair value of these interest rate swaps was $1 million as
of September 30, 2006 and is recorded within other assets, net, with an offsetting credit recorded
in accumulated other comprehensive income, net of taxes in the accompanying condensed consolidated
balance sheet. Unrealized gains and losses related to these hedges are expected to be recorded in
the Companys statement of operations in the future and will offset interest expense on the
forecasted interest payments. The actual amounts that will be recorded in the Companys
consolidated statement of operations could vary from this estimated amount as a result of changes
in interest rates in the future. No ineffectiveness was recognized during the three months ended
September 30, 2006 and 2005 for interest rate swaps designated as cash flow hedges.
Foreign currency forward contracts
In June 2006, the Company entered into three-month foreign exchange forward contracts to sell
Euros with an aggregate contracted amount of $346 million to offset the foreign currency
fluctuations of foreign denominated assets. Upon maturity of these
contracts, in September 2006, the Company entered into similar foreign exchange forward
contracts that mature in December 2006, with an aggregate
contract amount of $355 million in order
to offset the impact from foreign currency fluctuations on the foreign-denominated assets. The
Company recognized a gain of $5 million from these contracts during the three months ended
September 30, 2006. The Company also recognized a $3 million loss, during the three months ended
September 30, 2006, from the translation of foreign denominated assets which offset the gain of $5
million on the forward contracts.
12
Note 9. Income Taxes
The U.S. Federal tax statutory rate reconciles to the effective tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
U.S. Federal income tax rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
State income taxes, net of federal income tax benefit |
|
|
2.6 |
|
|
|
3.9 |
|
Benefit and taxes related to foreign operations |
|
|
(4.7 |
) |
|
|
(3.7 |
) |
Foreign exchange differential on tax benefits |
|
|
(1.0 |
) |
|
|
(0.2 |
) |
Change in valuation allowance |
|
|
2.7 |
|
|
|
10.8 |
|
Change in accrual for tax uncertainties |
|
|
2.7 |
|
|
|
1.4 |
|
Other |
|
|
0.2 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
Effective income tax rate |
|
|
37.5 |
% |
|
|
47.6 |
% |
|
|
|
|
|
|
|
Note 10. Related Party Transactions
In connection with the Companys acquisition of BKC, the Company entered into a management
agreement with the Sponsors for monitoring the Companys business through board of director
participation, executive team recruitment, interim senior management services and other services
consistent with arrangements with private equity funds (the management agreement). Pursuant to
the management agreement, the Company was charged a quarterly fee not to exceed 0.5% of the prior
quarters total revenues. In May 2006, the Company terminated the management agreement upon the
completion of its initial public offering eliminating management fees subsequent to that date.
Prior to the termination of the management agreement, the Company incurred management fees and
reimbursable out-of-pocket expenses under the management agreement totaling $3 million for the
three months ended September 30, 2005. These fees and reimbursable out-of-pocket expenses are
recorded within fees paid to affiliates in the consolidated statement of operations.
The outstanding balance of the payment-in-kind (PIK) notes to the private equity funds
controlled by the Sponsors included $103 million of PIK interest as of June 30, 2005, and $2
million of accrued interest for the three months ended fiscal year 2006, and was repaid in July
2005. Interest expense on the PIK notes totaled $2 million for the three months ended September 30,
2005.
A member of the Board of Directors of the Company has a direct financial interest in a company
with which the Company has entered into a lease agreement for the Companys new corporate
headquarters (see Note 13).
Note 11. Retirement Plan and Other Postretirement Benefits
A summary of the components of net periodic benefit cost for the Pension Plans (retirement
benefits) and Postretirement Plans (other benefits) is presented below (in millions):
|
|
|
|
|
|
|
|
|
|
|
Retirement Benefits |
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Service cost-benefits earned during the period |
|
$ |
1 |
|
|
$ |
2 |
|
Interest costs on projected benefit obligations |
|
|
2 |
|
|
|
3 |
|
Expected return on plan assets |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
Net periodic benefit cost and total quarterly
pension cost |
|
$ |
1 |
|
|
$ |
3 |
|
|
|
|
|
|
|
|
13
Note 12. Other Operating Income, Net
Other operating income, net, consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
(Gains) losses on asset acquisitions, closures and dispositions |
|
$ |
(6 |
) |
|
$ |
|
|
(Recovery) impairment of investments in franchisee debt |
|
|
|
|
|
|
(2 |
) |
Other, net |
|
|
(1 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
Other operating income, net |
|
$ |
(7 |
) |
|
$ |
(1 |
) |
|
|
|
|
|
|
|
Note 13. Commitments and Contingencies
Franchisee Restructuring Program
During fiscal 2003, the Company initiated a program designed to provide assistance to
franchisees in the United States and Canada experiencing financial difficulties. Under this
program, the Company worked with franchisees meeting certain operational criteria, their lenders,
and other creditors to attempt to strengthen the franchisees financial condition. As part of this
program, the Company agreed to provide financial support to certain franchisees.
In order to assist certain franchisees in making capital improvements to restaurants in need
of remodeling, the Company provided commitments to fund capital expenditure loans (Capex Loans)
and to make capital expenditures related to restaurant properties that the Company leases to
franchisees. Capex Loans are typically unsecured, bear interest, and have 10-year terms. During the
quarter ended September 30, 2006, the Company funded $1 million in Capex Loans and made $1 million
of improvements to restaurant properties that the Company leases to franchisees in connection with
these commitments. As of September 30, 2006, the Company has commitments remaining to provide
future Capex Loans of $10 million and to make up to $11 million of improvements to properties that
the Company leases to franchisees.
During the three months ended September 30, 2006 and 2005, the Company provided approximately
$1 million of temporary reductions in rent (rent relief) for certain franchisees that leased
restaurant property from the Company. As of September 30, 2006, the Company had remaining
commitments to provide future rent relief of up to $9 million.
Contingent cash flow subsidies represent commitments by the Company to provide future cash
grants to certain franchisees for limited periods in the event of failure to achieve their debt
service coverage ratio. No contingent cash flow subsidy has been provided through September 30,
2006. The maximum contingent cash flow subsidy commitment for future periods as of September 30,
2006 is $5 million. Upon funding, in most instances, the subsidies will be added to the
franchisees existing note balance.
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 was $110 million at September 30, 2006, expiring over an average period
of six years.
Other commitments arising out of normal business operations were $10 million as of September
30, 2006, of which $6 million were guaranteed under bank guarantee arrangements.
Letters of Credit
At September 30, 2006, there were $35 million in irrevocable standby letters of credit
outstanding, which were issued primarily to certain insurance carriers to guarantee payment for
various insurance programs such as health and commercial liability insurance. The net decrease of
$7 million of letters of credit issued as of September 30, 2006, compared to June 30, 2006, is
primarily the result of a reduction of $11 million in required standby letters of credit due to the
novation agreement entered into by the Company and a third party carrier (see discussion below
under Other). Included in that amount was $34 million of standby letters of credit issued under
the Companys $150 million revolving credit facility. As of September 30, 2006, none of these
irrevocable standby letters of credit had been drawn upon.
14
As of September 30, 2006, the Company had posted bonds totaling $2 million, which related to
certain utility deposits.
Vendor Relationships
In fiscal 2000, the Company entered into long-term, exclusive contracts with the Coca-Cola
Company and with Dr Pepper/Seven Up, Inc. to supply Company and 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
September 30, 2006, the Company estimates that it will take approximately 16 years and 17 years to
complete the Coca-Cola and Dr Pepper/ Seven Up, Inc. purchase commitments, respectively. 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 has received upfront fees, which are
being amortized over the term of the contracts. At September 30, 2006 and June 30, 2006, the deferred
amounts totaled $22 million and $23 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 September 30, 2006 the Company had $8 million in aggregate contractual obligations for
the year ended June 30, 2007 with a vendor providing information technology services under three
separate arrangements. These contracts extend up to five years with a termination fee ranging from
less than $1 million to $3 million during those years.
The Company also enters into commitments to purchase advertising for periods up to twelve
months. At September 30, 2006, commitments to purchase advertising totaled $112 million.
New Global Headquarters
In May 2005, the Company entered into an agreement to lease a building in Coral Gables,
Florida, to serve as the Companys new global headquarters beginning in fiscal 2009. Under this
agreement, the estimated annual rent for the 15 year initial term is expected to be approximately
$7 million a year, which will be finalized upon the completion of the buildings construction and
will escalate based on the annual inflation rate.
Other
The Company is self-insured for most domestic workers compensation, general liability, and
automotive liability losses subject to per occurrence and aggregate annual liability limitations.
The Company is also self-insured for healthcare claims for eligible participating employees subject
to certain deductibles and limitations. The Company determines its liability for claims incurred
but not reported based on an actuarial analysis. The Company had claims for certain years which
were insured by a third party carrier, who was insolvent at June 30, 2006. During the three months
ended September 30, 2006, the Company entered into a novation agreement whereby the insolvent
carrier was replaced by another third party carrier who will take over the pending and potential
claims for these years.
Note 14. Segment Reporting
The Company operates in the fast food hamburger restaurant industry. Revenues include retail
sales at Company-owned restaurants and franchise revenues. The business is managed in three
distinct geographic segments: United States and Canada; Europe, Middle East, Africa and Asia
Pacific (EMEA/APAC); and Latin America.
The unallocated amount reflected in the Operating Income table below includes corporate
support costs in areas such as facilities, finance, human resources, information technology, legal,
marketing and supply chain management.
15
The following tables present revenues and operating income by geographic segment (in
millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Revenues: |
|
|
|
|
|
|
|
|
United States and Canada |
|
$ |
362 |
|
|
$ |
340 |
|
EMEA/APAC |
|
|
159 |
|
|
|
147 |
|
Latin America |
|
|
25 |
|
|
|
21 |
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
546 |
|
|
$ |
508 |
|
|
|
|
|
|
|
|
Other than the United States and Germany, no other individual country represented 10% or more
of the Companys total revenues. Revenues in the United States totaled $324 million for the three
months ended September 30, 2006 and $305 million for the three months ended September 30, 2005.
Revenues in Germany totaled $73 million for the three months ended September 30, 2006, and $67
million for the three months ended September 30, 2005.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Operating Income: |
|
|
|
|
|
|
|
|
United States and Canada |
|
$ |
87 |
|
|
$ |
78 |
|
EMEA/APAC |
|
|
20 |
|
|
|
21 |
|
Latin America |
|
|
8 |
|
|
|
7 |
|
Unallocated |
|
|
(33 |
) |
|
|
(34 |
) |
|
|
|
|
|
|
|
Total operating income |
|
$ |
82 |
|
|
$ |
72 |
|
Interest expense, net |
|
|
17 |
|
|
|
17 |
|
Loss on early extinguishment of debt |
|
|
1 |
|
|
|
13 |
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
64 |
|
|
$ |
42 |
|
Income tax expense |
|
|
24 |
|
|
|
20 |
|
|
|
|
|
|
|
|
Net income |
|
$ |
40 |
|
|
$ |
22 |
|
|
|
|
|
|
|
|
Note 15. Subsequent Event
On October 6, 2006, the Company prepaid an additional $35 million of term debt, reducing the
total outstanding debt balance to $912 million. As a result of this payment, the next scheduled
principal payment on the amended facility is March 31, 2009.
16
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion together with our audited condensed consolidated
financial statements and the related notes thereto included in Part I, Item 1 Financial
Statements. 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 in our Annual
Report on Form 10-K for the year ended June 30, 2006, and under Part II, Item 1A Risk Factors,
Special Note Regarding Forward-Looking Statements and elsewhere in this report. Unless the
context otherwise requires all references to we, us and our refer to Burger King Holdings,
Inc. and its subsidiaries.
Overview
We are the second largest fast food hamburger restaurant, or FFHR, chain in the world as
measured by the number of restaurants and system-wide sales. As of September 30, 2006, we owned or
franchised a total of 11,144 restaurants in 65 countries and U.S. territories, of which 7,521 were
located in the United States and Canada. At that date, 1,248 restaurants were company-owned and
9,896 were owned by our franchisees. We operate in the FFHR category of the quick service
restaurant, or QSR, segment of the restaurant industry. The FFHR category is highly competitive
with respect to price, service, location and food quality. Our restaurants feature flame-broiled
hamburgers, chicken and other specialty sandwiches, french fries, soft drinks and other
reasonably-priced food items.
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. We generate
revenues from three sources: (1) sales at our Company restaurants; (2) royalties and franchise fees
paid to us by our franchisees; and (3) property income from restaurants that we lease or sublease
to franchisees. We track our results of operations and manage our business by using three key
business measures which include sales on a system-wide basis: comparable sales growth, average
restaurant sales and system-wide sales growth. We do not record franchise restaurant sales as
revenues. However, our royalty revenues are calculated based on a percentage of franchise
restaurant sales.
First Quarter Fiscal 2007 Highlights
Our strategic plan (the Go Forward Plan) has four guiding principles: Grow Profitably (a
market plan); Fund the Future (a financial plan); Fire-up the Guest (a product plan); and Working
Together (a people plan). Guided by our Go Forward Plan and strong executive leadership, our
accomplishments through the first quarter of fiscal 2007 include:
|
|
|
eleven consecutive quarters of positive system-wide comparables sales growth for the
first time in more than a decade; |
|
|
|
|
ten straight quarters of positive comparable sales growth in United States and Canada, as
compared to negative comparable sales growth in the previous seven consecutive quarters; |
|
|
|
|
opening 84 new restaurants and net restaurant growth of 15; |
|
|
|
|
robust pipeline of new products, including the BK Stacker, Chicken Fries and our new BK Value Menu: and |
|
|
|
|
Steady decrease in debt from $998 million at June 30, 2006 to $947 million at September 30, 2006, a reduction of 5%. |
Our focus continues to be on:
|
|
|
Driving sales growth and profitability of our U.S. business; |
|
|
|
|
Expanding our large international network; |
|
|
|
|
Continuing to build relationships with our franchisees; and |
|
|
|
|
Becoming a world-class global company with continued emphasis on: |
|
|
|
marketing and product development teams; |
|
|
|
|
reducing menu complexity worldwide; and |
|
|
|
|
leveraging our global purchasing power. |
17
Net Income
Our net income increased $18 million to $40 million in the first quarter of fiscal 2007,
compared to the same quarter in fiscal 2006 primarily as a result of the following:
|
|
|
an increase in revenues of $38 million; |
|
|
|
|
an increase in operating costs and expenses of $33 million; |
|
|
|
|
a $5 million pre-tax gain from the sale of our investment in a joint venture; |
|
|
|
|
a benefit of $12 million due to a pre-tax loss on early extinguishment of debt of $13
million recorded in the first quarter of the prior year; and |
|
|
|
|
a $4 million increase in income tax expense. |
Key Business Measures
The following key business measures have been provided for the quarters ended September 30,
2006 and 2005 by segment. Comparable sales growth and system-wide sales growth are analyzed on a
constant currency basis, which means they are calculated using 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.
Comparable Sales Growth
Comparable sales growth refers to the change in restaurant sales in one period from a
comparable period for restaurants that have been open for thirteen months or longer. We believe
comparable sales growth is a key indicator of our performance, and is influenced by our initiatives
and those of our competitors.
|
|
|
|
|
|
|
|
|
|
|
For the |
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In constant currencies) |
|
Comparable Sales Growth: |
|
|
|
|
|
|
|
|
United States and Canada |
|
|
2.6 |
% |
|
|
1.1 |
% |
EMEA/APAC |
|
|
1.1 |
% |
|
|
(0.7 |
)% |
Latin America |
|
|
6.1 |
% |
|
|
1.5 |
% |
Total System-Wide |
|
|
2.4 |
% |
|
|
0.7 |
% |
Our system-wide comparable sales growth in the first quarter of fiscal 2007 was driven by new
products and marketing and operational initiatives. These results are driven mostly by our
franchise restaurants as approximately 90% of our system-wide restaurants are franchised.
In the United States and Canada, our comparable sales growth performance improved in the first
quarter of 2007, as we continued to make improvements to our menu, advertising and operations.
Comparable sales growth for our Company-owned restaurants in the United States and Canada was 2.1%
for the first quarter of fiscal 2007 compared to 2.7% for franchise restaurants.
The comparable sales growth performance in EMEA/APAC reflects positive sales performance in
the Mediterranean and Central regions of Europe and APAC offset by poor sales performance in the
Northwest region of Europe which was mostly attributable to the United Kingdom where changes in
consumer preferences away from the FFHR segment have adversely affected our sales. See Part II,
Item 1A Risk Factors for a discussion regarding our UK business.
Latin America demonstrated strong results and continues to grow. These strong results were
fueled by a 15th year Whopper® anniversary promotion in Mexico as well as favorable results in
Argentina, Chile, Dominican Republic, El Salvador and Venezuela.
18
Average Restaurant Sales
Average restaurant sales is an important measure of the financial performance of our
restaurants and changes in the overall direction and trends of sales. Average restaurant sales is
influenced by comparable sales performance and restaurant openings and closures. Average
restaurant sales for the first quarter of fiscal 2007 was $300,000 compared to $287,000 for the
first quarter of fiscal 2006.
Our improvement in average restaurant sales in the first quarter of fiscal 2007 was primarily
due to improved comparable sales, the opening of new restaurants with high sales volumes and
closure of under-performing restaurants. Our comparable sales increased by 2.4% in the first
quarter of fiscal 2007 driven primarily by our strategic initiatives related to operational
excellence, advertising and our menu. Additionally, we and our franchisees closed 319 restaurants
between October 1, 2005 and September 30, 2006. Approximately 66% of these closures were franchise
restaurants in the United States and Canada, which had average restaurant sales in the 12 months
prior to closure that were significantly lower than system-wide average restaurant sales. We and
our franchisees also opened 361 new restaurants between October 1, 2005 and September 30, 2006. The
average restaurant sales of these new restaurants was higher than our system-wide average
restaurant sales. We expect that closures of under-performing restaurants, combined with continued
improvements to average restaurant sales of existing restaurants and strong sales at new
restaurants, will result in financially stronger operators throughout our franchise base.
System-Wide Sales Growth
System-wide sales refer to sales at all Company-owned and franchise restaurants. System-wide
sales and system-wide sales growth are important indicators of the overall direction and trends of
sales and operating income on a system-wide basis and the effectiveness of our advertising and
marketing initiatives.
|
|
|
|
|
|
|
|
|
|
|
For the |
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In constant currencies) |
|
System-Wide Sales Growth: |
|
|
|
|
|
|
|
|
United States and Canada |
|
|
1.9 |
% |
|
|
(0.9 |
)% |
EMEA/APAC |
|
|
6.9 |
% |
|
|
6.2 |
% |
Latin America |
|
|
15.7 |
% |
|
|
13.3 |
% |
Total System-Wide |
|
|
4.0 |
% |
|
|
1.6 |
% |
System-wide sales continued a growth trend during the first quarter of fiscal 2007, when
comparable sales continued to increase on a system-wide basis. Additionally, there were 361
restaurant openings during the period between October 1, 2005 through September, 30, 2006,
partially offset by 319 restaurant closures. We expect restaurant closures to continue to decline
and restaurant openings to accelerate, particularly in EMEA/APAC and Latin America.
Our system-wide sales in the United States and Canada increased in the first quarter of fiscal
2007, primarily as a result of positive comparable sales growth partially offset by restaurant
closures. We had 7,521 restaurants in the United States and Canada at September 30, 2006, compared
to 7,670 restaurants at September 30, 2005.
EMEA/APAC demonstrated strong system-wide sales growth during the first quarter of fiscal 2007
reflecting growth in several markets, including Germany, Spain, The Netherlands and smaller markets
in the Mediterranean and Middle East. Partially offsetting this growth was the United Kingdom,
where changes in consumer preferences away from the FFHR segment have adversely affected our sales.
See Part II, Item 1A Risk Factors for a discussion about our UK business. We opened 101
restaurants (net of closures) in EMEA/APAC during the period from October 1, 2005 through September
30, 2006, increasing our total system restaurant count in this segment to 2,795 at September 30,
2006, an increase of 4%.
Latin Americas system-wide sales growth was driven by new restaurant openings and strong
comparable sales in the first quarter of fiscal 2007. We opened 90 restaurants (net of closures) in
Latin America during the period from October 1, 2005 through September 30, 2006, increasing our
total system restaurant count in this segment to 828 at September 30, 2006, an increase of 12%.
19
Other Operating Data
|
|
|
|
|
|
|
|
|
|
|
Burger King Holdings, Inc. |
|
|
|
For the Three Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Other System-Wide Operating Data: |
|
|
|
|
|
|
|
|
Comparable sales growth(1)(2) |
|
|
2.4 |
% |
|
|
0.7 |
% |
System-wide sales growth(1) |
|
|
4.0 |
% |
|
|
1.6 |
% |
Average restaurant sales (in millions)(1) |
|
$ |
0.300 |
|
|
$ |
0.287 |
|
Number of Company restaurants: |
|
|
|
|
|
|
|
|
United States and Canada |
|
|
882 |
|
|
|
849 |
|
EMEA/APAC(3) |
|
|
296 |
|
|
|
285 |
|
Latin America(4) |
|
|
70 |
|
|
|
60 |
|
|
|
|
|
|
|
|
Total Company restaurants |
|
|
1,248 |
|
|
|
1,194 |
|
|
|
|
|
|
|
|
|
|
Number of franchise restaurants: |
|
|
|
|
|
|
|
|
United States and Canada |
|
|
6,639 |
|
|
|
6,821 |
|
EMEA/APAC(3) |
|
|
2,499 |
|
|
|
2,409 |
|
Latin America(4) |
|
|
758 |
|
|
|
678 |
|
|
|
|
|
|
|
|
Total franchise restaurants |
|
|
9,896 |
|
|
|
9,908 |
|
|
|
|
|
|
|
|
Total system-wide restaurants |
|
|
11,144 |
|
|
|
11,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Data: |
|
|
|
|
|
|
|
|
Operating income (in millions): |
|
|
|
|
|
|
|
|
United States and Canada |
|
$ |
87 |
|
|
$ |
78 |
|
EMEA/APAC(3) |
|
|
20 |
|
|
|
21 |
|
Latin America(4) |
|
|
8 |
|
|
|
7 |
|
Unallocated(5) |
|
|
(33 |
) |
|
|
(34 |
) |
|
|
|
|
|
|
|
Total operating income |
|
$ |
82 |
|
|
$ |
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Restaurant Revenues (in millions): |
|
|
|
|
|
|
|
|
United States and Canada |
|
$ |
271 |
|
|
$ |
253 |
|
EMEA/APAC(3) |
|
|
119 |
|
|
|
109 |
|
Latin America(4) |
|
|
15 |
|
|
|
13 |
|
|
|
|
|
|
|
|
Total Company restaurant revenues |
|
$ |
405 |
|
|
$ |
375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Restaurant Margin: |
|
|
|
|
|
|
|
|
United States and Canada |
|
|
14.8 |
% |
|
|
14.2 |
% |
EMEA/APAC(3) |
|
|
15.2 |
% |
|
|
15.3 |
% |
Latin America(4) |
|
|
25.3 |
% |
|
|
24.4 |
% |
Total Company restaurant margin |
|
|
15.3 |
% |
|
|
14.9 |
% |
Franchise Revenues (in millions): |
|
|
|
|
|
|
|
|
United States and Canada |
|
$ |
70 |
|
|
$ |
67 |
|
EMEA/APAC(3) |
|
|
33 |
|
|
|
30 |
|
Latin America(4) |
|
|
10 |
|
|
|
8 |
|
|
|
|
|
|
|
|
Total franchise revenues |
|
$ |
113 |
|
|
$ |
105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise sales (in millions)(6) |
|
$ |
2,914 |
|
|
$ |
2,799 |
|
(1) |
|
These are our key business measures. System-wide sales measures include sales at both
Company restaurants and franchise restaurants. We do not record franchise restaurant sales as
revenues. However, our royalty revenues are calculated based on a percentage of franchise
restaurant sales. Comparable sales growth and system-wide sales growth are analyzed on a
constant currency basis, which means they are calculated using the 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. See
Part II, Item 7 Managements Discussion and Analysis of Financial Condition and Results of
OperationsKey Business Measures. |
20
(2) |
|
Comparable sales growth refers to the change in restaurant sales in one period from a
comparable period for restaurants that have been open for thirteen months or longer.
Comparable sales growth includes sales at Company restaurants and franchise restaurants. We do
not record franchise restaurant sales as revenues. However, our royalty revenues are
calculated based on a percentage of franchise restaurant sales. |
(3) |
|
Refers to our operations in Europe, the Middle East, Africa, Asia, Australia, New Zealand and
Guam. |
|
(4) |
|
Refers to our operations in Mexico, Central and South America, the Caribbean and Puerto Rico. |
|
(5) |
|
Unallocated includes corporate support costs in areas such as facilities, finance, human
resources, information technology, legal, marketing and supply chain management. |
|
(6) |
|
Franchise sales represent sales at franchise restaurants and revenue to our franchisees. We
do not record franchise restaurant sales as revenues. However, our royalty revenues are
calculated based on a percentage of franchise restaurant sales. |
Results of Operations
The following table presents, for the periods indicated, our results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
Amount |
|
|
Amount |
|
|
(Decrease) |
|
|
|
(In millions, except percentages and per share data) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant revenues |
|
$ |
405 |
|
|
$ |
375 |
|
|
|
8 |
% |
Franchise revenues |
|
|
113 |
|
|
|
105 |
|
|
|
8 |
% |
Property revenues |
|
|
28 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
546 |
|
|
$ |
508 |
|
|
|
7 |
% |
Company restaurant expenses |
|
|
343 |
|
|
|
319 |
|
|
|
8 |
% |
Selling, general and administrative expenses |
|
|
112 |
|
|
|
101 |
|
|
|
11 |
% |
Property expenses |
|
|
16 |
|
|
|
14 |
|
|
|
14 |
% |
Fees paid to affiliates |
|
|
|
|
|
|
3 |
|
|
|
(100 |
)% |
Other operating (income) expenses, net |
|
|
(7 |
) |
|
|
(1 |
) |
|
|
600 |
% |
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses |
|
$ |
464 |
|
|
$ |
436 |
|
|
|
6 |
% |
Income from operations |
|
|
82 |
|
|
|
72 |
|
|
|
14 |
% |
Interest expense, net |
|
|
17 |
|
|
|
17 |
|
|
|
|
|
Loss on early extinguishment of debt |
|
|
1 |
|
|
|
13 |
|
|
|
(92 |
)% |
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
64 |
|
|
$ |
42 |
|
|
|
52 |
% |
Income tax expense |
|
|
24 |
|
|
|
20 |
|
|
|
20 |
% |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
40 |
|
|
$ |
22 |
|
|
|
82 |
% |
|
|
|
|
|
|
|
|
|
|
Net income per common share diluted |
|
$ |
0.30 |
|
|
$ |
0.19 |
|
|
|
58 |
% |
Weighted average shares diluted |
|
|
135.9 |
|
|
|
112.4 |
|
|
|
|
|
21
Revenues
Company restaurant revenues
Company restaurant revenues increased 8% to $405 million in the first quarter of fiscal 2007,
primarily as a result of 16 new restaurant openings (net of closures), the acquisition of 38
franchise restaurants (net of refranchisings), all during the period from October 1, 2005 through
September 30, 2006, and positive comparable sales of 1.8%. Approximately $7 million of the increase
in revenues was generated by the favorable impact in the movement of foreign currency exchange
rates in Europe and Canada.
In the United States and Canada, Company restaurant revenues increased 7% to $271 million in
the first quarter of fiscal 2007, primarily as a result of positive comparable sales of 2.1% and
the acquisition of 33 franchise restaurants (net of refranchisings) during the period from October
1, 2005 through September 30, 2006, most of which were located in the United States. Approximately
$2 million of the increase in revenues is attributable to the favorable impact of foreign currency
exchange rates in Canada.
In EMEA/APAC, Company restaurant revenues increased 9%, or $10 million, to $119 million in the
first quarter of fiscal 2007, primarily as a result of six new restaurant openings (net of
closures), and the acquisition of five franchise restaurants (net of refranchisings) during the
period from October 1, 2005 through September 30, 2006. Comparable sales was a positive 0.7%
overall in this segment reflecting positive comparable sales in Spain and The Netherlands, offset
by negative comparable sales in the United Kingdom, where 26% of our EMEA/APAC Company restaurants
were located at September 30, 2006. See Part II, Item 1A Risk Factors for a discussion about our
UK business. The increase in revenues also reflects $5 million due to the favorable impact in the
movement of foreign currency exchange rates.
In Latin America, Company restaurant revenues increased 15% to $15 million in the first
quarter of fiscal 2007, due to positive comparative sales of 6.1% and the opening of 10 new Company
restaurants during the period October 1, 2005 through September 30, 2006. All of the Company-owned
restaurants in Latin America are located in Mexico.
Franchise restaurant revenues
Franchise revenues increased 8% to
$113 million in the first quarter of fiscal 2007 driven by
comparable sales of 2.5% during the quarter and $1 million due to the favorable impact in the
movement of foreign currency exchange rates. These increases were partially offset by a net
reduction in franchise restaurants of 12 resulting from 332 openings, 306 closures (210 of which
were in the United States) and 38 acquisitions (net of refranchisings) during the period from
October 1, 2005 through September 30, 2006.
In the United States and Canada, franchise revenues increased 4% to $70 million in the first
quarter of fiscal 2007, primarily as a result of positive comparable sales partially offset by the
elimination of royalties from a net reduction of 182 franchise restaurants comprised of 61
openings, 210 closures and 33 acquisitions (net of refranchisings).
In EMEA/APAC, franchise revenues increased by 10%, or $3 million, to $33 million in the first
quarter of fiscal 2007 driven by the opening of 95 new franchise restaurants (net of closures)
during the period from October 1, 2006 through September 30, 2005 and positive comparable sales of
1.1%. Approximately $1 million of this increase was due to the favorable impact in the movement of
foreign currency exchange rates.
Latin America franchise revenues increased 25% to $10 million during the first quarter of
fiscal 2007, as a result of the opening of 80 new franchise restaurants (net of closures) during
the period from October 1, 2005 through September 30, 2006 and positive comparable sales of 6.1%.
Operating Costs and Expenses
Company restaurant expenses
Food, paper and product costs increased 3%, or $4 million, to $122 million in the first
quarter of fiscal 2007, as a result of an 8% increase in Company restaurant revenues and the
unfavorable impact of foreign currency exchange rates in Europe. As a percentage of Company
restaurant revenues, food, paper and product costs decreased 1.4% to 30.1%.
In the United States and Canada, food, paper and product costs increased 2% to $83 million in
the first quarter of fiscal 2007, primarily as a result of a 7% increase in Company restaurant
revenues. Food, paper and product costs as a percentage of Company restaurant revenues decreased
1.4% to 30.6%, primarily due to decreases in the cost of beef and cheese, partially offset by an
increase in the cost of tomatoes.
22
In EMEA/ APAC food, paper and product costs increased 5% to $33 million in the first quarter
of fiscal 2007, primarily as a result of an increase in Company restaurant revenues of 10% and the
unfavorable impact of foreign currency exchange rates. Food, paper and product costs as a
percentage of Company restaurant revenues decreased by 1.2% to 27.9% driven by an improvement in
the management of our supply chain.
In Latin America, food, paper and product costs increased 17% in the first quarter of fiscal
2007, primarily as a result of a 14% increase in Company restaurant revenues. As a percentage of
Company restaurant revenues, food, paper and product costs increased 0.7% to 37.3% mostly as a
result of a Whopper sandwich price promotion.
Payroll and employee benefits costs increased 8% to $119 million in the first quarter of
fiscal 2007. The increase was due primarily to the increase of 54 Company restaurants since
September 30, 2005, and increased wages and health insurance benefit costs. Foreign currency
exchange rates had an unfavorable impact of $2 million during the quarter as compared to the prior
year quarter. As a percentage of Company restaurant revenues, payroll and employee benefits costs
increased 0.1% to 29.4% in the first quarter of fiscal 2007 compared to 29.3% in the first quarter
of fiscal 2006.
In the United States and Canada, payroll and employee benefits costs increased 7% to $82
million in the first quarter of fiscal 2007, primarily as a result of the increase of 33 Company
restaurants since September 30, 2005 and increased wages and health insurance benefit costs.
Approximately $1 million of the increase was due to the movement in foreign currency exchange rates
in Canada.
In EMEA/APAC, payroll and employee benefits costs increased 9% to $35 million in the first
quarter of fiscal 2007, primarily as a result of the opening of 11 new Company restaurants.
Approximately $2 million of the increase was due to the unfavorable impact of foreign currency
exchange rates. Payroll and employee benefits costs were 29.4% of Company restaurant revenues in
EMEA/APAC for both the first quarter of fiscal 2007 and 2006.
In Latin America, where labor costs are lower than in the United States and Canada and
EMEA/APAC segments, payroll and employee benefits costs increased 20% to $2 million in the first
quarter of fiscal 2007, primarily as a result of the opening of 10 new Company restaurants since September 30,
2005. Payroll and employee benefits costs increased 0.4% to 12.0% of Company restaurant revenues in
Latin America as a result of payroll tax credits taken in fiscal 2006.
Occupancy and other operating costs increased 12% to $102 million in the first quarter of
fiscal 2007. These increases are primarily attributable to the opening of new Company restaurants
and the acquisition of franchise restaurants and increased utility costs. Occupancy and other
operating costs were 25.2% of Company restaurant revenues in the first quarter of fiscal 2007
compared to 24.3% in the first quarter of fiscal 2006.
In the United States and Canada, occupancy and other operating costs increased to 24.1% of
Company restaurant revenues in the first quarter of fiscal 2007 compared to 23.5% in the first
quarter of fiscal 2006, primarily as a result of increased utility and restaurant supply costs.
In EMEA/APAC, occupancy and other operating costs increased to 27.7% of Company restaurant
revenues in the first quarter of fiscal 2007 compared to 26.6% in fiscal 2006, as a result of
increased utilities costs in the segment and increased rents in the United Kingdom. Approximately
$2 million, or 35%, of the increase was due to the unfavorable impact of foreign currency exchange
rates.
In Latin America, occupancy and other operating costs increased to 24.7% of Company restaurant
revenues in the first quarter of fiscal 2007 from 24.4% in the first quarter of fiscal 2006,
primarily as a result of an increase in utility costs and rent.
Worldwide selling, general and administrative expenses
Selling, general and administrative expenses increased by $11 million to $112 million during
the first quarter of fiscal 2007. This increase was primarily driven by an increase in the costs
associated with the operational realignment of the Companys European and Asian businesses of $3
million, severance, relocation and recruiting costs of $2 million, and bad debt and selling expense
of $2 million in EMEA, offset by bad debt recovery of $3 million in the United States. The overall
increase of $11 million also includes the negative impact of $2 million from foreign currency
exchange rates.
23
Worldwide other operating income, net
Other operating income, net, was $7 million in the first quarter of fiscal 2007 compared to $1
million in the same period of fiscal 2006. During the first quarter of fiscal 2007, we recorded a
$5 million gain in EMEA/ APAC from the sale of our investment in a non-consolidated joint venture,
and a gain in the United States and Canada on forward currency contracts of $2 million.
Operating income
Operating income increased by $10 million to $82 million in the first quarter of fiscal 2007,
primarily as a result of improved restaurant sales, driven by strong comparable sales and increased
average restaurant sales, higher Company restaurant margins, and a gain from the sale of our investment in a joint
venture. See Note 14 to our unaudited condensed consolidated financial statements contained in this
report for operating income by segment. The favorable impact that the movement in foreign currency
exchange rates had on revenues was offset by the unfavorable impact on operating costs and expenses
resulting in very little overall impact on operating income.
In the United States and Canada, operating income increased by $9 million to $87 million in
the first quarter of fiscal 2007, primarily as a result of an increase in Company restaurant margin
of $4 million, driven by positive comparable sales and an increase in the number of Company
restaurants, plus an increase in franchise revenues of $4 million reflecting an increase of 182
franchise restaurants since September 30, 2005.
Operating income in EMEA/APAC decreased by $1 million to $20 million in the first quarter of
fiscal 2007, driven primarily by an increase in Company restaurant margin of $2 million, an
increase in franchise revenues of $3 million and an increase in other operating income (expense) of
$5 million offset by an increase of $8 million in selling, general and administrative expenses. The
increase in Company restaurant margin reflects lower food prices, labor efficiencies, and the
maintenance of promotions at full price. The increase in franchise revenues reflects an increase of
90 franchise restaurants since September 30, 2005. The increase in other operating income (expense)
reflects a gain on the sale of our interest in a joint venture of $5 million during the first
quarter of fiscal 2007.
Operating income in Latin America increased by $1 million to $8 million in the first quarter
of fiscal 2007, primarily as a result of increased revenues from the increased number of
restaurants.
Loss on early extinguishment of debt
In connection with the prepayment of $50 million of term debt in July 2006, we wrote off
deferred financing fees of $1 million which was recorded as a loss on early extinguishment of debt
during the first quarter of fiscal 2007. In connection with the refinancing of our secured debt in
July 2005, we wrote off $13 million of deferred financing fees which was recorded as a loss on
early extinguishment of debt during the first quarter of fiscal 2006.
Income Tax Expense
Income tax expense increased $4 million to $24 million in the first quarter of fiscal 2007,
partially due to an increase in profit before taxes of $22 million. Our effective tax rate
decreased by more than 10 percentage points to approximately 37% as a result of tax benefits
realized from an operational realignment of our European and Asian businesses, which became
effective July 1, 2006, and reduced tax valuation allowances. See Part II, Item 1A Risk Factors".
See Note 9 to our unaudited condensed consolidated financial statements for further
information regarding our effective tax rate.
24
Liquidity and Capital Resources
Overview
Cash used in operations was $47 million in the first quarter of fiscal 2007 compared to cash
used of $78 million in the first quarter of fiscal 2006.
We had cash and cash equivalents of $146 million and auction rate securities of $11 million at
September 30, 2006. In addition, we currently have a borrowing capacity of $116 million under our
$150 million revolving credit facility (net of $34 million in letters of credit issued under the
revolving credit facility).
We expect that cash on hand, auction rate securities, cash flow from operations and our
borrowing capacity under our revolving credit facility will allow us to meet cash requirements,
including capital expenditures, tax payments, and debt service payments, in the short-term and for
the foreseeable future. If additional funds are needed for strategic initiatives or other corporate
purposes, we believe we could incur additional debt or raise funds through the issuance of our
equity securities.
Comparative Cash Flows
Operating Activities. Cash used in operating activities was $47 million in the first quarter
of fiscal 2007 compared to $78 million used in the first quarter of fiscal 2006. The $47 million
used in the first quarter of fiscal 2007 primarily reflects a usage of cash from a change in
working capital of $112 million, including tax payments of $94 million which were due primarily as
a result of the operational realignment of our European and Asian businesses. The $78 million used
in the first quarter of fiscal 2006 primarily reflects a payment of interest on PIK notes of $103
million and a usage of cash from a change in working capital of $61 million.
Investing Activities. Cash used in investing activities was $15 million in the first quarter
of fiscal 2007 compared to $10 million in the same quarter of fiscal 2006. The $5 million increase
in the amount of cash used in the first quarter of fiscal 2007 compared to the same quarter in
fiscal 2006, was due primarily to $11 million of net purchases of available for sale securities,
offset by an increase in proceeds of $5 million from asset disposals and restaurant closures.
Capital expenditures include costs to open new Company restaurants, to remodel and maintain
restaurant properties to our standards and to develop our corporate infrastructure, particularly to
invest in information technology. The following table presents capital expenditures, by type of
expenditure:
|
|
|
|
|
|
|
|
|
|
|
For the |
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In millions) |
|
New restaurants |
|
$ |
4 |
|
|
$ |
4 |
|
Real estate purchases |
|
|
|
|
|
|
2 |
|
Maintenance capital |
|
|
7 |
|
|
|
7 |
|
Other, including corporate |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
13 |
|
|
$ |
13 |
|
|
|
|
|
|
|
|
Maintenance capital includes 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, which
typically range from $10,000 to $15,000 per restaurant per year. Maintenance capital also includes
investments in improvements to properties we lease and sublease to franchisees, including
contributions we make toward improvements completed by franchisees. Other capital expenditures
include investments in information technology systems, as well as investments in technologies for
deployment in restaurants, such as point-of-sale software.
We expect capital expenditures of approximately $80 to $100 million in fiscal 2007 for new
restaurants, maintenance capital, acquisitions, and other corporate expenditures.
Financing Activities. Financing activities used cash of $51 million in the first quarter of
fiscal 2007 and $193 million in the same quarter of fiscal 2006. Uses of cash in financing
activities in the first quarter of fiscal 2007 included repayments of term debt of $51 million and
the purchase of treasury stock of $1 million, offset by $1 million in tax benefits from stock-based
compensation. Uses of cash in financing activities in the first quarter of fiscal 2006 included
the repayment of $1.2 billion in term debt, revolver loans and capital leases and related financing
costs of $16 million, offset by $1 billion of proceeds received from the refinancing of our credit
facility.
25
Commitments and Off Balance Arrangements
For information on Commitments and Off-Balance Sheet Arrangements, see Note 13 to our
unaudited condensed consolidated financial statements.
Application of Critical Accounting Policy
Prior to February 16, 2006, the date we filed a Form S-1 registration statement with the
Securities and Exchange Commission (our initial public offering was effective on May 17, 2006), we
accounted for stock-based compensation in accordance with the intrinsic-value method of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25). Under
the intrinsic value method of APB No. 25, stock options were granted at fair value, with no
compensation cost being recognized in the financial statements over the vesting period. In
addition, we issued restricted stock units under APB No. 25 and recognized compensation cost over
the vesting period of the awards. For pro forma disclosure required by Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123),
compensation expense for stock options was measured using the minimum value method, which assumed
no volatility in the Black-Scholes model used to calculate the options fair value.
As a result of filing our Form S-1 registration statement, we transitioned from a nonpublic
entity to a public entity under Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment (SFAS No. 123R). Since we applied SFAS No. 123 pro forma disclosure for
stock options using the minimum value method prior to becoming a public entity, SFAS No. 123R
requires that we adopt SFAS No. 123R, using a combination of the prospective and modified
prospective transition methods. We must apply the prospective transition method for those awards
granted prior to the Form S-1 filing date that were measured at minimum value. The unrecognized
compensation cost relating to these awards is required to be recognized in the financial statements
subsequent to the adoption of SFAS No. 123R, using the same method of recognition and measurement
originally applied to those awards. As there was no compensation cost recognized by us in the
financial statements for these awards under APB No. 25, no compensation cost has been or will be
recognized for these awards after our adoption of SFAS No. 123R on July 1, 2006, unless such awards
are modified. For those awards granted subsequent to the Form S-1 filing date, but prior to the
adoption date of July 1, 2006, we are required to apply the modified prospective transition method,
in which compensation expense is recognized for any unvested portion of the awards granted between
the Form S-1 filing date and the adoption date of SFAS 123R over the remaining vesting period of
the awards beginning on the adoption date of July 1, 2006.
On July 1, 2006, we adopted SFAS 123R, which requires share-based compensation cost to be
recognized based on the grant date estimated fair value of each award, net of estimated
forfeitures, over the employees requisite service period. Because we are required to apply the
prospective method to all stock option awards granted prior to the Form S-1 filing date, and the
value used to measure compensation expense for restricted stock units is the same for APB No. 25
and SFAS No. 123R, the adoption of SFAS No. 123R did not have a material impact on our operating
income, pretax income or net income.
New Accounting Pronouncements Issued But Not Yet Adopted
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with SFAS No. 109. FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. The evaluation of a tax position in
accordance with FIN 48 is a two-step process. The first step is to determine whether it is
more-likely-than-not that a tax position will be sustained upon examination based on the technical
merits of the position. The second step is the measurement of any tax positions that meet the
more-likely-than-not recognition threshold is measured to determine the amount of benefit to
recognize in the financial statements. The tax position is measured at the largest amount of
benefit that is greater than 50 percent likely of being realized upon ultimate settlement. FIN 48
is effective for fiscal years beginning after December 15, 2006 or our 2008 fiscal year. We are
currently evaluating the impact that FIN 48 may have on our statements of operations and statement
of financial position.
26
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair
Value Measurements (FASB No.157) which defines fair value, establishes a framework for measuring
fair value in GAAP, and enhances disclosures about fair value measurements. FASB No. 157 applies
when other accounting pronouncements require fair value measurements; it does not require new fair
value measurements. FASB No. 157 is effective for fiscal years beginning after November 15, 2007,
which for us will be our 2008 fiscal year. We are currently evaluating the impact that FASB No.
157 may have on our statements of operations and statements of financial position.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of
FASB Statements No. 87, 88, 106 and 132(R) (FASB No. 158). FASB No. 158 requires an employer to
recognize in its statement of financial position the over funded or under funded status of a
postretirement benefit plan measured as the difference between the fair value of plan assets and
the benefit obligation. Employers must also recognize as a component of other comprehensive income,
net of tax, the actuarial gains and losses and the prior service costs and
credits that arise during the period. FASB No. 158 is effective for public entities for
fiscal years ending after December 31, 2007, which for us will be our 2008 fiscal year. We are
currently evaluating the impact FASB No. 158 will have on our statements of operations and
financial condition.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects
of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
(SAB 108), which requires registrants to consider the effect of all carry over and reversing
effects of prior-year misstatements when quantifying errors in current-year financial statements.
SAB 108 requires that the registrant quantify the current year misstatement using both the iron
curtain approach and the rollover approach to determine whether current-year financial statements
need to be adjusted. SAB 108 allows registrants to record the effects of adopting SAB 108 as a
cumulative-effect adjustment to retained earnings. This adjustment must be reported as of the
beginning of the first fiscal year ending after November 15, 2006. We are currently evaluating the
impact, if any, SAB 108 will have on our statements of operations and financial condition.
27
Restaurant Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, 2006 |
|
|
|
United States & |
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
|
EMEA / APAC |
|
|
Latin America |
|
|
Worldwide |
|
Company: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of Period |
|
|
878 |
|
|
|
293 |
|
|
|
69 |
|
|
|
1,240 |
|
Openings |
|
|
5 |
|
|
|
4 |
|
|
|
1 |
|
|
|
10 |
|
Closings |
|
|
(3 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
(4 |
) |
Acquisitions, net |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
|
|
882 |
|
|
|
296 |
|
|
|
70 |
|
|
|
1,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of Period |
|
|
6,656 |
|
|
|
2,494 |
|
|
|
739 |
|
|
|
9,889 |
|
Openings |
|
|
19 |
|
|
|
34 |
|
|
|
21 |
|
|
|
74 |
|
Closings |
|
|
(34 |
) |
|
|
(29 |
) |
|
|
(2 |
) |
|
|
(65 |
) |
Acquisitions, net |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
|
|
6,639 |
|
|
|
2,499 |
|
|
|
758 |
|
|
|
9,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
System: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of Period |
|
|
7,534 |
|
|
|
2,787 |
|
|
|
808 |
|
|
|
11,129 |
|
Openings |
|
|
24 |
|
|
|
38 |
|
|
|
22 |
|
|
|
84 |
|
Closings |
|
|
(37 |
) |
|
|
(30 |
) |
|
|
(2 |
) |
|
|
(69 |
) |
Acquisitions, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
|
|
7,521 |
|
|
|
2,795 |
|
|
|
828 |
|
|
|
11,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, 2005 |
|
|
|
United States & |
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
|
EMEA / APAC |
|
|
Latin America |
|
|
Worldwide |
|
Company: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of Period |
|
|
844 |
|
|
|
283 |
|
|
|
60 |
|
|
|
1,187 |
|
Openings |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
Closings |
|
|
(4 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
(5 |
) |
Acquisitions, net |
|
|
9 |
|
|
|
(1 |
) |
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
|
|
849 |
|
|
|
285 |
|
|
|
60 |
|
|
|
1,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of Period |
|
|
6,876 |
|
|
|
2,373 |
|
|
|
668 |
|
|
|
9,917 |
|
Openings |
|
|
13 |
|
|
|
43 |
|
|
|
12 |
|
|
|
68 |
|
Closings |
|
|
(59 |
) |
|
|
(8 |
) |
|
|
(2 |
) |
|
|
(69 |
) |
Acquisitions, net |
|
|
(9 |
) |
|
|
1 |
|
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
|
|
6,821 |
|
|
|
2,409 |
|
|
|
678 |
|
|
|
9,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
System: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of Period |
|
|
7,720 |
|
|
|
2,656 |
|
|
|
728 |
|
|
|
11,104 |
|
Openings |
|
|
13 |
|
|
|
47 |
|
|
|
12 |
|
|
|
72 |
|
Closings |
|
|
(63 |
) |
|
|
(9 |
) |
|
|
(2 |
) |
|
|
(74 |
) |
Acquisitions, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
|
|
7,670 |
|
|
|
2,694 |
|
|
|
738 |
|
|
|
11,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
There were no material changes during the quarter ended September 30, 2006 to the disclosures
made in Part II, Item 7A of the Companys Annual Report on Form 10-K for the year ended June 30,
2006, except as noted below.
We have a market risk exposure to changes in interest rates, principally in the United States.
We attempt to minimize this risk and lower our overall borrowing costs through the utilization of
derivative financial instruments, primarily interest rate swaps. These swaps are entered into with
financial institutions and have reset dates and critical terms that match those of the underlying
debt. Accordingly, any change in market value associated with interest rate swaps is offset by the
opposite market impact on the related debt.
As of September 30, 2006, we had interest rate swaps with a notional value of $440 million
that qualify as cash flow hedges under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended. The interest rate swaps help us manage exposure to changes in
forecasted LIBOR-based interest payments made on variable rate debt. A 1% change in interest rates
on our existing debt of $947 million would result in an increase or decrease in interest expense of
approximately $5 million in a given year, as we have hedged $440 million of our debt.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation was conducted under the supervision and with the participation of management,
including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness
of the design and operation of our disclosure controls and procedures as of September 30, 2006.
Based on that evaluation, the CEO and CFO concluded that our disclosure controls and procedures
were effective as of such date to ensure that information required to be disclosed in this report
was recorded, processed, summarized and reported within the time period specified in Securities and
Exchange Commission rules and forms.
Section 404 Compliance Project
Beginning with the fiscal year ending June 30, 2007, Section 404 of the Sarbanes-Oxley Act of
2002 will require us to include managements report on our internal control over financial
reporting in our Annual Report on Form 10-K. The internal control report must contain (1) a
statement of managements responsibility for establishing and maintaining adequate internal control
over our financial reporting, (2) a statement identifying the framework used by management to
conduct the required evaluation of the effectiveness of our internal control over financial
reporting, (3) managements assessment of the effectiveness of our internal control over financial
reporting as of the end of our most recent fiscal year, including a statement as to whether or not
our internal control over financial reporting is effective, and (4) a statement that our registered
independent public accounting firm has issued an attestation report on managements assessment of
our internal control over financial reporting.
In order to achieve compliance with Section 404 within the prescribed period, management has
commenced a Section 404 compliance project under which management has adopted a detailed project
work plan to assess the adequacy of our internal control over financial reporting, remediate any
control deficiencies that may be identified, validate through testing that controls are functioning
as documented and implement a continuous reporting and improvement process for internal control
over financial reporting. During the first quarter of fiscal 2007, there have been no changes in
our internal control over financial reporting that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Inherent Limitation of the Effectiveness of Internal Control
A control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the internal control system are met. Because of the
inherent limitations of any internal control system, no evaluation of controls can provide absolute
assurance that all control issues, if any, within a company have been detected.
29
Cautionary Note Regarding Forward-Looking Statements
Certain statements in this report, including those related to the Companys operating plans,
are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.
In some cases, you can identify these statements by forward-looking words such as may, might,
will, should, expect, plan, anticipate, believe, estimate, predict, potential or
continue, the negative of these terms and other comparable terminology. These forward-looking
statements, which are subject to risks, uncertainties and assumptions about us, may include
projections of our future financial performance, based on our growth strategies and anticipated
trends in our business. These statements are only predictions based on our current expectations and
projections about future events. There are important factors that could cause our actual results,
level of activity, performance or achievements to differ materially from the results, level of
activity, performance or achievements expressed or implied by the forward-looking statements,
including, but not limited to, the risks and uncertainties described in Part II, Item 1A Risk
Factors in this report, those described under Risk Factors in Part I, Item 1A of our Form 10-K
for the year ended June 30, 2006 and those described from time to time in our reports filed with
the Securities and Exchange Commission.
Although we believe the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, level of activity, performance or achievements.
Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness
of any of these forward-looking statements. You should not rely upon forward-looking statements as
predictions of future events. We are under no duty to update any of these forward-looking
statements to conform our prior statements to actual results or revised expectations.
Part II
Item 1. Legal Proceedings
On September 27, 2006, Physicians Committee for Responsible Medicine filed a lawsuit against
us and others in our industry in the Superior Court of California, Los Angeles County (Case No.
BC35927, Physicians Committee for Responsible Medicine vs. McDonalds Corporation, Burger King
Corporation et al.), alleging a violation of Proposition 65 for not warning about the chemical
compound PhIP allegedly found in grilled chicken sandwiches served at restaurants in California.
We believe that this lawsuit has no merit, and we plan to vigorously defend this action.
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, former employees and customers, as well as disputes over our intellectual
property.
Item 1A. Risk Factors
We face a variety of risks that are inherent in our business and our industry, including
operational, legal, regulatory and product risks. The following factors, in addition to other
possible factors not listed, could affect our business and our results of operations:
|
|
|
Risks related to the fluctuation of our operating results which could fall below
expectations of securities analysts and investors due to various factors; |
|
|
|
|
Our ability to compete domestically and internationally in an intensely competitive industry; |
|
|
|
|
Our continued relationships with and the success of our franchisees; |
|
|
|
|
Risks related to franchisee financial distress which could result in, among other
things, delayed or reduced payments to us of royalties and rents and increased exposure
to third parties; |
|
|
|
|
Risks related to price discounting; |
|
|
|
|
Our ability to successfully implement our international growth strategy; |
|
|
|
|
The effectiveness of our marketing and advertising programs and franchisee support of these programs; |
30
|
|
|
Our ability to retain or replace our executive officers and other key members of management with qualified personnel; |
|
|
|
|
Changes in consumer perceptions of dietary health and food safety and negative publicity relating to our products; |
|
|
|
|
Changes in consumer preferences and consumer discretionary spending; |
|
|
|
|
Risks related to the renewal of franchise agreements by our franchisees; |
|
|
|
|
Increases in our operating costs, including food and paper products, energy costs and labor costs; |
|
|
|
|
Interruptions in the supply of necessary products to us; |
|
|
|
|
Risks related to our international operations; |
|
|
|
|
Fluctuations in international currency exchange and interest rates; |
|
|
|
|
Our continued ability, and the ability of our franchisees, to obtain suitable
locations and financing for new restaurant development; |
|
|
|
|
Changes in demographic patterns of current restaurant locations; |
|
|
|
|
Our ability to adequately protect our intellectual property; |
|
|
|
|
Risks related to the substantial indebtedness under our senior secured facility which
could limit our ability to grow our business; |
|
|
|
|
Risks related to the restrictive terms of our senior secured credit facility; |
|
|
|
|
Risks related to the significant influence of our current principal stockholders,
which could delay, deter or prevent a change of control or other business combination or
cause us to take action with which an investor may disagree; |
|
|
|
|
Risks related to future issuances of capital stock or the sale of stock by our current principal stockholders; |
|
|
|
|
Adverse legal judgments, settlements or pressure tactics; and |
|
|
|
|
Adverse legislation or regulation. |
These risks are described in more detail under Risk Factors in our Annual Report on Form
10-K for the year ended June 30, 2006. We encourage you to read these risk factors in their
entirety. These risks are not exhaustive and may not include all factors which could adversely
impact our business and financial performance. Moreover, we operate in a very competitive and
rapidly changing environment. Other factors may also exist that we cannot anticipate or that we
currently do not consider to be significant based on information that is currently available.
In addition to the risk factors above, we have continued to see deterioration of our business
in the United Kingdom (UK) which may further impact the financial health of our franchisees and
us. We currently operate 76 restaurants and our franchisees currently operate 551 restaurants in
the UK market. With continued negative comparables sales and increasing rents, certain of our
franchisees face financial difficulties affecting their ability to meet third party obligations
including royalty, advertising and rent payments to us. Additionally, in connection with the sale
of Company restaurants to certain UK franchisees, we have guaranteed certain lease payments arising
from leases assigned to these franchisees as part of the sale. The aggregate contingent obligation
arising from these assigned lease guarantees in the UK was $63 million at September 30, 2006.
31
We are currently taking active measures and implementing marketing and operational initiatives
to improve the performance of the UK market. We are also working with our distressed UK franchisees
and their creditors to attempt to strengthen the franchisees
financial condition. If we are unsuccessful in our system-wide initiatives to improve our UK
business, it would likely result in additional cost to us, including costs under our assigned lease
guarantees, and could result in a decrease in our revenues and earnings.
Additionally, we have realized and continue to expect to realize tax benefits from the
operational realignment of our European and Asian businesses, which became effective July 1, 2006.
However, if certain of our European and Asian businesses are less profitable than expected, there
would be an adverse impact on our overall effective tax rate, which would result in increased
income tax expense to us.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the first quarter of fiscal 2007, the Company issued an aggregate of 5,307 shares of
its common stock to employees or former employees pursuant to the exercise of outstanding options
for an aggregate of $20,167 in consideration of services rendered. In addition, during the same
period, the Company issued an aggregate of 151,017 shares of its common stock to a former employee
in settlement of restricted stock unit awards in consideration of services rendered. These
issuances were deemed exempt from registration under the Securities Act of 1933, as amended,
pursuant to Section 4(2) of the Securities Act or Rule 701 thereunder. In accordance with Rule
701, the shares were issued pursuant to a written compensatory benefit plan and the issuances did
not, during any 12-month period, exceed 15% of the outstanding shares of the Companys common
stock, calculated in accordance with the provisions of Rule 701.
The following table presents information related to the repurchase of common stock of the
Company made during the three months ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Dollar |
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Amount that May Yet |
|
|
Total Number of |
|
Average Price Paid |
|
Shares Purchased |
|
Be Purchased Under |
Period |
|
Shares Purchased(1) |
|
Per Share |
|
Under the Program |
|
the Program |
7/1/2006 9/30/2006
|
|
|
52,857 |
|
|
$ |
16.25 |
|
|
N/A
|
|
N/A |
|
|
|
(1) |
|
All shares purchased were used to satisfy the Companys obligation to settle restricted stock unit awards for a
former employee. |
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None.
32
Item 6. Exhibits
The exhibits listed in the accompanying index are filed as part of this report.
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
|
3.1* |
|
|
Amended and Restated Certificate of Incorporation of Burger King Holdings, Inc. |
|
|
|
|
|
|
3.2* |
|
|
Amended and Restated By-Laws of Burger King Holdings, Inc. |
|
|
|
|
|
|
4.1** |
|
|
Form of Common Stock Certificate |
|
|
|
|
|
|
10.1*** |
|
|
Form of Performance Award Agreement under the Burger King Holdings, Inc. 2006 Omnibus Incentive Plan |
|
|
|
|
|
|
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 |
|
|
|
|
|
|
32.1 |
|
|
Certification of Chief Executive Officer of Burger King Holdings, Inc. pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
32.2 |
|
|
Certification of the Chief Financial Officer of Burger King Holdings, Inc. pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 |
|
|
|
* |
|
Incorporated herein by reference to Exhibit 3.1 of the Burger King Holdings, Inc. Annual
Report on Form 10-K filed on August 31, 2006 (Commission File No. 001-32875) |
|
** |
|
Incorporated herein by reference to the Burger King Holdings, Inc. Registration Statement on Form
S-1 (Commission File No. 333-131897) |
|
*** |
|
Incorporated herein by reference to the Burger King Holdings, Inc. Current Report on Form 8-K
filed on August 14, 2006 (Commission File No. 001-32875) |
33
SIGNATURES
Pursuant to the requirements 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.
(Registrant)
|
|
Date: November 9, 2006 |
By: |
/s/ Ben K. Wells
|
|
|
|
Name: |
Ben K. Wells |
|
|
|
Title: |
Chief Financial Officer and Treasurer
(principal financial officer) |
|
|
|
|
|
Date: November 9, 2006 |
By: |
/s/ Christopher M. Anderson
|
|
|
|
Name: |
Christopher M. Anderson |
|
|
|
Title: |
Vice President and Controller
(principal accounting officer) |
|
34
INDEX TO EXHIBITS
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
|
3.1* |
|
|
Amended and Restated Certificate of Incorporation of Burger King Holdings, Inc. |
|
|
|
|
|
|
3.2 * |
|
|
Amended and Restated By-Laws of Burger King Holdings, Inc. |
|
|
|
|
|
|
4.1** |
|
|
Form of Common Stock Certificate |
|
|
|
|
|
|
10*** |
|
|
Form of Performance Award Agreement under the Burger King Holdings, Inc. 2006 Omnibus Incentive Plan |
|
|
|
|
|
|
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 |
|
|
|
|
|
|
32.1 |
|
|
Certification of Chief Executive Officer of Burger King Holdings, Inc. pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
32.2 |
|
|
Certification of the Chief Financial Officer of Burger King Holdings, Inc. pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 |
|
|
|
* |
|
Incorporated herein by reference to Exhibit 3.1 of the Burger King Holdings, Inc. Form 10-K
filed on August 31, 2006 (Commission File No. 001-32875) |
|
** |
|
Incorporated herein by reference to the Burger King Holdings, Inc. Registration Statement on Form
S-1 (Commission File No. 333-131897) |
|
*** |
|
Incorporated herein by reference to the Burger King Holdings, Inc. Current Report on Form 8-K
dated August 14, 2006 (Commission File No. 001-32875) |
35