Burger King 2006 Annual Report Download - page 101

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BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements Ì (Continued)
the Company was charged a quarterly fee not to exceed 0.5% of the prior quarter's total revenues. The
Company incurred management fees and reimbursable out-of-pocket expenses under the management
agreement totaling $9 million per year for the fiscal years ended June 30, 2006 and 2005, and $8 million for
the fiscal year ended June 30, 2004. These fees and reimbursable out-of-pocket expenses are recorded within
fees paid to affiliates in the consolidated statement of operations. At June 30, 2005, amounts payable to the
Sponsors for management fees and reimbursable out-of-pocket expenses totaled $2 million, which are
included within other accrued liabilities in the consolidated balance sheets. In May 2006, the Company paid a
termination fee totaling $30 million to the Sponsors to terminate the management agreement upon the
completion of the initial public offering. As a result, the Company recognized an expense of $30 million in the
period and included in fees paid to affiliates.
As of June 30, 2005, the Company had PIK Notes outstanding to the private equity funds controlled by
the Sponsors of $528 million. The outstanding balance of the PIK Notes, which included $103 million of
payment-in-kind interest as of June 30, 2005, and $2 million of accrued interest for the fiscal year 2006, was
repaid in July 2005. Interest expense on the PIK Notes totaled $2 million and $23 million for the years ended
June 30, 2006 and 2005, respectively.
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 Company's new corporate headquarters (see
Note 19).
An affiliate of one of the Sponsors participated as one of the joint book-running managers of our initial
public offering. This affiliate was paid $5 million pursuant to a customary underwriting agreement among the
Company and the several underwriters.
Note 15. Leases
At June 30, 2006, the Company leased 1,090 restaurant properties to franchisees and other non-
restaurant third parties under capital and operating leases. The building portions of the capital leases with
franchisees are accounted for as direct financing leases and recorded as a net investment in property leased to
franchisees, while the land and restaurant equipment components are recorded as operating leases and are
included in the table below.
Property and equipment, net leased to franchisees and other third parties under operating leases was as
follows (in millions):
Years Ended
June 30,
2006 2005
Land ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $196 $201
Buildings and improvementsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 78 67
Restaurant equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 2
276 270
Accumulated depreciationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (23) (18)
Property and equipment, net leased to franchisees and other third parties under
operating leases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $253 $252
89