Burger King 2006 Annual Report Download - page 111

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BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements Ì (Continued)
subsidy commitment for future periods as of June 30, 2006 is $5 million. Upon funding, in most instances, the
subsidies will be added to the franchisee's 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 $112 million at June 30, 2006, expiring
over an average period of five years.
Other commitments arising out of normal business operations were $10 million and $12 million as of
June 30, 2006 and 2005, respectively, of which $6 million and $4 million, respectively were guaranteed under
bank guarantee arrangements.
Letters of Credit
At June 30, 2006, there were $42 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. Included in that amount was $41 million of standby letters of credit
issued under the Company's $150 million revolving credit facility. As of June 30, 2006, none of these
irrevocable standby letters of credit had been drawn upon.
As of June 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 June 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 Company's 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 June 30, 2006 and 2005,
the deferred amounts totaled $23 million and $26 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 June 30, 2006 the Company had $11 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
June 30, 2006, commitments to purchase advertising totaled $45 million.
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