Burger King 2006 Annual Report Download - page 22

standards and criteria to evaluate international suppliers that we use for U.S. suppliers. Franchisees may
propose additional suppliers, subject to our approval. In countries where we operate company restaurants, we
negotiate the purchase terms with suppliers, and those terms are made available to company restaurants and
franchise restaurants. In non-company restaurant markets, franchisees typically negotiate the purchase terms
directly with Burger King approved suppliers for food and packaging products used in their restaurants.
In fiscal 2000, we 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, we estimate that it will
take approximately 16 years and 17 years to complete the Coca-Cola and Dr Pepper purchase commitments,
respectively. If these agreements were terminated, we would be obligated to pay significant termination fees
and certain other costs, including in the case of the contract with The Coca-Cola Company, the unamortized
portion of the cost of installation and the entire cost of refurbishing and removing the equipment owned by
The Coca-Cola Company and installed in company restaurants in the three years prior to termination.
Research and Development
We operate a research and development facility or ""test kitchen'' at our headquarters in Miami and
certain other regional locations. In addition, certain vendors have granted us access to their facilities in the
United Kingdom and China to test new products. While research and development activities are important to
our business, these expenditures are not material. Independent suppliers also conduct research and develop-
ment activities for the benefit of the Burger King system.
We have developed a new flexible batch broiler that is significantly smaller, less expensive and easier to
maintain than the current broiler used in our restaurants. We expect that the new broiler will reduce operating
costs (principally through reduced utility costs), without sacrificing speed, quality or efficiency, although we
have not yet verified how the broiler will perform under restaurant conditions. We currently are testing the
new broiler in certain company restaurants and hope to make it available for widespread use in our restaurants
during fiscal 2007. We have filed a patent application with respect to the broiler technology and design. We
have licensed one of our equipment vendors on an exclusive basis to manufacture and supply the new broiler to
the Burger King system throughout the world.
Management Information Systems
Franchisees typically use a point of sale (POS) cash register system to record all sales transactions at the
restaurant. We have not historically required franchisees to use a particular brand or model of hardware or
software components for their restaurant system. However, we have recently established specifications to
reduce cost, improve service and allow better data analysis and have approved three global POS vendors and
one regional vendor for each of our three key regions to sell these systems to our franchisees. Currently,
franchisees report sales manually, and we do not have the ability to verify sales data electronically by accessing
their POS cash register systems. The new POS system will make it possible for franchisees to submit their
sales and transaction level details to us in near-real-time in a common format, allowing us to maintain one
common database of sales information. We expect that it will be three to five years before the majority of
franchisees have the new POS systems. We provide proprietary software to our U.S. franchisees for labor and
product management.
Quality Assurance
All Burger King restaurants are required to be operated in accordance with quality assurance and health
standards which we establish, as well as standards set by federal, state and local governmental laws and
regulations. These standards include food preparation rules regarding, among other things, minimum cooking
times and temperatures, sanitation and cleanliness.
We closely supervise the operation of all of our company restaurants to help ensure that standards and
policies are followed and that product quality, customer service and cleanliness of the restaurants are
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