Burger King 2009 Annual Report Download - page 80

Table of Contents
BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1. Description of Business and Organization
Description of Business
Burger King Holdings, Inc. (“BKH” or the “Company”) is a Delaware corporation formed on July 23, 2002. The Company is the
parent of Burger King Corporation (“BKC”), a Florida corporation that franchises and operates fast food hamburger restaurants,
principally under the Burger King brand.
The Company generates revenues from three sources: (i) retail sales at Company restaurants; (ii) franchise revenues, consisting of
royalties based on a percentage of sales reported by franchise restaurants and franchise fees paid by franchisees; and (iii) property
income from restaurants that the Company leases or subleases to franchisees.
Restaurant sales are affected by the timing and effectiveness of the Company’s advertising, new products and promotional
programs. The Company’s results of operations also fluctuate from quarter to quarter as a result of seasonal trends and other factors,
such as the timing of restaurant openings and closings and the acquisition of franchise restaurants, as well as variability of the weather.
Restaurant sales are typically higher in the Company’s fourth and first fiscal quarters, which are the spring and summer months when
weather is warmer, than in the Company’s second and third fiscal quarters, which are the fall and winter months. Restaurant sales
during the winter are typically highest in December, during the holiday shopping season. The Company’s restaurant sales and Company
restaurant margins are typically lowest during the Company’s third fiscal quarter, which occurs during the winter months and includes
February, the shortest month of the year.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The consolidated financial statements include the accounts of the Company and its wholly−owned subsidiaries. All material
intercompany balances and transactions have been eliminated in consolidation. The Company had consolidated, in accordance with the
provisions of Financial Accounting Standard Board (“FASB”) Interpretation No. 46R, “Consolidation of Variable Interest Entities —
an interpretation of ARB No. 51,” one joint venture that operated restaurants where the Company was a 49% partner, but was deemed
to be the primary beneficiary, as the joint venture agreement provided protection to the joint venture partner from absorbing expected
losses. This joint venture was dissolved on June 30, 2008 and, effective July 1, 2008, these restaurants have been operated as Company
restaurants. The results of operations of this joint venture are not material to the Company’s results of operations and financial position.
Certain prior year amounts in the accompanying Financial Statements and Notes to the Financial Statements have been reclassified
in order to be comparable with the current year classifications. These reclassifications had no effect on previously reported Net Income.
(See significant accounting policies for Income Taxes.)
Concentrations of Risk
The Company’s operations include Company and franchise restaurants located in 73 countries and U.S. territories. Of the 11,925
restaurants in operation as of June 30, 2009, 1,429 were Company restaurants and 10,496 were franchise restaurants.
Four distributors service approximately 85% of our U.S. system restaurants and the loss of any one of these distributors would
likely adversely affect our business.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the amounts reported in the Company’s consolidated financial statements and accompanying notes. Management adjusts such
estimates and assumptions when facts and circumstances dictate. Volatile
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