Burger King 2010 Annual Report Download - page 111

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Table of Contents
BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
to acquire possession of the related restaurants, subject to landlord consent. The aggregate contingent obligation arising from these
assigned lease guarantees, excluding contingent rents, was $71.5 million as of June 30, 2010, expiring over an average period of seven
years.
Other commitments arising out of normal business operations were $9.7 million as of June 30, 2010, of which $8.6 million was
guaranteed under bank guarantee arrangements.
Letters of Credit
As of June 30, 2010, the Company had $34.2 million in irrevocable standby letters of credit outstanding, which were issued
primarily to certain insurance carriers to guarantee payments of deductibles for various insurance programs, such as health and
commercial liability insurance. Such letters of credit are secured by the collateral under the Company’s revolving credit facility. As of
June 30, 2010, no amounts had been drawn on any of these irrevocable standby letters of credit.
As of June 30, 2010, the Company had posted bonds totaling $3.1 million, which related to certain utility deposits and capital
projects.
Vendor Relationships
During the year ended June 30, 2000, the Company entered into long−term, exclusive contracts with The Coca−Cola Company
and with Dr Pepper/Seven Up, Inc. to supply the Company and its 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, 2010, the Company estimates that it will take approximately 14 years to complete the
Coca−Cola and Dr Pepper/Seven Up, Inc. purchase commitments. 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 received upfront fees, which are being amortized over the term of the
contracts. As of June 30, 2010 and 2009, the deferred amounts totaled $14.9 million and $16.1 million, respectively. These deferred
amounts are amortized as a reduction to food, paper and product costs in the accompanying consolidated statements of income.
As of June 30, 2010, the Company had $9.2 million in aggregate contractual obligations for the year ended June 30, 2010 with
vendors providing information technology and telecommunication services under multiple arrangements. These contracts extend up to
five years with a termination fee ranging from $0.5 million to $1.9 million during those years. The Company also has separate
arrangements for telecommunication services with an aggregate contractual obligation of $12.1 million over five years with no early
termination fee.
The Company also enters into commitments to purchase advertising. As of June 30, 2010, commitments to purchase advertising
totaled $60.7 million and run through December 2012.
Litigation
On July 30, 2008, the Company was sued by four Florida franchisees over its decision to mandate extended operating hours in the
United States. The plaintiffs seek damages, declaratory relief and injunctive relief. The court dismissed the plaintiffs’ original complaint
in November 2008. In December 2008, the plaintiffs filed an amended complaint. In August 2010, the court entered an order
reaffirming the legal bases for dismissal of the original complaint, again holding that BKC had the authority under its franchise
agreements to mandate extended operating hours. However, BKC’s motion to dismiss the plaintiff’s amended complaint is still before
the court.
On September 10, 2008, a class action lawsuit was filed against the Company in the United States District Court for the Northern
District of California. The complaint alleged that all 96 Burger King restaurants in California leased by the Company and operated by
franchisees violate accessibility requirements under federal and state law.
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