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Morningstar® Document Research℠
FORM 10-K
Burger King Holdings Inc - BKC
Filed: March 14, 2012 (period: December 31, 2011)
Annual report with a comprehensive overview of the company

Table of contents

  • Page 1
    Morningstar Document Research ® ℠FORM 10-K Burger King Holdings Inc - BKC Filed: March 14, 2012 (period: December 31, 2011) Annual report with a comprehensive overview of the company

  • Page 2
    ...TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 to Commission file number: 001-32875 BURGER KING HOLDINGS, INC. (Exact name of Registrant as Specified in Its Charter) 5505 Blue Lagoon Drive, Miami, Florida (Address of Principal Executive Offices) (State or...

  • Page 3
    ..., the quick service restaurant segment and the fast food hamburger restaurant category that has been prepared by the industry research firm The NPD Group, Inc. (which prepares and disseminates Consumer Reported Eating Share Trends, or CREST ® data) or compiled from market research reports, analyst...

  • Page 4
    ... average rate of 4% per year over the next five years. For the 12-month period ended December 2011, Burger King accounted for approximately 12% of total FFHR sales in the United States. 3 Business Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Researchâ„

  • Page 5
    ... of Contents Our Business Strategy We believe there are significant opportunities for our Company and the entire Burger King system by: • Accelerating international development: The expansion of our international restaurant network is an integral part of our global portfolio realignment project...

  • Page 6
    ...worldwide franchise and property revenues. Franchisees report gross sales on a monthly basis and pay royalties based on reported sales. Europe, the Middle East and Africa (EMEA) EMEA is the second largest region in the Burger King system behind the United States, as measured by number of restaurants...

  • Page 7
    ...significant opportunity to grow the brand in existing and new markets in APAC. Franchise Agreements General. We grant franchises to operate restaurants using Burger King trademarks, trade dress and other intellectual property, uniform operating procedures, consistent quality of products and services...

  • Page 8
    ...margin and final price point. We believe new product development is critical to our long-term success. As part of our commitment to providing nutritional alternatives to our customers with children, we are part of the Council for Better Business Bureau's (CBBB) Children Food and Beverage Advertising...

  • Page 9
    ...guidance in order to deliver a consistent global brand message. Advertising contributions are used to pay for expenses relating to marketing, advertising and promotion, including market research, production, advertising costs, sales promotions and other support functions. In addition to the mandated...

  • Page 10
    ... Burger King system in the United States, RSI negotiates the purchase terms for most equipment, food, beverages (other than branded soft drinks) and other products such as promotional toys and paper products used in our restaurants. RSI is also authorized to purchase and manage distribution services...

  • Page 11
    ...restaurant operations. Detailed reports from management information systems are tabulated and distributed to management on a regular basis to help maintain compliance. In addition, we conduct scheduled and unscheduled inspections of Company and franchise restaurants throughout the Burger King system...

  • Page 12
    ... limit distribution of free toy premiums only to customers purchasing kids' meals that meet certain nutritional requirements. The federal public attorney in Sao Paulo, Brazil filed a civil lawsuit against Burger King and other fast food restaurant companies in June 2009 to prohibit promotional sales...

  • Page 13
    ... intent to focus on international expansion to increase the number of new restaurants, particularly in high growth emerging markets; our beliefs and expectations regarding the mix of franchise 12 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Researchâ„

  • Page 14
    ... food service companies on the basis of product choice, quality, affordability, service and location. Our competitors include a variety of independent local operators, in addition to well-capitalized regional, national and international restaurant chains and franchises. In the FFHR industry...

  • Page 15
    ...our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity 14 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by...

  • Page 16
    ... franchisees to support our marketing programs and strategic initiatives could adversely affect our ability to implement our business strategy and could materially harm our business, results of operations and financial condition. 15 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by...

  • Page 17
    ... as part of our overall strategy for international expansion. These new joint venture arrangements may give our joint venture partners the exclusive right to develop and manage Burger King 16 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Researchâ„

  • Page 18
    ...to manage national economic conditions, such as increases in taxes, austerity measures that impact consumer spending, monetary policies that may impact inflation rates and currency fluctuations; 17 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Researchâ„

  • Page 19
    ... strategy. Our business is subject to fluctuations in foreign currency exchange and interest rates. Our international operations are impacted by fluctuations in currency exchange rates and changes in currency regulations. In countries outside of the United States where we operate Company restaurants...

  • Page 20
    ... as we do not have ultimate control over the purchasing of these products in the United States or Canada. In the United States, we have established a cooperative with our franchisees to negotiate food prices on behalf of all Company and franchise restaurants. This cooperative does not utilize...

  • Page 21
    ...value offerings in our marketing and advertising programs to drive traffic at our stores. The disadvantage of value offerings is that the low-price offerings may condition our guests to resist higher prices in a more favorable economic environment. If we fail to successfully implement our restaurant...

  • Page 22
    ... our control. A shortage or interruption in the availability of certain food products or supplies could increase costs and limit the availability of products critical to restaurant operations. Four distributors service approximately 85% of our U.S. system restaurants and in many of our international...

  • Page 23
    ...our Company and franchised restaurants expire, we or our franchisees may be unable to negotiate a new lease or lease extension, either on commercially acceptable terms or at all, which could cause us or our franchisees to close restaurants in desirable locations. As a result, our sales and our brand...

  • Page 24
    ... to a Federal Trade Commission rule and to various state and foreign laws that govern the offer and sale of franchises. Various state and foreign laws regulate certain aspects of the franchise 23 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Researchâ„

  • Page 25
    ... certain information that we use to manage our business. To the extent that we are not able to obtain transparency into our operations from our systems, it could impair the ability of our management to react quickly to changes in the business or economic environment. 24 Source: Burger King Holdings...

  • Page 26
    ... 213,000 square feet which we lease. We extended the Miami lease for our global restaurant support center in May 2008 through September 2018 with an option to renew for one five-year period. We lease properties 25 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar...

  • Page 27
    ... our current requirements. The following table presents information regarding our restaurant properties as of December 31, 2011: Leased Building/Land & Building United States and Canada: Company restaurants Franchisee-operated properties Non-operating restaurant locations Offices and other(2) Total...

  • Page 28
    ... Statements and Supplementary Data" for a discussion of amounts paid as a dividend to our parent during the year ended December 31, 2011. Item 6. Selected Financial Data On October 19, 2010 (the "Acquisition Date"), we were acquired by an affiliate of 3G Capital in a transaction accounted...

  • Page 29
    ... 19, 2010 2011 July 1, 2010 Fiscal 2009 Fiscal 2008 Fiscal 2007 to to Fiscal December 31, 2010 October 18, 2010 2010 (In millions, except per share data) Predecessor Statement of Operations Data: Revenues: Company restaurant revenues Franchise and property revenues Total revenues Income (loss...

  • Page 30
    ...can vary substantially from company to company depending upon accounting methods and book value of assets, financing methods, capital structure and the method by which assets were acquired. 29 (2) Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Researchâ„

  • Page 31
    ... 19, 2010 2011 Net income (loss) Interest expense, net Loss on early extinguishment of debt Income tax expense (benefit) Depreciation and amortization EBITDA Share-based compensation and non-cash incentive compensation expense(a) Transaction costs(b) Global restructuring and related professional...

  • Page 32
    ... our Company restaurants and establishing strategic partners and joint ventures to accelerate development. These costs primarily include severance related costs and professional service fees. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Recent...

  • Page 33
    ... sales growth, average restaurant sales and sales growth are presented on a system-wide basis, which means that these measures include sales at both Company restaurants and franchise restaurants. 32 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Research...

  • Page 34
    ... current system-wide restaurants are franchised. Overview We operate in the fast food hamburger restaurant, or FFHR, category of the quick service restaurant, or QSR, segment of the restaurant industry. We are the second largest FFHR chain in the world as measured by number of restaurants and system...

  • Page 35
    ... in work force reductions throughout our organization. In June 2011, we implemented a Voluntary Resignation Severance Program ("VRS Program") offered for a limited time to eligible employees based at our Miami headquarters. In 34 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by...

  • Page 36
    ... of operations due to acquisition accounting, the Transaction costs, global restructuring and related professional fees, our field optimization project and the global portfolio realignment project. Transition Period (In millions) 2011 Acquisition Accounting Change in Revenues: Lease straight-line...

  • Page 37
    ...(131.5)% Successor 2011 Revenues: Company restaurant revenues Franchise and property revenues Total revenues Company restaurant expenses: Food, paper and product costs Payroll and employee benefits Occupancy and other operating costs Total Company restaurant expenses Franchise and property expenses...

  • Page 38
    ... System Average restaurant sales (in thousands) NRG Company Franchise System Net Refranchisings (trailing twelve months) Restaurant counts at period end Company Franchise System CRM % 2011 compared to 2010 Company restaurants 2011 1.7% Transition Period 2.2% Fiscal 2010 2.1% Fiscal 2009...

  • Page 39
    ... of Company restaurant revenues were flat in comparison to the prior year. Management general and administrative expenses ("Management G&A") are comprised primarily of salary and employee related costs for our non-restaurant employees, professional fees and general overhead for our corporate offices...

  • Page 40
    ..., Company restaurant revenues decreased due to negative Company comparable sales growth in three of our four segments and unfavorable FX impact. These factors were partially offset by Company NRG. 39 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Research...

  • Page 41
    ... payroll and employee benefits and occupancy and other operating costs driven by negative Company comparable sales growth and the impact of acquisition accounting. These factors were partially offset by improvements in variable labor controls and scheduling in our U.S. restaurants, improved labor...

  • Page 42
    ... payroll and employee benefits and occupancy and other operating costs driven by negative Company comparable sales growth and an increase in depreciation resulting from an increase in depreciable assets and strategic restaurant initiatives, such as our reimaging program and our new POS system. These...

  • Page 43
    ... in Fiscal 2010 compared to 29.7% in Fiscal 2009 primarily due to the resolution of certain federal and state audits and realized tax benefits from the dissolution of dormant foreign entities. 42 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Researchâ„

  • Page 44
    ... of our four operating segments. Unallocated Management G&A represents corporate support costs in areas such as facilities, finance, human resources, information technology, legal, marketing and supply chain management, which benefit all of our geographic segments and system-wide restaurants and are...

  • Page 45
    ... 2010 compared to Fiscal 2009 The increase in consolidated adjusted EBITDA in Fiscal 2010 was driven primarily by increases in segment income in the U.S. and Canada, EMEA and APAC partially offset by an increase in Unallocated Management G&A. The decrease in income from operations in Fiscal 2010...

  • Page 46
    ... 2010 2011 Compared to 2010 Fiscal 2010 Compared to Fiscal 2009 Company: Company restaurant revenues CRM CRM % Company restaurant expenses as a % of Company restaurant revenue: Food and paper Payroll and benefits Depreciation and amortization Other occupancy and operating Franchise: Franchise...

  • Page 47
    ... and segment margin Segment income and margin increased due to a decrease in Management G&A partially offset by a decrease in Company restaurant margin and net franchise and property income. 46 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Researchâ„

  • Page 48
    ... occupancy and other operating costs, the impact of acquisition accounting, higher commodity prices in the U.S. and an increase in the hourly wage rate in Canada. These factors were partially offset by the successful launch of higher priced premium products and discontinued value promotions, such as...

  • Page 49
    ... 2010 2011 Compared to 2010 Fiscal 2010 Compared to Fiscal 2009 Company: Company restaurant revenues CRM CRM % Company restaurant expenses as a % of Company restaurant revenue: Food and paper Payroll and benefits Depreciation and amortization Other occupancy and operating Franchise: Franchise...

  • Page 50
    ... restaurant revenues decreased due to the net refranchising of Company restaurants in Germany and the Netherlands, the effects of negative Company comparable sales growth and unfavorable FX impact. 49 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Research...

  • Page 51
    ... number of properties leased to franchisees. Segment income and segment margin Segment income and margin increased primarily due to a decrease in Management G&A and an increase in net franchise and property income. Fiscal 2010 compared to Fiscal 2009 Company restaurants Company restaurant revenues...

  • Page 52
    ... 2010 2011 Compared to 2010 Fiscal 2010 Compared to Fiscal 2009 Company: Company restaurant revenues CRM CRM % Company restaurant expenses as a % of Company restaurant revenue: Food and paper Payroll and benefits Depreciation and amortization Other occupancy and operating Franchise: Franchise...

  • Page 53
    ...Six Months Ended December 31, 2009 Company restaurants Company restaurant revenues increased due to favorable FX impact, partially offset by the effects of negative Company comparable sales growth. 52 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Research...

  • Page 54
    ... offset by negative franchise comparable sales growth. Franchise and property expenses were flat. Segment income and segment margin Segment income and margin remained relatively unchanged. 53 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Researchâ„

  • Page 55
    ... 2010 2011 Compared to 2010 Fiscal 2010 Compared to Fiscal 2009 Company: Company restaurant revenues CRM CRM % Company restaurant expenses as a % of Company restaurant revenue: Food and paper Payroll and benefits Depreciation and amortization Other occupancy and operating Franchise: Franchise...

  • Page 56
    ... effect of comparable sales growth on our fixed occupancy and other operating costs and improved food margins resulting from the acquisition of 35 restaurants in Singapore during Fiscal 2010, where food costs are lower than those in other Company restaurant markets in the segment. These factors were...

  • Page 57
    ... affiliate's outstanding debt, to fund our capital expenditures and/or to pay dividends to our parent holding company. Based on our current level of operations and available cash, we believe our cash flow from operations, combined with availability under our Revolving Credit Facility, will provide...

  • Page 58
    ... about our long-term debt, see Note 8 to the accompanying audited Consolidated Financial Statements included in Part II, Item 8 "Financial Statements and Supplementary Data". Credit Agreement In connection with the Transactions, BKC entered into a credit agreement dated as of October 19, 2010, as...

  • Page 59
    ... Senior Notes in open market purchases or privately negotiated transactions, subject to our future liquidity requirements, contractual restrictions under our Credit Agreement and other factors. Based on the amount outstanding at December 31, 2011, required debt service for the next 12 months on the...

  • Page 60
    ... in cash used for the acquisition of franchise restaurants. Capital expenditures for new restaurants include the costs to build new Company restaurants as well as properties for new restaurants that we lease to franchisees. Capital expenditures for existing restaurants consist of the purchase of...

  • Page 61
    ... and the Board of Directors of Parent approved a return of capital distribution to the shareholders of Parent, including 3G, in the amount of $393.4 million, which was paid on December 16, 2011. 60 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Researchâ„

  • Page 62
    ... with soft drink vendors 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 61 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by...

  • Page 63
    ...purchase commitments to be completed. During 2011, we entered into a five-year contract with a vendor to supply Company and franchise restaurants in LAC with soft drink products on an exclusive basis and to supply Company and franchise restaurants in the United States with food products. We received...

  • Page 64
    ... align impairment testing procedures with the Company's new fiscal year, related year-end financial reporting and the annual business planning and budgeting process, which are performed during the fourth quarter of each year. As a result, the goodwill and Brand impairment testing will reflect the...

  • Page 65
    ...at fiscal year-end. See Note 10 of the accompanying audited Consolidated Financial Statements included in Part II, Item 8 "Financial Statements and Supplementary Data" for additional information about accounting for income taxes. 64 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by...

  • Page 66
    ... on its financial position. The amendments in this accounting standard update are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those 65 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Researchâ„

  • Page 67
    ... rates may affect the translated value of our earnings and cash flow associated with our foreign operations, as well as the translation of net asset or liability positions that are denominated in foreign currencies. In countries outside of the United States where we operate Company restaurants...

  • Page 68
    ... have been approximately $51.1 million for 2011. The hypothetical change in food, paper and product costs could be positively or negatively affected by changes in prices or product sales mix. 67 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Researchâ„

  • Page 69
    ... Data BURGER KING HOLDINGS, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Management's Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated...

  • Page 70
    ... Treadway Commission (COSO). Based on our assessment and those criteria, management determined that the Company's internal control over financial reporting was effective as of December 31, 2011. 69 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Researchâ„

  • Page 71
    ... sheets of Burger King Holdings, Inc. and subsidiaries as of December 31, 2011 and 2010 (Successor Entity) and June 30, 2010 (Predecessor Entity), and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash flows for the year ended December...

  • Page 72
    ... Term debt, net of current portion Capital leases, net of current portion Other liabilities, net Deferred income taxes, net Total liabilities Commitments and Contingencies (Note 18) Stockholders' equity: Common stock, $0.01 par value; 200,000 shares authorized at December 31, 2011 and 2010...

  • Page 73
    ... Consolidated Statements of Operations Successor October 19, 2010 to December 31, 2010 Predecessor Fiscal 2010 Fiscal 2009 2011 Revenues: Company restaurant revenues Franchise and property revenues Total revenues Company restaurant expenses: Food, paper and product costs Payroll and employee...

  • Page 74
    ...at June 30, 2009 Stock option exercises Stock option tax benefits Stock-based compensation Treasury stock purchases Dividend paid on common shares ($0.25 per share) Comprehensive income: Net income Foreign currency translation adjustment Cash flow hedges: Net change in fair value of derivatives, net...

  • Page 75
    ...at June 30, 2010 Stock option exercises Stock option tax benefits Stock-based compensation Treasury stock purchases Dividend paid on common shares ($0.25 per share) Comprehensive income: Net income Foreign currency translation adjustment Cash flow hedges: Net change in fair value of derivatives, net...

  • Page 76
    ... acquisitions and dispositions: Trade and notes receivable Prepaids and other current assets Accounts and drafts payable Accrued advertising Other accrued liabilities Other long-term assets and liabilities Net cash provided by (used for) operating activities Cash flows from investing activities...

  • Page 77
    ...BURGER KING HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows - (Continued) Successor October 19, 2010 to December 31, 2010 Predecessor Fiscal 2010 Fiscal 2009 2011 Cash flows from financing activities: Proceeds from term debt Proceeds from Senior Notes Repayments of term debt...

  • Page 78
    ... to as the "Brand"). We are the world's second largest fast food hamburger restaurant, or FFHR, chain as measured by the total number of restaurants. For convenience, the terms "Burger King Holdings", "BKH", "Company", and "we" are used to refer collectively to Burger King Holdings, Inc. and its...

  • Page 79
    ...): Cash paid for shares outstanding(1) Settlement of outstanding stock-based compensation Total consideration $ $ 3,277.3 48.1 3,325.4 Current assets Property and equipment Intangible assets Net investment in property leased to franchisees Other assets, net Current liabilities Term debt Capital...

  • Page 80
    ... restaurants located in 81 countries and U.S. territories. Of the 12,512 restaurants in operation as of December 31, 2011, 1,295 were Company restaurants and 11,217 were franchise restaurants. 79 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Research...

  • Page 81
    ... the exchange rates change and are included within other operating (income) expenses, net in the consolidated statements of operations. Cash and Cash Equivalents Cash and cash equivalents include short-term, highly liquid investments with original maturities of three months or less and credit card...

  • Page 82
    ... terms of the loan agreement. Inventories Inventories are stated at the lower of cost (first-in, first-out) or net realizable value, and consist primarily of restaurant food items and paper supplies. Inventories are included in prepaids and other current assets in the accompanying consolidated...

  • Page 83
    ... BURGER KING HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) Goodwill and Intangible Assets Not Subject to Amortization Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed at December 31, 2011...

  • Page 84
    ... managers receive incentives on this basis; and • we do not evaluate individual restaurants to build, acquire or close independent of an analysis of other restaurants in these operating markets. In countries in which we have a smaller number of restaurants, most operating functions and advertising...

  • Page 85
    ...markets classified as Level 1 within the fair value hierarchy. Fair value of variable rate term debt was estimated using inputs based on bid and offer prices and are Level 2 inputs within the fair value hierarchy. Revenue Recognition Revenues include retail sales at Company restaurants and franchise...

  • Page 86
    ... consolidated balance sheets. Franchisees in markets where no Company restaurants operate contribute to advertising funds that are not managed by us. Such contributions and related fund expenditures are not reflected in our results of operations or financial position. Litigation accruals From time...

  • Page 87
    ... BURGER KING HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) Stock-based Compensation We recognize share-based compensation cost based on the grant date estimated fair value of each award, net of estimated forfeitures, over the employee's requisite service...

  • Page 88
    ...of Contents BURGER KING HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) Amounts recorded in the consolidated statements of operations representing our contributions to the Savings Plan and the ERP on behalf of restaurant and corporate employees for 2011 was...

  • Page 89
    ... for Fiscal 2010 and $110.1 million for Fiscal 2009. Construction in progress represents new restaurant and equipment construction, reimaging (demolish and rebuild) and remodeling of existing and acquired restaurants. 88 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar...

  • Page 90
    ... on intangible assets is $38.2 million in 2012, $37.6 million in 2013, $36.6 million in 2014, $35.4 million in 2015, $34.6 million in 2016 and $426.3 million thereafter. As of December 31, 2011, the total intangible asset weighted average amortization period is approximately 20.5 years. The change...

  • Page 91
    ..., 2011 2010 Predecessor As of June 30, 2010 Current: Accrued payroll and employee-related costs Accrued severance and project costs Withholding taxes Interest payable Casualty insurance Foreign currency forward contracts Gift card liabilities Income tax payable Sales tax payable Other Total current...

  • Page 92
    ... of Contents BURGER KING HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) Note 8. Long-Term Debt Long-Term Debt Long-term debt is comprised of the following (in millions): Successor Maturity dates Predecessor As of June 30, 2010 Secured Term Loan - USD...

  • Page 93
    ... BURGER KING HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) loans and letters of credit) (the "Revolving Credit Facility," and together with the Term Loan Facility, the "Credit Facilities"). The maturity date for the Term Loan Facility is October 19, 2016...

  • Page 94
    ... line of business. In addition, the ability of BKC and its subsidiaries to pay dividends or other distributions, or to repurchase, redeem or retire equity is restricted by the Credit Agreement, including the payment of dividends to BKH. At December 31, 2011, we were in compliance with all financial...

  • Page 95
    ... debt in connection with the Term Loan prepayments and Senior Note repurchases described above in 2011. Loss on early extinguishment of debt consists principally of write-offs of deferred financing costs and original issue discount. 94 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered...

  • Page 96
    ... Consolidated Financial Statements - (Continued) Maturities The aggregate maturities of long-term debt, including the amounts due under the Term Loan Facility, the Senior Notes and other debt as of December 31, 2011, are as follows (in millions): Principal Amount Year Ended December 31, 2012 2013...

  • Page 97
    ...fixed payments with contingent rent when sales exceed certain levels. Lease terms generally range from 10 to 20 years. The franchisees bear the cost of maintenance, insurance and property taxes. 96 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Researchâ„

  • Page 98
    ... rents recorded in acquisition accounting. In addition, we are the lessee on land, building, equipment, office space and warehouse leases, including 343 restaurant buildings under capital leases. Initial lease terms are generally 10 to 20 years. Most leases provide for fixed monthly payments. Many...

  • Page 99
    ... balances, $9.3 million was classified as current portion of long-term debt and capital leases as of December 31, 2011, $9.2 million as of December 31, 2010 and $5.6 million as of June 30, 2010. Property revenues are comprised primarily of rental income from operating leases and earned income on...

  • Page 100
    ..., 2010 Fiscal 2010 Fiscal 2009 Franchise and property revenues Company restaurant expenses: Occupancy and other operating costs Franchise and property expenses $ 6.6 4.1 (0.7) 2011 $ 1.3 $ - $ - 10.4 4.6 $ - 12.7 5.5 1.0 (0.1) 2.6 1.3 Estimated future amortization expense (benefit) of...

  • Page 101
    ... BURGER KING HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) Note 10. Income Taxes Income (loss) before income taxes, classified by source of income (loss), is as follows (in millions): Successor October 19, 2010 to December 31, 2010 Predecessor 2011...

  • Page 102
    ... BURGER KING HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) The U.S. Federal tax statutory rate reconciles to the effective tax rate as follows: Successor October 19, 2010 to December 31, 2010 Predecessor Fiscal 2010 U.S. Federal income tax rate State...

  • Page 103
    ...Fiscal 2010 Fiscal 2009 2011 July 1, 2010 to October 18, 2010 Deferred income tax expense (exclusive of the effects of components listed below) Change in valuation allowance (net of amounts allocated as adjustments to purchase accounting in 2009 and 2008) Change in effective state income tax rate...

  • Page 104
    ... Fiscal 2010 2009 Deferred tax assets: Trade and notes receivable, principally due to allowance for doubtful accounts Accrued employee benefits Unfavorable leases Liabilities not currently deductible for tax Tax loss and credit carryforwards Property and equipment, principally due to differences in...

  • Page 105
    Table of Contents BURGER KING HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) We generated a federal net operating loss of approximately $12.5 million for the period ended December 31, 2011. This loss can be carried forward for 20 years. In addition, we ...

  • Page 106
    ... 1, 2012, the annual employer-provided subsidy will be $160 (pre-age 65) and $80 (post-age 65) per year of credited service for anyone not already receiving benefits prior to this date. In 2011, we recognized a reduction to the retiree medical plan liability as a result of a negative plan amendment...

  • Page 107
    ... 18, Fiscal 2011 2010 2010 2010 Change in benefit obligation Benefit obligation at beginning of year Service cost Interest cost Plan amendments Actuarial (gains) losses Part D Rx Subsidy Received Benefits paid Benefit obligation at end of year Change in plan assets Fair value of plan assets at...

  • Page 108
    ... BURGER KING HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) International Pension Plans Successor Predecessor October 19, 2010 to July 1, 2010 to December 31, October 18, 2010 2010 Fiscal 2010 Benefit obligation at end of year Fair value of plan assets...

  • Page 109
    ... 2010 to October 18, Fiscal December 31, 2010 2010 2010 Discount rate as of year-end 2011 Fiscal 2009 2011 Fiscal 2009 4.58% 5.35% 5.06% 5.20% 108 6.37% 4.58% 5.35% 5.06% 5.20% 6.37% Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Researchâ„

  • Page 110
    ... of Contents BURGER KING HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) International Pension Plans July 1, 2010 to October 18, 2010 Discount rate as of year-end Range of compensation rate increase 2011 4.82% 3.44% Successor October 19, 2010 to December...

  • Page 111
    ... BURGER KING HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) The assumed healthcare cost trend rates are as follows: Successor October 19, 2010 to December 31, 2010 Predecessor Fiscal 2010 Fiscal 2009 Healthcare cost trend rate assumed for next year Rate...

  • Page 112
    ..., as reported by the managers of the trusts and as supported by the unit prices of actual purchase and sale transactions. As of June 30, 2010, the fair value of plan assets for U.S. Pension Plans was $109.7 million and for International Pension Plans was $18.3 million. The investment objective for...

  • Page 113
    ... Location Prepaid and Other Current Assets Description Derivatives designated as cash flow hedging instruments: Interest rate caps Foreign currency forward contracts (asset) Total Other Assets Other Accrued Liabilities Other liabilities Fair Value Measurements as of December 31, 2010 Assets...

  • Page 114
    Table of Contents BURGER KING HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) Fair Value Measurements as of December 31, 2010 Assets (Liabilities) Quoted Prices Significant in Active Significant Other Markets for Observable Unobservable Identical Inputs ...

  • Page 115
    ... of Contents BURGER KING HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) Our derivatives are valued using a discounted cash flow analysis that incorporates observable market parameters, such as interest rate yield curves and currency rates, classified as...

  • Page 116
    ... an asset position, the counterparty has a liability to us, which creates credit risk for us. We attempt to minimize this risk by selecting counterparties with investment grade credit ratings and regularly monitoring our market position with each counterparty. Credit-Risk Related Contingent Features...

  • Page 117
    ... 2009. Although we do not currently have a dividend policy, we may declare dividends periodically if our Board of Directors determines that it is in the best interests of the shareholders. The terms of the Credit Agreement and the 116 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered...

  • Page 118
    ... BURGER KING HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) Senior Notes Indenture limit our ability to pay cash dividends in certain circumstances. In addition, because we are a holding company, our ability to pay cash dividends on shares (including...

  • Page 119
    ... volatility of a group of our peers; and expected dividend yield of zero. The compensation cost related to these granted options will be recognized ratably over the requisite service period. 118 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Researchâ„

  • Page 120
    ... BURGER KING HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) The Company recorded $1.2 million of share-based compensation expense, as well as $5.2 million of annual non-cash incentive compensation that eligible employees elected to receive as common equity...

  • Page 121
    ... BURGER KING HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) for Fiscal 2010 and $11.4 million for Fiscal 2009. The related excess tax benefits from stock options exercised were $1.1 million offset by $1.5 million shortfalls recorded as operating cash flows...

  • Page 122
    ... to December 31, 2010 Predecessor Number of restaurants acquired Prepaids and other current assets Property and equipment, net Goodwill and other intangible assets Other assets, net Assumed liabilities Total purchase price Closures and Dispositions 2 2011 $ $ July 1, 2010 to October 18...

  • Page 123
    ... with soft drink vendors 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 122 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by...

  • Page 124
    ... BURGER KING HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) commitments are not subject to any time limit and as of December 31, 2011, we estimate it will take approximately 14 years for these purchase commitments to be completed. In the event of early...

  • Page 125
    ...accrued liabilities as of December 31, 2011, $34.4 million as of December 31, 2010 and $37.1 million as of June 30, 2010 for these claims. Note 19. Segment Reporting We operate in the fast food hamburger category of the quick service segment of the restaurant industry. Revenues include retail sales...

  • Page 126
    ..., 2010 Predecessor Segment Income: United States and Canada EMEA LAC APAC Total Unallocated Management G&A Consolidated adjusted EBITDA Share-based compensation and non-cash incentive compensation expense Depreciation and amortization Transaction costs Global restructuring and related professional...

  • Page 127
    ...BURGER KING HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) Successor October 19, 2010 to December 31, 2010 Predecessor Depreciation and Amortization: United States and Canada EMEA LAC APAC Unallocated Total depreciation and amortization 2011 July 1, 2010...

  • Page 128
    ... to Consolidated Financial Statements - (Continued) Long-lived assets include property and equipment, net, and net investment in property leased to franchisees. Only the United States represented 10% or more of our total long-lived assets as of December 31, 2011 and 2010 and June 30, 2010. Long...

  • Page 129
    ... receivable Investment in subsidiaries Other assets, net Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts and drafts payable Accrued advertising Other accrued liabilities Current portion of long term debt and capital leases Total current liabilities Term debt...

  • Page 130
    ... receivable Investment in subsidiaries Other assets, net Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts and drafts payable Accrued advertising Other accrued liabilities Current portion of long term debt and capital leases Total current liabilities Term debt...

  • Page 131
    ... receivable Investment in subsidiaries Other assets, net Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts and drafts payable Accrued advertising Other accrued liabilities Current portion of long term debt and capital leases Total current liabilities Term debt...

  • Page 132
    ... Consolidating Statements of Operations 2011 (Unaudited) NonGuarantors (In millions) Issuer Guarantors Eliminations Consolidated Revenues: Company restaurant revenues Franchise and property revenues Intercompany revenues Total revenues Company restaurant expenses: Food, paper and product costs...

  • Page 133
    ... Consolidated Revenues: Company restaurant revenues Franchise and property revenues Intercompany revenues Total revenues Company restaurant expenses: Food, paper and product costs Payroll and employee benefits Occupancy and other operating costs Total Company restaurant expenses Franchise...

  • Page 134
    ... Consolidated Revenues: Company restaurant revenues Franchise and property revenues Intercompany revenues Total revenues Company restaurant expenses: Food, paper and product costs Payroll and employee benefits Occupancy and other operating costs Total company restaurant expenses Franchise...

  • Page 135
    ... Statements of Operations Fiscal 2010 (Unaudited) NonGuarantors (In millions) Issuer Guarantors Eliminations Consolidated Revenues: Company restaurant revenues Franchise and property revenues Intercompany royalties Total revenues Company restaurant expenses: Food, paper and product costs...

  • Page 136
    ... Statements of Operations Fiscal 2009 (Unaudited) NonGuarantors (In millions) Issuer Guarantors Eliminations Consolidated Revenues: Company restaurant revenues Franchise and property revenues Intercompany royalties Total revenues Company restaurant expenses: Food, paper and product costs...

  • Page 137
    ...and liabilities, excluding acquisitions and dispositions: Trade and notes receivables Prepaids and other current assets Accounts and drafts payable Accrued advertising Other accrued liabilities Other long-term assets and liabilities Net cash provided by operating activities Cash flows from investing...

  • Page 138
    ... of assets and restaurant closures Return of investment on direct financing leases Other investing activities Net payment for purchase of BKH Net cash used for investing activities Cash flows from financing activities: Repayments of term debt and capital leases Proceeds from New Term Loans and...

  • Page 139
    ... Other accrued liabilities Other long-term assets and liabilities Net cash provided by (used for) operating activities Cash flows from investing activities: Payments for property and equipment Proceeds from refranchisings, disposition of assets and restaurant closures Return of investment on direct...

  • Page 140
    ...and liabilities, excluding acquisitions and dispositions: Trade and notes receivables Prepaids and other current assets Accounts and drafts payable Accrued advertising Other accrued liabilities Other long-term assets and liabilities Net cash provided by operating activities Cash flows from investing...

  • Page 141
    ...and liabilities, excluding acquisitions and dispositions: Trade and notes receivables Prepaids and other current assets Accounts and drafts payable Accrued advertising Other accrued liabilities Other long-term assets and liabilities Net cash provided by operating activities Cash flows from investing...

  • Page 142
    ... the Indenture. The consolidating financial information may not necessarily be indicative of the financial position or results of operations had the Issuers operated as independent entities. 141 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Researchâ„

  • Page 143
    ...assets, net Total assets LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts and drafts payable Accrued advertising Other accrued liabilities Current portion of long term debt and capital leases Total current liabilities Term debt, net of current portion Capital leases, net of current...

  • Page 144
    ... Statements of Operations 2011 (Unaudited) BKH Issuers Eliminations (In millions) Consolidated Revenues: Company restaurant revenues Franchise and property revenues Total revenues Company restaurant expenses: Food, paper and product costs Payroll and employee benefits Occupancy and other operating...

  • Page 145
    ... Financial Reporting Management's Report on Internal Control Over Financial Reporting is set forth in Part II, Item 8 of this Form 10-K. Part III Item 10. Directors, Executive Officers and Corporate Governance The information required by this Item will be filed by amendment prior to March 30, 2012...

  • Page 146
    ... of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto. (3) Exhibits The exhibits listed in the accompanying index are filed as part of this report. 145 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by...

  • Page 147
    ...-K filed August 27, 2009 Incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q filed April 30, 2010 Incorporated herein by reference to the Registrant's Current Report on Form 8-K filed on September 3, 2010 Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered...

  • Page 148
    ...Corporation, Burger King Holdings, Inc., and the subsidiary guarantors party thereto and J.P. Morgan Securities LLC and Barclays Capital Inc., as representatives of the several initial purchasers named therein 147 Incorporated herein by reference to the Registrant's Current Report on Form 8-K filed...

  • Page 149
    ... Option Award Agreement issued under Burger King Worldwide Holdings, Inc. 2011 Omnibus Incentive Plan Employment Agreement by and between Burger King Corporation and Jose Cil, dated November 2, 2010 148 Incorporated herein by reference to the Registrant's Current Report on Form 8-K filed on October...

  • Page 150
    ... Agreement between Burger King Corporation and Steven M. Wiborg, dated as of October 21, 2012 List of Subsidiaries of the Registrant Certification of Chief Executive Officer of Burger King Holdings, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Financial...

  • Page 151
    ... 14, 2012 Chief Financial Officer March 14, 2012 Controller, Chief Accounting Officer March 14, 2012 Chairman March 14, 2012 Director March 14, 2012 Director March 14, 2012 Director March 14, 2012 Director March 14, 2012 Director March 14, 2012 Source: Burger King Holdings Inc, 10...

  • Page 152
    ... Agreement between Burger King Corporation and Steven M. Wiborg, dated as of October 21, 2012 List of Subsidiaries of the Registrant Certification of Chief Executive Officer of Burger King Holdings, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Financial...