Burger King 2011 Annual Report Download - page 17

Table of Contents
Our operating results are closely tied to the success of our franchisees; however, our franchisees are independent operators and we have limited influence
over their restaurant operations.
We receive revenues in the form of royalties and fees from our franchisees. As a result, our operating results substantially depend upon our franchisees’
sales volumes, restaurant profitability and financial viability. However, our franchisees are independent operators and we cannot control many factors that impact
the profitability of their restaurants. Pursuant to the franchise agreements and our Manual of Operating Data, we can, among other things, mandate menu items,
signage, equipment, hours of operation and value menu, establish operating procedures and approve suppliers, distributors and products. However, the quality of
franchise restaurant operations may be diminished by any number of factors beyond our control. Consequently, franchisees may not successfully operate
restaurants in a manner consistent with our standards and requirements, such as our cleanliness standards, or standards set by federal, state and local
governmental laws and regulations. In addition, franchisees may not hire and train qualified managers and other restaurant personnel. While we ultimately can
take action to terminate franchisees that do not comply with the standards contained in our franchise agreements and our Manual of Operating Data, we may not
be able to identify problems and take action quickly enough and, as a result, our image and reputation may suffer, and our franchise revenues and results of
operations could decline.
We have experienced seven consecutive quarters of negative comparable sales in the U.S. and Canada, and this trend has impacted the sales volumes,
restaurant profitability and financial viability of a number of our franchisees. If comparable sales do not improve in the short term, the number of franchisees in
financial distress will likely increase, which could result in, among other things, restaurant closures, delayed or reduced payments to us of royalties, advertising
contributions and rents, and an inability for such franchisees to obtain financing to fund development, restaurant remodels or equipment initiatives on acceptable
terms or at all. Furthermore, franchisees may not be willing or able to renew their franchise agreements with us due to low sales volumes, or high real estate
costs, or may be unable to renew due to the failure to secure lease renewals. If we experience a significant decrease in our number of franchisees it would
adversely affect our operating results.
The concentration of our restaurants in limited geographic areas subjects us to additional risk.
Our results of operations are substantially affected not only by global economic conditions, but also by the local economic conditions in the markets in
which we have significant operations. In the United States, over 50% of our Company restaurants are located in three states, Florida, North Carolina and Indiana.
In EMEA, 100% of our Company restaurants and over 56% of our franchise restaurants are located in three countries, Germany, the U.K. and Spain, with these
markets representing over 19% of our total revenues. In LAC, 100% of our Company restaurants and over 28% of our franchise restaurants are located in
Mexico. In APAC, 100% of our Company restaurants are located in Singapore and China and over 52% of our franchise restaurants are located in Australia and
Korea. Many of the markets in which we and our franchisees operate have been particularly affected by the economic downturn and the timing and strength of
any economic recovery is uncertain in many of our most important markets.
The success of our global portfolio realignment project is dependent on transactions with strategic partners and may not yield the long term financial
results that we expect. We may not be able to successfully (1) attract desirable strategic partners; (2) complete agreements with strategic partners, and/or
(3) manage relationships with strategic partners going forward, any of which could adversely affect our business.
We believe that our future growth and profitability will depend on our ability to successfully implement our global portfolio realignment project, including
refranchising Company restaurants and accelerating international development with strategic partners and joint ventures. As part of our global portfolio
realignment project, we expect to accelerate the pace of refranchisings of our current Company restaurant portfolio. We currently conduct a portion of our
international operations through joint ventures and are actively seeking strategic partners for joint venture relationships 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
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Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Research℠