Burger King 2011 Annual Report Download - page 68

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Table of Contents
Under the terms of the Cap Agreements, if LIBOR/EURIBOR resets above the strike price, we will receive the net difference between the rate and the
strike price. In addition, on quarterly settlement dates, we remit the deferred premium payment (plus interest) to the counterparty, whether LIBOR/EURIBOR
resets above or below the strike price.
As a result of the Cap Agreements and LIBOR/EURIBOR floor in our Credit Agreement, at December 31, 2010, we effectively converted our variable rate
debt into fixed rate debt and would not be impacted by a change in interest rates. As a result of the modification completed in February 2011, we are exposed to
interest rate variability to the extent LIBOR moves between 1.5% and 1.75%. We are also exposed to losses in the event of nonperformance by the counterparty
to these Cap Agreements. We attempt to minimize this risk by selecting a counterparty with investment grade credit ratings and regularly monitoring our market
position with the counterparty.
Commodity Price Risk
We purchase certain products, including beef, chicken, cheese, french fries, tomatoes and other commodities which are subject to price volatility that is
caused by weather, market conditions and other factors that are not considered predictable or within our control. Additionally, our ability to recover increased
costs is typically limited by the competitive environment in which we operate. We occasionally take forward pricing positions through our suppliers to manage
commodity prices. As a result, we purchase beef and other commodities at market prices, which fluctuate on a daily basis and may differ between different
geographic regions, where local regulations may affect the volatility of commodity prices.
The estimated change in Company restaurant food, paper and product costs from a hypothetical 10% change in average prices of our commodities would
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.
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Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Research℠