Burger King 2011 Annual Report Download - page 7

Table of Contents
Latin America and the Caribbean (LAC)
As of December 31, 2011, we had 1,222 restaurants in 27 countries and territories in LAC. There were 97 Company restaurants in LAC, all located in
Mexico, and 1,125 franchise restaurants in the segment as of December 31, 2011. Mexico is the largest market in this segment, with a total of 415 restaurants as
of December 31, 2011, or 34% of the region. We believe that there are significant growth opportunities in South America. In July 2011, we formed a joint
venture with a new franchisee in Brazil and granted the joint venture exclusive development rights for the country.
Asia Pacific (APAC)
As of December 31, 2011, APAC had 908 restaurants in 14 countries and territories, including China, Singapore, Malaysia, Thailand, Australia,
Philippines, New Zealand, South Korea, Indonesia and Japan. In APAC, we have 67 Company restaurants, all of which are located in China and Singapore, and
841 franchise restaurants. Australia is the largest market in APAC, with 347 restaurants as of December 31, 2011, all of which are franchised and operated under
Hungry Jack’s ®, a brand that we own in Australia and New Zealand. Australia is the only market in which we operate under a brand other than Burger King. We
believe there is 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 and standard procedures for inventory control and management. For each franchise restaurant, we
generally enter into a franchise agreement covering a standard set of terms and conditions. Recurring fees consist of monthly royalty and advertising payments.
Franchise agreements are not assignable without our consent, and we have a right of first refusal if a franchisee proposes to sell a restaurant. Defaults (including
non-payment of royalties or advertising contributions, or failure to operate in compliance with the terms of the Manual of Operating Data) can lead to termination
of the franchise agreement. These transactions must meet our minimum approval criteria to ensure that franchisees are adequately capitalized and that they satisfy
certain other requirements.
U.S. and Canada. In the U.S. and Canada, we typically enter into a separate franchise agreement for each restaurant. The typical franchise agreement in
the U.S. and Canada has a 20-year term (for both initial grants and renewals of franchises) and contemplates a one-time franchise fee of $50,000 which must be
paid in full before the restaurant opens for business, or in the case of renewal, before expiration of the current franchise term. Most existing franchise restaurants
pay a royalty of 4% in the U.S. and 4.5% in Canada. Since June 2003, most new franchise restaurants opened and franchise agreements renewed in the United
States generated royalties at the rate of 4.5% of gross sales for the full franchise term. The weighted average royalty rate in the U.S. and Canada was 4.0% as of
December 31, 2011. In addition to their royalties, franchisees in the U.S. and Canada are generally required to make a contribution to the advertising fund equal
to a percentage of gross sales, typically 4%, on a monthly basis. In 2011, we offered franchisees reduced up front franchise fees and limited-term royalty rate
reductions to accelerate development of new restaurants. In addition, in an effort to improve the image of our restaurants in the U.S, we offered U.S. franchisees
reduced up front franchise fees and limited-term royalty and advertising fund rate reductions to remodel restaurants in our 20/20 image.
International. Internationally, we typically enter into franchise agreements for each restaurant with an up front franchise fee of $50,000 per restaurant
and monthly royalties and advertising contributions each of up to 5% of gross sales. However, in many of our international markets, we have granted either
master franchise agreements or development agreements that provide franchisees broader development rights and obligations. In Australia and Turkey, we have
entered into master franchise agreements with a franchisee in each country which permits that franchisee to sub-franchise restaurants within its territory. In New
Zealand and certain Middle East and Persian Gulf countries, we have entered into arrangements with franchisees under which they have agreed to nominate third
party franchisees to develop and operate restaurants within their respective territories under
6
Source: Burger King Holdings Inc, 10-K, March 14, 2012 Powered by Morningstar® Document Research℠