Burger King 2012 Annual Report Download - page 20

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franchise agreements, certain master franchisees may elect to sub-franchise rights to develop and operate restaurants in the geographic area covered by the
master franchise agreement. Our master franchise agreements contractually obligate our master franchisees to operate their restaurants in accordance with
specified operations, safety and health standards and also require that any sub-franchise agreement contain similar requirements. However, we are not party to
the agreements with the sub-franchisees and, as a result, are dependent upon our master franchisees to enforce these standards with respect to sub-franchised
restaurants. As a result, the ultimate success and quality of any sub-franchised restaurant rests with the master franchisee. If sub-franchisees do not
successfully operate their restaurants in a manner consistent with required standards, franchise fees and royalty income paid to the applicable master
franchisee and ultimately to us could be adversely affected, and our brand image and reputation may be harmed, which could materially and adversely affect
our business and operating results.

Our revenues are heavily influenced by brand marketing and advertising. Our marketing and advertising programs may not be successful, which may
lead us to fail to attract new guests and retain existing guests. If our marketing and advertising programs are unsuccessful, our results of operations could be
materially and adversely affected. Moreover, because franchisees and Company restaurants contribute to our advertising fund based on a percentage of their
gross sales, our advertising fund expenditures are dependent upon sales volumes at system-wide restaurants. If system-wide sales decline, there will be a
reduced amount available for our marketing and advertising programs. In addition, in response to the recession, we have emphasized certain 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.



We believe that our future growth and profitability will depend on our ability to successfully implement our global portfolio realignment project,
including refranchising our remaining Company restaurants and accelerating international development with strategic partners and joint ventures. However,
refranchisings may have unexpected and negative short term effects on our results of operations. For example, (i) our general and administrative expenses may
increase as a result of severance and other termination costs incurred in connection with refranchisings and may continue to increase as a percentage of
revenues, or (ii) we may be required to recognize accounting or tax gains or losses and/or impairments on refranchising transactions, which could adversely
affect our results of operations for a specific period. Our ability to achieve the long-term benefits of our refranchising transactions will depend on (i) our ability
to identify new or existing franchisees that are willing to acquire the remaining Company restaurants, and (ii) the ability and willingness of these new and
existing franchises to remodel the refranchised restaurants and develop new restaurants within the market of the refranchised restaurants, and the pace of such
remodeling and development activity.
We currently conduct a portion of our international operations through joint ventures and master franchisees and are actively seeking strategic partners
for new joint venture and master franchise relationships as part of our overall strategy for international expansion. These new arrangements may give our joint
venture and/or master franchise partners the exclusive right to develop and manage Burger King restaurants in a specific country or countries. A joint venture
partnership involves special risks, such as our joint venture partners may at any time have economic, business or legal interests or goals that are inconsistent
with those of the joint venture or us, or our joint venture partners may be unable to meet their economic or other obligations and we may be required to fulfill
those obligations alone. Our master franchise arrangements present similar risks and uncertainties. We cannot control the actions of our joint venture partners
or master franchisees, including any nonperformance, default or bankruptcy of joint venture partners or master franchisees. While we believe that our joint
venture and
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Source: Burger King Worldwide, Inc., 10-K, February 22, 2013 Powered by Morningstar® Document Research℠
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