Burger King 2013 Annual Report Download - page 105

Table of Contents
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We guarantee certain lease payments of franchisees arising from leases assigned in connection with sales of Company restaurants to franchisees, by
remaining secondarily liable for base and contingent rents under the assigned leases of varying terms. The maximum contingent rent amount is not
determinable as the amount is based on future revenues. In the event of default by the franchisees, we have typically retained the right to acquire possession of
the related restaurants, subject to landlord consent. The potential amount of undiscounted payments we could be required to make in the event of non-payment
by the franchisee arising from these assigned lease guarantees, excluding contingent rents, was $42.5 million as of December 31, 2013, expiring over an
average period of six years.
From time to time, we enter into agreements under which we guarantee loans made by third parties to qualified franchisees. As of December 31, 2013,
there were $123.6 million of loans outstanding to franchisees that we had guaranteed under five such programs, with additional franchisee borrowing capacity
of approximately $204.2 million remaining. Our maximum guarantee liability under these five programs is limited to an aggregate of $28.9 million, assuming
full utilization of all borrowing capacity. We record a liability in the period the loans are funded and the maximum term of the guarantee is approximately seven
years. As of December 31, 2013, the liability reflecting the fair value of these guarantee obligations was $5.2 million. No significant payments have been made
by us in connection with these guarantees through December 31, 2013.
Other commitments arising out of normal business operations were $1.6 million as of December 31, 2013, of which over 99% was guaranteed under
bank guarantee arrangements.
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As of December 31, 2013, we had $25.3 million in irrevocable standby letters of credit outstanding, which were issued primarily to certain insurance
carriers to guarantee payments of deductibles for various insurance programs, such as health and commercial liability insurance. As of December 31, 2013,
all letters of credit outstanding are secured by cash collateral and no amounts had been drawn on any of these irrevocable standby letters of credit.
As of December 31, 2013, we had posted bonds totaling $0.5 million, which related to certain utility deposits and capital projects.
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During the fiscal year ended June 30, 2000, we entered into long-term, exclusive contracts 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 commitments are not subject to any time limit and as of December 31, 2013, we estimate it will take approximately 16 years for these purchase
commitments to be completed. In the event of early termination of this arrangement, we may be required to make termination payments that could be material to
our financial position, results of operations and cash flows.
As of December 31, 2013, we had $0.2 million in aggregate contractual obligations for the year ended December 31, 2013 with vendors providing
information technology and telecommunication services under multiple arrangements. These contracts extend up to two years with termination fees of
$1.0 million during those years. We also have separate arrangements for telecommunication services with an aggregate contractual obligation of $22.6 million
over the next five years with no early termination fee.
We also enter into commitments to purchase advertising. As of December 31, 2013, commitments to purchase advertising totaled $114.0 million and run
through September 2014.
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On March 1, 2013, a putative class action lawsuit was filed against BKC in the U.S. District Court of Maryland. The complaint alleges that BKC
and/or its agents sent unsolicited advertisements by fax to thousands of consumers in Maryland and elsewhere in the United States to promote its home
delivery program in violation of the Telephone Consumers Protection Act. The plaintiff is seeking monetary damages and injunctive relief. BKC has filed a
motion to dismiss. If BKC’s motion to dismiss is denied, it is anticipated that the parties will proceed with discovery. BKC will vigorously contest liability
and class certification.
From time to time, we are involved in other legal proceedings arising in the ordinary course of business relating to matters including, but not limited to,
disputes with franchisees, suppliers, employees and customers, as well as disputes over our intellectual property. The Company has an estimated liability of
approximately $10.0 million as of December 31, 2013, representing the Company’s best estimate within the range of losses which could be incurred in
connection with pending litigation matters.
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Source: Burger King Worldwide, Inc., 10-K, February 21, 2014 Powered by Morningstar® Document Research℠
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