Burger King 2013 Annual Report Download - page 69

Table of Contents
Four distributors currently service approximately 86% of our U.S. system restaurants and the loss of any one of these distributors would likely
adversely affect our business. In many of our international markets, a single distributor services all the Burger King restaurants in the market. The loss of
any of one of these distributors would likely have an adverse effect on the market impacted, and depending on the market, could have an adverse impact on
our financial results. In addition, we have moved to a business model in which we enter into exclusive agreements with master franchisees to develop and
operate restaurants, and subfranchise to third parties the right to develop and operate restaurants in defined geographic areas. The termination of an
arrangement with a master franchisee or a lack of expansion by certain master franchisees could result in the delay or discontinuation of the development of
franchise restaurants, or an interruption in the operation of our brand in a particular market or markets.
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The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management
to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Management adjusts
such estimates and assumptions when facts and circumstances dictate. Volatile credit, equity, foreign currency and energy markets and declines in consumer
spending may continue to affect the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with
precision, actual results could differ significantly from these estimates.
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The functional currency of each foreign subsidiary is generally the local currency. Foreign currency balance sheets are translated using the end of period
exchange rates, and statements of operations and statements of cash flows are translated at the average exchange rates for each period. The translation
adjustments resulting from the translation of foreign currency financial statements are recorded in other comprehensive income (loss) in the consolidated
statements of comprehensive income (loss).
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Foreign currency transaction gains or losses resulting from the re-measurement of our foreign-denominated assets and liabilities or our subsidiaries are
reflected in earnings in the period when the exchange rates change and are included within other operating (income) expenses, net in the consolidated statements
of operations.
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Cash and cash equivalents include short-term, highly liquid investments with original maturities of three months or less and credit card receivables.
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We evaluate the collectability of our trade accounts receivable from franchisees based on a combination of factors, including the length of time the
receivables are past due and the probability of collection from litigation or default proceedings, where applicable. We record a specific allowance for doubtful
accounts in an amount required to adjust the carrying values of such balances to the amount that we estimate to be net realizable value. We write off a specific
account when (a) we enter into an agreement with a franchisee that releases the franchisee from outstanding obligations, (b) franchise agreements are terminated
and the projected cost of collections exceeds the benefits expected to be received from pursuing the balance owed through legal action, or (c) franchisees do not
have the financial wherewithal or unprotected assets from which collection is reasonably assured.
Notes receivable represent loans made to franchisees arising from refranchisings of Company restaurants, sales of property, and in certain cases when
past due trade receivables from franchisees are restructured into an interest-bearing note. Trade receivables restructured to interest-bearing notes are generally
already fully reserved, and as a result, are transferred to notes receivable at a net carrying value of zero. Notes receivable with a carrying value greater than zero
are written down to net realizable value when it is probable or likely that we are unable to collect all amounts due under the contractual terms of the loan
agreement.
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Inventories are stated at the lower of cost (first-in, first-out) or net realizable value, and consist primarily of restaurant food items and paper supplies.
Inventories are included in prepaids and other current assets in the accompanying consolidated balance sheets.
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Source: Burger King Worldwide, Inc., 10-K, February 21, 2014 Powered by Morningstar® Document Research℠
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