Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the transition period from to
Commission file number: 001-32875
BURGER KING HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
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Delaware
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75-3095469 |
(State or Other Jurisdiction of
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(I.R.S. Employer |
Incorporation or Organization)
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Identification No.) |
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5505 Blue Lagoon Drive, Miami, Florida
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33126 |
(Address of Principal Executive Offices)
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(Zip Code) |
(305) 378-3000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer þ |
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Accelerated filer o |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of April 30, 2009, there were 134,735,297 shares of the registrants Common Stock
outstanding.
BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
2
PART I Financial Information
Item 1. Financial Statements
BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
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As of |
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March 31, |
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June 30, |
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2009 |
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2008 |
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(In millions, except share data) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
140 |
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$ |
166 |
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Trade and notes receivable, net |
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122 |
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139 |
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Prepaids and other current assets |
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48 |
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54 |
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Deferred income taxes, net |
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38 |
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45 |
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Total current assets |
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348 |
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404 |
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Property and equipment, net of accumulated depreciation of $580 million and $549 million,
respectively |
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959 |
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961 |
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Intangible assets, net |
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1,053 |
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1,055 |
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Goodwill |
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26 |
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27 |
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Net investment in property leased to franchisees |
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132 |
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135 |
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Other assets, net |
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94 |
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105 |
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Total assets |
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$ |
2,612 |
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$ |
2,687 |
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Liabilities and Stockholders Equity |
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Current liabilities: |
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Accounts and drafts payable |
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$ |
70 |
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$ |
130 |
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Accrued advertising |
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73 |
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77 |
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Other accrued liabilities |
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222 |
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242 |
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Current portion of long term-debt and capital leases |
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54 |
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7 |
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Total current liabilities |
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419 |
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456 |
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Term debt, net of current portion |
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811 |
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869 |
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Capital leases, net of current portion |
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66 |
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71 |
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Other deferrals and liabilities |
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328 |
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360 |
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Deferred income taxes, net |
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59 |
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86 |
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Total liabilities |
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1,683 |
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1,842 |
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Commitments and Contingencies (See Note 12) |
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Stockholders equity: |
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Preferred stock, $0.01 par value; 10,000,000 shares authorized; no shares issued or outstanding |
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Common stock, $0.01 par value; 300,000,000 shares authorized; 134,649,156 and 135,022,753
shares issued and outstanding at March 31, 2009 and June 30, 2008, respectively |
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1 |
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1 |
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Additional paid-in capital |
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618 |
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601 |
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Retained earnings |
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406 |
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290 |
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Accumulated other comprehensive loss |
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(37 |
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(8 |
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Treasury stock, at cost; 2,873,564 and 2,042,887 shares, at March 31, 2009 and June 30, 2008,
respectively |
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(59 |
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(39 |
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Total stockholders equity |
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929 |
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845 |
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Total liabilities and stockholders equity |
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$ |
2,612 |
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$ |
2,687 |
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See accompanying notes to condensed consolidated financial statements.
3
BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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March 31, |
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March 31, |
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2009 |
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2008 |
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2009 |
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2008 |
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(In millions, except per share data) |
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Revenues: |
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Company restaurant revenues |
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$ |
449 |
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$ |
436 |
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$ |
1,419 |
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$ |
1,325 |
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Franchise revenues |
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125 |
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129 |
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405 |
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394 |
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Property revenues |
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26 |
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29 |
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84 |
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90 |
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Total revenues |
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600 |
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594 |
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1,908 |
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1,809 |
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Company restaurant expenses: |
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Food, paper and product costs |
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143 |
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135 |
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457 |
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412 |
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Payroll and employee benefits |
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144 |
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133 |
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439 |
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396 |
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Occupancy and other operating costs |
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110 |
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110 |
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344 |
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321 |
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Total company restaurant expenses |
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397 |
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378 |
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1,240 |
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1,129 |
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Selling, general and administrative expenses |
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115 |
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126 |
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360 |
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370 |
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Property expenses |
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13 |
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15 |
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42 |
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45 |
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Other operating (income) expense, net |
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(1 |
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(6 |
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14 |
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(7 |
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Total operating costs and expenses |
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524 |
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513 |
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1,656 |
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1,537 |
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Income from operations |
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76 |
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81 |
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252 |
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272 |
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Interest expense |
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13 |
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17 |
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44 |
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53 |
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Interest income |
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(1 |
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(2 |
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(5 |
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Total interest expense, net |
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13 |
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16 |
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42 |
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48 |
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Income before income taxes |
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63 |
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65 |
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210 |
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224 |
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Income tax expense |
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16 |
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24 |
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69 |
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85 |
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Net income |
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$ |
47 |
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$ |
41 |
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$ |
141 |
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$ |
139 |
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Earnings per share: |
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Basic |
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$ |
0.35 |
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$ |
0.30 |
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$ |
1.05 |
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$ |
1.03 |
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Diluted |
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$ |
0.34 |
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$ |
0.30 |
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$ |
1.03 |
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$ |
1.01 |
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Weighted average shares outstanding: |
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Basic |
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134.6 |
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135.2 |
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134.8 |
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135.2 |
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Diluted |
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136.7 |
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137.5 |
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136.8 |
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137.7 |
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Dividends per common share |
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$ |
0.06 |
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$ |
0.06 |
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$ |
0.19 |
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$ |
0.19 |
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See accompanying notes to condensed consolidated financial statements.
4
BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Nine Months Ended |
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March 31, |
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2009 |
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2008 |
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(In millions) |
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Cash flows from operating activities: |
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Net income |
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$ |
141 |
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$ |
139 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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72 |
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70 |
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Gain on hedging activities |
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(1 |
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(2 |
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Loss / (gain) on remeasurement of foreign denominated transactions |
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77 |
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(57 |
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Gain on asset sales and release of unfavorable lease obligation |
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(7 |
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(17 |
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Bad debt expense, net of recoveries |
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3 |
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(2 |
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Stock-based compensation |
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11 |
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8 |
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Deferred income taxes |
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(17 |
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(1 |
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Changes in current assets and liabilities, excluding acquisitions and dispositions: |
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Trade and notes receivables |
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4 |
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1 |
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Prepaids and other current assets |
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3 |
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14 |
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Accounts and drafts payable |
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(52 |
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(30 |
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Accrued advertising |
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29 |
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Other accrued liabilities |
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(5 |
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9 |
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Other long-term assets and liabilities |
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(18 |
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(11 |
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Net cash provided by operating activities |
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211 |
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150 |
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Cash flows from investing activities: |
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Payments for property and equipment |
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(125 |
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(88 |
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Proceeds from asset disposals, refranchisings and restaurant closures |
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20 |
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26 |
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Payments for acquired franchisee operations, net of cash acquired |
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(68 |
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(4 |
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Return of investment on direct financing leases |
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6 |
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5 |
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Other investing activities |
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(4 |
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(1 |
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Net cash used for investing activities |
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(171 |
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(62 |
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Cash flows from financing activities: |
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Repayments of term debt and capital leases |
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(4 |
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(54 |
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Borrowings under revolving credit facility |
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94 |
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Repayments of revolving credit facility |
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(104 |
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Dividends paid on common stock |
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(25 |
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(25 |
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Proceeds from stock option exercises |
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2 |
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2 |
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Excess tax benefits from stock-based compensation |
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4 |
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7 |
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Repurchases of common stock |
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(20 |
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(35 |
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Net cash used for financing activities |
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(53 |
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(105 |
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Effect of exchange rates on cash and cash equivalents |
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(13 |
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14 |
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Decrease in cash and cash equivalents |
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(26 |
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(3 |
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Cash and cash equivalents at beginning of period |
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166 |
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170 |
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Cash and cash equivalents at end of period |
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$ |
140 |
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$ |
167 |
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See accompanying notes to condensed consolidated financial statements.
5
BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
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Nine Months Ended |
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March 31, |
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2009 |
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2008 |
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(In millions) |
Supplemental cash flow disclosures: |
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Interest paid |
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$ |
43 |
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$ |
50 |
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Income taxes paid |
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$ |
97 |
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$ |
67 |
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Non-cash investing and financing activities: |
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Acquisition of property with capital lease obligations |
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$ |
2 |
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$ |
6 |
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See accompanying notes to condensed consolidated financial statements.
6
BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Organization
Burger King Holdings, Inc. (BKH or the Company) is a Delaware corporation formed on July
23, 2002. The Company is the parent of Burger King Corporation (BKC), a Florida corporation that
franchises and operates fast food hamburger restaurants, principally under the Burger King® brand.
As of March 31, 2009, the Company was approximately 32% owned by the private equity funds
controlled by TPG Capital, the Goldman Sachs Funds and Bain Capital Partners (collectively, the
Sponsors).
The Company generates revenues from three sources: (i) retail sales at Company restaurants;
(ii) franchise revenues, consisting of royalties based on a percentage of sales reported by
franchise restaurants and franchise fees paid by franchisees; and (iii) property income from
restaurants that the Company leases or subleases to franchisees.
Note 2. Basis of Presentation and Consolidation
The Company has prepared the accompanying unaudited Condensed Consolidated Financial
Statements (Financial Statements) in accordance with the rules and regulations of the Securities
and Exchange Commission (SEC) for interim financial information. Accordingly, they do not include
all of the information and footnotes required by United States generally accepted accounting
principles (GAAP) for complete financial statements. Therefore, the Financial Statements should
be read in conjunction with the audited Consolidated Financial Statements contained in the
Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2008 filed with the SEC on
August 28, 2008 (2008 Form 10-K). In the opinion of management, all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation have been included in the Financial
Statements. The results for interim periods do not necessarily indicate the results that may be
expected for any other interim period or for the full year.
Certain prior year amounts in the accompanying Financial Statements and Notes to the Financial
Statements have been reclassified in order to be comparable with the current year
classifications. These reclassifications had no effect on previously reported Net Income.
The Financial Statements include the accounts of the Company and its wholly-owned
subsidiaries. All material intercompany balances and transactions have been eliminated in
consolidation.
Inventories
Inventories, totaling $15 million and $16 million as of March 31, 2009 and June 30, 2008,
respectively, are stated at the lower of cost (first-in, first-out) or net realizable value as
adjusted for currencies, and consist primarily of restaurant food items and paper supplies.
Inventories are included in prepaids and other current assets in the accompanying condensed
consolidated balance sheets.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the Companys 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 have increased and 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.
Change in Accounting Policy
During the first quarter of fiscal year 2009, the Company changed its classification of
transaction gains and losses resulting from the remeasurement of foreign deferred tax assets,
reflected in its consolidated statements of income. In accordance with Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 109, Accounting
for Income Taxes (SFAS No. 109), transaction gains and losses resulting from the remeasurement
of foreign deferred tax assets or liabilities may be reported separately or included in deferred
tax expense or benefit, if that presentation is considered more useful. In that
7
regard, in order to (i) reduce complexity in financial reporting by mitigating the impact that
fluctuations in exchange rates have on the calculation of the Companys effective tax rate, (ii)
provide clarity by reducing the impact attributable to fluctuations in exchange rates on the
Companys effective tax rate, leaving remaining differences between expected and actual tax expense
primarily related to trends in earnings, and (iii) provide transparency to its financial statements
by isolating foreign exchange transaction gains and losses within the same line in the consolidated
statements of income, the Company believes it to be preferable to reclassify the foreign exchange
transaction gains and losses attributable to the remeasurement of foreign deferred tax assets,
previously included within income tax expense, to other operating (income) expense, net. For the
three and the nine months ended March 31, 2009, this change in accounting policy resulted in a
decrease to income tax expense of $1 million and $9 million, respectively, with a corresponding
increase in foreign exchange transaction losses included in other operating (income) expense, net.
For the three and the nine months ended March 31, 2008, the impact of this change in accounting
policy was insignificant. This accounting policy change had no effect on net income for the
periods presented.
Recently Adopted Accounting Pronouncements
Fair Value Measurements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157),
which defines fair value, establishes a framework for measuring fair value and enhances disclosures
about fair value measurements required under other accounting pronouncements, but does not change
existing guidance as to whether or not an instrument is carried at fair value. On July 1, 2008, the
Company adopted the provisions of SFAS No. 157 related to its financial assets and financial
liabilities. Also, in October 2008, the FASB issued Financial Statement of Position (FSP) FAS
157-3, as amended, Determining the Fair Value of a Financial Asset When the Market for That Asset
Is Not Active (FSP FAS 157-3), which clarified the application of SFAS No. 157 in a market that
is not active and also provided an example to illustrate key considerations in determining the fair
value of a financial asset when the market for the financial asset is not active. FSP FAS 157-3 did
not have an effect upon the Companys adoption of SFAS No. 157.
In February 2008, the FASB issued FSP FAS 157-2, Effective Date of FASB No. 157", which
permits a one-year deferral for the implementation of SFAS No. 157 with regard to non-financial
assets and liabilities that are not recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The Company elected to defer the adoption of
SFAS No. 157 for such items under this provision until its quarter ending September 30, 2009. For
the Company these items primarily include long-lived assets, goodwill and intangibles for which
fair value would be determined as part of the related impairment tests, intangible assets measured
at fair value in conjunction with the Companys acquisition of BKC on December 12, 2002, but not
measured at fair value in subsequent periods, and asset retirement obligations initially measured
at fair value under SFAS No. 143, Asset Retirement Obligations. The Company does not currently
anticipate that full adoption of SFAS No. 157 in fiscal 2010 will materially impact the Companys
results of operations or financial condition.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities (SFAS No. 159), which provides companies with an option to report
selected financial assets and financial liabilities at fair value that are not currently required
to be measured at fair value. Unrealized gains and losses on items for which the fair value option
is elected are reported in earnings at each subsequent reporting date. SFAS No. 159 is effective
for fiscal years beginning after November 15, 2007. The Company adopted SFAS No. 159 on July 1,
2008. Upon adoption of SFAS No. 159, the Company did not elect to begin reporting any financial
assets or financial liabilities at fair value that are not currently required to be measured at
fair value.
Disclosures about Derivative Instruments and Hedging Activities
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (SFAS No. 161), which provides companies with requirements for enhanced
disclosures about derivative instruments and hedging activities to enable investors to better
understand their effects on a companys financial position, financial performance and cash flows.
The Company adopted the disclosure provisions of SFAS No. 161 during the quarter ended March 31,
2009.
The Company enters into derivative instruments for risk management purposes, including
derivatives designated as hedging instruments under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133) and those utilized as economic hedges. The
Company uses derivatives to manage exposure to fluctuations in interest rates and currency exchange
rates.
8
Interest Rate Swaps
The Company enters into receive-variable, pay-fixed interest rate swap contracts to hedge a
portion of the Companys forecasted variable-rate interest payments on its underlying Term Loan A
and Term Loan B debt (the Term Debt). Interest payments on the Term Debt are made quarterly and
the variable rate on the Term Debt is reset at the end of each fiscal quarter. The interest rate
swap contracts are designated as cash flow hedges and to the extent they are effective in
offsetting the variability of the variable-rate interest payments, changes in the derivatives fair
value are not included in current earnings but are included in accumulated other comprehensive
income (AOCI) in the accompanying condensed consolidated balance sheets. These changes in fair
value are subsequently reclassified into earnings as a component of interest expense each quarter
as interest payments are made on the Term Debt. At March 31, 2009, interest rate swap contracts
with a notional amount of $595 million were outstanding.
In September 2006, the Company settled interest rate swaps designated as cash flow hedges,
which had a fair value of $12 million, and terminated the hedge relationship. In accordance with
SFAS No. 133, this fair value is recorded in AOCI and is being recognized as a reduction to
interest expense each quarter over the remaining term of the Term Debt. At March 31, 2009, $2
million remained in AOCI.
Foreign Currency Forward Contracts
The Company enters into foreign currency forward contracts, which typically have maturities
between three and fifteen months, to economically hedge the remeasurement of foreign
currency-denominated intercompany loan receivables and other foreign-currency denominated assets
recorded in the Companys condensed consolidated balance sheets. Remeasurement represents changes
in the expected amount of cash flows to be received or paid upon settlement of the intercompany
loan receivables and other foreign-currency denominated assets and liabilities resulting from a
change in foreign currency exchange rates. At March 31, 2009, foreign currency forward contracts
with a notional amount of $371 million were outstanding.
Counterparty Credit Risk
By entering into derivative instrument contracts, the Company exposes itself, from time to
time, to counterparty credit risk. Counterparty credit risk is the failure of the counterparty to
perform under the terms of the derivative contract. When the fair value of a derivative contract is
in an asset position, the counterparty has a liability to the Company, which creates credit risk
for the Company. The Company attempts to minimize this risk by selecting counterparties with
investment grade credit ratings, limiting its exposure to any single counterparty and regularly
monitoring its market position with each counterparty.
Credit-Risk Related Contingent Features
The Companys derivative instruments do not contain any credit-risk related contingent
features.
The following tables present the required quantitative disclosures (in millions) under SFAS
No. 157 and SFAS No. 161, on a combined basis, for the Companys financial instruments, which
include derivatives designated as cash flow hedging instruments, derivatives not designated as
hedging instruments, and other investments, which consist of money market accounts and mutual
funds held in a Rabbi trust established by the Company to invest compensation deferred by
participants in the Companys Executive Retirement Plan and to fund future deferred compensation
obligations.
9
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2009 |
|
Fair Value Measurements at March 31, 2009 |
|
|
Carrying Value and Balance Sheet Location |
|
Assets (Liabilities) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
Significant |
|
|
|
|
Prepaid and |
|
|
|
|
|
|
|
|
|
Other |
|
Active Markets |
|
Other |
|
|
|
|
Other |
|
|
|
|
|
Other |
|
Deferrals |
|
for Identical |
|
Observable |
|
Significant |
|
|
Current |
|
|
|
|
|
Accrued |
|
and |
|
Instruments |
|
Inputs |
|
Unobservable Inputs |
Description |
|
Assets |
|
Other Assets |
|
Liabilities |
|
Liabilities |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Derivatives
designated as cash
flow hedging
instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(39 |
) |
|
$ |
|
|
|
$ |
(39 |
) |
|
$ |
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(39 |
) |
|
$ |
|
|
|
$ |
(39 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not
designated as
hedging
instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
forward contracts
(asset) |
|
$ |
3 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3 |
|
|
$ |
|
|
Foreign currency
forward contracts
(liability) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(12 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(12 |
) |
|
$ |
|
|
|
|
|
Total |
|
$ |
3 |
|
|
$ |
|
|
|
$ |
(12 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(9 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments |
|
$ |
|
|
|
$ |
15 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
15 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
15 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
15 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2009 |
|
|
|
|
|
|
Foreign Exchange |
|
|
|
|
Interest Rate Swaps |
|
Forward Contracts |
|
Total |
|
Derivatives designated as cash flow hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in other comprehensive income (effective
portion) |
|
$ |
5 |
|
|
$ |
|
|
|
$ |
5 |
|
Gain (loss) reclassified from AOCI into interest expense, net (a) |
|
$ |
(4 |
) |
|
$ |
|
|
|
$ |
(4 |
) |
Gain (loss) recognized in interest expense, net (ineffective
portion) (b) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in other (income) expense, net |
|
$ |
|
|
|
$ |
15 |
|
|
$ |
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended March 31, 2009 |
|
|
|
|
|
|
Foreign Exchange |
|
|
|
|
Interest Rate Swaps |
|
Forward Contracts |
|
Total |
|
Derivatives designated as cash flow hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in other comprehensive income (effective
portion) |
|
$ |
(41 |
) |
|
$ |
|
|
|
$ |
(41 |
) |
Gain (loss) reclassified from AOCI into interest expense, net (a) |
|
$ |
6 |
|
|
$ |
|
|
|
$ |
6 |
|
Gain (loss) recognized in interest expense, net (ineffective
portion) (b) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in other (income) expense, net |
|
$ |
|
|
|
$ |
69 |
|
|
$ |
69 |
|
|
|
|
(a) |
|
Includes $1 million of gain for the nine months ended March 31, 2009 related to the
terminated hedges. The amount of gain related to the terminated hedges for the three months
ended March 31, 2009 was not significant. |
|
(b) |
|
For the three and the nine months ended March 31, 2009, the Company determined that the
amount of ineffectiveness from cash flow hedges was not material. |
10
Note 3. Stock-based Compensation
In August 2008, the Company granted non-qualified stock options and performance-based
restricted stock and performance-based restricted stock units (PBRS) covering approximately 1.2
million shares and 0.4 million shares, respectively, to eligible employees.
The Companys stock options generally vest ratably over a four-year service period. The grant
date fair value of the stock options granted in August 2008 was estimated at $8.54 using the
Black-Scholes option pricing model based on the following input assumptions: risk-free interest
rate of 3.33%; expected term of 6.25 years; expected volatility of 31.80%; and expected dividend
yield of 0.96%.
The amount of PBRS granted to each eligible employee in August 2008 was based on the Company
achieving 100% of the performance target set for fiscal year 2009. PBRS generally vest after a
three-year service period from the grant date, which includes the performance period. The grant
date fair value of each PBRS was $26.16, representing the closing share price of the Companys
common stock on the grant date.
In November 2008, the Company granted approximately 41,000 deferred shares of restricted stock
to non-employee members of the Companys Board of Directors as an annual grant. The deferred shares
primarily vest in quarterly installments over a one-year period on the first day of each calendar
quarter following the grant date. The deferred shares will settle and shares of common stock will
be issued upon termination of service by the board member.
The Company recorded $3 million and $11 million of stock-based compensation expense for the
three and nine months ended March 31, 2009, respectively. The Company recorded $3 million and
$8 million of stock-based compensation expense for the three and
nine months ended March 31,
2008, respectively.
Note 4. Acquisitions, Closures and Dispositions
Acquisitions
All acquisitions of franchise restaurants are accounted for using the purchase method of
accounting under SFAS No. 141, Business Combinations and the guidance under Emerging Issues Task
Force (EITF) Issue No. 04-1, Accounting for Preexisting Relationships between the Parties to a
Business Combination. For the three and nine months ended March 31, 2009 and 2008, these
acquisitions are summarized as follows (in millions, except for number of restaurants):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Number of restaurants acquired |
|
|
5 |
|
|
|
2 |
|
|
|
81 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaids and other current assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
|
|
Property and equipment, net |
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
1 |
|
Other intangible assets |
|
|
1 |
|
|
|
3 |
|
|
|
56 |
|
|
|
4 |
|
Assumed liabilities |
|
|
|
|
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price |
|
$ |
1 |
|
|
$ |
2 |
|
|
$ |
68 |
|
|
$ |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The purchase price allocations for the acquisitions completed during the nine months ended
March 31, 2009, are subject to final adjustment. Other intangible assets primarily include
reacquired franchise rights.
Closures and Dispositions
Gains and losses on closures and dispositions represent sales of Company properties and other
costs related to restaurant closures and sales of Company restaurants to franchisees, referred to
as refranchisings, and are recorded in other operating (income) expense, net in the accompanying
condensed consolidated statements of income (See Note 11). Gains and losses recognized in the
current period may reflect closures and refranchisings that occurred in previous periods. For the
three and nine months ended March 31, 2009 and 2008, these closures and dispositions are summarized
as follows (in millions, except for number of restaurants):
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
March 31, |
|
March 31, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Number of restaurant closures |
|
|
3 |
|
|
|
6 |
|
|
|
9 |
|
|
|
18 |
|
Number of refranchisings |
|
|
20 |
|
|
|
11 |
|
|
|
23 |
|
|
|
28 |
|
Net gain on restaurant
closures, refranchisings,
and dispositions of assets |
|
$ |
(5 |
) |
|
$ |
(11 |
) |
|
$ |
(5 |
) |
|
$ |
(13 |
) |
Included in the gain on restaurant closures, refranchisings, and dispositions of assets for
the three and nine months ended March 31, 2009 is a $4 million gain from the refranchising of
Company restaurants in the U.S. Included in the gain on restaurant closures, refranchisings, and
dispositions of assets for the three and nine months ended March 31, 2008 is a $9 million gain from
the refranchising of Company restaurants in Germany.
Note 5. Earnings Per Share
Basic and diluted earnings per share are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
46,834,367 |
|
|
$ |
41,214,474 |
|
|
$ |
141,048,634 |
|
|
$ |
138,913,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic |
|
|
134,603,718 |
|
|
|
135,207,243 |
|
|
|
134,753,071 |
|
|
|
135,231,195 |
|
Effect of dilutive securities |
|
|
2,089,561 |
|
|
|
2,304,074 |
|
|
|
2,062,145 |
|
|
|
2,495,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted |
|
|
136,693,279 |
|
|
|
137,511,317 |
|
|
|
136,815,216 |
|
|
|
137,726,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.35 |
|
|
$ |
0.30 |
|
|
$ |
1.05 |
|
|
$ |
1.03 |
|
Diluted earnings per share |
|
$ |
0.34 |
|
|
$ |
0.30 |
|
|
$ |
1.03 |
|
|
$ |
1.01 |
|
For
the three months ended March 31, 2009 and 2008, there were 2.3 million and 0.9 million
anti-dilutive stock options outstanding, respectively. For the nine months ended March 31, 2009 and
2008, there were 2.5 million and 1 million anti-dilutive stock options outstanding, respectively.
Note 6. Comprehensive Income
The components of total comprehensive income are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net income |
|
$ |
47 |
|
|
$ |
41 |
|
|
$ |
141 |
|
|
$ |
139 |
|
|
Translation adjustment |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(7 |
) |
|
|
(4 |
) |
|
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of derivatives (1) |
|
|
3 |
|
|
|
(10 |
) |
|
|
(26 |
) |
|
|
(22 |
) |
Amounts reclassified to earnings during the period (2) |
|
|
(3 |
) |
|
|
|
|
|
|
4 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive loss |
|
|
(2 |
) |
|
|
(12 |
) |
|
|
(29 |
) |
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
45 |
|
|
$ |
29 |
|
|
$ |
112 |
|
|
$ |
114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts are presented net of tax of $2 million and $6 million for the three months
ended March 31, 2009 and 2008, respectively, and $15 million and $14 million for the nine
months ended March 31, 2009 and 2008, respectively. |
12
|
|
|
(2) |
|
Amounts are presented net of tax of $1 million and zero for the three months ended
March 31, 2009 and 2008, respectively, and $2 million and $1 million for the nine months
ended March 31, 2009 and 2008, respectively. |
Note 7. Other Accrued Liabilities and Other Deferrals and Liabilities
Included in other accrued liabilities as of March 31, 2009 and June 30, 2008 were accrued
payroll and employee-related benefit costs totaling $63 million and $84 million, respectively. The
decrease in accrued payroll and employee-related benefit costs is primarily due to the payment of
the Companys annual incentive bonus to employees during the first quarter of fiscal 2009 offset by
current year accruals.
Included in other deferrals and liabilities as of March 31, 2009 and June 30, 2008 were
accrued pension liabilities of $30 million and $50 million, respectively; interest rate swap
liabilities of $39 million and $10 million, respectively; casualty insurance reserves of $28
million, respectively; retiree health benefits of $22 million and $21 million, respectively; and
liabilities for unfavorable leases of $158 million and $190 million, respectively. The decrease in
unfavorable leases from June 30, 2008 was primarily due to $17 million of currency translation
adjustment and $16 million of amortization.
Note 8. Long-Term Debt
As of March 31, 2009 and June 30, 2008, the Company had $861 million and $871 million of
long-term debt outstanding, respectively, including the current portion, consisting of $50 million
and $2 million, respectively. The next scheduled principal payment on the Companys long-term debt
is June 30, 2009 in the amount of $2 million. The weighted average interest rate for the three and
nine months ended March 31, 2009 was 4.8% and 5.2%, respectively, which included the benefit of
interest rate swaps on 68% and 70% of our term debt, respectively (See Note 2).
Note 9. Income Taxes
The U.S. Federal tax statutory rate reconciles to the effective tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
U.S. federal income tax rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State income taxes, net of federal income
tax benefit |
|
|
2.7 |
|
|
|
2.6 |
|
|
|
2.7 |
|
|
|
2.7 |
|
Costs / benefit and taxes related to foreign
operations |
|
|
0.6 |
|
|
|
0.8 |
|
|
|
(1.1 |
) |
|
|
4.2 |
|
Foreign tax rate differential |
|
|
(4.5 |
) |
|
|
(5.0 |
) |
|
|
(4.5 |
) |
|
|
(5.0 |
) |
Foreign exchange differential on tax benefits |
|
|
0.3 |
|
|
|
0.7 |
|
|
|
1.6 |
|
|
|
0.2 |
|
Change in valuation allowance |
|
|
1.4 |
|
|
|
4.2 |
|
|
|
1.9 |
|
|
|
0.4 |
|
Change in accrual for tax uncertainties |
|
|
(10.0 |
) |
|
|
0.8 |
|
|
|
(2.2 |
) |
|
|
1.1 |
|
Other |
|
|
(0.1 |
) |
|
|
(2.2 |
) |
|
|
(0.5 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate |
|
|
25.4 |
% |
|
|
36.9 |
% |
|
|
32.9 |
% |
|
|
37.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
As discussed further in the Companys 2008 Form 10-K, the Company adopted FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109
(FIN 48) effective July 1, 2007. The amount of unrecognized tax benefits as of June 30, 2008 was
approximately $23 million which, if recognized, would affect the effective income tax rate. During
the three and nine months ended March 31, 2009, the amount of additional unrecognized tax benefit
was approximately $3 million and $6 million, respectively, which, if recognized, would affect the
effective income tax rate.
In the next twelve months, it is reasonably possible the Company will reduce unrecognized tax
benefits by a range of approximately $2 million to $3 million, primarily as a result of the
expiration of certain statutes of limitations and the completion of certain tax audits. Any
increases in unrecognized tax benefits will result primarily from tax positions expected to be
taken on tax returns for fiscal year 2009.
13
The Company recognizes potential accrued interest and penalties related to unrecognized tax
benefits in income tax expense. The total amount of accrued interest and penalties at June 30, 2008
was $4 million, which was included as a component of the $23 million unrecognized tax benefit at
June 30, 2008. Potential interest and penalties associated with uncertain tax positions recognized
during the nine months ended March 31, 2009 were less than $2 million and are included as a
component of the $6 million additional unrecognized tax benefit noted above. To the extent interest
and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be
reduced and reflected as a reduction of the overall income tax provision.
The Company files income tax returns, including returns for its subsidiaries, with federal,
state, local and foreign jurisdictions. Generally, the Company is subject to routine examination by
taxing authorities in these jurisdictions, including significant international tax jurisdictions,
such as the United Kingdom, Germany, Spain, Switzerland, Singapore and Mexico. None of the foreign
jurisdictions is individually material. The Company is currently under audit by the U.S. Internal
Revenue Service for the years ended June 30, 2007 and 2008. The Company also has various U.S. state
and foreign income tax returns in the process of examination. From time to time, these audits
result in proposed assessments where the ultimate resolution may result in the Company owing
additional taxes. The Company believes that its tax positions comply with applicable tax law and
that it has adequately provided for these matters.
Note 10. Retirement Plan and Other Post Retirement Benefits
The fair value of restricted investments held in a Rabbi trust (the rabbi trust), which the
Company established to fund the Companys current and future obligations under its Executive
Retirement Plan, was $15 million and $20 million at March 31, 2009 and June 30, 2008, respectively.
A summary of the components of net periodic benefit cost for the Companys pension plans
(retirement benefits) and postretirement plans (other benefits) is presented below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and Other Post Retirement Benefits |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Service cost-benefits earned during the period |
|
$ |
|
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
1 |
|
Interest costs on projected benefit obligations |
|
|
3 |
|
|
|
3 |
|
|
|
9 |
|
|
|
9 |
|
Expected return on plan assets |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(7 |
) |
|
|
(7 |
) |
Recognized net actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
3 |
|
|
$ |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three and nine months ended March 31, 2009, the Company contributed $11 million and
$24 million, respectively, to the Companys pension and post retirement plans. The increase in
actual contributions for the nine months ended March 31, 2009, compared to 2009 projected
contributions of $13 million, is attributable to increased funding requirements due to lower
returns on pension plan assets.
Note 11. Other Operating (Income) Expense, Net
Other operating income, net for the three months ended March 31, 2009 of $1 million includes a
$4 million gain from the refranchising of Company restaurants in the U.S. and Canada, offset by $1
million of net losses on investments held in the rabbi trust, which were fully offset by a
corresponding decrease in deferred compensation expense reflected in general and administrative
expenses, and $1 million of net expense related to the remeasurement of foreign denominated assets
and the expense related to the use of foreign currency forward contracts used to hedge the currency
exchange impact on such assets.
Other operating income, net for the three months ended March 31, 2008 of $6 million includes a
net gain of $11 million from the disposal of real estate and other assets, primarily from the
refranchising of Company restaurants in Germany, partially offset by $3 million in losses from
vacant property provisions recorded in the U.S. and U.K. and $1 million of franchise system
distress costs in the U.K.
14
Other operating expense, net for the nine months ended March 31, 2009 of $14 million includes
$7 million of net losses on investments held in the rabbi trust, which were fully offset by a
corresponding decrease in deferred compensation expense reflected in general and administrative
expenses, $2 million of charges associated with the acquisition of franchise restaurants from a
large franchisee in the U.S. and $8 million of net expense related to the remeasurement of foreign
denominated assets and the expense related to the use of foreign currency forward contracts used to
hedge the currency exchange impact on such assets. These expenses were offset by a $4 million gain
from the refranchising of Company restaurants in the U.S. and Canada.
Other operating income, net for the nine months ended March 31, 2008 of $7 million includes
net gains of $16 million from the disposal of real estate and other assets, primarily in Germany
and the U.S. (which includes the refranchising of Company restaurants in Germany), and a gain of $2
million on forward currency contracts used to hedge intercompany loans denominated in foreign
currencies. These gains were partially offset by $4 million in losses from vacant property
provisions recorded in the U.S. and U.K., $3 million of franchise system distress costs in the U.K.
which includes a $1 million payment made to our sole distributor, $2 million of foreign currency
transaction losses and $1 million in charges for litigation reserves.
Note 12. Commitments and Contingencies
Guarantees
The Company guarantees 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, the Company has typically retained the right to acquire possession of the related
restaurants, subject to landlord consent. The aggregate contingent obligation arising from these
assigned lease guarantees, excluding contingent rents, was $65 million as of March 31, 2009,
expiring over an average period of five years.
Other commitments arising from normal business operations were $8 million as of March 31,
2009, of which $7 million was guaranteed under bank guarantee arrangements.
Letters of Credit
As of March 31, 2009, the Company had $26 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. Such
letters of credit are secured by the collateral under the Companys senior secured credit facility.
As of March 31, 2009, no amounts had been drawn on any of these irrevocable standby letters of
credit.
As of March 31, 2009, the Company had posted bonds totaling $19 million, which related to
promotional activities and certain utility deposits.
Vendor Relationships
In fiscal 2000, the Company entered into long-term, exclusive contracts with The Coca-Cola
Company and with Dr Pepper/Seven Up, Inc. to supply the Company and its 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.
As of March 31, 2009, the Company estimates that it will take approximately 13 years to complete
the Coca-Cola and Dr Pepper/Seven Up, Inc. purchase commitments. In the event of early termination
of these arrangements, the Company may be required to make termination payments that could be
material to the Companys results of operations and financial position. Additionally, in connection
with these contracts, the Company received upfront fees, which are being amortized over the term of
the contracts. As of March 31, 2009 and June 30, 2008, the deferred amounts totaled $16 million and
$17 million, respectively. These deferred amounts are amortized as a reduction to food, paper and
product costs in the accompanying condensed consolidated statements of income.
As of March 31, 2009, the Company had $3 million in aggregate contractual obligations for the
year ending June 30, 2009 with vendors providing information technology and telecommunication
services under multiple arrangements. These contracts extend up to
15
three years with a termination
fee ranging from less than $1 million to $2 million during those years. The Company also has
separate arrangements for telecommunication services with an aggregate contractual obligation of $5
million extending up to three years with no early termination fee.
The Company also enters into commitments to purchase advertising. As of March 31, 2009,
commitments to purchase advertising totaled $59 million. These commitments run through October
2011.
Litigation
On July 30, 2008, BKC was sued by four Florida franchisees over the Companys decision to
mandate extended operating hours in the United States. The plaintiffs seek damages, declaratory
relief and injunctive relief. On November 3, 2008, the court granted the Companys motion to
dismiss on the grounds that BKCs franchise agreement granted BKC the discretion to extend minimum
hours. Plaintiffs have filed for reconsideration of the courts decision to grant BKCs motion to
dismiss. While the Company believes that it has the right under its franchise agreement to mandate
extended operating hours, the Company is unable to predict the ultimate outcome of the litigation.
On September 10, 2008, the Company and BKC were named as the defendants in a class action
lawsuit filed in California federal district court. The complaint alleges that all Burger King®
restaurants in California leased by BKC and operated by franchisees violate accessibility
requirements of the Americans with Disabilities Act (ADA) as well as the California Disabled
Persons Act (CDPA) and the Unruh Civil Rights Act (Unruh Act). Plaintiff, on behalf of the
class, seeks injunctive relief under the ADA, minimum statutory damages per offense of $4,000 under
the Unruh Act and $1,000 per incident under the CDPA, as well as attorneys fees and costs. The
Company intends to vigorously defend against all claims in this lawsuit.
From time to time, the Company is 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 the Companys intellectual property.
In the opinion of management, disposition of the matters will not materially affect the Companys
financial condition or results of operations.
Other
The Company carries insurance programs to cover claims such as workers compensation, general
liability, automotive liability, executive risk and property and is self-insured for healthcare
claims for eligible participating employees. Through the use of insurance program deductibles
(ranging from $0.5 million to $1 million) and self insurance, the Company retains a significant
portion of the expected losses under these programs. Insurance reserves have been recorded based on
the Companys estimate of the anticipated ultimate costs to settle all claims, both reported and
incurred-but-not-reported (IBNR), and such reserves include judgments and independent actuarial
assumptions about economic conditions, the frequency or severity of claims and claim development
patterns, and claim reserve, management and settlement practices. As of March 31, 2009 and June 30,
2008, the Company had $37 million and $34 million in accrued liabilities to cover such claims,
respectively.
Note 13. Segment Reporting
The Company operates in the fast food hamburger category of the quick service segment of the
restaurant industry. Revenues include retail sales at Company restaurants, franchise revenues,
consisting of royalties based on a percentage of sales reported by franchise restaurants and
franchise fees paid by franchisees, and property revenues. The business is managed in three
distinct geographic segments: (1) United States (U.S.) and Canada; (2) Europe, the Middle East
and Africa and Asia Pacific (EMEA/APAC); and (3) Latin America.
The following tables present revenues and income from operations by geographic segment (in
millions):
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. & Canada |
|
$ |
425 |
|
|
$ |
380 |
|
|
$ |
1,307 |
|
|
$ |
1,157 |
|
EMEA/APAC |
|
|
151 |
|
|
|
186 |
|
|
|
518 |
|
|
|
568 |
|
Latin America |
|
|
24 |
|
|
|
28 |
|
|
|
83 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
600 |
|
|
$ |
594 |
|
|
$ |
1,908 |
|
|
$ |
1,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other than the U.S. and Germany, no other individual country represented 10% or more of the
Companys total revenues. Revenues in the U.S. totaled $391 million and $1,192 million for the
three and nine months ended March 31, 2009, respectively, compared to $342 million and $1,035
million for the three and nine months ended March 31, 2008, respectively. Revenues in Germany
totaled $69 million and $234 million for the three and nine months ended March 31, 2009,
respectively, compared to $87 million and $262 million for the three and nine months ended March
31, 2008, respectively.
The unallocated amounts reflected in the table below include corporate support costs in areas
such as facilities, finance, human resources, information technology, legal, marketing and supply
chain management which benefit all of the Companys geographic segments and system-wide restaurants
and are not allocated specifically to any of the geographic segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Income from Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. & Canada |
|
$ |
88 |
|
|
$ |
79 |
|
|
$ |
256 |
|
|
$ |
264 |
|
EMEA/APAC |
|
|
11 |
|
|
|
26 |
|
|
|
57 |
|
|
|
73 |
|
Latin America |
|
|
7 |
|
|
|
9 |
|
|
|
27 |
|
|
|
29 |
|
Unallocated |
|
|
(30 |
) |
|
|
(33 |
) |
|
|
(88 |
) |
|
|
(94 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income from operations |
|
$ |
76 |
|
|
$ |
81 |
|
|
$ |
252 |
|
|
$ |
272 |
|
Interest expense, net |
|
|
13 |
|
|
|
16 |
|
|
|
42 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
63 |
|
|
$ |
65 |
|
|
$ |
210 |
|
|
$ |
224 |
|
Income tax expense |
|
|
16 |
|
|
|
24 |
|
|
|
69 |
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
47 |
|
|
$ |
41 |
|
|
$ |
141 |
|
|
$ |
139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion together with our unaudited condensed consolidated
financial statements and the related notes thereto included in Part I, Item 1 Financial
Statements. In addition to historical consolidated financial information, this discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Actual results could
differ from these
expectations as a result of factors including those described in our Annual Report on Form
10-K for the year ended June 30, 2008, our Quarterly Report on Form 10-Q for the quarters ended
September 30, 2008 and December 31, 2008, and under Part II, Item 1A Risk Factors, and
Cautionary Note Regarding Forward-Looking Statements and elsewhere in this report. Unless the
context otherwise requires, all references to we, us, our and Company refer to Burger King
Holdings, Inc. and its subsidiaries.
Operating results for any one quarter are not necessarily indicative of results to be expected
for any other quarter or for the fiscal year and our key business measures, as discussed below, for
any future period may decrease. Unless otherwise stated, sales growth, comparable sales growth and
average restaurant sales are presented on a system-wide basis, which means they include sales at
both Company restaurants and franchise restaurants. Franchise sales represent sales at all
franchise restaurants and revenues to our franchisees. We do not record franchise sales as
revenues; however, our franchise revenues include royalties based on franchise
17
sales. System-wide
results are driven primarily by our franchise restaurants, as approximately 90% of our system-wide
restaurants are franchised.
Overview
We operate in the fast food hamburger restaurant, or FFHR, category of the quick service
restaurant, or QSR, segment of the restaurant industry. Our system of restaurants includes
restaurants owned by us, as well as our franchisees. We are the second largest FFHR chain in the
world as measured by the number of restaurants and system-wide sales. We track our results of
operations and manage our business by using three key business measures: comparable sales growth,
average restaurant sales and sales growth. As of March 31, 2009, we owned or franchised a total of
11,810 restaurants in 74 countries and U.S. territories, of which 7,522 were located in the U.S.
and Canada. At that date, 1,438 restaurants were Company restaurants and 10,372 were owned by our
franchisees. Our restaurants feature flame-broiled hamburgers, chicken and other specialty
sandwiches, french fries, soft drinks and other reasonably-priced food items.
Our business operates in three reportable segments: (1) the U.S. and Canada; (2) Europe, the
Middle East, Africa and Asia Pacific, or EMEA/APAC; and (3) Latin America. We generate revenues
from three sources: (1) retail sales at Company restaurants; (2) franchise revenues, consisting of
royalties based on a percentage of sales reported by franchise restaurants and franchise fees paid
by franchisees; and (3) property income from restaurants that we lease or sublease to franchisees.
Approximately 90% of our restaurants are franchised, and we do not expect the percentage of
franchise restaurants to change significantly as we implement our growth strategy. We believe that
this restaurant ownership mix is beneficial to us because the capital required to grow and maintain
our system is funded primarily by franchisees while giving us a sizable base of company restaurants
to demonstrate credibility with franchisees in launching new initiatives. However, our franchise
dominated business model also presents a number of drawbacks and risks, such as our limited control
over franchisees and limited ability to facilitate changes in restaurant ownership. In addition,
our operating results are closely tied to the success of our franchisees, and we are dependent on
franchisees to open new restaurants as part of our growth strategy.
Business Highlights
Our strategic plan has four strategic global growth pillars: marketing, products, operations
and development. Guided by our strategic plan and strong executive team leadership, our
accomplishments and key activities since December 31, 2008 include:
|
|
|
the opening of 53 net new restaurants worldwide in the third quarter of fiscal 2009 and
355 net new restaurants for the trailing 12-months ended March 31, 2009; |
|
|
|
|
the twenty-first consecutive quarter of worldwide comparable sales growth, our best
comparable sales growth trend in three decades, including comparable sales growth of 1% (in
constant currencies) for the third quarter of fiscal 2009; |
|
|
|
|
the twentieth consecutive quarter of comparable sales growth in the U.S. and Canada,
including comparable sales growth of 1.6% (in constant currencies) for the third quarter of
fiscal 2009; |
|
|
|
|
promotional tie-ins with family focused marketing properties, such as The Pink Panther,
Cabbage Patch Kids, Monster Jam and the Kids Choice Awards; and |
|
|
|
|
the successful multi-market promotion of the Angry Whopper® sandwich in January and the
U.S. launch of BK Burger Shots® and BK Breakfast Shots in February. |
Our focus continues to be on the following:
|
|
|
driving further sales growth; |
|
|
|
|
enhancing restaurant profitability; |
|
|
|
|
expanding our large international platform; |
18
|
|
|
accelerating our new restaurant development and expansion; |
|
|
|
|
using proactive portfolio management, including closures of under-performing restaurants
and strategic refranchisings and acquisitions, to drive financial performance and
development; and |
|
|
|
|
employing innovative marketing strategies and expanding product offerings. |
Seasonality
Restaurant sales are typically higher in the spring and summer months (our fourth and first fiscal
quarters) when the weather is warmer than in the fall and winter months (our second and third
fiscal quarters). Restaurant sales during the winter are typically highest in December, during the
holiday shopping season. Our restaurant sales and Company restaurant margin are typically lowest
during our third fiscal quarter, which occurs during the winter months and includes February, the
shortest month of the year. During the three months ended March 31, 2009, the loss of a trading
day in the month of February negatively impacted worldwide comparable sales by approximately 1%, as
the same period in the prior year included an extra trading day due to the leap year. Comparable
sales for the third quarter of fiscal 2009 were also negatively impacted by the placement of the
Easter holiday, which typically drives restaurant sales. The Easter holiday occurred after the end
of the third quarter in the current fiscal year as compared to March in the prior year.
Key Business Measures
The Company uses three key business measures as indicators of the Companys operational
performance: sales growth, comparable sales growth and average restaurant sales. These measures
are important indicators of the overall direction, trends of sales and the effectiveness of the
Companys advertising, marketing and operating initiatives and the impact of these on the entire
Burger King® system.
These key business measures have been provided for the three and nine months ended March 31,
2009 and 2008. Comparable sales growth and sales growth are provided by reportable segment and are
analyzed on a constant currency basis, which means they are calculated using the same exchange
rates over the periods under comparison to remove the effects of currency fluctuations from these
trend analyses. We believe these constant currency measures provide a more meaningful analysis of
our business by identifying the underlying business trends, without distortion from the effect of
currency movements.
Comparable Sales Growth
Comparable sales growth refers to the change in restaurant sales in one period from a
comparable period in the prior year for restaurants that have been open for 13 months or longer as
of the end of the most recent period. Company comparable sales growth refers to comparable sales
growth for Company restaurants and franchise comparable sales growth refers to comparable sales
growth for franchise restaurants, in each case by reportable segment. We believe comparable sales
growth is a key indicator of our brands performance, as influenced by our strategic initiatives
and those of our competitors.
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the |
|
For the |
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
March 31, |
|
March 31, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
(In constant currencies) |
Company Comparable Sales Growth: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. & Canada |
|
|
1.6 |
% |
|
|
3.5 |
% |
|
|
1.7 |
% |
|
|
2.6 |
% |
EMEA / APAC |
|
|
(4.0 |
)% |
|
|
5.3 |
% |
|
|
0.3 |
% |
|
|
4.0 |
% |
Latin America |
|
|
(5.1 |
)% |
|
|
6.2 |
% |
|
|
(0.4 |
)% |
|
|
1.4 |
% |
Total Company Comparable Sales Growth |
|
|
(0.2 |
)% |
|
|
4.1 |
% |
|
|
1.3 |
% |
|
|
3.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise Comparable Sales Growth: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. & Canada |
|
|
1.6 |
% |
|
|
5.7 |
% |
|
|
2.2 |
% |
|
|
5.8 |
% |
EMEA / APAC |
|
|
(0.1 |
)% |
|
|
7.0 |
% |
|
|
3.5 |
% |
|
|
5.9 |
% |
Latin America |
|
|
1.9 |
% |
|
|
5.7 |
% |
|
|
3.9 |
% |
|
|
4.2 |
% |
Total Franchise Comparable Sales Growth |
|
|
1.1 |
% |
|
|
6.1 |
% |
|
|
2.7 |
% |
|
|
5.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Sales Growth: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. & Canada |
|
|
1.6 |
% |
|
|
5.4 |
% |
|
|
2.2 |
% |
|
|
5.4 |
% |
EMEA/APAC |
|
|
(0.6 |
)% |
|
|
6.8 |
% |
|
|
3.1 |
% |
|
|
5.6 |
% |
Latin America |
|
|
1.3 |
% |
|
|
5.8 |
% |
|
|
3.6 |
% |
|
|
4.0 |
% |
Total Worldwide Comparable Sales Growth |
|
|
1.0 |
% |
|
|
5.8 |
% |
|
|
2.5 |
% |
|
|
5.4 |
% |
Three and nine months ended March 31, 2009
Worldwide comparable sales growth of 1.0% and 2.5% (in constant currencies) for the three
months and nine months ended March 31, 2009, respectively, was driven by our strategic pricing
initiatives and our barbell menu strategy of innovative indulgent products and value menu items,
including the successful multi-market promotion of the Angry Whopper® sandwich limited time offer
and the U.S. launch of BK Burger Shots® and BK Breakfast Shots during the three month period.
Comparable sales during the three month period were negatively impacted by significant traffic
declines in the month of March across many of the markets in which we operate, with Germany and
Mexico most affected. The deceleration in comparable sales was driven by continued adverse
macroeconomic conditions, a slowdown in the breakfast daypart in the U.S. and heavy discounting by
our major competitor in the U.S. and Germany, as well as the loss of a trading day and the shift of
the Easter holiday.
Comparable sales growth in the U.S. and Canada for the three months ended March 31, 2009 was
driven primarily by our strategic pricing initiatives, a significant sales increase in the late
night daypart as a result of our competitive hours initiative and successful product promotions,
including the U.S. launch of BK Burger Shots® and BK Breakfast Shots and the Angry Whopper®
sandwich limited time offer. SuperFamily promotions, such as The Pink Panther, Cabbage Patch
Kids, Monster Jam and the Kids Choice Awards, contributed to positive comparable sales.
Comparable sales during the three month period were negatively impacted by significant traffic
declines in the month of March, driven by continued adverse macroeconomic conditions, a slowdown in
the breakfast daypart and heavy discounting by our major competitor, as well as the loss of a
trading day and the shift in the Easter holiday. Positive comparable sales during the first nine
months of fiscal 2009 were driven primarily by the initiatives and promotions noted for the three
month period, as well as the introduction of the new BK® Kids Meal (including Kraft® Macaroni and
Cheese and BK Fresh Apple Fries), the Spicy Chicken BK Wrapper and the Whopper® Virgins marketing
campaign. SuperFamily promotions, such as those noted for the three month period as well as The
Simpsons, iDog and a Nintendo giveaway promotional tie-in with the BK® Crown Card, also
contributed to positive comparable sales.
The EMEA/APAC segment experienced negative comparable sales growth during the three months ended
March 31, 2009, primarily due to an unanticipated traffic slowdown in the month of March,
particularly in Germany, caused by adverse macroeconomic factors and heavy discounting by our major
competitor in Germany, as well as the loss of a trading day and the shift in the Easter holiday.
However, we continued to focus during the quarter on operational improvements and high quality
indulgent products, such as the Double Smoked BBQ Angus Whopper® limited time offers in the U.K. and
the new Chicken Range sandwich in Australia. Positive
20
comparable sales for the first nine months of
fiscal 2009 were driven primarily by our strategic pricing initiatives as well as successful
product promotions, such as the promotions noted for the three month period as well as Whopper®
sandwich limited time offers throughout the region, BK Fusion Real Ice Cream and the Long Chicken
sandwich limited time offers in Spain. SuperFamily promotions, such as The Simpsons, iDog,
Crayola and Secret Palazz, positively impacted comparable sales for the nine month period.
Comparable sales growth in Latin America for the three and nine months ended March 31, 2009,
was driven by the continued focus on our barbell menu strategy featuring everyday value platforms
and affordably indulgent products. Our results were fueled by the successful promotion of
indulgent products across most countries in the region, such as the introduction of the Angry
Whopper® sandwich, the Steakhouse burger platform and the new BK Fish Wrap for the Lenten season,
as well as the continued offering of the Mushroom & Swiss Steakhouse Burger in Central America,
Puerto Rico and the Caribbean, and the Whopper® Mania promotion in Argentina. We continued to
focus on value with the Come Como Rey (Eat Like a King) everyday value menu in Mexico and Central
America, the XL double burger value promotion in Argentina, Chile and Dominican Republic and the
new Apple BK Bites dessert. In addition, our regional Latin Billboards music promotion in
selected markets in the region and strong kids properties such as Cabbage Patch Kids, Monster Jam
and The Pink Panther positively impacted comparable sales.
Comparable sales during the three months ended March 31, 2009 were negatively impacted by
significant traffic declines in Mexico during the month of March due to adverse socioeconomic
conditions and the resulting slowdown in tourism, the devaluation of the local currency and the
lower influx of remittances from the U.S. The loss of the trading day and the shift in the Easter
holiday also negatively impacted sales performance. Comparable sales for both periods were also
adversely affected by softer performance in Puerto Rico due to current socioeconomic conditions as
well as the introduction of a VAT tax, which has negatively affected disposable income.
Average Restaurant Sales
Average restaurant sales, or ARS, is an important measure of the financial performance of our
restaurants and changes in the overall direction and trends of sales. ARS is influenced mostly by
comparable sales performance and restaurant openings and closures and includes the impact of
movement in currency exchange rates. For the three and nine months ended March 31, 2009, ARS was
$294,000 and $949,000, respectively, compared to $313,000 and $963,000 for the three and nine
months ended March 31, 2008, a decrease of 6% and 1%, respectively. The trailing 12-month ARS
increased to $1.29 million for the period ended March 31, 2009, as compared to $1.27 million for
the period ended March 31, 2008, an increase of 1%.
During the three and nine months ended March 31, 2009, ARS decreased primarily as a result of
$22,000 and $35,000 unfavorable impact from the movement of currency exchange rates, respectively,
partially offset by improved worldwide comparable sales growth. We and our franchisees opened 355
net restaurants during the twelve months ended March 31, 2009. We believe that continued
improvement in the ARS of existing restaurants and strong sales at new restaurants, combined with
the closure of under-performing restaurants, will result in financially stronger operators
throughout our system.
Sales Growth
Sales growth refers to the change in sales at all Company and franchise restaurants from one
period to another. Sales growth is an important indicator of the overall direction and trends of
sales and income from operations on a system-wide basis. Sales growth is influenced by restaurant
openings and closures and comparable sales growth, as well as the effectiveness of our advertising
and marketing initiatives and featured products.
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the |
|
For the |
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
March 31, |
|
March 31, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
|
|
|
(In constant currencies) |
|
|
|
|
Sales Growth: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. & Canada |
|
|
2.8 |
% |
|
|
6.4 |
% |
|
|
3.0 |
% |
|
|
5.9 |
% |
EMEA/APAC |
|
|
6.3 |
% |
|
|
14.6 |
% |
|
|
9.6 |
% |
|
|
13.1 |
% |
Latin America |
|
|
7.2 |
% |
|
|
14.1 |
% |
|
|
11.2 |
% |
|
|
12.4 |
% |
Total System-wide Sales Growth |
|
|
4.1 |
% |
|
|
9.2 |
% |
|
|
5.5 |
% |
|
|
8.2 |
% |
Sales growth continued on a positive trend during the three and nine months ended March 31,
2009, as comparable sales and restaurant count continued to increase on a system-wide basis. We
expect net restaurant openings to accelerate in most regions.
Our sales growth in the U.S. and Canada during the three and nine months ended March 31, 2009
reflects positive comparable sales growth. We had 7,522 restaurants in the U.S. and Canada as of
March 31, 2009, compared to 7,497 restaurants as of March 31, 2008, reflecting less than 1%
increase in the number of restaurants.
EMEA/APAC demonstrated sales growth during the three and nine months ended March 31, 2009,
reflecting openings of new restaurants. In addition, positive comparable sales for the nine month
period also contributed to sales growth in this segment. We had 3,232 restaurants in EMEA/APAC as
of March 31, 2009 compared to 2,989 restaurants as of March 31, 2008, reflecting an 8% increase in
the number of restaurants.
Latin Americas sales growth was driven by new restaurant openings and positive comparable
sales during the three and nine months ended March 31, 2009. We had 1,056 restaurants in Latin
America as of March 31, 2009, compared to 969 restaurants as of March 31, 2008, reflecting a 9%
increase in the number of restaurants.
Other Operating Data
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Restaurant Count Data: |
|
|
|
|
|
|
|
|
Number of Company restaurants: |
|
|
|
|
|
|
|
|
U.S. & Canada |
|
|
1,054 |
|
|
|
918 |
|
EMEA/APAC(1) |
|
|
296 |
|
|
|
294 |
|
Latin America(2) |
|
|
88 |
|
|
|
82 |
|
|
|
|
|
|
|
|
Total Company restaurants |
|
|
1,438 |
|
|
|
1,294 |
|
Number of franchise restaurants: |
|
|
|
|
|
|
|
|
U.S. & Canada |
|
|
6,468 |
|
|
|
6,579 |
|
EMEA/APAC(1) |
|
|
2,936 |
|
|
|
2,695 |
|
Latin America(2) |
|
|
968 |
|
|
|
887 |
|
|
|
|
|
|
|
|
Total franchise restaurants |
|
|
10,372 |
|
|
|
10,161 |
|
|
|
|
|
|
|
|
Total system-wide restaurants |
|
|
11,810 |
|
|
|
11,455 |
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Other Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable sales growth |
|
|
1.0 |
% |
|
|
5.8 |
% |
|
|
2.5 |
% |
|
|
5.4 |
% |
Sales growth |
|
|
4.1 |
% |
|
|
9.2 |
% |
|
|
5.5 |
% |
|
|
8.2 |
% |
Average restaurant sales (in thousands) |
|
$ |
294 |
|
|
$ |
313 |
|
|
$ |
949 |
|
|
$ |
963 |
|
Segment Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant revenues (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. & Canada |
|
$ |
328 |
|
|
$ |
283 |
|
|
$ |
1,001 |
|
|
$ |
857 |
|
EMEA/APAC(1) |
|
|
108 |
|
|
|
136 |
|
|
|
371 |
|
|
|
418 |
|
Latin America(2) |
|
|
13 |
|
|
|
17 |
|
|
|
47 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company restaurant revenues |
|
$ |
449 |
|
|
$ |
436 |
|
|
$ |
1,419 |
|
|
$ |
1,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant expenses as a
percentage of Company restaurant revenues
(3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. & Canada |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food, paper and product costs |
|
|
32.2 |
% |
|
|
31.9 |
% |
|
|
33.3 |
% |
|
|
32.1 |
% |
Payroll and employee benefits |
|
|
32.2 |
% |
|
|
31.1 |
% |
|
|
31.2 |
% |
|
|
30.6 |
% |
Occupancy and other operating costs |
|
|
22.9 |
% |
|
|
23.9 |
% |
|
|
22.9 |
% |
|
|
22.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company restaurant expenses |
|
|
87.3 |
% |
|
|
86.9 |
% |
|
|
87.4 |
% |
|
|
85.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA/APAC(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food, paper and product costs |
|
|
29.6 |
% |
|
|
28.8 |
% |
|
|
28.6 |
% |
|
|
28.5 |
% |
Payroll and employee benefits |
|
|
34.0 |
% |
|
|
31.6 |
% |
|
|
32.7 |
% |
|
|
30.5 |
% |
Occupancy and other operating costs |
|
|
28.8 |
% |
|
|
27.6 |
% |
|
|
26.9 |
% |
|
|
26.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company restaurant expenses |
|
|
92.4 |
% |
|
|
88.0 |
% |
|
|
88.2 |
% |
|
|
85.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin America(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food, paper and product costs |
|
|
40.0 |
% |
|
|
37.4 |
% |
|
|
38.2 |
% |
|
|
36.5 |
% |
Payroll and employee benefits |
|
|
12.3 |
% |
|
|
12.1 |
% |
|
|
12.2 |
% |
|
|
12.0 |
% |
Occupancy and other operating costs |
|
|
27.7 |
% |
|
|
26.9 |
% |
|
|
28.8 |
% |
|
|
27.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company restaurant expenses |
|
|
80.0 |
% |
|
|
76.4 |
% |
|
|
79.2 |
% |
|
|
75.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food, paper and product costs |
|
|
31.8 |
% |
|
|
31.1 |
% |
|
|
32.2 |
% |
|
|
31.1 |
% |
Payroll and employee benefits |
|
|
32.0 |
% |
|
|
30.5 |
% |
|
|
31.0 |
% |
|
|
29.9 |
% |
Occupancy and other operating costs |
|
|
24.5 |
% |
|
|
25.2 |
% |
|
|
24.2 |
% |
|
|
24.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company restaurant expenses |
|
|
88.3 |
% |
|
|
86.8 |
% |
|
|
87.4 |
% |
|
|
85.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise revenues (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. & Canada |
|
$ |
77 |
|
|
$ |
76 |
|
|
$ |
241 |
|
|
$ |
234 |
|
EMEA/APAC(1) |
|
|
37 |
|
|
|
42 |
|
|
|
128 |
|
|
|
126 |
|
Latin America(2) |
|
|
11 |
|
|
|
11 |
|
|
|
36 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total franchise revenues(4) |
|
$ |
125 |
|
|
$ |
129 |
|
|
$ |
405 |
|
|
$ |
394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. & Canada |
|
$ |
88 |
|
|
$ |
79 |
|
|
$ |
256 |
|
|
$ |
264 |
|
EMEA/APAC(1) |
|
|
11 |
|
|
|
26 |
|
|
|
57 |
|
|
|
73 |
|
Latin America(2) |
|
|
7 |
|
|
|
9 |
|
|
|
27 |
|
|
|
29 |
|
Unallocated(5) |
|
|
(30 |
) |
|
|
(33 |
) |
|
|
(88 |
) |
|
|
(94 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Income from operations |
|
$ |
76 |
|
|
$ |
81 |
|
|
$ |
252 |
|
|
$ |
272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA (in millions)(6) |
|
$ |
99 |
|
|
$ |
107 |
|
|
$ |
324 |
|
|
$ |
342 |
|
23
|
|
|
(1) |
|
Refers to our operations in Europe, the Middle East, Africa, and Asia Pacific. |
|
(2) |
|
Refers to our operations in Mexico, Central and South America, the Caribbean and Puerto Rico. |
|
(3) |
|
Calculated using dollars expressed in hundreds of thousands. |
|
(4) |
|
Franchise revenues consist primarily of royalties paid by franchisees. Royalties earned are
based on a percentage of franchise sales, which were $2.9 billion and $9.6 billion for the
three and nine months ended March 31, 2009, respectively, and $3.1 billion and $9.5 billion
for the three and nine months ended March 31, 2008, respectively. Franchise sales represent
sales at all franchise restaurants and revenues to our franchisees. We do not record
franchise sales as revenues. |
|
(5) |
|
Unallocated includes corporate support costs in areas such as facilities, finance, human
resources, information technology, legal, marketing and supply chain management which benefit
all of the Companys geographic segments and system-wide restaurants and are not allocated
specifically to any of the geographic segments. |
|
(6) |
|
EBITDA is defined as earnings (net income) before interest, taxes, depreciation and
amortization, and is used by management to measure operating performance of the business.
Management believes that EBITDA is a useful measure as it incorporates certain operating
drivers of our business such as sales growth, operating costs, selling, general and
administrative expenses and other operating income and expense. EBITDA is also one of the
measures used by us to calculate incentive compensation for management and corporate-level
employees. |
|
|
|
While EBITDA is not a recognized measure under generally accepted accounting principles
(GAAP), management uses this financial measure to evaluate and forecast our business
performance. The non-GAAP measure has certain material limitations, including: |
|
|
|
it does not include interest expense, net. Because we have borrowed money for general
corporate purposes, interest expense is a necessary element of our costs and ability to
generate profits and cash flows; |
|
|
|
|
it does not include depreciation and amortization expenses. Because we use capital
assets, depreciation and amortization are necessary elements of our costs and ability to
generate profits; and |
|
|
|
|
it does not include provision for taxes. The payment of taxes is a necessary element
of our operations. |
Management compensates for these limitations by using EBITDA as only one of its measures for
evaluating the Companys business performance. In addition, capital expenditures, which impact
depreciation and amortization, interest expense and income tax expense, are reviewed separately
by management. Management believes that EBITDA provides both management and investors with a
more complete understanding of the underlying operating results and trends and an enhanced
overall understanding of our financial performance and prospects for the future. EBITDA is not
intended to be a measure of liquidity or cash flows from operations nor a measure comparable to
net income, as it does not take into account certain requirements such as capital expenditures
and related depreciation, principal and interest payments and tax payments.
The following table is a reconciliation of our net income to EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(In millions) |
|
Net income |
|
$ |
47 |
|
|
$ |
41 |
|
|
$ |
141 |
|
|
$ |
139 |
|
Interest expense, net |
|
|
13 |
|
|
|
16 |
|
|
|
42 |
|
|
|
48 |
|
Income tax expense |
|
|
16 |
|
|
|
24 |
|
|
|
69 |
|
|
|
85 |
|
Depreciation and amortization |
|
|
23 |
|
|
|
26 |
|
|
|
72 |
|
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
99 |
|
|
$ |
107 |
|
|
$ |
324 |
|
|
$ |
342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Results of Operations for the three months ended March 31, 2009 and 2008
The following table presents our results of operations for the three months ended March 31,
2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
Amount |
|
|
Amount |
|
|
(Decrease) |
|
|
|
(In millions, except per share data) |
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant revenues |
|
$ |
449 |
|
|
$ |
436 |
|
|
|
3 |
% |
Franchise revenues |
|
|
125 |
|
|
|
129 |
|
|
|
(3 |
)% |
Property revenues |
|
|
26 |
|
|
|
29 |
|
|
|
(10 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
600 |
|
|
|
594 |
|
|
|
1 |
% |
Company restaurant expenses |
|
|
397 |
|
|
|
378 |
|
|
|
5 |
% |
Selling, general and administrative expenses |
|
|
115 |
|
|
|
126 |
|
|
|
(9 |
)% |
Property expenses |
|
|
13 |
|
|
|
15 |
|
|
|
(13 |
)% |
Other operating (income) expense, net |
|
|
(1 |
) |
|
|
(6 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses |
|
|
524 |
|
|
|
513 |
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
76 |
|
|
|
81 |
|
|
|
(6 |
)% |
Interest expense |
|
|
13 |
|
|
|
17 |
|
|
|
(24 |
)% |
Interest income |
|
|
|
|
|
|
(1 |
) |
|
|
(100 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
13 |
|
|
|
16 |
|
|
|
(19 |
)% |
Income before income taxes |
|
|
63 |
|
|
|
65 |
|
|
|
(3 |
)% |
Income tax expense |
|
|
16 |
|
|
|
24 |
|
|
|
(33 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
47 |
|
|
$ |
41 |
|
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic (1) |
|
$ |
0.35 |
|
|
$ |
0.30 |
|
|
|
17 |
% |
Earnings per share diluted (1) |
|
$ |
0.34 |
|
|
$ |
0.30 |
|
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic |
|
|
134.6 |
|
|
|
135.2 |
|
|
|
|
|
Weighted average shares diluted |
|
|
136.7 |
|
|
|
137.5 |
|
|
|
|
|
|
|
|
(1) |
|
- Earnings per share is calculated using whole dollars and shares. |
|
NM |
|
- Not meaningful. |
Revenues
Company restaurant revenues
Company restaurant revenues increased by $13 million, or 3%, to $449 million during the three
months ended March 31, 2009 compared to the same period in the prior year. This increase was
primarily as a result of the addition of 144 Company restaurants (net of closures and sales of
Company restaurants to franchisees, or refranchisings) during the twelve months ended March 31,
2009, including the net acquisition of 113 franchise restaurants, primarily in the U.S. and Canada.
The increase in Company restaurant revenues was partially offset by negative worldwide Company
comparable sales growth and by $32 million of unfavorable impact from the significant movement of
currency exchange rates.
In the U.S. and Canada, Company restaurant revenues increased by $45 million, or 16%, to $328
million during the three months ended March 31, 2009 compared to the same period in the prior year.
This increase was primarily as a result of a net increase of 136 Company restaurants during the
twelve months ended March 31, 2009, including the net acquisition of 113 franchise restaurants.
25
Company restaurant revenues also increased as a result of positive Company comparable sales
growth. These increases were partially offset by an $8 million unfavorable impact from the movement
of currency exchange rates in Canada.
In EMEA/APAC, Company restaurant revenues decreased by $28 million, or 21%, to $108 million
during the three months ended March 31, 2009, compared to the same period in the prior year. This
decrease was primarily due to a $20 million unfavorable impact from the movement of currency
exchange rates and negative Company comparable sales growth. Company restaurant revenues were
negatively impacted by significant traffic declines in the month of March, particularly in Germany,
the Companys second largest Company restaurant market worldwide and the largest in EMEA/APAC.
In Latin America, Company restaurant revenues decreased by $4 million, or 24%, to $13 million
during the three months ended March 31, 2009, compared to the same period in the prior year,
primarily as a result of a $4 million unfavorable impact from the movement of currency exchange
rates and negative Company comparable sales growth. Company restaurant revenues were negatively
impacted by significant traffic declines in the month of March, particularly in Mexico, the only
Company restaurant market in Latin America. These factors were partially offset by a net increase
of six Company restaurants during the twelve months ended March 31, 2009.
Franchise revenues
Total franchise revenues decreased by $4 million, or 3%, to $125 million for the three months
ended March 31, 2009, compared to the same period in the prior year. Although the net number of
franchise restaurants increased by 211 during the twelve months ended March 31, 2009 and the
Company experienced positive worldwide franchise comparable sales growth and a higher effective
royalty rate in the U.S., these factors were more than offset by a $10 million unfavorable impact
from the movement of currency exchange rates for the period.
In the U.S. and Canada, franchise revenues increased by $1 million, or 1%, to $77 million
during the three months ended March 31, 2009, compared to the same period in the prior year. This
increase was primarily a result of positive franchise comparable sales growth and a higher
effective royalty rate in the U.S. These factors were partially offset by the loss of royalties
from 111 fewer franchise restaurants compared to the same period in the prior year, primarily due
to the net acquisition of 113 franchise restaurants. The impact from the movement of currency
exchange rates was not significant for the period.
In EMEA/APAC, franchise revenues decreased by $5 million, or 12%, to $37 million during the
three months ended March 31, 2009, compared to the same period in the prior year, primarily driven
by a $9 million unfavorable impact from the movement of currency exchange rates and negative
franchise comparable sales growth. This decrease was partially offset by the net increase of 241
franchise restaurants during the twelve months ended March 31, 2009.
Latin America franchise revenues remained unchanged at $11 million during the three months
ended March 31, 2009, compared to the same period in the prior year. Although the net number of
franchise restaurants increased by 81 during the twelve months ended March 31, 2009 and franchise
comparable sales growth was positive, these factors were offset by a $1 million unfavorable impact
from the movement of currency exchange rates.
Property Revenues
Total property revenues decreased by $3 million, or 10%, to $26 million, for the three months
ended March 31, 2009, compared to the same period in the prior year. The decrease was primarily due
to $2 million of unfavorable impact from the movement of currency exchange rates and the net effect
of changes to our property portfolio, which includes the impact of the closure or acquisition of
restaurants leased to franchisees. These factors were partially offset by positive worldwide
franchise comparable sales growth resulting in increased percentage rents.
In the U.S. and Canada, property revenues decreased by $1 million, or 5%, to $20 million for
the three months ended March 31, 2009, compared to the same period in the prior year. This decrease
was primarily due to the net effect of changes to our property portfolio, which includes the impact
of the closure or acquisition of restaurants leased to franchisees. This decrease was partially
offset by positive franchise comparable sales growth resulting in increased percentage rents.
26
In EMEA/APAC, property revenues decreased by $2 million, or 25%, to $6 million, for the three
months ended March 31, 2009, compared to the same period in the prior year, primarily due to a $2
million unfavorable impact from the movement of currency exchange rates in EMEA and the net effect
of changes to our property portfolio, which includes the impact of the closure or acquisition of
restaurants leased to franchisees. In addition, property revenues were adversely affected by
negative franchise comparable sales growth.
Operating Costs and Expenses
Food, paper and product costs
Total food, paper and product costs increased by $8 million, or 6%, to $143 million during the
three months ended March 31, 2009, compared to the same period in the prior year, as a result of
the net addition of 144 Company restaurants during the twelve months ended March 31, 2009 and a
significant increase in commodity costs, including the currency exchange impact of cross border
purchases, partially offset by a $10 million favorable impact from the movement of currency
exchange rates. As a percentage of Company restaurant revenues, food, paper and product costs
increased by 0.7% to 31.8%, primarily due to the increase in commodity costs as noted above,
partially offset by the impact of strategic pricing initiatives.
In the U.S. and Canada, food, paper and product costs increased by $16 million, or 18%, to
$106 million during the three months ended March 31, 2009, compared to the same period in the prior
year, primarily as a result of the net addition of 136 Company restaurants during the twelve months
ended March 31, 2009, a significant increase in commodity costs, including the currency exchange
impact of cross border purchases in Canada, and additional expense due to the disposal of toy
premium inventory containing phthalates, a plasticizer used in vinyl toys, partially offset by a $3
million favorable impact from the movement of currency exchange rates in Canada. Food, paper and
product costs as a percentage of Company restaurant revenues increased by 0.3% to 32.2%, primarily
due to the adverse factors noted above and the redemption of coupons, partially offset by the
impact of strategic pricing initiatives.
In EMEA/APAC, food, paper and product costs decreased by $7 million, or 18%, to $32 million
for the three months ended March 31, 2009, compared to the same period in the prior year primarily
as a result of the favorable impact from the movement of currency exchange rates of $6 million and
negative Company comparable sales, partially offset by increases in commodity costs across all
countries in the segment, including the currency exchange impact of cross border purchases. Food,
paper and product costs as a percentage of Company restaurant revenues increased by 0.8% to 29.6%
primarily due to significant increases in commodity costs as noted above partially offset by the
impact of strategic pricing initiatives.
In Latin America, food, paper and product costs decreased by $1 million, or 17%, to $5 million
for the three months ended March 31, 2009, compared to the same period in the prior year, primarily
as a result of the favorable impact from the movement of currency exchange rates of $1 million and
negative Company comparable sales, partially offset by increases in commodity costs, including the
currency exchange impact of cross border purchases, and a net increase of six Company restaurants
during the twelve months ended March 31, 2009. Food, paper and product costs as a percentage of
Company restaurant revenues increased by 2.6% to 40.0%, primarily as a result of increases in
commodity costs as noted above, partially offset by the impact of strategic pricing initiatives.
Payroll and employee benefits costs
Total payroll and employee benefits costs increased by $11 million, or 8%, to $144 million
during the three months ended March 31, 2009, compared to the same period in the prior year. This
increase was primarily due to the net addition of 144 Company restaurants during the twelve months
ended March 31, 2009, as well as increased labor costs in the U.S. and Canada and EMEA, partially
offset by a $10 million favorable impact from the movement of currency exchange rates. As a
percentage of Company restaurant revenues, payroll and employee benefits costs increased by 1.5% to
32.0%, primarily as a result of increased labor costs in EMEA and the impact of significant traffic
declines in the U.S. and EMEA during the month of March, which resulted in labor inefficiencies.
In the U.S. and Canada, payroll and employee benefits costs increased by $17 million, or 19%,
to $105 million during the three months ended March 31, 2009, compared to the same period in the
prior year, primarily as a result of the net addition of 136 Company restaurants during the twelve
months ended March 31, 2009, and increased labor costs, partially offset by a $2 million favorable
impact from the movement of currency exchange rates. As a percentage of Company restaurant
revenues, payroll and employee
27
benefits costs increased by 1.1% to 32.2%, primarily as a result of declining traffic in the
month of March resulting in labor inefficiencies, partially offset by positive Company comparable
sales growth.
In EMEA/APAC, payroll and employee benefits costs decreased by $6 million, or 14%, to $37
million during the three months ended March 31, 2009, compared to the same period in the prior
year, primarily as a result of a $7 million favorable impact from the movement of currency exchange
rates, partially offset by government mandated and contractual increases in labor cost in Germany.
As a percentage of Company restaurant revenues, payroll and employee benefits costs increased by
2.4% to 34.0%, as a result of increases in labor cost in Germany and the impact of significant
traffic declines in the month of March, particularly in Germany, which resulted in negative Company
comparable sales and labor inefficiencies.
There was no significant change in payroll and employee benefits costs in Latin America during
the three months ended March 31, 2009 compared to the same period in the prior year.
Occupancy and other operating costs
Occupancy and other operating costs remained unchanged at $110 million during the three months
ended March 31, 2009, compared to the same period in the prior year, benefiting primarily from a $9
million favorable impact from the movement of currency exchange rates and from accelerated
depreciation expense related to the reimaging of Company restaurants in the U.S. and Canada
recorded in the prior year, partially offset by the net addition of 136 Company restaurants during
the twelve months ended March 31, 2009 and increased rents. As a percentage of Company restaurant
revenues, occupancy and other operating costs decreased by 0.7% to 24.5%, primarily as a result of
the benefits realized from the prior year accelerated depreciation expense as noted above,
partially offset by increased rents and the impact from significant traffic declines in the month
of March, which resulted in negative Company comparable sales.
In the U.S. and Canada, occupancy and other operating costs increased by $8 million, or 12%,
to $76 million during the three months ended March 31, 2009, compared to the same period in the
prior year. This increase was primarily driven by the net addition of 136 Company restaurants
during the twelve months ended March 31, 2009, which represents a 15% increase in the number of
Company restaurants in this segment year over year, and increased rents, partially offset by a $2
million favorable impact from the movement of currency exchange rates and benefits realized from
accelerated depreciation expense related to the reimaging of Company restaurants recorded in the
prior year. As a percentage of Company restaurant revenues, occupancy and other operating costs
decreased by 1.0% to 22.9% as a result of the benefits realized from the prior year accelerated
depreciation expense as noted above and positive Company comparable sales, partially offset by
increased rents.
In EMEA/APAC, occupancy and other operating costs decreased by $6 million, or 16%, to $31
million during the three months ended March 31, 2009, compared to the same period in the prior
year, primarily due to a $6 million favorable impact from the movement of currency exchange rates
and a reduction in payments made to third parties for services currently performed by our
employees, partially offset by income resulting from a lease termination fee recorded in the U.K.
in the prior year. As a percentage of Company restaurant revenues, occupancy and other operating
costs increased by 1.2% to 28.8%, primarily due to income resulting from the lease termination fee
noted above and the impact from significant traffic declines in the month of March, primarily in
Germany, which resulted in negative Company comparable sales.
In Latin America, occupancy and other operating costs decreased by $2 million, or 40%, to $3
million during the three months ended March 31, 2009, compared to the same period in the prior
year, primarily attributable to a $1 million favorable impact from the movement of currency
exchange rates. As a percentage of Company restaurant revenues, occupancy and other operating costs
increased by 0.8% to 27.7% primarily as a result of the impact from significant traffic declines in
Mexico, which resulted in negative Company comparable sales.
Selling, general and administrative expenses
Selling expenses remained unchanged at $22 million for the three months ended March 31, 2009,
compared to the same period in the prior year. Although sales and promotional expenses increased by
$2 million due to increased sales at our Company restaurants, this increase was offset by a
$2 million favorable impact from the movement of currency exchange rates.
28
General and administrative expenses decreased by $11 million, or 11%, to $93 million for the
three months ended March 31, 2009, compared to the same period in the prior year. The decrease is
primarily attributable to $3 million in savings from cost containment initiatives, a decrease of $1
million in deferred compensation expense and an $8 million favorable impact from the movement of
currency exchange rates.
Property Expenses
Total property expenses decreased by $2 million, or 13%, to $13 million for the three months
ended March 31, 2009, compared to the same period in the prior year, primarily attributable to a $2
million favorable impact from the movement of currency exchange rates and the net effect of changes
to our property portfolio, which includes the impact of closures or acquisitions of restaurants
leased to franchisees, partially offset by an increase in percentage rent expense generated by
positive worldwide comparable franchise sales growth.
Other operating (income) expense, net
Other operating income, net for the three months ended March 31, 2009 of $1 million includes a
$4 million gain from the refranchising of Company restaurants in the U.S. and Canada, partially
offset by $1 million of net losses on investments held in the rabbi trust, which were fully offset
by a corresponding decrease in deferred compensation expense reflected in general and
administrative expenses, and $1 million of net expense related to the remeasurement of foreign
denominated assets and the expense related to the use of foreign currency forward contracts used to
hedge the currency exchange impact on such assets.
Income from Operations
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Income from Operations: |
|
|
|
|
|
|
|
|
U.S. & Canada |
|
$ |
88 |
|
|
$ |
79 |
|
EMEA/APAC |
|
|
11 |
|
|
|
26 |
|
Latin America |
|
|
7 |
|
|
|
9 |
|
Unallocated |
|
|
(30 |
) |
|
|
(33 |
) |
|
|
|
|
|
|
|
Total income from operations |
|
$ |
76 |
|
|
$ |
81 |
|
|
|
|
|
|
|
|
Income from operations decreased by $5 million, or 6%, to $76 million during the three months
ended March 31, 2009, compared to the same period in the prior year, primarily as a result of a
decrease in Company restaurant margin of $6 million, a $4 million decrease in franchise revenues, a
$5 million decrease in other operating income, net and a decrease in net property income of $1
million. These decreases in income from operations were partially offset by an $11 million decrease
in selling, general and administrative expenses. (See Note 13 to our unaudited condensed
consolidated financial statements for segment information disclosed in accordance with SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information).
Our international operations are impacted by fluctuations in currency exchange rates. In
Company markets located outside of the U.S., we generate revenues and incur expenses denominated in
local currencies. These revenues and expenses are translated using the average rates during the
period in which they are recognized, and are impacted by changes in currency exchange rates. In
many of our franchise markets, our franchisees pay royalties to us in currencies other than the
local currency in which they operate; however, as the royalties are calculated based on local
currency sales, our revenues are still impacted by fluctuations in currency exchange
rates. Although we attempt to mitigate the unfavorable impact of fluctuations in currency
exchange rates on our cash flows through certain hedging activities, our use of such hedging
activities will not offset the adverse impact on revenues and expenses of unfavorable movements in
currency exchange rates. For the three months ended March 31, 2009, the unfavorable impact on
revenues from the movement of currency exchange rates was partially offset by the favorable impact
of currency exchange rates on Company restaurant expenses and selling, general and administrative
expenses, resulting in a net unfavorable impact on income from operations of $3 million. We
expect that continuing uncertainties in the currency markets may continue to adversely impact our
operating results.
29
In the U.S. and Canada, income from operations increased by $9 million, or 11%, to $88 million
during the three months ended March 31, 2009, compared to the same period in the prior year,
primarily as a result of a decrease in other operating expenses, net of $4 million, an increase in
Company restaurant margin of $3 million and a $1 million increase in franchise revenues, reflecting
franchise comparable sales growth of 1.6% (in constant currencies) and an increase in the effective
royalty rate in the U.S, partially offset by a decrease in net property income of $1 million.
In EMEA/APAC, income from operations decreased by $15 million, or 58%, to $11 million during
the three months ended March 31, 2009, compared to the same period in the prior year, primarily as
a result of a decrease in Company restaurant margin of $8 million, a $5 million decrease in
franchise revenues, a decrease in other operating income, net of $9 million related to a prior year
gain recognized on the refranchising of Company restaurants in Germany, partially offset by $8
million decrease in selling, general and administrative expenses. These factors reflect a $2
million unfavorable impact from the movement of currency exchange rates.
In Latin America, income from operations decreased by $2 million, or 22%, to $7 million during
the three months ended March 31, 2009, compared to the same period in the prior year, primarily as
result of a decrease in Company restaurant margin of $1 million. The decrease also reflects a $1
million unfavorable impact from the movement of currency exchange rates.
Our unallocated corporate expenses decreased by $3 million during the three months ended March
31, 2009, compared to the same period in the prior year, primarily as a result of a decrease in
general and administrative expenses attributable to savings from cost containment initiatives.
Interest Expense, net
Interest expense, net decreased by $3 million during the three months ended March 31, 2009,
compared to the same period in the prior year, reflecting a decrease in rates paid on borrowings
during the period. The weighted average interest rates for the three months ended March 31, 2009
and 2008 were 4.8% and 6.3%, respectively, which included the impact of interest rate swaps on 68%
and 46% of our term debt, respectively.
Income Tax Expense
Income tax expense was $16 million for the three months ended March 31, 2009, resulting in an
effective tax rate of 25.4% primarily due to the resolution of tax audits.
Income tax expense was $24 million for the three months ended March 31, 2008, resulting in an
effective tax rate of 36.9%. During the three months ended March 31, 2008, we recorded a tax
charge of $2 million primarily related to the resolution of a foreign audit and law changes.
Net Income
Our net income increased by $6 million, or 15%, to $47 million during the three months ended
March 31, 2009, compared to the same period in the prior year, primarily as a result of an $11
million decrease in selling, general and administrative expenses, an $8 million decrease in income
tax expense and the benefit from a $3 million decrease in interest expense, net. These factors
were partially offset by a decrease in Company restaurant margin of $6 million, a net change of $5
million in other operating income, net, decreased franchise revenues of $4 million, and a decrease
in net property income of $1 million.
30
Results of Operations for the nine months ended March 31, 2009 and 2008
The following table presents our results of operations for the nine months ended March 31,
2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
Amount |
|
|
Amount |
|
|
(Decrease) |
|
|
|
(In millions, except per share data) |
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant revenues |
|
$ |
1,419 |
|
|
$ |
1,325 |
|
|
|
7 |
% |
Franchise revenues |
|
|
405 |
|
|
|
394 |
|
|
|
3 |
% |
Property revenues |
|
|
84 |
|
|
|
90 |
|
|
|
(7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
1,908 |
|
|
$ |
1,809 |
|
|
|
5 |
% |
Company restaurant expenses |
|
|
1,240 |
|
|
|
1,129 |
|
|
|
10 |
% |
Selling, general and administrative expenses |
|
|
360 |
|
|
|
370 |
|
|
|
(3 |
)% |
Property expenses |
|
|
42 |
|
|
|
45 |
|
|
|
(7 |
)% |
Other operating (income) expense, net |
|
|
14 |
|
|
|
(7 |
) |
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses |
|
$ |
1,656 |
|
|
$ |
1,537 |
|
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
252 |
|
|
|
272 |
|
|
|
(7 |
)% |
Interest expense |
|
|
44 |
|
|
|
53 |
|
|
|
(17 |
)% |
Interest income |
|
|
(2 |
) |
|
|
(5 |
) |
|
|
(60 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
42 |
|
|
|
48 |
|
|
|
(13 |
)% |
Income before income taxes |
|
$ |
210 |
|
|
$ |
224 |
|
|
|
(6 |
)% |
Income tax expense |
|
|
69 |
|
|
|
85 |
|
|
|
(19 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
141 |
|
|
$ |
139 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic (1) |
|
$ |
1.05 |
|
|
$ |
1.03 |
|
|
|
2 |
% |
Earnings per share diluted (1) |
|
$ |
1.03 |
|
|
$ |
1.01 |
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic |
|
|
134.8 |
|
|
|
135.2 |
|
|
|
|
|
Weighted average shares diluted |
|
|
136.8 |
|
|
|
137.7 |
|
|
|
|
|
|
|
|
(1) |
|
- Earnings per share is calculated using whole dollars and shares. |
|
NM |
|
- Not meaningful. |
Revenues
Company restaurant revenues
Company restaurant revenues increased by $94 million, or 7%, to $1,419 million during the nine
months ended March 31, 2009, compared to the same period in the prior year. This increase was
primarily a result of the addition of 144 Company restaurants net of closures and refranchisings
during the twelve months ended March 31, 2009, including the net acquisition of 113 franchise
restaurants. Company restaurant revenues also increased as a result of positive worldwide Company
comparable sales growth. These factors were partially offset by a $52 million unfavorable impact
from the significant movement of currency exchange rates.
In the U.S. and Canada, Company restaurant revenues increased by $144 million, or 17%, to
$1,001 million during the nine months ended March 31, 2009, compared to the same period in the
prior year. This increase was primarily a result of a net increase of 136 Company restaurants
during the twelve months ended March 31, 2009, including the net acquisition of 113 franchise
restaurants.
31
Company restaurant revenues also increased as a result of positive Company comparable
sales growth. These factors were partially offset by a $16 million unfavorable impact from the
movement of currency exchange rates in Canada.
In EMEA/APAC, Company restaurant revenues decreased by $47 million, or 11%, to $371 million
during the nine months ended March 31, 2009, compared to the same period in the prior year. This
decrease was primarily due to a $30 million unfavorable impact from the movement of currency
exchange rates and lost Company restaurant revenues due to the refranchising of restaurants in the
prior year, primarily in Germany and the U.K.
In Latin America, Company restaurant revenues decreased by $3 million, or 6%, to $47 million
during the nine months ended March 31, 2009, compared to the same period in the prior year. This
decrease was primarily due to a $6 million unfavorable impact from the movement of currency
exchange rates and negative Company comparable sales growth. Company restaurant revenues were
negatively impacted by significant traffic declines in the month of March, particularly in Mexico,
the only Company restaurant market in Latin America. These factors were partially offset by a net
increase of six Company restaurants during the twelve months ended March 31, 2009.
Franchise revenues
Total franchise revenues increased by $11 million, or 3%, to $405 million during the nine
months ended March 31, 2009, compared to the same period in the prior year. The increase was
primarily a result of the net addition of 211 franchise restaurants during the twelve months ended
March 31, 2009, positive worldwide franchise comparable sales growth and a higher effective royalty
rate in the U.S. These factors were partially offset by a $15 million unfavorable impact from the
movement of currency exchange rates.
In the U.S. and Canada, franchise revenues increased by $7 million, or 3%, to $241 million
during the nine months ended March 31, 2009, compared to the same period in the prior year. This
increase was primarily a result of positive franchise comparable sales growth and a higher
effective royalty rate in the U.S., partially offset by the loss of royalties from 111 fewer
franchise restaurants compared to the same period in the prior year, primarily due to the net
acquisition of 113 franchise restaurants by the Company. The impact from the movement of currency
exchange rates was not significant.
In EMEA/APAC, franchise revenues increased by $2 million, or 2%, to $128 million during the
nine months ended March 31, 2009, compared to the same period in the prior year, primarily driven
by a net increase of 241 franchise restaurants during the twelve months ended March 31, 2009, and
positive franchise comparable sales growth. These factors were partially offset by a $13 million
unfavorable impact from the movement of currency exchange rates.
Latin America franchise revenues increased by $2 million, or 6%, to $36 million during the
nine months ended March 31, 2009 compared to the same period in the prior year, primarily as a
result of the net addition of 81 franchise restaurants during the twelve months ended March 31,
2009 and positive franchise comparable sales growth. These factors were partially offset by a $2
million unfavorable impact from the movement of currency exchange rates.
Property Revenues
Total property revenues decreased by $6 million, or 7%, to $84 million, for the nine months
ended March 31, 2009, compared to the same period in the prior year. The decrease was primarily a
result of a $4 million unfavorable impact from the movement of currency exchange rates and the net
effect of changes to our property portfolio, which includes the impact of the closure or
acquisition of restaurants leased to franchisees. These factors were partially offset by positive
worldwide franchise comparable sales growth resulting in increased percentage rents.
In the U.S. and Canada, property revenues decreased by $1 million, or 2%, to $65 million for
the nine months ended March 31, 2009, compared to the same period in the prior year. The decrease
was primarily a result of the net effect of changes to our property portfolio, which includes the
impact of the closure or acquisition of restaurants leased to franchisees. This decrease was
partially offset by increased percentage rents as a result of positive franchise comparable sales
growth.
In EMEA/APAC, property revenues decreased by $5 million, or 21%, to $19 million, for the nine
months ended March 31, 2009, compared to the same period in the prior year, primarily due to a $4
million unfavorable impact from the movement of currency
32
exchange rates and the net effect of
changes to our property portfolio, which includes the impact of the closure or acquisition of
restaurants leased to franchisees. These factors were partially offset by increased percentage
rents as a result of positive franchise comparable sales growth.
Operating Costs and Expenses
Food, paper and product costs
Total food, paper and product costs increased by $45 million, or 11%, to $457 million during
the nine months ended March 31, 2009, compared to the same period in the prior year, as a result of
the net addition of 144 Company restaurants during the twelve months ended March 31, 2009, and
significant increases in commodity costs, including the currency exchange impact of cross border
purchases, partially offset by a $17 million favorable impact from the movement of currency
exchange rates. As a percentage of Company restaurant revenues, food, paper and product costs
increased by 1.1% to 32.2%, primarily due to the increase in commodity costs noted above, partially
offset by the impact of strategic pricing initiatives.
In the U.S. and Canada, food, paper and product costs increased by $58 million, or 21%, to
$333 million during the nine months ended March 31, 2009, compared to the same period in the prior
year, primarily as a result of the net addition of 136 Company restaurants during the twelve months
ended March 31, 2009, as well as significant increases in commodity costs, including the currency
exchange impact of cross border purchases in Canada, partially offset by a $6 million favorable
impact from the movement of currency exchange rates. Food, paper and product costs as a percentage
of Company restaurant revenues increased 1.2% to 33.3%, primarily due to an increase in the cost of
beef, cheese, chicken and other food costs, including the currency exchange impact of cross border
purchases in Canada and the redemption of coupons, partially offset by the impact of strategic
pricing initiatives.
Although commodity and other food costs have increased significantly in the U.S. and Canada
during the nine month period compared to the same period in the prior year, the cost of many of our
core commodities reached historical highs during the first quarter of fiscal 2009 and have
moderated since.
In EMEA/APAC, food, paper and product costs decreased by $13 million, or 11%, to $106 million
for the nine months ended March 31, 2009, compared to the same period in the prior year. This
decrease is primarily the result of the favorable impact from the movement of currency exchange
rates of $9 million and the refranchising of Company restaurants in the prior year, primarily in
Germany and the U.K., partially offset by an increase in commodity costs, including the currency
exchange impact of cross border purchases. Food, paper and product costs as a percentage of Company
restaurant revenues remained relatively unchanged at 28.6% with the benefits from strategic pricing
initiatives, offset by a significant increase in commodity costs.
In Latin America, food, paper and product costs remained unchanged at $18 million during the
nine months ended March 31, 2009, compared to the same period in the prior year, as a result of the
benefits derived from the favorable impact from the movement of currency exchange rates of $2
million, offset by the net addition of six Company restaurants during the twelve months ended March
31, 2009 and an increase in commodity costs, including the currency exchange impact of cross border
purchases. Food, paper and product costs as a percentage of Company restaurant revenues increased
by 1.7% to 38.2% primarily due to the increase in commodity costs as noted above, partially offset
by the impact of strategic pricing initiatives.
Payroll and employee benefits costs
Total payroll and employee benefits costs increased by $43 million, or 11%, to $439 million
during the nine months ended March 31, 2009, compared to the same period in the prior year. This
increase was primarily due to the net addition of 144 Company restaurants during the twelve months
ended March 31, 2009, as well as increased labor costs in the U.S. and Canada and EMEA, partially
offset by a $15 million favorable impact from the movement of currency exchange rates. As a
percentage of Company restaurant revenues, payroll and employee benefits costs increased by 1.1% to
31.0%, primarily as a result of increased labor costs in EMEA and labor inefficiencies in the U.S.
and Canada, partially offset by positive worldwide Company comparable sales growth.
In the U.S. and Canada, payroll and employee benefits costs increased by $50 million, or 19%,
to $312 million during the nine months ended March 31, 2009, compared to the same period in the
prior year, primarily as a result of the net addition of 136 Company restaurants during the twelve
months ended March 31, 2009 and increased labor costs, partially offset by a $5 million favorable
impact from the movement of currency exchange rates. As a percentage of Company restaurant
revenues, payroll and employee benefits
33
costs increased by 0.6% to 31.2%, primarily due to labor
inefficiencies, partially offset by benefits derived from positive Company comparable sales growth.
In EMEA/APAC, payroll and employee benefits costs decreased by $6 million, or 5% to $121
million during the nine months ended March 31, 2009, compared to the same period in the prior year,
primarily as a result of a $9 million favorable impact from the movement of currency exchange rates
and the refranchising of Company restaurants in the prior year, primarily in Germany and the U.K.,
partially offset by government mandated and contractual increases in labor costs in Germany. As a
percentage of Company restaurant revenues, payroll and employee benefits costs increased by 2.2% to
32.7% as a result of increases in labor costs in Germany, partially offset by positive Company
comparable sales growth.
In Latin America, payroll and employee benefits costs decreased by $1 million, or 14% to $6
million during the nine months ended March 31, 2009, compared to the same period in the prior year
as a result of a $1 million favorable impact from the movement of currency exchange rates,
partially offset by the net addition of six Company restaurants during the twelve months ended
March 31, 2009. Payroll and employee benefits costs as a percentage of Company restaurant revenues
remained unchanged at 12.2%.
Occupancy and other operating costs
Occupancy and other operating costs increased by $23 million, or 7%, to $344 million during
the nine months ended March 31, 2009, compared to the same period in the prior year. This increase
is primarily attributable to the net addition of 144 Company restaurants during the twelve months
ended March 31, 2009, increased rents and utility costs and start-up costs related to new and
acquired Company restaurants in the U.S., partially offset by benefits realized from accelerated
depreciation expense related to the reimaging of Company restaurants in the U.S. and Canada
recorded in the prior year and a $15 million favorable impact from the movement of currency
exchange rates. As a percentage of Company restaurant revenues, occupancy and other operating costs
remained unchanged at 24.2%, primarily as a result of the benefits derived from positive worldwide
Company comparable sales growth and the prior year accelerated depreciation expense noted above,
offset by increased rents and start-up costs related to new and acquired Company restaurants.
In the U.S. and Canada, occupancy and other operating costs increased by $36 million, or 18%,
to $231 million during the nine months ended March 31, 2009, compared to the same period in the
prior year. This increase was primarily driven by the net addition of 136 Company restaurants
during the twelve months ended March 31, 2009, which represents a 15% increase in the number of
Company restaurants in this segment year over year, increased rents and utility costs and start-up
costs related to new and acquired Company restaurants, partially offset by benefits realized from
accelerated depreciation expense related to the reimaging of Company restaurants recorded in the
prior year and a $4 million favorable impact from the movement of currency exchange rates. As a
percentage of Company restaurant revenues, occupancy and other operating costs remained relatively
unchanged at 22.9% as a result of the benefits derived from positive Company comparable sales
growth and the prior year accelerated depreciation expense noted above, offset by increased rents
and start-up costs related to new and acquired Company restaurants.
In EMEA/APAC, occupancy and other operating costs decreased by $12 million, or 11%, to $100
million during the nine months ended March 31, 2009, compared to the same period in the prior year,
primarily due to a $9 million favorable impact from the movement in currency exchange rates, a
reduction in payments made to third parties for services currently performed by our employees and
the refranchising of Company restaurants in the prior year, primarily in Germany and the U.K.,
partially offset by increased rents and income resulting from a lease termination fee recorded in
the prior year in the U.K. As a percentage of Company restaurant revenues, occupancy and other
operating costs remained relatively unchanged at 26.9% as a result of positive Company comparable
sales growth, the closure of under-performing restaurants and the refranchising of Company
restaurants in the U.K. (including benefits from the release of unfavorable lease obligations),
offset by increased rents and income resulting from the lease termination fee noted above.
In Latin America, occupancy and other operating costs decreased by $1 million, or 7%, to $13
million during the nine months ended March 31, 2009, compared to the same period in the prior year,
primarily attributable to a $2 million favorable impact from the movement in currency exchange
rates, partially offset by the net addition of six Company restaurants during the twelve months
ended
March 31, 2009, increased utility costs and the unfavorable impact of accelerated depreciation
expense related to a restaurant closure in Mexico. As a percentage of Company restaurant revenues,
occupancy and other operating costs increased by 1.5% to 28.8% as a result of increased utility
costs, the unfavorable impact from accelerated depreciation expense and negative Company comparable
sales growth.
34
Selling, general and administrative expenses
Selling expenses increased by $3 million, or 4%, to $70 million for the nine months ended
March 31, 2009, compared to the same period in the prior year. Although sales and promotion
expenses increased by $6 million due to increased sales at our Company restaurants, these expenses
were partially offset by a $3 million favorable impact from the movement of currency exchange
rates.
General and administrative expenses decreased by $13 million, or 4%, to $290 million for the
nine months ended March 31, 2009, compared to the same period in the prior year. There was a $7
million decrease in deferred compensation expense, which was fully offset by net losses on
investments held in the rabbi trust recorded in other operating (income) expense, net, a $9 million
favorable impact from the movement of currency exchange rates and $8 million in savings from cost
containment initiatives. However, these factors were partially offset by an increase of $3 million
in stock-based compensation, an incremental increase of $3 million in amortization of franchise
rights associated with the acquisition of restaurants, an increase in bad debt expense of $3
million and $2 million in bad debt recoveries recognized in the prior year.
Property Expenses
Total property expenses decreased by $3 million, or 7%, to $42 million for the nine months
ended March 31, 2009 compared to the same period in the prior year, primarily as a result of a $4
million favorable impact from the movement of currency exchange rates and the net effect of changes
to our property portfolio, which includes the impact of the closure or acquisition of restaurants
leased to franchisees, partially offset by an increase in percentage rent expense generated by
worldwide comparable franchise sales growth of 2.7% (in constant currencies).
Other operating (income) expense, net
Other operating expense, net for the nine months ended March 31, 2009 of $14 million includes
$7 million of net losses on investments held in the rabbi trust, which were fully offset by a
corresponding decrease in deferred compensation expense reflected in general and administrative
expenses, $2 million of charges associated with the acquisition of franchise restaurants from a
large franchisee in the U.S. and $8 million of net expense related to the remeasurement of foreign
denominated assets and the expense related to the use of foreign currency forward contracts used to
hedge the currency exchange impact on such assets. These expenses were offset by a $4 million gain
from the refranchising of Company restaurants in the U.S. and Canada.
Income from Operations
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Income from Operations: |
|
|
|
|
|
|
|
|
U.S. & Canada |
|
$ |
256 |
|
|
$ |
264 |
|
EMEA/APAC |
|
|
57 |
|
|
|
73 |
|
Latin America |
|
|
27 |
|
|
|
29 |
|
Unallocated |
|
|
(88 |
) |
|
|
(94 |
) |
|
|
|
|
|
|
|
Total Income from Operations |
|
$ |
252 |
|
|
$ |
272 |
|
|
|
|
|
|
|
|
Income from operations decreased by $20 million, or 7%, to $252 million during the nine months
ended March 31, 2009, compared to the same period in the prior year, primarily as a result of an
increase in other operating expense, net of $21 million, a decrease in Company restaurant margin of
$17 million and a decrease in net property income of $3 million. The decrease in income from
operations was partially offset by an $11 million increase in franchise revenues, reflecting
franchise comparable sales growth of 2.7% (in constant currencies) and an increase in the effective
royalty rate in the U.S and a $10 million decrease in selling, general and administrative expenses.
(See Note 13 to our unaudited condensed consolidated financial statements for segment information
disclosed in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information).
35
For the nine months ended March 31, 2009, the unfavorable impact on revenues from the movement
of currency exchange rates was partially offset by the favorable impact of currency exchange rates
on Company restaurant expenses and selling, general and administrative expenses, resulting in a net
unfavorable impact on income from operations of $8 million.
In the U.S. and Canada, income from operations decreased by $8 million, or 3%, to $256 million
during the nine months ended March 31, 2009, compared to the same period in the prior year,
primarily as a result of an increase in other operating expenses, net of $15 million and a decrease
in net property income of $2 million, partially offset by a $7 million increase in franchise
revenues, reflecting franchise comparable sales growth of 2.2% (in constant currencies) and an
increase in the effective royalty rate in the U.S.
In EMEA/APAC, income from operations decreased by $16 million, or 22%, to $57 million during
the nine months ended March 31, 2009, compared to the same period in the prior year, primarily as a
result of a decrease in Company restaurant margin of $15 million, a decrease in other operating
income, net of $6 million and a decrease in net property income of $1 million, partially offset by
a $5 million decrease in selling, general and administrative expenses and a $2 million increase in
franchise revenues, reflecting franchise comparable sales growth of 3.5% (in constant currencies).
These factors reflect a $7 million unfavorable impact from the movement of currency exchange rates.
In Latin America, income from operations decreased by $2 million, or 7%, to $27 million during
the nine months ended March 31, 2009, compared to the same period in the prior year, primarily as a
result of a decrease in Company restaurant margin of $2 million, and a $1 million increase in
selling, general and administrative expenses, partially offset by a $2 million increase in
franchise revenues, which reflects franchise comparable sales growth of 3.9% (in constant
currencies). These factors reflect a $1 million unfavorable impact from the movement of currency
exchange rates.
Our unallocated corporate expenses decreased by $6 million during the nine months ended March
31, 2009, compared to the same period in the prior year, primarily as a result of a decrease in
general and administrative expenses attributable to savings from cost containment initiatives.
Interest Expense, net
Interest expense, net decreased by $6 million during the nine months ended March 31, 2009,
compared to the same period in the prior year, primarily reflecting a decrease in rates paid on
borrowings during the period. The weighted average interest rates for the nine months ended March
31, 2009 and 2008 were 5.2% and 6.6%, respectively, which included the impact of interest rate
swaps on 70% and 48% of our term debt, respectively.
Income Tax Expense
Income tax expense was $69 million for the nine months ended March 31, 2009, resulting in an
effective tax rate of 32.9% primarily due to currency fluctuations, the current mix of income from
multiple tax jurisdictions and the resolution of tax audits.
Income tax expense was $85 million for the nine months ended March 31, 2008, resulting in an
effective tax rate of 37.9%. During the nine months ended March 31, 2008, we recorded a tax charge
of $9 million primarily related to law changes in various jurisdictions and a tax benefit of $4
million due to the release in valuation allowance as it was determined that certain deferred tax
assets would be realized.
Net Income
Our net income increased by $2 million, or 1%, to $141 million during the nine months ended
March 31, 2009 compared to the same period in the prior year, primarily as a result of a $16
million decrease in income tax expense, increased franchise revenues of $11 million, driven by a
net increase in restaurants and strong franchise comparable sales growth, a $10 million decrease in
selling, general and administrative expenses and the benefit from a $6 million decrease in interest
expense, net. These factors were partially offset by a net change of $21 million in other operating
expense, net, a decrease in Company restaurant margin of $17 million and a decrease in net property
income of $3 million.
36
Liquidity and Capital Resources
Overview
Cash provided by operations was $211 million during the nine months ended March 31, 2009,
compared to $150 million during the nine months ended March 31, 2008.
During the nine months ended March 31, 2009, we borrowed $94 million and repaid $104 million
under our revolving credit facility. Our leverage ratio, as defined by our credit agreement, was
1.9x as of March 31, 2009, compared to 1.8x as of June 30, 2008. The weighted average interest rate
for the nine months ended March 31, 2009 and 2008 was 5.2% and 6.5%, respectively, which included
the benefit of interest rate swaps on 70% and 48% of our term debt, respectively.
During the nine months ended March 31, 2009, we declared and paid three quarterly dividends of
$0.0625 per share, resulting in $25 million of cash payments to shareholders of record.
During the nine months ended March 31, 2009, we repurchased 835,000 shares of common stock
under our previously announced share repurchase program at an aggregate cost of $20 million, which
we will retain in treasury for future use. The share repurchase program expired on December 31,
2008. During the third quarter our board of directors approved, and we adopted a new share
repurchase program to repurchase up to $200 million of our common stock in the open market from
time to time prior to December 31, 2010. To date, we have not repurchased any shares under the new
program.
We had cash and cash equivalents of $140 million as of March 31, 2009. In addition, as of
March 31, 2009, we had a borrowing capacity of $84 million under our $150 million revolving credit
facility. In April 2009, the Company paid down $30 million on the revolving credit facility
increasing its borrowing capacity to $114 million.
On July 16, 2008, we acquired 72 restaurants in Nebraska and Iowa from one of our franchisees
for a purchase price of approximately $67 million. On March 19, 2009 the Company refranchised 19
restaurants in Iowa for a sales price of $14 million, which resulted in a recognized gain of $4
million.
We expect that cash on hand, cash flow from operations and our borrowing capacity under our
revolving credit facility will allow us to meet cash requirements, including capital expenditures,
tax payments, dividends, debt service payments and share repurchases, if any, over the next twelve
months and for the foreseeable future. If additional funds are needed for strategic initiatives or
other corporate purposes, we believe we could incur additional debt or raise funds through the
issuance of our equity securities.
Comparative Cash Flows
Operating Activities
Cash provided by operating activities was $211 million during the nine months ended March 31,
2009, compared to cash provided by operating activities of $150 million during the nine months
ended March 31, 2008. The $211 million provided during the nine months ended March 31, 2009
includes net income of $141 million, including non-cash items such as a $77 million loss on the
re-measurement of foreign denominated assets and $72 million of depreciation and amortization,
offset by a usage of cash from a change in working capital of $50 million. The $50 million change
in working capital was primarily driven by a $52 million cash usage in accounts and drafts payable
due to the payment of our June accounts payable and capital accruals, a $5 million cash usage from
other accrued liabilities, primarily driven by tax and incentive payments, net of their respective
current year accruals, partially offset by a
decrease in trade and notes receivables of $4 million and a decrease in prepaids and other
current assets of $3 million. The $150 million provided during the nine months ended March 31, 2008
includes net income of $139 million and $23 million from changes in working capital, offset by $11
million from changes in long-term assets and liabilities, which includes a $22 million payment to
establish the Rabbi trust, and $1 million of non-cash adjustments.
Investing Activities
Cash used for investing activities was $171 million during the nine months ended March 31,
2009 and $62 million during the nine months ended March 31, 2008. The $171 million cash usage
during the nine months ended March 31, 2009 includes $125 million of
37
payments for property and
equipment, $68 million used for acquisitions of franchise restaurants and $4 million of other
investing activities, partially offset by $20 million from asset disposal and restaurant closures
and $6 million from the return of investment on direct financing leases. The $62 million cash usage
during the nine months ended March 31, 2008 includes $88 million of payments for the purchase of
property and equipment and $4 million related to the acquisition of franchise operations, partially
offset by $26 million of proceeds from asset disposals and restaurant closures and $5 million of
principal payments received on direct financing leases.
Capital expenditures for new restaurants include the costs to build new Company restaurants as
well as properties for new restaurants that we lease to franchisees. Capital expenditures for
existing restaurants consist of the purchase of real estate related to existing restaurants, as
well as renovations to Company restaurants, including restaurants acquired from franchisees,
investments in new equipment and normal annual capital investments for our Company restaurants to
maintain their appearance in accordance with our standards. Capital expenditures for existing
restaurants also include investments in improvements to properties we lease and sublease to
franchisees, including contributions we make toward leasehold improvements completed by franchisees
on properties we own. Other capital expenditures include investments in information technology
systems and corporate facilities. The following table presents capital expenditures by type of
expenditure:
|
|
|
|
|
|
|
|
|
|
|
For the |
|
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In millions) |
|
New restaurants |
|
$ |
39 |
|
|
$ |
25 |
|
Existing restaurants |
|
|
72 |
|
|
|
54 |
|
Other, including corporate |
|
|
14 |
|
|
|
9 |
|
|
|
|
|
|
|
|
Total |
|
$ |
125 |
|
|
$ |
88 |
|
|
|
|
|
|
|
|
We expect capital expenditures of approximately $200 million in fiscal 2009 to develop new
restaurants, to fund our restaurant reimaging program and to make improvements to restaurants we
acquire, for operational initiatives in our restaurants and for other corporate expenditures.
Financing Activities
Cash used by financing activities was $53 million during the nine months ended March 31, 2009
compared to a $105 million cash usage during the nine months ended March 31, 2008. Cash used by
financing activities during the nine months ended March 31, 2009 primarily consisted of principal
repayments on the revolving credit facility of $104 million, three quarterly cash dividend payments
totaling $25 million, the repurchase of common stock of $20 million and repayments of capital
leases of $4 million, partially offset by $94 million in proceeds from borrowings under the
revolving credit facility, $4 million of excess tax benefits from stock-based compensation and $2
million in proceeds from stock option exercises. Uses of cash in financing activities during the
nine months ended March 31, 2008 primarily consisted of repayments of debt and capital leases of
$54 million, the repurchase of common stock of
$35 million and cash dividend payments of $25 million, offset by $7 million in tax benefits
from stock-based compensation and $2 million from proceeds of stock option exercises.
Commitments and Off-Balance Sheet Arrangements
For information on Commitments and Off-Balance Sheet Arrangements, see Note 12 to our
unaudited condensed consolidated financial statements.
New Accounting Pronouncements Issued But Not Yet Adopted
In December 2007, the FASB issued SFAS No. 141(revised 2007), Business Combinations (SFAS
No. 141R). SFAS No. 141R replaces SFAS No. 141 but retains the fundamental requirements in SFAS
No. 141 that the acquisition method of accounting be used for all business combinations and for an
acquirer
to be identified for each business combination. SFAS No. 141R defines the acquirer
38
as the
entity that obtains control of one or more businesses in the business combination and establishes
the acquisition date as the date that the acquirer achieves control. SFAS No. 141R requires an
acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest
in the acquiree at their fair values at the acquisition date. Costs incurred by the acquirer to
effect the acquisition are not allocated to the assets acquired or liabilities assumed, but are
recognized separately in earnings. SFAS No. 141R is effective prospectively to business
combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008, which for us will be business
combinations with an acquisition date beginning on or after July 1, 2009. The impact that SFAS No.
141R will have on the Company depends in part upon the volume of business acquisitions. In
addition, upon adoption of SFAS No. 141R, valuation allowances established in accordance with SFAS
No. 109, Accounting for Income Taxes, if realized, will be recorded as a benefit in the statement
of operations. As of March 31, 2009, the Company projects to have $74 million of valuation
allowance on deferred tax assets for the fiscal year ending June 30, 2009.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51 (SFAS No. 160). SFAS No. 160 amends ARB No. 51
to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and
for the deconsolidation of a subsidiary and clarifies that a noncontrolling interest in a
subsidiary is an ownership interest that should be reported as equity in the consolidated financial
statements. SFAS No. 160 establishes a single method of accounting for changes in a parents
ownership interest in a subsidiary that do not result in deconsolidation and requires a parent to
recognize a gain or loss in net income when a subsidiary is deconsolidated. SFAS No. 160 also
requires consolidated net income to be reported at amounts that include the amounts attributable to
both the parent and the noncontrolling interest and to disclose, on the face of the consolidated
statement of income, the amounts of consolidated net income attributable to the parent and to the
noncontrolling interest. SFAS No. 160 is effective for fiscal years beginning on or after December
15, 2008, which for us will be our fiscal year beginning on July 1, 2009. We do not anticipate that
the adoption of SFAS No. 160 will materially impact the Company.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
There were no material changes during the nine months ended March 31, 2009 to the disclosures
made in Part II, Item 7A of the Companys Annual Report on Form 10-K for the year ended June 30,
2008, except as noted below.
We have entered into foreign currency forward contracts intended to hedge our exposure to
fluctuations in currency exchange rates associated with our intercompany loans denominated in
foreign currencies and certain foreign currency-denominated assets. These forward contracts are
primarily denominated in Euros but are also denominated in British Pounds and Canadian Dollars.
Fluctuations in the value of these forward contracts are recognized in our condensed consolidated
statements of income as incurred. The fluctuations in the value of these forward contracts do,
however, largely offset the impact of changes in the value of the underlying risk that they are
intended to economically hedge, which is also reflected in our condensed consolidated statements of
income. As of March 31, 2009, we had foreign currency forward contracts to hedge the net U.S.
dollar equivalent of $371 million of foreign currency-denominated assets. This U.S. dollar
equivalent by currency is as follows: $290 million in Euros; $65 million in British Pounds and $16
million in Canadian Dollars. All foreign currency forward contracts expire prior to June 30, 2010.
We are exposed to losses in the event of nonperformance by counterparties on these forward
contracts. We attempt to minimize this risk by selecting counterparties with investment grade
credit ratings, limiting our exposure to any single counterparty and regularly monitoring our
market position with each counterparty.
As of March 31, 2009, we had interest rate swaps with an aggregate notional value of $595
million that qualify as cash flow hedges under SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended (SFAS No. 133). The interest rate swaps help us manage
exposure to changes in forecasted LIBOR-based interest payments made on variable rate debt. A 1%
change in interest rates on our existing debt of $861 million would result in an increase or
decrease in interest expense of approximately $3 million in a given year, as we have hedged future
interest payments on $595 million of our debt.
39
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation was conducted under the supervision and with the participation of management,
including the Companys Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the
effectiveness of the design and operation of the Companys disclosure controls and procedures as of
March 31, 2009. Based on that evaluation, the CEO and CFO concluded that the Companys disclosure
controls and procedures were effective as of such date.
Internal Control Over Financial Reporting
The Companys management, including the CEO and CFO, confirm that there were no changes in the
Companys internal control over financial reporting during the fiscal quarter ended March 31, 2009
that have materially affected, or are reasonably likely to materially affect, the Companys
internal control over financial reporting.
Cautionary Note Regarding Forward-Looking Statements
Certain statements made in this report that reflect managements expectations regarding future
events and economic performance are forward-looking in nature and, accordingly, are subject to
risks and uncertainties. These forward-looking statements include statements regarding our beliefs
and expectations regarding our restaurant ownership mix and the ability of our franchisees to fund
the capital required to grow and maintain our system; our beliefs and expectations regarding our
intention to focus on sales growth and profitability and expand our large international platform;
our expectations regarding restaurant openings/closures; our intention to accelerate new restaurant
development and expansion; our beliefs and expectations regarding franchise restaurants, including
their growth potential and the factors that will result in financially stronger operators
throughout our franchise base; our intention to continue to employ innovative marketing strategies
and expand product offerings; our intention to focus on Company restaurant remodels and rebuilds;
our ability to use proactive portfolio management to drive financial performance and development;
our estimates regarding our liquidity, capital expenditures in fiscal 2009 and sources of both, and
our ability to fund our future operations, obligations and strategic initiatives; our estimates
regarding the fulfillment of certain volume purchase commitments; our expectations regarding the
impact of our hedging contracts on our income statements during fiscal year 2009; our intention to
increase shareholder value through the use of a portion of our excess cash to repurchase shares
under our repurchase program; our expectations regarding unrecognized
tax benefits; our estimate regarding the amount of valuation
allowance on deferred tax assets for the fiscal year ending
June 30, 2009; and our
expectations regarding the impact of accounting pronouncements. These forward-looking statements
are only predictions based on our current expectations and projections about future events.
Important factors could cause our actual results, level of activity, performance or achievements to
differ materially from those expressed or implied by these forward-looking statements.
These factors include those risk factors set forth in filings with the Securities and Exchange
Commission, including our annual and quarterly reports, and the following:
|
|
|
Economic or other business conditions that may affect the desire or ability of our
customers to purchase our products such as inflationary pressures, higher unemployment
rates, increases in gas prices, declines in median income growth, consumer confidence and
consumer discretionary spending and changes in consumer preferences; |
|
|
|
|
Risks arising from the significant and rapid fluctuations that have been occurring in the
currency exchange markets and the hedging decisions and positions that we take to hedge such
volatility, including the risk that our revenues and income may be disproportionately
affected as compared to some of our competitors; |
|
|
|
|
Our ability to compete domestically and internationally in an intensely competitive
industry; |
|
|
|
|
Our ability to successfully implement our international growth strategy and risks related
to our international operations; |
|
|
|
|
Our ability to manage increases in our operating costs, including costs of food and paper
products, rent expense, energy costs and labor costs, which can adversely affect our
operating margins and financial results, particularly in an environment of |
40
|
|
|
declining sales or challenging macroeconomic conditions, if we choose not to pass, or cannot
pass, these increased costs to our guests;
|
|
|
|
Our relationship with, and the success of, our franchisees; |
|
|
|
|
Risks related to franchisee financial distress which could result in, among other things,
restaurant closures, delayed or reduced payments to us of royalties and rents and increased
exposure to third parties, such as landlords; |
|
|
|
|
Our continued ability, and the ability of our franchisees, to obtain suitable locations
for new restaurant development; |
|
|
|
|
The ability of our franchisees to obtain financing for new development, restaurant
remodels and equipment initiatives on acceptable terms or at all given the current turmoil
in the global credit markets; |
|
|
|
|
The effectiveness of our marketing and advertising programs and franchisee support of
these programs; |
|
|
|
|
Risks related to the renewal of franchise agreements by our franchisees; |
|
|
|
|
The ability of franchisees who are experiencing losses from their other businesses to
continue to make payments to us and invest in our brand; |
|
|
|
|
Risks related to disruptions and catastrophic events, including disruption in the
financial markets, war, terrorism and other international conflicts, public health issues,
such as the H1N1 influenza outbreak, and natural disasters, and the impact of such events on
our operating results; |
|
|
|
|
Risks related to food safety, including foodborne illness and food tampering, and the
safety of toys and other promotional items available in our restaurants; |
|
|
|
|
Risks related to the loss of any of our major distributors, particularly in those
international markets where we have a single distributor, and interruptions in the supply of
necessary products to us; |
|
|
|
|
Our ability to execute on our reimaging program in the U.S. and Canada to increase sales
and profitability, and the short term impact of our reimaging program on revenues and
operating margins due to temporary restaurant closures and accelerated depreciation of
assets; |
|
|
|
|
Our ability to identify and consummate successfully acquisition and development
opportunities in new and existing markets; |
|
|
|
|
Our ability to refinance or modify our bank debt or obtain additional financing to fund
our future cash needs given the current lending environment; |
|
|
|
|
Risks related to the impact of the global financial and credit crisis on the restaurant
industry in general and on our business and results of operations, including the risk of
interruptions in the supply chain due to the failure of any of our major suppliers or
distributors or the inability of our major suppliers or distributors to obtain financing; |
|
|
|
|
Risks related to the ability of counterparties to our secured credit facility, interest
rate swaps and foreign currency forward contracts to fulfill their commitments and/or
obligations due to disruptions in the global credit markets, including the bankruptcy or
restructuring of certain financial institutions; |
41
|
|
|
Risks related to interruptions or security breaches of our computer systems and risks
related to the lack of integration of our worldwide technology systems; |
|
|
|
|
Our ability to continue to extend our hours of operations, at least in the U.S. and
Canada, to capture a larger market of both the breakfast and late night dayparts; |
|
|
|
|
Changes in consumer perceptions of dietary health and food safety and negative publicity
relating to our products; |
|
|
|
|
Our ability to retain or replace executive officers and key members of management with
qualified personnel; |
|
|
|
|
Our ability to utilize foreign tax credits to offset our U.S. income taxes due to
continuing losses in the U.K. and other factors and risks related to the impact of changes
in statutory tax rates in foreign jurisdictions on our deferred taxes and effective tax
rate; |
|
|
|
|
Our ability to realize our expected tax benefits from the realignment of our European and
Asian businesses; |
|
|
|
|
Changes in demographic patterns of current restaurant locations; |
|
|
|
|
Our ability to adequately protect our intellectual property; |
|
|
|
|
Risks related to market conditions, including the market price and trading volume of our
common stock, which would affect our ability to repurchase our stock; |
|
|
|
|
Our ability to manage changing labor conditions in the U.S. if Congress passes the
Employee Free Choice Act, which would establish a so called card check union organizing
system in which a majority of employees sign a card in favor of union representation; |
|
|
|
|
Our ability to manage changing labor conditions and difficulties in staffing our
international operations; |
|
|
|
|
Adverse legal judgments, settlements or pressure tactics; and |
|
|
|
|
Adverse legislation or regulation. |
These risks are not exhaustive and may not include factors which could adversely impact our
business and financial performance. Moreover, we operate in a very competitive and rapidly changing
environment. New risk factors emerge from time to time and it is not possible for our management to
predict all risk factors, nor can we assess the impact of all factors on our business or the extent
to which any factor, or combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements.
Although we believe the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, level of activity, performance or achievements.
Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness
of any of these forward-looking statements. You should not rely upon forward-looking statements as
predictions of future events. We do not undertake any responsibility to update any of these
forward-looking statements to conform our prior statements to actual results or revised
expectations.
42
Part II Other Information
Item 1A. Risk Factors
Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended June 30, 2008
(2008 10-K), as supplemented by Item IA of Part II of our Quarterly Report on Form 10-Q for the
three months ended September 30, 2008 (2009 1st Quarter 10-Q), includes a detailed
discussion of the risk factors that could materially affect our business, financial condition or
future prospects. Set forth below is a discussion of the material changes in our risk factors
previously disclosed in our 2008 10-K, as supplemented by our 2009 1st Quarter 10-Q. The
information below updates, and should be read in conjunction with, the risk factors in our 2008
10-K and 2009 1st Quarter 10-Q. We encourage you to read these risk factors in their
entirety.
As previously disclosed in our 2008 10-K, our results can be adversely affected by disruptions
or catastrophic events, including public health issues, whether occurring in the United States or
abroad. Recent outbreaks of H1N1 influenza, also known as Swine flu, centered in Mexico, but
affecting individuals in various countries outside of Mexico, have been reported and constitute a
public health issue. The following risk factor updates the risk factor in our 2008 10-K with the
caption Our results can be adversely affected by disruptions or catastrophic events.
Consumer
reactions to the recent outbreak of Swine Flu, also known as H1N1
influenza, and government measures
implemented to contain the outbreak of H1N1 influenza may have an adverse affect on our business
operations and financial results.
On April 28, 2009, in response to the outbreak of H1N1 influenza in Mexico, Mexican government
officials informed us that all 84 Burger King restaurants located in and around Mexico City, which
includes 50 Company-owned restaurants and 34 franchise restaurants, would need to restrict their
operations to only drive thru and take-out operations until further notice. We do not know at the
current time how long these measures will remain in place or if additional restrictions resulting
in further reduced operations or the ceasing of all restaurant operations in and around Mexico City
will be imposed. Additionally, we do not know at the current time whether government authorities
of any other cities or countries, within Mexico or elsewhere, will adopt similar measures
restricting our restaurant operations. To the extent that business operations at our company
restaurants, our franchise restaurants or our suppliers are restricted, we would expect our
revenues and financial results to be adversely affected. Furthermore, even once these restrictions
are lifted, consumer concerns regarding the H1N1 influenza may adversely affect consumer behavior
regarding travel or eating outside the home, within Mexico or abroad, which could adversely affect
our revenues and financial results.
Item 6. Exhibits
The exhibits listed in the accompanying index are filed as part of this report.
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
31.1
|
|
Certification of Chief Executive Officer of Burger King Holdings,
Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.2
|
|
Certification of Chief Financial Officer of Burger King Holdings,
Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1
|
|
Certification of Chief Executive Officer of Burger King Holdings,
Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.2
|
|
Certification of the Chief Financial Officer of Burger King
Holdings, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
43
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
BURGER KING HOLDINGS, INC.
(Registrant)
|
|
Date: May 5, 2009 |
By: |
/s/ Ben K. Wells
|
|
|
|
Name: |
Ben K. Wells |
|
|
|
Title: |
Chief Financial Officer
(principal financial and accounting officer)
(duly authorized officer) |
|
|
44
INDEX TO EXHIBITS
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
31.1
|
|
Certification of Chief Executive Officer of Burger King
Holdings, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
|
|
|
31.2
|
|
Certification of Chief Financial Officer of Burger King
Holdings, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
|
|
|
32.1
|
|
Certification of Chief Executive Officer of Burger King
Holdings, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
|
|
|
32.2
|
|
Certification of the Chief Financial Officer of Burger King
Holdings, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
45