Burger King Holdings, Inc.
The
information in this prospectus supplement is not complete and
may be changed. This prospectus supplement and the accompanying
prospectus are not an offer to sell these securities, and we are
not soliciting an offer to buy these securities, in any state
where the offer or sale is not permitted.
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Filed Pursuant to Rule 424(b)(4)
Registration No. 333-147142
Subject to Completion, dated
November 6, 2007
23,000,000 Shares
Burger King
Holdings, Inc.
Common Stock
The selling stockholders named in this prospectus supplement are
offering 23,000,000 shares of our common stock. We will not
receive any proceeds from the sale of our common stock by the
selling stockholders.
Our common stock is listed on the New York Stock Exchange under
the symbol BKC. On November 2, 2007, the
closing price of our common stock, as reported by the NYSE
Consolidated Tape, was $27.73 per share.
Investing in our common stock involves risks. See
Risk factors beginning on
page S-10.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus supplement. Any representation to the contrary is a
criminal offense.
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Underwriting
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Proceeds to
selling
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discounts and
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stockholders,
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Price
to public
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commissions
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before
expenses
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Per Share
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$
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$
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$
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Total
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$
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$
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$
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To the extent that the underwriters sell more than
23,000,000 shares of common stock, the underwriters have an
option to purchase up to an additional 3,450,000 shares of
common stock from the selling stockholders at the offering price
less the underwriting discount. We will not receive any of the
proceeds from a sale of the shares by the selling stockholders
if the underwriters exercise their option to purchase additional
shares of common stock.
The underwriters expect to deliver the shares against payment in
New York, New York
on ,
2007.
Banc
of America Securities LLC
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The
Williams Capital Group, L.P.
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Prospectus Supplement
(To Prospectus dated November 5, 2007)
Table of
contents
Prospectus
Supplement
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S-i
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S-1
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S-6
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S-10
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S-13
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S-14
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S-15
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S-16
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S-17
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S-23
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S-57
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S-60
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S-64
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S-66
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S-69
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S-70
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S-70
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S-71
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Prospectus
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1
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3
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3
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5
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12
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12
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13
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About
this prospectus supplement
You should rely only on the information contained in, or
incorporated by reference into, this prospectus supplement, the
accompanying prospectus and any additional prospectus
supplements or free writing prospectuses, if necessary. We have
not authorized anyone to provide you with information that is
different. This prospectus supplement is not an offer to sell or
solicitation of an offer to buy these shares of common stock in
any circumstances under which the offer or solicitation is
unlawful. You should not assume that the information we have
included in this prospectus supplement or the accompanying
prospectus is accurate as of any date other than the date of
this prospectus supplement or the accompanying prospectus or
that any information we have incorporated by reference is
accurate as of any date other than the date of the document
incorporated by reference regardless of the time of delivery of
this prospectus supplement or of any such shares of our common
stock.
This document is in two parts. The first part is this prospectus
supplement, which adds, updates and changes information
contained in the accompanying prospectus and the information
incorporated by reference. The second part is the accompanying
prospectus, which gives more general information, some of which
may not apply to this offering of shares of common stock. To the
extent the information contained in this prospectus supplement
differs or varies from the information contained in the
accompanying prospectus or any document incorporated by
reference, the information in this prospectus supplement shall
control.
At varying places in this prospectus supplement and the
accompanying prospectus, we refer you to other sections of the
documents for additional information by indicating the caption
heading of the other sections. The page on which each principal
caption included in this prospectus supplement and the
accompanying prospectus can be found is listed in the Table of
contents on the preceding page. All cross-references in this
prospectus supplement are to captions contained in this
prospectus supplement and not in the accompanying prospectus,
unless otherwise stated.
No dealer, sales person or other person is authorized to give
any information or to represent anything not contained in this
prospectus supplement or the accompanying prospectus. You must
not rely on any unauthorized information or representations. The
selling stockholders are offering to sell, and seeking offers to
buy, shares of our common stock only where those offers and
sales are permitted.
In this prospectus supplement, we rely on and refer to
information regarding the restaurant industry, the quick service
restaurant segment and the fast food hamburger restaurant
category that has been prepared by the industry research firm
NPD Group, Inc. (which prepares and disseminates Consumer
Reported Eating Share Trends, or CREST data) or compiled from
market research reports, research analyst reports and other
publicly available information. All industry and market data
that are not cited as being from a specified source are from
internal analyses based upon data available from noted sources
or other proprietary research and analysis.
S-i
This summary highlights information contained elsewhere in
this prospectus supplement, the accompanying prospectus and in
the documents incorporated by reference. This summary does not
contain all of the information you should consider before
investing in our common stock. You should read the entire
prospectus supplement, the accompanying prospectus and the
documents incorporated by reference carefully, including the
risks of investing in our common stock discussed under
Risk factors and the financial statements and notes.
Unless we specifically state otherwise, the information in this
prospectus supplement does not take into account the sale of up
to 3,450,000 shares of common stock which the underwriters
have the option to purchase from the selling stockholders.
On December 13, 2002, we acquired Burger King
Corporation, which we refer to as BKC, through
private equity funds controlled by TPG Capital, Bain Capital
Partners and the Goldman Sachs Funds, or the
sponsors. In this prospectus supplement, unless the
context otherwise requires, all references to we,
us and our refer to Burger King
Holdings, Inc. and its subsidiaries, including BKC, for all
periods subsequent to our December 13, 2002 acquisition of
BKC. All references to our predecessor refer to BKC
and its subsidiaries for all periods prior to the acquisition,
which operated under a different ownership and capital
structure.
References to fiscal 2007, fiscal 2006 and fiscal 2005 in
this prospectus supplement are to the fiscal years ended
June 30, 2007, 2006 and 2005, respectively, and references
to fiscal 2008 are to the fiscal year ending June 30, 2008.
Unless otherwise stated, sales, sales growth, comparable sales
growth and average restaurant sales are presented on a
system-wide basis.
The King of
Burgers
When the first Burger
King®
restaurant opened its doors back in 1954, our founders had a
smart idea: serve great-tasting food fast and allow guests to
customize their hamburgers their way. Much has changed in the
half century since our founders sold the first
Whopper®
sandwiches in a Miami
drive-up
hamburger stand in 1957, but these core principles have remained.
We believe that the Burger King and Whopper brands
are two of the worlds most widely-recognized consumer
brands. These brands, together with our signature flame-broiled
products and the Have It Your
Way®
brand promise, are among the strategic assets that set
Burger King restaurants apart from other regional and
national fast food hamburger restaurant, or FFHR, chains.
Have It Your Way is increasingly relevant as consumers
continue to demand personalization and choice over mass
production. In a competitive industry, we believe we have
differentiated ourselves through our attention to individual
customers preferences by offering great tasting fresh food
served fast and in a friendly manner and by recent advertising
campaigns aimed at becoming a part of the popular culture.
Were the worlds second largest fast food hamburger
restaurant chain as measured by the number of restaurants and
sales system-wide. As of September 30, 2007, we owned or
franchised 11,290 restaurants in 69 countries and
U.S. territories. The fast food hamburger restaurant
category in the United States had annual sales of over
$59 billion for the twelve-month period ended June 30,
2007, according to NPD Group, Inc.
Where We
Started
Our founders sold Burger King Corporation to The Pillsbury
Company in 1967, taking it from a small privately-held
franchised chain to a subsidiary of a large food conglomerate.
The Pillsbury Company was purchased by Grand Metropolitan plc,
which, in turn, merged with Guinness plc to form Diageo
plc, a British spirits company. In December 2002, Burger King
Corporation was acquired by private equity funds controlled by
TPG Capital, Bain Capital Partners and the Goldman Sachs Funds.
The sponsors focused on attracting an experienced management
team, including our current Chief Executive Officer, John
Chidsey, who joined the company in March 2004 and became our CEO
in April 2006. The management team quickly developed and
launched the Go Forward growth plan, a comprehensive
plan guided by the following four principles: Grow Profitably (a
market plan); Fund the Future (a financial plan);
Fire-up the
Guest (a product plan); and Working Together (a people plan).
S-1
In May 2006, we consummated our initial public offering and
issued and sold 25 million shares of common stock and our
sponsors sold 3.75 million shares of common stock at a
price of $17.00 per share. Upon completion of the offering, our
common stock became listed on the New York Stock Exchange under
the symbol BKC. In February/March 2007, the private
equity funds controlled by our sponsors sold 22 million
shares of common stock at a price of $22.00 per share.
What Weve
Accomplished by Going Forward Together
Guided by our Go Forward growth plan and strong executive team
leadership, we have implemented a number of strategic and
operational initiatives that are generating growth in the
U.S. and internationally as evidenced by:
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fifteen consecutive quarters of positive system-wide comparable
sales growth, our best comparable sales growth trend in more
than a decade, including comparable sales growth of 5.9% for the
first quarter of fiscal 2008;
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fourteen consecutive quarters of positive comparable sales
growth in the United States and Canada, including comparable
sales growth of 6.6% for the first quarter of fiscal 2008;
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all time high annual revenues in fiscal 2007 of
$2.2 billion, a 9% increase from the prior year;
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all time high average restaurant sales, or ARS, in fiscal 2007
of $1.19 million and $1.22 million for the trailing
12-month
period ended September 30, 2007;
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continued acceleration of worldwide restaurant growth with 441
new openings in fiscal 2007, a 26% increase from the prior year,
and net growth of 154 units, over six times higher than the
prior year;
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restaurant openings in four new international markets during
fiscal 2007: Japan, Indonesia, Poland and Egypt;
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award-winning advertising and promotion programs focused on our
core customers;
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a robust pipeline of new products that generated sales of more
than $5 billion in the past three years;
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all time high guest satisfaction scores in fiscal 2007, as well
as record speed of service and cleanliness scores;
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introduction of the
BKtm
Breakfast Value Menu, the first such offering in the FFHR
category, and continued improvement in extending hours of
operations;
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reduction in debt of $152 million since July 1, 2006
to $846 million as of September 30, 2007;
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payment of three quarterly cash dividends as a public company of
$0.0625 per share each; and
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net income up 23% to $49 million and diluted earnings per
share up 17% to $0.35 per share for the first quarter of fiscal
2008 compared to the same period in the prior year.
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Why We Are
The King
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Distinctive brand with global platform: We
believe that our Burger King and Whopper brands
are two of the most widely-recognized consumer brands in the
world. We have one of the largest restaurant networks in the
world, with 11,290 restaurants operating in 69 countries and
U.S. territories, of which 4,122 are located in our
international markets. During fiscal 2007 our franchisees opened
restaurants in four new international markets: Japan, Indonesia,
Poland and Egypt. We believe that the demand for new
international franchise restaurants is growing and that our
global platform will allow us to leverage our established
infrastructure to significantly increase our international
restaurant count with limited incremental investment or expense.
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Attractive business model: Approximately 90%
of our restaurants are franchised, which is a higher percentage
than our major competitors in the fast food hamburger restaurant
category. We believe that our franchise restaurants will
generate a consistent profitable royalty stream to us, with
minimal ongoing capital expenditures or incremental expense by
us. We also believe this will provide
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S-2
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us with significant cash flow to reinvest in growing our brand
and enhancing shareholder value. Although we believe that this
restaurant ownership mix is beneficial to us, it also presents a
number of drawbacks, such as our limited control over
franchisees and limited ability to facilitate changes in
restaurant ownership.
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Innovative marketing campaigns, creative advertising and
strategic sponsorships: We utilize our successful
marketing, advertising and sponsorships to drive sales and
generate restaurant traffic. In June and July of 2007, our
U.S. television advertisements ranked in the top position
for most liked new ads for all national advertisers
according to advertising industry researcher IAG. Our successful
Xbox®
gaming collection, comprised of three Xbox games
featuring the King, sold more than 3.2 million
copies, making it the best selling suite of video games of the
2006 holiday season. We are also reaching out to a broad
spectrum of restaurant guests with mass appeal sports and
entertainment sponsorships, such as the National Football League
(NFL) and NASCAR and movie tie-ins such as
Spider-Mantm
3 and The
Simpsonstm
Movie. As part of our promotion for The Simpsons Movie,
we created www.simpsonizeme.com, an interactive
website that converts photos of consumers into Simpsonized
versions of themselves. In just one month, 25 million
photos were uploaded, with over three quarters of a billion hits
on our website as of November 5, 2007. As evidence of the
popular relevance of our brand, Microsoft chose Burger King
as the quick service restaurant, or QSR, promotional channel
for the third installment of the popular video game franchise,
Halo
3tm.
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Experienced management team: We have a
seasoned management team with significant relevant experience.
John Chidsey, our Chief Executive Officer, has extensive
experience in managing franchised and branded businesses,
including the Avis
Rent-A-Car
and Budget
Rent-A-Car
systems, Jackson Hewitt Tax Services and PepsiCo. Russell Klein,
our President, Global Marketing, Strategy and Innovation, has
29 years of retail and consumer marketing experience,
including 7-Eleven Inc. Ben Wells, our Chief Financial Officer,
has 30 years of finance experience, including at Compaq
Computer Corporation and British Petroleum. In addition, other
members of our management team have worked at Frito Lay,
McDonalds, Pillsbury, Taco Bell and Wendys. The core
of our management team has been working together since 2004.
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Our Way Going
Forward
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Drive further sales growth: We remain focused
on achieving our comparable sales and average restaurant sales
targets and potential. Essential components of this strategy are:
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Enhancing the guest experience our key guest
satisfaction and operations metrics were at all-time highs in
fiscal 2007 and we intend to further improve these metrics;
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Reducing hours of operation gap we have implemented
initiatives to reduce the gap between our hours of operation and
those of our competitors, which we believe will increase
comparable sales and average restaurant sales in
U.S. restaurants; and
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Increasing emphasis on company restaurant remodelings and
rebuilds we believe that increased capital
expenditures dedicated to company restaurant remodels and
rebuilds will result in higher sales in these restaurants and
yield strong cash on cash returns.
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Enhance restaurant profitability: We believe
that significant opportunities exist to enhance restaurant
profitability by better utilizing our fixed cost base, and
continuing to explore ways to reduce variable costs. For
example, in the first quarter of fiscal 2008 we experienced
lower utility costs in our company restaurants in the
U.S. and Canada generated in part from the recent
installation of the new flexible batch broiler. These savings
should help to offset potential labor and commodity cost
increases.
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Expand our large international platform: We
intend to leverage our substantial international infrastructure
to expand our franchise network and restaurant base.
Internationally we are much smaller than our largest competitor,
and, therefore, we believe we have significant growth
opportunities. We have developed a detailed global development
plan to accelerate worldwide growth over the next five years. We
expect to focus our expansion plans on (1) under-penetrated
markets where we already have an established presence, such as
Germany, Spain and Mexico; (2) markets in
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S-3
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which we have a small presence, but which we believe offer
significant development opportunities, such as Brazil, China and
Italy; and (3) financially attractive new markets such as
Japan and Indonesia, where our new franchisees have recently
opened restaurants, and countries in the Middle East, Eastern
Europe and the Mediterranean region. For example, we believe
that our successful entry into Brazil where in two and a half
years we have recruited seven new franchisees and opened 36
restaurants in 14 cities validates the opportunities that
exist for us in rapidly developing international markets.
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Accelerate our new restaurant development: The
expansion of our restaurant network and an increase in the
number of new restaurants are key ingredients in our growth
plan. We expect that most of our new restaurant growth will come
from franchisees. Consequently, we believe that providing our
franchisees with a development process that is streamlined,
financially flexible and capital-efficient will accelerate the
pace of restaurant development. As part of this strategy, we
developed new, smaller restaurant designs that reduce the level
of capital investment required, while also addressing a change
in consumer preference from dine-in to drive-thru (as of
June 30, 2007, 62% of U.S. company restaurant sales
were made in the drive-thru). These smaller restaurant models
reduce average building costs by approximately 25% and are
anticipated to reduce utility and other operating expenses. We
are also actively pursuing co-branding and site sharing programs
to reduce initial investment expense and have begun testing a
turn-key development assistance program that reduces the time
and uncertainty associated with new builds.
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Employ innovative marketing strategies and expand product
offerings: We intend to continue to employ
innovative and creative marketing strategies to increase our
restaurant traffic and comparable sales. We intend to launch new
products to fill gaps in our breakfast, dessert and snack menu
offerings, offer more choices to our guests and enhance the
price/value proposition of our products with offerings such as
the BK Value Menu and the BK Breakfast Value Menu
(the first national breakfast value menu in the FFHR category).
In addition, we intend to roll-out several new and limited time
offer products in fiscal 2008.
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Ownership by
sponsors
Our principal stockholders are the private equity funds
controlled by the sponsors. As of September 30, 2007, these
funds beneficially owned approximately 58% of our outstanding
common stock. Following completion of this offering, these funds
will beneficially own approximately 41.4% of our common stock,
or 38.9% if the underwriters option to purchase additional
shares is fully exercised. As a result, we will no longer be a
controlled company within the meaning of the New
York Stock Exchange rules upon completion of this offering.
Please refer to the discussion under Risk factors
for a description of the impact of us ceasing to be a
controlled company.
Our
headquarters
Our global headquarters are located at 5505 Blue Lagoon Drive,
Miami, Florida 33126. Our telephone number is
(305) 378-3000.
Our website is accessible through www.burgerking.com or
www.bk.com. Information on, or accessible through, this
website is not a part of, and is not incorporated into, this
prospectus supplement.
Burger
King®,
Whopper®,
Double
Whopper®,
Have It Your
Way®,
Tendercrisp®,
Burger King Bun Halves and Crescent Logo,
BK tm
Value Menu,
BK tm
Breakfast Value Menu,
BK tm
Stacker and
ChickN Crisptm
are protected under applicable intellectual property laws and
are the property of Burger King Brands, Inc., an indirect
wholly-owned subsidiary of Burger King Holdings, Inc. Other
registered trademarks referred to in this prospectus supplement
are the property of their respective owners.
S-4
The
offering
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Common stock offered by the selling stockholders |
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23,000,000 shares(1) |
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Common stock to be outstanding after this offering |
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135,213,331 shares(2) |
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Voting Rights |
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One vote per share. |
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Use of Proceeds |
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We will not receive any of the proceeds from the sale of our
common stock by the selling stockholders. |
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New York Stock Exchange Symbol |
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BKC |
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Risk Factors |
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See Risk factors and the other information included
in and incorporated by reference into this prospectus supplement
for a discussion of the factors you should consider carefully
before deciding to invest in shares of our common stock. |
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(1)
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Excludes 3,450,000 shares that
may be sold by the selling stockholders upon exercise of the
underwriters option to purchase additional shares.
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(2)
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Excludes 7,753,679 shares of
our common stock issuable upon the exercise of non-qualified
stock options or the settlement of restricted stock unit awards,
performance-based restricted stock awards and deferred stock
unit awards outstanding as of September 30, 2007 of which
options to purchase 2,502,615 shares were exercisable as of
September 30, 2007. In addition, as of September 30,
2007, (i) 1,567,646 shares of our common stock remain
to be awarded under the Burger King Holdings, Inc. Equity
Incentive Plan and (ii) 5,667,110 shares of our common
stock remain to be awarded under the Burger King Holdings, Inc.
2006 Omnibus Incentive Plan. As of November 1, 2007, we
have granted stock options, restricted stock awards and
performance based restricted stock awards covering a total of
13,073, 18,112 and 4,662 shares of our common stock,
respectively, in the second quarter of fiscal 2008.
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S-5
Summary
consolidated financial and other data
The following summary consolidated financial and other data
should be read in conjunction with, and are qualified by
reference to, the disclosures set forth under
Managements discussion and analysis of financial
condition and results of operations as well as in the
consolidated financial statements and their notes. The summary
consolidated income statement data for the years ended
June 30, 2005, 2006 and 2007 have been derived from our
audited, consolidated financial statements incorporated by
reference into this prospectus supplement. The summary
consolidated income statement data for the three months ended
September 30, 2006 and 2007 and the balance sheet data as
of September 30, 2007 have been derived from our unaudited
condensed consolidated financial statements incorporated by
reference into this prospectus supplement, and include all
adjustments consisting of normal recurring adjustments necessary
for a fair presentation of the results of the interim periods.
The data shown below are not necessarily indicative of future
results. The other operating data for the fiscal years ended
June 30, 2005, 2006 and 2007 and for the three months ended
September 30, 2006 and 2007 have been derived from our
internal records. The information presented below should be read
in conjunction with Managements discussion and
analysis of financial condition and results of operations
and our audited and unaudited condensed consolidated financial
statements and related notes and other financial information
incorporated by reference into this prospectus supplement.
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For the fiscal
year ended
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For the three
months ended
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June 30,
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September 30,
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2005
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2006
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2007
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2006
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2007
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(In millions,
except per share data)
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Income Statement Data:
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Total revenues
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$
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1,940
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$
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2,048
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$
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2,234
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$
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546
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$
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602
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Total company restaurant expenses
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1,195
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1,296
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1,409
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343
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373
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Selling, general and administrative expenses(1)
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487
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488
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474
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112
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119
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Property expenses
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64
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57
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61
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16
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14
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Fees paid to affiliates(2)
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9
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39
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Other operating (income) expenses, net
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34
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(2
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)
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(1
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)
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(7
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Total operating costs and expenses
|
|
$
|
1,789
|
|
|
$
|
1,878
|
|
|
$
|
1,943
|
|
|
$
|
464
|
|
|
$
|
506
|
|
|
|
|
|
|
|
Income from operations
|
|
|
151
|
|
|
|
170
|
|
|
|
291
|
|
|
|
82
|
|
|
|
96
|
|
Interest expense, net
|
|
|
73
|
|
|
|
72
|
|
|
|
67
|
|
|
|
17
|
|
|
|
16
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
18
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
Income before income taxes
|
|
|
78
|
|
|
|
80
|
|
|
|
223
|
|
|
|
64
|
|
|
|
80
|
|
Income tax expense
|
|
|
31
|
|
|
|
53
|
|
|
|
75
|
|
|
|
24
|
|
|
|
31
|
|
|
|
|
|
|
|
Net income
|
|
$
|
47
|
|
|
$
|
27
|
|
|
$
|
148
|
|
|
$
|
40
|
|
|
$
|
49
|
|
|
|
|
|
|
|
Earnings per share(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.44
|
|
|
$
|
0.24
|
|
|
$
|
1.11
|
|
|
$
|
0.30
|
|
|
$
|
0.36
|
|
Diluted
|
|
$
|
0.44
|
|
|
$
|
0.24
|
|
|
$
|
1.08
|
|
|
$
|
0.30
|
|
|
$
|
0.35
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
106.5
|
|
|
|
110.3
|
|
|
|
133.9
|
|
|
|
133.1
|
|
|
|
135.2
|
|
Diluted
|
|
|
106.9
|
|
|
|
114.7
|
|
|
|
136.8
|
|
|
|
135.9
|
|
|
|
137.7
|
|
|
|
S-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal
year ended
|
|
|
For the three
months ended
|
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
(In
millions)
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) operating activities
|
|
$
|
218
|
|
|
$
|
74
|
|
|
$
|
117
|
|
|
$
|
(47
|
)
|
|
$
|
41
|
|
Net cash used for investing activities
|
|
|
(5
|
)
|
|
|
(74
|
)
|
|
|
(84
|
)
|
|
|
(15
|
)
|
|
|
(15
|
)
|
Net cash used for financing activities
|
|
|
(2
|
)
|
|
|
(173
|
)
|
|
|
(127
|
)
|
|
|
(51
|
)
|
|
|
(39
|
)
|
Capital expenditures
|
|
|
93
|
|
|
|
85
|
|
|
|
87
|
|
|
|
13
|
|
|
|
23
|
|
EBITDA(4)
|
|
$
|
225
|
|
|
$
|
258
|
|
|
$
|
380
|
|
|
$
|
104
|
|
|
$
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
September 30,
|
|
Balance
Sheet Data:
|
|
2007
|
|
|
|
|
|
(In
millions)
|
|
|
Cash and cash equivalents
|
|
$
|
162
|
|
Total assets
|
|
|
2,530
|
|
Total debt and capital lease obligations
|
|
|
920
|
|
Total liabilities
|
|
|
1,783
|
|
Total stockholders equity
|
|
$
|
747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal
year ended June 30,
|
|
|
For the three
months ended September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
Other Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable sales growth(5)(6)
|
|
|
5.6
|
%
|
|
|
1.9
|
%
|
|
|
3.4
|
%
|
|
|
2.4
|
%
|
|
|
5.9
|
%
|
Average restaurant sales (in thousands)
|
|
$
|
1,104
|
|
|
$
|
1,126
|
|
|
$
|
1,193
|
|
|
$
|
300
|
|
|
$
|
327
|
|
Sales growth(5)
|
|
|
6.1
|
%
|
|
|
2.1
|
%
|
|
|
4.9
|
%
|
|
|
4.0
|
%
|
|
|
8.5
|
%
|
Company restaurants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
|
844
|
|
|
|
878
|
|
|
|
897
|
|
|
|
882
|
|
|
|
901
|
|
EMEA/APAC(7)
|
|
|
283
|
|
|
|
293
|
|
|
|
329
|
|
|
|
296
|
|
|
|
311
|
|
Latin America(8)
|
|
|
60
|
|
|
|
69
|
|
|
|
77
|
|
|
|
70
|
|
|
|
77
|
|
|
|
|
|
|
|
Total company restaurants
|
|
|
1,187
|
|
|
|
1,240
|
|
|
|
1,303
|
|
|
|
1,248
|
|
|
|
1,289
|
|
Franchise restaurants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
|
6,876
|
|
|
|
6,656
|
|
|
|
6,591
|
|
|
|
6,639
|
|
|
|
6,581
|
|
EMEA/APAC(7)
|
|
|
2,373
|
|
|
|
2,494
|
|
|
|
2,563
|
|
|
|
2,499
|
|
|
|
2,581
|
|
Latin America(8)
|
|
|
668
|
|
|
|
739
|
|
|
|
826
|
|
|
|
758
|
|
|
|
839
|
|
|
|
|
|
|
|
Total franchise restaurants
|
|
|
9,917
|
|
|
|
9,889
|
|
|
|
9,980
|
|
|
|
9,896
|
|
|
|
10,001
|
|
|
|
|
|
|
|
Total restaurants
|
|
|
11,104
|
|
|
|
11,129
|
|
|
|
11,283
|
|
|
|
11,144
|
|
|
|
11,290
|
|
|
|
S-7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal
year ended June 30,
|
|
|
For the three
months ended September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
Segment Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant revenues (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
$
|
923
|
|
|
$
|
1,032
|
|
|
$
|
1,082
|
|
|
$
|
271
|
|
|
$
|
290
|
|
EMEA/APAC(7)
|
|
|
435
|
|
|
|
428
|
|
|
|
515
|
|
|
|
119
|
|
|
|
135
|
|
Latin America(8)
|
|
|
49
|
|
|
|
56
|
|
|
|
61
|
|
|
|
15
|
|
|
|
16
|
|
|
|
|
|
|
|
Total company restaurant revenues
|
|
$
|
1,407
|
|
|
$
|
1,516
|
|
|
$
|
1,658
|
|
|
$
|
405
|
|
|
$
|
441
|
|
|
|
|
|
|
|
Company restaurant margin(9):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
|
14.2
|
%
|
|
|
14.1
|
%
|
|
|
15.3
|
%
|
|
|
14.8
|
%
|
|
|
15.3
|
%
|
EMEA/APAC(7)
|
|
|
15.2
|
%
|
|
|
13.9
|
%
|
|
|
13.0
|
%
|
|
|
15.2
|
%
|
|
|
14.4
|
%
|
Latin America(8)
|
|
|
30.6
|
%
|
|
|
26.6
|
%
|
|
|
25.9
|
%
|
|
|
25.3
|
%
|
|
|
23.8
|
%
|
Total company restaurant margin
|
|
|
15.1
|
%
|
|
|
14.5
|
%
|
|
|
15.0
|
%
|
|
|
15.3
|
%
|
|
|
15.3
|
%
|
Franchise revenues (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
$
|
269
|
|
|
$
|
267
|
|
|
$
|
284
|
|
|
$
|
70
|
|
|
$
|
79
|
|
EMEA/APAC(7)
|
|
|
114
|
|
|
|
119
|
|
|
|
135
|
|
|
|
33
|
|
|
|
41
|
|
Latin America(8)
|
|
|
30
|
|
|
|
34
|
|
|
|
41
|
|
|
|
10
|
|
|
|
11
|
|
|
|
|
|
|
|
Total franchise revenues
|
|
$
|
413
|
|
|
$
|
420
|
|
|
$
|
460
|
|
|
$
|
113
|
|
|
$
|
131
|
|
|
|
|
|
|
|
Franchise sales (in millions)(10)
|
|
$
|
10,817
|
|
|
$
|
10,903
|
|
|
$
|
11,574
|
|
|
$
|
2,914
|
|
|
$
|
3,226
|
|
|
|
|
|
|
|
Income from operations (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
$
|
255
|
|
|
$
|
295
|
|
|
$
|
336
|
|
|
$
|
87
|
|
|
$
|
97
|
|
EMEA/APAC(7)
|
|
|
36
|
|
|
|
62
|
|
|
|
54
|
|
|
|
20
|
|
|
|
20
|
|
Latin America(8)
|
|
|
25
|
|
|
|
29
|
|
|
|
35
|
|
|
|
8
|
|
|
|
9
|
|
Unallocated(11)
|
|
|
(165
|
)
|
|
|
(216
|
)
|
|
|
(134
|
)
|
|
|
(33
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
Total income from operations
|
|
$
|
151
|
|
|
$
|
170
|
|
|
$
|
291
|
|
|
$
|
82
|
|
|
$
|
96
|
|
|
|
|
|
|
(1)
|
|
Includes compensation expense and
taxes related to the compensatory make-whole payment made on
February 21, 2006 to holders of our options and restricted
stock unit awards, primarily members of senior management.
|
|
(2)
|
|
Fees paid to affiliates consist of
management fees we paid to the sponsors under a management
agreement. Fees paid to affiliates in fiscal 2006 also include a
$30 million fee that we paid to terminate the management
agreement with our sponsors upon completion of our initial
public offering, which we refer to as the sponsor management
termination fee.
|
|
(3)
|
|
Earnings per share is calculated
using whole dollars and shares.
|
|
(4)
|
|
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 income and expense.
Capital expenditures, which impact depreciation and
amortization, interest expense and income tax expense, are
reviewed separately by management. 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 it to evaluate and forecast
our business performance. This non-GAAP financial 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. Therefore, any measure that excludes interest expense has
material limitations;
|
|
|
|
it does not include
depreciation and amortization expenses. Because we use capital
assets, depreciation and amortization are a necessary element of
our costs and ability to generate profits. Therefore, any
measure that excludes depreciation and amortization expenses has
material limitations; and
|
|
|
|
it does not include
provision for taxes. Because the payment of taxes is a necessary
element of our operations, any measure that excludes tax expense
has material limitations.
|
|
|
|
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.
|
S-8
|
|
|
|
|
EBITDA is not intended to be a
measure of liquidity or cash flows from operations nor a measure
comparable to net income.
|
|
|
|
The following table is a
reconciliation of our net income to EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal
year ended June 30,
|
|
|
For the three
months ended September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
(In
millions)
|
|
|
Net income
|
|
$
|
47
|
|
|
$
|
27
|
|
|
$
|
148
|
|
|
$
|
40
|
|
|
$
|
49
|
|
Interest expense, net
|
|
|
73
|
|
|
|
72
|
|
|
|
67
|
|
|
|
17
|
|
|
|
16
|
|
Loss on early distinguishment of debt
|
|
|
|
|
|
|
18
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
Income tax expense
|
|
|
31
|
|
|
|
53
|
|
|
|
75
|
|
|
|
24
|
|
|
|
31
|
|
|
|
|
|
|
|
Income from operations
|
|
|
151
|
|
|
|
170
|
|
|
|
291
|
|
|
|
82
|
|
|
|
96
|
|
Depreciation and amortization
|
|
|
74
|
|
|
|
88
|
|
|
|
89
|
|
|
|
22
|
|
|
|
21
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
225
|
|
|
$
|
258
|
|
|
$
|
380
|
|
|
$
|
104
|
|
|
$
|
117
|
|
|
|
|
|
|
|
|
This presentation of EBITDA may not
be directly comparable to similarly titled measures of other
companies, since not all companies use identical calculations.
|
|
(5)
|
|
Comparable sales growth and sales
growth are analyzed on a constant currency basis, which means
they are calculated using the same exchange rate 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 foreign currency
movements. Sales growth includes sales at company restaurants
and franchise restaurants. Unless otherwise stated, sales, sales
growth, comparable sales growth and average restaurant sales are
presented on a system-wide basis. We do not record franchise
restaurant sales as revenues. However, our royalty revenues are
calculated based on a percentage of franchise restaurant sales.
See Managements discussion and analysis of financial
condition and results of operations Key business
measures.
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(6)
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Comparable sales growth refers to
the change in restaurant sales in one period from a comparable
period for restaurants that have been open for thirteen months
or longer. Comparable sales growth includes sales at company
restaurants and franchise restaurants. We do not record
franchise restaurant sales as revenues. However, our royalty
revenues are calculated based on a percentage of franchise
restaurant sales.
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(7)
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Refers to our operations in Europe,
the Middle East, Africa and Asia Pacific.
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(8)
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Refers to our operations in Mexico,
Central and South America, the Caribbean and Puerto Rico.
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(9)
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Calculated using dollars expressed
in hundreds of thousands.
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(10)
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Franchise sales represent sales at
franchise restaurants and revenue to our franchisees. We do not
record franchise restaurant sales as revenues. However, our
royalty revenues are calculated based on a percentage of
franchise restaurant sales.
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(11)
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Unallocated includes corporate
support costs in areas such as facilities, finance, human
resources, information technology, legal, marketing and supply
chain management.
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S-9
You should carefully consider the following risks related to
investing in our shares of common stock and all of the other
information set forth in, or incorporated by reference into,
this prospectus supplement (including the risks set forth under
Risk factors in our annual report on
Form 10-K
and which we incorporate herein by reference) before deciding to
invest in shares of our common stock. The following risks, and
the risks incorporated by reference into this prospectus
supplement, comprise all the material risks of which we are
aware; however, these risks and uncertainties may not be the
only ones we face. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may
also adversely affect our business or financial performance. If
any of the events or developments described below or
incorporated by reference into this prospectus supplement
actually occurred, our business, financial condition or results
of operations would likely suffer. In that case, the trading
price of our common stock would likely decline, and you would
lose all or part of your investment in our common stock.
Risks related to
investing in our stock
The price of
our common stock may be volatile and you may not be able to sell
your shares at or above the offering price.
We completed our initial public offering in May 2006. An active
and liquid public market for our common stock may not continue
to develop or be sustained. Since our initial public offering,
the price of our common stock, as reported by the New York Stock
Exchange, has ranged from a low of $12.41 on August 1, 2006
to a high of $27.73 on November 2, 2007. Some specific
factors that may have a significant effect on the market price
of our common stock include:
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variations in our or our competitors actual or anticipated
operating results;
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our or our competitors growth rates;
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our or our competitors introduction of new locations, menu
items, concepts, or pricing policies;
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recruitment or departure of key personnel;
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changes in the estimates of our operating performance or changes
in recommendations by any securities analysts that follow our
stock;
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changes in the conditions in the restaurant industry, the
financial markets or the economy as a whole;
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substantial sales of our common stock;
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announcements of investigations or regulatory scrutiny of our
operations or lawsuits filed against us; and
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changes in accounting principles.
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In the past, following periods of volatility in the market price
of a companys securities, securities class action
litigation has often been brought against that company. Due to
the potential volatility of our stock price, we may therefore be
the target of securities litigation in the future. Securities
litigation could result in substantial costs and divert
managements attention and resources from our business.
Our current
principal stockholders will continue to own a significant amount
of our voting stock and have certain contractual rights to
appoint directors after this offering, which will allow them to
control substantially all matters requiring stockholder
approval.
Upon the completion of this offering, the private equity funds
controlled by the sponsors will together beneficially own
approximately 41.4% of our outstanding common stock (or 38.9% if
the underwriters exercise their option to purchase additional
shares). In addition, we expect that six of our thirteen
directors following this offering will continue to be
representatives of the private equity funds controlled by the
sponsors. Following this offering, each sponsor will retain the
right to nominate two directors, subject to reduction and
elimination as the stock ownership percentage of the private
equity funds controlled by the applicable sponsor declines. In
addition, with respect to each committee of our board
S-10
other than the audit committee, each sponsor will retain the
right to appoint at least one director to each committee, for
sponsor directors to constitute a majority of the membership of
each committee and for the chairman of each committee to be a
sponsor director until the private equity funds controlled by
the sponsors collectively own less than 30% of our outstanding
common stock. As a result, these private equity funds will
continue to have significant influence over our decision to
enter into any corporate transaction and may have the ability to
prevent any transaction that requires the approval of
stockholders, regardless of whether or not other stockholders
believe that such transaction is in their own best interests.
Such concentration of voting power could have the effect of
delaying, deterring or preventing a change of control or other
business combination that might otherwise be beneficial to our
stockholders. For more information, see the description of our
shareholders agreement with the private equity funds
controlled by the sponsors in the accompanying prospectus.
Although we
will not be a controlled company within the meaning
of the New York Stock Exchange rules upon the completion of this
offering, during the one-year transition period, we may continue
to rely on exemptions from certain corporate governance
requirements that provide protection to stockholders of other
companies.
After the completion of this offering, the private equity funds
controlled by the sponsors will collectively own less than 50%
of the total voting power of our common stock and we will no
longer be a controlled company under the New York
Stock Exchange, or NYSE, corporate governance listing standards.
The NYSE rules require that each of our compensation committee
and our nominating and corporate governance committee has one
independent director upon the completion of this offering, a
majority of independent directors within 90 days and only
independent directors within one year. In addition, a majority
of our board members must be independent within one year. Our
board has made independence determinations with respect to one
member of our compensation committee and our nominating and
corporate governance committee, and will make independence
determinations with respect to our remaining directors within
the transition periods discussed above. During the transition
periods, we are entitled to continue utilizing certain
exemptions under the NYSE standards that free us from the
obligation to comply with certain NYSE corporate governance
requirements, including the requirements:
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that a majority of our board of directors consist of independent
directors;
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that we have a nominating and governance committee that is
composed entirely of independent directors; and
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that we have a compensation committee that is composed entirely
of independent directors.
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If we decide to use certain of the controlled
company exemptions during the transition periods, you will
not have the same protection afforded to stockholders of
companies that are subject to all of the NYSE corporate
governance requirements.
Your
percentage ownership in us may be diluted by future issuances of
capital stock, which could reduce your influence over matters on
which stockholders vote.
Our board of directors has the authority, without action or vote
of our stockholders, to issue all or any part of our authorized
but unissued shares of common stock, including shares issuable
upon the exercise of options, or shares of our authorized but
unissued preferred stock. Issuances of common stock or voting
preferred stock would reduce your influence over matters on
which our stockholders vote, and, in the case of issuances of
preferred stock, would likely result in your interest in us
being subject to the prior rights of holders of that preferred
stock.
Future sales
of our common stock, or the perception that such sales might
occur, may cause the market price of shares of our common stock
to decline.
Sales of a substantial number of shares of our common stock, or
the perception that such sales might occur, following this
offering, could cause the market price of our common stock to
decline. The shares of our common stock outstanding prior to
this offering will be eligible for sale in the public market at
various times in the future. We, all of our executive officers,
directors and each of the sponsors have agreed, subject to
certain exceptions, not to sell any shares of our common stock
for a
S-11
period of 90 days after the pricing date without the prior
written consent of Goldman, Sachs & Co. However once
this lock-up
has expired these shares will be eligible to be sold in the
public market, subject to the securities laws. Upon termination
of the
lock-up, the
private equity funds controlled by the sponsors will have
approximately 56.0 million shares, or 52.6 million
shares if the underwriters option to purchase additional
shares is fully exercised, all of which are subject to
registration rights. For more information, see
Underwriting.
A change
in control, as defined in our senior secured credit
facility, would be an event of default of the
facility.
Under our senior secured credit facility, a change in
control occurs if any person or group, other than the
private equity funds controlled by the sponsors, acquires more
than (1) 25% of our equity value and (2) the equity
value controlled by the sponsors. A change in control is an
event of default under our senior secured credit facility. As a
result of this offering the sponsors will control, in the
aggregate, 41.4% of our equity value, or 38.9% if the
underwriters option to purchase additional shares is fully
exercised, and it would be possible for another person or group
to effect a change in control without our consent.
If a change in control were to occur, the banks would have the
ability to terminate any commitments under the facility
and/or
accelerate all amounts outstanding. We may not be able to
refinance such outstanding commitments on commercially
reasonable terms, or at all. If we were not able to pay such
accelerated amounts, the banks under the senior secured credit
facility would have the right to foreclose on the stock of BKC
and certain of its subsidiaries.
Provisions in
our certificate of incorporation could make it difficult for a
third party to acquire us and could discourage a takeover and
adversely affect existing stockholders.
Our certificate of incorporation authorizes our board of
directors to issue up to 10,000,000 shares of preferred
stock and to determine the powers, preferences, privileges,
rights, including voting rights, qualifications, limitations and
restrictions on those shares, without any further vote or action
by our stockholders. The rights of the holders of shares of our
common stock will be subject to, and may be adversely affected
by, the rights of the holders of any shares of our preferred
stock that may be issued in the future. The issuance of
preferred shares could have the effect of delaying, deterring or
preventing a change in control and could adversely affect the
voting power or economic value of your shares.
S-12
Special
note regarding forward-looking statements
Certain statements made in this prospectus supplement 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
intent to focus on sales growth and profitability and expand our
international network; our beliefs and expectations regarding
our company restaurant remodeling and rebuilding plans and our
ability to increase sales in these restaurants and generate
strong cash on cash returns; our beliefs and expectations
regarding comparable sales and average restaurant sales; our
beliefs and expectations regarding franchise restaurants,
including their growth potential, their generation of a
consistent profitable royalty stream to us with minimal ongoing
capital expenditures and our expectations regarding franchisee
distress; our expectations regarding opportunities to enhance
restaurant profitability and margin improvement; our intention
to improve certain operations metrics; our intention to continue
to employ innovative and creative marketing strategies,
including the launching of new and limited time offer products
in fiscal 2008; our exploration of initiatives to reduce the
initial investment expense, time and uncertainty of new builds;
our estimates regarding our liquidity, capital expenditures and
sources of both, and our ability to fund future operations and
obligations; our expectations regarding restaurant
openings/closures and increasing net restaurant count; our
beliefs regarding sales performance in the U.K.; our estimates
regarding the fulfillment of certain volume purchase
commitments; our beliefs regarding the effects of the
realignment of our European and Asian businesses; our intention
to renew hedging contracts; and our expectations regarding the
appointment of additional independent directors. 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 (SEC),
including our annual and quarterly reports, and the following:
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Our ability to compete domestically and internationally in an
intensely competitive industry;
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Our ability to successfully implement our international growth
strategy;
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Risks related to our international operations;
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Our continued relationship with, and the success of, our
franchisees;
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Our continued ability, and the ability of our franchisees, to
obtain suitable locations and financing for new restaurant
development;
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Increases in our operating costs, including cost of food and
paper products, energy costs and labor costs;
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Risks related to our business in the U.K., which may continue to
experience operating losses, restaurant closures and franchisee
financial distress;
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Changes in consumer preferences and consumer discretionary
spending;
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The effectiveness of our marketing and advertising programs and
franchisee support of these programs;
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Risks relating 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;
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Risks related to the renewal of franchise agreements by our
franchisees;
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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;
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Changes in consumer perceptions of dietary health and food
safety and negative publicity relating to our products;
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Our ability to retain or replace executive officers and key
members of management with qualified personnel;
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S-13
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Our ability to realize our expected tax benefits from the
realignment of our European and Asian businesses;
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Our ability to utilize foreign tax credits to offset our
U.S. income taxes due to continuing or increasing 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;
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Fluctuations in international currency exchange and interest
rates;
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Risks related to a change in control under our senior secured
credit facility;
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Changes in demographic patterns of current restaurant locations;
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Our ability to adequately protect our intellectual property;
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Adverse legal judgments, settlements or pressure
tactics; and
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Adverse legislation or regulation.
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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.
We will not receive any proceeds from the sale of our common
stock by the selling stockholders.
S-14
Market
price of our common stock
Our common stock has been listed on the New York Stock Exchange
under the symbol BKC since May 18, 2006. Prior
to that time, there was no public market for our common stock.
The following table sets forth for the periods indicated the
high and low sales prices of our common stock on the New York
Stock Exchange.
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2006
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High
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Low
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Fourth Quarter (commencing May 18, 2006)
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$
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19.45
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$
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15.48
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2007
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High
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Low
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First Quarter
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$
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16.64
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$
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12.41
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Second Quarter
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$
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21.28
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$
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15.46
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Third Quarter
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$
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22.84
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$
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19.67
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Fourth Quarter
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$
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27.04
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$
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21.53
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2008
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High
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Low
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First Quarter
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$
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27.00
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$
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22.21
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Second Quarter (through November 2, 2007)
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$
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27.23
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$
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25.23
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A recent reported closing price for our common stock is set
forth on the cover page of this prospectus supplement. The Bank
of New York Mellon is the transfer agent and registrar for our
common stock. On November 1, 2007, we had 194 holders of
record of our common stock.
Although we do not have a dividend policy, we have elected to
pay the following quarterly cash dividends because we have
generated strong cash flow over the past year, and we expect our
cash flow to continue to strengthen.
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March 15,
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June 28,
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September 28,
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Date
Paid
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2007
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2007
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2007
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Amount of dividend per share
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$
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.0625
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$
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.0625
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$
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.0625
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On February 21, 2006, we paid an aggregate cash dividend of
$367 million to holders of record of our common stock on
February 9, 2006. At the same time, we paid a compensatory
make-whole payment of $33 million to holders of our options
and restricted stock unit awards, primarily members of senior
management. This compensatory make-whole payment was recorded as
compensation expense in the third quarter of fiscal 2006. We did
not declare or pay any cash dividends on our common stock during
the fiscal year ended June 30, 2005.
The terms of our credit facility limit our ability to pay cash
dividends in certain circumstances. In addition, because we are
a holding company, our ability to pay cash dividends on shares
of our common stock may be limited by restrictions on our
ability to obtain sufficient funds through dividends from our
subsidiaries, including the restrictions under our credit
facility. Subject to the foregoing, the payment of cash
dividends in the future, if any, will be at the discretion of
our board of directors and will depend upon such factors as
earnings levels, capital requirements, our overall financial
condition and any other factors deemed relevant by our board of
directors.
S-15
The following table sets forth our capitalization as of
September 30, 2007. This table should be read in
conjunction with Managements discussion and analysis
of financial condition and results of operations and the
consolidated financial statements and notes thereto incorporated
by reference into this prospectus supplement.
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September 30,
2007
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(Unaudited)
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(In millions,
except
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share
amounts)
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Cash and cash equivalents
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$
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162
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Short-term debt and capital leases
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$
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5
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Long-term debt
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846
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Long-term capital leases
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69
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Stockholders equity:
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Common stock, $0.01 par value per share,
300,000,000 shares authorized, 135,162,087 shares
issued and outstanding(1)
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1
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Restricted stock units
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3
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Additional paid-in capital
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577
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Retained earnings
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175
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Accumulated other comprehensive income
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1
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Treasury stock, at cost
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(10
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)
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Total stockholders equity
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$
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747
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Total capitalization
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$
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1,667
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(1)
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Excludes 7,753,679 shares of
our common stock issuable upon the exercise of non-qualified
stock options or the settlement of restricted stock unit awards,
performance-based restricted stock awards and deferred stock
unit awards outstanding as of September 30, 2007, of which
options to purchase 2,502,615 shares were exercisable as of
September 30, 2007. In addition, as of September 30,
2007, (i) 1,567,646 shares of our common stock remain
to be awarded under the Burger King Holdings, Inc. Equity
Incentive Plan and (ii) 5,667,110 shares of our common
stock remain to be awarded under the Burger King Holdings, Inc.
2006 Omnibus Incentive Plan. As of November 1, 2007, we
have granted stock options, restricted stock awards and
performance based restricted stock awards covering a total of
13,073, 18,112 and 4,662 shares of our common stock,
respectively, in the second quarter of fiscal 2008.
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S-16
Selected
consolidated financial and other data
On December 13, 2002, we acquired BKC through private
equity funds controlled by the sponsors. In this prospectus
supplement, unless the context otherwise requires, all
references to we, us and our
refer to Burger King Holdings, Inc. and its subsidiaries
(BKH), including BKC, for all periods subsequent to
our December 13, 2002 acquisition of BKC. All references to
our predecessor refer to BKC and its subsidiaries
for all periods prior to the acquisition, which operated under a
different ownership and capital structure. In addition, the
acquisition was accounted for under the purchase method of
accounting and resulted in purchase accounting allocations that
affect the comparability of results of operations between
periods before and after the acquisition.
The following tables present selected consolidated financial and
other data for us for each of the periods indicated. The
selected historical financial data as of June 30, 2003,
2004, 2005, 2006 and 2007 and for the period December 13,
2002 to June 30, 2003, and for the fiscal years ended
June 30, 2004, 2005, 2006 and 2007 have been derived from
our audited financial statements and the notes thereto. The
selected historical financial data for our predecessor for the
period July 1, 2002 to December 12, 2002 have been
derived from the audited consolidated financial statements and
notes thereto of our predecessor. The combined financial data
for the combined fiscal year ended June 30, 2003 have been
derived from the audited consolidated financial statements and
notes thereto of our predecessor and us. The combined financial
data have not been audited on a combined basis, do not comply
with generally accepted accounting principles and are not
intended to represent what our operating results would have been
if the acquisition of BKC had occurred at the beginning of the
period. The selected historical financial data as of
September 30, 2006 and 2007 and for the three months ended
September 30, 2006 and 2007 have been derived from our
unaudited condensed consolidated financial statements and the
notes thereto incorporated by reference into this prospectus
supplement. The other operating data for the fiscal years ended
June 30, 2005, 2006 and 2007 and for the three months ended
September 30, 2006 and 2007 have been derived from our
internal records.
The selected consolidated financial and other operating data
presented below contain all normal recurring adjustments that,
in the opinion of management, are necessary to present fairly
our financial position and results of operations as of and for
the periods presented. The selected historical consolidated
financial and other operating data included below and elsewhere
in this prospectus supplement are not necessarily indicative of
future results. The information presented below should be read
in conjunction with Managements discussion and
analysis of financial condition and results of operations
and our audited and unaudited condensed consolidated financial
statements and related notes and other financial information
incorporated by reference into this prospectus supplement.
S-17
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Predecessor
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BKH
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For the
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For the
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Combined
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period
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period from
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twelve
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from
July 1,
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December 13,
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months
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BKH
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2002 to
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2002 to
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ended
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For the fiscal
year ended
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For the three
months ended
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December 12,
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June 30,
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June 30,
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June 30,
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September 30,
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2002
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2003
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2003
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2004
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2005
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2006
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2007
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2006
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2007
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(In millions,
except per share data)
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Income Statement Data:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant revenues
|
|
$
|
526
|
|
|
$
|
648
|
|
|
$
|
1,174
|
|
|
$
|
1,276
|
|
|
$
|
1,407
|
|
|
$
|
1,516
|
|
|
$
|
1,658
|
|
|
$
|
405
|
|
|
$
|
441
|
|
Franchise revenues
|
|
|
170
|
|
|
|
198
|
|
|
|
368
|
|
|
|
361
|
|
|
|
413
|
|
|
|
420
|
|
|
|
460
|
|
|
|
113
|
|
|
|
131
|
|
Property revenues
|
|
|
55
|
|
|
|
60
|
|
|
|
115
|
|
|
|
117
|
|
|
|
120
|
|
|
|
112
|
|
|
|
116
|
|
|
|
28
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
751
|
|
|
|
906
|
|
|
|
1,657
|
|
|
|
1,754
|
|
|
|
1,940
|
|
|
|
2,048
|
|
|
|
2,234
|
|
|
|
546
|
|
|
|
602
|
|
Company restaurant expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food, paper and product costs
|
|
|
162
|
|
|
|
197
|
|
|
|
359
|
|
|
|
391
|
|
|
|
437
|
|
|
|
470
|
|
|
|
499
|
|
|
|
122
|
|
|
|
137
|
|
Payroll and employee benefits
|
|
|
157
|
|
|
|
192
|
|
|
|
349
|
|
|
|
382
|
|
|
|
415
|
|
|
|
446
|
|
|
|
492
|
|
|
|
119
|
|
|
|
131
|
|
Occupancy and other operating costs
|
|
|
146
|
|
|
|
168
|
|
|
|
314
|
|
|
|
314
|
|
|
|
343
|
|
|
|
380
|
|
|
|
418
|
|
|
|
102
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total company restaurant expenses
|
|
|
465
|
|
|
|
557
|
|
|
|
1,022
|
|
|
|
1,087
|
|
|
|
1,195
|
|
|
|
1,296
|
|
|
|
1,409
|
|
|
|
343
|
|
|
|
373
|
|
Selling, general and administrative expenses(1)
|
|
|
224
|
|
|
|
248
|
|
|
|
472
|
|
|
|
474
|
|
|
|
487
|
|
|
|
488
|
|
|
|
474
|
|
|
|
112
|
|
|
|
119
|
|
Property expenses
|
|
|
27
|
|
|
|
28
|
|
|
|
55
|
|
|
|
58
|
|
|
|
64
|
|
|
|
57
|
|
|
|
61
|
|
|
|
16
|
|
|
|
14
|
|
Fees paid to affiliates(2)
|
|
|
1
|
|
|
|
5
|
|
|
|
6
|
|
|
|
8
|
|
|
|
9
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill(3)
|
|
|
875
|
|
|
|
|
|
|
|
875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses (income), net(3)
|
|
|
39
|
|
|
|
(7
|
)
|
|
|
32
|
|
|
|
54
|
|
|
|
34
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
1,631
|
|
|
|
831
|
|
|
|
2,462
|
|
|
|
1,681
|
|
|
|
1,789
|
|
|
|
1,878
|
|
|
|
1,943
|
|
|
|
464
|
|
|
|
506
|
|
Income (loss) from operations
|
|
|
(880
|
)
|
|
|
75
|
|
|
|
(805
|
)
|
|
|
73
|
|
|
|
151
|
|
|
|
170
|
|
|
|
291
|
|
|
|
82
|
|
|
|
96
|
|
Interest expense, net
|
|
|
46
|
|
|
|
35
|
|
|
|
81
|
|
|
|
64
|
|
|
|
73
|
|
|
|
72
|
|
|
|
67
|
|
|
|
17
|
|
|
|
16
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(926
|
)
|
|
|
40
|
|
|
|
(886
|
)
|
|
|
9
|
|
|
|
78
|
|
|
|
80
|
|
|
|
223
|
|
|
|
64
|
|
|
|
80
|
|
Income tax expense (benefit)
|
|
|
(34
|
)
|
|
|
16
|
|
|
|
(18
|
)
|
|
|
4
|
|
|
|
31
|
|
|
|
53
|
|
|
|
75
|
|
|
|
24
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(892
|
)
|
|
$
|
24
|
|
|
$
|
(868
|
)
|
|
$
|
5
|
|
|
$
|
47
|
|
|
$
|
27
|
|
|
$
|
148
|
|
|
$
|
40
|
|
|
$
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share(4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
*
|
|
$
|
0.23
|
|
|
|
|
*
|
|
$
|
0.05
|
|
|
$
|
0.44
|
|
|
$
|
0.24
|
|
|
$
|
1.11
|
|
|
$
|
0.30
|
|
|
$
|
0.36
|
|
Diluted
|
|
|
|
*
|
|
$
|
0.23
|
|
|
|
|
*
|
|
$
|
0.05
|
|
|
$
|
0.44
|
|
|
$
|
0.24
|
|
|
$
|
1.08
|
|
|
$
|
0.30
|
|
|
$
|
0.35
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
*
|
|
|
104.7
|
|
|
|
|
*
|
|
|
106.1
|
|
|
|
106.5
|
|
|
|
110.3
|
|
|
|
133.9
|
|
|
|
133.1
|
|
|
|
135.2
|
|
Diluted
|
|
|
|
*
|
|
|
104.7
|
|
|
|
|
*
|
|
|
106.1
|
|
|
|
106.9
|
|
|
|
114.7
|
|
|
|
136.8
|
|
|
|
135.9
|
|
|
|
137.7
|
|
S-18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
BKH
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
|
|
|
period from
|
|
|
twelve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
July 1,
|
|
|
December 13,
|
|
|
months
|
|
|
BKH
|
|
|
|
2002 to
|
|
|
2002 to
|
|
|
ended
|
|
|
For the fiscal
year ended
|
|
|
For the three
months ended
|
|
|
|
December 12,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
(In millions,
except per share data)
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash provided by (used for) operating activities
|
|
$
|
1
|
|
|
$
|
81
|
|
|
$
|
82
|
|
|
$
|
199
|
|
|
$
|
218
|
|
|
$
|
74
|
|
|
$
|
117
|
|
|
$
|
(47
|
)
|
|
$
|
41
|
|
Net Cash used for investing activities
|
|
|
(102
|
)
|
|
|
(485
|
)
|
|
|
(587
|
)
|
|
|
(184
|
)
|
|
|
(5
|
)
|
|
|
(74
|
)
|
|
|
(84
|
)
|
|
|
(15
|
)
|
|
|
(15
|
)
|
Net Cash provided by (used for) financing activities
|
|
|
112
|
|
|
|
607
|
|
|
|
719
|
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
(173
|
)
|
|
|
(127
|
)
|
|
|
(51
|
)
|
|
|
(39
|
)
|
Capital expenditures
|
|
|
95
|
|
|
|
47
|
|
|
|
142
|
|
|
|
81
|
|
|
|
93
|
|
|
|
85
|
|
|
|
87
|
|
|
|
13
|
|
|
|
23
|
|
EBITDA(5)
|
|
$
|
(837
|
)
|
|
$
|
118
|
|
|
$
|
(719
|
)
|
|
$
|
136
|
|
|
$
|
225
|
|
|
$
|
258
|
|
|
$
|
380
|
|
|
$
|
104
|
|
|
$
|
117
|
|
Cash dividends declared per common stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3.42
|
|
|
$
|
0.13
|
|
|
$
|
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BKH
|
|
|
|
As of
June 30,
|
|
|
As of September
30,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
(In
millions)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
203
|
|
|
$
|
221
|
|
|
$
|
432
|
|
|
$
|
259
|
|
|
$
|
170
|
|
|
$
|
162
|
|
Total assets
|
|
|
2,458
|
|
|
|
2,665
|
|
|
|
2,723
|
|
|
|
2,552
|
|
|
|
2,517
|
|
|
|
2,530
|
|
Total debt and capital lease obligations
|
|
|
1,251
|
|
|
|
1,294
|
|
|
|
1,339
|
|
|
|
1,065
|
|
|
|
943
|
|
|
|
920
|
|
Total liabilities
|
|
|
2,026
|
|
|
|
2,241
|
|
|
|
2,246
|
|
|
|
1,985
|
|
|
|
1,801
|
|
|
|
1,783
|
|
Total stockholders equity
|
|
$
|
432
|
|
|
$
|
424
|
|
|
$
|
477
|
|
|
$
|
567
|
|
|
$
|
716
|
|
|
$
|
747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BKH
|
|
|
|
|
|
|
For the three
|
|
|
|
For the fiscal
year
|
|
|
months ended
|
|
|
|
ended
June 30,
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
Other Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable sales growth(6)(7)
|
|
|
5.6%
|
|
|
|
1.9%
|
|
|
|
3.4%
|
|
|
|
2.4%
|
|
|
|
5.9%
|
|
Average restaurant sales (in thousands)
|
|
$
|
1,104
|
|
|
$
|
1,126
|
|
|
$
|
1,193
|
|
|
$
|
300
|
|
|
$
|
327
|
|
Sales growth(6)
|
|
|
6.1%
|
|
|
|
2.1%
|
|
|
|
4.9%
|
|
|
|
4.0%
|
|
|
|
8.5%
|
|
Number of company restaurants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
|
844
|
|
|
|
878
|
|
|
|
897
|
|
|
|
882
|
|
|
|
901
|
|
EMEA/APAC(8)
|
|
|
283
|
|
|
|
293
|
|
|
|
329
|
|
|
|
296
|
|
|
|
311
|
|
Latin America(9)
|
|
|
60
|
|
|
|
69
|
|
|
|
77
|
|
|
|
70
|
|
|
|
77
|
|
|
|
|
|
|
|
Total company restaurants
|
|
|
1,187
|
|
|
|
1,240
|
|
|
|
1,303
|
|
|
|
1,248
|
|
|
|
1,289
|
|
Number of franchise restaurants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
|
6,876
|
|
|
|
6,656
|
|
|
|
6,591
|
|
|
|
6,639
|
|
|
|
6,581
|
|
EMEA/APAC(8)
|
|
|
2,373
|
|
|
|
2,494
|
|
|
|
2,563
|
|
|
|
2,499
|
|
|
|
2,581
|
|
Latin America(9)
|
|
|
668
|
|
|
|
739
|
|
|
|
826
|
|
|
|
758
|
|
|
|
839
|
|
|
|
|
|
|
|
S-19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BKH
|
|
|
|
|
|
|
For the three
|
|
|
|
For the fiscal
year
|
|
|
months ended
|
|
|
|
ended
June 30,
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
Total franchise restaurants
|
|
|
9,917
|
|
|
|
9,889
|
|
|
|
9,980
|
|
|
|
9,896
|
|
|
|
10,001
|
|
|
|
|
|
|
|
Total restaurants
|
|
|
11,104
|
|
|
|
11,129
|
|
|
|
11,283
|
|
|
|
11,144
|
|
|
|
11,290
|
|
|
|
|
|
|
|
Segment Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant revenues (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
$
|
923
|
|
|
$
|
1,032
|
|
|
$
|
1,082
|
|
|
$
|
271
|
|
|
$
|
290
|
|
EMEA/APAC(8)
|
|
|
435
|
|
|
|
428
|
|
|
|
515
|
|
|
|
119
|
|
|
|
135
|
|
Latin America(9)
|
|
|
49
|
|
|
|
56
|
|
|
|
61
|
|
|
|
15
|
|
|
|
16
|
|
|
|
|
|
|
|
Total company restaurant revenues
|
|
$
|
1,407
|
|
|
$
|
1,516
|
|
|
$
|
1,658
|
|
|
$
|
405
|
|
|
$
|
441
|
|
|
|
|
|
|
|
Company restaurant margin(10):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
|
14.2%
|
|
|
|
14.1%
|
|
|
|
15.3%
|
|
|
|
14.8%
|
|
|
|
15.3%
|
|
EMEA/APAC(8)
|
|
|
15.2%
|
|
|
|
13.9%
|
|
|
|
13.0%
|
|
|
|
15.2%
|
|
|
|
14.4%
|
|
Latin America(9)
|
|
|
30.6%
|
|
|
|
26.6%
|
|
|
|
25.9%
|
|
|
|
25.3%
|
|
|
|
23.8%
|
|
Total company restaurant margin
|
|
|
15.1%
|
|
|
|
14.5%
|
|
|
|
15.0%
|
|
|
|
15.3%
|
|
|
|
15.3%
|
|
Franchise revenues (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
$
|
269
|
|
|
$
|
267
|
|
|
$
|
284
|
|
|
$
|
70
|
|
|
$
|
79
|
|
EMEA/APAC(8)
|
|
|
114
|
|
|
|
119
|
|
|
|
135
|
|
|
|
33
|
|
|
|
41
|
|
Latin America(9)
|
|
|
30
|
|
|
|
34
|
|
|
|
41
|
|
|
|
10
|
|
|
|
11
|
|
|
|
|
|
|
|
Total franchise revenues
|
|
$
|
413
|
|
|
$
|
420
|
|
|
$
|
460
|
|
|
$
|
113
|
|
|
$
|
131
|
|
|
|
|
|
|
|
Franchise sales (in millions)(11)
|
|
$
|
10,817
|
|
|
$
|
10,903
|
|
|
$
|
11,574
|
|
|
$
|
2,914
|
|
|
$
|
3,226
|
|
|
|
|
|
|
|
Income from operations (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
$
|
255
|
|
|
$
|
295
|
|
|
$
|
336
|
|
|
$
|
87
|
|
|
$
|
97
|
|
EMEA/APAC(8)
|
|
|
36
|
|
|
|
62
|
|
|
|
54
|
|
|
|
20
|
|
|
|
20
|
|
Latin America(9)
|
|
|
25
|
|
|
|
29
|
|
|
|
35
|
|
|
|
8
|
|
|
|
9
|
|
Unallocated(12)
|
|
|
(165
|
)
|
|
|
(216
|
)
|
|
|
(134
|
)
|
|
|
(33
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
Total income from operations
|
|
$
|
151
|
|
|
$
|
170
|
|
|
$
|
291
|
|
|
$
|
82
|
|
|
$
|
96
|
|
|
|
|
|
|
(1)
|
|
Selling, general and administrative
expenses include compensation expense and taxes related to the
compensatory make-whole payment made on February 21, 2006
to holders of our options and restricted stock unit awards,
primarily members of senior management.
|
|
(2)
|
|
Fees paid to affiliates consist of
management fees we paid to our sponsors and fees paid by our
predecessor to Diageo plc under management agreements. Fees paid
to affiliates in fiscal 2006 also include a $30 million fee
that we paid to terminate our management agreement with the
sponsors upon completion of our initial public offering.
|
|
(3)
|
|
In connection with our acquisition
of BKC, our predecessor recorded $35 million of intangible
asset impairment charges within other operating expenses
(income), net and goodwill impairment charges of
$875 million during the period from July 1, 2002 to
December 12, 2002.
|
|
(4)
|
|
Earnings per share is calculated
using whole dollars and shares.
|
|
(5)
|
|
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 income and expense.
Capital expenditures, which impact depreciation and
amortization, interest expense and income tax expense, are
reviewed separately by management. 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 GAAP, management uses it to evaluate and forecast
our business performance. This non-GAAP financial 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. Therefore, any measure that excludes interest expense has
material limitations;
|
S-20
|
|
|
|
|
it does not include
depreciation and amortization expenses. Because we use capital
assets, depreciation and amortization are a necessary element of
our costs and ability to generate profits. Therefore, any
measure that excludes depreciation and amortization expenses has
material limitations; and
|
|
|
|
it does not include
provision for taxes. Because the payment of taxes is a necessary
element of our operations, any measure that excludes tax expense
has material limitations.
|
|
|
|
|
|
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.
|
|
|
|
The following table is a
reconciliation of our net income to EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
BKH
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
Combined
|
|
|
BKH
|
|
|
|
period from
|
|
|
period from
|
|
|
twelve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
July 1,
|
|
|
December 13,
|
|
|
months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
three months
|
|
|
|
2002 to
|
|
|
2002 to
|
|
|
ended
|
|
|
For the fiscal
year
|
|
|
ended
|
|
|
|
December 12,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
ended
June 30,
|
|
|
September 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
(In
millions)
|
|
|
Net (loss) income
|
|
$
|
(892
|
)
|
|
$
|
24
|
|
|
$
|
(868
|
)
|
|
$
|
5
|
|
|
$
|
47
|
|
|
$
|
27
|
|
|
$
|
148
|
|
|
$
|
40
|
|
|
$
|
49
|
|
Interest expense, net
|
|
|
46
|
|
|
|
35
|
|
|
|
81
|
|
|
|
64
|
|
|
|
73
|
|
|
|
72
|
|
|
|
67
|
|
|
|
17
|
|
|
|
16
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
(34
|
)
|
|
|
16
|
|
|
|
(18
|
)
|
|
|
4
|
|
|
|
31
|
|
|
|
53
|
|
|
|
75
|
|
|
|
24
|
|
|
|
31
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(880
|
)
|
|
|
75
|
|
|
|
(805
|
)
|
|
|
73
|
|
|
|
151
|
|
|
|
170
|
|
|
|
291
|
|
|
|
82
|
|
|
|
96
|
|
Depreciation and amortization
|
|
|
43
|
|
|
|
43
|
|
|
|
86
|
|
|
|
63
|
|
|
|
74
|
|
|
|
88
|
|
|
|
89
|
|
|
|
22
|
|
|
|
21
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
(837
|
)
|
|
$
|
118
|
|
|
$
|
(719
|
)
|
|
$
|
136
|
|
|
$
|
225
|
|
|
$
|
258
|
|
|
$
|
380
|
|
|
$
|
104
|
|
|
$
|
117
|
|
|
|
|
|
|
|
|
This presentation of EBITDA may not
be directly comparable to similarly titled measures of other
companies, since not all companies use identical calculations.
|
|
(6)
|
|
Comparable sales growth and sales
growth are analyzed on a constant currency basis, which means
they are calculated using the same exchange rate 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 trend,
without distortion from the effect of foreign currency
movements. Unless otherwise stated, sales, sales growth,
comparable sales growth and average restaurant sales are
presented on a system-wide basis. We do not record franchise
restaurant sales as revenues. However, our royalty revenues are
calculated based on a percentage of franchise restaurant sales.
See Managements discussion and analysis of financial
condition and results of operations Key business
measures.
|
|
(7)
|
|
Comparable sales growth refers to
the change in restaurant sales in one period from a comparable
period for restaurants that have been open for thirteen months
or longer. Comparable sales growth includes sales at company
restaurants and franchise restaurants. We do not record
franchise restaurant sales as revenues. However, our royalty
revenues are calculated based on a percentage of franchise
restaurant sales.
|
|
(8)
|
|
Refers to our operations in Europe,
the Middle East, Africa and Asia Pacific.
|
|
(9)
|
|
Refers to our operations in Mexico,
Central and South America, the Caribbean and Puerto Rico.
|
|
(10)
|
|
Calculated using dollars expressed
in hundreds of thousands.
|
|
(11)
|
|
Franchise sales represent sales at
franchise restaurants and revenue to our franchisees. We do not
record franchise restaurant sales as revenues. However, our
royalty revenues are calculated based on a percentage of
franchise restaurant sales.
|
|
(12)
|
|
Unallocated includes corporate
support costs in areas such as facilities, finance, human
resources, information technology, legal, marketing and supply
chain management.
|
S-21
Burger King
Holdings, Inc. and subsidiaries restaurant count
analysis
The following tables present information relating to the
analysis of our restaurants for the geographic areas and periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Franchise
|
|
|
Total
|
|
Worldwide
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2005
|
|
|
1,187
|
|
|
|
9,917
|
|
|
|
11,104
|
|
Balance June 30, 2006
|
|
|
1,240
|
|
|
|
9,889
|
|
|
|
11,129
|
|
Balance June 30, 2007
|
|
|
1,303
|
|
|
|
9,980
|
|
|
|
11,283
|
|
Balance September 30, 2007
|
|
|
1,289
|
|
|
|
10,001
|
|
|
|
11,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2005
|
|
|
844
|
|
|
|
6,876
|
|
|
|
7,720
|
|
Balance June 30, 2006
|
|
|
878
|
|
|
|
6,656
|
|
|
|
7,534
|
|
Balance June 30, 2007
|
|
|
897
|
|
|
|
6,591
|
|
|
|
7,488
|
|
Balance September 30, 2007
|
|
|
901
|
|
|
|
6,581
|
|
|
|
7,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA/APAC
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2005
|
|
|
283
|
|
|
|
2,373
|
|
|
|
2,656
|
|
Balance June 30, 2006
|
|
|
293
|
|
|
|
2,494
|
|
|
|
2,787
|
|
Balance June 30, 2007
|
|
|
329
|
|
|
|
2,563
|
|
|
|
2,892
|
|
Balance September 30, 2007
|
|
|
311
|
|
|
|
2,581
|
|
|
|
2,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin America
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2005
|
|
|
60
|
|
|
|
668
|
|
|
|
728
|
|
Balance June 30, 2006
|
|
|
69
|
|
|
|
739
|
|
|
|
808
|
|
Balance June 30, 2007
|
|
|
77
|
|
|
|
826
|
|
|
|
903
|
|
Balance September 30, 2007
|
|
|
77
|
|
|
|
839
|
|
|
|
916
|
|
|
|
S-22
Managements discussion and analysis of financial
condition and results of
operations
You should read the following discussion together with
Selected consolidated financial and other data and
our audited and unaudited consolidated financial statements and
the related notes incorporated by reference into this prospectus
supplement. 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 under Risk factors,
Special note regarding forward-looking statements
and elsewhere in this prospectus supplement.
References to fiscal 2005, fiscal 2006, fiscal 2007 and fiscal
2008 in this section are to the fiscal years ended June 30,
2005, 2006 and 2007 and the fiscal year ending June 30,
2008, respectively. Unless otherwise stated, sales, sales
growth, comparable sales growth and average restaurant sales are
presented on a system-wide basis.
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 the company and franchisees. We are the
second largest FFHR chain in the world as measured by the number
of restaurants and sales system-wide. As of September 30,
2007, we owned or franchised a total of 11,290 restaurants in 69
countries and U.S. territories, of which 7,482 were located
in the United States and Canada. As of that date, 1,289
restaurants were company-owned and 10,001 were owned by our
franchisees. The FFHR category is highly competitive with
respect to price, service, location and food quality. 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 reporting business segments: the
United States and Canada; Europe, the Middle East, Africa and
Asia Pacific, or EMEA/APAC; and Latin America. The United States
and Canada is our largest segment and comprised 65% of total
revenues and 69% of income from operations, excluding
unallocated corporate general and administrative expenses, in
fiscal 2007. EMEA/APAC comprised 30% of total revenues and 19%
of income from operations, excluding unallocated corporate
general and administrative expenses, and Latin America comprised
the remaining 5% of revenues and 12% of income from operations,
excluding unallocated corporate general and administrative
expenses, in fiscal 2007.
Our
business
Revenues
We generate revenues from three sources:
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sales at our company restaurants;
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royalties and franchise fees paid to us by our
franchisees; and
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property income from restaurants that we lease or sublease to
franchisees.
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Our sales are heavily influenced by brand advertising, menu
selection and initiatives to improve restaurant operations.
Company restaurant revenues are affected by comparable sales,
timing of company restaurant openings and closures, acquisitions
by us of franchise restaurants and sales of company restaurants
to franchisees, or refranchisings. In fiscal 2007,
franchise restaurants generated approximately 87% of sales
system-wide. Royalties paid by franchisees are based on a
percentage of franchise restaurant sales and are recorded as
franchise revenues. Franchise fees and franchise renewal fees
are recorded as revenues in the year received. In fiscal 2007,
company restaurant revenues and franchise revenues represented
74% and 21% of total revenues, respectively. The remaining 5% of
total revenues was derived from property income.
We have a higher percentage of franchise restaurants to company
restaurants than our major competitors in the FFHR category. We
believe that this restaurant ownership mix provides us with a
S-23
strategic advantage 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 our franchisees in launching new initiatives.
As a result of the high percentage of franchise restaurants in
our system, we have lower capital requirements compared to our
major competitors. However, our franchise-dominated business
model also presents a number of drawbacks, such as our limited
control over franchisees and limited ability to facilitate
changes in restaurant ownership.
Costs and
expenses
Company restaurants incur three types of operating expenses:
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food, paper and other product costs, which represent the costs
of the products that we sell to customers in company restaurants;
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payroll and employee benefits costs, which represent the wages
paid to company restaurant managers and staff, as well as the
cost of their health insurance, other benefits and
training; and
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occupancy and other operating costs, which represent all other
direct costs of operating our company restaurants, including the
cost of rent or real estate depreciation (for restaurant
properties owned by us), depreciation on equipment, repairs and
maintenance, insurance, restaurant supplies and utilities.
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As average restaurant sales increase, we can leverage payroll
and employee benefits costs and occupancy and other costs,
resulting in a direct improvement in restaurant profitability.
As a result, we believe our continued focus on increasing
average restaurant sales will result in improved profitability
to our restaurants system-wide.
Our selling, general and administrative expenses include the
costs of field management for company and franchise restaurants,
costs of our operational excellence programs (including program
staffing, training and Clean & Safe certifications),
corporate overhead, including corporate salaries and facilities,
advertising and bad debt expenses and amortization of intangible
assets. We believe that our current staffing and structure will
allow us to expand our business globally without increasing
general and administrative expenses significantly.
Property expenses include costs of depreciation and rent on
properties we lease and sublease to franchisees.
Fees paid to affiliates are primarily management fees paid to
our sponsors under a management agreement that we entered into
in connection with our acquisition of BKC and terminated upon
completion of our initial public offering. Under this agreement,
we paid a management fee to the sponsors equal to 0.5% of our
total current year revenues, which amount was limited to 0.5% of
the prior years total revenues. The management agreement
was terminated in the fourth quarter of fiscal 2006. We paid a
one time fee of $30 million to the sponsors in May 2006 to
terminate the management agreement.
Items classified as other operating expenses, net include gains
and losses on asset and business disposals, impairment charges,
settlement losses recorded in connection with acquisitions of
franchise operations, gains and losses on foreign currency
transactions and other miscellaneous items.
Advertising
funds
We promote our brand and products by advertising in all the
countries and territories in which we operate. In countries
where we have company restaurants, such as the United States,
Canada, the U.K. and Germany, we manage an advertising fund for
that country by collecting required advertising contributions
from company and franchise restaurants and purchasing
advertising and other marketing initiatives on behalf of all
Burger King restaurants in that country. These
advertising contributions are based on a percentage of sales at
company and franchise restaurants. We do not record advertising
contributions collected from franchisees as revenues, or
expenditures of these contributions as expenses. Amounts which
are contributed to the advertising funds by company restaurants
are recorded as selling expenses. In countries where we manage
an advertising fund, we plan the marketing calendar in advance
based on expected contributions into the fund for that year. To
the extent that contributions received exceed advertising and
promotional expenditures, the excess
S-24
contributions are recorded as accrued advertising liability on
our consolidated balance sheets. If franchisees fail to make the
expected contributions, we may not be able to continue with our
marketing plan for that year unless we make additional
contributions into the fund. These additional contributions are
also recorded as selling expenses. We made additional
contributions of $15 million, $1 million and
$9 million in fiscal 2005, fiscal 2006 and fiscal 2007,
respectively, and less than $1 million for the three months
ended September 30, 2007.
Key business
measures
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. Unless otherwise
stated, comparable sales growth, average restaurant sales and
sales growth are presented on a system-wide basis. Sales growth
and comparable sales growth are analyzed on a constant currency
basis, which means they are calculated using the same exchange
rate 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
trend, without distortion from the effect of foreign 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 thirteen months or longer.
We believe comparable sales growth is a key indicator of our
performance, as influenced by our initiatives and those of our
competitors. Comparable sales growth is driven mostly by our
franchise restaurants as approximately 90% of our system-wide
restaurants are franchised.
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For the three
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For the fiscal
year ended
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months ended
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June 30,
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September 30,
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2005
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2006
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2007
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2006
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2007
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(In constant
currencies)
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Comparable Sales Growth:
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United States and Canada
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6.6%
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2.5%
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3.6%
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2.6%
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6.6%
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EMEA/APAC
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2.8%
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0.0%
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3.0%
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1.1%
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4.6%
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Latin America
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5.5%
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2.5%
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3.5%
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6.1%
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3.8%
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Total Worldwide
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5.6%
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1.9%
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3.4%
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2.4%
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5.9%
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Comparable sales growth increased significantly in fiscal 2005
as a result of strategic initiatives introduced in the second
half of fiscal 2004. In the United States and Canada, our
comparable sales growth performance improved significantly in
fiscal 2005, as we continued to make improvements to our menu,
advertising and operations. The improved financial health of our
franchise system in fiscal 2005 and lower comparable sales in
fiscal 2004 also contributed to our exceptionally strong fiscal
2005 comparable sales performance. EMEA comparable sales for
fiscal 2005 were lower than fiscal 2004 resulting primarily from
a slow down in economic conditions, competition in Germany and
weak performance in the United Kingdom as a result of changes in
consumer preferences away from the FFHR category.
Our comparable sales growth in fiscal 2006 was driven by new
products and marketing and operational initiatives. Comparable
sales in the United States and Canada did not increase at the
same rate in fiscal 2006 due to the high growth rate in fiscal
2005 to which fiscal 2006 performance is compared. EMEA
performance during fiscal 2006 continued to be negatively
impacted by weak performance in the United Kingdom.
Our comparable sales growth in fiscal 2007 was driven by our
strategic initiatives related to operational excellence,
advertising, our continued focus on our BK Value Menu and
the promotion of premium products. Comparable sales growth
drivers in the United States and Canada included the BK
Value Menu, late-night hours, new product introductions like
the BK Stacker sandwich and other menu
S-25
enhancements and successful movie tie-ins and innovative
promotions. Comparable sales growth in EMEA/APAC reflected
positive sales performance in all major countries in the segment
for fiscal 2007, including the United Kingdom, where sales
performance improved due to the introduction of fresh, high
quality premium products and a $7 million strategic
investment in the marketing fund. Comparable sales in Latin
America continued to grow, fueled by the introduction of new
products, limited time offers, innovative promotions and
marketing campaigns.
Our comparable sales growth for the first quarter of fiscal 2008
was fueled by our strategic initiatives related to operational
excellence, innovative advertising featuring movie promotional
tie-ins, further development of menu items for our breakfast and
late night dayparts, our continued focus on our BK Value
Menu and the promotion of premium products.
In the United States and Canada, our comparable sales increased
for the three months ended September 30, 2007 compared to
the same period in the prior year driven by improvements in our
operations, the continued positive impact of our BK Value
Menu and BK Breakfast Value Menu, movie promotional
tie-ins such as The Simpsons Movie and The
Transformerstm
Movie, the promotion of premium products, such as the Ultimate
Double Whopper sandwich and the BBQ Bacon Tendercrisp
chicken sandwich and the introduction of the Spicy
ChickN Crisp sandwich to the BK Value Menu.
Comparable sales growth in EMEA/APAC reflects positive sales
performance in most major markets, including the United Kingdom,
Australia, New Zealand and South Korea, as a result of high
quality premium offerings and our continued focus on operational
improvement, marketing and advertising.
Latin America demonstrated strong results for the quarter and
momentum continues to grow. These strong results were fueled
primarily in Central America and South America, where high
margin indulgent products and successful movie tie-ins drove
traffic and sales.
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 also includes the impact of movement in foreign
currency exchange rates.
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For the fiscal
year ended
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For the three
months
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June 30,
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ended
September 30,
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2005
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2006
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2007
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2006
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2007
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(In
thousands)
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Worldwide Average Restaurant Sales
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$
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1,104
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$
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1,126
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$
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1,193
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$
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300
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$
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327
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Our improvement in average restaurant sales in fiscal 2005,
fiscal 2006, fiscal 2007 and the first quarter of fiscal 2008
was primarily due to: improved comparable sales, the opening of
new restaurants with higher than average sales volumes and, to a
lesser extent, the closure of under-performing restaurants. Our
comparable sales increased by 5.6%, 1.9% and 3.4% year-over-year
in fiscal 2005, 2006 and 2007, respectively, driven primarily by
our strategic initiatives related to operational excellence,
advertising and our menu. Additionally, we and our franchisees
opened 349 new restaurants and closed 324 restaurants during
fiscal 2006. We and our franchisees opened 441 new restaurants
and closed 287 restaurants during fiscal 2007.
For the three months ended September 30, 2007, ARS was
$327,000 compared to $300,000 for the same period in the prior
year, an increase of 9%. Our trailing twelve-month ARS reached a
record high of $1.22 million for the period ended
September 30, 2007, as compared to $1.14 million for
the trailing twelve months year-over-year, an increase of 7%. As
of September 30, 2007, the last 50 free-standing
restaurants opened in the United States and that have operated
for at least twelve months generated ARS of $1.48 million,
which is approximately 23% higher than the current
U.S. system average.
S-26
Our ARS improvement during the first three months of fiscal 2008
was primarily due to improved worldwide comparable sales, the
opening of new restaurants with higher than average sales
volumes and the closure of under-performing restaurants. Our
worldwide comparable sales were 5.9% for the quarter, driven
primarily by the positive continued impact of our BK
Value Menu, a full quarter of extended late night hours and
the BK Breakfast Value Menu, strong promotional movie
tie-ins such as The Simpsons Movie and The
Transformers Movie, and the offering of premium products
such as the Ultimate Double Whopper sandwich and the BBQ
Bacon Tendercrisp chicken sandwich. We and our
franchisees opened 440 new restaurants and closed 294
restaurants for a net of 146 restaurants opened during the
twelve months ended September 30, 2007. We believe that
continued improvements to 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 restaurant system.
Sales
growth
Sales growth refers to the change in sales at all company-owned
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
comparable sales as well as the effectiveness of our advertising
and marketing initiatives and featured products.
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For the three
months
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For the fiscal
year ended June 30,
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ended
September 30,
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2005
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2006
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2007
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2006
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2007
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|
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|
(In constant
currencies)
|
|
Sales Growth:
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United States and Canada
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4.9%
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0.2%
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3.0%
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1.9%
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6.7%
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EMEA/APAC
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7.9%
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5.0%
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7.9%
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6.9%
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11.6%
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Latin America
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14.5%
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13.0%
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13.3%
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15.7%
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14.4%
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Total Worldwide
|
|
|
6.1%
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|
|
|
2.1%
|
|
|
|
4.9%
|
|
|
|
4.0%
|
|
|
|
8.5%
|
|
|
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The increases in sales growth in fiscal 2005 primarily reflected
improved comparable sales in all regions and sales at 314 new
restaurants opened during that year. This improving trend
continued during fiscal 2006, when comparable sales continued to
increase although at a slower rate due to the high growth rate
in fiscal 2005. Sales growth continued on a positive trend
during fiscal 2007 and for the first quarter of fiscal 2008, as
comparable sales and the number of restaurants continued to
increase on a system-wide basis. We expect restaurant closures
to continue to decline and restaurant openings to accelerate in
most regions, with the exception of the United Kingdom, where we
continue to work with certain franchisees to help them improve
their financial health.
Sales in the United States and Canada increased in fiscal 2005,
primarily due to the implementation of our strategic initiatives
related to advertising, our menu and our operational excellence
programs. Sales growth in the United States and Canada increased
slightly in fiscal 2006, primarily as a result of positive
comparable sales growth partially offset by restaurant closures.
Our sales growth in the United States and Canada during fiscal
2007 and the first quarter of fiscal 2008 reflects positive
comparable sales growth and an increase in the number of newly
built restaurants, partially offset by a net reduction in
restaurant count. We had 7,482 restaurants in the United States
and Canada as of September 30, 2007, compared to 7,521
restaurants as of September 30, 2006.
EMEA/APAC demonstrated strong sales growth during the two-year
period ended June 30, 2007, which reflected growth in
several markets, including Germany, Spain, The Netherlands and
smaller markets in the Mediterranean and the Middle East,
partially offset by the United Kingdom, where changes in
consumer preferences away from the FFHR category adversely
affected sales. Sales growth in the segment continued during
fiscal 2007, driven by openings of new restaurants and positive
comparable sales in all the major markets, including the U.K.,
Germany, Spain, Australia and New Zealand and smaller markets in
the Mediterranean and the Middle East. Sales performance
improved in the U.K. during the second half of fiscal 2007 as a
result of our strategic investments in
S-27
that country. Our sales growth in EMEA/APAC increased during the
three months ended September 30, 2007 primarily as a result
of openings of new restaurants and positive comparable sales in
most major markets. We had 2,892 restaurants in EMEA/APAC as of
September 30, 2007 compared to 2,795 restaurants as of
September 30, 2006.
Latin Americas sales growth was driven by new restaurant
openings and strong comparable sales from fiscal 2005 through
fiscal 2007 and for the first three months of fiscal 2008. We
had 916 restaurants in Latin America as of September 30,
2007 compared to 828 restaurants as of September 30, 2006.
Factors affecting
comparability of results
Purchase
accounting
The acquisition of BKC was accounted for using the purchase
method of accounting, or purchase accounting, in accordance with
Financial Accounting Standards Board (FASB),
Statement of Financial Accounting Standards (SFAS)
No. 141, Business Combinations. Purchase
accounting requires a preliminary allocation of the purchase
price to the assets acquired and liabilities assumed at their
estimated fair market values at the time of our acquisition of
BKC in fiscal 2003. In December 2003, we completed our fair
market value calculations and finalized the adjustments to these
preliminary purchase accounting allocations. As part of
finalizing our assessment of fair market values, we reviewed all
of our lease agreements worldwide. Some of our lease payments
were at below-market lease rates while other lease payments were
at above-market lease rates. In cases where we were making
below-market lease payments, we recorded an asset reflecting
this favorable lease. We amortize this intangible asset over the
underlying lease term, which has the effect of increasing our
rent expense on a non-cash basis to the market rate. Conversely,
in cases where we were making above-market lease payments, we
recorded a liability reflecting this unfavorable lease. We
amortize this liability over the underlying lease term, which
has the effect of decreasing our rent expense on a non-cash
basis to the market rate.
During fiscal 2005 and fiscal 2006, we recorded a net benefit
from favorable and unfavorable lease amortization of
$29 million and $24 million, respectively.
Termination of
global headquarters lease
In May 2007, BKC terminated the lease for its proposed new
global headquarters facility, which was to be constructed in
Coral Gables, Florida (the Coral Gables Lease). We
determined that remaining at our current headquarters location
would avoid the cost and disruption of moving to a new facility
and that the current headquarters facility would continue to
meet our needs for a global headquarters more effectively and
cost efficiently. The Coral Gables Lease provided for the lease
of approximately 225,000 square feet for a term of
15 years at an estimated initial annual rent of
approximately $6 million per year, subject to escalations.
By terminating the Coral Gables Lease, we will save
approximately $24 million in future rent payments between
October 2008 and September 2018 and approximately
$23 million of tenant improvements and moving costs, which
were expected to be paid over an
18-month
period. Total costs associated with the termination of the Coral
Gables Lease were $7 million, including a termination fee
of $5 million paid by BKC to the landlord, which includes a
reimbursement of the landlords expenses. These costs are
reflected in other operating (income) expense, net in our
consolidated statements of income for fiscal 2007.
Historical
franchisee financial distress
Subsequent to our acquisition of BKC, we began to experience
delinquencies in payments of royalties, advertising fund
contributions and rents from certain franchisees in the United
States and Canada. In February 2003, we initiated the FFRP
program designed to proactively assist franchisees experiencing
financial difficulties due to over-leverage and other factors,
including weak sales, the impact of competitive discounting on
operating margins and poor cost management. Under the FFRP
program, we worked with those franchisees with strong operating
track records, their lenders and other creditors to attempt to
strengthen the franchisees financial condition. The FFRP
program also resulted in the closure of unviable franchise
restaurants and our acquisition of certain under-performing
franchise
S-28
restaurants in order to improve their performance. In addition,
we entered into agreements to defer certain royalty payments,
which we did not recognize as revenue during the fiscal years in
which they were deferred and acquired a limited amount of
franchisee debt, often as part of broader agreements to acquire
franchise restaurants or real estate. We also contributed funds
to cover shortfalls in franchisee advertising contributions. See
Other commercial commitments and off-balance
sheet arrangements for further information about the
support we committed to provide in connection with the FFRP
program, including an aggregate remaining potential commitment
of $24 million as of September 30, 2007, to fund
certain loans to renovate franchise restaurants, to make
renovations to certain restaurants that we lease or sublease to
franchisees, and to provide rent relief
and/or
contingent cash flow subsidies to certain franchisees.
Franchise system distress had the following impact on our
results of operations during the three fiscal years presented:
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|
|
|
|
|
|
|
|
|
|
For the fiscal
year ended June 30,
|
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|
2005
|
|
2006
|
|
2007
|
|
|
|
(In
millions)
|
|
Revenues:
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|
|
|
|
|
|
|
|
|
|
|
|
Revenue not recognized(1)
|
|
$
|
(3
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)
|
|
$
|
|
|
|
$
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|
|
Selling, general and administrative expenses:
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|
|
|
|
|
|
|
|
|
|
|
|
Bad debt expense (recovery)
|
|
|
1
|
|
|
|
(1
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)
|
|
|
(2
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)
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Incremental advertising contributions
|
|
|
15
|
|
|
|
1
|
|
|
|
|
|
Internal and external costs of FFRP program administration
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|
|
12
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total effect on selling, general and administrative
|
|
|
28
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|
|
|
|
|
|
|
(2
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)
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Other operating (income) expenses, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves (recoveries) on acquired debt, net
|
|
|
4
|
|
|
|
(2
|
)
|
|
|
|
|
Other, net
|
|
|
4
|
|
|
|
2
|
|
|
|
1
|
|
Total effect on other operating (income) expenses, net
|
|
|
8
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|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
Total effect on income from operations
|
|
$
|
33
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
(1)
|
|
Fiscal 2005 reflects the collection
and recognition of revenue that was not recognized in fiscal
2004.
|
As a result of the franchisees distress, we did not
recognize revenues associated with royalties and rent for
certain franchise restaurants where collection was uncertain
although we retained the legal right pursuant to the applicable
franchise agreement to collect these amounts. In accordance with
SFAS No. 45, Accounting for Franchise
Revenue, we recognize the previously unrecognized revenue
at the time such amounts are actually collected. As brand
advertising is a significant element of our success, we
contributed an incremental $15 million to the U.S. and
Canada advertising fund for fiscal 2005 to fund the shortfall in
franchisee contributions. We also incurred significant internal
and external costs to manage the FFRP program in fiscal 2005.
We believe the FFRP program significantly improved the financial
health and performance of our franchisee base in the United
States and Canada. Franchise restaurant average restaurant sales
in the United States and Canada has improved from $973,000 in
fiscal 2003 to $1.17 million in fiscal 2007. Our collection
rates, which we define as collections divided by billings on a
one-month trailing basis, also improved during this period.
Collection rates in the United States and Canada have improved
from 91% in fiscal 2004 to 100% during fiscal 2005, fiscal 2006
and fiscal 2007, which reflects the improvement of our franchise
systems financial health. The FFRP program in the United
States and Canada was completed as of December 31, 2006.
Our franchisees are independent operators and their decision to
incur indebtedness is generally outside of our control. Although
franchisees may experience financial distress in the future due
to over-leverage, we believe that there are certain factors that
may reduce the likelihood of such a recurrence. We have
established a compliance program to monitor the financial
condition of restaurants that were formerly in the FFRP program.
We review our collections on a monthly basis to identify
potentially distressed franchisees. Further, we believe that the
best way to reduce the
S-29
likelihood of another wave of franchisee financial distress in
our system is for us to focus on driving sales growth and
improving restaurant profitability, and that the successful
implementation of our business strategy will help us to achieve
these objectives.
We believe the investments we have made in the FFRP program will
continue to provide a return to us in the form of a
reinvigorated franchise system in the United States and Canada.
Our global
reorganization and realignment
After our acquisition of BKC, we retained consultants to assist
us in the review of the management and efficiency of our
business, focusing on our operations, marketing, supply chain
and corporate structure. In connection with these reviews, we
reorganized our corporate structure to allow us to operate as a
global brand, resulting in the elimination of certain corporate
and international functions. Also in connection with those
reviews, we implemented operational initiatives, which have
helped us improve restaurant operations. During fiscal 2006, we
continued our global reorganization by regionalizing the
activities associated with our European and Asian businesses,
including: the transfer of rights of existing franchise
agreements; the ability to grant future franchise agreements;
and utilization of our intellectual property assets in
EMEA/APAC, in new European and Asian holding companies.
In connection with our global reorganization and related
realignment of our European and Asian businesses, and the
resulting corporate restructuring, we incurred costs of
$17 million, $10 million and $4 million in fiscal
2005, fiscal 2006 and fiscal 2007, respectively, consisting
primarily of consulting and severance-related costs, which
included severance payments, outplacement services and
relocation costs. The following table presents, for the periods
indicated, such costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal
year
|
|
|
ended
June 30,
|
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
(In
millions)
|
|
Consulting fees
|
|
$
|
2
|
|
|
$
|
10
|
|
|
$
|
4
|
|
Severance-related costs of the global reorganization
|
|
|
15
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17
|
|
|
$
|
10
|
|
|
$
|
4
|
|
|
|
We did not incur any costs during the first quarter of fiscal
2008 in connection with our global reorganization and
realignment.
S-30
Results of
operations
The following table presents, for the fiscal years indicated,
our results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three
months ended
|
|
|
|
For the fiscal
year ended June 30,
|
|
|
September 30
|
|
|
|
2005
|
|
|
2006
|
|
|
%
Change
|
|
|
2007
|
|
|
%
Change
|
|
|
2006
|
|
|
2007
|
|
|
%
Change
|
|
|
|
(In millions,
except percentages)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant revenues
|
|
$
|
1,407
|
|
|
$
|
1,516
|
|
|
|
8%
|
|
|
$
|
1,658
|
|
|
|
9%
|
|
|
$
|
405
|
|
|
$
|
441
|
|
|
|
9%
|
|
Franchise revenues
|
|
|
413
|
|
|
|
420
|
|
|
|
2%
|
|
|
|
460
|
|
|
|
10%
|
|
|
|
113
|
|
|
|
131
|
|
|
|
16%
|
|
Property revenues
|
|
|
120
|
|
|
|
112
|
|
|
|
(7)%
|
|
|
|
116
|
|
|
|
4%
|
|
|
|
28
|
|
|
|
30
|
|
|
|
7%
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,940
|
|
|
|
2,048
|
|
|
|
6%
|
|
|
|
2,234
|
|
|
|
9%
|
|
|
|
546
|
|
|
|
602
|
|
|
|
10%
|
|
Company restaurant expenses
|
|
|
1,195
|
|
|
|
1,296
|
|
|
|
8%
|
|
|
|
1,409
|
|
|
|
9%
|
|
|
|
343
|
|
|
|
373
|
|
|
|
9%
|
|
Selling, general and administrative expenses
|
|
|
487
|
|
|
|
488
|
|
|
|
*
|
|
|
|
474
|
|
|
|
(3)%
|
|
|
|
112
|
|
|
|
119
|
|
|
|
6%
|
|
Property expenses
|
|
|
64
|
|
|
|
57
|
|
|
|
(11)%
|
|
|
|
61
|
|
|
|
7%
|
|
|
|
16
|
|
|
|
14
|
|
|
|
(13)%
|
|
Fees paid to affiliates
|
|
|
9
|
|
|
|
39
|
|
|
|
333%
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Other operating (income) expenses, net
|
|
|
34
|
|
|
|
(2
|
)
|
|
|
(106)%
|
|
|
|
(1
|
)
|
|
|
(50)%
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
1,789
|
|
|
|
1,878
|
|
|
|
5%
|
|
|
|
1,943
|
|
|
|
3%
|
|
|
|
464
|
|
|
|
506
|
|
|
|
9%
|
|
Income from operations
|
|
|
151
|
|
|
|
170
|
|
|
|
13%
|
|
|
|
291
|
|
|
|
71%
|
|
|
|
82
|
|
|
|
96
|
|
|
|
17%
|
|
Interest expense, net
|
|
|
73
|
|
|
|
72
|
|
|
|
(1)%
|
|
|
|
67
|
|
|
|
(7)%
|
|
|
|
17
|
|
|
|
16
|
|
|
|
(6)%
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
18
|
|
|
|
*
|
|
|
|
1
|
|
|
|
(94)%
|
|
|
|
1
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
78
|
|
|
|
80
|
|
|
|
3%
|
|
|
|
223
|
|
|
|
179%
|
|
|
|
64
|
|
|
|
80
|
|
|
|
25%
|
|
Income tax expense
|
|
|
31
|
|
|
|
53
|
|
|
|
71%
|
|
|
|
75
|
|
|
|
42%
|
|
|
|
24
|
|
|
|
31
|
|
|
|
29%
|
|
|
|
|
|
|
|
Net income
|
|
$
|
47
|
|
|
$
|
27
|
|
|
|
(43)%
|
|
|
$
|
148
|
|
|
|
448%
|
|
|
$
|
40
|
|
|
$
|
49
|
|
|
|
23%
|
|
|
|
Three months
ended September 30, 2007 compared to three months ended
September 30, 2006
Revenues
Company
restaurant revenues
Company restaurant revenues increased by 9% to $441 million
during the three months ended September 30, 2007 compared
to the same period in the prior year, primarily as a result of
an increase in net restaurants and positive worldwide company
comparable sales of 3.1%. During the twelve months ended
September 30, 2007, we added 41 restaurants (net of
closures and refranchisings). Approximately $12 million, or
33%, of the increase in company restaurant revenues was
generated by the favorable impact from the movement of foreign
currency exchange rates primarily in EMEA.
In the United States and Canada, company restaurant revenues
increased by 7% to $290 million during the three months
ended September 30, 2007 compared to the same period in the
prior year, primarily from strong company comparable sales in
this segment of 3.6% and the addition of 19 company
restaurants (net of closures and refranchisings) during the
twelve months ended September 30, 2007. Approximately
$3 million, or 16%, of the increase in company restaurant
revenues was due to the favorable impact in the movement of
foreign currency exchange rates in Canada.
In EMEA/APAC, company restaurant revenues increased by 13% to
$135 million during the three months ended
September 30, 2007 compared to the same period in the prior
year, primarily as a result of the addition of 15 restaurants
(net of closures and refranchisings) during the twelve months
ended September 30, 2007 and positive company comparable
sales in this segment of 2.5%. Approximately $10 million,
or 63%, of the increase in company restaurant revenues was due
to the favorable impact in the movement of foreign currency
exchange rates in EMEA.
S-31
In Latin America, company restaurant revenues increased by 7% to
$16 million during the three months ended
September 30, 2007 compared to the same period in the prior
year, primarily as a result of seven additional restaurants (net
of closures and refranchisings) during the twelve months ended
September 30, 2007, partially offset by negative company
comparable sales in this segment of 0.6% due to the highly
successful
15th-year
Whopper anniversary promotion featured in the previous
year in Mexico. The impact on company revenues of foreign
currency was not significant in this segment.
Franchise
revenues
Total franchise revenues increased by 16% to $131 million
during the three months ended September 30, 2007 compared
to the same period in the prior year, driven by positive
worldwide franchise comparable sales of 6.3% during the quarter,
an increase in effective royalty rates in the U.S., and a net
increase of 105 in the number of franchise restaurants (net of
restaurant closures and acquisitions of franchise restaurants by
the company) during the twelve months ended September 30,
2007. Approximately $2 million, or 11%, of the increase in
franchise revenues was due to the favorable impact from the
movement of foreign currency exchange rates.
In the United States and Canada, franchise revenues increased by
13% to $79 million during the three months ended
September 30, 2007 compared to the same period in the prior
year, primarily as a result of positive franchise comparable
sales in this segment of 7.0% and an increase in effective
royalty rates in the U.S., partially offset by the elimination
of royalties from a net reduction of 58 franchise restaurants
during the twelve months ended September 30, 2007. The
impact on franchise revenues of foreign currency was not
significant in this segment.
In EMEA/APAC, franchise revenues increased by 24% to
$41 million during the three months ended
September 30, 2007 compared to the same period in the prior
year, driven by an increase of 82 restaurants (net of closures
and acquisitions of franchise restaurants by us) during the
twelve months ended September 30, 2007 and positive
franchise comparable sales in this segment of 4.9% during the
quarter. Approximately $2 million, or 25%, of the increase
in franchise revenues was due to favorable impact from the
movement of foreign currency exchange rates.
Latin America franchise revenues increased by 10% to
$11 million during the three months ended
September 30, 2007 compared to the same period in the prior
year, as a result of positive franchise comparable sales in this
segment of 4.2% and the addition of 81 franchise restaurants
(net of closures) during the twelve months ended
September 30, 2007. The impact on franchise revenues of
foreign currency was not significant in this segment.
Property
revenues
Total property revenues increased by $2 million, or 7%, for
the three months ended September 30, 2007 compared to the
same period in the prior year, primarily from an increase in
worldwide franchise comparable sales of 6.3% partially offset by
a decrease in the number of properties we lease or sublease to
franchisees due to franchise restaurants that were closed or
acquired by us.
In the United States and Canada, property revenues increased by
$1 million to $23 million for the three months ended
September 30, 2007 compared to the same period in the prior
year, primarily from increased contingent rents as a result of
an increase in franchise comparable sales in this segment of
7.0% partially offset by the effect of franchise restaurants
leased to franchisees that were closed or acquired by us.
In EMEA/APAC, property revenues remained flat at $7 million
for the three months ended September 30, 2007 compared to
the same period in the prior year, primarily from increased
contingent rents as a result of an increase in franchise
comparable sales in this segment of 4.9% and the non-recurrence
of deferred rent revenue recorded in September 30, 2006
offset by the effect of franchise restaurants leased to
franchisees that were closed or acquired by us.
S-32
Operating costs
and expenses
Food, paper
and product costs
Total food, paper and product costs increased by 12% to
$137 million during the three months ended
September 30, 2007 compared to the same period in the prior
year, as a result of an increase in sales and in the number of
company restaurants, an increase in commodity costs and the
unfavorable impact of foreign currency exchange rates, primarily
in EMEA. As a percentage of company restaurant revenues, food,
paper and product costs increased 1.0% to 31.1% as a result of
the increase in commodity costs.
In the United States and Canada, food, paper and product costs
increased by 12% during the three months ended
September 30, 2007 compared to the same period in the prior
year, primarily as a result of an increase in sales in this
segment, an increase in the number of company restaurants, and
an increase in commodity costs. Food, paper and product costs as
a percentage of company restaurant revenues increased 1.5% to
32.1% primarily due to an increase in the cost of beef, cheese
and chicken.
In EMEA/APAC, food, paper and product costs increased by 14%
during the three months ended September 30, 2007 compared
to the same period in the prior year, primarily as a result of
an increase in sales, an increase in the number of company
restaurants and the unfavorable impact of foreign currency
exchange rates. Food, paper and product costs as a percentage of
company restaurant revenues remained relatively flat for the
three months ended September 30, 2007 compared to the same
period in the prior year.
There was no significant change in food, paper and product costs
in Latin America during the three months ended
September 30, 2007.
Payroll and
employee benefits costs
Total payroll and employee benefits costs increased by 10% to
$131 million during the three months ended
September 30, 2007 compared to the same period in the prior
year. This increase was primarily due to the addition of
41 company restaurants (net of closures and refranchisings)
during the twelve months ended September 30, 2007, and the
unfavorable impact of foreign currency exchange rates. As a
percentage of company restaurant revenues, payroll and employee
benefits costs increased by 0.2 percentage points as a
result of inflationary increases in EMEA/APAC.
In the United States and Canada, payroll and employee benefits
costs increased by 7% to $88 million during the three
months ended September 30, 2007 compared to the same period
in the prior year, primarily as a result of additional labor
needed to service increased traffic and the addition of
19 company restaurants (net of closures and refranchisings)
during the twelve months ended September 30, 2007. As a
percentage of company restaurant revenues, payroll and employee
benefits costs did not change significantly, with the benefits
of sales of higher margin products and labor efficiencies being
offset by inflationary increases in wages and salaries.
In EMEA/APAC, payroll and employee benefits costs increased by
17% during the three months ended September 30, 2007
compared to the same period in the prior year, primarily as a
result of additional labor needed to service increased traffic,
an increase of 15 company restaurants (net of closures and
refranchisings) during the twelve months ended
September 30, 2007, and the unfavorable impact of foreign
currency exchange rates. Payroll and employee benefits costs
increased by 1% to 30.3% of company restaurant revenues in
EMEA/APAC for the three months ended September 30, 2007,
compared to the same period in the prior year as a result of
inflationary increases in wages and salaries.
There was no significant change in payroll and employee benefits
costs in Latin America during the three months ended
September 30, 2007.
Occupancy and
other operating costs
Occupancy and other operating costs increased by 3% to
$105 million during the three months ended
September 30, 2007, compared to the same period in the
prior year. This increase is primarily
S-33
attributable to the addition of 41 restaurants (net of closures
and refranchisings) during the twelve months ended
September 30, 2007, and the unfavorable impact of foreign
currency exchange rates. Occupancy and other operating costs
were 23.9% of company restaurant revenues during the three
months ended September 30, 2007 compared to 25.1% during
the three months ended September 30, 2006, reflecting lower
utility and depreciation costs in the United States and Canada
and leverage derived from higher comparable sales.
In the United States and Canada, occupancy and other operating
costs decreased by 2% during the three months ended
September 30, 2007 compared to the same period in the prior
year, driven by lower utility costs generated in part from the
use of the newer more efficient broilers and the benefit of
accelerated depreciation on the older broilers in the prior
year. These costs decreased as a percentage of company
restaurant revenues by 2 percentage points to 22.1% for the
reasons discussed above.
In EMEA/APAC, occupancy and other operating costs increased by
11% during the three months ended September 30, 2007
compared to the same period in the prior year, primarily due to
the addition of 15 company restaurants (net of closures and
refranchisings) during the twelve months ended
September 30, 2007, increased utility costs and the
unfavorable impact of foreign currency exchange rates. As a
percentage of company restaurant revenues, occupancy and other
operating costs decreased to 27.1% compared to 27.5% during the
three months ended September 30, 2006, benefiting primarily
from the closure of under-performing restaurants in EMEA.
In Latin America, occupancy and other operating costs increased
by 16% during the three months ended September 30, 2007,
compared to the same period in the prior year, primarily
attributable to the addition of seven new company restaurants
during the twelve months ended September 30, 2007. As a
percentage of company restaurant revenues, occupancy and other
operating costs increased to 27.4% compared to 24.0% during the
three months ended September 30, 2006, primarily as a
result of an increase in utility costs and property taxes, and
maintenance and other costs related to information technology
including the implementation of new point of sale systems in
Mexico, which are expected to improve efficiency.
Selling,
general and administrative expenses
Selling expenses increased by $4 million for the three
months ended September 30, 2007 compared to the same period
in the prior year. The increase in selling expenses for the
quarter is primarily attributable to sales promotions and
advertising expenses generated by higher company restaurant
revenues and the non-recurrence of bad debt recoveries of
$2 million recorded in the three months ended
September 30, 2006.
General and administrative expenses increased by $3 million
to $96 million for the three months ended
September 30, 2007 compared to the same period in the prior
year. This net increase was primarily driven by an increase in
corporate salary fringe benefits and other costs of
$3 million. The overall net increase of $3 million
also reflects the unfavorable impact of $3 million from the
movement in foreign currency exchange rates, mostly in EMEA.
Property
expenses
Total property expenses decreased $2 million to
$14 million for the three months ended September 30,
2007 compared to the same period in the prior year, primarily
due to the decrease in the number of properties we lease or
sublease to franchisees as a result of restaurant closures and
acquisitions by us.
Other
operating (income) expense, net
Other operating (income) expense, net for the three months ended
September 30, 2007 was zero, compared to $7 million of
income for the same period in the prior year. Other operating
income for the three months ended September 30, 2006
includes a gain of $5 million from the sale of our
investment in an unconsolidated joint venture in New Zealand.
S-34
Income from
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
(In
millions)
|
|
|
Income from Operations:
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
$
|
87
|
|
|
$
|
97
|
|
EMEA/APAC
|
|
|
20
|
|
|
|
20
|
|
Latin America
|
|
|
8
|
|
|
|
9
|
|
Unallocated
|
|
|
(33
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
Total income from operations
|
|
$
|
82
|
|
|
$
|
96
|
|
|
|
Total income from operations increased by $14 million to
$96 million during the three months ended
September 30, 2007 compared to the same period in the prior
year, primarily due to an increase in franchise revenues of
$18 million driven by worldwide franchise comparable sales
of 6.3% for the quarter. In addition, we benefited from an
increase in company restaurant margins of $6 million and
net property revenues of $4 million, both of which were
primarily driven by an increase in comparable sales. These
benefits were offset by an increase in selling, general and
administrative expenses of $7 million, primarily
attributable to increased salary and fringe benefit costs,
higher selling expense due to higher sales and a decrease in
other operating income, net of $7 million. The decrease in
other operating income, net, was primarily driven by the
non-recurrence of a gain on the sale of our interest in a
unconsolidated joint venture in the first quarter of the prior
year. The favorable impact that the movement in foreign currency
exchange rates had on revenues was offset by the unfavorable
impact on operating costs and expenses resulting in minimal
overall impact on income from operations.
In the United States and Canada, income from operations
increased by $10 million to $97 million during the
three months ended September 30, 2007 compared to the same
period in the prior year, primarily as a result of an increase
in franchise revenues of $9 million reflecting an increase
in comparable sales for franchise restaurants in this segment
and an increase in company restaurant margins of
$4 million, driven by an increase in comparable sales and
in the number of company restaurants.
In EMEA/APAC, income from operations remained flat at
$20 million during the three months ended
September 30, 2007 compared to the same period in the prior
year, primarily as a result of an increase in franchise revenues
of $8 million reflecting an increase in comparable sales
for franchise restaurants in this segment, an increase in
company restaurant margins of $2 million, driven by an
increase in comparable sales and in the number of company
restaurants, and an increase in net property revenues of
$2 million, reflecting both an increase in comparable sales
offset by a decrease in the number of properties that we lease
or sublease to franchisees. These increases were offset by a
$7 million decrease in other operating (income) expense,
net and an increase in selling, general and administrative
expenses of $4 million due to higher salary and fringe
benefits and professional fees.
In Latin America, income from operations increased by
$1 million to $9 million during the three months ended
September 30, 2007 compared to the same period in the prior
year, primarily as a result of an increase in franchise revenues
of $1 million reflecting an increase in comparable sales
for franchise restaurants in this segment.
Our unallocated corporate expenses decreased by $3 million
during the three months ended September 30, 2007 compared
to the same period in the prior year primarily as a result of
non-recurring professional services fees associated with the
realignment of our European and Asian businesses.
Interest
expense, net
Interest expense, net decreased by $1 million during the
three months ended September 30, 2007 compared to the same
period in the prior year reflecting a reduction in the amount of
borrowings outstanding due to early prepayments of our debt,
which was partially offset by an increase in rates paid on
borrowings during the period. The weighted average interest rate
for the three months ended
S-35
September 30, 2007 was 6.8%, which included the benefit of
interest rate swaps on 51% of our term debt.
Income tax
expense
Income tax expense was $31 million for the three months
ended September 30, 2007 resulting in an effective tax rate
of 38.8%. During the three months ended September 30, 2007,
we recorded a tax charge of $6 million related to law
changes in various foreign jurisdictions and a tax benefit of
$3 million due to the release in valuation allowance as it
was determined that certain deferred tax assets would be
realized.
Income tax expense was $24 million for the three months
ended September 30, 2006 resulting in an effective tax rate
of 37.5%. During the three months ended September 30, 2006,
we realized a tax benefit as a result of the realignment of the
European and Asian businesses.
See Note 9, Income Taxes to our unaudited condensed
consolidated financial statements contained in our quarterly
report on
Form 10-Q
for the quarterly period ended September 30, 2007,
incorporated by reference into this prospectus supplement for a
discussion regarding the adoption of Financial Accounting
Standards Board (FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109, Accounting for
Income Taxes.
Net
income
Our net income increased by $9 million to $49 million
during the three months ended September 2007 compared to the
same period in the prior year, primarily as a result of a net
increase in restaurants and strong comparable sales which
increased franchise revenues by $18 million, company
restaurant margins by $6 million and net property revenues
by $4 million. We also benefited from a decrease in
interest expense and loss on early extinguishment of debt of
$2 million. These increases were partially offset by an
increase in selling, general and administrative expenses of
$7 million, a $7 million decrease in other operating
(income) expense, net and a $7 million increase in income
tax expense.
Fiscal year ended
June 30, 2007 compared to fiscal year ended June 30,
2006
Revenues
Company
restaurant revenues
Total company restaurant revenues increased by 9% to
$1.7 billion in fiscal 2007, primarily as a result of the
addition of 63 company restaurants (net of closures and
refranchisings) during fiscal 2007 and positive worldwide
company comparable sales in this segment of 2.1%. Approximately
$40 million, or 28%, of the increase in company restaurant
revenues was generated by the favorable impact from the movement
of foreign currency exchange rates primarily in EMEA.
In the United States and Canada, company restaurant revenues
increased by 5% to $1.1 billion in fiscal 2007, primarily
as a result of positive company comparable sales in this segment
of 2.1% and a net increase of 19 company restaurants during
fiscal 2007. Approximately $4 million, or 8%, of the
increase in company restaurant revenues was generated by the
favorable impact from the movement of foreign currency exchange
rates in Canada.
In EMEA/APAC, company restaurant revenues increased by 20% to
$515 million in fiscal 2007, primarily as a result of a net
increase of 36 company restaurants in this segment during
fiscal 2007. The net increase of 36 company restaurants
reflects 41 acquisitions in the U.K., and 20 openings offset by
15 closures and 10 refranchisings. Company comparable sales for
EMEA/APAC was a positive 2.2% overall in this segment reflecting
positive comparable sales in Germany, Spain, The Netherlands and
the U.K. The increase in revenues also reflects
$37 million, or 9%, due to the favorable impact in the
movement of foreign currency exchange rates.
In Latin America, company restaurant revenues increased by 9% to
$61 million in fiscal 2007, primarily as a result of the
addition of eight company restaurants to this segment during
fiscal 2007, and company comparable sales growth of 1.1%. The
increase in revenues was offset by an unfavorable
$1 million, or 1%, due to the impact in the movement of
foreign currency exchange rates.
S-36
Franchise
revenues
Total franchise revenues increased by 10% to $460 million
in fiscal 2007, driven by positive worldwide franchise
comparable sales of 3.6% during that period and by
$7 million of favorable impact from the movement of foreign
currency exchange rates. The number of franchise restaurants
(net of closures and acquisitions of franchise restaurants by
us) increased by 91 during fiscal 2007.
In the United States and Canada, franchise revenues increased by
6% to $284 million in fiscal 2007, primarily as a result of
positive franchise comparable sales in this segment of 3.8% and
higher effective royalty rates partially offset by the
elimination of royalties from a net reduction of 65 franchise
restaurants during fiscal 2007.
In EMEA/APAC, franchise revenues increased by 13% to
$135 million in fiscal 2007, driven by an increase of 69
restaurants (net of closures and acquisitions of franchise
restaurants by us) during fiscal 2007; franchise comparable
sales in this segment of 3.1%; and the favorable impact from the
movement of foreign currency exchange rates of $7 million.
Latin America franchise revenues increased by 21% to
$41 million in fiscal 2007, as a result of positive
franchise comparable sales in this segment of 3.7% and the
addition of 87 franchise restaurants (net of closures) during
fiscal 2007.
Property
revenues
Total property revenues increased by 4% to $116 million in
fiscal 2007, primarily as a result of higher contingent rent
payments driven by our franchise comparable sales growth and the
favorable impact of foreign currency exchange rates in Europe,
partially offset by a decrease in the number of properties that
we lease or sublease to franchisees due to franchise restaurants
that were closed or acquired by us during the period. In fiscal
2006, property revenues decreased by 7% to $112 million, as
a result of a decrease in the number of properties that we lease
or sublease to franchisees due to franchise restaurants that
were closed or acquired by us during the period, partially
offset by higher contingent rent payments.
In the United States and Canada, property revenues increased to
$85 million in fiscal 2007 from $83 million in fiscal
2006. The revenues for both fiscal years in this segment were
driven by higher contingent rent payments from increased
franchise restaurant sales offset by the decrease in the number
of properties that we lease or sublease to franchisees due to
franchise restaurants that were closed or acquired by us.
Our EMEA/APAC property revenues increased by $2 million to
$31 million, primarily as a result of the favorable impact
of foreign currency exchange rates in Europe. In fiscal 2006,
property revenues in this segment decreased by $8 million
to $29 million primarily as a result of the closure of
franchise restaurants in the U.K.
Operating costs
and expenses
Food, paper
and product costs
Total food, paper and product costs increased by 6% to
$499 million in fiscal 2007, as a result of a 9% increase
in company restaurant revenues and the unfavorable impact of
foreign currency exchange rates primarily in EMEA. As a
percentage of company restaurant revenues, food, paper and
product costs decreased 0.9% to 30.1%, primarily from a decrease
in the cost of beef and tomatoes for most of the year and the
sale of higher margin products.
In the United States and Canada, food, paper and product costs
increased by 3% in fiscal 2007, as a result of a 5% increase in
company restaurant revenues in this segment offset by a benefit
from lower food costs. Food, paper and product costs as a
percentage of company restaurant revenues decreased 0.6% to
30.8%, primarily due to decreases in the cost of beef and
tomatoes for most of the year. The cost of beef increased in the
fourth quarter of fiscal 2007 placing downward pressures on
company restaurant margins in the U.S. and Canada.
In EMEA/APAC, food, paper and product costs increased by 15% in
fiscal 2007, primarily as a result of a 20% increase in company
restaurant revenues in this segment and from the unfavorable
impact
S-37
of foreign currency exchange rates. Food, paper and product
costs as a percentage of company restaurant revenues decreased
1.2% to 27.9% driven by price increases for our products and
promotions geared towards higher margin products.
In Latin America, food, paper and product costs increased by 10%
in fiscal 2007 as a result of a 9% increase in company
restaurant revenues in this segment. As a percentage of
revenues, food, paper and product costs remained relatively flat
at 36.6% for fiscal 2007 compared to 36.4% for fiscal 2006.
Payroll and
employee benefits costs
Payroll and employee benefits costs increased by 10% to
$492 million in fiscal 2007. This increase was primarily
due to the addition of 63 company restaurants (net of
closures) in fiscal 2007, increased wages and health insurance
benefit costs, and unfavorable impact of foreign currency
exchange rates. As a percentage of company restaurant revenues,
payroll and employee benefits costs remained relatively flat at
29.7% in fiscal 2007 compared to 29.4% in fiscal 2006 reflecting
the increase from the items above offset by labor efficiencies.
In the United States and Canada, payroll and employee benefits
costs increased by 5%, as a result of a net increase in the
number of company restaurants, additional labor hours required
for late night hours and the increase in company comparable
sales, and inflationary increases in salaries and wages and
benefits. Payroll and employee benefits costs remained
relatively flat as a percentage of company restaurant revenues
reflecting positive comparable sales and labor efficiencies as
an offset to inflationary increases.
In EMEA/APAC, payroll and employee benefits costs increased by
23% in fiscal 2007, primarily as a result of 36 additional
company restaurants (net of closures and refranchisings) in
fiscal 2007 and the unfavorable impact of foreign currency
exchange rates. Payroll and employee benefits costs as a
percentage of company restaurant revenues increased 0.5% to
30.3% primarily due to the acquisition of franchise restaurants
in the U.K. generating lower sales.
In Latin America, payroll and employee benefits costs increased
by 9% in fiscal 2007, primarily as a result of the opening of
eight new company restaurants during fiscal 2007. Payroll and
employee benefits costs remained relatively flat as a percentage
of company restaurant revenues in fiscal 2007 compared to fiscal
2006.
Occupancy and
other operating costs
Occupancy and other operating costs increased by 10% to
$418 million in fiscal 2007, compared to the prior year.
This increase was primarily attributable to escalating rent and
utility costs in EMEA, the addition of 63 company
restaurants (net of closures and refranchisings) in fiscal 2007
and the unfavorable impact of foreign currency exchange rates.
Occupancy and other operating costs remained relatively flat as
a percentage of worldwide company restaurant revenues in fiscal
2007 compared to fiscal 2006. In the United States and Canada,
occupancy and other operating costs increased by 2% in fiscal
2007, compared to fiscal 2006, driven by 19 additional company
restaurants (net of closures and refranchisings) in fiscal 2007,
and an increase in utility costs to operate during late night
hours. These costs decreased as a percentage of company
restaurant revenues by 0.8% to 23.5% as a result of a reduction
in casualty and hurricane-related losses.
In EMEA/APAC, occupancy and other operating costs increased by
28% in fiscal 2007, compared to the same period in the prior
year, primarily due to the addition of 36 company
restaurants (net of closures and refranchisings) in fiscal 2007,
and unfavorable impact of foreign currency exchange rates. As a
percentage of company restaurant revenues, occupancy and other
operating costs increased to 28.8%, compared to 27.2% in fiscal
2006. The increase in these costs as a percentage of revenues
reflects increases in utilities and rents in all major markets.
In Latin America, occupancy and other operating costs increased
by 16%, primarily as a result of an increase of eight company
restaurants in fiscal 2007. As a percentage of company
restaurant revenues, these costs increased by 0.6% to 25.9% in
fiscal 2007 compared to the prior year, primarily as a result of
an increase in utilities, property taxes, repairs and
maintenance and the cost of information technology including POS
systems.
S-38
Selling,
general and administrative expenses
Selling expenses increased by $11 million for the twelve
months ended June 30, 2007, compared to the same period in
the prior year. This increase includes $9 million of
additional sales promotions and advertising expenses generated
by higher company restaurant revenues, and $7 million
related to incremental contributions made by the company to the
marketing fund in the U.K. and Germany, offset by a
$5 million recovery of bad debt. The incremental
contribution to the marketing fund in the U.K. was used to
improve brand recognition in that market and to introduce new
premium products with commercials such as, the
Manthem and the Have It Your Way brand
promise, and promotions for the £1.99 Whopper
sandwich and Aberdeen Angus burger. The overall increase in
selling expenses for fiscal 2007 of $11 million also
includes the unfavorable impact of approximately $3 million
from the movement in foreign currency exchange rates.
General and administrative expenses decreased by
$25 million to $391 million for fiscal 2007, compared
to the same period in the prior year. This decrease was
primarily driven by a non-recurring compensation expense and
taxes related to the compensatory make-whole payment of
$34 million in the prior year, and by a reduction in
severance and relocation of $3 million, offset by
$4 million in professional fees including $1 million
of expenses related to the secondary offering by private equity
funds controlled by the sponsors, $5 million of stock-based
compensation, an increase in corporate salary and fringe
benefits of $3 million, and an increase in travel and
meetings of $4 million. The overall decrease of
$25 million also includes the unfavorable impact of
approximately $8 million from the movement in foreign
currency exchange rates.
Property
expenses
Property expenses increased by $4 million to
$61 million in fiscal 2007, as a result of lower
amortization of unfavorable leases in the United States and
Canada and the unfavorable impact of foreign currency exchange
rates in Europe. Property expenses decreased by $7 million
to $57 million in fiscal 2006, as a result of a decrease in
the number of properties that we lease or sublease to
franchisees, primarily due to restaurant closures and the
acquisition of franchise restaurants. Additionally, the revenues
from properties that we lease or sublease to non-restaurant
businesses after restaurant closures is treated as a reduction
in property expenses, resulting in decreased property revenues
and expenses in fiscal 2006. Property expenses were 37% of
property revenues in the United States and Canada in fiscal 2007
compared to 35% in fiscal 2006. Our property expenses in
EMEA/APAC approximate our property revenues because most of the
EMEA/APAC property operations consist of properties that are
subleased to franchisees on a pass-through basis.
Fees paid to
affiliates
During fiscal 2007, we incurred no fees to affiliates. Fees paid
to affiliates were $39 million during fiscal 2006,
consisting of $30 million paid to our sponsors to terminate
the management agreement and $9 million from regular
recurring monthly management fees.
Other
operating (income) expense, net
Other operating income, net for fiscal 2007 was $1 million,
compared to $2 million for the same period in the prior
year. The $1 million of other operating income, net for
fiscal 2007 includes a net gain of $5 million from the
disposal of assets, a gain of $7 million from forward
currency contracts used to hedge intercompany loans denominated
in foreign currencies offset by $7 million in costs
associated with the termination of the lease for a new
headquarters which we had proposed to build in Coral Gables,
Florida, $2 million in litigation reserves, and
$3 million in franchise workout costs. The $2 million
of other operating income, net for the twelve months ended
June 30, 2006 included a gain of $3 million from the
disposal of assets including the termination of unfavorable
leases in the U.S., Canada, and the U.K., a $2 million gain
from the recovery of an investment in franchisee debt, and a
$1 million recovery from an investment in New Zealand that
has since been dissolved. These gains were offset by
$4 million of closed restaurant expenses in the U.K. and
the U.S.
S-39
Income from
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal
year ended June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
(In
millions)
|
|
|
Income from Operations:
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
$
|
295
|
|
|
$
|
336
|
|
EMEA/APAC
|
|
|
62
|
|
|
|
54
|
|
Latin America
|
|
|
29
|
|
|
|
35
|
|
Unallocated
|
|
|
(216
|
)
|
|
|
(134
|
)
|
|
|
|
|
|
|
Total income from operations
|
|
$
|
170
|
|
|
$
|
291
|
|
|
|
Income from operations increased by $121 million to
$291 million in fiscal 2007 compared to the prior year,
primarily as a result of a reduction in fees paid to affiliates
and decreased selling, general and administrative expenses from
the non-recurrence of management fees of $39 million paid
to our sponsors, as well as the compensation expense and taxes
of $34 million recorded in fiscal 2006 related to the
compensatory make-whole payment. Improvement in restaurant sales
driven by strong comparable sales increased franchise revenues
and company restaurant revenues and margins. See Note 21 to
our audited consolidated financial statements contained in our
Form 10-K
for the year ended June 30, 2007, incorporated by reference
into this prospectus supplement, for income from operations by
segment. The favorable impact that the movement in foreign
currency exchange rates had on revenues was offset by the
unfavorable impact on operating costs and expenses, resulting in
a $1 million favorable overall impact on income from
operations.
In the United States and Canada, income from operations
increased by $41 million to $336 million during fiscal
2007 compared to the prior year, primarily as a result of an
increase in company restaurant margins of $20 million and
an increase in franchise revenues of $17 million, driven by
lower company restaurant expenses and positive comparable sales
for both company and franchise restaurants.
Income from operations in EMEA/APAC decreased by $8 million
to $54 million in fiscal 2007 compared to the prior year,
driven primarily by an increase of $34 million in selling,
general and administrative expenses, offset by an increase in
company restaurant margins of $5 million, an increase in
franchise revenues of $16 million and an increase in other
operating income of $5 million generated by a gain on the
sale of a joint venture in New Zealand in fiscal 2007. The
increase in selling, general and administrative expenses of $34
million reflects increases in the following: advertising
expenses of $11 million; salaries and fringe benefits of
$6 million; relocation, severance and training expenses of
$5 million; professional fees of $4 million; travel
and meeting expenses of $3 million; and bad debt expense of
$2 million.
Income from operations in Latin America increased by
$6 million to $35 million in fiscal 2007 compared to
the prior year, due to an increase in franchise revenues from
comparable sales of 3.7% and a net increase of 87 franchise
restaurants during fiscal 2007.
Interest
expense, net
Interest expense, net decreased by $5 million during the
twelve months ended June 30, 2007, compared to the same
period in the prior year reflecting a decrease in interest
expense of $8 million offset by a decrease in interest
income of $3 million. The decrease in interest expense is
primarily due to a reduction in the amount of borrowings
outstanding, which reduced interest expense by $12 million.
An increase in rates paid on borrowings increased interest
expense by $10 million during the period, offset by the
benefit from interest rate swaps of $6 million. The
decrease in interest income of $3 million is due to a
reduction in the amount of interest earning cash equivalents
combined with a reduction in yields.
S-40
Loss on early
extinguishment of debt
Loss on early extinguishment of debt was $1 million in
fiscal 2007 compared to $18 million in fiscal 2006. The
decrease of $17 million was due to the write off of
deferred financing costs recognized in conjunction with the
refinancing of our secured debt in July 2005, the incremental
$350 million borrowing made in February 2006, and the
$350 million prepayment of term debt from the proceeds of
our initial public offering.
Income tax
expense
Income tax expense was $75 million in fiscal
2007. Compared to the prior fiscal year, our
effective tax rate decreased approximately 33 percentage
points to 33.6%, primarily as a result of tax benefits realized
from an operational realignment of our European and Asian
businesses, and from the reduction in tax accruals due to the
resolution of certain tax audit matters.
See Note 14 to our audited consolidated financial
statements contained in our Form 10-K for the year ended
June 30, 2007, incorporated by reference into this
prospectus supplement, for further information regarding our
effective tax rate.
Net
income
Net income increased by $121 million to $148 million
in fiscal 2007 compared to the prior year, primarily as a result
of a reduction in fees paid to affiliates and decreased selling,
general and administrative expenses from the non-recurrence of
management fees of $39 million paid to our sponsors, as
well as the compensation expense and taxes of $34 million
recorded in fiscal 2006 related to the compensatory make-whole
payment. Improvement in restaurant sales driven by strong
comparable sales increased franchise revenues and company
restaurant revenues and improved our margins. The increase in
net income was also attributed to the net decrease in interest
expense of $5 million, decrease in early extinguishment of
debt of $17 million, offset by an increase in income tax
expense of $22 million.
Fiscal year ended
June 30, 2006 compared to fiscal year ended June 30,
2005
Revenues
Company
restaurant revenues
Company restaurant revenues increased 8% to $1,516 million
in fiscal 2006, primarily as a result of nine new restaurant
openings (net of closures), the acquisition of 44 franchise
restaurants (net of refranchisings), and positive worldwide
company comparable sales in the United States and Canada.
Partially offsetting these factors were negative company
comparable sales in EMEA/APAC. In fiscal 2005, company
restaurant revenues increased 10% to $1,407 million, as a
result of strong comparable sales in the United States and
Canada and Latin America, where approximately 76% of our company
restaurants were located.
In the United States and Canada, company restaurant revenues
increased 12% to $1,032 million
in fiscal 2006, primarily as a result of positive company
comparable sales and the acquisition of
40 franchise restaurants (net of refranchisings), most of which
were located in the United States. In fiscal 2005 company
restaurant revenues increased 15% to $923 million,
primarily as a result of strong company comparable sales
generated from the implementation of strategic initiatives
related to our menu, advertising and operational excellence
programs, as well as the acquisition of 99 franchise restaurants.
In EMEA/APAC, company restaurant revenues decreased 2% to
$428 million in fiscal 2006, primarily as a result of
negative company comparable sales in the U.K. and Germany, where
77% of our EMEA/APAC company restaurants were located as of
June 30, 2006, and the negative impact of foreign currency
exchange rates, which were partially offset by strong
performance in Spain and the Netherlands. Company restaurant
revenues were negatively impacted $19 million by movement
in foreign currency exchange rates. However, this negative
impact did not have a material impact on income from operations
as it was offset by the positive impact to company restaurant
expenses and
S-41
selling, general and administrative expenses. In fiscal 2005,
company restaurant revenues increased 1% to $435 million,
primarily as a result of new restaurant openings and positive
company comparable sales.
In Latin America, company restaurant revenues increased 14% to
$56 million in fiscal 2006, as revenues generated by nine
new company restaurants, partially offset by negative company
comparable sales. In fiscal 2005, company restaurant revenues
increased 8% to $49 million, primarily as a result of new
restaurant openings and positive company comparable sales.
Franchise
revenues
Franchise revenues increased 2% to $420 million in fiscal
2006. Franchise comparable sales increased in the United States
and Canada and Latin America segments and decreased in the
EMEA/APAC segment during fiscal 2006. In addition, 326 new
franchise restaurants were opened since June 30, 2005,
including 277 new international franchise restaurants. Partially
offsetting these factors was the elimination of royalties from
360 franchise restaurants that were closed or acquired by us,
primarily in the United States and Canada. In fiscal 2005,
franchise revenues increased 14% to $413 million, primarily
as a result of improved sales at franchise restaurants in all
segments.
In the United States and Canada, franchise revenues decreased 1%
to $267 million in fiscal 2006, primarily as a result of
the elimination of royalties from 278 franchise restaurants that
were closed or acquired by us, partially offset by positive
franchise comparable sales. In fiscal 2005, franchise revenues
increased 15% to $269 million, primarily as a result of the
implementation of our menu, marketing and operational excellence
initiatives and the improved financial condition of our
franchise system. In addition to increased royalties from
improved franchise restaurant sales, we recognized
$3 million of franchise revenues not previously recognized
in the United States and Canada in fiscal 2005, compared to
$17 million of franchise revenues not recognized in fiscal
2004. Partially offsetting these factors was the elimination of
royalties from franchise restaurants that were closed or
acquired by us in fiscal 2005.
Our EMEA/APAC franchisees opened 125 new franchise restaurants
(net of closures) since June 30, 2005 resulting in a 4%
increase in franchise revenues to $119 million in fiscal
2006. In fiscal 2005, our franchisees opened 64 new franchise
restaurants (net of closures) in EMEA/APAC which, along with
positive franchise comparable sales, resulted in a 13% increase
in franchise revenues to $114 million.
Latin America franchise revenues increased 13% to
$34 million during fiscal 2006 as a result of 71 new
franchise restaurants (net of closures) since June 30, 2005
and positive franchise comparable sales. In fiscal 2005,
franchise revenues increased 17% to $30 million, as a
result of 53 new franchise restaurants (net of closures) and
positive franchise comparable sales.
Property
revenues
Property revenues decreased by 7% to $112 million in fiscal
2006, as a result of a decrease in the number of properties that
we lease or sublease to franchisees due to franchise restaurants
that were closed or acquired by us, partially offset by higher
contingent rent payments. In fiscal 2005, property revenues
increased 3% to $120 million.
In the United States and Canada, property revenues were
$83 million in fiscal 2006 and fiscal 2005, primarily as a
result of higher contingent rent payments from increased
franchise restaurant sales, offset by the effect of franchise
restaurants leased to franchisees that were closed or acquired
by us. In fiscal 2005, property revenues increased 1% to
$83 million primarily because fiscal 2004 property revenues
in the United States and Canada excluded $5 million of
property revenues not recognized, partially offset by
$3 million of revenues recognized in connection with
finalizing our purchase accounting allocations.
Our EMEA/APAC property revenues decreased $8 million to
$29 million, primarily as a result of the closure of
franchise restaurants in the U.K. and the reclassification of
property income on certain properties that were leased or
subleased to non-restaurant businesses after restaurant
closures. The property income on these properties is treated as
a reduction in related property expenses rather than revenue. In
fiscal 2005, property revenues increased 5% to $37 million.
S-42
Operating
costs and expenses
Food, paper
and product costs
Food, paper and product costs increased 8% to $470 million
in fiscal 2006, primarily as a result of an 8% increase in
company restaurant revenues. As a percentage of company
restaurant revenues, food, paper and product costs decreased
0.1% to 31.0%, primarily due to reduced beef and cheese prices
in the United States, partially offset by increased beef prices
in Europe. In fiscal 2005, food, paper and product costs
increased 12% to $437 million, primarily as a result of a
10% increase in company restaurant revenues. As a percentage of
company restaurant revenues, food, paper and product costs
increased 0.5% to 31.1% in fiscal 2005, primarily as a result of
increases in the price of beef in the United States.
In the United States and Canada, food, paper and product costs
increased 9% to $325 million in fiscal 2006, primarily as a
result of a 12% increase in company restaurant revenues. Food,
paper and product costs decreased 0.6% to 31.5% of company
restaurant revenues, primarily due to reduced beef and cheese
prices. In fiscal 2005, food, paper and product costs increased
16% to $297 million, primarily as a result of a 15%
increase in company restaurant revenues. As a percentage of
company restaurant revenues, food, paper and product costs
increased 0.3% to 32.1% in fiscal 2005, primarily as a result of
increases in the price of beef.
In EMEA/APAC, food, paper and product costs increased 2% to
$125 million in fiscal 2006, primarily as a result of
increased beef prices in Europe, partially offset by a 2%
decrease in company restaurant revenues and favorable foreign
currency exchange rates. Food, paper and product costs increased
1.2% to 29.2% of company restaurant revenues, primarily as a
result of the increased beef prices in Europe. In fiscal 2005,
food, paper and product costs increased 2% to $122 million
in EMEA/APAC, primarily as a result of a 1% increase in company
restaurant revenues.
In Latin America, food, paper and product costs increased 11% in
fiscal 2006, primarily as a result of a 14% increase in company
restaurant revenues. In fiscal 2005, food, paper and product
costs increased 7% to $18 million, primarily as a result of
an 8% increase in company restaurant revenues.
Payroll and
employee benefits costs
Payroll and employee benefit costs increased 7% to
$446 million in fiscal 2006. Payroll and employee benefit
costs decreased 0.1% to 29.4% of company restaurant revenues in
fiscal 2006 compared to 29.5% in fiscal 2005. Payroll and
employee benefit costs have continued to increase as a result of
increases in wages and other costs of labor, particularly health
insurance, as well as an increase in the number of company
restaurants. Partially offsetting these increased costs was a
reduction in the labor required to operate our restaurants, due
to our operational excellence programs and operational
efficiency programs implemented in Europe. In fiscal 2005,
payroll and employee benefit costs increased 9% to
$415 million, as a result of increased wages, health
insurance and training expenses, as well as the acquisition of
franchise restaurants in fiscal 2005. Payroll and employee
benefit costs decreased 0.4% to 29.5% of company restaurant
revenues in fiscal 2005 as higher costs of wages and health
insurance benefit were more than offset by increasing restaurant
sales and efficiency gains from our operational excellence
programs to reduce the labor required to operate our restaurants.
In the United States and Canada, payroll and employee benefit
costs increased 13% to $312 million in fiscal 2006,
primarily as a result of the acquisition of 40 franchise
restaurants (net of refranchisings) and increased wages and
health insurance benefit costs. Payroll and employee benefit
costs increased 0.3% to 30.2% of company restaurant revenues. In
fiscal 2005, payroll and employee benefit costs increased 12% to
$276 million, primarily as a result of the acquisition of
franchise restaurants and increased wages and health insurance
benefit costs. Payroll and employee benefit costs were 29.9% of
company restaurant revenues, compared to 30.8% in fiscal 2004,
primarily as a result of leveraging payroll costs from increased
sales and efficiency gains resulting from our operational
improvement initiatives.
In EMEA/APAC, payroll and employee benefit costs decreased 5% to
$127 million in fiscal 2006, primarily as a result of
favorable foreign currency exchange rates. Payroll and employee
benefit costs decreased 1.1% to 29.7% of company restaurant
revenues in EMEA/APAC. In fiscal 2005, payroll and
S-43
employee benefit costs increased 3% to $134 million,
primarily as a result of new company restaurants in Germany and
increased wages and benefit costs. Payroll and employee benefit
costs were 30.8% of company restaurant revenues in EMEA/APAC,
compared to 30.3% in fiscal 2004.
In Latin America, where labor costs are lower than in the United
States and Canada and EMEA/APAC segments, payroll and employee
benefit costs increased 17% to $7 million in fiscal 2006,
primarily as a result of nine new company restaurant openings
since June 30, 2005. Payroll and employee benefit costs
increased 0.9% to 12.5% of company restaurant revenues in Latin
America. In fiscal 2005, payroll and employee benefit costs
increased 12% to $6 million, primarily as a result of new
company restaurants. Payroll and employee benefit costs were
11.4% of company restaurant revenues in Latin America in fiscal
2005, compared to 11.0% in fiscal 2004.
Occupancy and
other operating costs
Occupancy and other operating costs increased 11% to
$380 million in fiscal 2006. Occupancy and other operating
costs were 25.1% of company restaurant revenues in fiscal 2006
compared to 24.4% in fiscal 2005. These increases are primarily
attributable to the acquisition of franchise restaurants and
increased utility costs. Occupancy and other operating costs
increased 9% to $343 million in fiscal 2005, primarily as a
result of the acquisition of franchise restaurants and increases
in costs such as rents and utilities. Occupancy and other
operating costs were 24.4% of company restaurant revenues in
fiscal 2005 compared to 24.6% in fiscal 2004, primarily because
of sales growth.
In the United States and Canada, occupancy and other operating
costs increased to 24.1% of company restaurant revenues in
fiscal 2006 compared to 23.6% in fiscal 2005, primarily as a
result of increased utility and restaurant supply costs. In
fiscal 2005, occupancy and other operating costs were 23.6% of
company restaurant revenues compared to 26.1% in fiscal 2004,
primarily as a result of leveraging base rents from increased
sales.
In EMEA/APAC, occupancy and other operating costs increased to
27.3% of company restaurant revenues in fiscal 2006 compared to
26.1% in fiscal 2005, as a result of decreased restaurant sales,
increased utilities in the segment and increased rents in the
U.K., partially offset by the closure of certain restaurants
with higher than average restaurant rents. In fiscal 2005,
occupancy and other operating costs were 26.1% of company
restaurant revenues compared to 22.9% in fiscal 2004, primarily
as a result of increased rents and utilities in the U.K. and
adjustments we recorded in fiscal 2004 when we finalized our
purchase accounting allocations.
In Latin America, occupancy and other operating costs increased
to 25% of company restaurant revenues in fiscal 2006 from 21.6%
in fiscal 2005, primarily as a result of a decrease in
comparable sales and increased utility costs. In fiscal 2005,
occupancy and other operating costs were 21.6% of company
restaurant revenues compared to 13.7% in fiscal 2004, primarily
as a result of increased utility costs and adjustments we
recorded in fiscal 2004 when we finalized our purchase
accounting allocations.
Selling,
general and administrative expenses
Selling, general and administrative expenses increased by
$1 million to $488 million during fiscal 2006. General
and administrative expenses increased $17 million to
$416 million, while selling expenses decreased
$16 million to $72 million.
Our fiscal 2006 general and administrative expenses included
$34 million of compensation expense and taxes related to
the compensatory make-whole payment, $10 million in
expenses associated with the realignment of our European and
Asian businesses and $5 million of executive severance
expense. Additionally, our acquisition of 44 franchise
restaurants (net of refranchisings) resulted in increased
general and administrative expenses related to the management of
our company restaurants. Partially offsetting these increased
expenses was a $19 million reduction in general and
administrative expenses related to franchise system distress and
our global reorganization costs in fiscal 2006.
The $16 million decrease in selling expenses in fiscal 2006
is primarily attributable to a $14 million decrease in
incremental advertising expense compared to fiscal 2005
resulting from franchisee non-
S-44
payment of advertising contributions. Partially offsetting this
reduction were incremental advertising expenses for company
restaurants opened or acquired in fiscal 2006.
In fiscal 2005, selling, general and administrative expenses
increased $13 million to $487 million. General and
administrative costs increased 10% to $399 million, while
selling expenses decreased 21% to $88 million.
General and administrative expenses included $29 million
and $33 million of costs associated with the FFRP
programs administration and severance and consulting fees
incurred in connection with our global reorganization in fiscal
2005 and fiscal 2004, respectively. Our fiscal 2005 general and
administrative cost increases also included $14 million of
incremental incentive compensation as a result of improved
restaurant operations and our improved financial performance, as
well as $7 million of increased costs associated with
operational excellence initiatives. Our remaining general and
administrative expense increases in fiscal 2005 were
attributable to the acquisition of franchise restaurants and
increases in restaurant operations and business development
teams, particularly in EMEA/APAC where our general and
administrative expenses increased by $18 million in fiscal
2005.
The decrease in selling expenses is attributable to a decrease
in advertising expense and bad debt expense. Our bad debt
expense decreased to $1 million in fiscal 2005 from
$11 million in fiscal 2004 and our incremental advertising
expense resulting from franchisee non-payment of advertising
contributions was $15 million in fiscal 2005 compared to
$41 million in fiscal 2004. These improvements resulted
from the strengthening of our franchise system during fiscal
2005. Partially offsetting these reductions were incremental
advertising expenses for company restaurants opened or acquired
in fiscal 2005.
Property
expenses
Property expenses decreased by $7 million to
$57 million in fiscal 2006, as a result of a decrease in
the number of properties that we lease or sublease to
franchisees, primarily due to restaurant closures and
acquisition of franchise restaurants. Additionally, the revenues
from properties that we lease or sublease to non-restaurant
businesses after restaurant closures is treated as a reduction
in property expenses, resulting in decreased property revenues
and expenses in fiscal 2006. Property expenses were 35% of
property revenues in the United States and Canada in fiscal 2006
compared to 36% in fiscal 2005. Our property expenses in
EMEA/APAC approximate our property revenues because most of the
EMEA/APAC property operations consist of properties that are
subleased to franchisees on a pass-through basis.
Fees paid to
affiliates
Fees paid to affiliates increased to $39 million in fiscal
2006, compared to $9 million in fiscal 2005 as a result of
the $30 million management agreement termination fee paid
to the sponsors.
Other
operating (income) expenses, net
Other operating income, net, comprised primarily of gains on
property disposals and other miscellaneous items, was
$2 million in fiscal 2006 compared to other operating
expenses, net, of $34 million and $54 million in
fiscal 2005 and fiscal 2004, respectively:
Gains and losses on asset disposals are primarily related to
exit costs associated with restaurant closures and gains and
losses from selling company restaurants to franchisees. In
fiscal 2005, the United States and Canada recorded
$7 million in net losses on asset disposals compared to
$6 million in fiscal 2004. EMEA/APAC recorded
$6 million in net losses on asset disposals in fiscal 2005,
compared to $8 million in fiscal 2004, including a loss of
$3 million recorded in connection with the refranchising of
company restaurants in Sweden.
As a result of our assessments of the net realizable value of
certain third-party debt of franchisees that we acquired,
primarily in connection with the FFRP program in the United
States and Canada, we recorded $4 million and
$12 million of impairment charges related to investments in
franchisee debt in fiscal 2005 and fiscal 2004, respectively.
The remaining fiscal 2004 impairment of debt investments was
recorded in connection with the forgiveness of a note receivable
from an unconsolidated affiliate in Australia.
S-45
Other, net included $5 million of settlement losses
recorded in connection with the acquisition of franchise
restaurants and $4 million of costs associated with the
FFRP program in fiscal 2005 in the United States and Canada. In
fiscal 2004, other, net included $3 million of losses from
unconsolidated investments in EMEA/APAC and $2 million each
of losses from transactions denominated in foreign currencies,
property valuation reserves, and re-branding costs related to
our operations in Asia.
Income from
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal
year ended
|
|
|
|
June 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
(In
millions)
|
|
|
Income from Operations:
|
|
|
|
|
|
|
|
|
United States and Canada
|
|
$
|
255
|
|
|
$
|
295
|
|
EMEA/APAC
|
|
|
36
|
|
|
|
62
|
|
Latin America
|
|
|
25
|
|
|
|
29
|
|
Unallocated
|
|
|
(165
|
)
|
|
|
(216
|
)
|
|
|
|
|
|
|
Total Income from Operations
|
|
$
|
151
|
|
|
$
|
170
|
|
|
|
Income from operations increased by $19 million to
$170 million in fiscal 2006, primarily as a result of
improved restaurant sales and the improved financial health of
our franchise system, partially offset by the effect of the
compensatory make-whole payment and the management agreement
termination fee. See Note 21 to our audited consolidated
financial statements contained in our
Form 10-K
for the year ended June 30, 2007, incorporated by reference
into this prospectus supplement, for segment information
disclosed in accordance with SFAS No. 131,
Disclosures about Segments of an Enterprise and Related
Information (SFAS No 131). In fiscal 2005, our income
from operations increased by $78 million to
$151 million, primarily as a result of increased revenues
and the improved financial health of our franchise system.
In the United States and Canada, income from operations
increased by $40 million to $295 million in fiscal
2006, primarily as a result of increased sales and reductions in
the negative effect of franchise system distress, which
decreased by $33 million. The decrease in the negative
effect of franchise system distress was comprised primarily of a
$14 million reduction in incremental advertising
contributions and a $12 million reduction in costs of FFRP
administration, both of which resulted from the improved
financial health of our franchise system. In fiscal 2005, income
from operations increased by $140 million to
$255 million, primarily as a result of increased revenues
and a reduction in the negative effect of franchise system
distress, which decreased by $72 million. This decrease was
comprised primarily of a $25 million increase in franchise
and property revenue recognition, a $26 million reduction
in incremental advertising contributions and a $15 million
reduction in reserves on acquired debt, all of which resulted
from the improved financial health of our franchise system.
Income from operations in EMEA/APAC increased by
$26 million to $62 million in fiscal 2006, as a result
of a $6 million reduction in losses on property disposals,
a $16 million decrease in selling, general and
administrative expenses, primarily attributable to the effects
of our global reorganization and a $5 million increase in
franchise revenues, partially offset by a $7 million
decrease in margins from company restaurants driven primarily by
results in the U.K., due to decreased sales, increased beef
prices and occupancy costs, including rents and utilities. In
fiscal 2005, income from operations decreased by
$59 million to $36 million, as a result of a number of
factors, including: (i) a $16 million decrease in
margins from company restaurants, as a result of higher
operating costs, (ii) a $12 million increase in
selling, general and administrative expenses to support growth,
(iii) a $6 million increase in expenses related to our
global reorganization, (iv) $9 million of lease
termination and exit costs, including $8 million in the
U.K., and (v) $2 million of litigation settlement
costs in Asia.
Income from operations in Latin America increased by
$4 million to $29 million in fiscal 2006, primarily as
a result of increased revenues. In fiscal 2005, income from
operations decreased by $1 million to $25 million,
primarily as a result of higher company restaurant expenses.
S-46
Our unallocated corporate expenses increased $51 million to
$216 million in fiscal 2006, primarily as a result of
(i) the $34 million of compensation expense recorded
in connection with the compensatory make-whole payment and
related taxes, (ii) the management termination fee of
$30 million paid to the sponsors, and
(iii) $5 million of executive severance, partially
offset by a $7 million decrease in global reorganization
costs. In fiscal 2005, our unallocated corporate expenses
increased 1% to $165 million.
Interest
expense, net
Interest expense, net decreased 1% to $72 million in fiscal
2006. Interest expense decreased 1% to $81 million in
fiscal 2006, as a result of our debt repayments and lower
interest rates attributable to our July 2005 and February 2006
refinancings. Interest income was approximately $9 million
in fiscal 2006 and fiscal 2005, as increased interest rates
offset a reduction in cash invested. In fiscal 2005, interest
expense, net increased 14% to $73 million due to higher
interest rates related to term debt and debt payable on our
payment-in-kind,
or PIK notes to Diageo plc and the private equity funds
controlled by the sponsors incurred in connection with our
acquisition of BKC. Interest income was $9 million in
fiscal 2005, an increase of $5 million from fiscal 2004,
primarily as a result of an increase in cash and cash
equivalents due to improved cash provided by operating
activities and increased interest rates on investments.
Loss on early
extinguishment of debt
In connection with the refinancing of our secured debt in July
2005, the incremental $350 million borrowing in February
2006, and the prepayment of $350 million in term debt from
the proceeds of our initial public offering, $18 million of
deferred financing fees were recorded as a loss on early
extinguishment of debt in fiscal 2006.
Income tax
expense
Income tax expense increased $22 million to
$53 million in fiscal 2006. Compared to fiscal 2005, this
is a 26% increase in our effective tax rate to 66%, which is
primarily attributable to accruals for tax uncertainties of
$15 million and changes in the estimate of tax provisions
of $7 million.
Net
income
Our net income decreased $20 million to $27 million in
fiscal 2006, primarily due to unusual items such as
(i) $34 million of compensation expense and related
taxes recorded in connection with the compensatory make-whole
payment, (ii) the $30 million termination fee related
to the termination of our management agreement with the
sponsors, (iii) the $18 million loss recorded on the
early extinguishment of debt, and (iv) a $22 million
increase in income tax expense. This increase was partially
offset by increased revenues and a $40 million reduction in
costs of franchise system distress and our global reorganization.
In fiscal 2005, our net income increased by $42 million to
$47 million. This improvement resulted primarily from
increased revenues, a decrease in expenses related to franchise
system distress, particularly bad debt expense, incremental
advertising fund contributions and reserves recorded on acquired
franchisee debt, and a decrease in global reorganization costs.
Liquidity and
capital resources
Overview
Cash provided by operations was $41 million during the
three months ended September 30, 2007, compared to cash
used for operations of $47 million during the three months
ended September 30, 2006. Cash provided by operations was
$117 million in fiscal 2007, compared to cash provided by
operations of $74 million in fiscal 2006.
During the first quarter of fiscal 2008 and during fiscal 2007,
we retired $25 million and $125 million, respectively,
in debt. The weighted average interest rate on our term debt
during the first quarter of fiscal 2008 was 6.8%.
S-47
During the first quarter of fiscal 2008, we declared and paid a
quarterly dividend of $0.0625 per share, resulting in a cash
payment of $8 million to shareholders of record. During
fiscal 2007, we declared and paid two quarterly dividends of
$0.0625 per share, resulting in $17 million of cash
payments to shareholders of record.
During the first quarter of fiscal 2008, we repurchased
252,000 shares of common stock at an aggregate cost of
$6 million which we will retain in treasury for future use.
We will continue to seek opportunities to increase shareholder
value through the repurchase of shares under our
$100 million share repurchase program depending on market
conditions.
We had cash and cash equivalents of $162 million and
$170 million as of September 30, 2007 and
June 30, 2007, respectively. In addition, as of
September 30, 2007, we had a borrowing capacity of
$121 million under our $150 million revolving credit
facility (net of $29 million in letters of credit issued
under the revolving credit facility).
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 and debt service payments
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 $41 million
during the three months ended September 30, 2007 compared
to cash used for operating activities of $47 million during
the three months ended September 30, 2006. The
$41 million provided during the three months ended
September 30, 2007 includes net income of $49 million,
offset by a $22 million payment to establish the Rabbi
trust. The $47 million used during the three months ended
September 30, 2006 includes a usage of cash from a change
in working capital of $112 million including tax payments
of $94 million, of which $82 million were due to the
operational realignment of our European and Asian businesses.
Cash provided by operating activities was $117 million and
$74 million in fiscal 2007 and 2006, respectively. The
$117 million provided in fiscal 2007 includes net income of
$148 million, offset by a usage of cash from a change in
working capital of $112 million, including tax payments of
$151 million, which were primarily comprised of payments of
$82 million made in connection with the operational
realignment of our European and Asian businesses and
$37 million of quarterly estimated U.S. federal and
state tax payments. The $74 million provided in fiscal 2006
includes an interest payment to affiliates of $103 million
on PIK notes and a usage of cash from a change in working
capital of $29 million.
Investing
activities
Cash used for investing activities was $15 million during
both the three months ended September 30, 2007 and 2006.
The $15 million cash usage during the three months ended
September 30, 2007 includes $23 million of payments
for the purchase of property and equipment offset by
$8 million of proceeds from asset disposals and restaurant
closures. The $15 million cash usage during the three
months ended September 30, 2006 includes $11 million
of purchases of available-for-sale securities, net,
$13 million from the purchase of property and equipment and
$3 million from investments in franchisee debt, offset by
$12 million of proceeds from asset disposals and restaurant
closures.
Cash used for investing activities was $84 million in
fiscal 2007, compared to $74 million in fiscal 2006. The
$10 million increase in the amount of cash used in fiscal
2007, compared to fiscal 2006, was due primarily to an increase
in cash used of $13 million for acquisitions of franchise
restaurants, investments in third party debt, and payments for
property and equipment offset by an increase in proceeds of
$4 million from asset disposals and restaurant closures.
S-48
Capital expenditures include costs to build new company
restaurants, to remodel and maintain restaurant properties to
our standards and to develop our corporate infrastructure,
particularly in information technology. The following table
presents capital expenditures by type of expenditure:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
fiscal year
|
|
|
three months
|
|
|
|
ended
|
|
|
ended
|
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
(In
millions)
|
|
|
New restaurants
|
|
$
|
26
|
|
|
$
|
25
|
|
|
$
|
23
|
|
|
$
|
4
|
|
|
$
|
6
|
|
Existing restaurants
|
|
|
49
|
|
|
|
46
|
|
|
|
47
|
|
|
|
7
|
|
|
|
13
|
|
Other, including corporate
|
|
|
18
|
|
|
|
14
|
|
|
|
17
|
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
Total
|
|
$
|
93
|
|
|
$
|
85
|
|
|
$
|
87
|
|
|
$
|
13
|
|
|
$
|
23
|
|
|
|
Capital expenditures to existing restaurants consist of
renovations to company restaurants, including restaurants
acquired from franchisees, investments in new equipment and
normal annual capital investments for each company restaurant to
maintain its 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
improvements completed by franchisees. Other capital
expenditures include investments in information technology
systems, corporate furniture and fixtures.
We expect capital expenditures of approximately $120 to
$150 million in fiscal 2008 to develop new restaurants and
to rebuild and remodel existing restaurants, new equipment
initiatives, IT initiatives and other corporate expenditures. We
have expended $23 million in capital expenditures through
September 30, 2007.
Financing
activities
Financing activities used cash of $39 million during the
three months ended September 30, 2007 compared to
$51 million during the three months ended
September 30, 2006. Uses of cash in financing activities
during the three months ended September 30, 2007 primarily
consisted of repayments of debt and capital leases of
$27 million, a quarterly cash dividend payment of
$8 million and the repurchase of common stock of
$6 million, offset by $1 million in tax benefits from
stock-based compensation and $1 million from proceeds of
stock option exercises. Uses of cash in financing activities
during the three months ended September 30, 2006 included
repayments of debt and capital leases of $51 million and
the repurchase of common stock of $1 million, offset by
$1 million in tax benefits from stock-based compensation.
Financing activities used cash of $127 million in fiscal
2007 and $173 million in fiscal 2006. Uses of cash in
financing activities in fiscal 2007 primarily consisted of
repayments of debt and capital leases of $131 million, two
quarterly cash dividend payments totaling $17 million and
the purchase of treasury stock of $2 million, offset by
$14 million in tax benefits from stock-based compensation,
$8 million from proceeds of stock option exercises and
$1 million of proceeds from a foreign credit facility. Uses
of cash in financing activities in fiscal 2006 included the
repayment of $2.3 billion in long-term debt and capital
leases, payment of a $367 million cash dividend and payment
of financing costs of $19 million, offset by
$2.1 billion of proceeds received from the refinancing of
our credit facility.
S-49
Contractual
obligations and commitments
The following table presents information relating to our
contractual obligations as of June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by
Period
|
|
|
|
|
|
|
Less
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Than 1
|
|
|
|
|
|
|
|
|
More Than
|
|
Contractual
Obligations
|
|
Total
|
|
|
Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
|
|
|
(In
millions)
|
|
|
Capital lease obligations
|
|
$
|
140
|
|
|
$
|
14
|
|
|
$
|
27
|
|
|
$
|
25
|
|
|
$
|
74
|
|
Operating lease obligations
|
|
|
1,423
|
|
|
|
160
|
|
|
|
284
|
|
|
|
242
|
|
|
|
737
|
|
Long-term debt, including current portion and interest(1)
|
|
|
1,137
|
|
|
|
60
|
|
|
|
191
|
|
|
|
886
|
|
|
|
|
|
Purchase commitments(2)
|
|
|
97
|
|
|
|
58
|
|
|
|
28
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,797
|
|
|
$
|
292
|
|
|
$
|
530
|
|
|
$
|
1,164
|
|
|
$
|
811
|
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(1)
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We have estimated our interest
payments based on (i) projected LIBOR rates, (ii) the
portion of our debt we converted to fixed rates through interest
rate swaps and (iii) the amortization schedule of the debt.
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(2)
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Includes commitments to purchase
advertising and other marketing services from third parties in
advance on behalf of the Burger King system and
obligations related to information technology and service
agreements.
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As of September 30, 2007, there were no significant
differences in our outstanding contractual obligations, compared
to June 30, 2007, except for the reduction in our term debt
from an accelerated principal payment of $25 million and an
increase in advertising commitments of $56 million.
As of June 30, 2007, we leased or subleased 1,087
properties to franchisees and other third parties. As of
June 30, 2007, we also leased land, buildings, office space
and warehousing under operating leases, and leased or subleased
land and buildings that we own or lease, respectively, to
franchisees under operating leases. In addition to the minimum
obligations included in the table above, contingent rentals may
be payable under certain leases on the basis of a percentage of
sales in excess of stipulated amounts.
As of June 30, 2007, the projected benefit obligation of
our U.S. and international defined benefit pension plans
exceeded pension assets by $47 million and the projected
benefit obligation of our U.S. medical plan exceeded plan
assets by $22 million. We use the Moodys long-term
corporate bond yield indices for Aa bonds (Moodys Aa
rate), plus an additional 25 basis points to reflect
the longer duration of our plans, as the discount rate used in
the calculation of the projected benefit obligation as of the
measurement date. We made contributions totaling $4 million
into our pension plans and estimated benefit payments of
$6 million out of these plans during fiscal 2007. Estimates
of reasonably likely future pension contributions are dependent
on pension asset performance, future interest rates, future tax
law changes, and future changes in regulatory funding
requirements.
In November 2005, we announced the curtailment of our pension
plans in the United States and we froze future pension benefit
accruals, effective December 31, 2005. These plans will
continue to pay benefits and invest plan assets. We recognized a
one-time pension curtailment gain of approximately
$6 million in December 2005. In conjunction with this
curtailment gain, we accrued a contribution totaling
$6 million as of December 31, 2005, on behalf of those
pension participants who were affected by the curtailment. The
curtailment gain and contribution offset each other to result in
no net effect on our results of operations.
We commit to purchase advertising and other marketing services
from third parties in advance on behalf of the Burger King
system in the United States and Canada. These commitments
are typically made in September of each year for the upcoming
twelve-month period. If our franchisees fail to pay required
advertising contributions we could be contractually committed to
fund any shortfall to the degree we are unable to cancel or
reschedule the timing of such committed amounts. We have similar
arrangements in other international markets where we operate
company restaurants. As of September 30, 2007, the time of
the year when our advertising commitments are typically highest
and as of June 30, 2007, our advertising commitments
totaled $136 million and $80 million, respectively.
S-50
Other commercial
commitments and off-balance sheet arrangements
Franchisee
restructuring program
In connection with the FFRP program, which was completed as of
December 31, 2006, we have made potential commitments to
fund loans to certain franchisees for the purpose of: remodeling
restaurants; remodeling certain properties we lease or sublease
to franchisees; providing temporary rent reductions to certain
franchisees; and funding shortfalls in certain franchisee cash
flow beyond specified levels (to annual and aggregate maximums).
As of September 30, 2007, our remaining commitments under
the FFRP program totaled $24 million, which we may incur.
These arrangements expire over the next 17 years.
Guarantees
We occasionally guarantee lease payments of franchisees arising
from leases assigned in connection with sales of company
restaurants to franchisees, by remaining secondarily liable
under the assigned leases of varying terms, for base and
contingent rents. The maximum contingent rent amount is not
determinable as the amount is based on future revenues. In the
event of default by the franchisees, we have typically retained
the right to acquire possession of the related restaurants,
subject to landlord consent. The aggregate contingent obligation
arising from these assigned lease guarantees was
$109 million as of September 30, 2007, expiring over
an average period of seven years.
Other commitments arising out of normal business operations were
$13 million as of September 30, 2007, of which
$9 million was guaranteed under bank guarantee
arrangements. These commitments consist primarily of guarantees
covering foreign franchisees obligations to suppliers and
acquisition-related guarantees.
Letters of
credit
As of September 30, 2007, we had $29 million in
irrevocable standby letters of credit outstanding, which were
issued primarily to certain insurance carriers to guarantee
payment of deductibles for various insurance programs such as
health and commercial liability insurance. As of
September 30, 2007, none of these irrevocable standby
letters of credit had been drawn upon.
As of September 30, 2007, we had posted bonds totaling
$3 million, which related to certain utility deposits.
Vendor
relationships
In fiscal 2000, we entered into long-term, exclusive contracts
with The
Coca-Cola
Company and with Dr Pepper/Seven Up, Inc. to supply company and
franchise restaurants with their products and obligating
Burger King restaurants in the United States to purchase
a specified number of gallons of soft drink syrup. These volume
commitments are not subject to any time limit. As of
September 30, 2007, we estimate that it will take
approximately 15 years to complete the
Coca-Cola
and Dr Pepper purchase commitments, respectively. In the event
of early termination of these arrangements, we may be required
to make termination payments that could be material to our
results of operations and financial position. Additionally, in
connection with these contracts, we have received upfront fees,
which are being amortized over the term of the contracts. As of
September 30, 2007 and June 30, 2007, the deferred
amounts totaled $19 million and $21 million,
respectively. These deferred amounts are amortized as a
reduction to food, paper and product costs in the accompanying
consolidated statements of income.
Other
We have insurance programs with deductibles ranging between
$500,000 to $1 million to cover claims such as
workers compensation, general liability, automotive
liability, executive risk and property. We are self-insured for
healthcare claims for eligible participating employees. We
determine our liability for claims based on actuarial analysis.
As of September 30, 2007, we had a balance of
$34 million in accrued liabilities to cover such claims.
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Impact of
inflation
We believe that our results of operations are not materially
impacted by moderate changes in the inflation rate. Inflation
and changing prices did not have a material impact on our
operations in fiscal 2005, fiscal 2006 or fiscal 2007 or the
three months ended September 30, 2007. Severe increases in
inflation, however, could affect the global and
U.S. economies and could have an adverse impact on our
business, financial condition and results of operations.
Critical
accounting policies and estimates
This discussion and analysis of financial condition and results
of operations is based on our consolidated financial statements,
which have been prepared in accordance with U.S. generally
accepted accounting principles. The preparation of these
financial statements requires our management to make estimates
and judgments that affect the reported amounts of assets,
liabilities, revenues, and expenses, as well as related
disclosures of contingent assets and liabilities. We evaluate
our estimates on an ongoing basis and we base our estimates on
historical experience and various other assumptions we deem
reasonable to the situation. These estimates and assumptions
form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Changes in our estimates could materially impact our
results of operations and financial condition in any particular
period.
We consider our critical accounting policies and estimates to be
as follows based on the high degree of judgment or complexity in
their application:
Business
combinations and intangible assets
The December 2002 acquisition of our predecessor required the
application of the purchase method of accounting in accordance
with SFAS No. 141. The purchase method of accounting
involves the allocation of the purchase price to the estimated
fair values of the assets acquired and liabilities assumed. This
allocation process involves the use of estimates and assumptions
to derive fair values and to complete the allocation.
In the event that actual results vary from any of the estimates
or assumptions used in any valuation or allocation process under
SFAS No. 141, we may be required to record an
impairment charge or an increase in depreciation or amortization
in future periods, or both.
Long-lived
assets
Long-lived assets (including definite-lived intangible assets)
are reviewed for impairment at least annually or more frequently
if events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Assets are grouped
for recognition and measurement of impairment at the lowest
level for which identifiable cash flows are largely independent
of the cash flows of other assets. Assets are grouped together
for impairment testing at the operating market level (based on
geographic areas) in the case of the United States, Canada, the
U.K. and Germany. The operating market asset groupings within
the United States and Canada are predominantly based on major
metropolitan areas within the United States and Canada.
Similarly, operating markets within the other foreign countries
with larger asset concentrations (the U.K. and Germany) are made
up of geographic regions within those countries (three in the
U.K. and four in Germany). These operating market definitions
are based upon the following primary factors:
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management views profitability of the restaurants within the
operating markets as a whole, based on cash flows generated by a
portfolio of restaurants, rather than by individual restaurants
and area managers receive incentives on this basis; and
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management does not evaluate individual restaurants to build,
acquire or close independent of any analysis of other
restaurants in these operating markets.
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In countries in which we have a smaller number of restaurants
(The Netherlands, Spain, Mexico and China), most operating
functions and advertising are performed at the country level,
and shared by all restaurants in the country. As a result, we
have defined operating markets as the entire country in the case
of The Netherlands, Spain, Mexico and China.
S-52
Some of the events or changes in circumstances that would
trigger an impairment review include, but are not limited to:
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significant under-performance relative to expected
and/or
historical results (negative comparable sales or cash flows for
two years);
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significant negative industry or economic trends; or
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knowledge of transactions involving the sale of similar property
at amounts below our carrying value.
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When assessing the recoverability of our long-lived assets, we
make assumptions regarding estimated future cash flows and other
factors. Some of these assumptions involve a high degree of
judgment and also bear a significant impact on the assessment
conclusions. Included among these assumptions are estimating
future cash flows, including the projection of comparable sales,
restaurant operating expenses, and capital requirements for
property and equipment. We formulate estimates from historical
experience and assumptions of future performance, based on
business plans and forecasts, recent economic and business
trends, and competitive conditions. In the event that our
estimates or related assumptions change in the future, we may be
required to record an impairment charge in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets.
Impairment of
indefinite-lived intangible assets
Indefinite-lived intangible assets consist of values assigned to
brands which we own and goodwill recorded upon acquisitions. The
most significant indefinite-lived intangible asset we have is
our brand asset with a carrying book value of $915 million
as of September 30, 2007. We test our indefinite-lived
intangible assets for impairment on an annual basis or more
often if an event occurs or circumstances change that indicates
impairment might exist. Our impairment test for indefinite-lived
intangible assets consists of a comparison of the fair value of
the asset with its carrying amount in each segment, as defined
by SFAS No. 131, which are the United States and
Canada, EMEA/APAC, and Latin America. When assessing the
recoverability of these assets, we make assumptions regarding
estimated future cash flow similar to those when testing
long-lived assets, as described above. In the event that our
estimates or related assumptions change in the future, we may be
required to record an impairment charge in accordance with
SFAS No. 142, Goodwill and Other Intangible
Assets.
Reserves for
uncollectible accounts and revenue recognition
We collect royalties, advertising fund contributions and, in the
case of approximately 10% of our franchise restaurants as of
June 30, 2007, rents, from franchisees. We recognize
revenue that is estimated to be reasonably assured of
collection, and also record reserves for estimated uncollectible
revenues and advertising contributions, based on monthly reviews
of franchisee accounts, average sales trends, and overall
economic conditions. In the event that franchise restaurant
sales decline, or the financial health of franchisees otherwise
deteriorate, we may be required to increase our reserves for
uncollectible accounts
and/or defer
or not recognize revenues, the collection of which we deem to be
less than reasonably assured.
Accounting for
income taxes
We record income tax liabilities utilizing known obligations and
estimates of potential obligations. A deferred tax asset or
liability is recognized whenever there are future tax effects
from existing temporary differences and operating loss and tax
credit carry-forwards. When considered necessary, we record a
valuation allowance to reduce deferred tax assets to the balance
that is more likely than not to be realized. We must make
estimates and judgments on future taxable income, considering
feasible tax planning strategies and taking into account
existing facts and circumstances, to determine the proper
valuation allowance. When we determine that deferred tax assets
could be realized in greater or lesser amounts than recorded,
the asset balance and income statement reflect the change in the
period such determination is made. Due to changes in facts and
circumstances and the estimates and judgments that are involved
in determining the proper valuation allowance, differences
between actual future events and prior estimates and judgments
could result in adjustments to this valuation allowance.
S-53
We use an estimate of the annual effective tax rate at each
interim period based on the facts and circumstances available at
this time, while the actual effective tax rate is calculated at
fiscal year-end.
Insurance
reserves
We carry insurance to cover claims such as workers
compensation, general liability, automotive liability, executive
risk and property, and we are 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, we retain a significant
portion of the expected losses under these programs. Insurance
reserves have been recorded based on our estimates of the
anticipated ultimate costs to settle all claims, both reported
and incurred-but-not-reported (IBNR).
Our accounting policies regarding these insurance programs
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. Since there are many estimates and
assumptions involved in recording insurance reserves,
differences between actual future events and prior estimates and
assumptions could result in adjustments to these reserves.
Stock-based
compensation
Stock based compensation expense for non-qualified stock options
(NQOs) is estimated on the grant date using a
Black-Scholes option pricing model. Our specific
weighted-average assumptions for the risk-free interest rate,
expected term, expected volatility and expected dividend yield
are documented in Note 3 to our audited consolidated
financial statements contained in our Form 10-K for the
year ended June 30, 2007 and Note 2 to our unaudited
condensed consolidated financial statements contained in our
Form 10-Q for the quarterly period ended September 30,
2007 incorporated by reference into this prospectus supplement.
Additionally, under SFAS No. 123 (revised 2004),
Share-Based Payment (SFAS 123R), we
are required to estimate pre-vesting forfeitures for purposes of
determining compensation expense to be recognized. Future
expense amounts for any quarterly or annual period could be
affected by changes in our assumptions or changes in market
conditions.
In connection with the adoption of SFAS No. 123R, we
have determined the expected term using the simplified method
for plain vanilla options as discussed in
Section D, Certain Assumptions Used in Valuation Methods,
of SEC Staff Accounting Bulletin No. 107. Based on the
results of applying the simplified method, we have determined
that 6.25 years is an appropriate expected term for awards
with four-year ratable vesting and 6.50 years for awards
with five-year ratable vesting.
We became a public company under SFAS No. 123R on
February 16, 2006 when we filed our Registration Statement
on
Form S-1
with the SEC. Prior to this date, we applied the minimum value
method, as permitted under SFAS 123 Accounting for
Stock-Based Compensation
(SFAS No. 123), to calculate the grant
date fair value of our NQOs using the Black-Scholes option
pricing model for pro forma stock based compensation disclosure.
Under the minimum value method, zero volatility was assumed in
the price of our common stock. Subsequent to February 16,
2006, in accordance with SFAS No. 123R, we have used a
volatility assumption in the option pricing model to calculate
the grant date fair value of NQOs granted since that date.
However, as a newly public company, we had limited historical
data on the price of our publicly traded common stock and other
financial instruments. Therefore, as permitted under
SFAS No. 123R, we had elected to base our estimate of
the expected volatility of our common stock on the historical
volatility of a group of our peers whose share prices are
publicly available. Based on this peer group, the weighted
average volatility used in the determination of the fair value
of our NQOs for fiscal 2007 was 33%. During the first
quarter of fiscal 2008, we determined we had sufficient
information regarding the historical volatility of our share
price and implied volatility of our exchange-traded options to
incorporate a portion of these volatilities into the calculation
of expected volatility used in the Black-Scholes model.
New accounting
pronouncements issued but not yet adopted
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements
(FASB No. 157) which defines fair value,
establishes a framework for measuring fair value in GAAP, and
enhances disclosures about fair value measurements. FASB
No. 157 applies when other accounting pronouncements
require fair value measurements; it does not require
S-54
new fair value measurements. FASB No. 157 is effective for
fiscal years beginning after November 15, 2007, which for
us will be our 2009 fiscal year. We are currently evaluating the
impact that FASB No. 157 may have on our statements of
operations and financial position.
In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (FASB
No. 159), which allows entities to voluntarily
choose, at specified election dates, to measure certain
financial assets and financial liabilities (as well as certain
nonfinancial instruments that are similar to financial
instruments) at fair value (the fair value option).
The election is made on an
instrument-by-instrument
basis and is irrevocable. If the fair value option is elected
for an instrument, FASB No. 159 specifies that all
subsequent changes in fair value for that instrument must be
reported in earnings. FASB No. 159 is effective as of the
beginning of an entitys first fiscal year that begins
after November 15, 2007, which for us will be our fiscal
year beginning July 1, 2008. We are currently evaluating
the impact that FASB No. 159 may have on our statements of
operations and financial position.
Quantitative and
qualitative disclosures about market risk
Market
risk
We are exposed to financial market risks associated with foreign
currency exchange rates, interest rates and commodity prices. In
the normal course of business and in accordance with our
policies, we manage these risks through a variety of strategies,
which may include the use of derivative financial instruments to
hedge our underlying exposures. Our policies prohibit the use of
derivative instruments for trading purposes, and we have
procedures in place to monitor and control their use.
Foreign
currency exchange risk
Movements in foreign currency exchange rates may affect the
translated value of our earnings and cash flow associated with
our foreign operations, as well as the translation of net asset
or liability positions that are denominated in foreign
currencies. In countries outside of the United States where we
operate company restaurants, we generate revenues and incur
operating expenses and selling, general and administrative
expenses denominated in local currencies. In many foreign
countries where we do not have company restaurants our
franchisees pay royalties in U.S. dollars. However, as the
royalties are calculated based on local currency sales, our
revenues are still impacted from fluctuations in exchange rates.
In fiscal 2007, income from operations would have decreased or
increased $10 million if all foreign currencies uniformly
weakened or strengthened 10% relative to the U.S. dollar.
We use foreign exchange forward contracts as economic hedges to
offset the future impact of gains and losses resulting from
changes in the expected amount of functional currency cash flows
to be received or paid upon settlement of intercompany loans
denominated in foreign currencies. Changes in the fair value of
the forward contracts attributable to changes in the current
spot rates between the U.S. dollar and the foreign
currencies are offset by the remeasurement of the intercompany
loans, resulting in an insignificant impact to the
companys net income. The portion of the fair value of the
forward contracts attributable to the spot-forward difference
(the difference between the spot exchange rate and the forward
exchange rate) is recognized in earnings as a gain or loss on
foreign exchange (See Note 12 to our audited consolidated
financial statements contained in our
Form 10-K
for the year ended June 30, 2007, incorporated by reference
into this prospectus supplement). The contracts outstanding as
of September 30, 2007 mature at various dates through
December 2007 and we intend to continue to renew these contracts
to hedge our foreign exchange impact.
Interest rate
risk
We have a market risk exposure to changes in interest rates,
principally in the United States. We attempt to minimize this
risk and lower our overall borrowing costs through the
utilization of derivative financial instruments, using interest
rate swaps. These swaps are entered into with financial
institutions and have reset dates and key terms that match those
of the underlying debt. Accordingly, any change in market value
associated with interest rate swaps is offset by the opposite
market impact on the borrowing costs associated with the related
debt.
S-55
As of September 30, 2007, we had interest rate swaps with a
notional value of $380 million that qualify as cash flow
hedges under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended.
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
$846 million would result in an increase or decrease in
interest expense of approximately $5 million in a given
year, as we have hedged $380 million of our future interest
payments.
Commodity
price risk
We purchase certain products, particularly beef, which are
subject to price volatility that is caused by weather, market
conditions and other factors that are not considered predictable
or within our control. Additionally, our ability to recover
increased costs is typically limited by the competitive
environment in which we operate. We do not utilize commodity
option or future contracts to hedge commodity prices and do not
have long-term pricing arrangements. As a result, we purchase
beef and other commodities at market prices, which fluctuate on
a daily basis.
The estimated change in company restaurant food, paper and
product costs from a hypothetical 10% change in average beef
prices would have been approximately $9 million for fiscal
2006 and fiscal 2007. The hypothetical change in food, paper and
product costs could be positively or negatively affected by
changes in prices or product sales mix.
S-56
Executive
officers and directors
Set forth below is information concerning our executive officers
and directors. Our directors are generally elected for one-year
terms. In connection with our transition from a controlled
company, we expect to appoint additional independent
directors to satisfy the corporate governance guidelines of the
NYSE.
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Name
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Age
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Position
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John W. Chidsey
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Chief Executive Officer and Director
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Russell B. Klein
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President, Global Marketing, Strategy and Innovation
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Ben K. Wells
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Chief Financial Officer
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Julio A. Ramirez
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Executive Vice President, Global Operations
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Peter C. Smith
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Chief Human Resources Officer
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Anne Chwat
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48
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General Counsel and Secretary
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Charles M. Fallon, Jr.
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45
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President, North America
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Amy E. Wagner
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Senior Vice President, Investor Relations and Global
Communications
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Christopher M. Anderson
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40
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Senior Vice President and Controller
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Brian T. Swette
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Non-Executive Chairman of the Board
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Andrew B. Balson
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Director
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David Bonderman
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Director
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Richard W. Boyce
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53
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Director
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David A. Brandon
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55
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Director
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Ronald M. Dykes
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60
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Director
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Peter R. Formanek
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64
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Director
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Manuel A. Garcia
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64
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Director
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Adrian Jones
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43
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Director
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Sanjeev K. Mehra
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48
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Director
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Stephen G. Pagliuca
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Director
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Kneeland C. Youngblood
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Director
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John W. Chidsey has served as our Chief Executive Officer
and a member of the board since April 2006. From September 2005
until April 2006, he served as our President and Chief Financial
Officer and from June 2004 until September 2005, he was our
President of North America. Mr. Chidsey joined us as
Executive Vice President, Chief Administrative and Financial
Officer in March 2004 and held that position until June 2004.
From January 1996 to March 2003, Mr. Chidsey served in
numerous positions at Cendant Corporation, including Chief
Executive Officer of the Vehicle Services Division and the
Financial Services Division. Mr. Chidsey is a director of
HealthSouth Corporation and is also a member of the Board of
Trustees of Davidson College.
Russell B. Klein has served as our President, Global
Marketing, Strategy and Innovation since June 2006. Previously,
he served as Chief Marketing Officer from June 2003 to June
2006. From August 2002 to May 2003, Mr. Klein served as
Chief Marketing Officer at 7-Eleven Inc. From January 1999 to
July 2002, Mr. Klein served as a Principal at Whisper
Capital.
Ben K. Wells has served as our Chief Financial Officer
since April 2006. From May 2005 to April 2006, Mr. Wells
served as our Senior Vice President, Treasurer. From June 2002
to May 2005, he was a Principal and Managing Director at BK
Wells & Co., a corporate treasury advisory firm in
Houston, Texas. From June 1987 to June 2002, he was at Compaq
Computer Corporation, most recently as Vice President, Corporate
Treasurer. Before joining Compaq, Mr. Wells held various
finance and treasury responsibilities over a
10-year
period at British Petroleum.
Julio A. Ramirez has served as our Executive Vice
President, Global Operations since September 2007.
Mr. Ramirez has worked for Burger King Corporation for over
20 years. From January 2002 to August 2007,
Mr. Ramirez served as our President, Latin America. During
his tenure, Mr. Ramirez has
S-57
held several positions, including Senior Vice President of
U.S. Franchise Operations and Development from February
2000 to December 2001 and President, Latin America from 1997
until 2000.
Peter C. Smith has served as our Chief Human Resources
Officer since December 2003. From September 1998 to November
2003, Mr. Smith served as Senior Vice President of Human
Resources at AutoNation.
Anne Chwat has served as our General Counsel and
Secretary since September 2004. From September 2000 to September
2004, Ms. Chwat served in various positions at BMG Music
(now SonyBMG Music Entertainment) including as Senior Vice
President, General Counsel and Chief Ethics and Compliance
Officer.
Charles M. Fallon, Jr. has served as our President,
North America since June 2006. From November 2002 to June 2006,
Mr. Fallon served as Executive Vice President of Revenue
Generation for Cendant Car Rental Group, Inc. Mr. Fallon
served in various positions with Cendant Corporation including
Executive Vice President of Sales for Avis
Rent-A-Car
from August 2001 to October 2002.
Amy E. Wagner has served as our Senior Vice President,
Investor Relations and Global Communications since June 2007.
Previously she served as Senior Vice President, Investor
Relations from April 2006 to June 2007. From February 1990 to
April 2006, Ms. Wagner served in various corporate finance
positions at Ryder System, Inc., including as Vice President,
Risk Management and Insurance Operations from January 2003 to
April 2006 and Group Director, Investor Relations from June 2001
to January 2003.
Christopher M. Anderson has served as our Senior Vice
President and Controller since July 2007. From February 2005
through June 2007, he served as our Vice President and
Controller. From May 2002 to February 2005, Mr. Anderson
served as Director of Finance and Controller for
Hewlett-Packard. From February 2000 to May 2002, he served as
Director of Finance and Controller for Compaq Computer
Corporation.
Brian T. Swette has served on our board since April 2003
and became Non-Executive Chairman of our board in April 2006.
Mr. Swette served as Chief Operating Officer of eBay from
1998 to 2002 and has been a private investor since 2002.
Mr. Swette is a director of Jamba, Inc. (a chain of
smoothie restaurants).
Andrew B. Balson has served on our board since December
2002. Mr. Balson is a Managing Director of Bain Capital
Partners, where he has worked since 1996. Mr. Balson is a
director of Dominos Pizza, Inc., OSI Restaurant Partners,
LLC and a number of private companies.
David Bonderman has served on our board since December
2002. Mr. Bonderman is a Founding Partner of TPG Capital
(formerly known as Texas Pacific Group) and has served in that
role since 1992. Mr. Bonderman is a director of CoStar
Group, Inc., RyanAir Holdings, plc and Gemalto N.V.
Richard W. Boyce has served on our board since December
2002. Mr. Boyce has been a Partner of TPG Capital since
January 1999. Mr. Boyce is a director of J. Crew Group, Inc.
David A. Brandon has served on our board since September
2003. Mr. Brandon is Chairman and CEO of Dominos
Pizza, Inc. and has served in that role since March 1999. From
1989 to 1998, Mr. Brandon served as President and CEO of
Valassis Communications, Inc. (a marketing services company) and
was Chairman of Valassis from 1997 to 1998. Mr. Brandon is
a director of Northwest Airlines Corp., The TJX Companies,
Dominos Pizza, Inc. and Kaydon Corporation.
Ronald M. Dykes has served on our board since April 2007.
Mr. Dykes most recently served as Chief Financial Officer
of BellSouth Corporation, a position he retired from in 2005.
Prior to his retirement, Mr. Dykes worked for BellSouth
Corporation and its predecessor entities in various capacities
for over 34 years. Mr. Dykes is a director of American
Tower Corporation (an operator of wireless communication
towers), and from October 2000 through December 31, 2005,
also served as a director of Cingular Wireless, most recently as
Chairman of the Board.
Peter R. Formanek has served on our board since September
2003. Mr. Formanek has been a private investor since May
1994. Mr. Formanek is a co-founder and retired President of
AutoZone, Inc.
S-58
Manuel A. Garcia has served on our board since September
2003. Mr. Garcia has served as President and Chief
Executive Officer of Atlantic Coast Management, Inc., an
operator of various restaurants in the Orlando, Florida area,
since 1996. Mr. Garcia is Chairman of the Board of Culinary
Concepts, Inc.
Adrian Jones has served on our board since December 2002.
Mr. Jones has been with Goldman, Sachs & Co. in
New York City and London since 1994, and has been a Managing
Director since November 2002. Mr. Jones is a director of
Autocam Corporation and Signature Hospital Holding, LLC.
Sanjeev K. Mehra has served on our board since December
2002. Mr. Mehra has been with Goldman, Sachs &
Co. in New York City since 1986, and has been a Managing
Director since 1996. Mr. Mehra is a director of the
following private companies: Adam Aircraft Industries, Inc.,
Aramark Holdings Corporation, Nalco Company, SunGard Data
Systems, Inc., ADESA, Inc. and Hawker Beechcraft, Inc.
Stephen G. Pagliuca has served on our board since
December 2002. Mr. Pagliuca has served as a Managing
Director of Bain Capital Partners since 1989. Mr. Pagliuca
is a director of Gartner, Inc. (an information technology
research and advisory company) and Warner Chilcott Limited (an
international pharmaceutical company).
Kneeland C. Youngblood has served on our board since
October 2004. Mr. Youngblood is a founding partner of
Pharos Capital Group, L.L.C., a private equity firm and has
served as managing partner since January 1998.
Mr. Youngblood is Chairman of the Board of the American
Beacon Funds and is a director of Starwood Hotels and Resorts
Worldwide, Inc. and Gap Inc.
S-59
Principal
and selling stockholders
The following table sets forth certain information as of
November 1, 2007, regarding the beneficial ownership of our
common stock by:
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each selling stockholder;
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each of our directors and named executive officers;
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all directors and executive officers as a group; and
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each person who is known to us to be the beneficial owner of
more than 5% of our common stock.
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As of November 1, 2007, our outstanding equity securities
consisted of 135,213,331 shares of common stock, of which
25,293,763 shares are held by the Goldman Sachs Funds,
which are affiliates of Goldman, Sachs & Co., one of
the representatives of the underwriters. The Goldman Sachs Funds
are selling 7,360,000 shares of our common stock in this
offering (or 8,464,000 shares if the underwriters elect to
purchase 3,450,000 additional shares in full). The Goldman Sachs
Funds are affiliates of a broker-dealer and purchased the shares
to be sold in this offering in the ordinary course of its
business and at the time of such purchase had no agreements or
understandings, directly or indirectly, with any person to
distribute such shares. The selling stockholders affiliated with
Goldman, Sachs & Co. in this offering may be deemed to be
underwriters.
The number of shares beneficially owned by each stockholder is
determined under rules promulgated by the SEC and generally
includes voting or investment power over the shares. The
information does not necessarily indicate beneficial ownership
for any other purpose. Under the SEC rules, the number of shares
of common stock deemed outstanding includes shares issuable upon
conversion of other securities, as well as the exercise of
options or the settlement of restricted stock units held by the
respective person or group that may be exercised or settled on
or within 60 days of November 1, 2007. For purposes of
calculating each persons or groups percentage
ownership, shares of common stock issuable pursuant to stock
options and restricted stock units exercisable or settleable on
or within 60 days of November 1, 2007 are included as
outstanding and beneficially owned for that person or group but
are not treated as outstanding for the purpose of computing the
percentage ownership of any other person or group.
The address for each listed stockholder, unless otherwise
indicated, is:
c/o Burger
King Holdings, Inc., 5505 Blue Lagoon Drive, Miami, Florida
33126. To our knowledge, except as indicated in the footnotes to
this table and pursuant to applicable community property laws,
the persons named in the table have sole voting and investment
power with respect to all shares of common stock beneficially
owned by them.
The shares reflected in the Shares offered hereby
column assumes no exercise of the underwriters option to
purchase additional shares from the selling stockholders.
For a discussion of material relationships with the selling
stockholders, see Selling stockholders Certain
relationships in the accompanying prospectus.
S-60
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Shares
beneficially
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Shares
beneficially
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owned after
this
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owned before
this
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offering
without
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offering
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Shares
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exercise of
option
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Name
and address of beneficial owner
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Number
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Percent
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offered
hereby
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Number
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Percent
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Named Executive Officers and Directors:
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John W. Chidsey(1)
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1,052,604
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*
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1,052,604
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*
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Ben K. Wells(1)
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73,230
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*
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73,230
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*
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Russell B. Klein(1)
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353,231
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*
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353,231
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*
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Charles M. Fallon, Jr.(1)
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15,949
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*
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15,949
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*
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Anne Chwat(1)
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118,718
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*
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118,718
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*
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Peter Tan(1)
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57,769
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*
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57,769
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*
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Martin Brok(1)(2)
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34,045
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*
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34,045
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*
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Andrew B. Balson(1)(3)
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4,769
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*
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4,769
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*
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David Bonderman(1)(4)
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28,438,266
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21.0
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%
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8,280,000
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20,158,266
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14.9
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%
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Richard W. Boyce(1)
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4,769
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*
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4,769
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*
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David M. Brandon(1)
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14,769
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*
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14,769
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*
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Ronald M. Dykes
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973
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*
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973
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*
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Peter R. Formanek(1)
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251,606
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*
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251,606
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*
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Manuel A. Garcia(1)
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90,832
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*
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90,832
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*
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Adrian Jones(1)(5)(8)
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25,293,763
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18.7
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%
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7,360,000
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17,933,763
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13.3
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%
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Sanjeev K. Mehra(1)(5)(8)
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25,293,763
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18.7
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%
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7,360,000
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17,933,763
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13.3
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%
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Stephen G. Pagliuca(1)(3)
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4,769
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*
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4,769
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*
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Brian T. Swette(1)
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107,359
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*
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107,359
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*
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Kneeland C. Youngblood(1)
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57,376
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*
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57,376
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*
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All Executive Officers and Directors as a group
(23 persons)(1)
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56,319,539
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41.2
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%
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15,640,000
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40,679,539
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30.0
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%
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5% Stockholders:
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AMVESCAP PLC AIM Advisors, Inc.(6)
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7,332,993
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5.4
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%
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7,332,993
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5.4
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%
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30 Finsbury Square
London EC2A 1AG
England
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Investment funds affiliated with Bain Capital Investors, LLC(7)
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25,274,221
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18.7
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%
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7,360,000
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17,914,221
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13.2
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%
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c/o Bain
Capital Partners, LLC
111 Huntington Avenue
Boston, MA 02199
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The Goldman Sachs Group, Inc.(8)
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25,293,763
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18.7
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%
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7,360,000
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17,933,763
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13.3
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%
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85 Broad Street
New York, NY 10004
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TPG BK Holdco LLC(9)
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28,433,497
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21.0
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%
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8,280,000
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20,153,497
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14.9
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%
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c/o TPG
Capital, L.P.
301 Commerce Street, Suite 3300
Fort Worth, TX 76102
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*
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Less than one percent (1%).
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(1)
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Includes beneficial ownership of
shares of common stock for which the following persons hold
options exercisable on or within 60 days of
November 1, 2007: Mr. Chidsey, 795,456 shares;
Mr. Wells, 63,230 shares; Mr. Klein,
89,577 shares; Ms. Chwat, 73,768 shares;
Mr. Tan, 21,076 shares; Mr. Brok,
21,769 shares; Mr. Formanek, 75,587 shares; and
all directors and executive officers as a group,
1,336,071 shares. Also includes beneficial ownership of
shares of common stock underlying restricted stock units held by
the following persons that have vested or will vest on or within
60 days of November 1, 2007: Mr. Chidsey,
105,385 shares; Mr. Klein, 54,116 shares; and all
directors and executive officers as a group,
290,882 shares. Also includes beneficial ownership of
shares of common stock underlying deferred stock units held by
the following persons that have vested or will vest on or within
60 days of November 1, 2007: each of
Messrs. Balson, Bonderman, Boyce, Brandon, Formanek,
Garcia, Pagliuca and Youngblood, 4,769 shares;
Mr. Dykes, 973 shares; Messrs. Jones and Mehra,
9,538 shares; and Mr. Swette, 6,734 shares; and
all directors and officers as a group, 55,397 shares. See
Footnote 5 below for more information regarding the deferred
stock held by Messrs. Jones and Mehra.
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(2)
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Mr. Brok is no longer employed
by us and therefore, this number is based solely on the
information known to us.
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(3)
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Mr. Balson and
Mr. Pagliuca are Managing Directors and Members of Bain
Capital Investors, LLC. Messrs. Balson and Pagliuca may be
deemed to share voting and dispositive power with respect to all
the shares of common stock held by each
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S-61
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of the Bain Capital investment
funds referred to in Footnote 7 below. Each of
Messrs. Balson and Pagliuca disclaims beneficial ownership
of securities held by these investment funds except to the
extent of his pecuniary interest therein.
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(4)
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Includes 28,433,497 shares of
common stock held by TPG BK Holdco LLC, whose managing member is
TPG Partners III, LP, whose general partner is TPG GenPar III,
LP, whose general partner is TPG Advisors III, Inc.
Mr. Bonderman and James G. Coulter are the sole
shareholders of TPG Advisors III. Each of Messrs. Bonderman
and Coulter disclaims beneficial ownership of such securities.
Mr. Coulter is not affiliated with us.
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(5)
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Mr. Jones and Mr. Mehra
are managing directors of Goldman, Sachs & Co.
Messrs. Jones and Mehra and The Goldman Sachs Group, Inc.
each disclaims beneficial ownership of the shares of common
stock owned directly or indirectly by the Goldman Sachs Funds
and Goldman, Sachs & Co., except to the extent of his
or its pecuniary interest therein, if any. Goldman,
Sachs & Co. disclaims beneficial ownership of the
shares of common stock owned directly or indirectly by the
Goldman Sachs Funds, except to the extent of its pecuniary
interest therein, if any. Each of Messrs. Jones and Mehra
has an understanding with The Goldman Sachs Group, Inc. pursuant
to which he holds the deferred stock units he receives as a
director for the benefit of The Goldman Sachs Group, Inc. See
Footnote 8 below for information regarding The Goldman Sachs
Group, Inc.
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(6)
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The shares included in the table
consist of: (i) 6,788,081 shares of common stock held
by AIM Advisors, Inc.; (ii) 439,308 shares of common
stock held by AIM Capital Management, Inc.; and
(iii) 105,604 shares of common stock held by
PowerShares Capital Management LLC. The shares included in the
table are based solely on the Schedule 13G filed with the
SEC on February 14, 2007 by AMVESCAP PLC on behalf of
itself and certain of its subsidiaries.
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(7)
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The shares included in the table
consist of: (i) 19,573,261 shares of common stock
owned by Bain Capital Integral Investors, LLC, whose
administrative member is Bain Capital Investors, LLC
(BCI); (ii) 5,594,182 shares of common
stock owned by Bain Capital VII Coinvestment Fund, LLC, whose
sole member is Bain Capital Fund VII Coinvestment Fund,
L.P., whose general partner is Bain Capital Partners VII, L.P.,
whose general partner is BCI and (iii) 106,778 shares
of common stock owned by BCIP TCV, LLC, whose administrative
member is BCI. The shares included in the table are based solely
on the Form 4 filed with the SEC on March 27, 2007 by
BCI on behalf of itself and its reporting group. Assuming no
exercise of the underwriters option to purchase additional
shares: (i) 5,699,847 shares of common stock will be
sold by Bain Capital Integral Investors, LLC;
(ii) 1,629,058 shares of common stock will be sold by
Bain Capital VII Coinvestment Fund, LLC; and
(iii) 31,095 shares of common stock will be sold by
BCIP TCV, LLC. If the underwriters exercise their option to
purchase additional shares in full:
(i) 6,554,824 shares of common stock will be sold by
Bain Capital Integral Investors, LLC;
(ii) 1,873,417 shares of common stock will be sold by
Bain Capital VII Coinvestment Fund, LLC; and
(iii) 35,759 shares of common stock will be sold by
BCIP TCV, LLC. Certain partners and other employees of Bain
Capital entities may make a contribution of shares of common
stock to one or more charities prior to this offering. In such
case, a recipient charity, if it chooses to participate in this
offering, will be the selling stockholder with respect to the
donated shares.
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(8)
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The Goldman Sachs Group, Inc., and
certain affiliates, including, Goldman, Sachs & Co.,
may be deemed to directly or indirectly own the shares of common
stock which are owned directly or indirectly by investment
partnerships, which The Goldman Sachs Group, Inc. refers to as
the Goldman Sachs Funds, of which affiliates of The Goldman
Sachs Group, Inc. and Goldman, Sachs & Co. are the
general partner, managing limited partner or the managing
partner. Goldman, Sachs & Co. is the investment
manager for certain of the Goldman Sachs Funds. Goldman,
Sachs & Co. is a direct and indirect, wholly owned
subsidiary of The Goldman Sachs Group, Inc. The Goldman Sachs
Group, Inc., Goldman, Sachs & Co. and the Goldman
Sachs Funds share voting and investment power with certain of
their respective affiliates. Shares beneficially owned by the
Goldman Sachs Funds consist of: (i) 13,205,404 shares
of common stock owned by GS Capital Partners 2000, L.P.;
(ii) 4,798,340 shares of common stock owned by GS
Capital Partners 2000 Offshore, L.P.;
(iii) 551,956 shares of common stock owned by GS
Capital Partners 2000 GmbH & Co. Beteiligungs KG;
(iv) 4,193,173 shares of common stock owned by GS
Capital Partners 2000 Employee Fund, L.P.;
(v) 194,258 shares of common stock owned by Bridge
Street Special Opportunities Fund 2000, L.P.;
(vi) 388,516 shares of common stock owned by Stone
Street Fund 2000, L.P.; (vii) 647,526 shares of
common stock owned by Goldman Sachs Direct Investment
Fund 2000, L.P.; (viii) 750,834 shares of common
stock owned by GS Private Equity Partners 2000, L.P.;
(ix) 258,091 shares of common stock owned by GS
Private Equity Partners 2000 Offshore Holdings, L.P.; and
(x) 286,127 shares of common stock owned by GS Private
Equity Partners
2000-Direct
Investment Fund, L.P. Goldman, Sachs & Co.
beneficially owns directly and The Goldman Sachs Group, Inc. may
be deemed to beneficially own indirectly 10,000 shares of
common stock. Goldman, Sachs & Co. and The Goldman
Sachs Group, Inc. may each be deemed to beneficially own
indirectly, in the aggregate, 25,274,225 shares of common
stock through certain limited partnerships described in this
Footnote, of which affiliates of Goldman, Sachs & Co.
and The Goldman Sachs Group, Inc. are the general partner,
managing general partner, managing partner, managing member or
member. Goldman, Sachs & Co. is a direct and indirect
wholly-owned subsidiary of The Goldman Sachs Group, Inc.
Goldman, Sachs & Co. is the investment manager of
certain of the limited partnerships. The Goldman Sachs Group,
Inc. may be deemed to beneficially own 9,538 shares of
common stock pursuant to the 2006 Omnibus Incentive Plan,
consisting of 4,769 deferred shares granted to each of Sanjeev
K. Mehra and Adrian M. Jones, each a managing director of
Goldman, Sachs & Co. in their capacity as directors of
the company. Each of Sanjeev K. Mehra and Adrian M. Jones has an
understanding with The Goldman Sachs Group, Inc. pursuant to
which he holds such deferred shares for the benefit of The
Goldman Sachs Group, Inc. Each grant of 4,769 deferred shares is
fully vested. The deferred shares will be settled upon
termination of board service. Each of Goldman, Sachs &
Co. and The Goldman Sachs Group, Inc. disclaims beneficial
ownership of the deferred shares of common stock except to the
extent of its pecuniary interest therein. The shares included in
the table are based solely on the Form 4 filed with the SEC
on March 27, 2007 by The Goldman Sachs Group, Inc. on
behalf of itself and its reporting group. Assuming no exercise
of the underwriters option to purchase additional shares;
(i) 3,845,490 shares of common stock will be sold by
GS Capital Partners 2000, L.P.; (ii) 1,397,304 shares
of common stock will be sold by GS Capital Partners 2000
Offshore, L.P.; (iii) 160,733 shares of common stock
will be sold by GS Capital Partners 2000 GmbH & Co.
Beteiligungs KG; (iv) 1,221,076 shares of common stock
will be sold by GS Capital Partners 2000 Employee Fund, L.P.;
(v) 56,569 shares of common stock will be sold by
Bridge Street Special Opportunities
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S-62
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Fund 2000, L.P.;
(vi) 113,138 shares of common stock will be sold by
Stone Street Fund 2000, L.P.;
(vii) 188,563 shares of common stock will be sold by
Goldman Sachs Direct Investment Fund 2000, L.P.;
(viii) 218,647 shares of common stock will be sold by
GS Private Equity Partners 2000, L.P.;
(ix) 75,158 shares of common stock will be sold by GS
Private Equity Partners 2000 Offshore Holdings, L.P.; and
(x) 83,322 shares of common stock will be sold by GS
Private Equity Partners 2000 Direct Investment Fund,
L.P. If the underwriters exercise their option to purchase
additional shares in full: (i) 4,422,313 shares of
common stock will be sold by GS Capital Partners 2000, L.P.;
(ii) 1,606,900 shares of common stock will be sold by
GS Capital Partners 2000 Offshore, L.P.;
(iii) 184,843 shares of common stock will be sold by
GS Capital Partners 2000 GmbH & Co. Beteiligungs KG;
(iv) 1,404,237 shares of common stock will be sold by
GS Capital Partners 2000 Employee Fund, L.P.;
(v) 65,054 shares of common stock will be sold by
Bridge Street Special Opportunities Fund 2000, L.P.;
(vi) 130,109 shares of common stock will be sold by
Stone Street Fund 2000, L.P.;
(vii) 216,848 shares of common stock will be sold by
Goldman Sachs Direct Investment Fund 2000, L.P.;
(viii) 251,444 shares of common stock will be sold by
GS Private Equity Partners 2000, L.P.;
(ix) 86,432 shares of common stock will be sold by GS
Private Equity Partners 2000 Offshore Holdings, L.P.; and
(x) 95,820 shares of common stock will be sold by GS
Private Equity Partners
2000-Direct
Investment Fund, L.P.
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(9)
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The shares included in the table
are directly held by TPG BK Holdco LLC. TPG Advisors III,
Inc., a Delaware corporation (Advisors III), is
the general partner of TPG GenPar III, L.P., a Delaware
limited partnership, which in turn is the sole general partner
of TPG Partners III, L.P., a Delaware limited partnership which
in turn is the managing member of TPG BK Holdco LLC. David
Bonderman and James Coulter are the sole shareholders and
directors of Advisors III, and therefore, David Bonderman,
James Coulter and Advisors III may each be deemed to
beneficially own the shares directly held by TPG BK Holdco LLC.
The shares included in this table are based solely on the
Form 4 filed with the SEC on March 27, 2007 by
Advisors III.
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S-63
Material
United States federal tax consequences for
non-United
States holders of common stock
The following is a general discussion of the material
U.S. federal income and estate tax consequences of the
ownership and disposition of common stock by a beneficial owner
that is a
non-U.S. holder
and that does not own, and is not deemed to own, more than 5% of
the companys common stock. A
non-U.S. holder
is a person or entity that, for U.S. federal income tax
purposes, is a:
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non-resident alien individual, other than certain former
citizens and residents of the United States subject to tax as
expatriates,
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foreign corporation,
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foreign partnership, or
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foreign estate or trust.
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A
non-U.S. holder
does not include an individual who is present in the United
States for 183 days or more in the taxable year of
disposition and is not otherwise a resident of the United States
for U.S. federal income tax purposes. Such an individual is
urged to consult his or her own tax advisor regarding the
U.S. federal income tax consequences of the sale, exchange
or other disposition of common stock.
This discussion is based on the Internal Revenue Code of 1986,
as amended (the Code), and administrative
pronouncements, judicial decisions and final, temporary and
proposed Treasury Regulations, changes to any of which
subsequent to the date of this prospectus supplement may affect
the tax consequences described herein. This discussion does not
address all aspects of U.S. federal income and estate
taxation that may be relevant to
non-U.S. holders
in light of their particular circumstances and does not address
any tax consequences arising under the laws of any state, local
or foreign jurisdiction. Prospective holders are urged to
consult their tax advisors with respect to the particular tax
consequences to them of owning and disposing of common stock,
including the consequences under the laws of any state, local or
foreign jurisdiction.
Dividends
Dividends paid by the company to a
non-U.S. holder
of common stock generally will be subject to withholding tax at
a 30% rate or a reduced rate specified by an applicable income
tax treaty. In order to obtain a reduced rate of withholding, a
non-U.S. holder
will be required to provide an Internal Revenue Service
Form W-8BEN
certifying its entitlement to benefits under a treaty.
The withholding tax does not apply to dividends paid to a
non-U.S. holder
who provides a
Form W-8ECI,
certifying that the dividends are effectively connected with the
non-U.S. holders
conduct of a trade or business within the United States.
Instead, the effectively connected dividends will be subject to
regular U.S. income tax as if the
non-U.S. holder
were a U.S. resident. A
non-U.S. corporation
receiving effectively connected dividends may also be subject to
an additional branch profits tax imposed at a rate
of 30% (or a lower treaty rate).
Gain on
disposition of common stock
A
non-U.S. holder
generally will not be subject to U.S. federal income tax on
gain realized on a sale or other disposition of common stock
unless:
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the gain is effectively connected with a trade or business of
the
non-U.S. holder
in the United States, subject to an applicable treaty providing
otherwise, or
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the company is or has been a U.S. real property holding
corporation, as defined below, at any time within the five-year
period preceding the disposition or the
non-U.S. holders
holding period, whichever period is shorter, and its common
stock has ceased to be traded on an established securities
market prior to the beginning of the calendar year in which the
sale or disposition occurs.
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The company believes that it is not, and does not anticipate
becoming, a U.S. real property holding corporation.
S-64
Information
reporting requirements and backup withholding
Information returns will be filed with the Internal Revenue
Service in connection with payments of dividends and the
proceeds from a sale or other disposition of common stock. You
may have to comply with certification procedures to establish
that you are not a U.S. person in order to avoid
information reporting and backup withholding tax requirements.
The certification procedures required to claim a reduced rate of
withholding under a treaty will satisfy the certification
requirements necessary to avoid the backup withholding tax as
well. The amount of any backup withholding from a payment to you
will be allowed as a credit against your U.S. federal
income tax liability and may entitle you to a refund, provided
that the required information is furnished to the Internal
Revenue Service.
Federal estate
tax
An individual
non-U.S. holder
who is treated as the owner of, or has made certain lifetime
transfers of, an interest in the common stock will be required
to include the value of the stock in his gross estate for
U.S. federal estate tax purposes, and may be subject to
U.S. federal estate tax, unless an applicable estate tax
treaty provides otherwise.
S-65
The selling stockholders are offering the shares of common stock
described in this prospectus supplement. A number of
underwriters are acting as joint book-running managers of the
offering and as representatives of the underwriters. We and the
selling stockholders have entered into an underwriting agreement
with the underwriters. Subject to the terms and conditions of
the underwriting agreement, the selling stockholders have agreed
to sell to the underwriters, and each underwriter has severally
agreed to purchase, the number of shares of common stock listed
next to its name in the following table:
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Name
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Number
of Shares
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Goldman, Sachs & Co.
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J.P. Morgan Securities Inc.
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Morgan Stanley & Co. Incorporated
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Banc of America Securities LLC
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Bear, Stearns & Co. Inc.
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Citigroup Global Markets Inc.
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Wachovia Capital Markets, LLC
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The Williams Capital Group, L.P.
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Total
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23,000,000
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The underwriters are committed to purchase all the shares of
common stock offered by the selling stockholders if they
purchase any shares. The underwriting agreement also provides
that if an underwriter defaults, the purchase commitments of
non-defaulting underwriters may also be increased or the
offering may be terminated.
The underwriters propose to offer the shares of common stock
directly to the public at the public offering price set forth on
the cover page of this prospectus supplement and to certain
dealers at that price less a concession not in excess of
$ per share. Any such dealers may
resell shares to certain other brokers or dealers at a discount
of up to $ per share from the
initial public offering price. After the initial public offering
of the shares, the offering price and other selling terms may be
changed by the underwriters.
The underwriters have an option to buy up to 3,450,000
additional shares of common stock from the selling stockholders
to cover sales of shares by the underwriters which exceed the
number of shares specified in the table above. The underwriters
have 30 days from the date of this prospectus supplement to
exercise this option to purchase additional shares. If any
shares are purchased pursuant to this option to purchase
additional shares, the underwriters will purchase shares in
approximately the same proportion as shown in the table above.
If any additional shares of common stock are purchased, the
underwriters will offer the additional shares on the same terms
as those on which the shares are being offered.
The underwriting fee is equal to the public offering price per
share of common stock less the amount paid by the underwriters
to the selling stockholders per share of common stock. We will
not receive any of the proceeds from a sale of shares by the
selling stockholders. The following table shows the per share
and total underwriting discounts and commissions to be paid by
the selling stockholders to the underwriters assuming both no
exercise and full exercise of the underwriters option to
purchase additional shares.
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Without
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With full
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exercise
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exercise of
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Paid
by the selling stockholders
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of
option
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option
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Per Share
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$
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$
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Total
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$
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$
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S-66
We estimate that the total expenses of this offering, including
registration, filing and listing fees, printing fees and legal
and accounting expenses, but excluding the underwriting
discounts and commissions, will be approximately
$ million.
Internet distributions will be allocated by the representatives
to underwriters and selling group members that may make Internet
distributions on the same basis as other allocations.
Certain of the underwriters and their respective affiliates
have, from time to time, performed, and may in the future
perform, various financial advisory and commercial and
investment banking services for the company and its
subsidiaries, for which they received or will receive customary
fees and expenses. For a discussion of material relationships
with the selling stockholders, see Principal and selling
stockholders.
We have agreed that, subject to certain exceptions, we will not
offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, or file with the SEC a registration
statement under the Securities Act of 1933, as amended (the
Securities Act) relating to, any shares of our
common stock or securities convertible into or exchangeable or
exercisable for any shares of our common stock, or publicly
disclose the intention to make any offer, sale, pledge,
disposition or filing, without the prior written consent of
Goldman, Sachs & Co. for a period of 90 days
after the pricing date. Notwithstanding the foregoing, if
(1) during the last 17 days of the 90-day restricted
period, we issue an earnings release or material news or a
material event relating to our company occurs; or (2) prior
to the expiration of the 90-day restricted period, we announce
that we will release earnings results during the
16-day
period beginning on the last day of the 90-day period, the
restrictions described above shall continue to apply until the
expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event.
All of our directors and executive officers and certain other
equity holders, including the selling stockholders, have entered
into lock-up
agreements with the underwriters prior to the commencement of
this offering pursuant to which each of these persons or
entities, with certain exceptions, for a period of 90 days
after the pricing date, have agreed that they will not, without
the prior written consent of Goldman, Sachs & Co.,
(1) offer, pledge, announce the intention to sell, grant
any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of our common
stock (including, without limitation, common stock which may be
deemed to be beneficially owned by such persons in accordance
with the rules and regulations of the SEC and securities which
may be issued upon exercise of a stock option or warrant) or
(2) enter into any swap or other agreement that transfers,
in whole or in part, any of the economic consequences of
ownership of the common stock, whether any such transaction
described in clause (1) or (2) above is to be settled
by delivery of common stock or such other securities, in cash or
otherwise, subject to certain exceptions, including sales made
in this offering and, with respect to certain directors and
executive officers, transfers made 30 days or later after
the date of this prospectus supplement pursuant to a plan that
complies with
Rule 10b5-1
under the Securities Exchange Act of 1934, as amended (the
Exchange Act) and was entered into prior to the
pricing of this offering. Notwithstanding the foregoing, if
(1) during the last 17 days of the 90-day restricted
period, we issue an earnings release or material news or a
material event relating to our company occurs; or (2) prior
to the expiration of the 90-day restricted period, we announce
that we will release earnings results during the
16-day
period beginning on the last day of the 90-day period, the
restrictions described above shall continue to apply until the
expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event.
We and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities
under the Securities Act.
Our common stock is listed on the New York Stock Exchange under
the symbol BKC.
In connection with this offering, the underwriters may engage in
stabilizing transactions, which involves making bids for,
purchasing and selling shares of common stock in the open market
for the purpose of preventing or retarding a decline in the
market price of the common stock while this offering is in
progress. These stabilizing transactions may include making
short sales of the common stock, which involves the sale by the
underwriters of a greater number of shares of common stock than
they are required to purchase in this offering, and purchasing
shares of common stock on the open market to
S-67
cover positions created by short sales. Short sales may be
covered shorts, which are short positions in an
amount not greater than the underwriters option to
purchase additional shares referred to above, or may be
naked shorts, which are short positions in excess of
that amount. The underwriters may close out any covered short
position either by exercising their option to purchase
additional shares, in whole or in part, or by purchasing shares
in the open market. In making this determination, the
underwriters will consider, among other things, the price of
shares available for purchase in the open market compared to the
price at which the underwriters may purchase shares through the
option to purchase additional shares. A naked short position is
more likely to be created if the underwriters are concerned that
there may be downward pressure on the price of the common stock
in the open market that could adversely affect investors who
purchase in this offering. To the extent that the underwriters
create a naked short position, they will purchase shares in the
open market to cover the position.
The underwriters have advised us that, pursuant to
Regulation M of the Securities Act, they may also engage in
other activities that stabilize, maintain or otherwise affect
the price of the common stock, including the imposition of
penalty bids. This means that if the representatives of the
underwriters purchase common stock in the open market in
stabilizing transactions or to cover short sales, the
representatives can require the underwriters that sold those
shares as part of this offering to repay the underwriting
discount received by them.
These activities, as well as other purchases by the underwriters
for their own account, may have the effect of raising or
maintaining the market price of the common stock or preventing
or retarding a decline in the market price of the common stock,
and, as a result, the price of the common stock may be higher
than the price that otherwise might exist in the open market. If
the underwriters commence these activities, they may discontinue
them at any time. The underwriters may carry out these
transactions on the New York Stock Exchange, in the
over-the-counter market or otherwise.
Each underwriter has represented that (i) it has only
communicated or caused to be communicated and will only
communicate or cause to be communicated any invitation or
inducement to engage in investment activity (within the meaning
of Section 21 of the FSMA) received by it in connection
with the issue or sale of any common stock in circumstances in
which Section 21(1) of the FSMA does not apply to us and
(ii) it has complied and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the shares in, from or otherwise involving the
United Kingdom.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State), each underwriter has
represented and agreed that with effect from and including the
date on which the European Union Prospectus Directive (the
EU Prospectus Directive) is implemented in that
Relevant Member State (the Relevant Implementation
Date) it has not made and will not make an offer of common
stock to the public in that Relevant Member State prior to the
publication of a prospectus in relation to the shares which has
been approved by the competent authority in that Relevant Member
State or, where appropriate, approved in another Relevant Member
State and notified to the competent authority in that Relevant
Member State, all in accordance with the EU Prospectus
Directive, except that it may, with effect from and including
the Relevant Implementation Date, make an offer of shares to the
public in that Relevant Member State at any time:
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to legal entities which are authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity which has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 50,000,000,
as shown in its last annual or consolidated accounts;
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to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to
obtaining the prior consent of the representatives for any such
offer; or
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in any other circumstances which do not require the publication
by the Issuer of a prospectus pursuant to Article 3 of the
Prospectus Directive.
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S-68
For the purposes of this provision, the expression an
offer of shares to the public in relation to any
shares in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the shares to be offered so as to enable an
investor to decide to purchase or subscribe the shares, as the
same may be varied in that Member State by any measure
implementing the EU Prospectus Directive in that Member State
and the expression EU Prospectus Directive means Directive
2003/71/EC and includes any relevant implementing measure in
each Relevant Member State.
The shares may not be offered or sold by means of any document
other than to persons whose ordinary business is to buy or sell
shares or debentures, whether as principal or agent, or in
circumstances which do not constitute an offer to the public
within the meaning of the Companies Ordinance (Cap. 32) of
Hong Kong, and no advertisement, invitation or document relating
to the shares may be issued, whether in Hong Kong or elsewhere,
which is directed at, or the contents of which are likely to be
accessed or read by, the public in Hong Kong (except if
permitted to do so under the securities laws of Hong Kong) other
than with respect to shares which are or are intended to be
disposed of only to persons outside Hong Kong or only to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap. 571) of Hong Kong
and any rules made thereunder.
This prospectus supplement has not been registered as a
prospectus with the Monetary Authority of Singapore.
Accordingly, this prospectus supplement and any other document
or material in connection with the offer or sale, or invitation
for subscription or purchase, of the shares may not be
circulated or distributed, nor may the shares be offered or
sold, or be made the subject of an invitation for subscription
or purchase, whether directly or indirectly, to persons in
Singapore other than (i) to an institutional investor under
Section 274 of the Securities and Futures Act,
Chapter 289 of Singapore (the SFA),
(ii) to a relevant person, or any person pursuant to
Section 275(1A), and in accordance with the conditions,
specified in Section 275 of the SFA or (iii) otherwise
pursuant to, and in accordance with the conditions of, any other
applicable provision of the SFA.
Where the shares are subscribed or purchased under
Section 275 by a relevant person which is: (a) a
corporation (which is not an accredited investor) the sole
business of which is to hold investments and the entire share
capital of which is owned by one or more individuals, each of
whom is an accredited investor; or (b) a trust (where the
trustee is not an accredited investor) whose sole purpose is to
hold investments and each beneficiary is an accredited investor,
shares, debentures and units of shares and debentures of that
corporation or the beneficiaries rights and interest in
that trust shall not be transferable for 6 months after
that corporation or that trust has acquired the shares under
Section 275 except: (1) to an institutional investor
under Section 274 of the SFA or to a relevant person, or
any person pursuant to Section 275(1A), and in accordance
with the conditions, specified in Section 275 of the SFA;
(2) where no consideration is given for the transfer; or
(3) by operation of law.
The securities have not been and will not be registered under
the Securities and Exchange Law of Japan (the Securities and
Exchange Law) and each underwriter has agreed that it will not
offer or sell any securities, directly or indirectly, in Japan
or to, or for the benefit of, any resident of Japan (which term
as used herein means any person resident in Japan, including any
corporation or other entity organized under the laws of Japan),
or to others for re-offering or resale, directly or indirectly,
in Japan or to a resident of Japan, except pursuant to an
exemption from the registration requirements of, and otherwise
in compliance with, the Securities and Exchange Law and any
other applicable laws, regulations and ministerial guidelines of
Japan.
The validity of the shares of common stock offered hereby will
be passed upon for us by Holland & Knight LLP, Miami,
Florida, and certain legal matters will be passed upon for the
underwriters by Cleary Gottlieb Steen & Hamilton LLP,
New York, New York. Cleary Gottlieb Steen & Hamilton
LLP has in the past provided legal services to us and the
sponsors, including in connection with the acquisition of BKC in
December 2002, and may in the future continue to provide legal
services to us and the sponsors. In addition, Cleary Gottlieb
Steen & Hamilton LLP currently provides legal services
to the sponsors.
S-69
The consolidated financial statements of Burger King Holdings,
Inc and subsidiaries as of June 30, 2007 and 2006, and for
each of the years in the three-year period ended June 30,
2007, and managements assessment of the effectiveness of
internal control over financial reporting as of June 30,
2007 have been incorporated by reference herein in reliance upon
the reports of KPMG LLP, independent registered public
accounting firm, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
The audit report of KPMG LLP covering the June 30, 2007,
consolidated financial statements refers to changes in the
accounting for defined benefit pension and other postretirement
plans and a change in method of accounting for share-based
payments in fiscal 2007.
Where
you can find additional information
We file current, quarterly and annual reports, proxy statements
and other information required by the Exchange Act with the SEC.
You may read and copy any of these filed documents at the
SECs public reference room located at
100 F Street, N.E., Room 1580, Washington, DC
20549. Please call the SEC at
1-800-SEC-0330
for further information on the public reference room. Our SEC
filings are also available to the public from the SECs
Internet site at
http://www.sec.gov.
Our website is
http://www.bk.com
(which is not intended to be an active hyperlink in this
prospectus supplement). We make available free of charge on our
website our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
amendments to such reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, proxy
statements and other information as soon as reasonably
practicable after such material is electronically filed with, or
furnished to, the SEC. The information contained on, connected
to or that can be accessed via our website is not part of this
prospectus supplement.
We have filed with the SEC a Registration Statement on
Form S-3
under the Securities Act with respect to the shares of common
stock offered by this prospectus supplement. This prospectus
supplement, which constitutes a part of that Registration
Statement, does not include all the information contained in
that Registration Statement and its exhibits. For further
information with respect to us and our common stock, you should
consult the Registration Statement and its exhibits.
S-70
Incorporation
of certain documents by reference
The SEC allows us to incorporate by reference the
information we file with it, which means that we can disclose
important information to you by referring you to documents
containing that information. The information incorporated by
reference is considered to be part of this prospectus
supplement, and later information that we file with the SEC will
automatically update and supersede this information. We
incorporate by reference the following documents filed by us
with the SEC and any future filings we will make with the SEC
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act until this offering is complete or terminated:
(i) Annual Report on
Form 10-K
for the fiscal year ended June 30, 2007 filed with the SEC
on September 7, 2007;
(ii) Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 30, 2007 filed with
the SEC on November 5, 2007;
(iii) Current Reports on
Form 8-K
filed with the SEC on September 18, 2007, October 26,
2007 and November 6, 2007; and
(iv) The description of our common stock contained in the
registration statement on
Form 8-A
filed pursuant to Section 12 of the Exchange Act on
May 9, 2006, including any amendments or reports filed for
the purpose of updating such description.
We will provide to you without charge a copy of all documents
incorporated by reference into this prospectus supplement,
including any exhibits to such documents that are specifically
incorporated by reference in those documents. You may request
copies by writing or telephoning us at our Investor Relations
Department, Burger King Holdings, Inc., 5505 Blue Lagoon Drive,
Miami, Florida 33126, telephone number
(305) 378-7696
or by e-mailing us at Investor@whopper.com.
Statements contained in this prospectus supplement concerning
the provisions of any documents are necessary summaries of those
documents, and each statement is qualified in its entirety by
reference to the copy of the document filed with the SEC. The
Registration Statement and any of its amendments, including
exhibits filed as a part of the Registration Statement or an
amendment to the Registration Statement, are available for
inspection and copying as described above.
S-71
PROSPECTUS
26,450,000 Shares of
Common Stock
Burger King Holdings, Inc.
This prospectus relates to 26,450,000 shares of common
stock, par value $0.01 per share, of Burger King Holdings, Inc.
All of the shares being offered hereby will be sold by or for
the benefit of the selling stockholders identified on
page 6 of this prospectus. We will not receive any proceeds
from the sale of the shares.
The selling stockholders may offer and sell the shares from time
to time, in public or private transactions, through
underwriters, dealers or agents or directly to one or more
purchasers in fixed price offerings, in negotiated transactions,
at market prices prevailing at the time of sale or at prices
related to market prices. See Plan of Distribution
starting on page 9 of this prospectus for more information.
Our common stock is listed on the New York Stock Exchange under
the symbol BKC. On November 2, 2007, the
closing price of our common stock as reported on the NYSE
Consolidated Tape was $27.73 per share.
This prospectus describes the general manner in which the shares
of our common stock may be offered or sold by the selling
stockholders. If necessary, the specific manner in which shares
of our common stock may be offered and sold will be described in
a prospectus supplement.
Investing in our common stock involves risks. You
should carefully consider the risks described under the
Risk Factors section of our filings with the
Securities and Exchange Commission (SEC) and any
applicable prospectus supplement.
Neither the SEC nor any state securities commission has
approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to
the contrary is a criminal offense.
November 5,
2007
Table of
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13
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You should rely only on the information contained in, or
incorporated by reference into, this prospectus and any
prospectus supplements. We have not authorized anyone to provide
you with information that is different. This prospectus is not
an offer to sell or solicitation of an offer to buy these shares
of common stock in any circumstances under which the offer or
solicitation is unlawful. You should not assume that the
information we have included in this prospectus or any
prospectus supplement is accurate as of any date other than the
date of this prospectus or any prospectus supplement or that any
information we have incorporated by reference is accurate as of
any date other than the date of the document incorporated by
reference regardless of the time of delivery of this prospectus,
a prospectus supplement or of any shares of our common stock.
No dealer, sales person or other person is authorized to give
any information or to represent anything not contained in this
prospectus or any prospectus supplement. You must not rely on
any unauthorized information or representations. This prospectus
and any prospectus supplement are an offer to sell only the
securities specifically offered by it, but only under
circumstances and in jurisdictions where it is lawful to do so.
i
This summary highlights material information found in greater
detail elsewhere in this prospectus or the documents
incorporated by reference herein. Before deciding to invest in
our common stock, you should carefully read this entire
prospectus, including the matters discussed under the Risk
Factors, section included in our Annual Report on
Form 10-K
for the fiscal year ended June 30, 2007 filed with the SEC
on September 7, 2007, and in other documents that we
subsequently file with the SEC. References to fiscal 2008,
fiscal 2007, fiscal 2006 and fiscal 2005 in this prospectus are
to our fiscal year ending June 30, 2008, and to the fiscal
years ended June 30, 2007, June 30, 2006 and
June 30, 2005, respectively. As used in this prospectus,
all references to Burger King, we,
our, ours, us and the
Company refer to Burger King Holdings, Inc. and its
consolidated subsidiaries. As used in this prospectus, all
references to Sponsors refer to TPG Capital, Bain
Capital Partners and the Goldman Sachs Funds. All of the selling
stockholders are private equity funds controlled by the Sponsors.
Our
company
We are the worlds second largest fast food hamburger
restaurant, or FFHR, chain as measured by the total number of
restaurants and sales system-wide. Our restaurant system
includes restaurants owned by the Company and by franchisees. As
of September 30, 2007, we owned or franchised a total of
11,290 restaurants in 69 countries and U.S. territories, of
which 1,289 restaurants were Company-owned and 10,001 were owned
by our franchisees. Of these restaurants, 7,168 or 63% were
located in the United States and 4,122 or 37% were located in
our international markets. Our restaurants feature flame-broiled
hamburgers, chicken and other specialty sandwiches, french
fries, soft drinks and other reasonably-priced food items.
During our more than 50 years of operating history, we have
developed a scalable and cost-efficient quick-service hamburger
restaurant model that offers guests fast food at modest prices.
We generate revenues from three sources: sales at Company-owned
restaurants; royalties and franchise fees paid to us by our
franchisees; and property income from certain restaurants that
we lease or sublease to franchisees. Approximately 90% of our
restaurants are franchised and we have a higher percentage of
franchise restaurants to Company-owned restaurants than our
major competitors in the FFHR category. We believe that this
restaurant ownership mix provides us with a strategic advantage
because the capital required to grow and maintain the BURGER
KING®
system is funded primarily by franchisees, while still giving us
a sizeable base of Company-owned restaurants to demonstrate
credibility with franchisees in launching new initiatives. As a
result of the high percentage of franchise restaurants in our
system, we have lower capital requirements compared to our major
competitors.
Recent
developments
On November 5, 2007, we announced our financial results for
the first quarter of fiscal 2008. These financial results
included the following:
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Fifteen consecutive quarters of positive worldwide comparable
sales growth, our best comparable sales growth trend in more
than a decade, including comparable sales growth of 5.9% for the
first quarter of fiscal 2008;
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Fourteen consecutive quarters of positive comparable sales
growth in the United States and Canada, including comparable
sales growth of 6.6% for the first quarter of fiscal 2008;
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All-time high average restaurant sales of $1.22 million for
the trailing
12-months
ended September 30, 2007;
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Net income up 23% to $49 million and diluted earnings per
share up 17% to $0.35 per share for the first quarter of fiscal
2008 compared to the same period in the prior year;
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Continued acceleration of worldwide restaurant growth with an
increase in net restaurant count of 146 units during the
12-months
ended September 30, 2007;
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Further reduction in debt of $25 million since
June 30, 2007 to $846 million as of September 30,
2007; and
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Payment of our third quarterly cash dividend as a public company
of $0.0625 per share.
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Corporate
information
The Company is a Delaware corporation formed on July 23,
2002. Our global headquarters are located at 5505 Blue Lagoon
Drive, Miami, Florida 33126. Our telephone number is
(305) 378-3000.
Our website is accessible through www.burgerking.com or
www.bk.com. Information on, or accessible through, this website
is not a part of, and is not incorporated into, this prospectus.
2
Investing in our common stock involves risks. You are urged to
read and consider the risk factors relating to an investment in
our company as described in Item 1A of our Annual Report on
Form 10-K
for the fiscal year ended June 30, 2007 filed with the SEC
on September 7, 2007, our Quarterly Report on
Form 10-Q
for the three months ended September 30, 2007 filed with
the SEC on November 5, 2007, and Quarterly Reports on
Form 10-Q
that we subsequently file with the SEC, all of which are
incorporated by reference into this prospectus. Before making an
investment decision, you should carefully consider these risks
as well as other information we include or incorporate by
reference in this prospectus and any prospectus supplement. The
risks and uncertainties we have described are not the only ones
facing our company. Additional risks and uncertainties not
presently known to us or that we currently consider immaterial
may also affect our business operations. A prospectus supplement
may also contain an additional discussion of risks applicable to
an investment in our company.
Special
note regarding
forward-looking statements
In addition to current and historical information, this
prospectus and the documents incorporated by reference into this
prospectus contain and incorporate by reference forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements relate to our
future operations, prospects, potential products, services,
developments and business strategies. These statements can, in
some cases, be identified by the use of terms such as
may, will, should,
could, would, intend,
expect, plan, anticipate,
believe, estimate, predict,
project, potential, or
continue or the negative of such terms or other
comparable terminology. These forward-looking statements are
only predictions based on our current expectations and
projections about future events. Forward-looking statements
contained in this prospectus and the documents incorporated by
reference include, but are not limited to, the following:
statements regarding our ability to achieve
and/or
exceed our key financial guidance for fiscal 2008; our intent to
focus on U.S. sales growth and profitability and expand our
international network; our beliefs and expectations regarding
system-wide average restaurant sales; our beliefs and
expectations regarding franchise restaurants, including their
growth potential and our expectations regarding franchisee
distress; our expectations regarding opportunities to enhance
restaurant profitability and margin improvement; our intention
to continue to employ innovative and creative marketing
strategies, including the launching of new and limited time
offer products; our expectations regarding present and future
revenue streams generated through licensed merchandise and
grocery snack products; our exploration of initiatives to reduce
the initial investment expense, time and uncertainty of new
builds; our intention to focus on company restaurant remodels
and rebuilds; our estimates regarding our liquidity, capital
expenditures and sources of both, and our ability to fund future
operations, obligations and strategic initiatives; our
expectations regarding restaurant openings/closures and
increasing net restaurant count; our beliefs regarding sales
performance in the United Kingdom; our estimates regarding the
fulfillment of certain volume purchase commitments; our beliefs
regarding the effects of the realignment of our European and
Asian businesses; our beliefs regarding the Fair and Accurate
Credit Transactions Act lawsuit; our expectations regarding the
impact of accounting pronouncements; our intention to renew
hedging contracts; and our continued efforts to leverage our
global purchasing power.
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 SEC, including our annual and quarterly reports, and
the following:
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Our ability to compete domestically and internationally in an
intensely competitive industry;
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Our ability to successfully implement our international growth
strategy;
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Risks related to our international operations;
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Our continued relationship with, and the success of, our
franchisees;
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Our continued ability, and the ability of our franchisees, to
obtain suitable locations and financing for new restaurant
development;
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Increases in our operating costs, including the food and paper
products, energy costs and labor costs;
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Risks related to our business in the United Kingdom, which may
continue to experience operating losses, restaurant closures and
franchisee financial distress;
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Risks relating 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;
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Changes in consumer preferences and consumer discretionary
spending;
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The effectiveness of our marketing and advertising programs and
franchisee support of these programs;
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Risks relating 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;
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Risks related to the renewal of franchise agreements by our
U.S. franchisees;
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Changes in consumer perceptions of dietary health and food
safety and negative publicity relating to our products;
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Our ability to retain or replace executive officers and key
members of management with qualified personnel;
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Our inability to realize our expected tax benefits from the
realignment of our European and Asian businesses;
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Our ability to utilize foreign tax credits to offset our
U.S. income taxes due to continuing or increasing 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;
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Fluctuations in international currency exchange and interest
rates;
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Changes in demographic patterns of current restaurant locations;
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Our ability to adequately protect our intellectual property;
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Our ability to successfully estimate the effect on our company
of adopting certain accounting pronouncements;
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Adverse legal judgments, settlements or pressure
tactics; and
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Adverse legislation or regulation.
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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
4
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.
The proceeds from the sale of the common stock offered pursuant
to this prospectus are solely for the account of the selling
stockholders. We will not receive any proceeds from these sales.
See Selling stockholders.
5
The selling stockholders are private equity funds controlled by
the Sponsors. In the aggregate, the selling stockholders own
approximately 58% of our outstanding common stock, and each of
the Sponsors controls private equity funds owning in the
aggregate more than 5% of our outstanding common stock. A total
of 26,450,000 shares of our common stock are covered for
possible sale by the selling stockholders using this prospectus.
The table below sets forth information with respect to the
selling stockholders, including the names of the selling
stockholders, the number of shares beneficially owned by each
selling stockholder as of the date of this prospectus, and the
maximum number of shares that may be offered for sale by such
selling stockholder pursuant to this prospectus.
We have prepared the table based on information given to us by,
or on behalf of, the selling stockholders, before the date of
this prospectus. Beneficial ownership and percentage ownership
are determined in accordance with the rules of the SEC, and
generally include voting or investment power over the shares.
The information does not necessarily indicate beneficial
ownership for any other purpose. Information about the selling
stockholders may change from time to time. Any changed
information given to us by the selling stockholders will be set
forth in prospectus supplements or amendments to this prospectus
if and when necessary.
Our registration of the shares covered by this prospectus does
not necessarily mean that any of the selling stockholders will
sell all or any portion of the shares of common stock covered by
this prospectus. The selling stockholders may offer and sell all
or a portion of their respective shares from time to time, but
are under no obligation to offer or sell any of the shares.
Because the selling stockholders may sell, transfer or otherwise
dispose of all, some or none of the shares of our common stock
covered by this prospectus, we cannot determine the number of
such shares that will be sold, transferred or otherwise disposed
of by the selling stockholders, or the amount or percentage of
shares of our common stock that will be held by the selling
stockholders upon termination of any particular offering. See
Plan of distribution. For purposes of the table
below, we assume that the selling stockholders will sell all
their shares of common stock covered by this prospectus.
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Prior to the
Offering
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After the
Offering
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(assuming all
shares being offered
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hereby are
sold)
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Common Stock, par
value
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$.01 per
share
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Number
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of Shares
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being
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Name and Address
of
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Number of
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Percentage of
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registered
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Number of
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Percentage of
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Selling
Stockholder
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Shares
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Class
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for
resale
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Shares
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Class
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Investment funds affiliated with Bain Capital Investors, LLC(a)
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25,274,221
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18.7
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%
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8,464,000
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16,810,221
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12.4
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%
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c/o Bain
Capital Partners
111 Huntington Avenue
Boston, MA 02199
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The Goldman Sachs Group, Inc.(b)(c)(d)
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25,293,763
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18.7
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%
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8,464,000
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16,829,763
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12.4
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%
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85 Broad Street
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New York, NY 10004
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TPG BK Holdco LLC(e)
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28,433,497
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21.0
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%
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9,522,000
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18,911,497
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14.0
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%
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c/o TPG
Capital, L.P.
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301 Commerce Street
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Suite 3300
Fort Worth, Texas 76102
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6
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(a)
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The shares included in the table
consist of: (i) 19,573,261 shares of common stock
owned by Bain Capital Integral Investors, LLC, whose
administrative member is Bain Capital Investors, LLC
(BCI); (ii) 5,594,182 shares of common
stock owned by Bain Capital VII Coinvestment Fund, LLC, whose
sole member is Bain Capital VII Coinvestment Fund, L.P., whose
general partner is Bain Capital Partners VII, L.P., whose
general partner is BCI and (iii) 106,778 shares of
common stock owned by BCIP TCV, LLC, whose administrative member
is BCI. Certain partners and other employees of Bain Capital
entities may make a contribution of shares of common stock to
one or more charities prior to this offering. In such case, a
recipient charity, if it chooses to participate in the offering,
will be the selling stockholder with respect to the donated
shares.
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(b)
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The Goldman Sachs Group, Inc., and
certain affiliates, including, Goldman, Sachs & Co.,
may be deemed to directly or indirectly own the shares of common
stock which are owned directly or indirectly by investment
partnerships, which we refer to as the Goldman Sachs Funds, of
which affiliates of The Goldman Sachs Group, Inc. and Goldman
Sachs & Co. are the general partner, managing limited
partner or the managing partner. Goldman, Sachs & Co.
is the investment manager for certain of the Goldman Sachs
Funds. Goldman, Sachs & Co. is a direct and indirect,
wholly owned subsidiary of The Goldman Sachs Group, Inc. The
Goldman Sachs Group, Inc., Goldman, Sachs & Co. and
the Goldman Sachs Funds share voting and investment power with
certain of their respective affiliates. Shares beneficially
owned by the Goldman Sachs Funds consist of:
(i) 13,205,404 shares of common stock owned by GS
Capital Partners 2000, L.P.; (ii) 4,798,340 shares of
common stock owned by GS Capital Partners 2000 Offshore, L.P.;
(iii) 551,956 shares of common stock owned by GS
Capital Partners 2000 GmbH & Co. Beteiligungs KG;
(iv) 4,193,173 shares of common stock owned by GS
Capital Partners 2000 Employee Fund, L.P.;
(v) 194,258 shares of common stock owned by Bridge
Street Special Opportunities Fund 2000, L.P.;
(vi) 388,516 shares of common stock owned by Stone
Street Fund 2000, L.P.; (vii) 647,526 shares of
common stock owned by Goldman Sachs Direct Investment
Fund 2000, L.P.; (viii) 750,834 shares of common
stock owned by GS Private Equity Partners 2000, L.P.;
(ix) 258,091 shares of common stock owned by GS
Private Equity Partners 2000 Offshore Holdings, L.P.; and
(x) 286,127 shares of common stock owned by GS Private
Equity Partners
2000-Direct
Investment Fund, L.P.
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(c)
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Goldman, Sachs & Co.
beneficially owns directly and The Goldman Sachs Group, Inc. may
be deemed to beneficially own indirectly 10,000 shares of
common stock. Goldman, Sachs & Co. and The Goldman
Sachs Group, Inc. may each be deemed to beneficially own
indirectly, in the aggregate, 25,274,225 common stock through
certain limited partnerships described in footnote (b), of which
affiliates of Goldman, Sachs & Co. and The Goldman
Sachs Group, Inc. are the general partner, managing general
partner, managing partner, managing member or member. Goldman,
Sachs & Co. is a direct and indirect wholly-owned
subsidiary of The Goldman Sachs Group, Inc. Goldman,
Sachs & Co. is the investment manager of certain of
the limited partnerships.
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(d)
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The Goldman Sachs Group, Inc. may
be deemed to beneficially own 9,538 shares of common stock
pursuant to the 2006 Omnibus Incentive Plan (the 2006
Plan), consisting of 4,769 deferred shares granted to each
of Sanjeev K. Mehra and Adrian M. Jones, each a managing
director of Goldman, Sachs & Co., in their capacity as
directors of the Company. Each of Sanjeev K. Mehra and Adrian M.
Jones has an understanding with The Goldman Sachs Group, Inc.
pursuant to which he holds such deferred shares for the benefit
of The Goldman Sachs Group, Inc. Each grant of 4,769 deferred
shares is fully vested. The deferred shares will be settled upon
termination of board service. Each of Goldman, Sachs &
Co. and The Goldman Sachs Group, Inc. disclaims beneficial
ownership of the deferred shares of common stock except to the
extent of its pecuniary interest therein.
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(e)
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The shares included in the table
are directly held by TPG BK Holdco LLC. TPG Advisors III, Inc.,
a Delaware corporation (Advisors III), is the
general partner of TPG GenPar III, L.P., a Delaware limited
partnership, which in turn is the sole general partner of TPG
Partners III, L.P., a Delaware limited partnership which in turn
is the managing member of TPG BK Holdco LLC. David Bonderman and
James Coulter are the sole shareholders and directors of
Advisors III, and therefore, David Bonderman, James Coulter and
Advisors III may each be deemed to beneficially own the
shares directly held by TPG BK Holdco LLC.
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Certain
relationships
In connection with our acquisition of Burger King Corporation or
BKC, we entered into a management agreement, dated
December 13, 2002, with the Sponsors and the selling
stockholders, pursuant to which we agreed to pay the Sponsors a
quarterly management fee not to exceed 0.5% of the prior
quarters total revenues. For each of fiscal 2005 and 2006,
we paid approximately $9 million each year in quarterly
management fees, which were paid as compensation to the Sponsors
for monitoring our business through board of director
participation, executive team recruitment, interim senior
management services that were provided from time-to-time and
other services consistent with arrangements with private equity
funds. In connection with our initial public offering in May
2006, we paid a one-time management agreement termination fee of
$30 million which was split equally among the three
Sponsors.
7
On February 21, 2006, we paid a special cash dividend in
the aggregate amount of $367 million, or $3.42 per share,
to holders of record of our common stock on February 9,
2006. Of the total amount paid, the private equity funds
controlled by TPG Capital, Bain Capital Partners and the Goldman
Sachs Fund received approximately $129 million,
$115 million and $115 million, respectively.
In order to finance, in part, our acquisition of BKC, we issued
$212.5 million in
payment-in-kind,
or PIK, notes to the selling stockholders on December 13,
2002. The PIK notes accreted interest at a rate of 9% per annum.
Our interest expense on the PIK notes totaled $23 million
in fiscal 2005. On July 13, 2005, we repaid the PIK notes
in full, including accreted interest, as part of the refinancing
of our indebtedness.
Prior to becoming a public company, we reimbursed the Sponsors
for certain travel-related expenses of their employees in
connection with meetings of our board of directors and other
meetings related to the management and monitoring of our
business by the Sponsors. During fiscal 2005 and 2006, we paid
approximately $496,000 and $214,000, respectively, in total
expense reimbursements to the Sponsors. During fiscal 2007, we
reimbursed the Sponsors for certain travel-related expenses of
their employees who are members of our Board in connection with
meetings of the Board of Directors in amounts that are
consistent with amounts reimbursed to the non-Sponsor directors.
In addition, during fiscal 2006, we paid on behalf of the
Sponsors approximately $500,000 in legal fees and expenses to
Cleary Gottlieb Steen & Hamilton LLP that were
incurred by the Sponsors in connection with their management of
us and arrangements between us and the Sponsors.
Under the terms of a shareholders agreement among the
Company, BKC and the selling stockholders, we paid on behalf of
the selling stockholders approximately $90,000 in legal fees in
connection with our initial public offering. We also paid
approximately $870,000 of expenses on behalf of the selling
stockholders in connection with a secondary offering in February
2007, including registration and filing fees, printing fees,
accountants and attorneys fees and
road-show expenses. See Plan of
Distribution for more information about the
shareholders agreement.
The shareholders agreement also provides for (i) the
right of each Sponsor to appoint two members to our Board,
(ii) the right for each Sponsor, with respect to each
committee of the Board other than the Audit Committee, to have
at least one Sponsor director on each committee, for Sponsor
directors to constitute a majority of the membership of each
committee and for the chairman of the committees to be a Sponsor
director, (iii) drag-along and tag-along rights and
transfer restrictions, (iv) shelf, demand and piggyback
registration rights and (v) the payment of expenses and the
grant of certain indemnities relating to those registration
rights. A Sponsors right to appoint directors will be
reduced to one director if the stock ownership of the private
equity funds controlled by that Sponsor drops to less than 10%
of our outstanding common stock, and will be eliminated if the
stock ownership of the private equity funds controlled by that
Sponsor drops to less than 2% of our outstanding common stock.
The right to appoint directors to board committees terminates if
the private equity funds controlled by the Sponsors no longer
collectively beneficially own 30% or more of our outstanding
common stock. Six of our current directors, Messrs. Balson,
Bonderman, Boyce, Jones, Mehra and Pagliuca, were appointed
pursuant to the shareholders agreement.
Goldman, Sachs & Co., an affiliate of the Goldman
Sachs Funds, participated as one of the joint book-running
managers of our initial public offering in May 2006 and the
secondary offering by the selling stockholders in February 2007.
A change in control of the Company is an event of
default under the credit agreement for our senior secured debt.
One of the events that will trigger a change in control of the
Company under the credit agreement is (i) the acquisition
by any person or group (within the meaning of the Securities
Exchange Act of 1934, as amended (the Exchange Act)
and the SEC rules promulgated thereunder), other than the
Sponsors, the selling stockholders or any other affiliates of
the Sponsors (other than the Company and its subsidiaries), of
more than 25% of either the aggregate ordinary voting power or
the aggregate equity value of the Company, if (ii) the
Sponsors, the selling stockholders and any other affiliates of
the Sponsors collectively own a lesser percentage of either the
aggregate ordinary voting power or the aggregate equity value of
the Company than such person or group.
8
We are registering 26,450,000 shares of our common stock
pursuant to this Registration Statement on
Form S-3,
or the Registration Statement, which includes this
prospectus and any prospectus supplement, if necessary, to
permit the resale of these shares of common stock by the selling
stockholders from time to time after the date of this
prospectus. We will not receive any of the proceeds from the
sale of our common stock by the selling stockholders.
The selling stockholders and their pledgees, assignees, donees
or other
successors-in-interest
may sell shares of our common stock from time to time as market
conditions permit, on the New York Stock Exchange, any other
exchange or automated interdealer quotation system on which the
shares may be listed, in the over-the-counter market, or in
private transactions, directly or through one or more
underwriters, broker-dealers or agents, at fixed prices,
prevailing market prices or varying prices related to such
prevailing market prices at the time of sale, or at negotiated
prices. The selling stockholders may use any one or more of the
following methods when selling shares:
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Purchases by underwriters, brokers, dealers or agents who may
receive compensation in the form of underwriting discounts,
concessions or commissions from the selling stockholders
and/or the
purchasers of the shares for whom they may act as agent;
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Ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
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One or more block trades in which a broker-dealer will attempt
to sell the shares as agent, but may position and resell a
portion of the block as principal to facilitate the transaction
or, in crosses, in which the same broker acts as agent on both
sides;
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Purchases by a broker-dealer (including a specialist or market
maker) as principal and resale by such broker-dealer for its
account;
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Privately negotiated transactions without a broker-dealer;
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An exchange transaction in accordance with the rules of any
stock exchange on which the shares are listed;
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Short sales made after the date of this prospectus or
transactions to cover short sales made after the date of this
prospectus relating to the shares;
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Through the writing of options on the securities whether or not
the options are listed on an options exchange, or by entering
into swaps or other derivatives;
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The pledge of shares as security for any loan or obligation,
including pledges to brokers or dealers who may from time to
time effect distributions of the shares or other interests in
the shares;
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Distributions of the shares to creditors, partners, members or
stockholders by the selling stockholders;
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Sales in other ways not involving market makers or established
trading markets, including direct sales to institutions or
individual purchasers; and
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Any combination of the foregoing, or by any other method
permitted by applicable law.
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The selling stockholders may enter into sale, forward sale and
derivative transactions with third parties, or sell securities
not covered by this prospectus to third parties in privately
negotiated transactions. If the applicable prospectus supplement
indicates, in connection with those sale, forward sale or
derivative transactions, the third parties may sell securities
covered by this prospectus and the applicable prospectus
supplement, including in short sale transactions and by issuing
securities that are not covered by this prospectus but are
exchangeable for or represent beneficial interests in the
shares. The third parties may use shares received under those
sale, forward sale, or derivative arrangements or shares pledged
by the selling stockholders or borrowed from the selling
stockholders or others to settle such third party sales or to
close out any related open borrowings of shares. The
9
third parties may deliver this prospectus in connection with any
such transactions. Any third party in such sale transactions may
be an underwriter and, if required, will be identified in the
applicable prospectus supplement (or a post-effective amendment
to the registration statement of which this prospectus forms a
part).
The selling stockholders may enter into hedging transactions
with broker-dealers in connection with the distribution of
shares or otherwise. In those transactions, broker-dealers may
engage in short sales of shares in the course of hedging the
positions they assume with the selling stockholders. The selling
stockholders may also sell shares short and redeliver shares to
close out such short positions. We have advised the selling
stockholders that they may not use shares registered under this
Registration Statement to cover short sales of common stock made
prior to the date on which the Registration Statement became
effective. The selling stockholders also may enter into option
or other transactions with broker-dealers that require the
delivery to such broker-dealers of the shares, which shares may
be resold thereafter pursuant to this prospectus. The selling
stockholders also may loan, pledge or grant a security interest
in some or all of the shares, and the borrower or pledgee may
sell or otherwise transfer the shares so loaned, pledged or
secured pursuant to this prospectus. From time to time, the
selling stockholders may also transfer or donate their shares
and each transferee, or donee, will be deemed to be a selling
stockholder for purposes of this prospectus. Any pledge, secured
party, transferee or donee that a selling stockholder intends to
offer or sell shares to through this prospectus will be named in
a prospectus supplement, if required.
In addition, the selling stockholders may elect to sell all or a
portion of their shares in open market transactions in reliance
upon Rule 144 under the Securities Act of 1933, as amended,
or Securities Act, or any other available exemption
from required registration under the Securities Act, provided
that they meet the criteria and conform to the requirements of
such exemptions rather than pursuant to this prospectus.
Underwriters, broker-dealers, or agents may receive compensation
in the form of commissions, discounts or concessions from the
selling stockholders. Underwriters, broker-dealers or agents may
also receive compensation from the purchasers of shares for whom
they act as agents or to whom they sell as principals, or both.
Compensation as to a particular underwriter, broker-dealer or
agent may be in excess of customary commissions and will be in
amounts to be negotiated in connection with transactions
involving shares. Broker-dealers engaged by the selling
stockholders may arrange for other broker-dealers to participate
in sales.
At the time a particular offer of shares is made by one or more
of the selling stockholders, a prospectus supplement, if
required, will be distributed to set forth the terms of the
specific offering of the shares, including:
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the name of the selling stockholders;
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the names of participating broker-dealer(s);
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the aggregate number of shares offered;
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the price at which such shares are being sold;
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the proceeds to the selling stockholders from the sale of such
shares;
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the specific plan of distribution for such shares;
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the names of the underwriters or agents, if any;
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any underwriting discounts, agency fees, or other compensation
to underwriters or agents;
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any discounts or concessions allowed or paid to dealers; and
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any other facts material to the transaction.
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10
The selling stockholders and any underwriter, broker-dealer or
agent that is involved in selling the shares may be deemed to be
underwriters within the meaning of
Section 2(11) of the Securities Act in connection with such
sales. In such event, any profits realized or commissions
received by such underwriter, broker-dealer or agent and any
profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the
Securities Act.
The selling stockholders may sell the shares covered by this
prospectus from time to time, and may also decide not to sell
all or any of the shares they are allowed to sell under this
prospectus. The selling stockholders will act independently of
us in making decisions regarding the timing, manner and size of
each sale. There can be no assurance that all or any of the
shares will be offered by the selling stockholders. We know of
no existing arrangements between any selling stockholders and
any broker, dealer, finder, underwriter or agent relating to the
sale or distribution of the shares.
The shares covered by this prospectus are being registered
pursuant to the provisions of a shareholders agreement
between us and the selling stockholders. Under the terms of the
shareholders agreement, we will pay all expenses of the
registration of the shares of common stock, including SEC filing
fees, printing fees, all applicable rating agency fees, all
reasonable fees and disbursements of one law firm selected by
the Sponsors, and expenses of any special experts retained by
us, and all expenses related to any road show for an
underwritten offering, except that the selling stockholders will
pay all discounts and selling commissions, if any. Our expenses
for the registration of the shares of common stock are estimated
to be $121,876.
The shareholders agreement includes customary
indemnification provisions in favor of all shareholders or
transferees that are party to the shareholders agreement,
the related parties and the controlling persons (within the
meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act of such shareholders against
liabilities under the Securities Act incurred in connection with
the registration of any of our debt or equity securities. We
agreed to reimburse these persons for any legal or other
expenses incurred in connection with investigating or defending
any such liability, action or proceeding, except that we will
not be required to indemnify any of these persons or reimburse
related legal or other expenses if such loss or expense arises
out of or is based on any untrue statement or omission made in
reliance upon and in conformity with written information
provided by these persons. If, for any reason, such
indemnification is unavailable to an indemnified party or
insufficient in respect of any covered losses, we have agreed to
contribute to the amount paid or payable by such indemnified
party as a result of such losses in such proportion as is
appropriate to reflect our relative fault as well as any other
relevant equitable considerations.
The selling stockholders, and any other person participating in
the distribution of the shares registered pursuant to the
registration statement, will be subject to applicable provisions
of the Exchange Act, and the rules and regulations thereunder,
including, without limitation, Regulation M of the Exchange
Act. Regulation M may limit the timing of purchases and
sales of any of the shares by the selling stockholders and any
other participating person. Regulation M may also restrict
the ability of any person engaged in the distribution of the
shares to engage in market-making activities with respect to the
shares. All of the foregoing may affect the marketability of the
shares and the ability of any person or entity to engage in
market-making activities with respect to the shares.
In connection with an underwritten offering of shares under this
prospectus, the underwriters may purchase and sell securities in
the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions
created by short sales. Short sales involve the sale by the
underwriters of a greater number of securities than they are
required to purchase in an offering. Stabilizing transactions
consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the
securities while an offering is in progress.
The underwriters also may impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
underwriters have repurchased securities sold by or for the
account of that underwriter in stabilizing or short-covering
transactions.
11
These activities by the underwriters may stabilize, maintain or
otherwise affect the market price of the shares offered under
this prospectus. As a result, the price of the shares may be
higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be
discontinued by the underwriters at any time. These transactions
may be effected on an automated quotation system or in the
over-the-counter market or otherwise.
Agents and underwriters may be entitled under agreements entered
into with us or the selling stockholders to indemnification
against certain civil liabilities, including liabilities under
the Securities Act, or to contribution with respect to payments
which the agents or underwriters may be required to make in
respect thereof. Agents and underwriters may be customers of,
may engage in transactions with, or perform services for, us and
the selling stockholders in the ordinary course of business.
Once sold under this Registration Statement, the shares will be
freely tradeable in the hands of persons other than our
affiliates.
Certain legal matters with respect to the validity of the shares
will be passed upon for us by Holland & Knight, LLP,
Miami, Florida.
The consolidated financial statements of Burger King Holdings,
Inc and subsidiaries as of June 30, 2007 and 2006, and for
each of the years in the three-year period ended June 30,
2007, and managements assessment of the effectiveness of
internal control over financial reporting as of June 30,
2007 have been incorporated by reference herein and in the
registration statement in reliance upon the reports of KPMG LLP,
independent registered public accounting firm, incorporated by
reference herein, and upon the authority of said firm as experts
in accounting and auditing.
The audit report of KPMG LLP covering the June 30, 2007
consolidated financial statements refers to changes in the
accounting for defined benefit pension and other postretirement
plans and a change in method of accounting for share-based
payments in fiscal 2007.
Where
you can find additional information
We file current, quarterly and annual reports, proxy statements
and other information required by the Exchange Act with the SEC.
You may read and copy any of these filed documents at the
SECs public reference room located at
100 F Street, N.E., Room 1580, Washington, DC
20549. Please call the SEC at
1-800-SEC-0330
for further information on the public reference room. Our SEC
filings are also available to the public from the SECs
Internet site at
http://www.sec.gov.
Our website is
http://www.bk.com
(it is not intended to be an active hyperlink in this
prospectus). We make available free of charge on our website our
annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
amendments to such reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, proxy
statements and other information as soon as reasonably
practicable after such material is electronically filed with, or
furnished to, the SEC. The information contained on, connected
to or that can be accessed via our website is not part of this
prospectus.
We have filed with the SEC a Registration Statement on
Form S-3
under the Securities Act with respect to the shares of common
stock offered by this prospectus. This prospectus, which
constitutes a part of that Registration Statement, does not
include all the information contained in that Registration
Statement and its exhibits. For further information with respect
to us and our common stock, you should consult the Registration
Statement and its exhibits.
12
Incorporation
of certain documents
by reference
The SEC allows us to incorporate by reference the
information we file with it, which means that we can disclose
important information to you by referring you to documents
containing that information. The information incorporated by
reference is considered to be part of this prospectus, and later
information that we file with the SEC will automatically update
and supersede this information. We incorporate by reference the
following documents filed by us with the SEC and any future
filings we will make with the SEC pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
until this offering is complete or terminated:
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(i) |
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Annual Report on
Form 10-K
for the fiscal year ended June 30, 2007 filed with the SEC
on September 7, 2007; |
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Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 30, 2007 filed with
the SEC on November 5, 2007; |
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Current Reports on
Form 8-K
filed with the SEC on September 18, 2007 and
October 26, 2007; and |
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The description of our common stock contained in the
registration statement on
Form 8-A
filed pursuant to Section 12 of the Exchange Act on
May 9, 2006, including any amendments or reports filed for
the purpose of updating such description. |
We will provide to you without charge a copy of all documents
incorporated by reference into this prospectus, including any
exhibits to such documents that are specifically incorporated by
reference in those documents. You may request copies by writing
or telephoning us at our Investor Relations Department, Burger
King Holdings, Inc., 5505 Blue Lagoon Drive, Miami, Florida
33126, telephone number
(305) 378-3000.
Statements contained in this prospectus concerning the
provisions of any documents are necessary summaries of those
documents, and each statement is qualified in its entirety by
reference to the copy of the document filed with the SEC. The
Registration Statement and any of its amendments, including
exhibits filed as a part of this Registration Statement or an
amendment to the Registration Statement, are available for
inspection and copying as described above.
13
23,000,000 Shares
Burger King Holdings,
Inc.
Common Stock
Prospectus Supplement
,
2007
Banc
of America Securities LLC
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The
Williams Capital Group, L.P.
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You should rely only on the information contained in this
prospectus supplement and the accompanying prospectus. We have
not authorized anyone to provide you with information different
from that contained in this prospectus supplement and the
accompanying prospectus. We are offering to sell, and seeking
offers to buy, shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained
in this prospectus supplement and the accompanying prospectus is
accurate only as of the date of this prospectus supplement and
the accompanying prospectus, respectively, regardless of the
time of delivery of this prospectus supplement and the
accompanying prospectus or of any sale of the common stock.