Annual Revenues Reach Highest Level in Company History
For First Time in a Decade Company Posts 10 Consecutive Quarters of
Positive Comp Sales Worldwide; 9 Consecutive Quarters in U.S. and Canada
All-Time High Average Restaurant Sales Achieved
MIAMI, Aug. 1 /PRNewswire-FirstCall/ -- Burger King Holdings Inc.
(NYSE: BKC) announced that revenues for the fiscal year reached a record
high of $2.05 billion, an increase of 6 percent from the previous fiscal
year. Average restaurant sales (ARS) worldwide rose to an all-time high of
$1.13 million for the fiscal year, which ended June 30, 2006.
(Logo: http://www.newscom.com/cgi-bin/prnh/20031014/BKLOGO )
Comparable sales growth system-wide in the United States and Canada
rose by 2.5 percent for the fiscal year and by 2 percent for the fourth
quarter, the ninth straight quarter of positive comparable sales growth in
the United States and Canada. Comparable sales growth worldwide increased
by 1.9 percent for the fiscal year and by 1.7 percent for the quarter, the
10th consecutive quarter of positive comparable sales growth worldwide.
Income before taxes was $80 million in fiscal year 2006 as compared to
$78 million in fiscal year 2005, and income before taxes adjusted for
unusual items was $192 million for fiscal year 2006 as compared to $155
million for 2005, an increase of 24 percent. Unusual items included
compensatory make- whole payments of $33 million in the third quarter to
holders of options and restricted stock unit awards and a one-time
management termination fee of $30 million in the fourth quarter associated
with the company's initial public offering in May as well as other
restructuring related charges that are detailed in the supplemental
schedules attached to this release.
Net income was $27 million for fiscal year 2006 as compared to $47
million for fiscal year 2005. Net income decreased primarily due to the
management termination fee and the make-whole payments.
"As we build on the success of our Go Forward Plan, the business
continues to deliver strong results as demonstrated by the 24 percent
growth in our adjusted income before taxes from our business," said Burger
King Holdings Inc. Chief Executive Officer John W. Chidsey. "Further, it's
been more than a decade since the company has enjoyed 10 consecutive
quarters of positive comp sales growth worldwide.
"Record revenues, record ARS and our comp sales growth are driven by
our great new products, innovative marketing campaigns and our focus on
operations excellence. ARS is especially significant for us because
improving sales makes Burger King restaurants a more attractive investment
for existing franchisees and potential new franchisees globally.
"Our Value Menu, which was introduced system-wide in the United States
in March, is performing above expectations, and we believe this is
especially relevant in today's economy as consumers are being more cautious
with their non-essential spending. We believe the company will benefit as
consumers choose quick service restaurants, like Burger King, rather than
more expensive fast casual and casual dining restaurants."
Worldwide net restaurant count increased by 25 restaurants in fiscal
year 2006, the first year of increase in restaurant count in four years.
The company accelerated its expansion of new restaurants internationally,
including 201 new restaurants in the Europe, Middle East and Asia Pacific
segment (EMEA/APAC) and 89 new restaurants in the Latin America segment.
"We have worked diligently with our franchisees in the United States
and Canada during the past two years to strengthen the health of our
restaurants as we continue to grow our global brand," said Chidsey. "We've
achieved that goal and are now focused on opening new restaurants."
Initial Public Offering
The company became a publicly traded company on May 18. Approximately
$350 million of the $392 million in net proceeds raised in the IPO was used
to retire secured debt. On Monday, July 31, the company retired an
additional $50 million in debt. Chief Financial Officer Ben Wells said,
"Our reduced debt level further strengthens the company's balance sheet and
better positions us for future growth.
"Our highly franchised business model is extremely cash positive. Even
during the height of the turnaround, when we were investing millions of
dollars in the brand, the company generated excess cash. Coupled with cash
earned from operations and $350 million from IPO proceeds, we decreased our
indebtedness from $1.3 billion at June 30, 2004, to $1.07 billion at the
end of fiscal year 2006 and will continue to do so if it makes economic
sense for our business."
Future Growth
The company is focused on opening new restaurants around the world. In
fiscal year 2007, the company expects to open more than 250 new restaurants
in EMEA/APAC, more than 80 new restaurants in Latin America and more than
100 in the United States and Canada.
"We also see a very promising opportunity to improve performance around
competitive hours of operation, especially in the United States," Chidsey
said. The company plans to encourage more restaurants to move to
competitive operating hours during fiscal year 2007.
The company continues to expect its net income growth to be driven by
increasing the number of new restaurants, improving restaurant
profitability, maintaining strong cash flow, reducing debt payment and
improving its effective tax rate.
"Our strategy is to build on the momentum that is driving our
turnaround and revitalizing our business," Chidsey said. "We're on target
with the plans we put in place in 2004 and are confident that we will
continue to increase the value of our brand."
About Burger King Holdings Inc.
The BURGER KING(R) system operates more than 11,100 restaurants in all
50 states and in more than 65 countries and U.S. territories worldwide.
Approximately 90 percent of BURGER KING restaurants are owned and operated
by independent franchisees, many of them family-owned operations that have
been in business for decades. To learn more about Burger King Corporation,
please visit the company's Web site at http://www.bk.com.
RELATED COMMUNICATIONS
Burger King Holdings Inc. will broadcast its investor conference call
live over the Internet at 10 a.m. Eastern Standard Time on Aug. 1, 2006.
For access, go to the Investor Relations link at http://www.bk.com. An
archived replay of this Webcast will be available for a limited time.
U.S. participants may also access the earnings call by dialing
1-866-202-3048 or outside the United States by dialing 1-617-213-8843. The
participant passcode is 31436826. The call will be available for replay by
dialing 1-888-286-8010 within the United States or 1-617-801-6888 from
outside the United States. The audio replay passcode is 42845516. The audio
replay will be available through Sept. 1, 2006.
FORWARD-LOOKING STATEMENTS
Certain statements in the press release and the accompanying
supplemental information, including those contained in the Future Growth
section and those related to the Company's operating plans, are
forward-looking statements, as defined in the Private Securities Litigation
Reform Act of 1995. In some cases, you can identify these statements by
forward-looking words such as "may," "might," "will," "should," "expect,"
"plan," "anticipate," "believe," "estimate," "predict," "potential" or
"continue," the negative of these terms and other comparable terminology.
These forward-looking statements, which are subject to risks, uncertainties
and assumptions about us, may include projections of our future financial
performance, based on our growth strategies and anticipated trends in our
business.
These statements are only predictions based on our current expectations
and projections about future events. There are important factors that could
cause our actual results, level of activity, performance or achievements to
differ materially from the results, level of activity, performance or
achievements expressed or implied by the forward-looking statements. The
following factors, in addition to other possible factors not listed, could
affect our actual results and cause such results to differ materially from
those expressed in forward-looking statements:
* Our ability to compete domestically and internationally in an intensely
competitive industry;
* Our continued relationship with and the success of our franchisees;
* Risks related to price discounting;
* Our ability to successfully implement our international growth strategy;
* The effectiveness of our marketing and advertising programs and
franchisee support of these programs;
* Our ability to manage a smooth transition of our new CEO and CFO and our
ability to retain or replace our executive officers and other key
members of management with qualified personnel;
* Changes in consumer perceptions of dietary health and food safety and
negative publicity relating to our products;
* Changes in consumer preferences and consumer discretionary spending;
* Risks related to the renewal of franchise agreements by our franchisees;
* Increases in our operating costs, including food and paper products,
energy costs and labor costs;
* Interruptions in the supply of necessary products to us;
* Risks related to our international operations;
* Fluctuations in international currency exchange and interest rates;
* Our continued ability, and the ability of our franchisees, to obtain
suitable locations and financing for new restaurant development;
* Changes in demographic patterns of current restaurant locations;
* Our ability to adequately protect our intellectual property;
* Adverse legal judgments, settlements or pressure tactics; and
* Adverse legislation or regulation.
These risks are not exhaustive and may not include factors which could
adversely impact our business and financial performance. Moreover, we
operate in a very competitive and rapidly changing environment. New risk
factors emerge from time to time and it is not possible for our management
to predict all risk factors, nor can we assess the impact of all factors on
our business or the extent to which any factor, or combination of factors,
may cause actual results to differ materially from those contained in any
forward-looking statements.
Although we believe the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, level of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy or completeness of any of
these forward-looking statements. You should not rely upon forward-looking
statements as predictions of future events. We are under no duty to update
any of these forward-looking statements to conform our prior statements to
actual results or revised expectations.
Burger King Holdings, Inc.
Condensed Consolidated Statement of Income
Unaudited
Dollars and shares in millions, except per common share data
Inc / (Dec)
Quarters Ended June 30, 2006 2005 $ %
Revenues:
Company restaurant revenues $394 $364 $30 8 %
Franchise revenues 111 107 4 4 %
Property revenues 28 32 (4) (13)%
Total revenues 533 503 30 6 %
Company restaurant expenses 335 309 26 8 %
Selling, general and administrative
expenses 166 133 33 25 %
Property expenses 15 21 (6) (29)%
Other operating expenses, net 3 16 (13) (81)%
Total operating costs and expenses 519 479 40 8 %
Income from operations 14 24 (10) (42)%
Interest expense, net 23 20 3 15 %
(Loss) income before income taxes (9) 4 (13) (325)%
Income tax (benefit) expense - 2 (2) (100)%
Net (loss) income $(9) $2 $(11) (550)%
Net income per common share - basic $(0.07) $0.02 $(0.09) -450%
Net income per common share
- diluted $(0.07) $0.02 $(0.09) -450%
Weighted average shares - basic 120.4 106.9
Weighted average shares - diluted 120.4 107.2
Inc / (Dec)
Years Ended June 30, 2006 2005 $ %
Revenues:
Company restaurant revenues $1,516 $1,407 $109 8 %
Franchise revenues 420 413 7 2 %
Property revenues 112 120 (8) (7)%
Total revenues 2,048 1,940 108 6 %
Company restaurant expenses 1,296 1,195 101 8 %
Selling, general and administrative
expenses 527 496 31 6 %
Property expenses 57 64 (7) (11)%
Other operating expenses (income), net (2) 34 (36) (106)%
Total operating costs and expenses 1,878 1,789 89 5 %
Income from operations 170 151 19 13 %
Interest expense, net 90 73 17 23 %
Income before income taxes 80 78 2 3 %
Income tax expense 53 31 22 71 %
Net income $27 $47 $(20) (43)%
Net income per common share - basic $0.24 $0.44 $(0.20) -45%
Net income per common share
- diluted $0.24 $0.44 $(0.20) -45%
Weighted average shares - basic 110.3 106.5
Weighted average shares - diluted 114.7 106.9
USE OF NON-GAAP FINANCIAL MEASURES
To supplement the Company's consolidated condensed financial statements
presented on a GAAP basis, the Company provides certain key business
measures including system-wide comparable sales growth, system-wide average
restaurant sales and system-wide sales growth. The Company also provides
certain Non- GAAP financial measures including Franchise sales, Income
before income taxes adjusted for unusual items and Adjusted EBITDA.
System-wide data represents measures for both Company-owned and
franchise restaurants. The Company uses three key business measures as
indicators of the Company's performance: system-wide comparable sales
growth; system-wide average restaurant sales; and system-wide sales growth.
These measures are important indicators of the overall direction, trends of
sales and the effectiveness of the Company's advertising, marketing and
operating initiatives and the impact of these on the entire Burger King
system.
Franchise sales refer to sales at all franchise restaurants. The
Company does not record franchise sales as revenues, but royalty revenues
are based on a percentage of sales from franchise restaurants and are
reported as franchise revenues by the Company.
EBITDA is defined as net income before interest, income taxes,
depreciation and amortization, and is used by management to measure
operating performance of the business. Management believes that EBITDA
incorporates certain operating drivers of the Company's business such as
sales growth, operating costs, 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 the
Company to calculate incentive compensation for management and
corporate-level employees.
While EBITDA is not a recognized measure under generally accepted
accounting principles, management believes that EBITDA is useful to
investors because it is frequently used by security analysts, investors and
other interested parties to evaluate the Company and other companies in the
restaurant industry. EBITDA is not intended to be a measure of liquidity or
cash flows from operations nor a measure comparable to net income as it
does not consider certain requirements such as capital expenditures and
related depreciation, principal and interest payments and tax payments.
Adjusted EBITDA, a non-GAAP financial measure, excludes: (a) the
effects of the quarterly management fee and the termination fee paid by the
Company under the management agreement which was terminated in connection
with the initial public offering; (b) the effect of the compensatory
make-whole payments made to holders of options and restricted stock unit
awards shortly prior to the IPO; and (c) the effects of other restructuring
and other expenses resulting from the realignment of the Company's European
and Asian businesses, global reorganization, franchise system distress and
asset impairments.
Income before income taxes adjusted for unusual items excludes: (a) the
effects of the quarterly management fee and the termination fee; (b) the
effect of the compensatory make-whole payments; (c) the effects of other
restructuring and other expenses described above; and (d) the write-off of
deferred financing costs from the refinancing of the Company's debt in July
2005 and the $350 million incremental borrowing in February 2006 and the
interest paid on such incremental borrowing, which was used to make the
dividend payment and was repaid from the IPO proceeds.
Management uses these Non-GAAP financial measures to evaluate and
forecast the Company's business performance. Further, management believes
that these non-GAAP measures provide both management and investors with a
more complete understanding of the underlying operating results and trends
and an enhanced overall understanding of the Company's financial
performance and prospects for the future.
Reconciliations for Adjusted EBITDA and Income before income taxes
adjusted for unusual items are as follows:
EBITDA and Adjusted EBITDA Reconciliations:
Years ended June 30,
(in millions) 2006 2005
Unaudited
Net Income $27 47
Interest expense, net 90 73
Income tax expense 53 31
Depreciation and amortization 88 74
EBITDA 258 225
Adjustments:
Franchise system distress impact - 33
Global reorganization impact - 17
Loss on asset disposals and
asset impairment - 18
Compensatory make-whole payments 34 -
Management termination fee 30 -
Management fee 9 9
Executive severance 5 -
European and Asian business
realignment costs 10 -
Total Adjustments 88 77
Adjusted EBITDA $346 $302
Income before income tax adjusted for unusual items reconciliation:
Years ended June 30,
(in millions) 2006 2005
Unaudited
Net Income $27 $47
Income tax expense 53 31
Income before income taxes 80 78
Adjustments:
Franchise system distress impact - 33
Global reorganization impact - 17
Loss on asset disposals and
asset impairments - 18
Compensatory make-whole payment 34 -
Management termination fee 30 -
Management fee 9 9
Interest on $350M loan paid-off at IPO 6 -
Loss on early extinguishment of debt 18 -
Executive severance 5 -
European and Asian business
realignment costs 10 -
Total Adjustments 112 77
Adjusted Income before income taxes $192 $155
DEFINITIONS
The following definitions apply to terms used throughout this release
and the accompanying supplemental schedules.
System-wide comparable Refers to the change in Company-owned and
sales growth franchise restaurant sales in one period from a
comparable period for restaurants that have been
open for thirteen months or longer and also
excludes the impact of currency translation.
System-wide sales Refers to the change in Company-owned and
growth franchise restaurant sales from all restaurants
from one period to another, excluding the impact
of currency translation.
System-wide average Refers to the average Company-owned and franchise
restaurant sales restaurant sales for the defined period. It is
calculated as the total system-wide sales
averaged over total store months for all
restaurants open during that period.
Franchise sales Refers to sales at all franchise restaurants.
The Company does not record franchise sales as
revenues, but royalty revenues are based on a
percentage of sales from franchise restaurants and
are reported as franchise revenues by the Company.
Company restaurant Consists only of sales from Company-owned
revenues restaurants.
Franchise revenues Consists primarily of royalties, rental income,
and franchise fees.
Property revenues Includes property income from restaurants that we
lease or sublease to franchisees.
Company restaurant Consists of all costs necessary to manage and
expenses operate restaurants including (a) food, paper and
product costs,(b) payroll and employee
benefits,(c) occupancy and other operating
expenses which include rent, utilities,
insurance, repair and maintenance costs,
depreciation for restaurant property and other
costs to operate Company-owned restaurants.
Property expenses Includes rent and depreciation expense related to
properties leased to franchisees and cost of
building and equipment leased to franchisees.
Selling, general and Comprised of (a) selling expenses which include
administrative advertising and bad debt expense, (b) general and
expenses (SG&A) administrative expenses which include cost of
field management for Company-owned and franchise
restaurants and corporate overhead including
corporate salaries and facilities,(c) quarterly
management fees, and(d) amortization of intangible
assets.
Other income and Includes expenses (income) that are not directly
expense derived from the Company's primary business and
the impact of foreign currency. Expenses also
include write-offs associated with Company
restaurant closures and other asset write-offs.
SUPPLEMENTAL INFORMATION
The purpose of this exhibit is to provide additional information
related to Burger King Holdings, Inc.'s results for the fourth quarter and
year ended June 30, 2006.
Our business operates in three reportable segments: (1) the United
States and Canada; (2) Europe, Middle East, Africa and Asia Pacific, or
EMEA / APAC; and (3) Latin America.
Revenues
Revenues consist of company restaurant revenues, franchise revenues and
property revenues.
Quarters Ended Years Ended
June 30, June 30,
(In millions) 2006 2005 % Inc 2006 2005 % Inc/
Unaudited (Dec)
Company restaurant revenues:
United States & Canada $271 $245 11 % $1,032 $923 12 %
EMEA / APAC 109 106 3 % 428 435 (2)%
Latin America 14 13 8 % 56 49 14 %
Total company restaurant
revenues $394 $364 8 % $1,516 $1,407 8 %
Franchise revenues:
United States & Canada $70 $68 3 % $267 $269 (1)%
EMEA / APAC 32 30 7 % 119 114 4 %
Latin America 9 9 0 % 34 30 13 %
Total franchise revenues $111 $107 4 % $420 $413 2 %
Total revenues:*
United States & Canada $361 $337 7 % $1,382 $1,275 8 %
EMEA / APAC 148 145 2 % 576 586 (2)%
Latin America 24 21 14 % 90 79 14 %
Total revenues $533 $503 6 % $2,048 $1,940 6 %
* Total revenues include company restaurant, franchise, and property
revenues.
-- Consolidated - Total revenues increased 6% for the quarter and the year
primarily due to positive comparable sales growth during each quarter,
the acquisition of 50 franchise restaurants during fiscal 2006 and
increased revenues from 25 net new restaurant openings in the system
during fiscal 2006.
-- United States & Canada - Revenues increased 7% for the quarter and 8%
for the year driven by positive comparable sales growth, an increase in
revenues from the acquisition of 43 franchise restaurants during the
year partially offset by lost revenues from the net closure of 180
franchise restaurants during fiscal 2006.
-- EMEA / APAC - Revenues increased 2% for the quarter and decreased 2%
for the year. The increase in revenues for the quarter was driven by
131 net new restaurant openings during fiscal 2006 and strong
comparable sales growth in Spain. This was partially offset by
continued negative comparable sales growth in the United Kingdom,
resulting from a negative brand image caused by concerns about obesity
and food-borne illness and increased competition from bakeries and
other new entrants that are diversifying into healthier options in
response to nutritional concerns. Revenues for the year were
negatively impacted 3.5% ($19 million) by movement in foreign currency
exchange rates as compared to the prior year in EMEA; however, this
negative impact to revenues does not have a material impact on
operating income as it is offset by the positive impact to Company
restaurant expenses and selling, general and administrative expenses.
-- Latin America - Revenues increased 14% for the quarter and the year
primarily due to positive comparable sales growth during each quarter
and revenues from 80 net new restaurants opened during fiscal 2006.
Additional information regarding the key performance measures discussed
above is as follows:
Key Revenue Performance Measures
As of June 30,
2006 2005 Inc/(Dec)
Company restaurants: Unaudited
United States & Canada 878 844 34
EMEA / APAC 293 283 10
Latin America 69 60 9
Total 1,240 1,187 53
Franchise restaurants:
United States & Canada 6,656 6,876 (220)
EMEA / APAC 2,494 2,373 121
Latin America 739 668 71
Total 9,889 9,917 (28)
Quarters Ended Years Ended
June 30, June 30,
2006 2005 2006 2005
System-Wide Comparable Sales Growth: (In constant currencies)
United States & Canada 2.0 % 1.2 % 2.5 % 6.6 %
EMEA / APAC 0.2 % 2.5 % 0.0 % 2.8 %
Latin America 5.0 % 2.2 % 2.5 % 5.5 %
Total 1.7 % 1.6 % 1.9 % 5.6 %
System-Wide Sales Growth:
United States & Canada (1.1)% (0.8)% 0.2 % 4.9 %
EMEA / APAC 4.0 % 8.0 % 5.0 % 7.9 %
Latin America 14.0 % 13.8 % 13.0 % 14.5 %
Total 1.0 % 1.9 % 2.1 % 6.1 %
(In actual currencies)
System-Wide Average Restaurant Sales
(in thousands) $289 $285 $1,126 $1,104
Quarters Ended June 30, Years Ended June 30,
(In millions) 2006 2005 % Inc / % Inc /
(Dec) 2006 2005 (Dec)
Franchise Sales: Unaudited
United States & Canada $1,914 $1,956 (2) % $7,483 $7,555 (1) %
EMEA / APAC 695 671 4 % 2,715 2,640 3 %
Latin America 187 163 15 % 705 622 13 %
Total $2,796 $2,790 0 % $10,903 $10,817 1 %
Operating Margins
(In millions) Percent of Sales Amount
Quarters Ended June 30, 2006 2005 2006 2005 % Inc/
Unaudited (Dec)
Company restaurants:
United States & Canada 15.9 % 15.5 % $43 $38 13.2 %
EMEA / APAC 11.9 % 13.2 % 13 14 (7.1)%
Latin America 21.4 % 23.1 % 3 3 0.0 %
Total 15.0 % 15.1 % $59 $55 7.3 %
(In millions) Percent of Sales Amount
Years Ended June 30, 2006 2005 2006 2005 % Inc/
Unaudited (Dec)
Company restaurants:
United States & Canada 14.1 % 14.2 % $146 $131 11.5 %
EMEA / APAC 13.8 % 15.2 % 59 66 (10.6)%
Latin America 26.8 % 30.6 % 15 15 0.0 %
Total 14.5 % 15.1 % $220 $212 3.8 %
Quarters Ended Years Ended
Company restaurant expenses as a June 30, June 30,
percentage of sales: 2006 2005 2006 2005
Food, paper, and product costs 30.2% 31.6% 31.0% 31.1%
Payroll and employee benefit costs 29.4% 29.4% 29.4% 29.5%
Occupancy and other operating costs 25.4% 23.9% 25.1% 24.4%
Total company restaurant expenses 85.0% 84.9% 85.5% 84.9%
Company owned restaurant margins 15.0% 15.1% 14.5% 15.1%
-- Consolidated - Company-owned restaurant margins as a percentage of
sales remained relatively stable for the quarter compared to the prior
year and decreased 0.6% for fiscal 2006 compared to fiscal 2005.
Company-owned restaurant margins for the year benefited from lower beef
and cheese prices in the United States, which were offset by higher
beef prices in EMEA. Occupancy and other operating costs were
negatively impacted for the quarter and the year by higher utility
costs and increased rents.
-- United States & Canada - Company-owned restaurant margins improved for
the quarter and the year primarily driven by improved comparable sales
and the acquisition of 43 franchise restaurants during fiscal 2006.
Company restaurant margins as a percentage of sales benefited from
lower beef and cheese prices particularly during the past six months
and were negatively impacted by higher utility costs.
-- EMEA / APAC - Company-owned restaurant margins as a percentage of sales
decreased for both the quarter and the year primarily as a result of
higher operating expenses, including utility and occupancy costs,
offset partially by improvements in payroll and employee benefits from
the rollout to EMEA of our operations excellence programs designed to
improve restaurant operations and customer experience. Overall margins
were also impacted by negative comparable sales in the United Kingdom,
as discussed above.
-- Latin America - Company-owned restaurant margins as a percentage of
sales decreased for both the quarter and the year primarily as a result
of higher utility and labor costs offset by slight improvements in food
and paper costs.
Selling, General and Administrative Expenses
Quarters Ended Years Ended
June 30, June 30,
% Inc/ % Inc/
2006 2005 (Dec) 2006 2005 (Dec)
(In millions) Unaudited
Selling Expenses $19 $20 (5)% $72 $88 (18)%
General and Administrative
Expenses 147 113 30 % 455 408 12 %
Total Selling, General and
Administrative Expenses $166 $133 25 % $527 $496 6 %
-- Selling, general and administrative expenses increased by $33 million
for the quarter as compared to the prior quarter primarily as a result
of the $30 million payment associated with the termination of the
management agreement, $10 million in expenses associated with the
realignment of the Company's European and Asian businesses, and a $5
million expense associated with executive severance offset by a
reduction of $5 million in incremental advertising expenditures funded
by the Company in EMEA and the positive impact from $7 million in
global reorganization costs in the prior year which were not incurred
in fiscal 2006.
-- Selling, general and administrative expenses increased by $31 million
during fiscal 2006 as compared to the prior year primarily as a result
of the $30 million termination fee, the $10 million realignment costs
and $5 million executive severance costs described above and a $35
million expense associated with the compensatory make-whole payments
made in the third quarter. These costs were offset by the positive
impact from $45 million in costs associated with the franchisee
financial restructuring program and global reorganization incurred in
fiscal 2005 which were not incurred in fiscal 2006 and a $5 million
decrease in incentive compensation costs, resulting from changes in
certain benefit plans during fiscal 2006.
Other Operating (Income) Expense, net
-- Other operating expense, net for the quarter ending June 30, 2006 was
$3 million as compared to $16 million in the same quarter in the prior
year. This improvement was primarily driven by reduction in losses
incurred in the prior year, including an $8 million loss on asset
disposal, a $4 million loss on impairment of certain Canadian assets
and $3 million in expense associated with office closures in EMEA.
-- Other operating expense (income), net for the year ending June 30, 2006
was income of $2 million as compared to expense of $34 million in
fiscal 2005. In addition to the costs incurred in the fourth quarter
of fiscal 2005 described above, the Company also incurred the following
expenses during the first nine months of fiscal 2005: (i) $5 million
of settlement losses recorded in connection with the acquisition of
franchise operations; (ii) $4 million of reserves recorded in
connection with the acquisition of franchisee debt; (iii) $4 million of
costs associated with the franchisee financial restructuring program;
and (iv) $4 million of losses on lease terminations and property
disposals in the United Kingdom.
Operating Income
Quarters Ended Years Ended
June 30, June 30,
% Inc/ % Inc/
2006 2005 (Dec) 2006 2005 (Dec)
(In millions) Unaudited
System-Wide:
United States & Canada $76 $62 23 % $295 $255 16 %
EMEA / APAC 11 - * 62 36 72 %
Latin America 7 6 17 % 29 25 16 %
Unallocated (80) (44) 82 % (216) (165) 31 %
Total $14 $24 (42)% $170 $151 13 %
Changes in operating income for the segments were driven by the changes
in revenues and costs discussed above. Unallocated operating loss increased
by $36 million and $49 million for the quarter and year ended June 30,
2006, respectively, as compared to the prior year primarily as a result of
the increases in general and administrative expenses described above.
Interest Expense
Interest expense, net increased by $17 million to $90 million during
fiscal 2006 as compared to the prior year. Interest expense was higher
during 2006 primarily as a result of acceleration of $18 million in
deferred financing costs associated with the July 2005 and February 2006
re-financings.
Income Taxes
Income tax expense increased $22 million to $53 million in fiscal 2006
from $31 million in fiscal 2005. The effective income-tax rate increased by
26 percent, from 40 percent in 2005 to 66 percent in 2006. The higher
effective tax rate is primarily attributable to adjustments to deferred
income tax asset valuation reserves in certain foreign countries and higher
tax expense associated with adjustments to valuation reserves, established
during purchase accounting, which are required to be applied against
intangible assets recorded in purchase accounting, rather than recording a
benefit to income tax expense. The adjustments to these valuation reserves
resulted from the Company's ability to utilize net operating losses as a
result of improved operations in certain foreign countries.
Restaurant Information
Year Ended June 30, 2006
Unaudited
United
States & EMEA / Latin
Canada APAC America Worldwide
Company:
Beginning of Period 844 283 60 1,187
Openings 4 10 9 23
Closings (10) (4) - (14)
Acquisitions, net of refranchisings 40 4 - 44
Ending Balance 878 293 69 1,240
Franchise:
Beginning of Period 6,876 2,373 668 9,917
Openings 55 191 80 326
Closings (235) (66) (9) (310)
Acquisitions, net of refranchisings (40) (4) - (44)
Ending Balance 6,656 2,494 739 9,889
System:
Beginning of Period 7,720 2,656 728 11,104
Openings 59 201 89 349
Closings (245) (70) (9) (324)
Acquisitions, net of refranchisings - - - -
Ending Balance 7,534 2,787 808 11,129
Year Ended June 30, 2005
Unaudited
United
States & EMEA / Latin
Canada APAC America Worldwide
Company:
Beginning of Period 759 277 51 1,087
Openings 33 21 9 63
Closings (9) (14) - (23)
Acquisitions, net of refranchisings 61 (1) - 60
Ending Balance 844 283 60 1,187
Franchise:
Beginning of Period 7,217 2,308 615 10,140
Openings 21 165 65 251
Closings (301) (101) (12) (414)
Acquisitions, net of refranchisings (61) 1 - (60)
Ending Balance 6,876 2,373 668 9,917
System:
Beginning of Period 7,976 2,585 666 11,227
Openings 54 186 74 314
Closings (310) (115) (12) (437)
Acquisitions, net of refranchisings - - - -
Ending Balance 7,720 2,656 728 11,104
SOURCE Burger King Holdings Inc.
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Related links:
http://www.burgerking.com/
Photo Notes:
NewsCom: http://www.newscom.com/cgi-bin/prnh/20031014/BKLOGO
AP Archive: http://photoarchive.ap.org
PRN Photo Desk, photodesk@prnewswire.com
http://www.prnewswire.com/comp/124650.html/
CONTACT:
INVESTOR RELATIONS: Amy Wagner,
+1-305-378-7696, awagner@whopper.com, or MEDIA RELATIONS: Edna
Johnson, +1-305-378-7516, ednajohnson@whopper.com, both of Burger
King Holdings Inc.
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