Burger King Worldwide
Annual Report
Su Bin Baek
BUS 210 Financial Accounting Summer 2013
http://investor.bk.com/conteudo_en.asp?idioma=1&conta=
44&tipo=43575
Introduction
• Chief executive officer: Bernardo Hees
• Location of home office: 5505 Blue
Lagoon Drive, Miami, FL, 33126
• Ending date of latest fiscal year:
December 31, 2012
• Principal product and service: fast food
hamburger restaurant
• Main geographic area of activity: over
12,6000 restaurants in the U.S and
more than 80 countries worldwide
Audit Report
• Independent auditor: KPMG LLP
• What did the auditors say about the
company?
– Financial statement fairly reflect.
– the financial position and operations of the
company and internal control system is reasonably
effective
– Information in the statements are credible
Stock Market Information
•
•
•
•
•
Stock Price of May 30, 2013: $18.65
52 weeks trading range: $12.91-$20.20
Dividend per share: $0.06 per year
Date of the above information: April 29, 2013
BUY/SELL/HOLD?: Hold its stock price is
expected to rise because of the investors’ high
expectations of growth in the compnay
Income Statement
Values in 000’s
Income statement: comments
• Multi-step format
• Net income in 2012 increased by $29,600 to
prior year
• The company had increased its net income in
2012 because it performed lower operation
expense and higher operation income to these
of prior year
Balance Sheet
Assets= Liability + Shareholder’s Equity
Year
Assets
Liability
Shareholder’s
Equity
Liability
+
Shareholder’s
equity
2011
5608.4
4559.2
1049.2
5608.4
2012
5564.0
4389.0
1175.0
5564.0
In million dollars
Balance Sheet (in detail)
Balance Sheet: comments
• Liability account has changed the most
• Long-term debt in 2012 has decreased by
$112200. lower liability improves credibility and
makes the borrowing cost lower.
• Since in 2012 it holds a lot of cash equivalent
asset it will be able to pay more of its long term
debt, improve its credibility even better so that it
can burrow more long-term bonds to operate its
business
• Retained earnings in 2012 has increased by
$103700, which indicates financial growth of the
company in 2012
Statement of Cash Flow
Statement of Cash Flow
•
•
•
•
•
Cash flow from (provided) operating activities > Net Income for two years
Net cash provided from operating activities decreased about in half because in
year 2012
– the company paid off more debt, expensed more on advertisement, and has
higher liabilities
Shows significant increase in cash flow from other investing activities .Proceeds
from refranchising, disposition of asset and restaurant closure increased 29.9
million in 2011 to 104.9 million dollars
– Burger King Worldwide merged with Burger King Holdings and Delaware Corp
on April 2012
– it consolidates the assets, liabilities and shareholder’s equity of the
subsidiaries. Thus it appears that there has been significant increase from
investing and other investing activities
Primary source of financing is from operating activities since it is a service sector
business entity
Overall net cash flow increased from 459 million to 546.7 million dollars
Accounting Policies
• Important notes to the Financial Statements:
– Change in Fiscal year from June 30 to December
31 effective from December 31, 2010
– October 19, 2010 (“3G Acquisition Date”)
– “Acquisition accounting involves the allocation of
purchase price to the estimated fair values of the
assets acquired and liabilities assumed and
requires judgments to be made that could
materially affect our financial position and results
of operations”
Important Notes on
Financial Statements
• 2012 Highlights
• The 2010 Transaction
– Change in Fiscal Year June 30 to December 31
– Global Restructuring and Related Professional Fees
• Field Optimization Project in 2011 ($10.6 million cost)
• Global Portfolio Realignment Project
– $7.6 million and $30.2 million general administrative expense in 2011
and 2012
• Merger with Justice on April 3, 2012 (Burger King Worldwide
Holdings, Inc., Delaware Corp., and indirect parent company of
Holdings(“Worldwide”= Burger King Worldwide)
• 2012 Debt Refinancing
• New Accounting Pronouncements in 2012
Topics of the notes
to the financial statements
• Basis of Presentation and
Consolidation
• Concentrations of Risk
• Use of Estimates
• Foreign Currency Translation,
Transaction
• Cash and Cash Equivalents
• Allowance for Doubtful Accounts
• Inventories
• Property and Equipment, net
• Assets Held For Sale
• Leases
• Goodwill and Intangible Assets
Not Subject to Amortization
• Long-lived Assets, Other Assets,
Other Comprehensive Income
(loss)
• Derivative Financial Instruments
• Disclosure About Fair Value
• Revenue Recognition
• Advertising and Promotional
Costs
• Insurance Reserves
• Litigation accruals
• Guarantees
• Income Taxes
• Share-based Compensation
• Retirement Plans
Significant Accounting Policies
• Inventories are stated at FIFO (lower of the cost)
• Long-lived assets are tested for impairment whenever events or changes
indicate that the carrying amount of an asset may not be recoverable
• Foreign currency transaction gain (loss): re-measurement of foreign
denominated assets and liabilities or when earnings of subsidiaries
reflected when the exchange rate changed
• Insurance Reserves
• Currency Exchange Risk, Interest Rate Risk, Commodity Price Risk
• Revenue recognition
– Franchise revenues
• Royalties:% of sales reported by franchised restaurant) : when collectability is assured
• Initial franchise fee: when related restaurant begins operation
• Renewal franchise fee: upon receipt of the non-refundable fee and execution of a new
franchise agreement
– rental income on operating leases and direct financing lease: when
collectability is assured
– Retail sales at Company restaurants: at the point of sale
Financial Analysis
Liquidity Ratio
Ratios
Calculation
(million $)
2012
(million $)
Calculation
(million $)
2011
(million $)
Working Capital
890.5-397.8
492.7
742.1-472
270.1
Current Ratio
890.5 / 397.8
2.24
742.1 / 472
1.57
Receivable
turnover
1966.3/
(178+152.8 /2)
11.89
2335.7/
(152.8+153.5 /2)
15.25
Average day’s
sales uncollected
365 days /11.89
30.70
365 days /15.25
23.93
Inventory
turnover
1037.2/
(6.7+13.7/2)
101.69
1447.4/(13.7+15.
6/2)
98.80
Average day’s
365 days/ 101.69
inventory on hand
3.59
365 days/ 98.80
3.69
Operating cycle
34.29
3.69+23.93
27.62
3.59+30.70
Comments on
Liquidity Ratio
• Positive Working capital and Current Ratio above 1.
• Current ratio shows that the company has a strong solvency and its
ability to pay current liabilities on time.
• Lower Receivable turnover in 2012 indicates that its credit-granting
and collection activities have been less efficient than in 2011.
• Inventory turnover is accelerating in 2012 the company had better
performance of inventory management. Sold its inventory more
quickly, which means its profit is increased as well
• It is costly to hold inventory and both year 2012 and 2011 show low
level of inventory on hand which means that is has a good inventory
turnover and has strong management
• Overall, liquidity ratio of the company is strong yet there is slight
decrease in efficiency of receivable collection.
Financial Analysis
Profitability Ratio
Ratio
Calculation
2012
2011
Profit Margin
117.7/1996.3
5.90 %
88.1/2335.7
3.77%
1996.3/5586.2
0.35
2335.7/5647.3
0.41
117.7/5586.2
2.11%
88.1/5647.3
1.56%
117.7/1112.1
10.58%
88.1/1248.2
7.06%
(Net Income/ Sales)
Asset Turnover
(Sales/ avg Total Asset)
Return on
Assets
(Net Income/ Total
Assets)
Return on
Equity
(Net Income /
Shareholder’s equity)
Comments on
Profitability Ratio
• Increased Profit margin ratio tells that the company is
generating more market profitable products and has good
control of its costs
• Lower receivable turnover is reflected on asset turnover
and it also shows that company is expending a lot on
investment.
• Increased return on equity ratio shows that the
shareholders’ investment in the company is being
efficiently managed
• The company is in slow transition of improving its business
by massive refranchising, expending internationally and
changing its image. They have been heavily investing and it
seems business is going better after operational changes.
Financial Analysis
Market Strength Ratio
Ratio
Calculation
2012
Calculation
2011
P/E ratio
(market value
per share/
Earnings per
share)
16.44/0.34
48.35
No data/ 25
No data
Dividend yield
(dividend/
stock price of
year end)
0.04/16.44
0.0024
1.13/No data
No data
Comments on
Market Strength Ratio
• No data found on stock market price of end of
the year for 2011
• P/E ratio of 2012 is high, which indicates the
stockholders are expecting growth in the
future
Financial Analysis
Solvency Ratio
Ratio
Calculation
2012 (million$) Calculation
2011 (million$)
Debt to equity
(total liability/
shareholder’s
equity)
4389/1175
3.74
4.35
Financing Gap
(Operating
cycle- Days
payable)
34.29-12.66
Financing gap
27.62-15.32
Operating cycle
> Days payable
4559.2/1049.2
Financing gap
Operating cycle
> Days payable
Comments on
Solvency Ratio
• creditors are in control of the company (debt
to equity ratio > 1 in both years)
• The assets are financed by debt and the
company is at financial risk but it is not
alarming because the ratio is going down and
its profitability is improving
• The company has financing gap in both years
because it is heavily investing. Company needs
to borrow money to generate revenue.
Industry Situation & Company Plans
• The fast food hamburger restaurant industry is very competitive.
McDonald is the leading company, followed by Burger King
Worldwide and Wendy’s and many other local restaurants.
• Burger King Worldwide plans to accelerate international
development for principal drivers of long-term growth of the
business and value of its shareholders
• Burger King Worldwide plans to continue to implement
refranchising initiative aiming for nearly 100 % franchised business.
This will enhance cash flow
• Continue Re-imaging of franchises, strengthening, broadening the
menu,
• Foodcentric marketing “Taste is King” refocus consumers on food
• Drive corporate-level G&A efficiencies at current levels through
“Zero Based Budgeting” program to build strong ownership culture
Executive Summary
• Burger King Worldwide is a newly merged company. It is going through a
major changes in its accounting, operating and financing strategies to
stabilize and enhance the growth of the business.
• It has been spending heavily on refranchising, changing images of the
restaurants, expanding internationally, and advertisements. Due to its
efficient operation strategies, in 2012 it refinanced huge some of debt.
• It has been generating enough revenue to pay debts and dividends in 2012
and even in March 2013 to its shareholders and shareholder’s expectation
of the company is high thus its stock price is expected to rise.
• Burger King Worldwide is rapidly chasing after the McDonalds and making
other fast food restaurants anxious through its new operation strategies
and improved profitability and solvency yet it is not yet fully ready to catch
up with the McDonalds and should be still be aware of Wendy’s and other
companies because its company (after the merging) and the management
team are relatively still new and in a process of adopting to the new
environment.
Work Cited
– http://www.nasdaq.com/symbol/bkw/financials?query=ba
lance-sheet
– Stock price, dividend per share of May 30 taken from
NASDAQ
– http://www.nasdaq.com/aspx/infoquotes.aspx?symbol=BK
W&selected=BKW
• Images
– http://www.fatwallet.com/static/attachments/235618_wh
opper.jpg
– http://htmlgiant.com/wpcontent/uploads/2012/10/18846_01868976-photo-logoburger-king.png
– http://images.mstarz.com/data/images/full/12501/burgerking.jpg