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Mod XI: Adjusting Accounting Information Jake Peng

Mod XI: Adjusting Accounting Information Jake Peng. Agenda. Introduction Lease Share-based compensation. An overview of the QSR industry. Fast Food Hamburger Restaurants (FFHR) High competitive High volume, low margin Compete on cost leadership and market penetration.

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Mod XI: Adjusting Accounting Information Jake Peng

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  1. Mod XI:Adjusting Accounting InformationJake Peng

  2. Agenda • Introduction • Lease • Share-based compensation

  3. An overview of the QSR industry • Fast Food Hamburger Restaurants (FFHR) • High competitive • High volume, low margin • Compete on cost leadership and market penetration Restaurant industry ($1.75 trillion) Fine dining Quick service restaurant “Fast casual” Others

  4. Comparison

  5. Overview of Burger King • World’s 2nd largest FFHR • 13,660 restaurants in 80+ countries • 1.1 billion in revenues, 234 million net income in 2013 • Key strategies • Global refranchising program • Menu innovation and image remodeling • International expansion

  6. Global refranchising program • Sell Company restaurants to franchisees • Started in 2011, completed in 2013 • % Franchised stores up from 89% (2010) to 99.6%(2013) • Only retained 52 own stores in Florida for new product testing • Benefit • More profitable (GM% 13% vs. 83%) • Capital efficiency • Focus on marketing, food innovation, and global expansion

  7. US and Canada re-imaging program • Re-imaged stores sales went up 10% - 15% • Up from 19% to 30% in 2013. Goal is 40% by 2015 • Lower costs; provide financial support to franchisees

  8. Menu innovation • Key differentiator is still Fire-grilled • New, healthier products promotions and limited time offerings • Increasing focus on breakfast

  9. International expansion

  10. Consolidated B/S - Asset • Largest three items: • Intangibles (including G/W) • Cash • PPE

  11. Consolidated B/S - Liability • Observation: • Minimal ST debt, but significant LT debt • Highly leveraged – A/L ratio 74%

  12. Income Statement • Observation: • Profitability significantly improved as a result of refranchising.

  13. Inventory • Inventory accounts for less than 0.02% of total assets. • No information given regarding accounting policy

  14. Leases BKW is both a lessor and lessee Lease and sublease Own/lease very little international property

  15. Leases (cont’d) Operating lease is more common

  16. Lease (cont’d) EPAT adjustment is positive: depreciation < rental

  17. Share-based compensations • Amount quite small compared to revenue • Consist of stock options (for employees) and RSUs (for directors) • Vesting condition: five years of service

  18. Share-based compensations (cont’d) • No adjustment needed • Satisfied “through the issuance of authorized but previously unissued sharesof the Company’s stock or treasury shares” • BOD increases number of shares available for stock compensation from 8.5 to 14.5 mil Current price: $26 - $27

  19. Questions?

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