Burger King Worldwide, Inc. Reports Second Quarter 2012 Results

Burger King Worldwide Expands Menu and Grows System-wide Comparable Sales by 4.4%

MIAMI--(BUSINESS WIRE)--Aug. 1, 2012-- Burger King Worldwide, Inc. (NYSE: BKW) today reported financial results for its second quarter ended June 30, 2012.

Second Quarter Highlights:

  • System-wide comparable sales increased 4.4% and system-wide sales increased 6.4% on a constant currency basis
  • Adjusted EBITDA increased 19% on an organic basis to $172.0 million
  • Adjusted diluted EPS increased 29% to $0.17
  • Established master franchise joint ventures in Russia and China to aggressively expand brand presence
  • Listed Burger King Worldwide on NYSE

"I am pleased with the progress made this quarter, with system-wide comparable sales up 4.4% and adjusted EBITDA up 19% year over year on an organic basis," said Bernardo Hees, chief executive officer. "In the U.S. and Canada, our focus on menu, restaurant image, operations, and marketing communication is beginning to generate tangible results. Internationally, we are laying the foundation for accelerated development worldwide through the formation of partnerships in Russia and China. We are excited to have listed on the NYSE this quarter and believe BKW is well positioned for long-term growth."

Consolidated Financial Highlights

        Results   Variance
        Three Months Ended June 30,   $   %
        2012   2011   Favorable / (Unfavorable)
                     
  System-wide Comparable Sales Growth1   4.4%   (2.2%)        
  System-wide Sales Growth1   6.4%   0.4%        
                     
  Net Restaurant Growth     70   35   35   100.0%
                     
  Total Revenues     $540.8   $595.4   ($54.6)   (9.2%)
  Adjusted EBITDA2     $172.0   $149.9   $22.1   14.7%
  Adjusted EBITDA Margin2   31.8%   25.2%   nm   6.6%
  Adjusted Net Income2     $61.3   $46.5   $14.8   31.8%
  Diluted Adjusted Earnings Per Share2   $0.17   $0.13   $0.04   29.5%
  Net Income     $48.2   $30.2   $18.0   59.6%
  Diluted Earnings Per Share   $0.14   $0.09   $0.05   56.8%
                   

(1) System-wide comparable sales growth and system-wide sales growth are calculated on a constant currency basis and include sales at franchise restaurants and company-owned restaurants.

(2) Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income and Diluted Adjusted Earnings Per Share are non-GAAP financial measures. Please refer to "Non-GAAP Reconciliations" for further detail.

Organic revenue growth was 5.4%, excluding the impact of refranchising and FX headwinds. On a reported basis, total revenues decreased 9.2% to $540.8 million, compared to $595.4 million in the prior year period due to refranchising transactions in the U.S. and Canada and EMEA and unfavorable FX impact, partially offset by comparable sales growth across all segments and increased franchise and property revenues.

Organic Adjusted EBITDA growth was 19.0%, excluding the impact of refranchising and FX headwinds. On a reported basis, Adjusted EBITDA increased 14.7% to $172.0 million, compared to $149.9 million in the prior year period due to improved results in all operating segments. Results were particularly strong in the U.S. and Canada due to the positive impact from our new product launches and accompanying advertising campaign.

Adjusted net income and diluted adjusted EPS increased 31.8% and 29.5%, respectively, compared to the prior year, primarily due to an increase in income from operations, partially offset by increases in interest expense and income tax expense.

Operational and Segment Highlights

System-wide comparable sales growth was positive across all segments. The U.S. and Canada delivered 4.4% comparable sales growth driven by strong sales and product volumes from the largest expansion of menu items in BKW's history, including smoothies, frappes, and wraps, introduced in April. Latin America and the Caribbean ("LAC") delivered double-digit comparable sales growth of 10.5%, driven by strong performance in Brazil and Mexico. EMEA delivered comparable sales growth of 3.3%, driven by successful promotions in Germany, and APAC delivered comparable sales growth of 2.1%, primarily driven by the impact of an extra trading week in the quarter in Australia.

As part of BKW's global refranchising strategy, the company refranchised 386 company-owned restaurants domestically and 78 company-owned restaurants internationally during the quarter. This includes 278 restaurants that were sold to Carrols Restaurant Group, BKW's largest franchisee, in return for a 28.9% equity stake and total cash payments of approximately $16.2 million. In connection with this quarter's refranchising transactions, BKW's U.S. and Canadian franchisees have agreed to remodel 564 restaurants, bringing the total remodel commitment in the region to more than 1,500 restaurants as of June 30, 2012.

As part of BKW's international expansion strategy, the company announced the establishment of two joint ventures with proven franchisees in Russia and China. In Russia, the joint venture has committed to open several hundred restaurants over the next few years. In China, the joint venture has committed to open 1,000 restaurants over the next five to seven years, representing the largest multi-unit development agreement in the brand's history.

Cash and Liquidity

At quarter end, total debt was $3.1 billion and net debt was $2.7 billion. During the six months ended June 30, 2012, BKW repurchased and retired Senior Notes with an aggregate face value of $3.0 million and repurchased Discount Notes with an aggregate accreted value of $61.1 million, which represents 13.6% of the original issuance. As a result of the improvement in net debt and in trailing twelve month adjusted EBITDA, the net debt to adjusted EBITDA ratio improved to 4.2x at June 30, 2012 from 4.6x at December 31, 2011.

Public Offering

On June 20, 2012, Burger King Worldwide Holdings, Inc. announced the consummation of its business combination with a subsidiary of Justice Holdings Limited. As a result of this transaction, the shares of Burger King Worldwide were listed on the New York Stock Exchange under the ticker symbol "BKW." Following the listing, the investment fund affiliated with 3G Capital Partners Ltd. continued to hold approximately 71% of the outstanding shares.

Investor Conference Call

The company will host an investor conference call and webcast at 9:00 a.m. EDT, Wednesday, August 1, 2012, to review financial results for the quarter ended June 30, 2012. The earnings call will be broadcast live via the company's investor relations website at http://investor.bk.com and will be available for replay. The dial-in number is 866.244.4576 for U.S. callers and 703.639.1174 for international callers.

About Burger King Worldwide

Founded in 1954, BURGER KING® (NYSE: BKW) is the second largest fast food hamburger chain in the world. The original HOME OF THE WHOPPER®, the BURGER KING® system operates in over 12,600 locations serving over 11 million guests daily in 86 countries and territories worldwide. Approximately 94 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 Worldwide, please visit the company's website at http://www.bk.com or follow us on Facebook and Twitter.

Forward-Looking Statements

This press release contains certain forward-looking statements, which reflect management's expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties. These forward-looking statements include statements about the Company's expectations and belief regarding its ability to lay the foundation for accelerated development through strategic partnerships and capitalize on future opportunities in high growth markets; its expectations and belief regarding its ability to remain focused on its core business strategies; its expectations and belief regarding its ability to position itself for long-term growth; and its expectations and beliefs regarding the success of its newly-established joint-ventures in Russia and China. The factors that could cause actual results to differ materially from the Company's expectations are detailed in the Company's filings with the Securities and Exchange Commission, such as its annual and quarterly reports and current reports on Form 8-K, including the following: risks related to the Company's ability to successfully implement its domestic and international growth strategy; risks related to global economic or other business conditions that may affect the desire or ability of customers to purchase the Company's products; risks related to the financial strength of the Company's franchisees; risks related to the Company's ability to compete domestically and internationally in an intensely competitive industry; and risks related to the effectiveness of the Company's marketing and advertising programs.

TD class="bwpadl0 bwnowrap bwpadr0 bwvertalignb bwalignr bwsinglebottom">28.9

BURGER KING WORLDWIDE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
                   
    Three Months Ended          
    June 30,     Increase / (Decrease)
    2012   2011     $   %
    (In millions, except %'s)          
Revenues:                  
Company restaurant revenues   $ 345.9     $ 419.0     $ (73.1 )   (17.4 )%
Franchise and property revenues     194.9       176.4       18.5     10.5 %
Total revenues     540.8       595.4       (54.6 )   (9.2 )%
Company restaurant expenses:                  
Food, paper and product costs     115.0       135.4       (20.4 )   (15.1 )%
Payroll and employee benefits     100.2       122.2       (22.0 )   (18.0 )%
Occupancy and other operating costs     90.5       111.6       (21.1 )   (18.9 )%
Total Company restaurant expenses     305.7       369.2       (63.5 )   (17.2 )%
Franchise and property expenses     28.5       23.2       5.3     22.8 %
Selling, general and administrative expenses     95.8       99.3       (3.5 )   (3.5 )%
Other operating (income) expense, net     (17.1 )     4.7       (21.8 )   NM  
Total operating costs and expenses     412.9       496.4       (83.5 )   (16.8 )%
Income from operations     127.9       99.0           29.2 %
Total interest expense, net     57.2       56.1       1.1     2.0 %
Loss on early extinguishment of debt     7.7       -       7.7     NM  
Income before income taxes     63.0       42.9       20.1     46.9 %
Income tax expense     14.8       12.7       2.1     16.5 %
Net income   $ 48.2     $ 30.2     $ 18.0     59.6 %
                   
NM - not meaningful                  
                   
BURGER KING WORLDWIDE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
                   
    Six Months Ended          
    June 30,     Increase / (Decrease)
    2012   2011     $   %
    (In millions, except %'s)          
Revenues:                  
Company restaurant revenues   $ 742.1     $ 811.5     $ (69.4 )   (8.6 )%
Franchise and property revenues     368.6       335.9       32.7     9.7 %
Total revenues     1,110.7       1,147.4       (36.7 )   (3.2 )%
Company restaurant expenses:                  
Food, paper and product costs     245.0       262.4       (17.4 )   (6.6 )%
Payroll and employee benefits     219.7       242.2       (22.5 )   (9.3 )%
Occupancy and other operating costs     195.0       221.3       (26.3 )   (11.9 )%
Total Company restaurant expenses     659.7       725.9       (66.2 )   (9.1 )%
Franchise and property expenses     52.3       46.3       6.0     13.0 %
Selling, general and administrative expenses     190.8       199.7       (8.9 )   (4.5 )%
Other operating (income) expense, net     (4.1 )     12.5       (16.6 )   NM  
Total operating costs and expenses     898.7       984.4       (85.7 )   (8.7 )%
Income from operations     212.0       163.0       49.0     30.1 %
Total interest expense, net     116.3       106.3       10.0     9.4 %
Loss on early extinguishment of debt     11.2       19.6       (8.4 )   (42.9 )%
Income before income taxes     84.5       37.1       47.4     127.8 %
Income tax expense     22.0       12.8       9.2     71.9 %
Net income   $ 62.5     $ 24.3     $ 38.2     157.2 %
                   
NM - not meaningful                  
BURGER KING WORLDWIDE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
           
    As of
    June 30,     December 31,
    2012     2011

ASSETS

  (In millions, except share data)
Current assets:          
Cash and cash equivalents   $ 377.7       $ 459.0  
Trade and notes receivable, net     150.5         152.8  
Prepaids and other current assets, net     146.1         69.2  
Deferred income taxes, net     22.9         43.1  
Total current assets     697.2         724.1  
           

Property and equipment, net of accumulated depreciation of $193.6 million and $150.1 million,

                 

respectively

    906.9         1,026.5  
Intangible assets, net     2,784.6         2,823.3  
Goodwill     639.8         657.7  
Net investment in property leased to franchisees     232.9         242.2  
Other assets, net     185.1         134.6  

Total assets

  $ 5,446.5       $ 5,608.4  

LIABILITIES AND STOCKHOLDERS' EQUITY

         
Current liabilities:          
Accounts and drafts payable   $ 82.1       $ 98.4  
Accrued advertising     93.8         97.4  
Other accrued liabilities     192.5         242.7  
Current portion of long term debt and capital leases     35.9         33.5  
Total current liabilities     404.3         472.0  
           
Term debt, net of current portion     2,911.7         3,010.3  
Capital leases, net of current portion     106.1         95.4  
Other liabilities, net     360.9         366.2  
Deferred income taxes, net     568.3         615.3  
Total liabilities     4,351.3         4,559.2  
           
Commitments and Contingencies          
           
Stockholders' equity:          
Preferred stock, $0.01 par value; 200,000,000 shares authorized;                  
no shares issued or outstanding     -         -  
Common stock, $0.01 par value; 2,000,000,000 shares authorized;          
350,025,166 shares issued and outstanding at June 30, 2012;          
348,245,293 shares issued and outstanding at December 31, 2011     3.5         3.5  
Additional paid-in capital     1,199.6         1,186.6  
Retained earnings (accumulated deficit)     34.9         (27.6 )
Accumulated other comprehensive loss     (142.8 )       (113.3 )
Total stockholders' equity     1,095.2         1,049.2  
Total liabilities and stockholders' equity   $ 5,446.5       $ 5,608.4  
                   
BURGER KING WORLDWIDE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
    Six Months Ended
    June 30,
    2012   2011
Cash flows from operating activities:   (In millions)
Net income   $ 62.5     $ 24.3  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization     67.4       68.8  
Loss on early extinguishment of debt     11.2       19.6  
Amortization of deferred financing cost and debt issuance discount     29.4       15.8  
Loss (gain) on remeasurement of foreign denominated transactions     (3.6 )     1.5  
Amortization of prior service costs     (0.9 )     -  
Realized loss on terminated caps/swaps    

0.9

      -  
Gain on refranchisings and dispositions of assets     (2.7 )     (1.7 )
Bad debt expense, net of recoveries     1.5       1.1  
Share-based compensation     7.6       0.6  
Deferred income taxes     8.0       17.7  
Changes in current assets and liabilities, excluding acquisitions and dispositions:        
Trade and notes receivables     (4.2 )     8.7  
Prepaids and other current assets    

(35.1

)     19.4  
Accounts and drafts payable     (15.8 )     (33.0 )
Accrued advertising     (45.4 )     4.1  
Other accrued liabilities     (47.1 )     (35.3 )
Other long-term assets and liabilities     3.2       (16.7 )
Net cash provided by operating activities     36.9       94.9  
Cash flows from investing activities:        
Payments for property and equipment     (13.8 )     (23.5 )
Proceeds from refranchisings, disposition of assets and restaurant closures     36.5       11.7  
Payments for acquired franchisee operations, net of cash acquired     (15.3 )     -  
Return of investment on direct financing leases     6.6       7.3  
Other investing activities     -       (4.4 )
Net cash provided by (used for) investing activities     14.0       (8.9 )
Cash flows from financing activities:        
Proceeds from term debt     -       1,860.0  
Proceeds from discount notes     -       401.5  
Repayments of term debt and capital leases     (19.0 )     (1,852.4 )
Extinguishment of debt     (105.9 )     -  
Payment of financing costs     -       (32.6 )
Proceeds from issuance of shares     -       1.8  
Net cash provided by (used for) financing activities     (124.9 )     378.3  
Effect of exchange rates on cash and cash equivalents     (7.3 )     5.1  
Increase (decrease) in cash and cash equivalents     (81.3 )     469.4  
Cash and cash equivalents at beginning of period     459.0       207.0  
Cash and cash equivalents at end of period   $ 377.7     $ 676.4  
                 

BURGER KING Worldwide, INC. AND SUBSIDIARIES

Key Business Metrics

We evaluate our restaurants and assess our business based on the following operating metrics.

System-wide sales growth refers to the change in sales at all Company-owned and franchise restaurants in one period from the same period in the prior year. System-wide comparable sales growth refers to the change in restaurant sales in one period from the same prior year period for restaurants that have been open for thirteen months or longer. Comparable sales and sales growth are measured on a constant currency basis, which means that results exclude the effect of foreign currency translation and are calculated by translating current year results at prior year exchange rates. We analyze key operating metrics on a constant currency basis as this helps identify underlying business trends, without distortion from the effects of currency movements ("FX Impact").

Franchise sales represent sales at all franchised restaurants and are revenues to our franchisees. We do not record franchise sales as revenues; however, our franchise revenues include royalties based on a percentage of franchise sales. Average restaurant sales refer to the total sales divided by total store months for all Company-owned and franchise restaurants open during the period. Net refranchisings refer to sales of Company-owned restaurants to franchisees, net of acquisitions of franchise restaurants by us.

Consolidated BKW        
         
         
         

Key Business Metrics

       
         
    Three Months Ended June 30,
    2012   2011
         
System-wide sales growth     6.4 %     0.4 %
Franchise sales   $ 3,636.3     $ 3,449.0  
Comparable sales growth        
Company     5.1 %     (1.6 )%
Franchise     4.3 %     (2.2 )%
System     4.4 %     (2.2 )%
Average restaurant sales (in thousands)   $ 319.1     $ 314.5  
Net Restaurant Growth (NRG)        
Company     (3 )     (3 )
Franchise     73       38  
System     70       35  
Net refranchisings     464       6  
Restaurant counts at period end        
Company     818       1,330  
Franchise     11,786       11,006  
System     12,604       12,336  
CRM %     11.6 %     11.9 %
                 
U.S. & Canada                
                 
                 
                 

Key Business Metrics

               
                 
   

Three Months Ended June 30,

       
    2012   2011        
    Favorable / (Unfavorable)        
System-wide sales growth     3.9 %     (5.5 )%        
Comparable sales growth                
Company     4.5 %     (3.7 )%        
Franchise     4.4 %     (5.5 )%        
System     4.4 %     (5.3 )%        
NRG                
Company     (2 )     (1 )        
Franchise     (17 )     (17 )        
System     (19 )     (18 )        
Net refranchisings     386       2          
Restaurant counts at period end                
Company     546       978          
Franchise     6,923       6,550          
System     7,469       7,528          
                 
                 
    Three Months Ended June 30,   Variance
    2012   2011   Favorable / (Unfavorable)
                 
Company:                
Company restaurant revenues   $ 242.4     $ 302.1         $ (59.7 )
CRM     29.3       37.9           (8.6 )
CRM %     12.1 %     12.5 %         (0.4 )%
Company restaurant expenses as a % of Company

restaurant revenue:

               
Food and paper     33.7 %     32.8 %         (0.9 )%
Payroll and benefits     29.9 %     30.0 %         0.1 %
Depreciation and amortization     5.5 %     5.6 %         0.1 %
Other occupancy and operating     18.8 %     19.0 %         0.2 %
                 
Franchise:                
Franchise and property revenues   $ 115.3     $ 102.3         $ 13.0  
Franchise and property expenses     21.7       16.3           (5.4 )
Franchise sales     2,052.3       1,910.6           141.7  
Segment income     128.5       122.0           6.5  
Segment margin     35.9 %     30.2 %         5.7 %
                             
EMEA                
                 
                 
                 

Key Business Metrics

               
                 
                 
    Three Months Ended June 30,        
    2012   2011        
System-wide sales growth     12.7 %     3.6 %        
Comparable sales growth                
Company     6.2 %     4.9 %        
Franchise     3.1 %     3.1 %        
System     3.3 %     3.2 %        
NRG                
Company     -       (1 )        
Franchise     45       32          
System     45       31          
Net refranchisings     56       4          
Restaurant counts at period end                
Company     134       193          
Franchise     2,827       2,603          
System     2,961       2,796          
                 
                 
    Three Months Ended June 30,   Variance
    2012   2011   Favorable / (Unfavorable)
                 
Company:                
Company restaurant revenues   $ 67.6     $ 81.6         $ (14.0 )
CRM     7.3       7.7           (0.4 )
CRM %     10.8 %     9.4 %        

1.4

%

Company restaurant expenses as a % of Company

restaurant revenue:

               
Food and paper     30.3 %     28.9 %         (1.4 )%
Payroll and benefits     32.7 %     32.1 %         (0.6 )%
Depreciation and amortization     3.6 %     3.7 %         0.1 %
Other occupancy and operating     22.6 %     25.9 %         3.3 %
                 
Franchise:                
Franchise and property revenues   $ 51.6     $ 49.3         $ 2.3  
Franchise and property expenses     6.6       6.3           (0.3 )
Franchise sales     935.1       922.7           12.4  
Segment income     42.8       35.3           7.5  
Segment margin     35.9 %     27.0 %         8.9 %
                             
LAC                
                 
                 
                 

Key Business Metrics

               
                 
                 
    Three Months Ended June 30,        
    2012   2011        
System-wide sales growth     9.4 %     16.6 %        
Comparable sales growth                
Company     5.8 %     4.6 %        
Franchise     10.8 %     6.9 %        
System     10.5 %     6.8 %        
NRG                
Company     -       -          
Franchise     27       15          
System     27       15          
Net refranchisings     -       -          
Restaurant counts at period end                
Company     97       97          
Franchise     1,158       1,068          
System     1,255       1,165          
                 
                 
    Three Months Ended June 30,   Variance
    2012   2011   Favorable / (Unfavorable)
                 
Company:                
Company restaurant revenues   $ 16.1     $ 17.6         $ (1.5 )
CRM     2.8       3.4           (0.6 )
CRM %     17.4 %     19.3 %         (1.9 )%
Company restaurant expenses as a % of Company

restaurant revenue:

               
Food and paper     39.1 %     37.5 %         (1.6 )%
Payroll and benefits     11.8 %     11.9 %         0.1 %
Depreciation and amortization     9.3 %     9.7 %         0.4 %
Other occupancy and operating     22.4 %     21.6 %         (0.8 )%
                 
Franchise:                
Franchise and property revenues   $ 16.2     $ 14.6         $ 1.6  
Franchise and property expenses     (0.2 )     -           0.2  
Franchise sales     323.7       295.3           28.4  
Segment income     17.1       14.5           2.6  
Segment margin     52.9 %     45.0 %         7.9 %
                             
APAC                
                 
                 
                 

Key Business Metrics

               
                 
                 
    Three Months Ended June 30,        
    2012   2011        
System-wide sales growth   2.1 %   19.4 %        
Comparable sales growth                
Company   8.6 %   7.0 %        
Franchise   2.0 %   (0.9)%        
System   2.1 %   (0.6)%        
NRG                
Company   (1)   (1)        
Franchise   18   8        
System   17   7        
Net refranchisings   22   -        
Restaurant counts at period end                
Company   41   62        
Franchise   878   785        
System   919   847        
                 
                 
    Three Months Ended June 30,   Variance
    2012   2011   Favorable / (Unfavorable)
                 
Company:                
Company restaurant revenues   $ 19.8   $ 17.7       $ 2.1
CRM   0.8   0.8       -
CRM %   4.0 %   4.5 %       (0.5)%
Company restaurant expenses as a % of Company

restaurant revenue:

               
Food and paper   34.3%   33.3%       (1.0)%
Payroll and benefits   18.2%   18.1%       (0.1)%
Depreciation and amortization   6.6%   6.2%       (0.4)%
Other occupancy and operating   36.9%   37.9%       1.0 %
                 
Franchise:                
Franchise and property revenues   $ 11.8   $ 10.2       $ 1.6
Franchise and property expenses   0.4   0.6       0.2
Franchise sales   325.2   320.4       4.8
Segment income   11.0   6.7       4.3
Segment margin   34.8%   24.0 %       10.8 %
                 

Organic growth in Revenue and Adjusted EBITDA for the Three Months Ended June 30, 2012

(Unaudited)

                                         
$ in millions                                        
                        Refran.   Adjusted   FX        
        Actual   Q2 '12 vs. Q2 '11   Impact   Q2 '11   Impact   Organic Growth
        Q2 '12   Q2 '11   $   %   $   $   $   $   %
    Calculation:       A   B       C   A+C=D   E   B-C-E=F   F/D

Revenue

                                       
North America       $ 357.7     $ 404.5       ($46.8 )   (11.6 %)     ($57.7 )   $ 346.8     ($1.6 )   $ 12.5   3.6 %
EMEA       $ 119.2     $ 131.0       ($11.8 )   (9.0 %)     ($8.3 )   $ 122.7     ($13.2 )   $ 9.7   7.9 %
LAC       $ 32.3     $ 32.1     $ 0.2     0.6 %     -     $ 32.1     ($2.3 )   $ 2.5   7.8 %
APAC       $ 31.6     $ 27.8     $ 3.8     13.7 %     -     $ 27.8     ($0.2 )   $ 4.0   14.4 %
Consolidated       $ 540.8     $ 595.4       ($54.6 )   (9.2 %)     ($66.0 )   $ 529.4     ($17.3 )   $ 28.7   5.4 %
                                         

Adjusted EBITDA

                                       
North America       $ 128.5     $ 122.0     $ 6.5     5.3 %     ($1.7 )   $ 120.3     ($0.1 )   $ 8.3   6.9 %
EMEA       $ 42.8     $ 35.3     $ 7.5     21.2 %   $ 0.6     $ 35.9     ($4.6 )   $ 11.5   32.0 %
LAC       $ 17.1     $ 14.5     $ 2.6     17.9 %     -     $ 14.5     ($0.3 )   $ 2.9   20.0 %
APAC       $ 11.0     $ 6.7     $ 4.3     64.2 %     -     $ 6.7     -     $ 4.3   64.2 %
Unallocated Management G&A         ($27.4 )     ($28.6 )   $ 1.2     (4.2 %)     -       ($28.6 )   -     $ 1.2   (4.2 %)
Consolidated       $ 172.0     $ 149.9     $ 22.1     14.7 %     ($1.1 )   $ 148.8     ($5.0 )   $ 28.2   19.0 %
                                                                     

BURGER KING Worldwide, INC. AND SUBSIDIARIES

Non-GAAP Financial Measures

(Unaudited)

To supplement its condensed consolidated financial statements presented on a U.S. Generally Accepted Accounting Principles ("GAAP") basis, the Company reports the following non-GAAP financial measures: EBITDA, adjusted EBITDA, adjusted net income, adjusted income before income taxes, adjusted income tax expense, net debt, TTM adjusted EBITDA, net debt to TTM adjusted EBITDA ratio, Organic revenue growth and Organic Adjusted EBITDA growth.

EBITDA is defined as earnings (net income or loss) before interest, taxes, depreciation and amortization, and is used by management to measure operating performance of the business.

Adjusted EBITDA is defined as EBITDA excluding the impact of share-based compensation, other operating (income) expenses, net, and all other specifically identified costs associated with non-recurring projects, including Transaction costs, global restructuring and related professional fees, global portfolio realignment project costs and Business Combination Agreement expenses. Adjusted EBITDA is used by management to measure operating performance of the business, excluding specifically identified items that management believes do not directly reflect our core operations, and represents our measure of segment income.

Adjusted net income is used by management to evaluate and forecast earnings from ongoing operations excluding the impact of unusual items. This measure is used by management to evaluate and forecast earnings from ongoing operations, as further defined in the non-GAAP reconciliations. Adjusted Diluted EPS is calculated by dividing Adjusted Net Income by the number of diluted shares of the Company during the reporting period. Net debt to TTM adjusted EBITDA ratio is used by management to evaluate the Company's current and prospective financial position.

Organic revenue growth and Organic Adjusted EBITDA growth are non-GAAP measures that exclude both FX Impact and refranchisings.

             

Non-GAAP Financial Measures

Reconciliation of EBITDA and Adjusted EBITDA to Net Income

             
    Three Months Ended   Six Months Ended
    June 30,     June 30,
    2012   2011     2012   2011
EBITDA and adjusted EBITDA:                  
U.S. and Canada   $ 128.5     $ 122.0       $ 241.4     $ 224.8  
EMEA     42.8       35.3         75.6       62.0  
LAC     17.1       14.5         33.0       29.7  
APAC     11.0       6.7         18.8       13.0  
Unallocated Management G&A     (27.4 )     (28.6 )       (53.6 )     (59.6 )
Adjusted EBITDA     172.0       149.9         315.2       269.9  
Share-based compensation (1)     0.3       0.4         1.7       0.6  
2010 Transaction costs (2)     -       0.3         -       1.1  
Global restructuring and related professional fees (3)   -       10.0         -       22.2  
Field optimization project costs (4)     -       1.7         -       1.7  
Global portfolio realignment project (5)   9.4       -         13.1       -  
Business combination agreement expenses (6)   18.1       -         25.1       -  
Other operating (income) expense, net     (17.1 )     4.7         (4.1 )     12.5  
EBITDA     161.3       132.8         279.4       231.8  
Depreciation and amortization     33.4       33.8         67.4       68.8  
Income from operations     127.9       99.0         212.0       163.0  
Interest expense, net     57.2       56.1         116.3       106.3  
Loss on early extinguishment of debt     7.7       -         11.2       19.6  
Income tax expense     14.8       12.7         22.0       12.8  
Net income   $ 48.2     $ 30.2       $ 62.5     $ 24.3  
                                   
    Twelve Months Ended
    June 30,   December 31,
    2012   2011
EBITDA and adjusted EBITDA:        
U.S. and Canada   $ 472.8     $ 456.2  
EMEA     159.6       146.0  
LAC     67.2       63.9  
APAC     32.5       26.7  
Unallocated Management G&A     (101.8 )     (107.8 )
Adjusted EBITDA     630.3       585.0  
Share-based compensation (1)     7.5       6.4  
2010 Transaction costs (2)     2.6       3.7  
Global restructuring and related professional fees (3)     24.3       46.5  
Field optimization project costs (4)     8.9       10.6  
Global portfolio realignment project (5)     20.7       7.6  
Business combination agreement expenses (6)     25.1       -  
Other operating (income) expense, net     (5.3 )     11.3  
EBITDA     546.5       498.9  
Depreciation and amortization     135.0       136.4  
Income from operations     411.5       362.5  
Interest expense, net     236.7       226.7  
Loss on early extinguishment of debt     12.7       21.1  
Income tax expense     35.8       26.6  
Net income   $ 126.3     $ 88.1  
                 

Non-GAAP Financial Measures

Reconciliation of Net Income to Adjusted Net Income

     
    Three Months Ended June 30,
    2012     2011
Adjusted net income   (In millions)
           
Net income   $ 48.2       $ 30.2
Income tax expense     14.8         12.7
Income before income taxes     63.0         42.9
Adjustments:          
Franchise agreement amortization     5.1         5.6
Amortization of deferred financing costs and

original issue discount

    3.5         3.5
Loss on early extinguishment of debt     7.7         -
Other operating (income) expense, net     (17.1 )       4.7
2010 Transaction costs(2)     -         0.3
Global restructuring and related professional fees(3)     -         10.0
Field optimization project costs(4)     -         1.7
Global portfolio realignment project costs(5)     9.4         -
Business combination agreement expenses(6)     18.1         -
Total adjustments     26.7         25.8
           
Adjusted income before income taxes     89.7         68.7
           
Adjusted income tax expense (7)     28.4         22.2
           
Adjusted net income   $ 61.3       $ 46.5
                 

Non-GAAP Financial Measures

Reconciliation of Adjusted Net Income and Net Income, Net Debt / TTM Adj. EBITDA

     
    Six Months Ended June 30,
    2012     2011
Adjusted net income   (In millions)
           
Net income   $ 62.5       $ 24.3
Income tax expense     22.0         12.8
Income before income taxes     84.5         37.1
Adjustments:          
Franchise agreement amortization     10.3         11.1
Amortization of deferred financing costs and

original issue discount

    7.0         6.9
Loss on early extinguishment of debt     11.2         19.6
Other operating (income) expense, net     (4.1 )       12.5
2010 Transaction costs(2)     -         1.1
Global restructuring and related professional fees(3)     -         22.2
Field optimization project costs(4)     -         1.7
Global portfolio realignment project costs(5)     13.1         -
Business combination agreement expenses(6)     25.1         -
Total adjustments     62.6         75.1
           
Adjusted income before income taxes     147.1         112.2
           
Adjusted income tax expense (7)     46.0         38.1
           
Adjusted net income   $ 101.1       $ 74.1
           
           
    As of
    June 30,     December 31,
    2012     2011
Net debt to adjusted EBITDA   (In millions, except ratios)
           
Long term debt, net of current portion   $ 2,911.7       $ 3,010.3
Capital leases, net of current portion     106.1         95.4
Current portion of long term debt and

capital leases

    35.9         33.5
Total Debt     3,053.7         3,139.2
           
Cash and cash equivalents     377.7         459.0
Net debt     2,676.0         2,680.2
TTM adjusted EBITDA     630.3         585.0
           
Net debt / TTM adjusted EBITDA   4.2x     4.6x
           

Non-GAAP Financial Measures

Reconciliation of Net Income to TTM Adjusted EBITDA

     
    Twelve Months Ended
    June 30, 2012     December 31, 2011
EBITDA and adjusted EBITDA   (In millions)
           
Net income   $ 126.3       $ 88.1
Interest expense, net     236.7         226.7
Loss on early extinguishment of debt     12.7         21.1
Income tax expense     35.8         26.6
Depreciation and amortization     135.0         136.4
EBITDA     546.5         498.9
Adjustments:          
Share-based compensation (1)     7.5         6.4
Other operating (income) expense, net     (5.3 )       11.3
2010 Transaction costs(2)     2.6         3.7
Global restructuring and related professional fees(3)     24.3         46.5
Field optimization project costs(4)     8.9         10.6
Global portfolio realignment project costs(5)     20.7         7.6
Business combination agreement expenses(6)     25.1         -
Total adjustments     83.8         86.1
           
Adjusted EBITDA   $ 630.3       $ 585.0
                 

Non-GAAP Financial Measures

Footnotes to Reconciliation Tables

(1) Represents share-based compensation expense associated with employee stock options, and for the twelve months ended June 30, 2012 and December 31, 2011, also includes the portion of annual non-cash incentive compensation that eligible employees elected to receive as common equity in lieu of their 2011 cash bonus.

(2) Represents expenses incurred related to 3G's acquisition of Burger King Holdings, Inc., the Company's indirect wholly-owned subsidiary, in October 2010.

(3) Represents severance benefits, other severance-related costs incurred in connection with the Company's global restructuring efforts, the voluntary resignation severance program offered for a limited time to eligible employees based at its Miami headquarters and additional reductions in corporate and field positions in the U.S. This restructuring plan was completed in 2011.

(4) Represents severance-related costs, compensation costs for overlap staffing, travel expenses, consulting and training costs incurred in connection with the Company's efforts to expand and enhance its U.S. field organization. This project was completed in 2011.

(5) Represents costs associated with an ongoing project to realign the Company's global restaurant portfolio by refranchising Company-owned restaurants and establishing strategic partners and joint ventures to accelerate development. These costs primarily include severance related costs and fees for professional services.

(6) Represents share-based compensation expense related to awards granted during the three and six months ended June 30, 2012 resulting from the increase in equity value of Burger King Worldwide Holdings, Inc. implied by the Business Combination Agreement and professional fees and other transaction costs associated with the Business Combination Agreement.

(7) Adjusted income tax expense for the three and six months ended June 30, 2012 and 2011 is calculated using the Company's statutory tax rate in the jurisdiction in which the costs were incurred.

Source: Burger King Worldwide, Inc.

###

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