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Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

Quarterly Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2012

Commission File Number: 000-23278

 

 

Brazil Fast Food Corp.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   13-3688737

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

Rua Voluntários da Pátria, 89-9° andar

Rio de Janeiro Brazil, CEP 22270-010

(Address of principal executive offices)

Registrant’s telephone number: 011 55 21 2536-7500

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definition of “larger accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of May 15, 2012 there were 8,129,437 shares outstanding of the Registrant’s Common Stock, par value $0.0001.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION      2   
 

Item 1. Financial Statements

     2   
 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     19   
 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     40   
 

Item 4. Controls and Procedures

     41   

PART II. OTHER INFORMATION

     42   
 

Item 1. Legal Proceedings

     42   
 

Item 1a. Risk Factors

     42   
 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     43   
 

Item 3. Defaults Upon Senior Securities

     43   
 

Item 4. Mine Safety Disclosures

     43   
 

Item 5. Other Information

     43   
 

Item 6. Exhibits

     43   

 

- 1 -


Table of Contents
ITEM 1. FINANCIAL STATEMENTS.

BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

Consolidated Balance Sheets – Assets (Unaudited)

(in thousands of Brazilian Reais, except share amounts)

 

     March 31,     December 31,  
     2012     2011  
     (unaudited)        

CURRENT ASSETS:

    

Cash and cash equivalents

   R$ 24,129      R$ 21,357   

Inventories

     3,139        3,985   

Accounts receivable

    

Clients

     4,974        5,660   

Franchisees

     13,341        12,247   

Allowance for doubtful accounts

     (801     (801

Advances to suppliers

     2,023        1,500   

Prepaid expenses

     3,153        3,478   

Receivables from properties sale (notes 4 and 5)

     2,573        3,523   

Other current assets

     4,803        4,083   
  

 

 

   

 

 

 

TOTAL CURRENT ASSETS

     57,334        55,032   

Other receivables and other assets (note 4)

     11,062        10,862   

Deferred tax asset, net

     7,970        8,378   

Goodwill

     799        799   

Property and equipment, net

     34,531        31,342   

Deferred charges, net

     4,787        4,472   
  

 

 

   

 

 

 

TOTAL ASSETS

   R$ 116,483      R$ 110,885   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

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Table of Contents

BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

Consolidated Balance Sheets – Liabilities and Shareholders’ Equity (Unaudited)

(in thousands of Brazilian Reais, except share amounts)

 

     March 31,     December 31,  
     2012     2011  
     (unaudited)        

CURRENT LIABILITIES:

    

Notes payable

   R$ 10,726      R$ 11,523   

Accounts payable and accrued expenses

     11,265        11,608   

Payroll and related accruals

     5,420        5,618   

Taxes

     3,931        5,020   

Deferred income tax

     1,241        1,262   

Current portion of deferred income (note 7)

     5,228        1,118   

Current portion of contingencies and reassessed taxes

     1,912        1,940   
  

 

 

   

 

 

 

TOTAL CURRENT LIABILITIES

     39,723        38,089   

Deferred income, less current portion (note 7)

     3,445        4,057   

NOTES PAYABLE, less current portion

     5,479        5,068   

CONTINGENCIES AND REASSESSED TAXES, less current portion (note 6)

     18,555        18,215   
  

 

 

   

 

 

 

TOTAL LIABILITIES

     67,202        65,429   
  

 

 

   

 

 

 

SHAREHOLDERS’ EQUITY:

    

Preferred stock, $.01 par value, 5,000 shares authorized; no shares issued

       —     

Common stock, $.0001 par value, 12,500,000 shares authorized; 8,472,927 shares issued for both 2012 and 2011; and 8,129,437 shares outstanding for both 2012 and 2011

     1        1   

Additional paid-in capital

     61,148        61,148   

Treasury Stock (343,490 and 343,490 shares)

     (2,060     (2,060

Accumulated Deficit

     (12,692     (16,092

Accumulated comprehensive loss

     (1,111     (1,128
  

 

 

   

 

 

 

TOTAL SHAREHOLDERS’ EQUITY

     45,286        41,869   
  

 

 

   

 

 

 

Non-Controlling Interest

     3,995        3,587   
  

 

 

   

 

 

 

TOTAL EQUITY

     49,281        45,456   
  

 

 

   

 

 

 

TOTAL LIABILITIES AND EQUITY

   R$ 116,483      R$ 110,885   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

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BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)

(in thousands of Brazilian Reais, except share amounts)

 

     Three Months Ended March 31,  
     2012     2011  
REVENUES     

Net revenues from own-operated restaurants

   R$ 43,617      R$ 40,146   

Net revenues from franchisees

     10,011        7,610   

Revenues from supply agreements

     6,591        6,792   

Other income

     320        397   
  

 

 

   

 

 

 
TOTAL REVENUES      60,539        54,945   
  

 

 

   

 

 

 

Store Costs and Expenses

     (40,520     (37,090

Franchise Costs and Expenses

     (3,079     (2,568

Marketing Expenses

     (1,351     (1,015

Administrative Expenses

     (8,602     (7,768

Other Operating Expenses

     (1,398     (1,629

Net result of assets sold and impairment of assets

     (44     (2
  

 

 

   

 

 

 

TOTAL OPERATING COST AND EXPENSES

     (54,994     (50,072
  

 

 

   

 

 

 

OPERATING INCOME

     5,545        4,873   
  

 

 

   

 

 

 

Interest Income (Expense)

     (139     (44
  

 

 

   

 

 

 

NET INCOME BEFORE INCOME TAX

     5,406        4,829   
  

 

 

   

 

 

 

Income taxes

     (1,824     (592
  

 

 

   

 

 

 

NET INCOME BEFORE NON-CONTROLLING INTEREST

     3,582        4,237   
  

 

 

   

 

 

 

Net loss attributable to non-controlling interest

     (182     (7
  

 

 

   

 

 

 

NET INCOME ATTRIBUTABLE TO BRAZIL FAST FOOD CORP.

   R$ 3,400      R$ 4,230   
  

 

 

   

 

 

 

NET INCOME PER COMMON SHARE

    

BASIC AND DILUTED

   R$ 0.42      R$ 0.52   
  

 

 

   

 

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: BASIC AND DILUTED

     8,129,437        8,134,586   

See Notes to Consolidated Financial Statements

 

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BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Loss (Unaudited)

(in thousands of Brazilian Reais)

 

     Three Months Ended March 31,  
     2012      2011  

NET INCOME ATTRIBUTABLE TO BRAZIL FAST FOOD CORP.

   R$ 3,400       R$ 4,230   

Other comprehensive income (loss):

     

Foreign currency translation adjustment

     17         (32
  

 

 

    

 

 

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO BRAZIL FAST FOOD CORP.

   R$ 3,417       R$ 4,198   
  

 

 

    

 

 

 

There are no comprehensive income components attributable to non-controlling interest. Accordingly, the Consolidated Statements of Comprehensive Income (Loss) is stated with Net Income (Loss) attributable to Brazil Fast Food Corp.

See Notes to Consolidated Financial Statements

 

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BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

Consolidated Statements of Changes In Shareholders’ Equity (Unaudited)

(in thousands of Brazilian Reais)

 

    Common Stock     Additional
Paid-In
    Treasury     Accumulated     Accumulated
Comprehensive
    Total
Shareholders’
    Non-
Controlling
    Total  
    Shares     Par Value     Capital     Stock     (Deficit)     Loss     Equity     Interest     Equity  

Balance, December 31, 2011

    8,129,437      R$ 1      R$ 61,148      R$ (2,060   R$ (16,092   R$ (1,128   R$ 41,869      R$ 3,587      R$ 45,456   

Non-Controlling Paid in Capital

                —          226        226   

Net Income

    —          —          —          —          3,400        —          3,400        182        3,582   

Acquisition of Company’s own shares

      —          —          —          —          —          —          —          —     

Cummulative translation adjustment

    —          —          —          —          —          17        17        —          17   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2011

    8,129,437      R$ 1      R$ 61,148      R$ (2,060   R$ (12,692   R$ (1,111   R$ 45,286      R$ 3,995      R$ 49,281   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

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BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(in thousands of Brazilian Reais)

 

     Three Months Ended March, 31  
     2012     2011  

CASH FLOW FROM OPERATING ACTIVITIES:

    

NET INCOME (LOSS) BEFORE NON-CONTROLLING INTEREST

   R$ 3,582      R$ 4,237   

Adjustments to reconcile net income to cash provided by (used in) operating activities:

    

Depreciation and amortization

     1,768        1,779   

(Gain) Loss on assets sold, net

     44        2   

Deferred income tax

     387        (278

Changes in assets and liabilities:

    

(Increase) decrease in:

    

Accounts receivable

     (408     1,705   

Inventories

     846        129   

Prepaid expenses and other current assets

     (198     (104

Other assets

     (920     (710

(Decrease) increase in:

    

Accounts payable and accrued expenses

     (343     (2,767

Payroll and related accruals

     (198     607   

Taxes other than income taxes

     (1,089     (1,101

Deferred income

     3,498        5,284   

Contingencies and reassessed taxes

     312        (35

Other liabilities

     —          1   
  

 

 

   

 

 

 

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES

     7,281        8,749   
  

 

 

   

 

 

 

CASH FLOW FROM INVESTING ACTIVITIES:

    

Additions to property and equipment

     (5,343     (1,397

Proceeds from sale of property, equipment and deferred charges

     977        1,164   
  

 

 

   

 

 

 

CASH FLOWS USED IN INVESTING ACTIVITIES

     (4,366     (233
  

 

 

   

 

 

 

CASH FLOW FROM FINANCING ACTIVITIES:

    

Acquisition of Company’s own shares

     —          (119

Non-Controlling Paid in Capital

     226        878   

Net Borrowings (Repayments) under lines of credit

     (386     (4,046
  

 

 

   

 

 

 

CASH FLOWS USED IN FINANCING ACTIVITIES

     (160     (3,287
  

 

 

   

 

 

 

EFFECT OF FOREIGN EXCHANGE RATE

     17        (32
  

 

 

   

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

     2,772        5,197   

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

     21,357        16,742   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

   R$ 24,129      R$ 21,939   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

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BRAZIL FAST FOOD CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(in Brazilian Reais, unless otherwise stated)

NOTE 1 - FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited consolidated financial statements of Brazil Fast Food Corp. and its subsidiaries (together referred as “the Company”) have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial statements. Accordingly they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These unaudited consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Unless otherwise specified, all references in these financial statements to (i) “Reais” or “R$” are to the Brazilian Real (singular), or to Brazilian Reais (plural), the legal currency of Brazil, and (ii) “U.S. Dollars” or “$” are to United States dollars.

The balance sheet at December 31, 2011 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

The consolidated financial statements as of March 31, 2012 and for the three-month periods ended March 31, 2012 and 2010, included in this report, are unaudited. However, in management’s opinion, such consolidated financial statements reflect all normal recurring adjustments that are necessary for a fair presentation. The results for the interim periods are not necessarily indicative of trends or of results expected for the full year ending December 31, 2012.

The preparation of these financial statements requires the use of estimates and assumptions that reflect the assets, liabilities, revenues and expenses reported in the financial statements, as well as amounts included in the notes thereto. Management reviews its estimates periodically, including those related to depreciation, contingencies, income taxes and allowance for doubtful accounts. While the Company uses its best estimates and judgments, actual results could differ from those estimates as further confirming events occur. The Consolidated financial statements for the quarter ended March 31, 2011 have been restated to conform the current quarter’s presentation, as follows:

 

R$’000    Quarter ended March 31, 2011  
     As previously
reported
    Reclassification     As currently
reported
 

Store Costs and Expenses

   R$ (37,954     (864     (37,090

Administrative expenses

     (6,904     864        (7,768

 

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NOTE 2 - BUSINESS AND OPERATIONS

Brazil Fast Food Corp. (the “Company”) was incorporated in the state of Delaware on September 16, 1992.

In December 2006, the Company established a holding company in Brazil called BFFC do Brasil Participações Ltda. (“BFFC do Brasil”, formerly 22N Participações Ltda.), to consolidate all its business in the country and allow the Company to pursue its multi-brand program, as discussed below:

BOB’S TRADEMARK

During 1996, the Company acquired 100.0% of the capital of Venbo Comercio de Alimentos Ltda. (“Venbo”), a Brazilian limited liability company which conducts business under the trade name “Bob’s”, and owns and operates, both directly and through franchisees, a chain of hamburger fast food restaurants in Brazil.

In 2011, three of the own-operated restaurants of Venbo were transferred to two newly affiliated companies, LM Comércio de Alimentos Ltda. and PCN Comércio de Alimentos Ltda., both subsidiaries of BFFC do Brasil, in order to enhance these three stores results through the inclusion of a minor partner directly responsible for the stores operation.

KFC TRADEMARK

During the first quarter of 2007, the Company reached an agreement with Yum! Brands, owner of the KFC brand. By this agreement, BFFC do Brasil, through its subsidiary CFK Comércio de Alimentos Ltda. (“CFK”, formerly Clematis Indústria e Comércio de Alimentos e Participações Ltda.), started to conduct the operations of four directly owned and operated KFC restaurants in the city of Rio de Janeiro as a Yum! Brands franchisee, and took over the management, development and expansion of the KFC chain in Brazil. CFK started its activities on April 1, 2007.

During 2011 Also, four of the own-operated restaurants of CFK in Sao Paulo were transferred to two newly affiliated companies, CFK São Paulo Comércio de Alimentos Ltda. (“CFK SP”) and MPSC Comércio de Alimentos Ltda. (“MPSC”). Both CFK SP and MPSC are newly affiliated companies and subsidiaries of BFFC do Brasil created in order to enhance these four stores results through the inclusion of two minor partners (one for each new affiliated) directly responsible for the stores operation.

Suprilog Logística Ltda. (“Suprilog”), which used to warehouse equipment and spare parts and provide maintenance services for our own-operated restaurants, changed its business purpose. FCK Comércio de Alimentos Ltda. (“FCK”, former Suprilog Logística Ltda.) is responsible for developing and expanding KFC chain in Brazil.

 

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PIZZA HUT TRADEMARK

During 2008, the Company reached an agreement with Restaurants Connection International Inc (“RCI”) to acquire, through its wholly-owned holding subsidiary, BFFC do Brasil, 60% of Internacional Restaurantes do Brasil (“IRB”), which operates Pizza Hut restaurants in the city of São Paulo as a Yum! Brands franchisee. The remaining 40% of IRB is held by another Brazilian company of which IRB’s current CEO is the main stockholder.

IRB also operates a coffee concept brand called “In Bocca al Lupo Café”, which has four stores in the city of São Paulo.

During 2012, Yum! Restaurants International (“YRI”) will directly manage its franchise business in Brazil, supporting both of its KFC and Pizza Hut businesses in Brazil from its Restaurant Support Center in São Paulo, which will be resourced to support the growth of both brands. See Note 11 to the consolidated financial statements contained herein.

DOGGIS TRADEMARK

During October 2008, the Company reached an agreement with Gastronomía & Negocios Sociedad Anonima (“G&N”, former Grupo de Empresas Doggis Sociedad Anonima), one of the fast food leaders in Chile, where it has 150 stores.

By this agreement, BFFC do Brasil would establish a Master Franchise to manage, develop and expand the Doggis hot-dog chain in Brazil through own-operated restaurants and franchisees and G&N would establish a Master Franchise to manage, develop and expand the Bob’s hamburger chain in Chile through own-operated restaurants and franchisees.

The Master Franchise established in Brazil was named DGS Comercio de Alimento S.A. (“DGS”) and the Master Franchise established in Chile was named BBS S.A. (“BBS”). BFFC do Brasil has 20% of BBS and G&N has 20% of DGS.

 

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NOTE 3 – CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of the following:

 

R$’000    March 31,      December 31,  
     2012      2011  
     R$      R$  

Cash at point of sales

     888         858   

Cash with money collectors

     367         460   

Bank accounts

     1,675         4,807   

Investments funds

     21,199         15,232   
  

 

 

    

 

 

 
   R$ 24,129       R$ 21,357   
  

 

 

    

 

 

 

Bank account figures are comprised of the amount of R$83,000 (R$476,000 in 2011) which is deposited in a financial institution located in the U.S.A. and the remaining balance in financial institutions located in Brazil.

(a) The Company invests its temporary overflow of cash in financial funds linked, in their majority, to fixed-income securities, with original maturities of less than three months.

NOTE 4 – OTHER RECEIVABLES AND OTHER ASSETS

Other receivables and other assets consist of the following:

 

     March 31,      December 31,  
     2012 (unaudited)      2011  

Receivables from franchisees - assets sold (a)

   R$ 315       R$ 343   

Judicial deposits (b)

     8,736         8,528   

Properties for sale (c)

     1,152         1,135   

Investment in BBS (Bobs - Chile) (d)

     967         808   

Other receivables

     51         48   
  

 

 

    

 

 

 
   R$ 11,221       R$ 10,862   
  

 

 

    

 

 

 

 

(a) Long term portion of receivables derived from selling of restaurants (fixed assets) to franchisees;
(b) Deposits required by Brazilian court in connection to some legal disputes, also discussed at note 6;
(c) Company sold its real estate properties as discussed at note 5. A portion of the sale was not finalized until March 31, 2012 and the Company recorded the carrying amount (cost of acquisition, net of accumulated depreciation) as property for sale (R$1,152). The amount of R$2,573,000 - stated as current asset in balance sheet - represents receivables from the property sale which was completed until December 31, 2011; and
(d) Refers to the Company’s investment in a 20% capital interest in BBS (see note 2), recorded at cost. The observed market prices for this asset are not available and the Company has no sufficient information in order to develop its own assumptions for evaluating the fair value of such investment.

 

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NOTE 5 – SALE OF ASSETS

During the third quarter of 2010 the Company entered into an agreement to sell all its eight properties to Bigburger Ltda. and CCC Empreendimentos e Participações Ltda., entities controlled by Mr. José Ricardo Bomeny and Rômulo B. Fonseca, respectively, two major shareholders of the Company. Seven of those sold properties operate under the Bob’s brand (Three own-operated stores and four stores operated by franchisees) and one store operated by third party not related the Company’s brands. The sale transaction only included the buildings and improvements on it and did not include either the operating assets or the operation of the stores. Therefore, after the sale of the properties, the Company kept on operating its stores as usual, as did the franchisees.

This transaction was conducted at fair value and resulted in sale proceeds of R$13.5 million on assets with carrying amount of R$6.4 million. Management prepared fair value estimates for these asset sales and in considered valuation reports of third-party real estate consultants.

By December 31, 2010, much of the transaction had already been concluded (seven of the eight properties transferred), for which reason the company accounted for a net gain of R$5.4 million (R$3.6 million, net of income taxes) recognized as income. Some legal issues have held up the sale of the one remaining property, though this is expected to be concluded in 2012, for an expected additional gain of approximately R$1.7 million (R$1.1 million, net of income taxes). The assets which were not transferred until March 31, 2012 were reclassified in the account Properties for sale (part of “Other receivable and other assets – see note 4) considering at their carrying amount (R$1.1 million).

The terms of the sale included a down-payment of approximately 20% of the total amount, with the balance to be paid in 24 monthly installments. The buyers also accepted certain conditions to protect the Company’s long-term interests, including the maintenance of existing rental agreements and loan guarantees. All payments due until March 31, 2012, (approximately R$9.0 million) were received by the Company. The short term portion of those receivables is classified as “Receivables from properties sale” and the long term portion is classified as part of “Other receivable and other assets”. The Company evaluates the status of those receivables and concluded that there are no issues with their collectability.

This transaction will enable the Company to reduce its debt and permit management to focus its attention on the core restaurant operations.

 

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NOTE 6 – CONTINGENCIES AND REASSESSED TAXES

Liabilities related to tax amnesty programs and litigation consist of the following:

 

R$ 000’    March 31, 2012 (unaudited)      December 31, 2011  
     Total
Liability
     Current
Liability
     Long
Term
Liability
     Total
Liability
     Current
Liability
     Long
Term
Liability
 

Reassessed taxes

                 

Federal taxes (REFIS IV)

     4,233         1,912         2,321         4,121         1,940         2,181   

Contingencies

                 

REFIS IV

     6,285         —           6,285         6,658            6,658   

ISS tax litigation

     7,860         —           7,860         7,666         —           7,666   

Labor litigation

     1,608         —           1,608         1,464            1,464   

Property leasing and other litigation

     481         —           481         246         —           246   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL

     20,467         1,912         18,555         20,155         1,940         18,215   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Reassessed taxes

Over the past ten years, the Brazilian government has launched four amnesty programs for domestic companies to pay off tax in arrears. To apply to each program, the companies had to abandon any litigation that they may have started against the Brazilian government, and to take on the liability under dispute in such litigation. In exchange the amnesty programs guaranteed discounts of these tax debts and gave companies the opportunity to pay these debts at low interest rates over periods of time that could exceed ten years,.

Venbo had outstanding tax debts from 1999, 2000 and 2002 and, as a consequence, applied for the four amnesty programs. Venbo’s administration believed that the government had incorrectly calculated its tax liabilities in each of the amnesty program, and until September 2009 Venbo had been discussing this matter with the Brazilian government on an administrative level.

Venbo enrolled in the fourth and last amnesty program in September 2009 (the “REFIS IV program”). Its aim was to take the original debts from the previous programs, update these debts by the Brazilian Federal Bank base interest rate, and deduct the payments made during the previous programs. The Brazilian government took two years to make this calculation. At the end of September 2011, the Brazilian government announced that Venbo’s consolidated tax debt was approximately R$22.4 million. Since the amnesty program allowed income tax credits to reduce the debt, Venbo was able to reduce its tax debts by the R$11.1 million it had in income tax credits.

Venbo disagrees with the amount calculated by the Brazilian government in September 2011. Venbo believes that the Brazilian government did not consider the payments made during the prior amnesty programs, which total of R$10.4 million. According to Venbo’s records, Venbo should owe R$4.2 million after the income tax credits are included in the account.

 

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Venbo has decided to file an administrative appeal to the Brazilian Internal Revenue Service to have the calculations for the REFIS IV program reviewed. At this time, Venbo cannot estimate what the outcome of this claim will be and whether it will be able to reduce the liability to the amount it believes it owes.

These circumstances have the following impact on the company’s consolidated financial statements:

 

   

the liability relating to the financing of taxes, previously stated at R$10.0 million, has been raised to R$11.3 million, charged against other operating expenses, in the income statement;

 

   

the portion of the liability described above which Venbo is disputing has been reclassified from the reassessed taxes account to a contingency account;

 

   

as described above, Venbo’s total income tax credits that were used when the debt was consolidated was R$11.3 million;

According to the REFIS IV program, Venbo will pay 154 monthly installments of approximately R$47,300; 27 monthly installments of approximately R$111,700 and 2 monthly installments of approximately R$2,700, commencing in January 2012 with interest accruing at rates set by the Brazilian federal government, which is currently 8.5%p.y.

During the three months ended March 31, 2012, the Company paid approximately R$0.5 million (R$0.4 million in the same period of 2011) related to REFIS IV program.

Contingencies

 

   

ISS tax litigation

None of the Company’s revenues were subject to municipal tax on services rendered (ISS) until 2003. Notwithstanding, at the beginning of 2004, a new legislation stated that royalties were to be considered liable for ISS tax payment. Although the Company is claiming in court that royalties should not be understood as payment for services rendered and therefore should not be taxed under ISS legislation, the Company is monthly depositing in court the amount claimed.

As of March 31, 2012, the Company has deposited R$7.8 million (R$7.6 million in December 31, 2011, which is considered by the Company’s management, based on the opinion of its legal advisors, sufficient to cover the Company’s current ISS tax contingencies.

During the third quarter of 2009, the Company’s claim was partially settled in court. The decision was for Rio de Janeiro municipality to reimburse the Company approximately R$0.5 million taxed before the ISS new legislation was enacted. The Company is studying how probable tax credits to be received from the municipality could be offset against taxes to be paid to the municipality, since the Company is currently depositing the amount due in court. Because of the uncertainty of realizing this tax credit, the Company did not recognize the related amount as a gain.

 

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The referred change in ISS tax legislation triggered much debate on whether marketing fund contribution and initial fees paid by franchisees should be considered services rendered and be liable for ISS tax payment. The Company and its legal advisors understand that those figures are not covered by the ISS legislation and, accordingly, they are not subject to such taxation. The Company and its legal advisors are working to adopt all necessary measures to avoid an inadequate interpretation of ISS taxation that could lead on marketing fund contribution and initial fees.

 

   

Labor litigation

During 2005, the Company was ordered to pay to a former employee R$480,000. Although unusually high, the Company cannot guarantee it will not receive other labor complaints of similar magnitude.

As of March 31, 2012 the Company accounted for labor related liabilities the amount of R$1.6 million (R$1.5 million in December 31, 2011), which is considered by Management, based on the opinion of its legal advisors, sufficient to cover the Company’s existing labor contingencies.

Other contingencies

As of March 31, 2012 the Company had other unresolved claims pending related to the former owner of Venbo, to franchisees or ex-franchisees, to owners of properties where the Company held lease contracts, to former employees and others, for which its legal advisors evaluated as possible and favorable outcome. For those claims no liability was recorded in the Company’s balance sheet as per the accounting practices.

NOTE 7 – DEFERRED INCOME

The Company settles agreements with beverage and food suppliers and for each product, the Company negotiates a monthly performance bonus which will depend on the product sales volume to its chains (including both own-operated and franchise operated). The performance bonus, or vendor bonuses, can be paid monthly or in advance (estimated), depending on the agreement terms negotiated with each supplier.

When a vendor bonus is received in advance in cash, it is recorded as an entry in the “Cash and cash equivalents” with a corresponding credit in deferred income and is recognized on a straight line basis over the term of the related supply agreement on a monthly basis.

Performance bonuses may also include Exclusivity agreements, which are normally paid in advance by suppliers.

 

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NOTE 8 – TREASURY STOCK

In the last quarter of 2004, the Company’s Board of Directors approved a stock repurchase plan involving the repurchase of as many as 200,000 shares of its own common stock. The plan’s goal is to optimize the cash generated in the United States, and the repurchase limit was increased by 200,000 shares on October 18, 2006.

During the first quarter of 2011, the Company repurchased 8,325 shares related to such plan. During the first quarter of 2012, the Company did not repurchase any share under the referred stock repurchase plan.

Up to March 31, 2012, the Company repurchased a total amount of 343,490 shares and the accumulated stock purchases totaled R$2.1 million. Those transactions are accounted for as a reduction of Paid in Capital and an increase in treasury stock, in the Shareholders’ Equity.

NOTE 9 – SEGMENT INFORMATION

The Company owns and operates, both directly and through franchisees, Bob’s chain, Brazil’s second largest fast food hamburger restaurant chain. The Company owns and operates, through its subsidiaries Venbo, LM and PCN, 38 points of sale under the Bob’s brand.

Since April 2007, the Company has operated the KFC brand in Brazil through its wholly-owned subsidiary, CFK. Presently, the Company owns and operates, through its subsidiaries CFK, CFK SP and MPSC, 8 stores in Rio de Janeiro under the trade name KFC.

Since December 1, 2008, the Company has operated the Pizza Hut brand in São Paulo, Brazil, through its subsidiary IRB. It currently operates 18 stores under the Pizza Hut brand.

Since September, 2008, the Company has operated the Doggis brand in Rio de Janeiro through its subsidiary, DGS. During 2011 the Company converted all of our own-operated Doggis’ stores to franchised stores and inaugurated 9 new franchised stores in 2011.

Currently, most of the Company’s operations are concentrated in southeastern Brazil. As of March 31, 2012, all point sales operated by the Company listed above were located at that region which provided 100.0% of total Net Revenues from Own-operated Restaurants for the year. In addition, from the total of 826 franchise-operated points of sales, 434 were located at the same region, providing 56.5% of Net Revenues from Franchisees.

Outside Brazil, the Bob’s brand is also present through franchise operations in Angola, Africa (five stores) and, since the last quarter of 2009, in Chile, South America (eight stores). These operations are not material to our overall results.

 

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The Company manages and internally reports its operations in two segments: (1) own-stores operations (2) franchise operations. The following tables present the Company’s revenues, costs/expenses and operating income per segment:

 

00000000 00000000
R$ 000’    Results from own-stores operations  
     Three months ended March 31,  
     2012     2011  

Net Restaurant Sales

     43,617        40,146   

Store Costs and Expenses

    

Food, Beverage and Packaging

     (14,921     (13,524

Payroll & Related Benefits

     (9,161     (8,632

Restaurant Occupancy

     (5,920     (4,755

Contracted Services

     (3,436     (4,905

Depreciation and Amortization

     (1,491     (1,569

Royalties charged

     (1,826     (1,384

Other Store Costs and Expenses

     (3,765     (3,185
  

 

 

   

 

 

 

Total Store Costs and Expenses

     (40,520     (37,954
  

 

 

   

 

 

 

Operating margin

     3,097        2,192   
  

 

 

   

 

 

 

 

00000000 00000000
R$ 000’    Results from franchise operations  
     Three months ended March 31,  
     2012     2011  

Net Franchise Revenues

     10,011        7,610   

Payroll & Related Benefits

     (2,052     (1,705

Occupancy expenses

     (347     (243

Travel expenses

     (225     (192

Contracted Services

     (116     (196

Other franchise cost and expenses

     (339     (232
  

 

 

   

 

 

 

Total Franchise Costs and Expenses

     (3,079     (2,568
  

 

 

   

 

 

 

Operating margin

     6,932        5,042   
  

 

 

   

 

 

 

Cost and expenses that are exclusively related to own-operated stores – even the ones incurred at the headquarters - are considered in the item “Results from own-store operations”.

Cost and expenses that are exclusively related to franchisee operated stores – even the ones incurred at the headquarters - are considered in the item “Results from franchise operations”.

There are items that support both activities, such as (i) administrative expenses (finance department collects the receivables from franchise but also reviews daily own store sales); (ii) selling expenses (our marketing campaigns enhance the sales of our stores as well as the sales of our franchisees); (iii) interest expense (income); (iv) income tax (benefits); (v) exclusivity and other agreements with suppliers; and (vi) extraordinary items. Such items were not included in none of the segment results disclosed in the table above because (a) their segregation would require a high level of complexity and (b) the chief operating decision maker relies primarily on operating margins to assess the segment performance.

Currently, besides the accounts receivables from franchisees (derived from franchise fees, royalties, and marketing fund), the Company does not have assets exclusively used at the franchise business. Accordingly, except for those receivables, assets presented in the Consolidated Balance Sheets are used at the restaurant operating business.

 

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The Company also manages its business concerning each of the brands it operates. Own-stores operation conducted by the Company provided the following figures per brand:

 

    Results from Bob’s
brand operations
    Results from KFC’s
brand operations
    Results from Pizza Hut’s
brand operations
    Results from Doggis’
brand operations
 
R$ 000’   Three months ended March 31,     Three months ended March 31,     Three months ended March 31,     Three months ended March 31,  
    2012     2011     2012     2011     2012     2011     2012 (a)     2011  

Revenues

  R$ 18,326      R$ 18,285      R$ 7,987      R$ 6,214      R$ 17,304      R$ 14,936      R$ —        R$ 711   

Food, Beverage and Packaging

    (7,176     (6,816     (3,034     (2,338     (4,711     (3,992     —          (378

Payroll & Related Benefits

    (3,967     (4,033     (1,841     (1,497     (3,353     (2,828     —          (273

Occupancy expenses

    (2,482     (1,950     (1,496     (814     (1,942     (1,812     —          (180

Contracted Services

    (1,145     (2,035     (579     (907     (1,712     (1,829     —          (134

Depreciation and Amortization

    (502     (592     (409     (296     (579     (625     —          (56

Royalties charged

    —          —          (699     (402     (1,127     (982     —          —     

Other Store Costs and Expenses

    (1,465     (1,719     (997     (561     (1,304     (850     —          (55
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Own-stores cost and expenses

    (16,737     (17,145     (9,055     (6,815     (14,728     (12,918     —          (1,076
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating margin

  R$ 1,589      R$ 1,140      R$ (1,068   R$ (601   R$ 2,576      R$ 2,018      R$ —        R$ (365
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Below we provide the segment information and its reconciliation to the Company’s income statement:

 

R$ 000’    Three months ended March 31,  
     2012     2011  

Bob’s Operating Income

   R$ 1,589      R$ 1,140   

KFC’s Operating Loss

     (1,068     (601

Doggi’s Operating Loss

     —          (365

Pizza Hut’s Operating Income

     2,576        2,018   
  

 

 

   

 

 

 

Total Operating Income

     3,097        2,192   

Income from franchise operations

     6,932        5,042   
  

 

 

   

 

 

 

Unallocated Marketing Expenses

     (1,351     (1,015

Unallocated Administrative Expenses

     (8,602     (6,904

Unallocated Other Operating Expenses

     (1,121     (1,419

Unallocated Net Revenues from Trade Partners

     6,591        6,792   

Unallocated Other income

     320        397   

Unallocated Depreciation and Amortization

     (277     (210

Unallocated Net result of assets sold and impairment of assets

     (44     (2

Unallocated Interest Expenses

     (139     (44
  

 

 

   

 

 

 

Total Unallocated Expenses

     (4,623     (2,405
  

 

 

   

 

 

 

NET INCOME BEFORE INCOME TAX

     5,406        4,829   
  

 

 

   

 

 

 

NOTE 10 – SUBSEQUENT EVENTS

On May 3, 2012, Brazil Fast Food and YRI announced the satisfactory completion of the first phase of their efforts to expand the KFC brand in Brazil, pursuant to which the Company was engaged to provide franchise support services to KFC franchisees and to develop the KFC brand, upon its reentry into Brazil.

Beginning in May 2012, YRI will directly manage its franchise business in Brazil, supporting both of its KFC and Pizza Hut businesses in Brazil from its Restaurant Support Center in São Paulo, which will be resourced to support the growth of both brands.

YRI and BFFC will remain close partners as BFFC will continue to contribute to the development of YRI’s brands as a KFC franchisee focused in Rio de Janeiro and São Paulo and as a Pizza Hut franchisee with operations in the São Paulo metropolitan area. In addition, BFFC will continue developing the other brands in its portfolio, including Bob’s and Doggis, as well as potentially other new brands in the future.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis (“MD&A”) is intended to help readers understand the results of the Company’s operations, its financial condition and cash flows. The MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes to the financial statements.

Special Note about Forward-Looking Statements

Certain statements in the Management’s Discussion and Analysis (“MD&A”) other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the company’s Annual Report on Form 10-K for the year ended December 31, 2011. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

OUR BUSINESS

References to “we”, “us” or the “Company” are to Brazil Fast Food Corp.

Our Company was incorporated in Delaware in 1992.

In 1996, we acquired 100.0% of the capital of Venbo Comercio de Alimentos Ltda. (“Venbo”), a Brazilian limited liability company that owns and operates, both directly and through franchisees, Bob’s hamburger fast food chain.

In 2006, we established a holding company in Brazil called BFFC do Brasil Participações Ltda. (“BFFC do Brasil”, formerly 22N Participações Ltda.), to consolidate all our business in the country and allow us to pursue our multi-brand program.

In 2007, we reached an agreement with Yum! Brands, owner of the KFC brand. By this agreement, BFFC do Brasil, through its subsidiary CFK Comércio de Alimentos Ltda. (“CFK”, formerly Clematis Indústria e Comércio de Alimentos e Participações Ltda.), started to conduct the operations of directly owned and operated KFC restaurants as a Yum! Brands franchisee, and took over the management, development and expansion of the KFC chain in Brazil.

In 2008, we reached an agreement with Restaurants Connection International Inc. (“RCI”) to acquire, through its wholly-owned holding subsidiary, BFFC do Brasil, 60% of Internacional Restaurantes do Brasil (“IRB”), which operates Pizza Hut restaurants in the city of São Paulo as a Yum! Brands franchisee. The remaining 40% of IRB is held by another Brazilian company of which IRB’s current CEO is the main stockholder. IRB also operates a coffee concept brand called “In Bocca al Lupo”, which is present as a “corner” operation, inside Pizza Hut stores.

 

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Also in 2008, we reached an agreement with Gastronomía & Negocios Sociedad Anonima (“G&N”, formerly Grupo de Empresas Doggis Sociedad Anonima), the leading food service company in Chile. By this agreement, BFFC do Brasil would establish a Master Franchise to manage, develop and expand the Doggis hot-dog chain in Brazil through own-operated restaurants and franchisees and G&N would establish a Master Franchise to manage, develop and expand the Bob’s hamburger chain in Chile through own-operated restaurants and franchisees. The Master Franchise established in Brazil was named DGS Comercio de Alimento S.A. (“DGS”) and the Master Franchise established in Chile was named BBS S.A. (“BBS”). BFFC do Brasil has 20% of BBS and G&N has 20% of DGS.

We have five Bob’s franchised restaurants in Luanda, the capital of Angola; although we have been receiving royalties attributable to this operation, the total amount received is not relevant to our operations. We also have eight Bob’s franchised restaurants in Chile owned by BBS. The figures are also not material in our consolidated financial statements but they are disclosed in special notes in the financial chapters of this Form 10-Q for the three months ended March 31, 2012.

Our revenues are comprised of retail sales at Company restaurants and kiosks, franchise revenues from initial fees paid upon the signing of a new franchise contract or franchise contract renewal and royalty fees based on a percentage of sales reported by franchise restaurants and kiosks, performance bonus from trade partners’ agreements, and property income from restaurants that we lease or sublease to franchisees for a period no longer than one year.

We, through BFFC do Brasil, manage the second largest fast food chain in Brazil based on number of system units.

Subsequent Events

Beginning in May 2012, Yum! Restaurants International (“YRI”) will directly manage its franchise business in Brazil, supporting both of its KFC and Pizza Hut businesses in Brazil from its Restaurant Support Center in São Paulo, which will be resourced to support the growth of both brands. See Note 11 to the consolidated financial statements contained herein for more information.

On May 3, 2012, Brazil Fast Food and YRI announced the satisfactory completion of the first phase of their efforts to expand the KFC brand in Brazil, pursuant to which the Company was engaged to provide franchise support services to KFC franchisees and to develop the KFC brand, upon its reentry into Brazil. Brazil Fast Food and YRI will remain close partners as the Company will continue to contribute to the development of YRI’s brands as a KFC franchisee focused in Rio de Janeiro and São Paulo and as a Pizza Hut franchisee with operations in the São Paulo metropolitan area.

 

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RESULTS OF OPERATIONS - COMPARISON OF QUARTERS ENDED MARCH 31, 2012 AND 2011

(Amount in thousand of Brazilian Reais)

The following table sets forth the statement of operations for quarters ended March 31, 2012 and 2011. All the operating figures are stated as a percentage of total net revenues. However, the details of store costs and expenses and franchise expenses also include these figures as a percentage of net revenues from own-operated restaurants and net franchise revenues, respectively.

 

R$ 000’    3 Months
Ended
March 31, 2012
    %     3 Months
Ended
March 31, 2011
    %  
REVENUES         

Net Revenues from Own-operated Restaurants

   R$ 43,617        72.0   R$ 40,146        73.1

Net Revenues from Franchisees

     10,011        16.5     7,610        13.9

Revenues from Special Agreements

     6,591        10.9     6,792        12.4

Other Income

     320        0.5     397        0.7
  

 

 

     

 

 

   
TOTAL REVENUES      60,539        100.0     54,945        100.0
OPERATING COST AND EXPENSES         

Store Costs and Expenses

     (40,520     -66.9     (37,900     -67.5

Franchise Costs and Expenses

     (3,079     -5.1     (2,568     -4.7

Marketing Expenses

     (1,351     -2.2     (1,015     -1.8

Administrative Expenses

     (8,602     -14.2     (7,768     -14.1

Other Operating Expenses

     (1,398     -2.3     (1,629     -3.0

Net result of assets sold and impairment of assets

     (44     -0.1     (2     0.0
  

 

 

     

 

 

   

TOTAL OPERATING COST AND EXPENSES

     (54,994     -90.8     (50,072     -91.1
  

 

 

     

 

 

   

OPERATING INCOME

     5,545        9.2     4,873        8.9
  

 

 

     

 

 

   

Interest Income (Expense)

     (139     -0.2     (44     -0.1
  

 

 

     

 

 

   

NET INCOME BEFORE INCOME TAX

     5,406        8.9     4,829        8.8
  

 

 

     

 

 

   

Income taxes

     (1,824     -4.2     (592     -1.5
  

 

 

     

 

 

   

NET INCOME BEFORE NON-CONTROLLING INTEREST

     3,582        8.2     4,237        10.6
  

 

 

     

 

 

   

Net loss attributable to non-controlling interest

     (182     -0.4     (7     0.0
  

 

 

     

 

 

   

NET INCOME ATTRIBUTABLE TO BRAZIL FAST FOOD CORP.

     3,400        7.8     4,230        10.5
  

 

 

     

 

 

   

 

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Net Revenues from Own-Operated Restaurants

Net restaurant sales for the company-owned retail outlets increased by R$3.5 million, or 8.6%, to R$43.6 million for the quarter ended March 31, 2012, as compared to R$40.1 million for the quarter ended March 31, 2011.

The breakdown of net revenues from the Company’s own restaurants and the percentage change from quarter to quarter is as follows:

 

     Net revenues from own-operated restaurants  
     3 Months
Ended
March 31,
     Increase
(Decrease)
    3 Months
Ended
March 31,
 

Brand

   2012      %     2011  

Bob’s

   R$ 18,326         0.2   R$ 18,285   

KFC

     7,987         28.5     6,214   

IRB - Pizza Hut

     17,304         15.9     14,936   

DOGGIS

     —           -100.0     711   
  

 

 

      

 

 

 

Consolidated Net Revenues

   R$ 43,617         8.6   R$ 40,146   
  

 

 

      

 

 

 

Based on the criterion of same store sales, which only includes stores that have been open for more than one year, Bob’s net restaurant sales in the three months ended March 31, 2012 were 8.0% higher than in the same three-month period in 2011. However, Bob’s overall sales decreased due to the reduction in the number of points of sale (from 40 in March 31, 2011 to 38 at March 31, 2012).

Under the criterion of same store sales, net restaurant sales saw an approximately 8.5% increase for the KFC brand between the three months ended March 31, 2012 and the equivalent period in 2011. Such increase is due to actions improving delivery business, and mailing and web sales and promotions, such as R$1.00 ice cream and family combos. However, KFC’s overall sales decreased due to the reduction in the number of points of sale (from 10 in March 31, 2011 to 8 at March 31, 2012).

During 2011 the Company converted all of our own-operated Doggis’ stores to franchised stores. For this reason the Company’s results for the three months ended March 31, 2012 do not disclose any Doggis’ restaurant sales in 2012.

The decrease in the number of Bob’s, KFC and DGS’s point of sales reflects the company’s strategy to limit its direct operations to its most profitable outlets and to focus on growing its franchise network.

 

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Under the criterion of same store sales, Pizza Hut’s net restaurant sales increased by approximately 14.9% between the three–month period ended March 31, 2012 and the equivalent period of 2011. Pizza Hut’s sale increase is attributable to (i) review alteration of the menus including products and product combinations and selling prices; (ii) the design of specific actions to selected restaurants; (iii) co-branding deals with Nestle, Mars and Hershey’s products (iv) discounted prices during Monday to Thursday; and (v) implementation of an all-you-can-eat-system on selected restaurants on Mondays. The increase of sales is also attributable to an to the increase in the number of point of sales (from 17 at March 31, 2011 to 18 at March 31, 2012).

Net Franchise Revenues

Net franchise revenues are comprised of initial fees (due upon the signing of a new franchise contract) and royalty fees (a percentage on sales paid by stores operated by franchisees), as set forth below:

 

R$’000    3 months ended March, 31  
     2011      2010  

Net Franchise Royalty Fees

     8,867         6,696   

Initial Fee

     1,144         914   
  

 

 

    

 

 

 

Net Franchise Revenues

     10,011         7,610   
  

 

 

    

 

 

 

Net franchise revenues increased R$2.4 million, or 31.6%, to R$10.1 million for the three months ended March 31, 2012 as compared to R$7.6 million for the three months ended March 31, 2011.

This increase is attributable to the growth of the Company’s franchise business from 709 retail outlets as of March 31, 2011 to 826 as of March 31, 2012.

Currently, the Bob’s brand accounts for most of the franchise activity.

Alongside the royalty fees and initial fees, the Company receives marketing contributions from its franchisees, which are designed to finance corporate marketing investments and are accounted for as discussed in “Marketing Expenses,” which is presented later in this MD&A.

Revenue from Trade Partners and Other Income

We regularly negotiate commercial agreements with leading suppliers to benefit all restaurant chains under our management. We negotiate, through a specialized third party company, with suppliers of equipment, appliances, packaging, cleaning material and uniforms targeting the constant modernization of our chains, including development of new equipments and appliances, their regulatory and visual identification adequacy and reduced costs. We also negotiate with beverage and food suppliers, but due to exclusive formulas, those negotiations require confidentiality agreements and extended time for analysis and conclusion. We strategically decide whether to use one or more suppliers for each product and negotiate a monthly performance bonus which will depend on the product sales volume to our chains.

 

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The Company settles agreements with beverage and food suppliers and for each product, the Company negotiates a monthly performance bonus which will depend on the product sales volume to its chains (including both own-operated and franchise operated). The performance bonus can be paid monthly or in advance (which are estimated), depending on the agreement terms negotiated with each supplier. The performance bonus is recognized as a credit in the Company’s income statement (under “revenues from trade partners”). Such revenue is recorded when cash from vendors is received, since it is difficult to estimate the receivable amount and significant doubts about its collectability exists until the vendor agrees with the exact bonus amounts.

The rise in the number of franchisees, from 709 on March 31, 2011 to 826 on March 31, 2012, together with the expansion of the multi-brand concept, has given the Company’s management greater bargaining power with its suppliers.

In addition, the growth of the franchisee chain has boosted the volume of purchases made from suppliers. According to the terms of its Trade Partner Agreements, this means the Company has benefited from volume-related performance bonuses from its suppliers.

Other income is mainly comprised of lease of Company’s properties and nonrecurring gains.

Store Costs and Expenses

Store costs and expenses represented (66.9%) and (69.1%) of total revenues for the quarters ended March 31, 2012 and 2011, respectively.

Analyzed as a segment (own-store operations), the respective store costs and expenses for own-operated restaurants as a percentage of net revenues can be seen below:

 

R$ 000’    3 Months
Ended
March 31, 2012
    %     3 Months
Ended
March 31, 2011
    %  
STORE RESULTS         

Net Revenues from Own-operated Restaurants

     43,617        100.0     40,146        100.0

Store Costs and Expenses

        

Food, Beverage and Packaging

     (14,921     -34.2     (13,524     -33.7

Payroll & Related Benefits

     (9,161     -21.0     (8,632     -21.5

Restaurant Occupancy

     (5,920     -13.6     (4,755     -11.8

Contracted Services

     (3,436     -7.9     (4,905     -12.2

Depreciation and Amortization

     (1,491     -3.4     (1,569     -3.9

Royalties charged

     (1,826     -4.2     (1,384     -3.4

Other Store Costs and Expenses

     (3,765     -8.6     (3,185     -7.9

Total Store Costs and Expenses

     (40,520     -92.9     (37,954     -94.5
  

 

 

     

 

 

   

STORE OPERATING INCOME

     3,097        7.1     2,192        5.5
  

 

 

     

 

 

   

 

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Food, Beverage and Packaging Costs

The table below sets forth the cost of food per brand and its respective percentage of revenues:

 

R$’000    3 Months ended
March 31, 2012
    3 Months ended
March 31, 2011
 

Brand

   Revenues      Cost of Food     %     Revenues      Cost of Food     %  

Bob’s

   R$ 18,326       R$ (7,176     -39.2   R$ 18,285       R$ (6,816     -37.3

KFC

     7,987         (3,034     -38.0     6,214         (2,338     -37.6

IRB - Pizza Hut

     17,304         (4,711     -27.2     14,936         (3,992     -26.7

DOGGIS

     —           —          —          711         (378     -53.2
  

 

 

    

 

 

     

 

 

    

 

 

   

Consolidated

   R$ 43,617       R$ (14,921     -34.2   R$ 40,146       R$ (13,524     -33.7
  

 

 

    

 

 

     

 

 

    

 

 

   

The overall increase in the cost of food, beverages and packaging as a percentage of Net Revenues from Own-Operated Restaurants from 2011 to 2012 was mainly due a review of sales prices which derived lower margins. Also, the cost of food increased due to a higher purchase price of some raw materials used at Bob’s and KFC, such as bread and packaging products, and used at Pizza Huts such as cheese and soft drinks. This increase was partially offset by a reduction in the purchase price of other important products, like rice, beans and french fries at KFC, and ice-cream, french fries and hamburger at Bobs.

Payroll & Related Benefits

The table below sets forth the payroll costs per brand and its respective percentage of revenues:

 

R$’000    3 Months ended
March 31,2012
    3 Months ended
March 31,2011
 

Brand

   Revenues      Payroll     %     Revenues      Payroll     %  

Bob’s

   R$ 18,326       R$ (3,967     -21.6   R$ 18,285       R$ (4,033     -22.1

KFC

     7,987         (1,841     -23.0     6,214         (1,497     -24.1

IRB - Pizza Hut

     17,304         (3,353     -19.4     14,936         (2,828     -18.9

DOGGIS

     —           —          —          711         (274     -38.5
  

 

 

    

 

 

     

 

 

    

 

 

   

Consolidated

   R$ 43,617       R$ (9,161     -21.0   R$ 40,146       R$ (8,632     -21.5
  

 

 

    

 

 

     

 

 

    

 

 

   

The Payroll & Related Benefits costs as a percentage of Net Revenues from Own-Operated Restaurants remained at the same level for the quarterly period ended March 31, 2012 as compared to the same period in 2011.

 

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Restaurant Occupancy Costs and Other Expenses

The table below sets forth the occupancy costs per brand and its respective percentage of revenues:

 

R$’000    3 Months ended
March 31, 2012
    3 Months ended
March 31, 2011
 

Brand

   Revenues      Occupancy     %     Revenues      Occupancy     %  

Bob’s

   R$ 18,326       R$ (2,482     -13.5   R$ 18,285       R$ (1,950     -10.7

KFC

     7,987         (1,496     -18.7     6,214         (814     -13.1

IRB - Pizza Hut

     17,304         (1,942     -11.2     14,936         (1,812     -12.1

DOGGIS

     —           —          —          711         (179     -25.2
  

 

 

    

 

 

     

 

 

    

 

 

   

Consolidated

   R$ 43,617       R$ (5,920     -13.6   R$ 40,146       R$ (4,755     -11.8
  

 

 

    

 

 

     

 

 

    

 

 

   

The increase in restaurant occupancy costs and other expenses as a percentage of Net Revenues from Own-Operated Restaurants is mainly due to higher store rents, as the rent agreements were adjusted, per their terms, by the IGP-M inflation index, which was 3.3% p.y.

Contracted Services

The table below sets forth the contracted service costs per brand and its respective percentage of revenues:

 

R$’000    3 Months ended
March 31, 2012
    3 Months ended
March 31, 2011
 

Brand

   Revenues      Services     %     Revenues      Services     %  

Bob’s

   R$ 18,326       R$ (1,145     -6.2   R$ 18,285       R$ (1,171     -11.1

KFC

     7,987         (579     -7.2     6,214         (907     -14.6

IRB - Pizza Hut

     17,304         (1,712     -9.9     14,936         (1,829     -12.2

DOGGIS

     —           —          —          711         (134     -18.8
  

 

 

    

 

 

     

 

 

    

 

 

   

Consolidated

   R$ 43,617       R$ (3,436     -7.9   R$ 40,146       R$ (4,905     -12.2
  

 

 

    

 

 

     

 

 

    

 

 

   

The main reason for the reduction in expenses related to contracted services as a percentage of net revenues from own-operated restaurants were due to reductions in maintenance, delivery and utilities costs as well as the reduction in the number of point of sales.

Depreciation and Amortization (Stores and Headquarters)

Depreciation and amortization nominal costs remained at the same level for the quarterly period ended March 31, 2012 as compared to the same period in 2011.

 

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Other Store Cost and Expenses

Other store cost and expenses expressed as a percentage of net revenues from own-operated restaurants increased from the quarter ended March 31, 2011 to the same period ended March 31, 2012 mainly due to increase of office and cleaning materials cost which were partially offset by selling expenses attributable to own-operated restaurants.

Franchise Costs and Expenses

As a percentage of Total Revenues, Franchise Costs and Expenses were (5.1%) and (4.7%) for the quarters ended March 31, 2012 and 2011, respectively.

Analyzed as a segment (franchise operations), franchise costs and expenses had the following behavior against net franchise revenues:

 

R$ 000’    Results from franchise operations        
     Three months ended March 31,        
     2012     %     2011     %  

Net Franchise Revenues

     9,783        100.0     7,610        100.0

Payroll & Related Benefits

     (2,052     -21.0     (1,705     -22.4

Occupancy expenses

     (347     -3.5     (243     -3.2

Travel expenses

     (225     -2.3     (192     -2.5

Contracted Services

     (116     -1.2     (196     -2.6

Other franchise cost and expenses

     (339     -3.5     (232     -3.0
  

 

 

     

 

 

   

Total Franchise Costs and Expenses

     (3,079     -31.5     (2,568     -33.7
  

 

 

     

 

 

   

Operating margin

     6,704        68.5     5,042        66.3
  

 

 

     

 

 

   

Franchise costs and expenses expressed as a percentage of net franchise revenues were approximately (31.5%) and (33.7%) for the three months ended March 31, 2012 and 2011, respectively. The Company managed to increase its Franchise Revenues in 2012, keeping its franchise department almost at the same size. Accordingly, despite the slight nominal increase in franchise expenses during the first three months of 2012, there was an optimization of them since franchise revenues had greater growth in the same period.

Marketing, General and Administrative Expenses

Marketing Expenses

Bob’s Brand

According to our franchise agreements, the Bob’s marketing fund dedicated to advertising and promotion is comprised of financial contributions paid by the franchisees and own-operated restaurants. The Company manages the fund which must be used for common interest of the Bob’s chain through the best efforts of our marketing department to increase restaurant sales.

The marketing amounts due from franchisees are billed monthly and recorded on an accrual basis. A corresponding amount is recorded as a liability.

 

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In general, Bob’s franchisees contribute monthly 4.0% of their monthly gross sales to the Bob’s marketing fund. Since 2006, we have also contributed 4.0% of our gross sales from own-operated restaurant monthly gross sales (sales derived from special events are not subject to such contribution). These contributions may be deducted from our marketing department expenses if previously agreed with our franchisees. However, total marketing investments may be greater than 4.0% of combined sales if a supplier makes an extra contribution (joint marketing programs) or if we use more of our own resources on marketing, advertising and promotions.

We primarily invest the Bob’s marketing fund resources in nationwide advertising programs (commercials or sponsorship on TV, radio and outdoors). Our franchisees may also invest directly in advertising and promotions for their own stores, with our consent.

The Bob’s marketing fund resources are not required to be invested during the same month or year that they were received, but must be used in subsequent periods.

Periodically, we meet with the Bob’s Franchisee Council, a council formed by and consisting of, elected Bob’s franchisees with the objective to participate in some of the Bob’s chain’s affairs, to divulge the marketing fund accounts in a report that is similar to a cash flow statement. This statement discloses the marketing contributions received and the marketing expenses, both on a cash basis.

The balance of any resources from the marketing fund that is not spent is recognized as accrued accounts payable and totaled R$1.8 million as of March 31, 2012 (as compared to R$3.1 million as of December 31, 2011). This balance represents contributions made by Venbo and franchisees that have not yet been used in campaigns.

The marketing fund expenses on advertising and promotions are recognized as incurred expenses. Total marketing investments financed by the marketing fund amounted to R$12.1 million for the three-month periods ended March 31, 2012, (as compared to R$7.8 million for the three-month period then ended March 31, 2011).

KFC and Pizza Hut Brands

We contribute 0.5% of KFC’s and Pizza Hut’s monthly net sales into a marketing fund managed by YUM! Brands - Brazil. In addition, the Company is also committed to investing 5.0% of KFC’s and Pizza Hut’s monthly net sales in local marketing and advertising.

The marketing expenses on KFC and Pizza Hut advertising and promotions are recognized as incurred and amounted to R$3.6 million and R$2.1 million for the three-month periods ended March 31, 2012 and 2011, respectively.

Doggis Brand

We are committed to investing at least 4% of the Doggis restaurant sales in local marketing expenses. There is no contribution to a marketing fund.

Local marketing expenses on Doggis advertising and promotions are recognized as incurred and amounted to R$0.1 million for both three-month periods ended March 2012 and 2011.

As a percentage of total revenues, marketing expenses were approximately (2.2%) and (1.8%) for the three month periods ended March 31, 2012 and 2011, respectively.

 

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General and Administrative Expenses

As a percentage of total revenues, general and administrative expenses were approximately (14.2%) and (12.6%) for the three months ended March 31, 2012 and 2011, respectively.

This nominal increase is attributable to outsourcing of various positions at our finance department, deriving labor severance costs, increase of salaries due to union agreements, as well as increase of administrative personnel in order to support the Company’s growth. However, administrative expenses expressed as a percentage of Total revenues, kept at the same level from 2011 and 2012.

Other Operating Expenses

Other operating expenses are mainly comprised of uncollectible receivables, depreciation, preopening and non recurring expenses. Other operating expenses expressed as a percentage of Total Revenues were (2.3%), for the three months ended March 31, 2012 and (3.0%) for the three months ended March 31, 2011.

The following table sets forth the breakdown of Other Operating Expenses:

 

     Three months ended  
R$ 000’    March 31,  
     2012     2011  

Uncollectable receivables

   R$ (21   R$ 272   

Depreciation of Headquarters’ fixed assets

     (277     (210

Non-recurring logistics expenses

     —          (1,150

Accruals for contingencies

     (626     (301

Preopening and other expenses

     (474     (240
  

 

 

   

 

 

 
   R$ (1,398   R$ (1,629
  

 

 

   

 

 

 

Impairment of Assets and Net Result of Assets Sold

The Company reviews its fixed assets in accordance with guidance on the impairment or disposal of long-lived assets in the Property Plant and Equipment Topic of the FASB ASC 360.

During the quarters ended March 31, 2012 and 2011, the Company’s review in accordance with FASB ASC 360, resulted in no charge to the income statement.

Interest Expense, net

Interest expense as a percentage of Total Revenues remained constant from 2011 to 2012.

Income Taxes

As a percentage of net restaurant sales, income taxes were approximately (4.2)% and (1.5)% for the three months ended March 31, 2012 and 2011, respectively.

From January, 2007 to December 2011 the Company recorded tax credits derived from its restructuring, completed on December 31, 2006, when all of the Company’s businesses in Brazil started to be consolidated through BFFC do Brasil. Since this credit extinguished at the end of 2011, income tax expenses increased from the first quarter of 2011 to the same period in 2012.

 

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LIQUIDITY AND CAPITAL RESOURCES (Amounts in thousand of Brazilian reais)

A) Introduction

Since March 1996, we have funded our cumulative operating losses of approximately R$12.7 million and made acquisitions of businesses and capital improvements (including the refurbishment of some of the Company’s stores), for which we used cash remaining at the closure of our acquisition of Venbo, borrowed funds from various sources, and made private placements of our securities. As of March 31, 2012, we had cash on hand of approximately R$24.0 million - which included a R$21.2 million investment in cash equivalent - and a working capital of approximately R$17.6 million.

In the past, debts denominated in any other currency than Brazilian Reais increased with the major devaluation of the Brazilian Real at the beginning of 1999. A sequence of years with reduced sales, mainly due to the weak economic environment in Brazil, worsened the situation and we were not able to pay some of our obligations, including taxes. In the following years the payment of taxes in arrears was renegotiated with levels of Brazilian government so they could be paid off in monthly installments.

With the improvement of the Brazilian economy since 2002, our total revenues have increased and, joined to a capital injection of R$9.0 million, we have started to reduce our debt position. In 2003 we rescheduled much of the debt to long term. The continued improvement of sales led us to (i) drastically reduce our debts with financial institutions in 2005; and (ii) extinguish those debts and reverse its financial position to present time deposits with financial institutions at the end of 2006. The improved collection rate from our franchisees, commencing in 2005, also strengthened our current assets. In 2007 and the first three quarters of 2008, we maintained this positive scenario and recorded positive working capital.

Since the last quarter of 2008, when we increased our bank debt position in order to fund the acquisition of IRB, the expansion of the KFC stores and the startup of the Doggis brand, these transactions brought the Company’s working capital back into negative territory. After a sequence of positive results (operating income in the years of 2009, 2010 and 2011, as well as in the first quarter of 2012) the Company returned to positive working capital.

For the quarter ended March 31, 2012, we had net cash provided by operating activities of R$7.2 million (R$8.7 million in 2011), net cash used in investing activities of R$4.4 million (R$0.2 million in 2011) and net cash used by financing on activities of R$0.2 million (used R$3.2 million in 2011). Net cash used in investing activities was primarily the result of the Company’s investment in property and equipment to improve Company’s retail operations, mainly setting up new own-operated KFC and Pizza Hut stores. Net cash used in financing activities was mainly the result of repayments of borrowings from financial institutions to fund the IRB acquisition.

We have also invested approximately R$2.1 million in the financial market, re-purchasing 343,490 shares that had gained considerable value in the over-the-counter market where they are negotiated.

We have had a policy of retaining future earnings for the development of our business. Today, our dividend policy is subject to the discretion of the Board of Directors and depends upon a number of factors, including future earnings, financial condition, cash requirements, and general business conditions. Each year, the Board of Directors discusses our profits distribution while considering our investment programs.

 

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Although in 2008 and 2010 our Board of Directors decided to distribute cash dividends to our shareholders by virtue of our successful reorganization and increased operational margins, in 2009 and 2011 there were no dividends paid.

B) Debt Obligation - financial institutions

As of March 31 2012, we had the following debt obligations with financial institutions:

 

R$ 000’    March 31,     December 31,  
     2012 (unaudited)     2011  

Revolving lines of credit (a)

   R$ 15,726      R$ 16,054   

Other loan (b)

     479        537   
  

 

 

   

 

 

 
     16,205        16,591   

Less: current portion

     (5,479     (12,972
  

 

 

   

 

 

 
   R$ 10,726      R$ 3,619   
  

 

 

   

 

 

 

At March 31, 2012, future maturities of notes payable are as follows:

 

R$ 000’       

Remaining 2012

   R$ 11,285   

2013

     1,236   

2014

     1,236   

2015

     1,236   

2016

     1,213   
  

 

 

 
   R$ 16,205   
  

 

 

 

(a) Part of this debt (R$10.7 million) is due on demand from two Brazilian financial institutions at interest of approximately 14.0%p.y. Another portion (R$5.0 million) is payable to a Brazilian financial institution in 51 installments of R$92,600 (commencing on June 2012 and ending on November, 2016), plus interests of 13.5%p.y. All debts of this category are collateralized by certain officers and receivables.

(b) The debt was comprised of a lease facility with one private Brazilian institution for the funding of store equipment; final repayment was in October, 2011.

(c) Other loan was mainly comprised of loan taken out with UBS Pactual related to the acquisition of the Pizza Hut business in Brazil. This debt was fully repaid during 2011. The remaining debt is comprised of equipment financing with a Brazilian Government Bank (BNDES) and is due in 48 installments, with interests of 12.3% a.a.

The carrying amount of notes payable approximates fair value at March 31, 2012 because they are at market interest rates.

 

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C) Debt Obligation - taxes

Over the past ten years, the Brazilian government has launched four amnesty programs for domestic companies to pay off tax in arrears. To apply to each program, the companies had to abandon any litigation that they may have started against the Brazilian government, and to take on the liability under dispute in such litigation. In exchange, the amnesty programs guaranteed discounts of these tax debts and gave companies the opportunity to pay these debts at low interest rates over periods of time that could exceed ten years.

Venbo had outstanding tax debts from 1999, 2000 and 2002 and, as a consequence, applied for the four amnesty programs. Venbo’s administration believed that the government had incorrectly calculated its tax liabilities in each of the amnesty program, and until September 2009, Venbo had been discussing this matter with the Brazilian government on an administrative level.

Venbo enrolled in the fourth and last amnesty program in September 2009 (the “REFIS IV program”). Its aim was to take the original debts from the previous programs, update these debts by the Brazilian Federal Bank base interest rate, and deduct the payments made during the previous programs. The Brazilian government took two years to make this calculation. At the end of September 2011, the Brazilian government announced that Venbo’s consolidated tax debt was approximately R$22.4 million. Since the amnesty program allowed income tax credits to reduce the debt, Venbo was able to reduce its tax debts by the R$11.1 million it had in income tax credits.

Venbo disagrees with the amount calculated by the Brazilian government in September 2011. Venbo believes that the Brazilian government did not consider the payments made during the prior amnesty programs, which total of R$10.4 million. According to Venbo’s records, Venbo should owe R$4.2 million after the income tax credits are included in the account.

Venbo has decided to file an administrative appeal to the Brazilian Internal Revenue Service to have the calculations for the REFIS IV program reviewed. At this time, Venbo cannot estimate what the outcome of this claim will be and whether it will be able to reduce the liability to the amount it believes it owes.

These circumstances have the following impact on the company’s consolidated financial statements:

 

   

the liability relating to the financing of taxes, previously stated at R$10.0 million, has been raised to R$11.3 million, charged against other operating expenses, in the income statement;

 

   

the portion of the liability described above which Venbo is disputing has been reclassified from the reassessed taxes account to a contingency account;

 

   

as described above, Venbo’s total income tax credits that were used when the debt was consolidated was R$11.3 million;

According to the REFIS IV program, Venbo will pay 154 monthly installments of approximately R$47,300; 27 monthly installments of approximately R$111,700 and 2 monthly installments of approximately R$2,700, commencing in January 2012 with interest accruing at rates set by the Brazilian federal government, which is currently 8.5%p.y.

 

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During the three months ended March 31, 2012, the Company paid approximately R$0.5 million (R$0.4 million in the same period of 2011) related to the REFIS IV program.

D) Other Obligations

We also have long-term contractual obligations in the form of operating lease obligations related to the Company’s own-operated stores.

The future minimum lease payments under those obligations with initial or remaining noncancelable lease terms in excess of one year at March 31, 2012 are as follows:

 

R$ 000’       

Fiscal Year

   Contractual
Leases
 

Remaining 2012

   R$ 13,233   

2013

     13,164   

2014

     11,238   

2015

     5,579   

2016

     3,909   

Thereafter

     8,382   
  

 

 

 
   R$ 55,505   
  

 

 

 

Rent expense was R$4.6 million for the quarter ended March 31, 2012 (as compared to R$3.5 million during the same period in 2011).

We require capital primarily for the improvement of our owned and operated points of sale. Currently, all our owned-operated retail outlets are located in leased facilities. Our land and building operational leases are generally written for terms of five years with one or more five-year renewal options.

In the past, we generated cash and obtained financing sufficient to meet our debt obligations. We plan to fund our current debt obligations mainly through cash provided by our operations, borrowings and capital injections.

The average cost of opening a retail outlet is approximately R$200,000 to R$2,000,000 including leasehold improvements, equipment and beginning inventory, as well as expenses for store design, site selection, lease negotiation, construction supervision and the obtainment of permits.

We estimate that our capital expenditure for the remaining fiscal year of 2012 to be used for maintaining and upgrading our current restaurant network, making new investments in restaurant equipment, and expanding the KFC, Pizza Hut and Doggis chains in Brazil through own-operated stores, will come to approximately R$10.0 million. In 2012, we intend to focus our efforts on expanding both the number of our franchisees and the number of our franchised retail outlets, neither of which are expected to require significant capital expenditure. In addition, the expansion will provide income derived from initial fees charged on new franchised locations.

 

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As discussed above, we have contractual obligations in different forms. The following table summarizes our contractual obligations and financial commitments, as well as their aggregate maturities.

 

R$ 000’                            

Fiscal Year

   Contractual
Leases
     Fiscal debt
(REFIS IV)
     Loans Payable      Total  

Remaining 2012

   R$ 13,233       R$ 1,434       R$ 11,285       R$ 25,952   

2013

     13,164         1,912         1,236         16,312   

2014

     11,238         1,912         1,213         14,363   

2015

     5,579         1,912         —           7,491   

2016

     3,909         1,912         —           5,821   

Thereafter

     8,382         1,434         —           9,816   
  

 

 

    

 

 

    

 

 

    

 

 

 
   R$ 55,505       R$ 10,518       R$ 13,734       R$ 79,757   
  

 

 

    

 

 

    

 

 

    

 

 

 

Lease obligations are usually adjusted to keep in line with inflation, which is currently at 3.3% p.y. Fiscal debts are payable with interest, the rates of which are discussed in letter C above. All the amounts disclosed in the previous tables include interest incurred up to March 31, 2012 on an accrual basis.

We plan to address our immediate and future cash flow needs to include focusing on a number of areas including:

 

   

the expansion of Company’s franchisee base, which may be expected to generate additional cash flows from royalties and franchise initial fees without significant capital expenditures;

 

   

the improvement of food preparation methods in all stores to increase the operational margin of the chain, including acquiring new store’s equipment and hiring a consultancy firm for stores’ personnel training program;

 

   

the continuation of motivational programs and menu expansions to meet consumer needs and wishes;

 

   

the improvement and upgrade of our IT system;

 

   

the negotiation with suppliers in order to obtain significant agreements in long term supply contracts; and

 

   

the renegotiation of past due receivables with franchisees.

 

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The management’s discussion and analysis of the financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses as well as related disclosures. On an ongoing basis, we evaluate our estimates and judgments based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

We annually review our financial reporting and disclosure practices and accounting policies to ensure that they provide accurate and transparent information relative to the current economic and business environment. We believe that of our significant accounting policies (See the Notes to Consolidated Financial Statements or summary of significant accounting policies more fully disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011 in pages F-8 through F-51), the following involve a higher degree of judgment and/or complexity.

Foreign currency

Assets and liabilities recorded in functional currencies other than Brazilian Reais are translated into Brazilian Reais at the prevailing exchange rate as reported by the Central Bank of Brazil as of the balance sheet date. Revenues and expenses are translated at the weighted-average exchange rates for the year. The resulting translation adjustments are recognized in other comprehensive income. Gains or losses from foreign currency transactions, such as those resulting from the settlement of receivables or payables denominated in foreign currency, are recognized in the consolidated statement of operations as they occur.

Accounts receivable

Accounts receivable consist primarily of receivables from food sales, franchise royalties and assets sold to franchisees.

As of March 31, 2012 the Company has approximately 248 franchisees that operate approximately 826 points of sales. A few of them may undergo financial difficulties in the course of their business and may therefore fail to pay their monthly royalty fees.

In July 2010, the FASB issued ASU 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (ASU 2010-20), which significantly increases disclosures about credit quality of financing receivables and the allowance for credit losses, and requires disclosures to be made at a greater level of disaggregation. The amendments in ASU 2010-20 encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption. The adoption of this guidance in 2011 only resulted in increased disclosures related to the Company’s notes receivable.

If a franchisee fails to pay its invoices for more than six months in a row, one of the following procedures is adopted: either (i) the franchisee’s accounts receivable are written off if the individual invoices are below R$5,000; or (ii) the Company records an allowance for doubtful accounts with a corresponding reduction in net revenues from franchisees, if the individual invoices are over R$5,000.

In addition, the Company recognizes an allowance for doubtful receivables to cover any amounts that may be unrecoverable based upon an analysis of the Company’s prior collection experience, customer creditworthiness and current economic trends. After all attempts to collect a receivable have failed, the receivable is written off against this allowance.

 

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Despite writing-off those receivables on the accounting books or recording an allowance for doubtful accounts, the finance department keeps records of all uncollected receivables from franchisees for purposes of commercial negotiations.

When a franchisee has past due accounts due to unpaid royalty fees, the Company may reassess such debts with the franchisee and collect them in installments. The Company may also intermediate the sale of the franchise business to another franchisee (new or owner of another franchised store) and reschedule such accounts receivable as part of the purchase price. When either kind of agreement is reached and collectability of the past due amounts is reasonably assured, the Company records these amounts as “Franchisees - renegotiated past due accounts”.

Impairment or Disposal of Long-lived assets

The Company adopted guidance on the impairment or disposal of long-lived assets in the FASB ASC Topics Property Plant and Equipment and Intangibles Other than Goodwill, which require that an impairment loss shall be recognized if the carrying amount of a long-lived asset is not recoverable and its carrying amount exceeds its fair value. Also, such guidance require that long-lived assets being disposed of be measured at either the carrying amount or the fair value less cost to sell, whichever is lower, whether reported in continuing operations or in discontinued operations.

If an indicator of impairment (e.g. negative operating cash flows for the most recent trailing twelve-month period) exists for any group of assets, an estimate of undiscounted future cash flows produced by each restaurant within the asset grouping is compared to its carrying value. If any asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value as determined by an estimate of discounted future cash flows.

For purposes of impairment testing for our long-lived assets, we have concluded that an individual point of sale is the lowest level of independent cash flows. The Company reviews long-lived assets of such individual point of sales (primarily Property & Equipment and allocated intangible assets subject to amortization) that are currently operating annually for impairment, or whenever events or changes in circumstances indicate that the carrying amount of a point of sale may not be recoverable. The Company evaluates recoverability based on the point of sale’s forecasted undiscounted cash flows, which incorporate the best estimate of sales growth and margin improvement based upon our plans for the unit and actual results at comparable point of sales. For point of sales’ assets that are deemed to not be recoverable, we write down the impaired point of sale to its estimated fair value. Key assumptions in the determination of fair value are the future discounted cash flows of the point of sales. The discount rate used in the fair value calculation is our estimate of the Company’s weighted average cost of capital. Estimates of future cash flows are highly subjective judgments and can be significantly impacted by changes in the business or economic conditions.

Revenue recognition

Restaurant sales revenue is recognized when purchase in the store is effected.

Initial franchise fee revenue is recognized when all material services and conditions relating to the franchise have been substantially performed or satisfied which normally occurs when the restaurant is opened. Monthly royalty fees equivalent to a percentage of the franchisees’ gross sales are recognized in the month when they are earned.

 

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The Company settles agreements with beverage and food suppliers and for each product, the Company negotiates a monthly performance bonus which will depend on the product sales volume to its chains (including both own-operated and franchise operated). The performance bonus can be paid monthly or in advance (which is then estimated), depending on the agreement terms negotiated with each supplier. The performance bonus is recognized as a credit in the Company’s income statement (under “revenues from trade partners”). Such revenue is recorded when cash from vendors is received, since it is difficult to estimate the receivable amount and significant doubts about its collectability exists until the vendor agrees with the exact bonus amounts.

When a vendor bonus is received in advance in cash, it is recognized as deferred income and is charged to income on a straight line basis over the term of the related trade partner agreement on a monthly basis. Income from performance bonus is only possible because the number of restaurants that operate throughout Brazil under the prestigious brands, especially Bob’s, franchised by us represent an excellent channel for suppliers to increase their sales.

Income obtained by lease of any of the Company’s properties, by administration fees on marketing fund and nonrecurring gains are recognized as other income when earned and deemed realizable.

The relationship between the Company and each of its franchisees is legally bound by a formal contract, where each franchisee agrees to pay monthly royalty fees equivalent to a percentage of its gross sales. The formal contract and the franchisees’ sales (as a consequence of their business) meet three of the four revenue recognition requirements:

 

   

Persuasive evidence that an arrangement exists — the contract is signed by the franchisee;

 

   

Delivery has occurred or services have been rendered — franchisee sales are the basis of royalty revenues;

 

   

The seller’s price to the buyer is fixed or determinable — the contract states that royalties are a percentage of the franchisee’s gross sales;

The Company also meets the fourth requirement for revenue recognition (Collectability is reasonably assured) when recording its revenues. If a franchisee fails to pay its invoices for more than six months in a row, the Company does not stop invoicing the contracted amounts. However, in such cases the Company offsets any additional invoiced amounts with a corresponding full allowance for doubtful accounts.

Marketing fund and expenses

Bob’s Brand

According to our franchise agreements, the Bob’s marketing fund dedicated to advertising and promotion is comprised of financial contributions paid by the franchisees and own-operated restaurants. The Company manages the fund which must be used for the the common interest of the Bob’s chain through the best efforts of our marketing department to increase restaurant sales.

The marketing amounts due from franchisees are billed monthly and recorded on an accrual basis. A corresponding amount is recorded as a liability.

 

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In general, Bob’s franchisees contribute monthly 4.0% of their monthly gross sales to the Bob’s marketing fund. Since 2006, we have also contributed 4.0% of our gross sales from own-operated restaurant monthly gross sales (sales derived from special events are not subject to such contribution). These contributions may be deducted from our marketing department expenses if previously agreed with our franchisees. However, total marketing investments may be greater than 4.0% of combined sales if a supplier makes an extra contribution (joint marketing programs) or if we use more of our own resources on marketing, advertising and promotions.

We primarily invest the Bob’s marketing fund resources in nationwide advertising programs (commercials or sponsorship on TV, radio and outdoors). Our franchisees may also invest directly in advertising and promotions for their own stores, with our consent.

The Bob’s marketing fund resources are not required to be invested during the same month or year that they were received, but must be used in subsequent periods.

Periodically, we meet with the Bob’s Franchisee Council, a council formed by and consisting of, elected Bob’s franchisees with the objective to participate in some of the Bob’s chain’s affairs, to divulge the marketing fund accounts in a report that is similar to a cash flow statement. This statement discloses the marketing contributions received and the marketing expenses, both on a cash basis.

The balance of any resources from the marketing fund that was not spent is recognized as accrued accounts payable and represents contributions made by Venbo and franchisees that have not yet been used in campaigns.

The marketing fund expenses on advertising and promotions are recognized as incurred expenses.

KFC and Pizza Hut Brands

We contribute 0.5% of KFC’s and Pizza Hut’s monthly net sales into a marketing fund managed by YUM! Brands - Brazil. In addition, the Company is also committed to investing 5.0% of KFC’s and Pizza Hut’s monthly net sales in local marketing and advertising.

Doggis Brand

We are committed to investing at least 4% of the Doggis restaurant sales in local marketing expenses. There is no contribution to a marketing fund. Local marketing expenses on Doggis advertising and promotions are recognized as incurred.

Income taxes

The Company accounts for income tax in accordance with guidance provided by the FASC ASC on Accounting for Income Tax. Under the asset and liability method set out in this guidance, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities on the financial statements and their respective tax basis and operating loss carry-forwards. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. The valuation allowance reflects the Company’s assessment of the likelihood of realizing the net deferred tax assets in view of current operations and is comprised of tax loss carryfowards held by the Company through the portion of its subsidiaries’ tax losses which are greater than the respective projected taxable income.

Under the above-referred guidance, the effect of a change in tax rates or deferred tax assets and liabilities is recognized in income in the period they are enacted.

 

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The effect of income tax positions are recorded only if those positions are “more likely than not” of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Although we do not currently have any material charges related to interest and penalties, such costs, if incurred, are reported within the provision for income taxes.

NEW ACCOUNTING STANDARDS

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on its financial position, and to allow investors to better compare financial statements prepared under U.S. GAAP with financial statements prepared under International Financial Reporting Standards (IFRS). The new standards are effective for annual periods beginning January 1, 2013, and interim periods within those annual periods. Retrospective application is required. The Company will implement the provisions of ASU 2011-11 as of January 1, 2013.

In September 2011, the FASB issued ASU 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This ASU permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity concludes it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it need not perform the two-step impairment test. The adoption of ASU 2011-08 in 2012 did not have an effect on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. Under this ASU, an entity will have the option to present the components of net income and comprehensive income in either one or two consecutive financial statements. The ASU eliminates the option in U.S. GAAP to present other comprehensive income in the statement of changes in equity. An entity should apply the ASU retrospectively. In December 2011, the FASB decided to defer the effective date of those changes in ASU 2011-05 that relate only to the presentation of reclassification adjustments in the statement of income by issuing ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive income in Accounting Standards Update 2011-05. The adoption of ASU 2011-05 in 2012 did not have an effect on the Company’s consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The new standards do not extend the use of fair value but, rather, provide guidance about how fair value should be applied where it already is required or permitted under IFRS or U.S. GAAP. For U.S. GAAP, most of the changes are clarifications of existing guidance or wording changes to align with IFRS. The adoption of ASU 2011-04 in 2012 did not have an effect on the Company’s consolidated financial statements.

 

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In December 2010, the FASB issued ASU 2010-28, Intangibles—Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts, a consensus of the FASB Emerging Issues Task Force (Issue No. 10-A). ASU 2010-28 modifies Step 1 of the goodwill impairment test under ASC Topic 350 for reporting units with zero or negative carrying amounts to require an entity to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are adverse qualitative factors in determining whether an interim goodwill impairment test between annual test dates is necessary. The Company expects that the adoption of ASU 2010-28 in 2012 will not have a material impact on its consolidated financial statements.

In October 2009, the FASB issued Accounting Standards Update (ASU) 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (EITF Issue No. 08-1, “Revenue Arrangements with Multiple Deliverables”). ASU 2009-13 amends FASB ASC Subtopic 605-25, Revenue Recognition — Multiple-Element Arrangements, to eliminate the requirement that all undelivered elements have vendor specific objective evidence of selling price (VSOE) or third party evidence of selling price (TPE) before an entity can recognize the portion of an overall arrangement fee that is attributable to items that already have been delivered. In the absence of VSOE and TPE for one or more delivered or undelivered elements in a multiple-element arrangement, entities will be required to estimate the selling prices of those elements. The overall arrangement fee will be allocated to each element (both delivered and undelivered items) based on their relative selling prices, regardless of whether those selling prices are evidenced by VSOE or TPE or are based on the entity’s estimated selling price. Application of the “residual method” of allocating an overall arrangement fee between delivered and undelivered elements will no longer be permitted upon adoption of ASU 2009-13. Additionally, the new guidance will require entities to disclose more information about their multiple-element revenue arrangements. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The adoption of ASU 2009-13 in 2011 did not have an effect on the Company’s consolidated financial statements.

OFF-BALANCE SHEET ARRANGEMENTS

We are not involved in any off-balance sheet arrangements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

A portion of our purchase commitments are denominated in U.S. Dollars, while our operating revenues are denominated in Brazilian Reais. We extinguished all of our debt denominated in US$ in 2003. Fluctuations in exchange rates between the Real and the U.S. Dollar expose us to foreign exchange risk.

We finance a portion of our operations by issuing debt and using bank credit facilities. These debt obligations expose us to market risks, including changing CDI-based interest rate risk. The CDI is a daily variable interest rate used by Brazilian banks. It is linked to the Brazilian equivalent of the Federal Reserve fund rates and its fluctuations are much like those observed in the international financial market.

 

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We had a R$15.7 million variable-rate (CDI-based interest) debt outstanding at March 31, 2012, and R$14.7 million outstanding at December 31, 2011. Based on these outstanding amounts, a 100 basis point change in interest rates would raise our interest expense by approximately $0.4 million at March 31, 2012. Whenever possible, we make every effort to protect our revenues from foreign currency exchange risks by periodically adjusting our selling prices in Reais.

We do not engage in trading market risk-sensitive instruments or purchasing hedging instruments or “other than trading” instruments that are likely to expose us to market risk, whether interest rate, foreign currency exchange, commodity price or equity price risk. Our primary market risk exposures are those relating to interest rate fluctuations and possible devaluations of the Brazilian currency. In particular, a change in Brazilian interest rates would affect the rates at which we could borrow funds under our several credit facilities with Brazilian banks and financial institutions.

 

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

As of March 31, 2012, the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) was performed under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Based upon the foregoing evaluation as of March 31, 2012, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and operating as of March 31, 2012, to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13(a)-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Our internal control over financial reporting includes policies and procedures that (1) pertain to maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and board of directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on the financial statements.

 

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Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and, even when determined to be effective, can only provide reasonable, not absolute, assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate as a result of changes in conditions or deterioration in the degree of compliance.

Management understands that the set of internal controls applicable to restaurant operations provides us reasonable trust on their performance, aligned with the best practices observed in the Brazilian food service market. Central support to stores is improving along the years adapting the best systems and methods that local suppliers offer for these activities in Brazil. At the same time our management has concluded that our internal control over financial reporting was effective as of March 31, 2012 and provides reasonable assurance regarding the reliability of financial reporting and for the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. The results of management’s assessments were reviewed with the Audit Committee of our Board of Directors. Management believes that the improvements we are pursuing through the implementation of the business process redesign project will comply with Sarbanes Oxley Rule 404.

This quarterly report does not include an attestation report of our registered public accounting firm regarding our internal control over financial reporting. Management’s report on internal control over financial reporting was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit a smaller reporting company to provide only management’s report in this quarterly report.

Changes in Internal Control over Financial Reporting

During the quarter ended March 31, 2012, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except for the matters mentioned above.

PART II—OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be a party to certain legal proceedings incidental to the normal course of our business. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.

 

ITEM 1A. RISK FACTORS.

An investment in our securities involves a high degree of risk. There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011, which was filed with the Securities and Exchange Commission on April 30, 2012.

 

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

None.

ITEM 5. OTHER INFORMATION.

None.

 

ITEM 6. EXHIBITS.

Exhibits

 

Number    Title
3.1    Certificate of Incorporation of Brazil Fast Food Corp., as amended(1)
3.2    By-laws of Brazil Fast Food Corp.(2)
31.1    Certification by Ricardo Figueiredo Bomeny, Chief Executive Officer and acting Chief Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1    Certification by Ricardo Figueiredo Bomeny, Chief Executive Officer and acting Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS#    XBRL Instance Document#
101.SCH#    XBRL Taxonomy Extension Schema Document#
101.CAL#    XBRL Taxonomy Extension Calculation Linkbase Document#
101.DEF#    XBRL Taxonomy Extension Definition Linkbase Document#
101.LAB#    XBRL Taxonomy Extension Label Linkbase Document#
101.PRE#    XBRL Taxonomy Extension Presentation Linkbase Document#

 

 

 

(1) Filed as an exhibit to Brazil Fast Food Corp.’s registration statement on Form S-1 (File No. 333-3754).

 

(2) Filed as an exhibit to Brazil Fast Food Corp.’s registration statement on Form S-1 (File No. 333-71368).

 

* Filed herewith.

 

# Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under those sections.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 15, 2012

 

  BRAZIL FAST FOOD CORP.
By:  

/s/ Ricardo Figueiredo Bomeny

 

Ricardo Figueiredo Bomeny

 

Chief Executive Officer and acting Chief Financial Officer

 

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