updated 2/26/2006 6:43:12 PM ET 2006-02-26T23:43:12

The difference at Burger King since Greg Brenneman took over in 2004 is clear: profits are small but growing, the company and its franchisees are in better financial health and the world’s second-largest hamburger chain has lots of advertising buzz and popular new products.

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The details from the chain’s initial public offering filing show that the CEO and chairman’s turnaround plans have been making slow but steady progress.

The question now is whether the man known for rescuing troubled companies can convince investors of Burger King Corp.’s future. The Miami-based company’s parent, Burger King Holdings Inc., is still far from the financial success and profit margins of its two main rivals, McDonald’s and Wendy’s.

Burger King hasn’t specified too many details of its IPO plans. It hopes to raise up to $400 million, which would be the top U.S. restaurant IPO, according to Thomson Financial. But it hasn’t said how much each share would cost, what percentage of the company would be offered or when the sale would happen. Some of the proceeds will be used to pay debt, but the company hasn’t spelled out specific plans for the rest.

The chain is optimistic that its rebound from the losses in the early part of the decade will continue, although sales are still off highs in the 1990s. The Feb. 16 filing touts the brand’s progress since Texas Pacific Group, Bain Capital and Goldman Sachs Capital Partners bought it from Diageo PLC in 2002.

But some outsiders wonder whether it can continue and doubt investors will be eager to buy the shares, which won’t pay dividends.

“I think Burger King hit bottom around two years ago and they are improving off of that bottom but to equate them to McDonald’s or even think that they are going to be a force to be reckoned with ... is a mistake,” said Scott Rothbort, president and founder of LakeView Asset Management, which owns McDonald’s Corp. shares.

Brenneman declined comment through a spokeswoman because of securities rules that prevent companies from talking about their performance in the period immediately surrounding an IPO.

Last calendar year, Burger King reported net income of $51 million on revenues of $1.99 billion, while McDonald’s reported earnings of $2.6 billion on revenues of $20.46 billion and Wendy’s International Inc. had $224 million in net income on revenues of $3.78 billion. That works out to profit margins of 12.7 percent for McDonald’s, 5.9 percent for Wendy’s and 2.6 percent for Burger King.

The filing also shows that Burger King has taken on what some consider a substantial amount of debt — total debt was $1.35 billion as of Feb. 15. Some of that was taken on to pay Texas Pacific and the other owners dividends and fees totaling $430 million.

“I didn’t think the amount of debt on the balance sheet was ideal,” said Alan Vituli, CEO of Carrols Corp., the chain’s largest franchisee with 350 restaurants. But he added that the filing also showed Burger King had a lot of cash coming in, which should enable it to both pay down debt and invest in growth.

Carrols escaped the path to bankruptcy that many franchisees faced over the last decade. Declining revenues from fierce price wars with McDonald’s and Wendy’s were part of the reason that some restaurant owners went out of business.

Burger King stepped in to help franchisees by deferring royalty payments and creating a financial restructuring program. The program had more than 2,540 restaurants in February 2003, but that dropped to about 150 at the end of last year. Collection rates of royalties and fees increased and are now at 100 percent.

Franchisees generally pay about 4 percent to 5 percent of sales to Burger King for marketing, plus royalties of 3.5 percent to 4 percent of sales.

Average restaurant sales grew 11 percent over the past two fiscal years to about $1.06 million and kept increasing this year. Those figures were helped because of the closure of more than 1,300 poor-performing restaurants, which had average sales of about $630,000. There are now 11,141 restaurants worldwide.

Burger King credits the improvements to its quirky advertising campaigns, such as the one with the smiling, plastic-headed King, improved customer satisfaction with service and restaurant cleanliness and new products like its TenderCrisp chicken sandwich, chicken fries and Angus burger. The IPO filing promised at least 18 more new products such as breakfast sandwiches, cheesy hash browns and new soft-serve ice creams.

The company also launched a nationwide value menu this month, playing catch up with McDonald’s and Wendy’s. The menus feature a variety of items such as small burgers and fries at about $1 each. Burger King warned that the value menu could erode margins and profitability as similar attempts have in the past, but it said it was continuing to advertise higher-priced products to avoid that.

The filing showed the chain has boosted sales at stores open at least a year, a key measure of retailer performance known as same-store sales. Same-store sales grew 5.6 percent in fiscal 2005, up from a 1 percent increase the year before and a 5.9 percent drop in 2003. But the growth leveled off in the first six months of fiscal 2006 to about 1.3 percent.

Brenneman is well known on Wall Street and that will help him when he starts the road show to lure investors. He had previous success in turning around a failing company at Continental Airlines Inc. Burger King’s current owners knew him from Continental and they brought him into the burger business about a year and a half after they bought the chain.

He kept some key executive players from his predecessor’s team, such as president John Chidsey and chief marketing officer Russ Klein, and added others from the outside. But the turnaround plan focused on the same areas that Brenneman and then-CEO Gordon Bethune used at Continental.

Burger King is hoping to cash in on the hot streak fast-food shares have been on lately — McDonald’s and Wendy’s are trading near 52-week highs and Chipotle Mexican Grill has more than doubled from its IPO price.

It’s hard to predict the market’s response to Burger King because the company hasn’t released specifics, said Kathleen Smith, a principal and IPO analyst for Renaissance Capital in Greenwich, Conn.

But she added “it’s a good time for a fast-food chain or restaurant chain to go public.”

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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