1. Evaluate Mitchells & Butlers’ reporting of exceptional items in its income statement (Exhibit 1) and in note 9 (Exhibit 5). Would it be preferable to omit that information or to only provide it as a note to the financial statements? Explain.
2. Why did Mitchells & Butlers adopt the revaluation model for its freehold and long-leasehold properties and land in 2007? Compare the relevance and reliability of the cost model versus the revaluation model for Mitchells & Butlers.
3. Based on your analysis of Mitchells & Butlers’ exceptional items, revaluation model, and segment disclosures in note 3, do you expect the firm to report a profit for 2009? Do you expect it to report positive cash flows from operations? Explain.
4. Evaluate Mitchells & Butlers’ use of securitization in 2003 and 2006 (note 20, Exhibit 5). Why did it issue floating rate notes but convert them to fixed rate debt with swaps?
From 1980 until 2008, eating out as a percentage of total UK food expenditures climbed from 12% to 32%, whereas beer consumed in pubs and restaurants declined from 37 million barrels annually to 16 million barrels.1 As the UK market shifted from pubs with limited food offerings to pubs with expanded menus and midpriced/value-for-money restaurants, Mitchells & Butlers became the leading operator of managed pubs and pub restaurants in the UK. Through internal growth and acquisitions, it grew to 2,000 pubs, pub restaurants, and hotels in the UK and Germany and employed more than 40,000 people. The firm divided the trade food and beverage market (as opposed to the home market) into four quadrants based on location and percentage of liquor to food sales. Mitchells & Butlers operated chains of themed pubs and pub restaurants with strong brand profiles, primarily in three of those quadrants.
Local Pubs (upper left quadrant) are aimed at specific audiences: Sizzling Pub Co., Ember Inns, and Cornerstone for family and neighborhood appeal; Metro Professionals geared toward the contemporary, youthful, and urban crowd; and Scream, catering to students and sport enthusiasts. Pub Restaurants (upper right quadrant) target the growing residential casual market. The High Street and City Centre segments occupy the lower two quadrants and cater to the bar and food scene within the city.