UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-32875

 

BURGER KING HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)		75-3095469 (I.R.S. Employer Identification No.)
5505 Blue Lagoon Drive, Miami, Florida (Address of Principal Executive Offices)		33126 (Zip Code)

(305) 378-3000
(Registrant’s telephone number, including area code)

     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 þ No o

     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 o No o

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

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
		(Do not check if a smaller reporting company)

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

     As of February 1, 2010, there were 135,257,103 shares of the registrant’s Common Stock outstanding.

 

 

BURGER KING HOLDINGS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page
PART I – Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of December 31, 2009 and June 30, 2009 (unaudited)			3
Condensed Consolidated Statements of Income for the three and six months ended December 31, 2009 and 2008 (unaudited)			4
Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2009 and 2008 (unaudited)			5
Notes to Condensed Consolidated Financial Statements (unaudited)			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 3. Quantitative and Qualitative Disclosures About Market Risk			43
Item 4. Controls and Procedures			43
PART II – Other Information
Item 1. Legal Proceedings			46
Item 1A. Risk Factors			46
Item 4. Submission of Matters to a Vote of Security Holders			47
Item 5. Other Information			47
Item 6. Exhibits			48
Signatures			49
Index to Exhibits			50
EX-10.58
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I – Financial Information

Item 1.		Financial Statements

BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)

		As of
		December 31,				June 30,
		2009				2009
		(In millions, except share data)
Assets
Current assets:
Cash and cash equivalents		$	139.9			$	121.7
Trade and notes receivable, net			132.8				130.0
Prepaids and other current assets			70.6				86.4
Deferred income taxes, net			26.3				32.5
Total current assets			369.6				370.6
Property and equipment, net of accumulated depreciation of $662.7 million and $607.4 million, respectively			1,022.0				1,013.2
Intangible assets, net			1,064.8				1,062.7
Goodwill			26.4				26.4
Net investment in property leased to franchisees			135.5				135.3
Other assets, net			98.0				98.9
Total assets		$	2,716.3			$	2,707.1
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts and drafts payable		$	105.0			$	127.0
Accrued advertising			72.0				67.8
Other accrued liabilities			198.7				220.0
Current portion of long term debt and capital leases			80.5				67.5
Total current liabilities			456.2				482.3
Term debt, net of current portion			711.8				755.6
Capital leases, net of current portion			66.7				65.8
Other liabilities, net			345.9				354.5
Deferred income taxes, net			68.5				74.1
Total liabilities			1,649.1				1,732.3
Commitments and Contingencies (See Note 14)
Stockholders’ equity:
Preferred stock, $0.01 par value; 10,000,000 shares authorized; no shares issued or outstanding			—				—
Common stock, $0.01 par value; 300,000,000 shares authorized; 135,250,283 and 134,792,121 shares issued and outstanding at December 31, 2009 and June 30, 2009, respectively			1.4				1.4
Additional paid-in capital			632.9				623.4
Retained earnings			535.1				455.4
Accumulated other comprehensive loss			(40.8	)			(45.9	)
Treasury stock, at cost; 2,979,205 and 2,884,223 shares, at December 31, 2009 and June 30, 2009, respectively			(61.4	)			(59.5	)
Total stockholders’ equity			1,067.2				974.8
Total liabilities and stockholders’ equity		$	2,716.3			$	2,707.1

See accompanying notes to condensed consolidated financial statements.

BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2009				2008				2009				2008
		(In millions, except per share data)
Revenues:
Company restaurant revenues		$	476.9			$	472.8			$	946.0			$	970.1
Franchise revenues			140.3				133.9				279.0				279.6
Property revenues			28.2				27.4				57.3				57.9
Total revenues			645.4				634.1				1,282.3				1,307.6
Company restaurant expenses:
Food, paper and product costs			151.0				151.9				299.8				314.2
Payroll and employee benefits			146.4				144.4				291.2				295.3
Occupancy and other operating costs			113.9				112.1				228.6				233.6
Total company restaurant expenses			411.3				408.4				819.6				843.1
Selling, general and administrative expenses			127.0				123.5				256.9				250.5
Property expenses			14.8				13.5				29.5				28.7
Other operating expense, net			4.1				2.5				5.1				9.2
Total operating costs and expenses			557.2				547.9				1,111.1				1,131.5
Income from operations			88.2				86.2				171.2				176.1
Interest expense			12.4				15.8				25.2				31.2
Interest income			(0.2	)			(0.8	)			(0.5	)			(1.8	)
Total interest expense, net			12.2				15.0				24.7				29.4
Income before income taxes			76.0				71.2				146.5				146.7
Income tax expense			25.8				26.9				49.7				52.6
Net income		$	50.2			$	44.3			$	96.8			$	94.1
Earnings per share:
Basic		$	0.37			$	0.33			$	0.72			$	0.70
Diluted		$	0.37			$	0.33			$	0.71			$	0.69
Weighted average shares outstanding:
Basic			135.2				134.6				135.2				134.8
Diluted			136.8				136.5				136.8				136.9
Dividends per common share		$	0.06			$	0.06			$	0.13			$	0.13

See accompanying notes to condensed consolidated financial statements.

BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)

		Six Months Ended
		December 31,
		2009				2008
		(In millions)
Cash flows from operating activities:
Net income		$	96.8			$	94.1
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			52.4				48.8
Gain on hedging activities			(0.7	)			(0.6	)
(Gain) loss on remeasurement of foreign denominated transactions			(6.2	)			60.1
Gain on refranchisings and dispositions of assets			(3.0	)			(1.3	)
Impairment on non-restaurant properties			1.2				—
Bad debt expense, net of recoveries			0.4				2.8
Share-based compensation			8.7				7.6
Deferred income taxes			0.3				(14.7	)
Changes in current assets and liabilities, excluding acquisitions and dispositions:
Trade and notes receivables			(2.3	)			(3.9	)
Prepaids and other current assets			16.1				(6.6	)
Accounts and drafts payable			(22.9	)			(45.2	)
Accrued advertising			3.6				5.1
Other accrued liabilities			(25.1	)			(14.3	)
Other long-term assets and liabilities			2.8				(3.0	)
Net cash provided by operating activities			122.1				128.9
Cash flows from investing activities:
Payments for property and equipment			(63.8	)			(83.4	)
Proceeds from refranchisings, disposition of assets and restaurant closures			5.3				2.2
Payments for acquired franchisee operations, net of cash acquired			(0.8	)			(66.7	)
Return of investment on direct financing leases			3.9				3.9
Other investing activities			1.8				(4.9	)
Net cash used for investing activities			(53.6	)			(148.9	)
Cash flows from financing activities:
Repayments of term debt and capital leases			(33.7	)			(2.4	)
Borrowings under revolving credit facility			29.5				94.4
Repayments of revolving credit facility			(29.5	)			(65.0	)
Dividends paid on common stock			(17.1	)			(17.1	)
Proceeds from stock option exercises			0.4				2.3
Excess tax benefits from share-based compensation			0.9				3.2
Repurchases of common stock			(2.4	)			(20.0	)
Net cash used for financing activities			(51.9	)			(4.6	)
Effect of exchange rates on cash and cash equivalents			1.6				(17.4	)
Increase (decrease) in cash and cash equivalents			18.2				(42.0	)
Cash and cash equivalents at beginning of period			121.7				166.0
Cash and cash equivalents at end of period		$	139.9			$	124.0

See accompanying notes to condensed consolidated financial statements.

BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)

		Six Months Ended
		December 31,
		2009				2008
		(In millions)
Supplemental cash flow disclosures:
Interest paid		$	24.9			$	30.0
Income taxes paid		$	21.1			$	70.3
Non-cash investing and financing activities:
Acquisition of property with capital lease obligations		$	1.9			$	0.6
Net investment in direct financing leases		$	3.7			$	2.2

See accompanying notes to condensed consolidated financial statements.

BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1. Organization

     Burger King Holdings, Inc. (“BKH” or the “Company”) is a Delaware corporation formed on July 23, 2002. The Company is the parent of Burger King Corporation (“BKC”), a Florida corporation that franchises and operates fast food hamburger restaurants, principally under the Burger King® brand.

     The Company generates revenues from three sources: (i) retail sales at Company restaurants; (ii) franchise revenues, consisting of royalties based on a percentage of sales reported by franchise restaurants and franchise fees paid by franchisees; and (iii) property income from restaurants that the Company leases or subleases to franchisees.

Note 2. Basis of Presentation and Consolidation

     The Company has prepared the accompanying Condensed Consolidated Financial Statements (“Financial Statements”) in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles (“GAAP”) for complete financial statements. Therefore, the Financial Statements should be read in conjunction with the audited Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2009 filed with the SEC on August 27, 2009. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included in the Financial Statements. The results for interim periods do not necessarily indicate the results that may be expected for any other interim period or for the full year.

     The Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

     Certain prior year amounts in the accompanying Financial Statements and Notes to the Financial Statements have been reclassified in order to be comparable with the current year classifications.

Concentrations of Risk

     The Company’s operations include Company and franchise restaurants located in 73 countries and U.S. territories. Of the 12,078 restaurants in operation as of December 31, 2009, 1,422 were Company restaurants and 10,656 were franchise restaurants.

     Four distributors service approximately 85% of our U.S. system restaurants and the loss of any one of these distributors would likely adversely affect our business. In many of the Company’s international markets, a single distributor services all the Burger King restaurants in the market. The loss of any of one of these distributors would likely have an adverse effect on the market impacted, and depending on the market, could have an adverse impact on the Company’s financial results.

     In many of the Company’s international markets, a single distributor services all the Burger King restaurants in the market. The loss of any of one of these distributors would likely have an adverse affect on the market impacted, and depending on the market, could have an adverse impact on the Company’s financial results.

Inventories

     Inventories are stated at the lower of cost (first-in, first-out) or net realizable value, and consist primarily of restaurant food items and paper supplies. Inventories are included in prepaids and other current assets in the accompanying condensed consolidated balance sheets.

Use of Estimates

     The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s consolidated financial statements and accompanying notes. Management adjusts such estimates and assumptions when facts and circumstances dictate. Volatile credit, equity, foreign currency, and energy markets, and declines in consumer spending have increased and may continue to affect the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

Recently Adopted Accounting Standards

     On December 15, 2009, the Company adopted FASB Accounting Standard Update (ASU) No. 2009-12, Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). FASB ASU 2009-12 amends FASB Accounting Standards Codification (ASC) 820-10, Fair Value Measurements and Disclosures — Overall, to permit, as a practical expedient, a reporting entity to measure the fair value of an investment within the scope of ASU 2009-12 on the basis of the net asset value per share of the investment. For the Company, ASU 2009-12 pertains only to alternative investments held in the BKC pension and postretirement plans as we do not invest in alternative investments outside of these plans. Furthermore, the disclosure provisions of FASB ASU 2009-12 are not applicable to employer’s disclosures about pension and postretirement benefit plan assets. FASB ASC 715, Compensation-Retirement Benefits (formerly FSP FASB 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets) prescribes required employer’s disclosures about pension and other postretirement benefit plan assets. FASB ASC 715 is effective for our financial statements issued for the fiscal year ending June 30, 2010.

     In the quarter ended September 30, 2009, the Company adopted the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 105 “Generally Accepted Accounting Principles”. FASB ASC 105 does not amend GAAP, but codifies previous accounting literature and revises the GAAP hierarchy to include only two levels of GAAP: authoritative and nonauthoritative. All of the content included in the FASB Accounting Standards Codification will be considered authoritative.

     On July 1, 2009, the Company adopted FASB ASC Topic 805 “Business Combinations”. FASB ASC 805 requires that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. FASB ASC 805 requires an acquirer to recognize the assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree at their respective fair values at the acquisition date. Costs incurred by the acquirer to effect the acquisition are not allocated to the assets acquired or liabilities assumed, but are recognized separately in earnings. FASB ASC 805 is effective prospectively for acquisitions by the Company with an acquisition date beginning on or after July 1, 2009. The effect of adopting this standard was not significant.

     On July 1, 2009, the Company adopted FASB ASC Subtopic 810-10 of Topic 810 “Consolidation”. FASB ASC Subtopic 810-10 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary and clarifies that a noncontrolling interest in a subsidiary is an ownership interest that should be reported as equity in the consolidated financial statements. FASB ASC Subtopic 810-10 establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation and requires a parent to recognize a gain or loss in net income when a subsidiary is deconsolidated. FASB ASC Subtopic 810-10 also requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest and to disclose, on the face of the consolidated statement of income, the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. The effect of adopting this standard was not significant.

Note 3. Share-based Compensation

     On August 26, 2009 (the “Annual Grant Date”), the Company granted non-qualified stock options, performance-based restricted shares and units (“PBRS”) and restricted stock units covering approximately 1.7 million shares, 0.6 million shares and 96,000 shares, respectively, to eligible employees.

     The Company’s stock options generally have a four-year vesting period. The grant date fair value of the stock options granted on the Annual Grant Date was $6.54 per share and was estimated using the Black-Scholes option pricing model based on the following weighted-average input assumptions: exercise price of $18.31, risk-free interest rate of 2.92%; expected term of 6.25 years; expected volatility of 37.15%; and expected dividend yield of 1.37%.

     The amount of PBRS granted to each eligible employee on the Annual Grant Date was based on the Company achieving 100% of the performance target set for fiscal year 2010. PBRS generally have a three-year vesting period from the grant date, which includes the one-year performance period. The grant date fair value of each PBRS was $18.31, representing the closing share price of the Company’s common stock on the grant date.

     In November 2009, the Company granted approximately 39,000 deferred shares of restricted stock to non-employee members of the Company’s Board of Directors as an annual grant and 19,000 deferred shares of restricted stock to six non-employee directors who elected to receive shares in lieu of receiving their annual retainer and chair fees in cash. The annual grant vests in quarterly installments over a one-year period on the first day of each calendar quarter following the grant date. The retainer grant was fully vested on the grant date. All deferred shares will settle and shares of common stock will be issued upon termination of service by the board member.

     The Company recorded $4.1 million and $8.7 million of share-based compensation expense for the three and six months ended December 31, 2009, respectively. The Company recorded $4.6 million and $7.6 million of share-based compensation expense for the three and the six months ended December 31, 2008, respectively. Excess tax benefits from the exercise of stock options and settlement of PBRS of $0.9 million and $3.2 million in the six months ended December 31, 2009 and 2008, respectively, were reported as financing cash flows in the accompanying condensed consolidated statements of cash flows.

Note 4. Acquisitions, Closures and Dispositions

     Acquisitions

     All acquisitions of franchise restaurants subsequent to July 1, 2009 are accounted for using the acquisition method of accounting
(See note 2). Acquisitions are summarized as follows (in millions, except for number of restaurants):

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2009				2008				2009				2008
Number of restaurants acquired			—				2				3				76
Prepaids and other current assets		$	—			$	—			$	—			$	0.9
Property and equipment, net			—				—				—				14.2
Other intangible assets			—				—				0.8				54.9
Assumed liabilities			—				—				—				(3.3	)
Total purchase price		$	—			$	—			$	0.8			$	66.7

     Closures and Dispositions

     Gains and losses on closures and dispositions represent sales of Company properties and other costs related to restaurant closures and sales of Company restaurants to franchisees, referred to as “refranchisings,” and are recorded in other operating (income) expenses, net in the accompanying condensed consolidated statements of income (See Note 13). Gains and losses recognized in the current period may reflect closures and refranchisings that occurred in previous periods.

     Closures and dispositions are summarized as follows (in millions, except for number of restaurants):

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2009				2008				2009				2008
Number of restaurant closures			14				4				18				6
Number of refranchisings			12				1				12				3
Net loss (gain) on restaurant closures, refranchisings, and dispositions of assets		$	0.8			$	(1.0	)		$	1.0			$	—

Note 5. Prepaids and Other Current Assets, net

     Included in prepaids and other current assets, net were refundable income taxes of $11.2 million and $39.3 million; inventories totaling $18.0 million and $15.8 million; and prepaid expenses of $41.4 million and $31.3 million as of December 31, 2009 and June 30, 2009, respectively. Refundable income taxes were primarily as a result of tax benefits realized from the dissolution of dormant foreign entities in the fourth quarter of fiscal 2009.

Note 6. Earnings Per Share

     Basic and diluted earnings per share are calculated as follows (in millions, except for per share information):

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2009				2008				2009				2008
Numerator:
Numerator for basic and diluted earnings per share:
Net income		$	50.2			$	44.3			$	96.8			$	94.1
Denominator:
Weighted average shares — basic			135.2				134.6				135.2				134.8
Effect of dilutive securities			1.6				1.9				1.6				2.1
Weighted average shares — diluted			136.8				136.5				136.8				136.9
Basic earnings per share		$	0.37			$	0.33			$	0.72			$	0.70
Diluted earnings per share		$	0.37			$	0.33			$	0.71			$	0.69
Antidilutive shares (1)			4.7				3.6				4.3				2.2

Note 7. Comprehensive Income

     The components of total comprehensive income are as follows (in millions):

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2009				2008				2009				2008
Net income		$	50.2			$	44.3			$	96.8			$	94.1
Translation adjustment			—				(5.7	)			5.0				(4.6	)
Cash flow hedges:
Net change in fair value of derivatives (1)			2.4				(19.9	)			0.9				(22.0	)
Pension and post-retirement benefit plans (2)			—				—				(0.8	)			—
Total other comprehensive income (loss)			2.4				(25.6	)			5.1				(26.6	)
Total comprehensive income		$	52.6			$	18.7			$	101.9			$	67.5

Note 8. Other Accrued Liabilities and Other Liabilities

     Included in other accrued liabilities, as of December 31, 2009 and June 30, 2009, were accrued payroll and employee-related benefits costs totaling $45.1 million and $69.4 million, respectively. The decrease in accrued payroll and employee-related benefits costs was primarily due to the payment of the Company’s annual incentive bonus to employees during the three months ended September 30, 2009.

     Included in other liabilities, as of December 31, 2009 and June 30, 2009, were accrued pension liabilities of $53.5 million and $53.8 million, respectively; interest rate swap liabilities of $29.9 million and $32.4 million, respectively; casualty insurance reserves of $26.7 million and $27.7 million, respectively; retiree health benefits of $21.3 million and $21.1 million, respectively; and unfavorable leases of $146.8 million and $155.5 million, respectively.

Note 9. Long-Term Debt

     As of December 31, 2009 and June 30, 2009, the Company had $787.0 million and $818.3 million of long-term debt outstanding, respectively, including the current portion, consisting of $75.2 million and $62.7 million, respectively. During the six months ended December 31, 2009, the Company repaid $31.3 million of principal on its Term Loan A. In addition, the Company borrowed and repaid $29.5 million under the revolving credit facility. The next scheduled principal payment on the Company’s senior secured debt is March 31, 2010, in the amount of $15.6 million on Term Loan A. The maturity dates of Term Loan A, Term Loan B-1 and any amounts drawn under the revolving credit facility are June 2011, June 2012 and June 2011, respectively. The weighted average interest rate for the three months ended December 31, 2009 and 2008 was 4.6% and 5.5%, respectively, which included the impact of interest rate swaps on 71% and 66% of our term debt, respectively. The weighted average interest rate for the six months ended December 31, 2009 and 2008 was 4.6% and 5.4%, respectively, which included the impact of interest rate swaps on 72% and 71% of our term debt, respectively (See Note 10).

Note 10. Fair Value Measurements and Derivative Instruments

     Fair Value Measurements

     The following table presents (in millions) financial assets and liabilities measured at fair value on a recurring basis, which include derivatives designated as cash flow hedging instruments, derivatives not designated as hedging instruments, and other investments, which consists of money market accounts and mutual funds held in a rabbi trust established by the Company to fund a portion of the Company’s current and future obligations under its Executive Retirement Plan, as well as their location on the Company’s condensed consolidated balance sheets as of December 31, 2009 and June 30, 2009:

		As of December 31, 2009																Fair Value Measurements at December 31, 2009
		Carrying Value and Balance Sheet Location																Assets (Liabilities)
																		Quoted Prices in				Significant
		Prepaids																Active Markets for				Other				Significant
		and Other																Identical				Observable				Unobservable
		Current				Other Assets,				Other Accrued				Other				Instruments				Inputs				Inputs
Description		Assets				net				Liabilities				liabilities, net				(Level 1)				(Level 2)				(Level 3)
Derivatives designated as cash flow hedging instruments:
Interest rate swaps		$	—			$	—			$	—			$	(29.9	)		$	—			$	(29.9	)		$	—
Foreign currency forward contracts (asset)			0.1				—				—				—				—				0.1				—
Foreign currency forward contracts (liability)			—				—				(0.4	)			—				—				(0.4	)			—
Total		$	0.1			$	—			$	(0.4	)		$	(29.9	)		$	—			$	(30.2	)		$	—
Derivatives not designated as hedging instruments:
Foreign currency forward contracts (asset)		$	5.3			$	—			$	—			$	—			$	—			$	5.3			$	—
Foreign currency forward contracts (liability)			—				—				(13.4	)			—				—				(13.4	)			—
Total		$	5.3			$	—			$	(13.4	)		$	—			$	—			$	(8.1	)		$	—
Other investments:
Investments held in a rabbi trust		$	—			$	20.4			$	—			$	—			$	20.4			$	—			$	—
Total		$	—			$	20.4			$	—			$	—			$	20.4			$	—			$	—
		As of June 30, 2009																Fair Value Measurements at June 30, 2009
		Carrying Value and Balance Sheet Location																Assets (Liabilities)
																		Quoted Prices in				Significant
		Prepaids																Active Markets for				Other				Significant
		and Other																Identical				Observable				Unobservable
		Current				Other Assets,				Other Accrued				Other				Instruments				Inputs				Inputs
Description		Assets				net				Liabilities				liabilities, net				(Level 1)				(Level 2)				(Level 3)
Derivatives designated as cash flow hedging instruments:
Interest rate swaps		$	—			$	—			$	—			$	(32.4	)		$	—			$	(32.4	)		$	—
Total		$	—			$	—			$	—			$	(32.4	)		$	—			$	(32.4	)		$	—
Derivatives not designated as hedging instruments:
Foreign currency forward contracts (asset)		$	0.3			$	—			$	—			$	—			$	—			$	0.3			$	—
Foreign currency forward contracts (liability)			—				—				(20.3	)			—				—				(20.3	)			—
Total		$	0.3			$	—			$	(20.3	)		$	—			$	—			$	(20.0	)		$	—
Other investments:
Investments held in a rabbi trust		$	—			$	17.9			$	—			$	—			$	17.9			$	—			$	—
Total		$	—			$	17.9			$	—			$	—			$	17.9			$	—			$	—

     The Company’s derivatives are valued using discounted cash flow analysis that incorporate observable market parameters, such as interest rate yield curves and currency rates, classified as Level 2 within the valuation hierarchy. Derivative valuations incorporate credit risk adjustments that are necessary to reflect the probability of default by the counterparty or the Company.

     At December 31, 2009, the fair value of the Company’s variable rate term debt was estimated at $781.2 million, compared to a carrying amount of $784.9 million. At June 30, 2009, the fair value of the Company’s variable rate term debt was estimated at $791.9 million, compared to a carrying amount of $816.4 million. Fair value of variable rate term debt was estimated using inputs based on bid and offer prices and are similar to Level 2 inputs within the valuation hierarchy.

     Certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis, that is these assets and liabilities are not measured at fair value on an ongoing basis but are subject to periodic impairment tests. For the Company, these items primarily include long-lived assets, goodwill and other intangible assets. At December 31, 2009, no fair value adjustments or fair value measurements were required for non-financial assets or liabilities.

     Disclosures about Derivative Instruments and Hedging Activities

     The Company enters into derivative instruments for risk management purposes, including derivatives designated as hedging instruments and those utilized as economic hedges. The Company uses derivatives to manage exposure to fluctuations in interest rates and currency exchange rates.

     Interest Rate Swaps

     The Company enters into receive-variable, pay-fixed interest rate swap contracts to hedge a portion of the Company’s forecasted variable-rate interest payments on its underlying Term Loan A and Term Loan B-1 debt (the “Term Debt”). Interest payments on the Term Debt are made quarterly and the variable rate on the Term Debt is reset at the end of each fiscal quarter. The interest rate swap contracts are designated as cash flow hedges and to the extent they are effective in offsetting the variability of the variable-rate interest payments, changes in the derivatives’ fair value are not included in current earnings but are included in accumulated other comprehensive income (AOCI) in the accompanying condensed consolidated balance sheets. These changes in fair value are subsequently reclassified into earnings as a component of interest expense each quarter as interest payments are made on the Term Debt. At December 31, 2009, interest rate swap contracts with a notional amount of $575.0 million were outstanding.

     In September 2006, the Company settled interest rate swaps designated as cash flow hedges, which had a fair value of $11.5 million, and terminated the hedge relationship. The fair value of the settled swaps is recorded in AOCI and is being recognized as a reduction to interest expense each quarter over the remaining term of the Term Debt. At December 31, 2009, $1.3 million remained in AOCI.

     Foreign Currency Forward Contracts

     The Company enters into foreign currency forward contracts, which typically have maturities between one and fifteen months, to economically hedge the remeasurement of certain foreign currency-denominated intercompany loans receivable and other foreign-currency denominated assets recorded in the Company’s condensed consolidated balance sheets. Remeasurement represents changes in the expected amount of cash flows to be received or paid upon settlement of the intercompany loan receivables and other foreign-currency denominated assets and liabilities resulting from a change in currency exchange rates. The Company also enters into foreign currency forward contracts in order to manage the foreign exchange variability in forecasted royalty cash flows due to fluctuations in exchange rates. At December 31, 2009, foreign currency forward contracts with a notional amount of $423.6 million were outstanding.

     Credit Risk

     By entering into derivative instrument contracts, the Company exposes itself, from time to time, to counterparty credit risk. Counterparty credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is in an asset position, the counterparty has a liability to the Company, which creates credit risk for the Company.

The Company attempts to minimize this risk by selecting counterparties with investment grade credit ratings, limiting its exposure to any single counterparty and regularly monitoring its market position with each counterparty.

     Credit-Risk Related Contingent Features

     The Company’s derivative instruments do not contain any credit-risk related contingent features.

     The following table presents the required quantitative disclosures for the Company’s derivative instruments (in millions):

		For the Three Months Ended December 31,												For the Three Months Ended December 31,
		2009												2008
						Foreign												Foreign
						Currency												Currency
		Interest Rate				Forward								Interest Rate				Forward
		Swaps				Contracts				Total				Swaps				Contracts				Total
Derivatives designated as cash flow hedging instruments:
Gain (loss) recognized in other comprehensive income (effective portion)		$	(1.8	)		$	0.3			$	(1.5	)		$	(32.8	)		$	(0.8	)		$	(33.6	)
Gain (loss) reclassified from AOCI into interest expense, net (1)		$	(5.4	)		$	—			$	(5.4	)		$	(0.4	)		$	—			$	(0.4	)
Gain (loss) reclassified from AOCI into royalty income		$	—			$	(0.4	)		$	(0.4	)		$	—			$	—			$	—
Gain (loss) recognized in interest expense, net (ineffective portion) (2)		$	—			$	—			$	—			$	—			$	—			$	—
Gain (loss) recognized in royalty income, net (ineffective portion) (2)		$	—			$	—			$	—			$	—			$	—			$	—
Derivatives not designated as hedging instruments:
Gain (loss) recognized in other operating expense net		$	—			$	5.8			$	5.8			$	—			$	14.6			$	14.6

		For the Six Months Ended December 31,												For the Six Months Ended December 31,
		2009												2008
						Foreign												Foreign
						Currency												Currency
		Interest Rate				Forward								Interest Rate				Forward
		Swaps				Contracts				Total				Swaps				Contracts				Total
Derivatives designated as cash flow hedging instruments:
Gain (loss) recognized in other comprehensive income (effective portion)		$	(8.5	)		$	(0.2	)		$	(8.7	)		$	(38.2	)		$	(0.1	)		$	(38.3	)
Gain (loss) reclassified from AOCI into interest expense, net (1)		$	(10.5	)		$	—			$	(10.5	)		$	(2.6	)		$	—			$	(2.6	)
Gain (loss) reclassified from AOCI into royalty income		$	—			$	(0.5	)		$	(0.5	)		$	—			$	—			$	—
Gain (loss) recognized in interest expense, net (ineffective portion) (2)		$	—			$	—			$	—			$	—			$	—			$	—
Gain (loss) recognized in royalty income, net (ineffective portion) (2)		$	—			$	—			$	—			$	—			$	—			$	—
Derivatives not designated as hedging instruments:
Gain (loss) recognized in other operating expense net		$	—			$	(7.0	)		$	(7.0	)		$	—			$	54.4			$	54.4

Note 11. Income Taxes

     The U.S. Federal tax statutory rate reconciles to the effective tax rate as follows:

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2009				2008				2009				2008
U.S. federal income tax rate			35.0	%			35.0	%			35.0	%			35.0	%
State income taxes, net of federal income tax benefit			2.8				2.7				2.8				2.7
Costs and taxes related to foreign operations			3.8				(1.3	)			2.3				(1.9	)
Foreign tax differential			(6.5	)			(4.6	)			(6.5	)			(4.6	)
Foreign exchange differential on tax benefits			(0.1	)			2.7				0.2				2.2
Change in valuation allowance			(2.0	)			2.3				(0.5	)			1.7
Change in accrual for tax uncertainties			1.3				1.1				0.8				1.0
Other			(0.4	)			(0.1	)			(0.2	)			(0.2	)
Effective income tax rate			33.9	%			37.8	%			33.9	%			35.9	%

     The Company had $19.3 million and $19.5 million of unrecognized tax benefits at December 31, 2009 and June 30, 2009, respectively, which if recognized, would affect the effective income tax rate. During the three and six months ended December 31, 2009, the change in unrecognized tax benefit was an increase of approximately $0.8 million and $0.3 million which, if recognized, would affect the effective income tax rate.

     In the next twelve months, it is reasonably possible that the Company will reduce unrecognized tax benefits by a range of approximately $0.4 million to $2.0 million, primarily as a result of the expiration of certain statutes of limitations and the completion of certain tax audits.

     The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. The total amount of accrued interest and penalties at December 31, 2009 and June 30, 2009, respectively, was $3.3 million and $3.7 million, respectively, which was included as a component of the unrecognized tax benefits noted above. Potential interest and penalties associated with uncertain tax positions recognized during the six months ended December 31, 2009 and 2008 were not significant. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision.

     The Company files income tax returns, including returns for its subsidiaries, with federal, state, local and foreign jurisdictions. Generally, the Company is subject to routine examination by taxing authorities in these jurisdictions, including significant international tax jurisdictions, such as the United Kingdom, Germany, Spain, Switzerland, Singapore and Mexico. None of the foreign jurisdictions is individually material. The Company is currently under audit by the U.S. Internal Revenue Service for the years ended June 30, 2008 and June 30, 2007. The Company also has various state and foreign income tax returns in the process of examination. From time to time, these audits result in proposed assessments where the ultimate resolution may result in the Company owing additional taxes. The Company believes that its tax positions comply with applicable tax law and that it has adequately provided for these matters.

Note 12. Retirement Plan and Other Postretirement Benefits

     The Company’s liability under its Executive Retirement Plan (the “ERP liability”) was $22.7 million and $17.9 million at December 31, 2009 and June 30, 2009, respectively. The value of investments held in a rabbi trust (the “rabbi trust”) established to fund a portion of the ERP liability was $20.4 million and $17.9 million at December 31, 2009 and June 30, 2009, respectively. The Company records net (gains) losses related to the change in value of these investments, along with an offsetting amount related to the increase (decrease) in deferred compensation, in selling, general and administrative expenses in the accompanying condensed consolidated statements of income to reflect its exposure to the funded portion of the ERP liability.

     The following table presents net (gains) and losses related to the investments held in the rabbi trust, and the offsetting increase (decrease) in deferred compensation expense related to the funded portion of the ERP liability as a component of selling, general and administrative expenses (in millions):

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2009				2008				2009				2008
Net (gains) losses on investments held in the rabbi trust		$	(0.2	)		$	3.5			$	(2.8	)		$	5.8
Increase (decrease) in deferred compensation – funded portion			0.2				(3.5	)			2.8				(5.8	)
Net impact		$	—			$	—			$	—			$	—

     In the quarter ended September 30, 2009, the Company elected to cease future participant deferrals and Company contributions into the rabbi trust; however, participant deferrals and Company contributions will be credited with a hypothetical rate of return based on the investment options and allocations in various mutual funds selected by each participant (the “unfunded portion of the ERP liability”). The deferred compensation expense related to the unfunded portion of the ERP liability is included as a component of selling, general and administrative expenses and was not significant.

     A summary of the components of net periodic benefit cost for the Company’s pension plans (retirement benefits) and post retirement plans (other benefits) is presented below (in millions):

		Retirement Benefits
		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2009				2008				2009				2008
Service cost-benefits earned during the period		$	0.2			$	0.6			$	0.9			$	0.9
Interest costs on projected benefit obligations			2.7				3.2				5.9				5.8
Expected return on plan assets			(2.6	)			(2.3	)			(5.3	)			(4.8	)
Recognized net actuarial loss			(0.1	)			0.0				(0.2	)			0.0
Net periodic benefit cost		$	0.2			$	1.5			$	1.3			$	1.9

     Postretirement benefit costs were less than $1.0 million for each of the three months ended December 31, 2009 and 2008, respectively, and for each of the six months ended December 31, 2009 and 2008, respectively.

Note 13. Other Operating Expense, Net

     Other operating expense, net, for the three months ended December 31, 2009 of $4.1 million includes $3.5 million of closed restaurant expenses, primarily in the U.S. and Canada and EMEA, a $2.4 million charge related to consumption tax in EMEA, a $0.8 million net loss on the disposal of property and a $0.7 million contract termination fee. These expenses were partially offset by a $3.5 million gain related to the refranchising of 12 Company restaurants in the U.S.

     Other operating expense, net, for the three months ended December 31, 2008 of $2.5 million includes a $0.5 million net loss related to the remeasurement of foreign denominated assets and the expense related to forward contracts used to hedge the currency exchange impact on such assets, and $1.3 million in remeasurement losses on foreign currency transactions.

     Other operating expense, net, for the six months ended December 31, 2009 of $5.1 million includes $4.0 million of closed restaurant expenses, primarily in the U.S. and Canada and EMEA, a $2.4 million charge related to consumption tax in EMEA, a $0.5 million net loss on the disposal of property, a $0.7 million contract termination fee, a $0.7 million net loss related to the remeasurement of foreign denominated assets and the expense related to forward contracts used to hedge the currency exchange impact on such assets, and $0.4 million in remeasurement losses on foreign currency transactions. These expenses were partially offset by a $3.5 million gain related to the refranchising of 12 Company restaurants in the U.S.

     Other operating expense, net for the six months ended December 31, 2008 of $9.2 million includes $1.5 million of expenses associated with the acquisition of franchise restaurants from a large franchisee in the U.S., a $5.6 million net loss related to the remeasurement of foreign denominated assets and the expense related to forward contracts used to hedge the currency exchange impact on such assets, and $1.3 million in remeasurement losses on foreign currency transactions.

Note 14. Commitments and Contingencies

     Guarantees

     The Company guarantees certain lease payments of franchisees arising from leases assigned in connection with sales of Company restaurants to franchisees, by remaining secondarily liable for base and contingent rents under the assigned leases of varying terms. The maximum contingent rent amount is not determinable as the amount is based on future revenues. In the event of default by the franchisees, the Company has typically retained the right to acquire possession of the related restaurants, subject to landlord consent. The aggregate contingent obligation arising from these assigned lease guarantees, excluding contingent rents, was $67.6 million as of December 31, 2009, expiring over an average period of seven years.

     Other commitments arising from normal business operations were $10.4 million as of December 31, 2009, of which $9.3 million was guaranteed under bank guarantee arrangements. These guarantees are primarily related to restaurant and office leases and future advertising spending.

     Letters of Credit

     As of December 31, 2009, the Company had $30.5 million in irrevocable standby letters of credit outstanding, which were issued primarily to certain insurance carriers to guarantee payments of deductibles for various insurance programs, such as health and commercial liability insurance. Such letters of credit are secured by the collateral under the Company’s senior secured credit facility. As of December 31, 2009, no amounts had been drawn on any of these irrevocable standby letters of credit.

     As of December 31, 2009, the Company had posted bonds totaling $3.2 million, which related to certain utility deposits and capital projects.

     Vendor Relationships

     In fiscal 2000, the Company entered into long-term, exclusive contracts with The Coca-Cola Company and with Dr Pepper/Seven Up, Inc. to supply the Company and its franchise restaurants with their products and obligating Burger King^® restaurants in the United States to purchase a specified number of gallons of soft drink syrup. These volume commitments are not subject to any time limit. As of December 31, 2009, the Company estimates that it will take approximately 12 years to complete the Coca-Cola and Dr Pepper/Seven Up, Inc. purchase commitments. In the event of early termination of these arrangements, the Company may be required to make termination payments that could be material to the Company’s results of operations and financial position. Additionally, in connection with these contracts, the Company received upfront fees, which are being amortized over the term of the contracts. As of December 31, 2009 and June 30, 2009, the deferred amounts totaled $15.5 million and $16.1 million, respectively. These deferred amounts are amortized as a reduction to food, paper and product costs in the accompanying condensed consolidated statements of income.

     As of December 31, 2009, the Company had $8.5 million in aggregate contractual obligations for the year ending June 30, 2010 with vendors providing information technology and telecommunication services under multiple arrangements. These contracts extend up to five years with a termination fee ranging from less than $0.3 million to $3.4 million during those years. The Company also has separate arrangements for telecommunication services with an aggregate contractual obligation of $7.5 million extending up to two years with no early termination fee.

     The Company also enters into commitments to purchase advertising. As of December 31, 2009, commitments to purchase advertising totaled $106.9 million. These commitments run through October 2011.

  Litigation

     On September 10, 2008, a class action lawsuit was filed against the Company in the United States District Court for the Northern District of California. The complaint alleged that all 92 Burger King restaurants in California leased by the Company and operated by franchisees violate accessibility requirements under federal and state law. In September 2009, the court issued a decision on the plaintiffs’ motion for class certification. In its decision, the court limited the class action to the 10 restaurants visited by the named plaintiffs, with a separate class of plaintiffs for each of the 10 restaurants and 10 separate trials. The Company intends to continue to vigorously defend against all claims in this lawsuit; however, the Company is unable to predict the ultimate outcome of this litigation.

     On November 10, 2009, the National Franchisee Association filed a class action lawsuit, claiming to represent Burger King franchisees and seeking a judicial declaration that the franchise agreements between BKC and its franchisees do not obligate the franchisees to comply with maximum price points set by BKC for products on the BK^® Value Menu sold by the franchisees. The Company filed a motion to dismiss the complaint on December 4, 2009. While the Company believes that it has the right to mandate maximum price points on its value menu, the Company is unable to predict the ultimate outcome of this litigation.

     From time to time, the Company is involved in legal proceedings arising in the ordinary course of business relating to matters including, but not limited to, disputes with franchisees, suppliers, employees and customers, as well as disputes over the Company’s intellectual property. In the opinion of management, disposition of the matters will not materially affect the Company’s financial condition or results of operations.

     Other

     The Company carries insurance programs to cover claims such as workers’ compensation, general liability, automotive liability, executive risk and property and is self-insured for healthcare claims for eligible participating employees. Through the use of insurance program deductibles (ranging from $0.5 million to $1 million) and self-insurance, the Company retains a significant portion of the expected losses under these programs. Insurance reserves have been recorded based on the Company’s estimate of the anticipated ultimate costs to settle all claims, both reported and incurred-but-not-reported (IBNR), and such reserves include judgments and independent actuarial assumptions about economic conditions, the frequency or severity of claims and claim development patterns, and claim reserve, management and settlement practices. As of December 31, 2009 and June 30, 2009, the Company had $35.7 million and $36.5 million in accrued liabilities to cover such claims, respectively.

Note 15. Segment Reporting

     The Company operates in the fast food hamburger category of the quick service segment of the restaurant industry. Revenues include retail sales at Company restaurants, franchise revenues, consisting of royalties based on a percentage of sales reported by franchise restaurants and franchise fees paid by franchisees, and property revenues. The business is managed in three distinct geographic segments: (1) United States (“U.S.”) and Canada; (2) Europe, the Middle East and Africa and Asia Pacific (“EMEA/APAC”); and (3) Latin America.

     The following tables present revenues and income from operations by geographic segment (in millions):

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2009				2008				2009				2008
Revenues:
U.S. & Canada		$	429.1			$	434.7			$	861.2			$	882.0
EMEA/APAC			187.9				172.2				367.0				366.8
Latin America			28.4				27.2				54.1				58.8
Total revenues		$	645.4			$	634.1			$	1,282.3			$	1,307.6

     Other than the U.S. and Germany, no other individual country represented 10% or more of the Company’s total revenues. Revenues in the U.S. totaled $390.7 million and $785.7 million for the three and six months ended December 31, 2009, respectively, compared to $396.9 million and $800.9 million for the three and six months ended December 31, 2008, respectively. Revenues in Germany totaled $80.1 million and $155.4 million for the three and six months ended December 31, 2009, respectively, compared to $79.3 million and $165.8 million for the three and six months ended December 31, 2008, respectively.

     The unallocated amounts reflected in the table below include corporate support costs in areas such as facilities, finance, human resources, information technology, legal, marketing and supply chain management, which benefit all of the Company’s geographic segments and system wide restaurants and are not allocated specifically to any of the geographic segments.

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2009				2008				2009				2008
Income from Operations:
U.S. & Canada		$	90.4			$	86.5			$	181.3			$	174.2
EMEA/APAC			23.0				23.4				42.8				46.0
Latin America			10.9				9.6				18.8				19.8
Unallocated			(36.1	)			(33.3	)			(71.7	)			(63.9	)
Total income from operations			88.2				86.2				171.2				176.1
Interest expense, net			12.2				15.0				24.7				29.4
Income before income taxes			76.0				71.2				146.5				146.7
Income tax expense			25.8				26.9				49.7				52.6
Net income		$	50.2			$	44.3			$	96.8			$	94.1

Note 16. Subsequent Event

     The Company evaluated events and transactions for potential recognition or disclosure through February 5, 2010, the date the Financial Statements were filed.

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

     You should read the following discussion together with our unaudited condensed consolidated financial statements and the related notes thereto included in Part I, Item 1 “Financial Statements.” In addition to historical consolidated financial information, this discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Actual results could differ from these expectations as a result of factors including those described in our Annual Report on Form 10-K for the year ended June 30, 2009, our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, and under Part II, Item 1A “Risk Factors,” and “Cautionary Note Regarding Forward-Looking Statements” and elsewhere in this report. Unless the context otherwise requires, all references to “we,” “us,” “our” and “Company” refer to Burger King Holdings, Inc. and its subsidiaries.

     Operating results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for the fiscal year and our key business measures, as discussed below, for any future period may decrease. Unless otherwise stated, sales growth, comparable sales growth and average restaurant sales are presented on a system-wide basis, which means they include sales at both Company restaurants and franchise restaurants. Franchise sales represent sales at all franchise restaurants and revenues to our franchisees. We do not record franchise sales as revenues; however, our franchise revenues include royalties based on franchise sales. System-wide results are driven primarily by our franchise restaurants, as approximately 90% of our system-wide restaurants are franchised.

Overview

     We operate in the fast food hamburger restaurant, or FFHR, category of the quick service restaurant, or QSR, segment of the restaurant industry. We are the second largest FFHR chain in the world as measured by the number of restaurants and system-wide sales. Our system of restaurants includes restaurants owned by us, as well as our franchisees. We track our results of operations and manage our business by using three key business measures: comparable sales growth, average restaurant sales and sales growth. As of December 31, 2009, we owned or franchised a total of 12,078 restaurants in 73 countries and U.S. territories, of which 7,545 were located in the U.S. and Canada. At that date, 1,422 restaurants were Company restaurants and 10,656 were owned by our franchisees. Our restaurants feature flame-broiled hamburgers, chicken and other specialty sandwiches, french fries, soft drinks and other reasonably-priced food items.

     Our business operates in three reportable segments: (1) the U.S. and Canada; (2) Europe, the Middle East, Africa and Asia Pacific, or EMEA/APAC; and (3) Latin America. We generate revenues from three sources: (1) retail sales at Company restaurants; (2) franchise revenues, consisting of royalties based on a percentage of sales reported by franchise restaurants and franchise fees paid by franchisees; and (3) property income from restaurants that we lease or sublease to franchisees.

     Approximately 90% of our restaurants are franchised, and we do not expect the percentage of franchise restaurants to change significantly as we implement our growth strategy. The 90/10 ratio of franchise restaurants to Company restaurants applies on a worldwide basis, but may not reflect the ratio of franchise restaurants to Company restaurants in any specific market or region. We believe that this restaurant ownership mix is beneficial to us because the capital required to grow and maintain our system is funded primarily by franchisees while giving us a sizable base of company restaurants to demonstrate credibility with franchisees in launching new initiatives. However, our franchise dominated business model also presents a number of drawbacks and risks, such as our limited control over franchisees and limited ability to facilitate changes in restaurant ownership. In addition, our operating results are closely tied to the success of our franchisees, and we are dependent on franchisees to open new restaurants as part of our growth strategy.

     Our international operations are impacted by fluctuations in currency exchange rates. In Company markets located outside of the U.S., we generate revenues and incur expenses denominated in local currencies. These revenues and expenses are translated using the average rates during the period in which they are recognized, and are impacted by changes in currency exchange rates. In many of our franchise markets, our franchisees pay royalties to us in currencies other than the local currency in which they operate; however, as the royalties are calculated based on local currency sales, our revenues are still impacted by fluctuations in currency exchange rates.

     As of December 31, 2009, the Company was approximately 32% owned by the private equity funds controlled by TPG Capital, the Goldman Sachs Funds and Bain Capital Partners (collectively, the “Sponsors”).

Business Highlights

     Our accomplishments and key activities since September 30, 2009 include:

§

robust development growth across all business segments with 95 net new openings during the second quarter of fiscal 2010; over 90% of the increase came from markets outside the United States and Canada;

§

worldwide system restaurant count of 12,078 at December 31, 2009, our highest restaurant count in the history of the brand;

§

grand opening of the brand’s 12,000th restaurant, located in Beijing;

§

160 basis point improvement in U.S. and Canada company restaurant margin to 14.4% from 12.8% in the second quarter of fiscal 2009; and

§

20 basis point improvement in worldwide company restaurant margin to 13.8% from 13.6% in the second quarter of fiscal 2009.

     As part of our True North plan of growing the brand, running great restaurants, investing wisely and focusing on our people, we intend to continue to focus on the following:

•

driving further sales growth;

•

enhancing restaurant profitability;

•

employing innovative marketing strategies and offering superior value and quality;

•

expanding our large international platform;

	•		accelerating our new restaurant development and expansion; and
	•		using proactive portfolio management, including closures of under-performing restaurants and strategic refranchisings and acquisitions, to drive financial performance and development.

Seasonality

     Our business is moderately seasonal. Restaurant sales are typically higher in the spring and summer months (our fourth and first fiscal quarters) when weather is warmer than in the fall and winter months (our second and third fiscal quarters). Restaurant sales during the winter are typically highest in December, during the holiday shopping season. Our restaurant sales and Company restaurant margins are typically lowest during our third fiscal quarter, which occurs during the winter months and includes February, the shortest month of the year. Because our business is moderately seasonal, results for any one quarter are not necessarily indicative of the results that may be achieved for any other quarter or for the full fiscal year. The timing of religious holidays may also impact restaurant sales.

Key Business Measures

     The Company uses three key business measures as indicators of the Company’s operational performance: comparable sales growth, average restaurant sales and sales growth. We believe that these measures are important indicators of the overall direction, trends of sales and the effectiveness of the Company’s advertising, marketing and operating initiatives and the impact of these on the entire Burger King® system.

     These key business measures have been provided for the three and six months ended December 31, 2009 and 2008. Comparable sales growth and sales growth are provided by reportable segment and are analyzed on a constant currency basis, which means they are calculated using the same exchange rates over the periods under comparison to remove the effects of currency fluctuations from these trend analyses. We believe these constant currency measures provide a more meaningful analysis of our business by identifying the underlying business trends, without distortion from the effect of currency movements.

Comparable Sales Growth

     Comparable sales growth refers to the change in restaurant sales in one period from a comparable period in the prior year for restaurants that have been open for 13 months or longer as of the end of the most recent period. Company comparable sales growth refers to comparable sales growth for Company restaurants and franchise comparable sales growth refers to comparable sales growth for franchise restaurants. We believe that comparable sales growth is a key indicator of our performance, as influenced by our strategic initiatives and those of our competitors.

		For the								For the
		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2009				2008				2009				2008
		(In constant currencies)								(In constant currencies)
Company Comparable Sales Growth:
U.S. & Canada			(1.3	)%			2.4	%			(2.1	)%			1.8	%
EMEA / APAC			(1.3	)%			1.6	%			(1.2	)%			2.5	%
Latin America			(5.4	)%			2.2	%			(5.3	)%			2.2	%
Total Company Comparable Sales Growth			(1.5	)%			2.1	%			(2.0	)%			2.0	%
Franchise Comparable Sales Growth:
U.S. & Canada			(3.6	)%			1.8	%			(4.3	)%			2.5	%
EMEA / APAC			1.2	%			5.5	%			1.2	%			5.2	%
Latin America			(2.5	)%			4.2	%			(3.5	)%			4.8	%
Total Franchise Comparable Sales Growth			(2.1	)%			3.0	%			(2.6	)%			3.5	%
Comparable Sales Growth:
U.S. & Canada			(3.3	)%			1.9	%			(4.0	)%			2.4	%
EMEA/APAC			0.9	%			5.0	%			1.0	%			4.9	%
Latin America			(2.6	)%			4.1	%			(3.6	)%			4.6	%
Total Worldwide Comparable Sales Growth			(2.0	)%			2.9	%			(2.5	)%			3.3	%

     Three and six months ended December 31, 2009

     We experienced negative worldwide comparable sales of 2.0% (in constant currencies) for the three months ended December 31, 2009. Worldwide comparable sales were adversely impacted by lower levels of guest spending due to value promotions in the U.S., such as the $1 ¹/4 lb. Double Cheeseburger promotion, and continued traffic declines in Latin America, partially offset by positive comparable sales growth in the EMEA/APAC segment and improved traffic performance in the U.S., primarily as a result of the $1 ¹/4 lb. Double Cheeseburger promotion. Worldwide comparable sales for the quarter were also negatively impacted by a continued weak labor market, lower discretionary spending and competitive discounting.

     Negative worldwide comparable sales of 2.5% (in constant currencies) for the six months ended December 31, 2009 were adversely impacted by declines in traffic across all segments during the first quarter of fiscal 2010, which did not materially improve in EMEA/APAC or Latin America during the second quarter due to the macroeconomic and competitive factors noted above for the three month period. Negative worldwide comparable sales for the six month period were partially offset by positive comparable sales growth in the EMEA/APAC segment.

     Negative comparable sales growth in the U.S. and Canada of 3.3% (in constant currencies) for the three months ended December 31, 2009, was primarily driven by lower levels of guest spending due to value promotions in the U.S., such as the $1 ¹/4 lb. Double Cheeseburger promotion, partially offset by improved traffic performance in the U.S. primarily as a result of the $1 ¹/4 lb. Double Cheeseburger promotion. Comparable sales in the U.S. and Canada were also negatively impacted by a continued weak labor market, lower discretionary spending and competitive discounting. According to The NPD Group, Inc., which prepares and disseminates CREST® data, QSR traffic in the U.S. declined -3% versus a year ago in the quarter ended November 2009. Promotions featured during the three month period included the national launch of the $1 ¹/4 lb. Double Cheeseburger in the U.S., a U.S. campaign with NASCAR® Sprint Cup Series driver Tony Stewart, a multifaceted promotion with The Twilight Saga: New Moon aimed at broadening the brand’s appeal with female SuperFans, and SuperFamily promotions such as SpongeBob SquarePants^TM, Planet 51^TM and FurReal/Super Hero Squad.

     Negative comparable sales growth of 4.0% (in constant currencies) in the U.S. and Canada for the six months ended December 31, 2009, was driven by a decline in traffic due to the adverse macroeconomic and competitive factors noted above in the three month discussion. Products and promotions featured during the six month period include the promotions and marketing initiatives noted for

the three month period as well as value-focused promotions, such as the $1 Whopper Jr.® sandwich and 2 for $4 Original Chicken sandwiches, Whopper® sandwich limited time offers, such as the BBQ Stackticon^TM, and SuperFamily promotions, such as G.I. Joe^TM, Cloudy with a Chance of Meatballs^TM and Transformers^TM 2 .

     Positive comparable sales growth in EMEA/APAC of 0.9% and 1.0% (in constant currencies) for the three and six months ended December 31, 2009, respectively, was driven by the strength of the U.K., Spain and our major APAC markets, including Australia, New Zealand and Korea. Comparable sales growth was positive despite the fact that Germany, one of our major markets in this segment, experienced negative comparable sales due to traffic declines caused by adverse economic conditions and competitive discounting. During the three and six month period, we focused in EMEA/APAC on promoting our barbell menu strategy with a combination of value and premium offerings such as value-oriented King Deals^TM and Stunner Deals and indulgent products such as various angus burger builds and Whopper® sandwich limited time offers.

     Negative comparable sales growth in Latin America of 2.6% and 3.6% (in constant currencies) for the three and six months ended December 31, 2009, respectively, was the result of a decline in traffic compared to the same periods in the prior year, particularly in Mexico and Central America, driven by continued adverse socioeconomic conditions, lower influx of remittances from the U.S., a slowdown in tourism and the devaluation of local currencies. During the three month period, we continued to leverage our barbell menu strategy with everyday branded value platforms such as Come Como Rey^TM (Eat Like a King) and BK^TM Ofertas, promotional campaigns for our Made To Order Whopper®, along with limited time offers including the Mega Angus XT^TM Furioso sandwich, and the Single, Double and Triple Club Whopper Jr.® combo meals in key markets, as well as kids’ properties such as SpongeBob SquarePants^TM, Planet 51^TM and Fur Real/Super Hero Squad and a regional promotion with Coca-Cola and Latin American Idol. Products and promotions featured during the six month period include the products and promotions noted above for the three month period, as well as national launch of the Mega Angus XT^TM sandwich in Mexico, the Transformers^TM BBQ Stackticon^TM and Whopper® Furioso promotion burgers regionally, the Whopper® Jackpot sweepstakes and new “Combo Familiar” (Family Combo) promotions in Puerto Rico as well as strong kids’ properties such as Transformers^TM, Pokémon^TM, G.I. Joe^TM and Cloudy with a Chance of Meatballs^TM.

     Average Restaurant Sales

     Average restaurant sales, or ARS, is calculated as the total sales averaged over total store months for all restaurants open during a defined period. We believe that ARS is an important measure of the financial performance of our restaurants and changes in the overall direction and trends of sales. ARS is influenced by comparable sales performance and restaurant openings and closures and includes the impact of movements in currency exchange rates. For the three and six months ended December 31, 2009, ARS was $319,000 and $641,000, respectively, including the favorable impact of currency exchange rates of $13,000 and $2,000, respectively, compared to $312,000 and $656,000 for the three and six months ended December 31, 2008, an increase of 2% and a decrease of 2%, respectively. For the three months ended December 31, 2009, ARS increased primarily as a result of the favorable impact of currency exchange rates. For the six months ended December 31, 2009, ARS decreased primarily as a result of negative worldwide comparable sales. Trailing twelve months ARS was $1.2 million, including the unfavorable impact of currency exchange rates of $39,000, compared to $1.3 million, for the periods ended December 31, 2009 and 2008, respectively.

     Sales Growth

     Sales growth refers to the change in sales at all Company and franchise restaurants from one period to another. We believe that sales growth is an important indicator of the overall direction and trends of sales and income from operations on a system-wide basis. Sales growth is influenced by restaurant openings and closures and comparable sales growth, as well as the effectiveness of our advertising and marketing initiatives and featured products and the macroeconomic and competitive factors that impact comparable sales.

		For the								For the
		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2009				2008				2009				2008
		(In constant currencies)
Sales Growth:
U.S. & Canada			(2.1	)%			2.6	%			(3.1	)%			3.1	%
EMEA/APAC			7.5	%			6.0	%			8.0	%			8.3	%
Latin America			3.0	%			6.2	%			(0.1	)%			11.2	%
Total System-wide Sales Growth			1.0	%			3.8	%			0.4	%			5.2	%

     Sales growth for the three and six months ended December 31, 2009 was positive, primarily as result of increased restaurant count on a system-wide basis, partially offset by negative comparable sales.

     The U.S. and Canada experienced negative sales growth during the three and six months ended December 31, 2009, reflecting the impact of negative comparable sales, partially offset by a net increase of 29 restaurants during the trailing twelve months ended December 31, 2009. We had 7,545 restaurants in the U.S. and Canada as of December 31, 2009, compared to 7,516 restaurants as of December 31, 2008.

     EMEA/APAC demonstrated sales growth during the three and six months ended December 31, 2009, reflecting openings of new restaurants and positive comparable sales, driven by the U.K., Spain and our major APAC markets, including Australia, New Zealand and Korea. We had 3,428 restaurants in EMEA/APAC as of December 31, 2009, compared to 3,193 restaurants as of December 31, 2008, reflecting a 7% increase in the number of restaurants.

     Latin America experienced positive sales growth for the three months ended December 31, 2009, reflecting openings of new restaurants, partially offset by negative comparable sales for the three month period. For the six months ended December 31, 2009, sales growth was negative, reflecting negative comparable sales for the six month period, partially offset by new restaurant openings. We had 1,105 restaurants in Latin America as of December 31, 2009, compared to 1,048 restaurants as of December 31, 2008.

     Other Operating Data

		As of
		December 31,
		2009				2008
Restaurant Count Data:
Number of Company restaurants:
U.S. & Canada			1,029				1,065
EMEA/APAC(1)			299				293
Latin America(2)			94				86
Total Company restaurants			1,422				1,444
Number of franchise restaurants:
U.S. & Canada			6,516				6,451
EMEA/APAC(1)			3,129				2,900
Latin America(2)			1,011				962
Total franchise restaurants			10,656				10,313
Total system-wide restaurants			12,078				11,757

		For the Three Months Ended								For the Six Months Ended
		December 31,								December 31,
		2009				2008				2009				2008
Other Operating Data:
Comparable sales growth			(2.0	)%			2.9	%			(2.5	)%			3.3	%
Sales growth			1.0	%			3.8	%			0.4	%			5.2	%
Average restaurant sales (in thousands)		$	319.0			$	312.0			$	641.0			$	656.0
Segment Data:
Company restaurant revenues (in millions):
U.S. & Canada		$	328.6			$	333.1			$	657.0			$	673.4
EMEA/APAC(1)			132.6				124.7				258.5				263.1
Latin America(2)			15.7				15.0				30.5				33.6
Total Company restaurant revenues		$	476.9			$	472.8			$	946.0			$	970.1
Company restaurant expenses as a percentage of revenue (3):
U.S. & Canada
Food, paper and products costs			32.5	%			33.2	%			32.4	%			33.8	%
Payroll and employee benefits			31.1	%			31.0	%			31.0	%			30.7	%
Occupancy and other operating costs			22.0	%			23.0	%			22.5	%			23.0	%
Total Company restaurant expenses			85.6	%			87.2	%			85.9	%			87.5	%
EMEA/APAC(1)
Food, paper and products costs			28.7	%			28.6	%			29.0	%			28.1	%
Payroll and employee benefits			31.9	%			31.7	%			32.5	%			32.1	%
Occupancy and other operating costs			28.0	%			25.5	%			27.8	%			26.2	%
Total Company restaurant expenses			88.6	%			85.8	%			89.3	%			86.4	%
Latin America(2)
Food, paper and products costs			39.5	%			38.7	%			39.7	%			37.5	%
Payroll and employee benefits			11.5	%			12.0	%			12.5	%			12.2	%
Occupancy and other operating costs			28.0	%			25.3	%			28.1	%			29.2	%
Total Company restaurant expenses			79.0	%			76.0	%			80.3	%			78.9	%
Worldwide
Food, paper and products costs			31.7	%			32.1	%			31.7	%			32.4	%
Payroll and employee benefits			30.7	%			30.6	%			30.8	%			30.5	%
Occupancy and other operating costs			23.8	%			23.7	%			24.1	%			24.0	%
Total Company restaurant expenses			86.2	%			86.4	%			86.6	%			86.9	%
Franchise revenues (in millions):
U.S. & Canada		$	78.1			$	79.6			$	158.8			$	163.8
EMEA/APAC(1)			49.5				42.1				96.6				90.6
Latin America(2)			12.7				12.2				23.6				25.2
Total franchise revenues(4)		$	140.3			$	133.9			$	279.0			$	279.6
Income from operations (in millions):
U.S. & Canada		$	90.4			$	86.5			$	181.3			$	174.2
EMEA/APAC(1)			23.0				23.4				42.8				46.0
Latin America(2)			10.9				9.6				18.8				19.8
Unallocated(5)			(36.1	)			(33.3	)			(71.7	)			(63.9	)
Total Income from operations		$	88.2			$	86.2			$	171.2			$	176.1
EBITDA (in millions)(6)		$	115.5			$	109.4			$	223.6			$	224.9