UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2007

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

For the transition period from            to           

Commission file number: 001-32875

BURGER KING HOLDINGS, INC.

Delaware		75-3095469
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)
5505 Blue Lagoon Drive, Miami, Florida		33126
(Address of Principal Executive Offices)		(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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one);

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ

     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 May 3, 2007, there were 134,891,940 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 March 31, 2007 and June 30, 2006 (unaudited)			3
		Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2007 and 2006 (unaudited)			4
		Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2007 and 2006 (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			39
Item 4.		Controls and Procedures			39
		PART II — Other Information
Item 1A.		Risk Factors			41
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			42
Item 6.		Exhibits			42
		Signatures			43
		Index to Exhibits			44
EX-31.1 Section 302 Certification of CEO
EX-31.2 Section 302 Certification of CFO
EX-32.1 Section 906 Certification of CEO
EX-32.2 Section 906 Certification of CFO

PART I — Financial Information

Item 1. Financial Statements

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

		As of
		March 31,				June 30,
		2007				2006
		(In millions, except share data)
Assets
Current assets:
Cash and cash equivalents		$	142			$	259
Trade and notes receivable, net			112				109
Prepaids and other current assets, net			60				40
Deferred income taxes			35				45
Total current assets			349				453
Property and equipment, net			857				886
Intangible assets, net			982				975
Goodwill			23				20
Net investment in property leased to franchisees			144				148
Other assets, net			78				70
Total assets		$	2,433			$	2,552
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts and drafts payable		$	74			$	100
Accrued advertising			62				49
Other accrued liabilities			252				330
Current portion of debt and capital leases			5				5
Total current liabilities			393				484
Long term debt			871				997
Capital leases, net of current portion			64				63
Other deferrals and liabilities			350				357
Deferred income taxes			82				84
Total liabilities			1,760				1,985
Commitments and Contingencies (Note 13 and Note 15)
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; 134,828,382 and 133,058,640 shares issued and outstanding at March 31, 2007 and June 30, 2006, respectively			1				1
Restricted stock units			5				5
Additional paid-in capital			567				545
Retained earnings			107				3
Accumulated other comprehensive (loss) income			(4	)			15
Treasury stock, at cost; 645,681 and 590,841 shares, at March 31, 2007 and June 30, 2006, respectively			(3	)			(2	)
Total stockholders’ equity			673				567
Total liabilities and stockholders’ equity		$	2,433			$	2,552

See accompanying notes to condensed consolidated financial statements.

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

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
		(In millions, except per share data)
Revenues:
Company restaurant revenues		$	403			$	368			$	1,225			$	1,122
Franchise revenues			109				100				334				309
Property revenues			27				27				85				84
Total revenues			539				495				1,644				1,515
Company restaurant expenses:
Food, paper and product costs			120				114				367				351
Payroll and employee benefits			121				111				363				330
Occupancy and other operating costs			105				96				310				280
Total company restaurant expenses			346				321				1,040				961
Selling, general and administrative expenses			115				146				346				353
Property expenses			14				14				45				42
Fees paid to affiliates			—				2				—				8
Other operating expense (income), net			2				(2	)			(6	)			(5	)
Total operating costs and expenses			477				481				1,425				1,359
Income from operations			62				14				219				156
Interest expense			18				22				56				59
Interest income			(1	)			(3	)			(5	)			(6	)
Total interest expense, net			17				19				51				53
Loss on early extinguishment of debt			—				1				1				14
Income (loss) before income taxes			45				(6	)			167				89
Income tax expense			11				6				55				52
Net income (loss)		$	34			$	(12	)		$	112			$	37
Earnings (loss) per share:
Basic		$	0.25			$	(0.11	)		$	0.84			$	0.34
Diluted		$	0.25			$	(0.11	)		$	0.82			$	0.33
Dividends per common share		$	0.06			$	—			$	0.06			$	—
Weighted average shares outstanding:
Basic			134.4				107.3				133.7				107.0
Diluted			137.2				107.3				136.6				111.3

See accompanying notes to condensed consolidated financial statements.

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

		Nine Months Ended
		March 31,
		2007				2006
		(In millions)
Cash flows from operating activities:
Net income		$	112			$	37
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			65				63
Gain on hedging activities			(3	)			—
Gain on remeasurement of foreign denominated transactions			(17	)			—
Gain on asset disposals			(8	)			(2	)
Bad debt recoveries			(4	)			(1	)
Pension curtailment gain			—				(6	)
Loss on early extinguishment of debt			1				14
Stock-based compensation			4				—
Deferred income tax expense			(15	)			36
Changes in current assets and liabilities, excluding acquisitions and dispositions:
Trade and notes receivables			(1	)			9
Prepaids and other current assets			(13	)			(12	)
Accounts and drafts payable			(26	)			(23	)
Accrued advertising			13				(9	)
Other accrued liabilities			(80	)			7
Payment of interest on PIK notes			—				(103	)
Other long-term assets and liabilities			18				11
Net cash provided by operating activities		$	46			$	21
Cash flows from investing activities:
Purchases of available-for-sale securities			(318	)			—
Proceeds from sale of available-for-sale securities			318				—
Payments for property and equipment			(48	)			(48	)
Proceeds from asset disposals and restaurant closures			18				15
Payments for acquired franchisee operations			(12	)			(7	)
Investment in franchisee debt			(6	)			(3	)
Collections on franchisee debt			4				1
Net cash used for investing activities		$	(44	)		$	(42	)
Cash flows from financing activities:
Proceeds from term debt and credit facility			1				2,143
Repayments of term debt, credit facility and capital leases			(130	)			(1,978	)
Payments for financing costs			—				(19	)
Proceeds from sale of common stock			7				7
Dividends paid on common stock			(8	)			(367	)
Excess tax benefits from stock-based compensation			10				—
Treasury stock purchases			(1	)			—
Net cash used for financing activities		$	(121	)		$	(214	)
Effect of exchange rates on cash and cash equivalents			2				—
Decrease in cash and cash equivalents			(117	)			(235	)
Cash and cash equivalents at beginning of period			259				432
Cash and cash equivalents at end of period		$	142			$	197

See accompanying notes to condensed consolidated financial statements.

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

		Nine Months Ended
		March 31,
		2007				2006
		(In millions)
Supplemental cash flow disclosures:
Interest paid (1)		$	44			$	159
Income taxes paid (2)		$	140			$	11
Non-cash investing and financing activities:
Acquisition of property with capital lease obligations		$	6			$	11

See accompanying notes to condensed consolidated financial statements.

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

Note 1. Organization and Basis of Presentation

     Burger King Holdings, Inc. (“BKH” or the “Company”) is a Delaware corporation formed on July 23, 2002. It 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. As of June 30, 2006, the Company was approximately 76% owned by private equity funds controlled by Texas Pacific Group, the Goldman Sachs Funds and Bain Capital Partners (collectively, the “sponsors”). The percentage ownership of the private equity funds controlled by the sponsors decreased to 59% as of March 31, 2007, as a result of the sale of 22 million shares of the Company’s common stock through a secondary offering and partial exercise of the over-allotment option in February 2007 and March 2007, respectively (“secondary offering”).

     The Company generates revenues from three sources: (i) sales at restaurants owned by the Company; (ii) royalties and franchise fees paid by franchisees; and (iii) property income from restaurants that the Company leases or subleases to franchisees. The Company receives monthly royalties and advertising contributions from franchisees based on a percentage of restaurant sales.

Basis of Presentation and Consolidation

     The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2006. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included. The results for the three and nine months ended March 31, 2007 do not necessarily indicate the results that may be expected for the full year.

     The condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Investments in affiliates where the Company owns between 20% and 50% are generally accounted for under the equity method.

Use of Estimates

     The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the Company’s condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications

     Certain reclassifications have been made to prior periods to conform to the current period’s presentation. The reclassifications had no effect on previously reported net income or stockholders’ equity.

Inventories

     Inventories, totaling $17 million and $14 million as of March 31, 2007 and June 30, 2006, respectively, 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.

Auction Rate Securities Available for Sale

     Auction rate securities represent long-term variable rate bonds tied to short-term interest rates that are reset through a “dutch auction” process, which occurs every seven to 35 days, and are classified as available for sale securities. Auction rate notes are considered highly liquid by market participants because of the auction process. However, because the auction rate securities have long-term maturity dates and there is no guarantee the holder will be able to liquidate its holding, they do not meet the definition of

cash equivalents in SFAS No. 95, Statement of Cash Flows and, accordingly, are recorded as investments. There were no auction rate securities outstanding at March 31, 2007 and June 30, 2006.

Note 2. Stock-based Compensation

     Prior to February 16, 2006, the date the Company filed its Form S-1 registration statement relating to its initial public offering with the Securities and Exchange Commission (the initial public offering was effective on May 17, 2006), the Company accounted for stock-based compensation in accordance with the intrinsic-value method of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”). Under the intrinsic value method of APB No. 25, stock options were granted by the Company at fair value, with no compensation cost being recognized in the financial statements over the vesting period. In addition, the Company issued restricted stock units (“RSU’s”) under APB No. 25 and recognized compensation cost over the vesting period of the awards. For pro forma disclosure required by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), compensation expense for stock options was measured using the minimum value method, which assumed no volatility of the Company’s common stock in the Black-Scholes model used to calculate the option’s fair value.

     As a result of filing the Form S-1 registration statement, the Company transitioned from a nonpublic entity to a public entity as defined by Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123R”). Since the Company applied SFAS No. 123 pro forma disclosure for stock options using the minimum value method prior to becoming a public entity, SFAS No. 123R requires that the Company adopt SFAS No. 123R, using a combination of the prospective and modified prospective transition methods. The Company applied the prospective transition method for those awards granted prior to the Form S-1 filing date that were measured at minimum value. The unrecognized compensation cost relating to these awards is recognized in the financial statements subsequent to the adoption of SFAS No. 123R, using the same method of recognition and measurement originally applied to those awards. As there was no compensation cost recognized by the Company in the financial statements for these awards under APB No. 25, no compensation cost has been or will be recognized for these awards after the Company’s adoption of SFAS No. 123R on July 1, 2006, unless such awards are modified after that date. For those awards granted subsequent to the Form S-1 filing date, but prior to the adoption date of July 1, 2006, the Company applied the modified prospective transition method, under which compensation expense is recognized for any unvested portion of the awards granted between the Form S-1 filing date and the adoption date of SFAS 123R over the remaining vesting period of the awards beginning on the adoption date of July 1, 2006.

     On July 1, 2006, the Company adopted SFAS No. 123R, which requires share-based compensation cost to be recognized based on the grant date estimated fair value of each award, net of estimated forfeitures, over the employee’s requisite service period.

     Non-qualified stock option awards (“NQSO”) granted by the Company expire ten years from the grant date and generally vest ratably over a four to five-year service period commencing on the grant date. RSU’s granted by the Company generally vest ratably over a two to five year service period commencing on the grant date. For those RSU’s granted prior to the Company’s initial public offering, settlement of these awards (i.e., the issuance of shares of the Company’s common stock to the recipients) will occur on December 31, 2007, or soon as practicable thereafter, or upon termination of the holder’s employment, if earlier. For the nine months ended March 31, 2007, the Company granted performance-based restricted stock (“PBRS”) awards of 706,422 shares to eligible employees as long-term incentive compensation. The actual number of shares earned by the employee depends on specific performance criteria of the Company during the one-year performance period ending June 30, 2007 and will be adjusted at the end of the performance period. The PBRS awards have a three or four-year vesting period from the grant date, depending on the employee, which includes the one-year performance period.

     The Company recorded $1.7 million and $4.0 million of pre-tax stock-based compensation expense for the three and nine months ended March 31, 2007, respectively.

Equity Incentive Plan and 2006 Omnibus Incentive Plan

     The Company’s Equity Incentive Plan and 2006 Omnibus Incentive Plan (collectively, “the Plans”) permit the grant of stock-based compensation awards including NQSO’s, RSU’s and PBRS awards to eligible employees for up to 20.8 million shares of the Company’s common stock. Awards are granted with an exercise price or market value equal to the closing price of the Company’s common stock on the date of grant. The number of shares available to be granted under the Plans totaled approximately 8.5 million as of March 31, 2007.

     The Company also maintains Deferred Stock Award arrangements under the 2006 Omnibus Incentive Plan for non-employee members of the Board of Directors. Pursuant to these arrangements, non-employee directors receive an annual grant of deferred shares of the Company’s common stock and may elect to receive their quarterly retainer and Committee fees in deferred shares in lieu of cash. In November 2006, the Company granted 59,193 deferred shares as an annual grant to non-employee directors. The deferred shares vest in quarterly installments over a one-year period on the first day of each calendar quarter following the grant date. The deferred shares will settle and common shares will be issued at the time the non-employee director no longer provides services to the Board.

     The fair value of each stock option granted under the Plans during the quarter ended March 31, 2007 was estimated on the date of grant using the Black-Scholes option pricing model based on the following weighted average assumptions:

Risk-free interest rate			4.49	%
Expected term (in years)			6.25
Expected volatility			33.01	%
Expected dividend yield			1.20	%

     A summary of NQSO activity under the Plans as of March 31, 2007 and changes during the three and nine months ended March 31, 2007 is as follows:

		Number				Weighted Average				Weighted Average
		of Options				Exercise Price Per				Remaining
		(in 000’s)				Share ($)				Contractual Life (Yrs)
Outstanding at June 30, 2006			7,408			$	7.75				7.06
Granted			81				14.05				—
Exercised			(5	)			3.80				—
Forfeited			(255	)			6.42				—
Outstanding at September 30, 2006			7,229				7.87				6.65
Granted			150				15.96				—
Exercised			(623	)			3.86				—
Forfeited			(89	)			9.11				—
Outstanding at December 31, 2006			6,667				8.41				6.86
Granted			33				21.47				—
Exercised			(1,007	)			4.92				—
Forfeited			(55	)			11.59				—
Outstanding at March 31, 2007			5,638			$	9.08				7.66
Exercisable at March 31, 2007			1,839			$	6.14				7.08

     The aggregate intrinsic value as of March 31, 2007 for outstanding and exercisable NQSO awards was $70 million and $28 million, respectively. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option. For the nine months ended March 31, 2007, the total intrinsic value of stock options exercised was $25 million and proceeds from stock options exercised was $7 million. For the nine months ended March 31, 2007, actual tax benefits realized for tax deductions from stock options exercised was $10 million.

     A summary of RSU activity under the Plans as of March 31, 2007 and changes during the three and nine months ended March 31, 2007 is as follows:

		Number				Weighted Average
		of RSU’s				Grant Date Fair
		(in 000’s)				Value ($)
Outstanding at June 30, 2006			957			$	12.11
Granted			—				—
Exercised			(151	)			5.54
Forfeited			—				—
Outstanding at September 30, 2006			806				9.65
Granted			—				—
Exercised			(20	)			6.83
Forfeited			(9	)			10.25
Outstanding at December 31, 2006			777				9.85
Granted			—				—
Exercised			(25	)			14.14
Forfeited			—				—
Outstanding at March 31, 2007			752				9.81
Exercisable at March 31, 2007			416			$	8.52

     As of March 31, 2007, there was $8 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements (NQSO’s and RSU awards) granted under the Plans. That cost is expected to be recognized in the Company’s financial statements over a weighted-average period of 4 years. The total fair value of shares vested during the nine months ended March 31, 2007 was $20 million.

     In August 2006, the Company granted PBRS awards under the 2006 Omnibus Incentive Plan, as long-term incentive compensation to selected executives and other key employees. PBRS awards are based on an individual’s annual long-term incentive target award. The performance measure of PBRS awards is the Company’s profit before taxes for fiscal year 2007.

     The fair value of the PBRS awards was the closing price of the Company’s common stock on the grant date and assumes that the target performance will be achieved. The amount of compensation expense recorded by the Company may be adjusted up or down each reporting period during the performance period, based on the Company’s probable performance over the performance period. At the end of the one-year performance period, the number of the PBRS awards will be adjusted to the actual awards earned based on the performance of the Company. The PBRS awards have a 3 or 4-year vesting requirement from the grant date, depending on the employee.

     A summary of PBRS activity under the 2006 Omnibus Incentive Plan as of March 31, 2007 and changes during the three and nine months ended March 31, 2007 is as follows:

		Number				Weighted Average
		of PBRS				Grant Date Fair
		(in 000’s)				Value ($)
Outstanding at June 30, 2006			—			$	—
Granted			706				14.05
Exercised			—				—
Forfeited			(4	)			14.05
Outstanding at September 30, 2006			702				14.05
Granted			—				—
Exercised			—				—
Forfeited			(16	)			14.05
Outstanding at December 31, 2006			686				14.05
Granted			—				—
Exercised			—				—
Forfeited			(9	)			14.05
Outstanding at March 31, 2007			677				14.05
Exercisable at March 31, 2007			—			$	—

     As of March 31, 2007, there was $8 million of total unrecognized compensation cost related to PBRS awards granted under the 2006 Omnibus Incentive Plan. That cost is expected to be recognized in the Company’s financial statements over a weighted average period of 2.4 years. No performance shares vested during the nine months ended March 31, 2007. Compensation expense recorded during the nine months ended March 31, 2007 for performance shares was $1.7 million.

Note 3. Acquisitions, Closures and Dispositions

     Acquisitions

     All acquisitions of franchised restaurant operations are accounted for using the purchase method of accounting under Statement of Financial Accounting Standards No. 141, Business Combinations (“SFAS 141”). These acquisitions are summarized as follows:

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
Number of restaurant acquisitions			13				2				59				40
Prepaids and other current assets		$	—			$	—			$	1			$	—
Property and equipment, net			2				—				7				2
Goodwill and other intangible assets			3				—				9				6
Assumed liabilities			(2	)			—				(6	)			(1	)
Total purchase price		$	3			$	—			$	11			$	7

Closures and Dispositions

     Gains and losses on closures and dispositions represent sales of Company-owned properties and other costs related to restaurant closures and sales of Company-owned restaurants to franchisees, referred to as “refranchisings”, and are recorded in other operating income, net in the accompanying condensed consolidated statements of operations (See Note 12). Gains and losses recognized in the current period may reflect closures and refranchisings that occurred in previous periods.

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
Number of restaurant closures			4				8				12				15
Number of refranchisings			8				—				12				3
Net gains on restaurant closures, refranchisings, and dispositions of assets		$	—			$	3			$	4			$	4

     Included in the gains on restaurant closures, refranchisings and dispositions of assets for the nine months ended March 31, 2007 is a $5 million gain from the sale of an investment in a non-consolidated joint venture.

Note 4. Earnings Per Share

     Basic and diluted earnings per share are calculated as follows:

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
Numerator:
Numerator for basic and diluted earnings per share:
Net income		$	34,238,444			$	(11,692,399	)		$	112,465,515			$	36,894,271
Denominator:
Denominator for basic earnings per share:
Weighted average shares			134,447,569				107,327,225				133,694,093				106,977,468
Effect of dilutive securities:
Restricted stock units			368,720				—				366,552				663,854
Performance-based restricted stock			193,690				—				55,950				—
Non-qualified stock options			2,142,085				—				2,443,634				3,631,390
Other			16,632				—				2,639				—
Denominator for diluted earnings per share			137,168,696				107,327,225				136,562,868				111,272,712
Basic earnings per share		$	0.25			$	(0.11	)		$	0.84			$	0.34
Diluted earnings per share		$	0.25			$	(0.11	)		$	0.82			$	0.33

     The Company does not include unexercised non-qualified stock options with exercise prices equal to or greater than the average market price in its computation of diluted earnings per share as those options would result in anti-dilution. For the three and nine months ended March 31, 2007, there were 707,184 and 736,191 anti-dilutive stock options outstanding, respectively. For the three months ended March 31, 2006, all 9,629,808 non-qualified stock options outstanding were anti-dilutive as the Company incurred a net loss for that period. For the nine months ended March 31, 2006, there were 814,147 anti-dilutive stock options outstanding.

Note 5. Comprehensive Income (Loss)

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

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
Net income (loss)		$	34			$	(12	)		$	112			$	37
Translation adjustment			(1	)			—				(6	)			3
Cash flow hedges:
Net change in fair value of derivatives			(2	)			6				(10	)			11
Amounts reclassified to earnings during the period			(1	)			—				(3	)			—
Minimum pension liability			—				(1	)			—				(7	)
Total other comprehensive income (loss)			(4	)			5				(19	)			7
Total comprehensive income (loss)		$	30			$	(7	)		$	93			$	44

Note 6. Other Accrued Liabilities

     Included in other accrued liabilities as of March 31, 2007 and June 30, 2006, were accrued payroll and employee-related benefit costs totaling $95 million and $101 million, respectively, and income taxes payable of $13 million and $96 million, respectively.

Note 7. Long-Term Debt

     As of March 31, 2007 and June 30, 2006, the Company had $871 million and $997 million, respectively, of long-term debt outstanding. During the nine months ended March 31, 2007, the Company prepaid $125 million of term debt. As of March 31, 2007, the next scheduled principal payment on the term debt is June 30, 2009.

Note 8. Derivative Instruments

     Interest rate swaps

     At June 30, 2006, the Company had interest rate swap contracts with a notional value of $750 million that were designated as cash flow hedges under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (“SFAS No. 133”). These swaps were used to convert the floating interest rate component of a portion of the Company’s LIBOR-based term debt to fixed rates (hedged forecasted transaction). In September 2006, the Company settled the swaps which had a fair value of $12 million and terminated the hedge. Upon termination of the hedge, the balance in accumulated other comprehensive income represented the after-tax unrealized gain from the change in fair value of the swaps through the termination date. This balance is recognized into earnings as a reduction of interest expense over the remaining term of debt underlying the terminated hedge. During the three and nine months ended March 31, 2007, $1 million and $5 million, respectively, was recognized into earnings as a reduction to interest expense in the accompanying condensed consolidated statements of operations. An additional $1 million of gain is expected to be recognized into earnings during the remainder of fiscal 2007.

     In September 2006, the Company entered into interest rate swap contracts with a notional value of $440 million and designated them as cash flow hedges under SFAS No. 133. These swaps mature through September 2011 and are being used to hedge forecasted LIBOR-based interest payments on variable rate debt (hedged forecasted transaction). The fair value of these swaps is reflected in other deferrals and liabilities in the accompanying condensed consolidated financial statements. During the three and nine months ended March 31, 2007, less than $1 million and $1 million, respectively, was recognized into earnings as a reduction of interest expense in the accompanying condensed consolidated statements of operations. There was no ineffectiveness recorded in earnings during the three and nine months ended March 31, 2007 related to these swaps.

     Foreign currency forward contracts

     The Company utilizes foreign currency forward contracts as economic hedges to offset the impact from transaction gains and losses recorded by the Company from changes in the expected amount of functional currency cash flows upon settlement of intercompany loans denominated in foreign currencies. The fair value of these forward contracts are reflected in current liabilities in the accompanying condensed consolidated statement of financial condition. Changes in fair value of these forward contracts are recorded in earnings in other operating (income) expense, net. During the three and nine months ended March 31, 2007, the Company recorded $3 million and $12 million, respectively, of losses from the change in fair value of these forward contracts, which were offset

by transaction gains of $5 million and $17 million during the same periods, respectively, from changes in the expected amount of functional currency cash flows upon settlement of intercompany loans denominated in foreign currencies.

Note 9. Income Taxes

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

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
U.S. federal income tax rate			35.0	%			35.0	%			35.0	%			35.0	%
State income taxes, net of federal income tax benefit			2.2				2.0				2.5				2.3
Benefit and taxes related to foreign operations			(14.2	)			(35.0	)			(6.0	)			6.1
Foreign exchange differential on tax benefits			0.1				0.3				(1.6	)			(0.2	)
Change in valuation allowance			3.2				(33.5	)			2.8				6.6
Change in accrual for tax uncertainties			(4.6	)			(83.0	)			(0.3	)			9.6
Other			2.7				14.2				0.5				(1.0	)
Effective income tax rate			24.4	%			(100.0	)%			32.9	%			58.4	%

     The Company’s effective tax rate was 24.4% and 32.9% for the three and nine months ended March 31, 2007, respectively, primarily as a result of tax benefits realized from an operational realignment of the Company’s European and Asian businesses, which became effective July 1, 2006. The Company also received additional benefits during the three and nine months ended March 31, 2007 from the reduction in tax accruals. Income tax expense for the three months ended March 31, 2006 was $6 million. The loss before income taxes for the period was also $6 million resulting in an effective tax rate of negative 100% for the period. The $6 million in income tax expense for the three months ended March 31, 2006 is primarily related to tax contingencies and valuation allowances.

Note 10. Related Party Transactions

     In connection with the Company’s acquisition of BKC, the Company entered into a management agreement with the sponsors for monitoring the Company’s business through board of director participation, executive team recruitment, interim senior management services and other services consistent with arrangements with private equity funds (“the management agreement”). Pursuant to the management agreement, the Company was charged a quarterly fee not to exceed 0.5% of the prior quarter’s total revenues. In May 2006, the Company paid $30 million to the sponsors to terminate the management agreement upon the completion of its initial public offering eliminating management fees subsequent to that date. Prior to the termination of the management agreement, the Company incurred management fees and reimbursable out-of-pocket expenses under the management agreement totaling $2 million and $8 million for the three and nine months ended March 31, 2006, respectively. These fees and reimbursable out-of-pocket expenses are recorded within fees paid to affiliates in the consolidated statement of operations.

     In July 2005 the Company repaid payment-in-kind (“PIK”) notes payable to the private equity funds controlled by the sponsors. Interest of $2 million accrued prior to the repayment was reflected in the Company’s statement of operations during the nine months ended March 31, 2006.

     Under the Company’s shareholders’ agreement with the sponsors, the Company agreed to pay all expenses relating to the secondary offering other than underwriting commissions and discounts. The Company incurred $1 million of expenses related to the secondary offering.

     A former member of the Board of Directors of the Company who resigned from the Board effective April 1, 2007 has a direct financial interest in a company with which the Company has entered into a lease agreement for the Company’s new corporate headquarters (see Note 13).

Note 11. Retirement Plan and Other Postretirement Benefits

     A summary of the components of net periodic benefit cost for the Pension Plans (retirement benefits) and Postretirement Plans (other benefits) is presented below (in millions):

		Retirement Benefits
		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
Service cost-benefits earned during the period		$	1			$	1			$	2			$	4
Interest costs on projected benefit obligations			2				3				7				8
Expected return on plan assets			(2	)			(2	)			(6	)			(6	)
Curtailment gain			—				—				—				(6	)
Recognized net actuarial loss			—				1				—				1
Net periodic benefit cost		$	1			$	3			$	3			$	1

     Other benefits costs were less than one million for the three months ended March 31, 2007 and 2006, respectively, and $1 million for the nine months ended March 31, 2007 and 2006, respectively.

Note 12. Other Operating (Income) Expense, Net

     Other operating expense, net for the three months ended March 31, 2007 was $2 million, compared to other operating income, net of $2 million for the same period in the prior year. The $2 million of other operating expense, net for the three months ended March 31, 2007 includes expenses of $2 million associated with franchise system distress primarily in the United Kingdom, a loss of $1 million from restaurant closures primarily in the United States and the United Kingdom, offset by a net gain of $1 million from forward currency contracts used to hedge intercompany loans denominated in foreign currencies. The $2 million of other operating income, net for the three months ended March 31, 2006 includes a $1 million net gain on the disposal of assets in the United States and a $1 million gain from the termination of unfavorable leases primarily in the United States and Canada.

     Other operating income, net for the nine months ended March 31, 2007 was $6 million, compared to other operating income, net of $5 million for the same period in the prior year. The $6 million of other operating income, net for the nine months ended March 31, 2007 includes a gain of $5 million from the sale of an investment in a joint venture in New Zealand, a gain of $5 million on forward currency contracts used to hedge intercompany loans denominated in foreign currencies, a $4 million net gain on the disposal of assets primarily in the United States, offset by $3 million of restaurant closure expenses primarily in the United Kingdom and $4 million associated with franchise system distress primarily in the United Kingdom. The $5 million of other operating income, net for the nine months ended March 31, 2006 includes a $2 million net gain on the disposal of assets primarily in the United States, a gain of $2 million from the termination of unfavorable leases in the United States, Canada and the United Kingdom, and a recovery of $1 million from investments in a joint venture in New Zealand that has since been dissolved.

Note 13. Commitments and Contingencies

     Franchisee Restructuring Program

     During fiscal 2003, the Company initiated a program designed to provide assistance to franchisees in the United States and Canada experiencing financial difficulties. Under this program, the Company worked with franchisees meeting certain operational criteria, their lenders, and other creditors to attempt to strengthen the franchisees’ financial condition. As part of this program, the Company agreed to provide financial support to certain franchisees.

     In order to assist certain franchisees in making capital improvements to franchisee-owned restaurants in need of remodeling, the Company has provided loans to fund capital expenditures (“Capex Loans”). Capex Loans are typically unsecured, bear interest, and have 10-year terms. In addition, the Company has made capital improvements related to restaurant properties that the Company leases to franchisees. During the nine months ended March 31, 2007, the Company funded $3 million in Capex Loans to franchisees, and made $1 million in improvements to restaurant properties that the Company leases to franchisees. As of March 31, 2007, the Company had commitments remaining to provide future Capex Loans of $7 million and to make up to $10 million of improvements to properties that the Company leases to franchisees. These commitments extend out over a period of up to five years.

     During the three and nine months ended March 31, 2007, temporary reductions in rent (“rent relief”) for certain franchisees that leased restaurant property from the Company were approximately $1 million and $2 million, respectively. These amounts are reflected in the Company’s financial statements as a reduction in property revenues for the respective periods. As of March 31, 2007, the Company had remaining commitments to provide future rent relief of up to $7 million extending over a period of up to 17 years.

     Contingent cash flow subsidies represent commitments by the Company to provide future cash grants to certain franchisees for limited periods in the event of failure to achieve their debt service coverage ratio. For the three and nine months ended March 31, 2007, contingent cash flow subsidies provided to franchisees were not significant. The maximum contingent cash flow subsidy commitment for future periods as of March 31, 2007 is $3 million, extending over a period of up to five years. Upon funding, in most instances, the subsidies will be added to the franchisee’s existing note balance.

     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 was $102 million as of March 31, 2007, expiring over an average period of six years.

     Other commitments arising out of normal business operations were $13 million as of March 31, 2007, of which $7 million were guaranteed under bank guarantee arrangements.

     Letters of Credit

     As of March 31, 2007, the Company had $34 million in irrevocable standby letters of credit outstanding, which were issued primarily to certain insurance carriers to guarantee payment 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 March 31, 2007, none of these irrevocable standby letters of credit had been drawn upon.

     As of March 31, 2007, the Company had posted bonds totaling $2 million, which related to certain utility deposits.

     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 Company and 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 March 31, 2007, the Company estimates that it will take approximately 16 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 March 31, 2007 and June 30, 2006, the deferred amounts totaled $21 million and $23 million, respectively. These deferred amounts are amortized as a reduction to food, paper and product costs in the accompanying condensed consolidated statements of operations.

     The Company has $8 million in aggregate contractual obligations with vendors providing information technology services. These contracts extend up to five years with a termination fee ranging from $1 million to $7 million during those years.

     The Company also enters into commitments to purchase advertising for periods up to twelve months. As of March 31, 2007, commitments to purchase advertising totaled $66 million.

     New Global Headquarters

     In May 2005, the Company entered into an agreement to lease a building in Coral Gables, Florida, to serve as the Company’s new global headquarters beginning in fiscal 2009. The estimated annual rent for the 15 year initial term, which is expected to be approximately $8 million per year, including operating costs and taxes, will be finalized upon the completion of the building’s construction. Fixed annual rent under the lease will escalate by 6% every other year commencing after the second year.

     Other

     The Company has insurance programs with deductibles ranging between $500,000 to $1 million to cover claims such as workers’ compensation, general liability, automotive liability, executive risk, and property. The Company is self-insured for healthcare claims for eligible participating employees. The Company determines its liability for claims based on actuarial analysis. As of March 31, 2007, the Company had a balance of $40 million in accrued liabilities to cover such claims.

     The Company had claims for certain years which were insured by a third party carrier, which was insolvent at June 30, 2006. During the first quarter of fiscal 2007, the Company entered into a novation agreement whereby the insolvent carrier was replaced by another third party carrier which will take over the administration of pending and potential claims for these years.

Note 14. Segment Reporting

     The Company operates in the fast food hamburger restaurant category of the quick service segment of the restaurant industry. Revenues include retail sales at Company-owned restaurants and franchise revenues. The business is managed in three distinct geographic segments: United States and Canada; Europe, the Middle East, Africa and Asia Pacific (“EMEA/APAC”); and Latin America.

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

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
Revenues:
United States and Canada		$	346			$	339			$	1,070			$	1,021
EMEA/APAC			169				134				499				427
Latin America			24				22				75				67
Total revenues		$	539			$	495			$	1,644			$	1,515

     Other than the United States and Germany, no other individual country represented 10% or more of the Company’s total revenues. Revenues in the United States totaled $314 million and $961 million for the three and nine months ended March 31, 2007, respectively, compared to $305 million and $916 million for the three and nine months ended March 31, 2006, respectively. Revenues in Germany totaled $76 million and $228 million for the three and nine months ended March 31, 2007, respectively, compared to $65 and $200 million for the three and nine months ended March 31, 2006, respectively.

     The unallocated amount reflected in the Operating Income table below includes corporate support costs in areas such as facilities, finance, human resources, information technology, legal marketing and supply chain management. The decrease in the unallocated amounts for the three and nine months ended March 31, 2007 compared to the same respective periods in the prior year, reflects a non-recurring compensatory make-whole payment of $34 million made to holders of options and restricted stock units during the three months ended March 31, 2006.

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
Income from Operations:
United States and Canada		$	78			$	67			$	249			$	219
EMEA/APAC			10				9				43				51
Latin America			8				7				26				22
Unallocated			(34	)			(69	)			(99	)			(136	)
Total income from operations		$	62			$	14			$	219			$	156
Interest expense, net			17				19				51				53
Loss on early distinguishment of debt			—				1				1				14
Income before income taxes		$	45			$	(6	)		$	167			$	89
Income tax expense			11				6				55				52
Net income		$	34			$	(12	)		$	112			$	37

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, 2006, in our Quarterly Reports on Form 10-Q for the quarters ended September 30, 2006 and December 31, 2006 and under Part II, Item 1A “Risk Factors”, “Special 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 and our key business measures, as discussed below, for any future period may decrease.

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. As of March 31, 2007 we owned or franchised a total of 11,201 restaurants in more than 65 countries and U.S. territories, of which 7,483 were located in the United States and Canada. At that date, 1,296 restaurants were company-owned and 9,905 were owned by our franchisees. The FFHR category is highly competitive with respect to price, service, location and food quality. 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 United States 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) sales at our Company restaurants; (2) royalties and franchise fees paid to us by our franchisees; and (3) property income from restaurants that we lease or sublease to franchisees. We track our results of operations and manage our business by using three key business measures which include sales on a system-wide basis: comparable sales growth, average restaurant sales and system-wide sales growth. Although we do not record franchise restaurant sales as revenues, our royalty revenues are calculated based on a percentage of franchise restaurant sales.

Business Highlights

     Our strategic plan (the “Go Forward Plan”) has four guiding principles: Grow Profitably (a market plan); Fund the Future (a financial plan); Fire up the Guest (a product plan); and Working Together (a people plan). Guided by our Go Forward plan and strong executive team leadership, our accomplishments since December 31, 2006 include:

	•		thirteen consecutive quarters of positive system-wide comparable sales growth, our best comparable sales growth in more than a decade, including comparable sales growth of 3.2% for the third quarter of fiscal 2007;
	•		twelve consecutive quarters of positive comparable sales growth in the United States and Canada, including comparable sales growth of 2.6% for the third quarter of fiscal 2007;
	•		all-time high average restaurant sales of $1.17 million for the trailing 12-month period ended March 31, 2007;
	•		continued acceleration of system-wide restaurant growth with 84 new openings and net growth of 17 during the third quarter of fiscal 2007;
	•		announced development agreements for two new international markets — Egypt and Poland;
	•		successful product promotions such as the Texas DOUBLE WHOPPER® sandwich, BK™ Stacker, and the Angus Cheesy Bacon sandwich;

	•		introduction of the BK™ Breakfast Value Menu, the first such offering in the national QSR segment, and continued improvement in extending hours of operations;
	•		all time high guest satisfaction scores, as well as record speed of service and cleanliness scores;
	•		further reduction in debt of $25 million since December 31, 2006 to $872 million as of March 31, 2007; and
	•		payment of our first quarterly cash dividend as a public company of 6.25 cents per share.

     Our focus continues to be on the following:

	•		driving further sales growth and profitability;
	•		expanding our large international platform;
	•		accelerating our new restaurant development; and
	•		employing innovative marketing campaigns, creative advertising and strategic sponsorships.

Key Business Measures

     The following key business measures have been provided for the three and nine months ended March 31, 2007 by reportable segment. Comparable sales growth and system-wide sales growth 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 foreign 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 thirteen months or longer. We believe comparable sales growth is a key indicator of our performance, as influenced by our initiatives and those of our competitors.

		For the								For the
		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
		(In constant currencies)								(In constant currencies)
Comparable Sales Growth:
United States and Canada			2.6	%			4.9	%			3.2	%			2.7	%
EMEA/APAC			5.3	%			(0.4	)%			2.6	%			0.2	%
Latin America			2.7	%			1.5	%			4.3	%			1.5	%
Total			3.2	%			3.3	%			3.1	%			2.0	%

     Our comparable sales growth for the three and nine month periods ended March 31, 2007 was driven by our strategic initiatives related to operational excellence, advertising, and our continued focus on our BK™ Value Menu and the promotion of premium products. These results are driven mostly by our franchise restaurants as approximately 90% of our system-wide restaurants are franchised.

Three Months Ended March 31, 2007

     In the United States and Canada, our comparable sales growth performance remained strong in the third quarter of 2007 fueled by improvements in our operations, the continued impact of our BK™ Value Menu and BK™ Stacker, and the offering of premium products such as the Texas DOUBLE WHOPPER^® sandwich and the Angus Cheesy Bacon sandwich.

     Comparable sales growth in EMEA/APAC is improving and reflects positive sales performance in the major markets of Germany, Spain, The Netherlands, the United Kingdom, Australia and New Zealand. These results were primarily driven by a focus on premium products that generate higher margins. Although comparable sales in the United Kingdom were weaker earlier in the year compared to other countries in Europe, they began to improve during the second quarter of fiscal 2007, and continue to do so, reflecting our efforts to reignite the brand in that market.

     Latin America demonstrated strong results for the quarter and continues to grow. These strong results were fueled primarily in Central America with promotions such as the BK™ “Big Fish”, Hamburguesa Doble, Texas DOUBLE WHOPPER^® sandwich and the HAVE IT YOUR WAY^® brand promise, South America with the “Extra—Long” burger promotion, and the Caribbean with the “Philly Cheese Steak Sandwich” promotion.

     Nine Months Ended March 31, 2007

     In the United States and Canada, our comparable sales growth performance improved for the nine months ended March 31, 2007 compared to the same period in the prior year driven by improvements in our operations, menu enhancements, such as the introduction of products such as the BK™ Stacker, the Texas DOUBLE WHOPPER^® sandwich and the Angus Cheesy Bacon sandwich, the continued impact of the BK™ Value Menu, and innovative promotions such as the Xbox^® game collection.

     Comparable sales growth in EMEA/APAC reflects positive sales performance in all of the major countries in that segment for the nine months ended March 31, 2007. Performance in the United Kingdom has steadily improved during fiscal 2007 as a result of our strategic investment of $7 million made to the marketing fund in that country used to improve brand recognition and to introduce new premium products with commercials such as the “Manthem” and the HAVE IT YOUR WAY^® brand promise, and promotions for the £1.99 WHOPPER^® sandwich and Aberdeen Angus Burger.

     Latin America demonstrated strong results in comparable sales for the nine months ended March 31, 2007 compared to the same period in the prior year as this segment continues to grow. These strong results were fueled by the introduction of new products, limited time offers, innovative promotions and marketing campaigns such as the HAVE IT YOUR WAY^® brand promise.

     Average Restaurant Sales

     Average restaurant sales, or 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 mostly by comparable sales performance and restaurant openings and closures and includes the impact of movement in foreign currency exchange rates. For the three and nine months ended March 31, 2007, ARS was $284,000 and $881,000, respectively, compared to $269,000 and $836,000 for the three and nine months ended March 31, 2006, respectively. The trailing 12-month ARS reached a record high of $1.17 million for the period ended March 31, 2007, as compared to $1.12 million for the trailing 12 months year-over-year, an increase of 4%. As of March 31, 2007 the last 50 free-standing restaurants that opened in the United States and have operated for at least 12 months generated ARS of $1.51 million, which is approximately 29% higher than the current U.S. system average.

     Our ARS improvement during the first nine months of fiscal 2007 was primarily due to improved comparable sales, the opening of new restaurants with higher than average sales volumes and, to a lesser extent, the closure of under-performing restaurants. Our comparable sales were 3.2% and 3.1% for the three and nine month periods ended March 31, 2007, respectively, driven primarily by our strategic initiatives related to operational excellence, advertising, menu enhancements, such as our BK^TM Value Menu and BK^TM Stacker, and promotional campaigns, such as our innovative Xbox^® game collection. We and our franchisees opened 400 new restaurants between April 1, 2006 and March 31, 2007. The ARS of these new restaurants was higher than our system-wide ARS of $1.17 million. Additionally, we and our franchisees closed 308 restaurants during the same period. Over 55% of these closures were franchise restaurants in the United States and Canada which had ARS in the 12 months prior to closure that was significantly lower than system-wide ARS. We believe that continued improvements to ARS of existing restaurants and strong sales at new restaurants, combined with the closure of under-performing restaurants, will result in financially stronger operators throughout our franchise base.

     System-Wide Sales Growth

     System-wide sales refer to sales at all Company-owned and franchise restaurants. System-wide sales and system-wide sales growth are important indicators of the overall direction and trends of sales and operating income on a system-wide basis and the effectiveness of our advertising and marketing initiatives.

		For the								For the
		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
		(In constant currencies)								(In constant currencies)
System-Wide Sales Growth:
United States and Canada			2.0	%			3.2	%			2.4	%			0.6	%
EMEA/APAC			9.2	%			3.1	%			6.5	%			5.5	%
Latin America			12.1	%			12.1	%			13.9	%			12.5	%
Total			4.4	%			3.7	%			4.2	%			2.4	%

     System-wide sales growth continued on a positive growth trend during the three and nine month periods ended March 31, 2007, as comparable sales and the number of restaurants continued to increase on a system-wide basis. We expect restaurant closures to continue to decline and restaurant openings to accelerate in most regions, with the exception of the United Kingdom, where we continue to work with certain franchisees to help them improve their financial health.

     Our system-wide sales growth in the United States and Canada during the three and nine month periods ended March 31, 2007, reflects positive comparable sales growth and an increase in the amount of revenues earned by new and acquired restaurants, offset by a net reduction in restaurants. We had 7,483 restaurants in the United States and Canada as of March 31, 2007, compared to 7,589 restaurants as of March 31, 2006.

     EMEA/APAC demonstrated strong system-wide sales growth during the three and nine month periods ended March 31, 2007 reflecting openings of new restaurants and positive comparable sales in all the major markets, including Germany, Spain, the United

Kingdom, Australia and New Zealand and smaller markets in the Mediterranean and the Middle East. Sales performance improved in the United Kingdom during the three months ended March 31, 2007, as a result of our strategic investments in that country.

     Latin America’s system-wide sales growth was driven by new restaurant openings and strong comparable sales in the three and nine month periods ended March 31, 2007.

Other Operating Data

		As of
		March 31,
		2007				2006
Restaurant Count Data:
Number of Company restaurants:
United States and Canada			891				877
EMEA/APAC(1)			332				286
Latin America(2)			73				64
Total Company restaurants			1,296				1,227
Number of franchise restaurants:
United States and Canada			6,592				6,712
EMEA/APAC(1)			2,512				2,449
Latin America(2)			801				721
Total franchise restaurants			9,905				9,882
Total system-wide restaurants			11,201				11,109

		For the Three Months Ended								For the Nine Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
Other System-Wide Operating Data:
Comparable sales growth(3)(4)			3.2	%			3.3	%			3.1	%			2.0	%
System-wide sales growth(3)			4.4	%			3.7	%			4.2	%			2.4	%
Average restaurant sales (in thousands)(3)		$	284			$	269			$	881			$	836
Segment Data:
Operating income (in millions):
United States and Canada		$	78			$	67			$	249			$	219
EMEA/APAC(1)			10				9				43				51
Latin America(2)			8				7				26				22
Unallocated(5)			(34	)			(69	)			(99	)			(136	)
Total operating income		$	62			$	14			$	219			$	156
Company restaurant revenues (in millions):
United States and Canada		$	260			$	254			$	801			$	761
EMEA/APAC(1)			129				100				379				319
Latin America(2)			14				14				45				42
Total Company restaurant revenues		$	403			$	368			$	1,225			$	1,122
Company restaurant margins:
United States and Canada			15.6	%			12.6	%			15.2	%			13.6	%
EMEA/APAC(1)			9.7	%			11.5	%			13.5	%			14.3	%
Latin America(2)			23.6	%			27.3	%			25.8	%			26.2	%
Total Company restaurant margins			14.0	%			12.9	%			15.1	%			14.3	%
Franchise revenues (in millions):
United States and Canada		$	66			$	65			$	206			$	198
EMEA/APAC(1)			33				27				98				86
Latin America(2)			10				8				30				25
Total franchise revenues		$	109			$	100			$	334			$	309
Franchise sales (in millions)(6)		$	2,751			$	2,599			$	8,541			$	8,107
EBITDA (in millions)(7)		$	84			$	35			$	284			$	219

     The following table is a reconciliation of our net income (loss) to EBITDA:

		For the Three Months Ended								For the Nine Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
		(In millions)
Net income (loss)		$	34			$	(12	)		$	112			$	37
Interest expense, net			17				19				51				53
Loss on early extinguishment of debt			—				1				1				14
Income tax expense			11				6				55				52
Depreciation and amortization			22				21				65				63
EBITDA		$	84			$	35			$	284			$	219

Net Income

     Our net income increased $46 million to $34 million in the third quarter of fiscal 2007, compared to the same quarter in fiscal 2006 primarily as a result of the following:

	•		a $10 million increase in Company restaurant margins;
	•		a $9 million increase in franchise revenues;
	•		a $31 million decrease in selling, general and administrative expenses,
	•		offset by a $4 million change in other operating (income) expense, net; and
	•		a $5 million increase in income tax expense.

     Our net income increased $75 million to $112 million during the nine months ended March 31, 2007, compared to the same period in fiscal 2006 primarily as a result of the following:

•

a $24 million increase in Company restaurant margins;

	•		a $25 million increase in franchise revenues;
	•		a $7 million decrease in selling, general and administrative expenses;
	•		a $5 million pre-tax gain from the sale of our investment in a New Zealand joint venture;
	•		a benefit of $13 million primarily due to a pre-tax loss on early extinguishment of debt of $14 million recorded during the first nine months of the prior year;
	•		offset by a $3 million increase in income tax expense.

Results of Operations for the Three Months Ended March 31, 2007

     The following table presents our results of operations for the three months ended March 31, 2007 and 2006:

		For the Three Months Ended March 31,
		2007				2006
										Increase/
		Amount				Amount				(Decrease)
		(In millions, except percentages and per share data)
Revenues:
Company restaurant revenues		$	403			$	368				10	%
Franchise revenues			109				100				9	%
Property revenues			27				27				—	%
Total revenues			539				495				9	%
Company restaurant expenses			346				321				8	%
Selling, general and administrative expenses			115				146				(21	)%
Property expenses			14				14				—	%
Fees paid to affiliates			—				2			NM
Other operating (income) expense, net			2				(2	)		NM
Total operating costs and expenses			477				481				(1	)%
Income from operations			62				14				343	%
Interest expense			18				22				(18	)%
Interest income			(1	)			(3	)			(67	)%
Interest expense, net			17				19				(11	)%
Loss on early extinguishment of debt			—				1			NM
Income before income taxes			45				(6	)		NM
Income tax expense			11				6				83	%
Net income		$	34			$	(12	)		NM

NM — Not meaningful

     Seasonality

     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.

     Revenues

     Company restaurant revenues

     Company restaurant revenues increased by 10% to $403 million during the three months ended March 31, 2007, primarily as a result of an increase in net restaurants and positive comparable sales of 1.6%. During the period April 1, 2006 through March 31, 2007, we added 69 restaurants (net of closures and refranchisings). Approximately $10 million of the increase in Company restaurant revenues was generated by the favorable impact from the movement of foreign currency exchange rates primarily in EMEA.

     In the United States and Canada, Company restaurant revenues increased by 2% to $260 million during the three months ended March 31, 2007, primarily as a result the addition of 14 Company restaurants (net of closures and refranchisings) during the period from April 1, 2006 through March 31, 2007.

     In EMEA/APAC, Company restaurant revenues increased by 29% to $129 million during the three months ended March 31, 2007, primarily as a result of the addition of 46 restaurants (net of closures and refranchisings) during the period April 1, 2006 through March 31, 2007 and positive comparable sales of 4.3%. We acquired 32 of these restaurants from two financially distressed franchisees in the United Kingdom during the three months ended December 31, 2006. The increase in revenues also reflects approximately $11 million due to the favorable impact in the movement of foreign currency exchange rates in EMEA.

     In Latin America, Company restaurant revenues remained flat at $14 million during the three months ended March 31, 2007, primarily as a result of nine additional restaurants (net of closures and refranchisings) during the period April 1, 2006 through March 31, 2007, offset by negative comparable sales of 0.5% and the unfavorable impact from the movement of foreign currency exchange rates. The negative comparable sales of 0.5% reflects softer results from promotions run during the quarter compared to the same period in fiscal 2006 as well as a loss of sales to competitors appealing to children.

     Franchise revenues

     Franchise revenues increased by 9% to $109 million during the three months ended March 31, 2007, driven mostly by positive comparable sales of 3.5% during the quarter and $2 million of favorable impact in the movement of foreign currency exchange rates. The number of franchise restaurants (net of restaurant closures and acquisitions of franchise restaurants by the Company) increased by 23 during the period April 1, 2006 through March 31, 2007.

     In the United States and Canada, franchise revenues increased by 2% to $66 million during the three months ended March 31, 2007, primarily as a result of positive comparable sales of 2.9%, offset by the elimination of royalties from a net reduction of 120 franchise restaurants during the period April 1, 2006 through March 31, 2007.