Burger King Posts Robust Second Quarter Results Led by Comp Sales, New Restaurants, Company Restaurant Margins

Burger King Holdings Inc. (NYSE:BKC): Second quarter highlights: 12th consecutive quarter of worldwide positive comparable sales Quarterly revenues reach record high; up 9 percent Net income increases by 41 percent to $38 million; 9 percent increase on adjusted basis EPS increases 17 percent to 28 cents; 8 percent increase on adjusted basis Burger King Holdings Inc. (NYSE:BKC) delivered robust results for the second quarter of its 2007 fiscal year. The company again posted solid growth in revenues, driven broadly by strong comparable sales and new restaurant openings. Company restaurant margins, net income and earnings per share also improved. Worldwide, comparable sales were up 3.7 percent, making this the 12th consecutive quarter of positive comparable sales increases. In North America, comparable sales were up 4.4 percent, the 11th consecutive quarter of positive comparable sales increases. "We’re consistently delivering strong results by staying focused on our global ‘Go Forward’ growth plan,” said Burger King CEO John W. Chidsey. "Our brand and our great food continue to resonate with our restaurant guests. Specifically, our BK™ Value Menu, as well as our innovative Xbox® game collection—which was the best-selling video game of the holiday season, with more than 3.2 million copies sold—increased both sales and restaurant traffic.” Driven by positive comparable sales in every region worldwide and an increase in new restaurant openings, revenues for the second quarter of fiscal year 2007 reached a record $559 million—an increase of 9 percent from the same quarter of the previous fiscal year. Company restaurant margins increased for a third consecutive quarter—up 70 basis points to 15.9 percent from 15.2 percent in the same period last year—driven primarily by lower food costs and higher revenues at company-owned restaurants. Net income increased 41 percent to $38 million from $27 million during the same period last year. On an adjusted basis, net income rose 9 percent to $38 million from $35 million during the same period last year, which takes into account $5 million in unusual items in the prior year, including $3 million in sponsor-management fees. Earnings per share increased 17 percent to 28 cents per share in the second quarter, as compared to 24 cents per share in the same quarter last year. Earnings per share rose 8 percent to 28 cents per share from adjusted earnings per share of 26 cents in the same period last year. Dividend Payment The company is announcing its first quarterly dividend as a public company. The dividend payment of 6.25 cents per share will be paid on March 15, 2007, to shareholders of record as of the close of business on Feb. 15, 2007. "We have elected to pay our first cash dividend as a public company because we have consistently generated strong cash flow, and we expect our cash flow to continue to strengthen,” said Ben K. Wells, CFO and treasurer. "Because we believe that our business will remain financially strong, we expect to be able to return capital to our shareholders and simultaneously grow our restaurant count. "The company plans to pay down debt during the second half of this fiscal year in order to reduce interest expense. In fact, as we announced on Jan. 25, we are retiring an additional $25 million in debt today. We are now focused on evaluating other initiatives that will contribute to shareholder value, such as strategic investments, increasing cash dividends and share repurchases." The company retired $50 million in debt during the quarter, using cash generated from operations. The company has retired a total of $125 million in debt during the first seven months of the current fiscal year. Average Restaurant Sales System-wide average restaurant sales (ARS) increased 6 percent to $297,000 during the second quarter of fiscal 2007, as compared to $279,000 in the same quarter last year. System-wide trailing 12-month ARS reached a record high of $1.16 million for the period, as compared to $1.12 million for the trailing 12 months year-over-year. "We are staying focused on increasing ARS in the United States to our interim goal of $1.3 million annually. A higher ARS is attractive to existing and potential franchisees and increases our royalties and, ultimately, generates attractive returns for our shareholders,” said Chidsey. Of U.S. restaurants open for at least 12 months, more than 2,140—or about 31 percent—were operating at or above the $1.3 million ARS level by the end of the second quarter. The last 50 free-standing restaurants that opened in the United States and have operated for at least a year have achieved an ARS of $1.51 million, which is about 30 percent higher than the current U.S. system average. Future Growth The company continued its expansion of new restaurants internationally, including 85 new restaurant openings in Europe, the Middle East and in the Asia Pacific region (EMEA/APAC). In Latin America, 90 new restaurants have opened in the last 12 months. The BURGER KING® brand continues to grow in existing markets and to expand into new markets where there is an expected attractive economic return. For example, since entering Brazil just two years ago, BURGER KING® franchisees have opened 27 restaurants, and those open for at least a year have a trailing 12-month ARS of $1.7 million. During the quarter, the company announced its entrance into two financially attractive markets: Japan and Indonesia. BURGER KING® restaurants are scheduled to open in both of these countries during the fiscal year. "We will continue an energetic expansion of our presence worldwide. As we have said previously, we are highly franchised; therefore, unit growth has a disproportionately positive impact on earnings with minimal capital investment,” Chidsey said. "As we anticipated, we expect net openings to accelerate and closures to diminish during the second half of this fiscal year.” The company is on target to achieve its key financial goals for the fiscal year: Growing top-line revenue 6–7 percent; Growing adjusted EBITDA 10–12 percent; Increasing adjusted net income in excess of 20 percent; and Reducing debt using excess cash generated from operations. Chidsey said, "We remain financially strong and are very pleased with the second quarter’s success. As we look to the next quarter and the immediate future, we are especially enthusiastic about our Feb. 19 launch of the BK™ Breakfast Value Menu—the first to national market in the quick service restaurant segment.” "We’ll keep achieving strong results by building on the foundation we’ve set: To maintain a dynamic product pipeline of great food at great prices; to open new restaurants; to continue to launch innovative and compelling marketing and advertising campaigns; to lead the way in operational excellence; and to follow our commitment to the HAVE IT YOUR WAY® brand promise.” About Burger King Holdings Inc. The BURGER KING® system operates more than 11,100 restaurants in all 50 states and in 65 countries and U.S. territories worldwide. Approximately 90 percent of BURGER KING® restaurants are owned and operated by independent franchisees, many of which are family-owned operations that have been in business for decades. To learn more about Burger King Holdings Inc., please visit the company’s Web site at www.bk.com. Related Communications Burger King Holdings Inc. (NYSE:BKC) will hold its second quarter earnings call for fiscal year 2007 on Tuesday, Jan. 30, at 10 a.m. (EST). This call is being Webcast and may be accessed at Burger King’s Web site at www.bk.com through the Investor Relations link. The Webcast is also being distributed through the Thomson StreetEvents Network to both institutional and individual investors. Individual investors may listen to the call at www.fulldisclosure.com. Institutional investors may access the call via Thomson’s password-protected event management site at www.streetevents.com. U.S. participants may also access the earnings call by dialing 866.831.6162; participants outside the United States may access the call by dialing 617.213.8852. The participant passcode is 90927344. The call will be available for replay by dialing 888-286-8010 within the United States or 617-801-6888 from outside the United States. The audio replay passcode is 49264978. The audio replay will be available through March 2, 2007. Forward-Looking Statements Certain statements made in this report that reflect management's expectations regarding future events and economic performance are forward-looking in nature and, accordingly, are subject to risks and uncertainties. These forward looking statements include statements regarding the Company’s ability to achieve its key financial goals for fiscal 2007, management’s expectations regarding net openings and closings, the intent to open restaurants in Japan and Indonesia in fiscal 2007, management's beliefs regarding the strength of the Company's future cash flow, its overall financial health and the Company's financial capacity to grow the business and retire debt, management's intent to retire debt and to evaluate other initiatives to contribute to shareholder value and other expectations regarding the Company’s future financial and operational results. These forward-looking statements are only predictions based on our current expectations and projections about future events. Important factors could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. These factors include those risk factors set forth in filings with the Securities and Exchange Commission, including our annual and quarterly reports, and the following: • Our ability to compete domestically and internationally in an intensely competitive industry; • Our continued relationship with, and the success of, our franchisees; • Risks relating to franchisee financial distress, including the financial difficulties currently experienced by certain franchisees in the United Kingdom which could result in, among other things, delayed or reduced payments to us of royalties and rents and increased exposure to third parties; • Our ability to successfully implement our international growth strategy; • The effectiveness of our marketing and advertising programs and franchisee support of these programs; • Our ability to retain or replace executive officers and key members of management with qualified personnel; • Changes in consumer perceptions of dietary health and food safety and negative publicity relating to our products; • Changes in consumer preferences and consumer discretionary spending; • Risks related to the renewal of franchise agreements by our franchisees; • Increases in our operating costs, including food and paper products, energy costs and labor costs; • Risks related to the loss of any of our major distributors, including our sole distributor in the United Kingdom, and interruptions in the supply of necessary products to us; • Risks related to our international operations; • Increases in our income tax expense resulting from the realignment of our European and Asian businesses if those businesses are less profitable than expected; • Fluctuations in international currency exchange and interest rates; • Our continued ability, and the ability of our franchisees, to obtain suitable locations and financing for new restaurant development; • Changes in demographic patterns of current restaurant locations; • Our ability to adequately protect our intellectual property; • Adverse legal judgments, settlements or pressure tactics; and • Adverse legislation or regulation. These risks are not exhaustive and may not include factors which could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We do not undertake any responsibility to update any of these forward-looking statements to conform our prior statements to actual results or revised expectations. Burger King Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Income (Unaudited) (Dollars and shares in millions except for per share data)     Increase / (Decrease) Three Months Ended December 31, 2006  2005  $ % Revenues: Company restaurant revenues $ 417  $ 379  $ 38  10 % Franchise revenues 112  104  8  8 % Property revenues 30  29  1  3 % Total revenues 559  512  47  9 %   Company restaurant expenses 351  321  30  9 % Selling, general and administrative expenses 119  106  13  12 % Property expenses 15  14  1  7 % Fees paid to affiliates -  3  (3) (100)% Other operating income, net (1) (2) 1  50 % Total operating costs and expenses 484  442  42  10 % Income from operations 75  70  5  7 %   Interest expense 19  18  1  6 % Interest income (2) (1) (1) 100 % Interest expense, net 17  17  -  0 % Income before income taxes 58  53  5  9 % Income tax expense 20  26  (6) (23)% Net income $ 38  $ 27  $ 11  41 %   Earnings per share - basic (1) $ 0.28  $ 0.25  $ 0.03  12% Earnings per share - diluted (1) $ 0.28  $ 0.24  $ 0.04  17%   Weighted average shares - basic 133.5  106.9  Weighted average shares - diluted 136.5  112.9    (1) Earnings per share is calculated using whole dollars and shares.   Increase / (Decrease) Six Months Ended December 31, 2006  2005  $ % Revenues: Company restaurant revenues $ 822  $ 754  $ 68  9 % Franchise revenues 225  209  16  8 % Property revenues 58  57  1  2 % Total revenues 1,105  1,020  85  8 %   Company restaurant expenses 694  640  54  8 % Selling, general and administrative expenses 231  207  24  12 % Property expenses 31  28  3  11 % Fees paid to affiliates -  6  (6) (100)% Other operating income, net (8) (3) (5) 167 % Total operating costs and expenses 948  878  70  8 % Income from operations 157  142  15  11 %   Interest expense 38  37  1  3 % Interest income (4) (3) (1) 33 % Interest expense, net 34  34  -  0 %   Loss on early extinguishment of debt 1  13  (12) (92)% Income before income taxes 122  95  27  28 % Income tax expense 44  46  (2) (4)% Net income $ 78  $ 49  $ 29  59 %   Earnings per share - basic (1) $ 0.59  $ 0.45  $ 0.14  31% Earnings per share - diluted (1) $ 0.57  $ 0.43  $ 0.14  33%   Weighted average shares - basic 133.3  106.8  Weighted average shares - diluted 136.1  112.9    (1) Earnings per share is calculated using whole dollars and shares. Use of Non-GAAP Financial Measures To supplement the Company’s consolidated condensed financial statements presented on a GAAP basis (as defined below), the Company provides certain key business measures including system-wide comparable sales growth, system-wide average restaurant sales and system-wide sales growth. GAAP is defined as generally accepted accounting principles. The Company also provides certain non-GAAP financial measures including franchise sales, EBITDA, adjusted EBITDA, adjusted net income, and adjusted earnings per share. System-wide data represents measures for both Company-owned and franchise restaurants. The Company uses three key business measures as indicators of the Company’s performance: system-wide comparable sales growth; system-wide average restaurant sales; and system-wide sales growth. 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. Franchise sales refer to sales at all franchise restaurants. Although the Company does not record franchise sales as revenues, royalty revenues are based on a percentage of sales from franchise restaurants and are reported as franchise revenues by the Company. EBITDA is defined as earnings (net income) before interest, taxes, depreciation and amortization, and is used by management to measure operating performance of the business. Management believes that EBITDA is a useful measure as it incorporates certain operating drivers of the Company’s business such as sales growth, operating costs, selling, general and administrative expenses and other income and expense. Capital expenditures, which impact depreciation and amortization, interest expense and income tax expense, are reviewed separately by management. EBITDA is also one of the measures used by the Company to calculate incentive compensation for management and corporate-level employees. Adjusted EBITDA excludes: (a) the effects of the prior year quarterly management fees paid to Texas Pacific Group, Bain Capital Partners, and the Goldman Sachs Funds under a management agreement ("management fees”) that was terminated in May 2006; (b) the costs of the Franchisee Financial Restructuring Program (FFRP); and (c) the effects of our global reorganization and realignment. While EBITDA and adjusted EBITDA are not recognized measures under GAAP, management uses these non-GAAP financial measures to evaluate and forecast the Company’s business performance. Further, management believes that these non-GAAP measures provide both management and investors with a more complete understanding of the underlying operating results and trends and an enhanced overall understanding of the Company’s financial performance and prospects for the future. EBITDA and adjusted EBITDA are not intended to be measures of liquidity or cash flows from operations nor measures comparable to net income as they do not take into account certain requirements such as capital expenditures and related depreciation, principal and interest payments and tax payments. Net income, adjusted for unusual items (adjusted net income) excludes: (a) the effects of the management fees; (b) the costs of the FFRP; (c) the effects of our global reorganization and realignment; (d) the loss on early extinguishment of debt; and (e) the tax effects of unusual items, resulting in an adjusted effective tax rate of 40% for the first quarter and first six months of fiscal 2006. Adjusted income tax expense is calculated by using the Company’s actual tax rate and excluding the tax effects of unusual items, resulting in an adjusted effective tax rate. Adjusted earnings per share is calculated using adjusted net income divided by adjusted shares outstanding, which for the three and six months ended December 31, 2005, reflect weighted average shares at the time of the Company’s initial public offering in May 2006. These Non-GAAP measures allow management to measure performance on a more comparable basis. Reconciliations for net income to EBITDA, EBITDA to adjusted EBITDA, and net income to adjusted net income are as follows: Non–GAAP Reconciliations (Unaudited) (In millions except per share data)   Three Months Ended Six Months Ended December 31, December 31, 2006  2005  2006  2005  EBITDA and Adjusted EBITDA   Net Income $ 38  $ 27  $ 78  $ 49  Interest expense, net 17  17  34  34  Loss on early extinguishment of debt -  -  1  13  Income tax expense 20  26  44  46  Depreciation and amortization 21  21  43  42  EBITDA 96  91  200  184  Adjustments: FFRP costs -  1  -  2  Global reorganization and realignment -  1  -  1  Management fees -  3  -  6  Total Adjustments -  5  -  9          Adjusted EBITDA $ 96  $ 96  $ 200  $ 193    Net income and adjusted net income   Net Income $ 38  $ 27  $ 78  $ 49  Income tax expense 20  26  44  46  Income before income taxes 58  53  122  95  Adjustments: FFRP costs -  1  -  2  Global reorganization and realignment -  1  -  1  Management fees -  3  -  6  Loss on early extinguishment of debt -  -  -  13  Total Adjustments -  5  -  22    Adjusted income before taxes 58  58  122  117    Adjusted income tax expense (1) 20  23  44  47          Adjusted net income $ 38  $ 35  $ 78  $ 70    Shares outstanding - diluted 136.5  112.9  136.1  112.9  Adjusted shares outstanding - diluted (2) 136.5  135.5  136.1  135.5    Earnings per share- diluted (3) $ 0.28  $ 0.24  $ 0.57  $ 0.43  Adjusted earnings per share - diluted (3) (4) $ 0.28  $ 0.26  $ 0.57  $ 0.52      (1) Adjusted income tax expense is calculated by using the Company's actual tax rate and excluding the tax effects of unusual items, resulting in an adjusted effective tax rate of 40%. (2) Adjusted shares outstanding for the three and six months ended December 2005 reflect weighted average shares at the time of the Company's initial public offering in May 2006. (3) Earnings per share is calculated using whole dollars and shares outstanding. (4) Adjusted earnings per share is calculated using adjusted net income divided by adjusted shares outstanding. The Following Definitions Apply to These Terms as Used Throughout This Release System-wide comparable sales growth Refers to the change in all Company-owned and franchise restaurant sales in one period from a comparable period for restaurants that have been open for thirteen months or longer, excluding the impact of foreign currency translation. System-wide sales growth Refers to the change in all Company-owned and franchise restaurant sales from all restaurants from one period to another, excluding the impact of foreign currency translation. System-wide average restaurant sales Refers to the average Company-owned and franchise restaurant sales for the defined period. It is calculated as the total system-wide sales averaged over total store months for all restaurants open during that period. Franchise sales Refers to sales at all franchise restaurants. Although the Company does not record franchise sales as revenues, royalty revenues are based on a percentage of sales from franchise restaurants and are reported as franchise revenues by the Company. Company restaurant revenues Consists only of sales from Company-owned restaurants. Franchise revenues Consists primarily of royalties and franchise fees. Property revenues Includes property income from restaurants that the Company leases or subleases to franchisees. Company restaurant expenses Consists of all costs necessary to manage and operate Company-owned restaurants including (a) food, paper and product costs, (b) payroll and employee benefits, and (c) occupancy and other operating expenses which include rent, utility costs, insurance, repair and maintenance costs, depreciation for restaurant property and other costs to operate Company-owned restaurants. Company restaurant margin Represents Company restaurant revenues less Company restaurant expenses. Property expenses Includes rent and depreciation expense related to properties subleased to franchisees and the cost of building and equipment leased to franchisees. Selling, general and administrative expenses (SG&A) Comprises (a) selling expenses, which include advertising and bad debt expense, (b) general and administrative expenses, which include costs of field management for Company-owned and franchise restaurants and corporate overhead, including corporate salaries and facilities, and (c) amortization of intangible assets. Other operating (income) and expense Includes (income) and expenses that are not directly derived from the Company’s primary business and the impact of foreign currency transaction gains and losses. Expenses also include write-offs associated with Company restaurant closures and other asset write-offs. Supplemental Information The following provides additional information related to Burger King Holdings, Inc.’s results for the three and six month periods ended December 31, 2006. 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. Revenues (Dollars in millions)   Revenues consist of Company restaurant revenues, franchise revenues, and property revenues.   Three Months Ended December 31, Six Months Ended December 31, % Increase % Increase 2006  2005  (Decrease) 2006  2005  (Decrease) Company restaurant revenues: Unaudited United States & Canada $ 270  $ 254  6 % $ 541  $ 507  7 % EMEA/APAC 131  110  19 % 250  219  14 % Latin America 16  15  7 % 31  28  10 % Total Company restaurant revenues 417  379  10 % 822  754  9 % Franchise revenues: United States & Canada 70  66  6 % 140  133  5 % EMEA/APAC 32  29  10 % 65  59  10 % Latin America 10  9  11 % 20  17  18 % Total franchise revenues 112  104  8 % 225  209  8 % Property revenues: United States & Canada 22  21  5 % 43  42  2 % EMEA/APAC 8  8  0 % 15  15  0 % Latin America -  -  0 % -  -  0 % Total property revenues 30  29  3 % 58  57  2 % Total revenues: United States & Canada 362  341  6 % 724  682  6 % EMEA/APAC 171  147  16 % 330  293  13 % Latin America 26  24  8 % 51  45  13 % Total revenues $ 559  $ 512  9 % $ 1,105  $ 1,020  8 % Total Revenues Total revenues increased for the three and six months ended December 31, 2006, due to positive comparable sales of 3.7% and 3.0%, respectively, as well as the opening of 43 new restaurants (net of closures) and the acquisition of 49 franchise restaurants (net of sales of Company-owned restaurants or "refranchisings”) during the twelve months ended December 31, 2006. Revenues during the three and six months ended December 31, 2006 also reflect $14 million and $23 million (or 30% and 27% of total increase in revenues), respectively, due to the favorable impact from the movement in foreign currency exchange rates. The positive impact on revenues from exchange rates did not have a material impact on income from operations as it was substantially offset by the negative impact of exchange rates on Company restaurant expenses and selling, general and administrative expenses. United States & Canada Revenues increased for the three and six months ended December 31, 2006, driven by positive comparable sales of 4.4% and 3.5%, respectively, and from the acquisition of 12 franchise restaurants (net of refranchisings) during the twelve months ended December 31, 2006. The number of restaurants in the United States and Canada decreased during the twelve months ended December 31, 2006 by 132 reflecting 74 openings offset by 206 closures. The favorable impact from foreign currency exchange rates in Canada for the three and six months ended December 31, 2006 was $1 million and $4 million, respectively. EMEA/APAC The increase in revenues for the three and six months ended December 31, 2006, was driven primarily by 85 new restaurant openings in EMEA/APAC (net of closures) during the twelve months ended December 31, 2006. The increase in revenues was also attributable to positive comparable sales of 1.7% and 1.4% for the three and six months ended December 31, 2006, respectively, reflecting positive comparable sales in Spain and Germany offset by negative comparable sales in the United Kingdom. The negative comparable sales in the United Kingdom were primarily driven by changes in consumer preferences away from the fast food hamburger restaurant category. EMEA/APAC revenues were also positively impacted by foreign currency exchange rates in the amount of $13 million and $20 million, respectively, for the three and six months ended December 31, 2006. Latin America Revenues increased for the three and six months ended December 31, 2006, primarily due to positive comparable sales of 4.1% and 5.1%, respectively, as well as from 90 new restaurant openings (net of closures) in Latin America during the twelve months ended December 31, 2006, representing a 12% increase compared to the same period for the previous year. The unfavorable impact from currency exchange rates in Latin America for the six months ended December 31, 2006 was $1 million. The impact from foreign currency exchange rates in Latin America for the three months ended December 31, 2006 was not significant. Additional information regarding the key performance measures discussed above is as follows: Key Revenue Performance Measures As of December 31, Increase/ 2006  2005  (Decrease) Number of Company restaurants: (Unaudited) United States & Canada 888  876  12  EMEA/APAC 331  289  42  Latin America 71  63  8  Total 1,290  1,228  62    Number of franchise restaurants: United States & Canada 6,614  6,758  (144) EMEA/APAC 2,492  2,449  43  Latin America 788  706  82  Total 9,894  9,913  (19)   Three Months Ended December 31, Six Months Ended December 31, 2006  2005  2006  2005  System-Wide Comparable Sales Growth: (In constant currencies) United States & Canada 4.4 % 2.3 % 3.5 % 1.6 % EMEA/APAC 1.7 % 1.3 % 1.4 % 0.3 % Latin America 4.1 % 1.6 % 5.1 % 1.6 % Total 3.7 % 2.0 % 3.0 % 1.3 %   System-Wide Sales Growth: United States & Canada 3.7 % (0.2)% 2.6 % (0.6)% EMEA/APAC 5.1 % 6.7 % 5.3 % 6.5 % Latin America 14.2 % 12.5 % 14.8 % 12.9 % Total 4.7 % 2.3 % 4.0 % 1.8 %   (In actual currencies) System-Wide Average Restaurant Sales (In thousands) $ 297  $ 279  $ 597  $ 549    Three Months Ended December 31, Six Months Ended December 31, 2006  2005  % Increase/ (Decrease)   2006  2005  % Increase/ (Decrease) Franchise Sales: (Dollars in millions) (Unaudited) United States & Canada $ 1,914  $ 1,850  3 % $ 3,861  $ 3,773  2 % EMEA/APAC 757  680  11 % 1,530  1,388  10 % Latin America 205  179  15 % 399  347  15 % Total $ 2,876  $ 2,709  6 % $ 5,790  $ 5,508  5 % Company Restaurant Margins (Dollars in millions)   Percent of Sales (1) Amount Three Months Ended December 31, 2006  2005  2006  2005  % Increase/ (Decrease) (1) Company restaurants: (Unaudited) United States & Canada 15.3 % 14.1 % $ 41  $ 36  15.4 % EMEA/APAC 15.7 % 15.9 % $ 21  $ 18  17.0 % Latin America 28.8 % 28.8 % $ 4  $ 4  7.1 % Total 15.9 % 15.2 % $ 66  $ 58  15.3 %   (1) Calculated using dollars expressed in hundreds of thousands.   Percent of Sales (1) Amount Six Months Ended December 31, 2006  2005  2006  2005  % Increase/ (Decrease) (1) Company restaurants: (Unaudited) United States & Canada 15.0 % 14.1 % $ 81  $ 72  13.2 % EMEA/APAC 15.5 % 15.6 % $ 39  $ 34  14.2 % Latin America 26.9 % 26.7 % $ 8  $ 8  2.5 % Total 15.6 % 15.0 % $ 128  $ 114  12.8 %   (1) Calculated using dollars expressed in hundreds of thousands. Three Months Ended Six Months Ended December 31, December 31, Company restaurant expenses as a percentage of sales: (1) 2006  2005  2006  2005  Food, paper and product costs 30.0% 31.5% 30.1% 31.4% Payroll and employee benefits 29.4% 28.7% 29.5% 29.1% Occupancy and other operating costs 24.7% 24.6% 24.8% 24.5% Total Company restaurant expenses 84.1% 84.8% 84.4% 85.0%   (1) Calculated using dollars expressed in the hundreds of thousands. Total Company Restaurant Margins Company restaurant margins increased by $8 million and $14 million worldwide for the three and six months ended December 31, 2006, respectively, as a result of an increase in comparable sales and the number of Company restaurants. As a percentage of sales, Company restaurant margins improved by 0.7 and 0.6 percentage points for the three and six months ended December 31, 2006, respectively, primarily from lower food, paper and product costs, and sales of products which generate higher margins, partially offset by increases in the cost of labor and higher occupancy and other operating expenses as described below. United States & Canada Company restaurant margins increased by $5 million and $9 million in the United States and Canada for the three and six months ended December 31, 2006, respectively, as a result of an increase in comparable sales and the number of Company restaurants. Company restaurant margins as a percentage of sales improved in the United States and Canada by 1.2 and 0.9 percentage points for the three and six months ended December 31, 2006, respectively, driven primarily by sales of products which generate higher margins and the lower cost of beef and cheese, partially offset by an increase in labor from higher salaries and extended hours and from an increase in utility costs. EMEA/APAC Company restaurant margins increased by $3 million and $5 million in EMEA/APAC for the three and six months ended December 31, 2006, respectively, as a result of an increase in the number of Company restaurants and an increase in comparable sales. Company restaurant margins as a percentage of sales decreased in EMEA/APAC by 0.2 and 0.1 percentage points for the three and six months ended December 31, 2006, respectively, primarily due to an acceleration of depreciation and disposal of equipment on certain restaurant closures. These decreases were partially offset by improvements from sales of products which generate higher margins such as combo meals and the Aberdeen Angus burger. Latin America As a percentage of revenues, Company restaurant margins in Latin America increased by 0.2 percentage points for the six months ended December 31, 2006 reflecting an increase in relative payroll and occupancy costs. The 7.1% increase in Company restaurant margins during the three months ended December 31, 2006, compared to the same period in the prior year, reflects an increase in the number of Company restaurants and an increase in comparable sales. Selling, General and Administrative Expenses (Dollars in millions)   Three Months Ended December 31, Six Months Ended December 31, 2006  2005  % Increase/ (Decrease) 2006  2005  % Increase/ (Decrease) (Unaudited) Selling Expenses $ 25  $ 18  39 % $ 44  $ 35  26 % General and Administrative Expenses 94  88  7 % 187  172  9 % Total Selling, General, and Administrative Expenses $ 119  $ 106  12 % $ 231  $ 207  12 % Selling, general and administrative expenses increased by $13 million to $119 million for the three months ended December 31, 2006, compared to the same period in the prior year. This increase was primarily driven by an increase in sales promotions and advertising expenses of $7 million in the United Kingdom, $2 million of additional corporate salaries and fringe benefits, and the negative impact of approximately $3 million from the movement in foreign currency exchange rates. Contributions made to the marketing fund by Company restaurants are recorded as sales promotions and advertising expense and are generally in proportion to Company restaurant revenues. The $7 million increase in the sales promotions and advertising expenses during the quarter was driven by an incremental contribution made by the Company to the marketing fund in the United Kingdom. These contributions are being used to improve brand recognition and to introduce new premium products with commercials such as the "Manthem”, and "Have it Your Way Promise”, and promotions for the £1.99 Whopper® sandwich and Aberdeen Angus burger. Selling, general and administrative expenses increased by $24 million to $231 million for the six months ended December 31, 2006, compared to the same period in the prior year. This increase was primarily driven by an increase in sales promotions and advertising expenses of $12 million, $3 million of additional expenses associated with the operational realignment of the Company’s European and Asian businesses, an increase of $5 million in corporate salaries and fringe benefits, and $2 million of stock based compensation. The overall increase of $24 million also includes the negative impact of approximately $5 million from the movement in foreign currency exchange rates. Of the $12 million increase in sales promotions and advertising expense, $5 million related to higher Company restaurant revenues and $7 million related to an incremental contribution made by the Company to the marketing fund in the United Kingdom discussed above. Other Operating Income, Net Other operating income for the three months ended December 31, 2006 was $1 million as compared to $2 million during the same period in the prior year. This decrease was primarily driven by an additional charge of $2 million associated with franchise system distress in the United Kingdom offset by an increase in gains on the sale of assets of $1 million. Other operating income, net for the six months ended December 31, 2006 was $8 million as compared to $3 million during the same period in the prior year. This increase was primarily driven by a gain of $5 million from the sale of the Company’s investment in a joint venture in New Zealand and a gain on forward currency contracts of $3 million, offset by an additional charge of $2 million associated with franchise system distress in the United Kingdom. Operating Income/(Expense) (Dollars in millions) Three Months Ended December 31, Six Months Ended December 31, 2006  2005  % Increase / (Decrease) 2006  2005  % Increase / (Decrease) System-Wide: (Unaudited) United States & Canada $ 84  $ 74  14 % $ 171  $ 152  13 % EMEA/APAC 13  21  (38)% 33  42  (21)% Latin America 10  8  25 % 18  15  20 % Unallocated (32) (33) (3)% (65) (67) (3)% Total $ 75  $ 70  7 % $ 157  $ 142  11 % Income Taxes Income tax expense decreased by $6 million during the three months ended December 31, 2006, compared to the same period in the prior year. Our effective tax rate decreased approximately 15 percentage points to 34.5%, primarily as a result of tax benefits realized from an operational realignment of our European and Asian businesses, which became effective July 1, 2006. In addition, we received additional benefits during the three months ended December 31, 2006 from the closure of a state tax audit, and from foreign currency translation on foreign denominated deferred tax assets. Income tax expense decreased by $2 million during the six months ended December 31, 2006, compared to the same period in the prior year. Our effective tax rate decreased approximately 12 percentage points to 36.1%, partially as a result of tax benefits realized from an operational realignment of our European and Asian businesses, which became effective July 1, 2006. In addition, we also received additional benefits during the six months ended December 31, 2006 from the closure of a state tax audit, and from foreign currency translation on foreign denominated deferred tax assets. Restaurant Information   Six Months Ended December 31, 2006 United States & Canada EMEA/APAC Latin America Worldwide Company: Beginning of Period 878  293  69  1,240  Openings 5  9  2  16  Closings (5) (3) -  (8) Acquisitions, net 10  32  -  42  Ending Balance 888  331  71  1,290  Franchise: Beginning of Period 6,656  2,494  739  9,889  Openings 36  94  52  182  Closings (68) (64) (3) (135) Acquisitions, net (10) (32) -  (42) Ending Balance 6,614  2,492  788  9,894  System: Beginning of Period 7,534  2,787  808  11,129  Openings 41  103  54  198  Closings (73) (67) (3) (143) Acquisitions, net -  -  -  -  Ending Balance 7,502  2,823  859  11,184    Six Months Ended December 31, 2005 United States & Canada EMEA/APAC Latin America Worldwide Company: Beginning of Period 844  283  60  1,187  Openings -  6  3  9  Closings (6) -  -  (6) Acquisitions, net 38  -  -  38  Ending Balance 876  289  63  1,228  Franchise: Beginning of Period 6,876  2,373  668  9,917  Openings 26  95  42  163  Closings (106) (19) (4) (129) Acquisitions, net (38) -  -  (38) Ending Balance 6,758  2,449  706  9,913  System: Beginning of Period 7,720  2,656  728  11,104  Openings 26  101  45  172  Closings (112) (19) (4) (135) Acquisitions, net -  -  -  -  Ending Balance 7,634  2,738  769  11,141