Burger King Holdings, Inc.

S-1/A 1 g00424a3sv1za.htm BURGER KING HOLDINGS, INC. Burger King Holdings, Inc.

As filed with the Securities and Exchange Commission on May 2, 2006

Registration No. 333-131897

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 3

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

BURGER KING HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware	5812	75-3095469
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

5505 Blue Lagoon Drive

Miami, Florida 3312

(305) 378-3000

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

ANNE CHWAT

General Counsel

Burger King Holdings, Inc.

5505 Blue Lagoon Drive

Miami, Florida 33126

(305) 378-3000

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

Copies to:


JEFFREY SMALL DEANNA KIRKPATRICK Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 (212) 450-4000		WILLIAM F. GORIN Cleary Gottlieb Steen & Hamilton LLP One Liberty Plaza New York, NY 10006 (212) 225-2000

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Proposed Maximum

Title of Each Class

Amount to be

Offering Price

Aggregate Offering

Amount of

of Securities To Be Registered

Registered(1)

Per Unit(2)

Price

Registration Fee(3)

Common Stock, par value $0.01 per share

28,750,000 shares

$17.00

$488,750,000

$52,296.25



(1)	Includes shares issuable upon exercise of the underwriters’ option to purchase additional shares of common stock.



(2)	Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933.



(3)	A registration fee of $42,800 was previously paid. Accordingly, a registration fee of $9,496.25 is due in connection with this filing.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion. Dated May 1, 2006.

25,000,000 Shares

Burger King Holdings, Inc.

Common Stock

This is an initial public offering of shares of common stock of Burger King Holdings, Inc. We are offering 25,000,000 shares of common stock to be sold in this offering.

Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price will be between $15.00 and $17.00 per share.

We have applied to list our common stock on the New York Stock Exchange under the symbol “BKC.”

See “Risk Factors” beginning on page 12 to read about factors you should consider before buying shares of our common stock.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

Underwriting

Price to

Discounts and

Proceeds

Public

Commissions

to Us

Per Share

Total

To the extent that the underwriters sell more than 25,000,000 shares of common stock, the underwriters have an option to purchase up to an additional 3,750,000 shares of common stock from the selling stockholders at the initial public offering price less the underwriting discount. We will not receive any of the proceeds from a sale of the shares by the selling stockholders if the underwriters exercise their option to purchase additional shares of common stock.

The underwriters expect to deliver the shares against payment in New York, New York on , 2006.

JPMorgan


	Citigroup


	Goldman, Sachs & Co.

Morgan Stanley

Wachovia Securities


	Bear, Stearns & Co. Inc.


	Credit Suisse


	Lehman Brothers

Loop Capital Markets, LLC

Prospectus dated , 2006

TABLE OF CONTENTS


	Page

Prospectus Summary		1
Risk Factors		12
Special Note Regarding Forward-Looking Statements		27
Use of Proceeds		28
Dividend Policy		28
Capitalization		29
Dilution		30
Selected Consolidated Financial and Other Data		32
Management’s Discussion and Analysis of Financial Condition and Results of Operations		39
Business		73
Management		92
Principal and Selling Stockholders		108
Certain Relationships and Related Transactions		111
Description of Capital Stock		115
Description of Our Credit Facility		118
Material United States Federal Tax Consequences for Non-United States Holders of Common Stock		120
Shares Eligible for Future Sale		122
Underwriting		124
Legal Matters		130
Experts		130
Where You Can Find More Information		130
Index to Consolidated Financial Statements		F-1
Form of Amended and Restated Certificate of Incorporation
Form of Amended and Restated By-Laws
Opinion of Davis Polk & Wardwell
Amended and Restated Shareholder's Agreement
Special Management Restricted Unit Agreement
Consent of KPMG LLP

In this prospectus, we rely on and refer to information regarding the restaurant industry, the quick service restaurant segment and the fast food hamburger restaurant category that has been prepared by industry research firms, including NPD Group, Inc. (which prepares and disseminates the Consumer Report of Eating Share Trends, or CREST) and Research International (which provides us with proprietary National Adult Tracking data) or compiled from market research reports, research analyst reports and other publicly available information. All industry and market data that are not cited as being from a specified source are from internal analyses based upon data available from noted sources or other proprietary research and analysis.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the risks of investing in our common stock discussed under “Risk Factors” and the financial statements and notes included elsewhere in this prospectus.

On December 13, 2002, we acquired Burger King Corporation, which we refer to as “BKC”, through private equity funds controlled by Texas Pacific Group, Bain Capital Partners and the Goldman Sachs Funds, or the “sponsors”. In this prospectus, unless the context otherwise requires, all references to “we”, “us” and “our” refer to Burger King Holdings, Inc. and its subsidiaries, including BKC, for all periods subsequent to our December 13, 2002 acquisition of BKC. All references to our “predecessor” refer to BKC and its subsidiaries for all periods prior to the acquisition, which operated under a different ownership and capital structure.

The King of Burgers

When the first Burger King^® restaurant opened its doors back in 1954, our founders had a smart idea: serve great-tasting food fast and allow guests to customize their hamburgers their way. Much has changed in the half century since our founders sold the first Whopper^® sandwiches in a Miami drive-up hamburger stand in 1957, but these core principles have remained.

We believe that the Burger King and Whopper brands are two of the world’s most widely-recognized consumer brands. These brands, together with our signature flame-broiled products and the Have It Your Way^® brand promise, are among the strategic assets that we believe set Burger King restaurants apart from other regional and national fast food hamburger restaurant chains. Have It Your Way is increasingly relevant as consumers continue to demand personalization and choice over mass production. In a competitive industry, we believe we have differentiated ourselves through our attention to individual customers’ preferences by offering great tasting fresh food served fast and in a friendly manner and by recent advertising campaigns aimed at becoming a part of the popular culture.

We’re the world’s second largest fast food hamburger restaurant chain as measured by the number of restaurants and system-wide sales. We own or franchise 11,109 restaurants in 65 countries and U.S. territories. The fast food hamburger restaurant category in the United States had estimated annual sales of over $50 billion for the year ended October 31, 2005 and has a projected annual growth rate of 4.2% over the next five years, according to NPD Group, Inc.

Where We Started

Our founders sold Burger King Corporation to The Pillsbury Company in 1967, taking it from a small privately held franchised chain to a subsidiary of a large food conglomerate. The Pillsbury Company was purchased by Grand Metropolitan plc, which, in turn, merged with Guinness plc to form Diageo plc, a British spirits company. As a result, Burger King Corporation became a small, non-core subsidiary of a large conglomerate, making it difficult for the brand to prosper.

From 1989, when Grand Metropolitan plc acquired Burger King Corporation, to 2002, we were subjected to frequently changing strategies and an absence of consistent focus. Burger King Corporation operated globally, but marketing, operations and product development approaches were decided locally, leading to inconsistencies, despite a very strong brand.

Then in December 2002, Burger King Corporation was acquired by private equity funds controlled by Texas Pacific Group, Bain Capital Partners and the Goldman Sachs Funds, which we refer to as our sponsors. At the time of the acquisition, we faced significant challenges, including declining average restaurant sales which resulted in lower restaurant profits compared to our competitors. Additionally, the number of U.S. franchise restaurants was shrinking, many of our franchisees in the United States and Canada were in financial distress, our menu and marketing strategies did not resonate with customers, relationships with franchisees were strained and many of our restaurants had poor service.

We’re Focused on Turning a Great Brand into a Great Business

In response to the challenges we faced in December 2002, the sponsors began building an experienced management team, including our current Chief Executive Officer, John Chidsey, who joined the company in March 2004, and our former Chief Executive Officer, Greg Brenneman, who joined the company in August 2004. Mr. Chidsey has extensive experience in managing and leading franchised and branded businesses through his long tenures at Cendant and PepsiCo, and Mr. Brenneman brought extensive experience in successfully turning around distressed businesses. They inherited a strong core of an experienced management team and together finished assembling the company’s leaders by recruiting executives with significant experience in relevant areas. The team has considerable consumer brand experience from such companies as Avis, Budget Rent A Car System, The Coca-Cola Company, Dr Pepper/ Seven-Up, McDonald’s, PepsiCo, Seagram, Wendy’s and Yum! Brands.

The team quickly put in place a strategic plan, called the Go Forward Plan. The 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). We believe that a strong, simple, measurable, clearly communicated strategic plan gets results. All of our employees are measured by their contribution to the Go Forward Plan. In addition, all of our franchisees know exactly what we’re working on and can measure how well we’re doing; they, in turn, are able to contribute constant, constructive feedback. We benefit from having a group of employees and franchisees who have pulled together and worked hard during the last two years, as we focus on turning a great brand into a great business.

What We’ve Accomplished by Going Forward Together

Guided by our Go Forward Plan and strong executive team leadership, our accomplishments include:


	•	eight consecutive quarters of positive comparable sales growth in the United States as compared to negative comparable sales growth in the previous seven consecutive quarters, our best comparable sales growth in a decade;

	•	increasing average restaurant sales in the United States by 11% over the past two fiscal years and continued growth in the first nine months of fiscal 2006;


	•	improving the financial health of our franchise system in the United States and Canada as demonstrated by improved royalty collections and the significant reduction in the number of franchise restaurants in our Franchisee Financial Restructuring Program, or the FFRP program, which declined from over 2,540 in August 2003 to approximately 125 as of March 31, 2006, accomplished primarily through franchisee financial restructurings, as well as the closing of approximately 400 restaurants participating in the FFRP program and our acquisition of approximately 150 franchise restaurants;


	•	launching an award-winning advertising and promotion program focused on our core customers;

	•	implementing operational initiatives that enhanced restaurant-level economics in the United States;

	•	implementing a new product development process aimed at improving our menu and generating a pipeline of new products;

	•	designing a new, smaller restaurant model that reduced the current average non-real estate cost to build a new restaurant using that design by approximately 25%, making building new restaurants more attractive;

	•	improving relationships with our franchisees in the United States. Together we have achieved all time high customer satisfaction scores, as well as record speed of service and cleanliness scores;

	•	increasing our international restaurant base by 122 restaurants in 2005 and 122 in the first nine months of fiscal 2006 (net of closures); and


	•	increasing net income from $5 million in fiscal 2004 to $47 million in fiscal 2005, with EBITDA increasing by 65%, from $136 million in fiscal 2004 to $225 million in fiscal 2005. Net income decreased from $45 million in the first nine months of fiscal 2005 to $37 million (including a $14 million pre-tax debt extinguishment charge and the $33 million pre-tax compensatory make-whole payment described below) in the first nine months of fiscal 2006 and EBITDA increased 22%, from $180 million to $219 million over the same nine-month period. See Note 5 to the Summary Consolidated Financial and Other Data for a definition of EBITDA, its calculation, and an explanation of its usefulness to management. As of March 31, 2006, we had total indebtedness of $1.35 billion.

Why We Are “The King”


	•	Distinctive brand with global platform: We believe that our Burger King and Whopper brands are two of the most widely-recognized consumer brands in the world. In June 2005, Brandweek magazine ranked Burger King number 15 among the top 2,000 brands in the United States.

	•	Attractive business model: Approximately 90% of our restaurants are franchised, which is a higher percentage than our major competitors in the fast food hamburger restaurant category. We believe that our franchise restaurants will generate a consistent, profitable royalty stream to us, with minimal associated capital expenditures or incremental expense by us. We also believe this will provide us with significant cash flow to reinvest in strengthening our brand and enhancing shareholder value. Although we believe that this restaurant ownership mix is beneficial to us, it also presents a number of drawbacks, such as our limited control over franchisees and limited ability to facilitate changes in restaurant ownership.

	•	Established and scalable international business: We have one of the largest restaurant networks in the world, with more than 3,800 franchise and company-owned restaurants outside the United States. We believe that the demand for new international franchise restaurants is growing and our established infrastructure is capable of supporting substantial restaurant expansion internationally.


	•	Experienced management team with significant ownership: We have a seasoned management team with significant experience in growing companies. Following this offering, our executive officers will own approximately 1.2% of our common stock, on a fully-diluted basis, which we believe aligns their interests with those of our other shareholders.

Our Way Going Forward


	•	Drive sales growth and profitability of our U.S. business: We believe that we have a long way to go to achieve our comparable sales and average restaurant sales growth potential in our core U.S. business. We will continue to promote innovative marketing campaigns, launch new products to fill gaps in our menu, enhance the price/value proposition of our products, improve restaurant operations and extend hours of operations to meet our customers’ needs and drive sales growth. We also have reduced the capital costs to build a restaurant, which, together with the improved financial health of our franchise system in the United States, is leading to increased restaurant development in our U.S. business.

	•	Expand our large international platform: We will continue to build upon our substantial international infrastructure, franchise network and restaurant base, focusing mainly on under-penetrated markets where we already have a presence. Internationally we are about one-fourth of the size of our largest competitor, which we believe demonstrates significant growth opportunities for us.

	•	Continue to build relationships with franchisees: We succeed when our franchisees succeed, and we will continue building our relationships with our franchisees. In the past two years, we have implemented advisory committees for marketing, operations, finance and people, realigned our global convention and established quarterly officer and director franchisee visits. We will continue


		to dedicate resources toward the creation of a cohesive organization that is focused on supporting the Burger King brand globally.

	•	Become a world-class global company: Since 2004, we have integrated our domestic and international operations into one global company. This realignment of our company allows us to operate as a global brand and to execute our global growth strategy while remaining responsive to national differences in consumer preferences and local requirements.

Recent Developments


	Payment of a $367 million dividend, $33 million compensatory make-whole payment and a $30 million sponsor management termination fee

On February 21, 2006, we paid a cash dividend of $367 million, or $3.42 per share, to holders of record of our common stock on February 9, 2006, primarily the private equity funds controlled by the sponsors which owned approximately 95% of the outstanding shares of our common stock at that date, and members of senior management. We refer to this cash dividend as the February 2006 dividend. Our board of directors decided to pay the February 2006 dividend based on our strong business performance, the deleveraging of our business and cash generation in excess of our business needs. In July 2005, we used excess cash on hand to pay down our indebtedness by $232 million. In August, we further paid down our indebtedness by $47 million. As a result, our debt coverage ratio improved significantly. The payment of the February 2006 dividend was financed, in large part, by the February 2006 financing described below and returned our level of indebtedness and debt coverage ratios back to approximately June 30, 2005 levels (our indebtedness at June 30, 2005 was $1.28 billion and our indebtedness at March 31, 2006 after financing the February 2006 dividend was $1.35 billion).

At the same time, we paid $33 million, or $3.42 for each vested and unvested option and restricted stock unit award, to holders of our options and restricted stock unit awards on February 9, 2006, primarily members of senior management. We refer to this payment as the compensatory make-whole payment. This compensatory make-whole payment and $2 million in related taxes were recorded as compensation expense in the third quarter of fiscal 2006. Our board decided to pay the compensatory make-whole payment because it recognized that the payment of the February 2006 dividend and the February 2006 financing would decrease the value of the equity interests of holders of our options and restricted stock unit awards as these holders were not otherwise entitled to receive the dividend. Our board also recognized that the holders of our options and restricted stock unit awards had significantly contributed to the improvement in our business performance and equity value over the past two years. Accordingly, it decided to pay the same amount of the February 2006 dividend, on a per share basis, to the holders of our options and restricted stock unit awards to compensate them for this decline in the value of their equity interests.

On February 3, 2006, we agreed to pay a one-time $30 million fee to terminate our management agreement with the sponsors effective upon completion of this offering, which we refer to as the sponsor management termination fee. The management agreement currently obligates us to pay approximately $9 million per year to the sponsors. The sponsor management termination fee resulted from negotiations with the sponsors to terminate the management agreement which obligated us to pay the quarterly management fee. Our board concluded that it was in the best interests of the company to terminate these arrangements with the sponsors and the resulting payments upon becoming a publicly-traded company because the directors believed that these affiliated-party payments should not continue after this offering. See “Certain Relationships and Related Transactions—Management Agreement.”

On February 15, 2006, we amended our senior secured credit facility in order to declare and pay the February 2006 dividend and pay the compensatory make-whole payment and the sponsor management termination fee. At that time, we also borrowed an additional $350 million under our senior secured credit facility, all the proceeds of which were used to pay, along with $50 million of cash on hand, the February 2006 dividend and the compensatory make-whole payment. We refer to this financing as the February 2006 financing. We expect to use almost all of the net proceeds from this offering to repay the

$350 million borrowed in the February 2006 financing. See “Use of Proceeds,” “Description of Our Credit Facility,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Liquidity.”


	February 2006 Employee Option Grant

On February 14, 2006, we granted options to purchase 53 shares of our common stock to each of approximately 5,000 of our employees worldwide who were not previously eligible to receive option grants, such as restaurant managers and support staff. These options generally vest on February 14, 2011, so long as the employee remains employed by us, and expire on February 14, 2016.


	Realignment of our European and Asian Businesses

Our board has authorized the realignment of the regional management of our European and Asian businesses, including the granting of franchises and utilization of our intellectual property assets, in new European and Asian entities. This realignment of our regional management, legal structure and franchise/intellectual property assets is expected to have a positive impact on our future effective tax rate. As a result of this realignment, we expect to incur approximately $125 to $143 million in tax liability, which is expected to be partially offset by the utilization of approximately $25 million of net operating loss carryforwards and other foreign tax credits and be paid in the first quarter of fiscal 2007. We also expect to incur $10 million in other related costs during calendar 2006. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and Capital Resources— Realignment of our European and Asian businesses” for additional discussion of this realignment.


	Recent Management Changes

On April 7, 2006, we announced that John Chidsey, our former president and chief financial officer, had been named chief executive officer. We also announced that Brian Swette, a current independent director, had been appointed non-executive chairman of our board of directors. In addition, we announced that Ben Wells, our former senior vice president and treasurer, had been promoted to chief financial officer and treasurer.

Mr. Chidsey replaced Greg Brenneman, our former chairman and CEO, who is returning to his private equity firm, TurnWorks, Inc. Mr. Brenneman has agreed to continue to work with the Board of Directors as a consultant during the transition.

Ownership by Sponsors

Our principal stockholders are the private equity funds controlled by the sponsors. As of May 1, 2006, these funds beneficially owned approximately 95% of our outstanding common stock. Following completion of this offering, these funds will beneficially own approximately 77.1% of our common stock, or 74.3% if the underwriters’ option to purchase additional shares is fully exercised.

Our Headquarters

Our global headquarters are located at 5505 Blue Lagoon Drive, Miami, Florida 33126. Our telephone number is (305) 378-3000. Our website is accessible through www.burgerking.com or www.bk.com. Information on, or accessible through, this website is not a part of, and is not incorporated into, this prospectus.

Burger King^®, Whopper^®, Whopper Jr.^®, Have It Your Way^®, Tendercrisp^®, Burger King Bun Halves and Crescent Logo, Wake Up With The King^tm, BK Joe^tm, BK^tm Chicken Fries and BK^tm Value Menu trademarks are protected under applicable intellectual property laws and are the property of Burger King Brands, Inc., an indirect wholly-owned subsidiary of Burger King Holdings, Inc. Other registered trademarks referred to in this prospectus are the property of their respective owners.

The Offering



Common stock offered by us		25,000,000 shares⁽¹⁾



Common stock to be outstanding after this offering		132,578,053 shares⁽²⁾


Voting Rights		One vote per share.


Use of Proceeds		We will receive net proceeds from this offering of approximately $374 million, assuming an initial public offering price of $16.00 per share, the midpoint of the range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses. We expect to use almost all of the net proceeds to repay the $350 million borrowed under our senior secured credit facility in connection with the February 2006 financing and the February 2006 dividend with the balance used for general corporate purposes. As a result, almost all of the proceeds of this offering will not be invested in our business. A $1.00 change in the per share offering price would change net proceeds by approximately $24 million.



		We will not receive any of the net proceeds from a sale of shares of common stock by the selling stockholders if the underwriters exercise their option to purchase additional shares of common stock from the selling stockholders.


Dividend Policy		We do not currently intend to pay cash dividends on shares of our common stock.

New York Stock Exchange Symbol		BKC

Risk Factors		See “Risk Factors” and the other information included in this prospectus for a discussion of the factors you should consider carefully before deciding to invest in shares of our common stock.



(1)	Excludes 3,750,000 shares that may be sold by the selling stockholders upon exercise of the underwriters’ option to purchase additional shares.



(2)	Excludes (i) 9,628,913 shares of our common stock issuable upon the exercise of options or the settlement of restricted stock unit awards outstanding as of March 31, 2006, of which options to purchase 1,834,609 shares were exercisable as of March 31, 2006, (ii) 2,589,925 additional shares of our common stock issuable under the Burger King Holdings, Inc. Equity Incentive Plan and (iii) 7,113,442 additional shares of our common stock issuable under the Burger King Holdings, Inc. 2006 Omnibus Incentive Plan. While we have not issued any options to employees or directors since March 31, 2006, we intend to grant approximately 447,884 options, restricted shares or restricted stock units at a price equal to the initial offering price to several employees at the effective time of this offering.

Unless we specifically state otherwise, the information in this prospectus does not take into account the sale of up to 3,750,000 shares of common stock which the underwriters have the option to purchase from the selling stockholders.

Summary Consolidated Financial And Other Data

The following summary consolidated financial and other data should be read in conjunction with, and are qualified by reference to, the disclosures set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as in the consolidated financial statements and their notes.

All references to our “predecessor” refer to BKC and its subsidiaries for all periods prior to our December 13, 2002 acquisition of BKC, which operated under a different ownership and capital structure. The acquisition was accounted for under the purchase method of accounting and resulted in purchase accounting allocations that affect the comparability of results of operations between periods before and after the acquisition. In addition, the combined financial data for the combined fiscal year ended June 30, 2003 have been derived from the audited consolidated financial statements and notes thereto of our predecessor and us, but have not been audited on a combined basis and, as a result, do not comply with generally accepted accounting principles and are not intended to represent what our operating results would have been if the acquisition of BKC had occurred at the beginning of the period.


										Burger King
	Predecessor									Holdings, Inc.						Burger King Holdings, Inc.

	For the						For the			For the			Combined			For the				For the
	Fiscal Year						Period from			Period from			Twelve			Fiscal Year				Nine Months
	Ended						July 1,			December 13,			Months			Ended				Ended
	June 30,						2002 to			2002 to			Ended			June 30,				March 31,
							December 12,			June 30,			June 30,
	2001			2002			2002			2003			2003			2004		2005		2005		2006

	(In millions, except per share data)
Income Statement Data:
Total revenues	$	1,541		$	1,646		$	751		$	906		$	1,657		$	1,754	$	1,940	$	1,437	$	1,515
Total company restaurant expenses		894			987			465			557			1,022			1,087		1,195		886		961
Selling, general and administrative expenses(1)		400			429			225			253			478			482		496		363		361
Property expenses		59			58			27			28			55			58		64		43		42
Impairment of goodwill(2)		43			5			875			—			875			—		—		—		—
Other operating expenses (income), net(2)		114			45			39			(7	)		32			54		34		18		(5	)

Total operating costs and expenses	$	1,510		$	1,524		$	1,631		$	831		$	2,462		$	1,681	$	1,789	$	1,310	$	1,359
Income (loss) from operations		31			122			(880	)		75			(805	)		73		151		127		156
Interest expense, net		48			105			46			35			81			64		73		53		53
Loss on early extinguishment of debt		—			—			—			—			—			—		—		—		14
(Loss) income before income taxes	$	(17	)	$	17		$	(926	)	$	40		$	(886	)	$	9	$	78	$	74	$	89
Income tax expense (benefit)		21			54			(34	)		16			(18	)		4		31		29		52

Net (loss) income	$	(38	)	$	(37	)	$	(892	)	$	24		$	(868	)	$	5	$	47	$	45	$	37

Burger King

Predecessor

Holdings, Inc.

Burger King Holdings, Inc.

For the

Combined

For the

Fiscal Year

Period from

Twelve

Fiscal Year

Nine Months

Ended

July 1,

December 13,

Months

Ended

June 30,

2002 to

Ended

June 30,

March 31,

December 12,

June 30,

2001

2002

2003

2004

2005

2006

(In millions, except per share data)

Per common share:

Net income basic

0.23

0.05

0.44

0.42

0.35

Net income diluted

0.23

0.05

0.44

0.42

0.33

Pro forma net income, basic(3)

0.37

0.29

Pro forma net income, diluted(3)

0.37

0.28

Adjusted pro forma net income, basic(4)

0.22

0.11

0.45

0.41

0.35

Adjusted pro forma net income, diluted(4)

0.22

0.11

0.44

0.41

0.34

Shares outstanding, basic

105

106

107

Shares outstanding, diluted

105

106

107

111


*	Not meaningful


										Burger King
	Predecessor									Holdings, Inc.						Burger King Holdings, Inc.

	For the						For the			For the			Combined			For the						For the
	Fiscal Year						Period from			Period from			Twelve			Fiscal Year						Nine Months
	Ended						July 1,			December 13,			Months			Ended						Ended
	June 30,						2002 to			2002 to			Ended			June 30,						March 31,
							December 12,			June 30,			June 30,
	2001			2002			2002			2003			2003			2004			2005			2005			2006

	(In millions, except per share data)
Other Financial Data:
Cash provided by operating activities	$	324		$	212		$	1		$	81		$	82		$	199		$	218		$	151		$	21
Cash provided by (used for) investing activities		(271	)		(349	)		(102	)		(485	)		(587	)		(184	)		(5	)		(243	)		(42	)
Cash provided by (used for) financing activities		(52	)		155			112			607			719			3			(2	)		(1	)		(214	)
Capital expenditures		199			325			95			47			142			81			93			51			48
EBITDA(2)(5)	$	182		$	283		$	(837	)	$	118		$	(719	)	$	136		$	225		$	180		$	219


	As of March 31, 2006

					Pro Forma
	Actual		Pro Forma(6)		as Adjusted(7)

	(In millions)
Balance Sheet Data:
Cash and cash equivalents	$	197	$	42	$	66
Total assets		2,466		2,331		2,355
Total debt and capital lease obligations		1,412		1,412		1,062
Total liabilities		2,303		2,186		1,836
Total stockholders’ equity	$	163	$	145	$	519


							Burger King Holdings, Inc.

				Combined			For the						For the
				Twelve Months			Fiscal Year Ended						Nine Months Ended
				Ended			June 30,						March 31,
				June 30,
				2003			2004			2005			2005			2006

				(In constant currencies)
Other System-Wide Operating Data:
Comparable sales growth(8)(9)					(5.9	)%		1.0	%		5.6	%		7.0	%		2.0	%
Average restaurant sales (in thousands)(8)				$	972		$	994		$	1,066		$	791		$	814
System-wide sales growth(8)					(4.7	)%		1.2	%		6.1	%		7.9	%		1.9	%
Company restaurants:
	United States and Canada				735			759			844			818			877
	EMEA/ APAC(10)				280			277			283			276			286
	Latin America(11)				46			51			60			54			64

		Total company restaurants			1,061			1,087			1,187			1,148			1,227
Franchise restaurants:
	United States and Canada				7,529			7,217			6,876			6,999			6,712
	EMEA/ APAC(10)				2,179			2,308			2,373			2,326			2,449
	Latin America(11)				566			615			668			649			721

		Total franchise restaurants			10,274			10,140			9,917			9,974			9,882

			Total restaurants		11,335			11,227			11,104			11,122			11,109

Segment Data:
Operating income (in millions):
	United States and Canada			$	(551	)	$	115		$	255		$	193		$	219
	EMEA/ APAC(10)				(143	)		95			36			36			51
	Latin America(11)				22			26			25			19			22
	Unallocated(12)				(133	)		(163	)		(165	)		(121	)		(136	)

		Total operating income		$	(805	)	$	73		$	151		$	127		$	156

Company Restaurant Revenues (in millions):
	United States and Canada			$	768		$	802		$	923		$	678		$	761
	EMEA/ APAC(10)				363			429			435			329			319
	Latin America(11)				43			45			49			36			42

		Total company restaurant revenues		$	1,174		$	1,276		$	1,407		$	1,043		$	1,122

Company Restaurant Margin:
	United States and Canada				12.1	%		11.3	%		14.2	%		13.9	%		13.6	%
	EMEA/ APAC(10)				12.4	%		18.9	%		15.2	%		15.7	%		14.1	%
	Latin America(11)				32.6	%		37.8	%		30.6	%		30.5	%		28.6	%
		Total company restaurant margin			12.9	%		14.8	%		15.1	%		15.0	%		14.3	%
Franchise Revenues (in millions):
	United States and Canada			$	261		$	234		$	269		$	201		$	197
	EMEA/ APAC(10)				84			102			114			84			87
	Latin America(11)				23			25			30			21			25

		Total franchise revenues		$	368		$	361		$	413		$	306		$	309

Franchise sales (in millions)(13)				$	9,812		$	10,055		$	10,817		$	9,056		$	8,106


	(1)	Selling, general and administrative expenses included $73 million and $72 million of intangible asset amortization in the fiscal years ended June 30, 2001 and 2002, respectively. Selling, general and administrative expenses also included $14 million and $7 million of fees paid to Diageo plc in the fiscal years ended June 30, 2001 and 2002, respectively.


	(2)	In connection with our acquisition of BKC, our predecessor recorded $35 million of intangible asset impairment charges within other operating expenses (income), net and goodwill impairment charges of $875 million during the period from July 1, 2002 to December 12, 2002.


	(3)	Pro forma net income, basic and diluted, per share for the year ended June 30, 2005 and nine months ended March 31, 2006 has been computed to give effect to the number of shares to be sold in this offering that would have been necessary to pay the portion of the February 2006 dividend of $367 million in excess of current period earnings.



	(4)	Amounts in calculation as compared to basic and diluted earnings per share adjusted as follows: (a) net income adjusted for reduction in interest expense at the weighted average interest rate during the period multiplied by $350 million of the net proceeds from this offering used to repay debt, and (b) weighted average shares during the period increased by the 25,000,000 shares issued in this offering.



	(5)	EBITDA is defined as net income before interest, taxes, depreciation and amortization, and is used by management to measure operating performance of the business. Management believes that EBITDA incorporates certain operating drivers of our business such as sales growth, operating costs, general and administrative expenses and other income and expense. Capital expenditures, which impact depreciation and amortization, interest expense, and income tax expense, are reviewed and monitored separately by management. EBITDA is also one of the measures used by us to calculate incentive compensation for management and corporate-level employees. Further, management believes that EBITDA is a useful measure as it improves comparability of predecessor and successor results of operations, as purchase accounting renders depreciation and amortization non-comparable between predecessor and successor periods. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Factors Affecting Comparability of Results— Purchase Accounting”.


		While EBITDA is not a recognized measure under generally accepted accounting principles, we believe EBITDA is useful to investors because it is frequently used by security analysts, investors and other interested parties to evaluate companies in our industry and us. EBITDA is not intended to be a measure of liquidity or cash flows from operations nor a measure comparable to net income as it does not consider certain requirements such as capital expenditures and related depreciation, principal and interest payments and tax payments.

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


										Burger King
	Predecessor									Holdings, Inc.					Burger King Holdings, Inc.

	For the						For the			For the		Combined			For the				For the
	Fiscal Year						Period from			Period from		Twelve			Fiscal Year				Nine Months
	Ended						July 1,			December 13,		Months			Ended				Ended
	June 30,						2002 to			2002 to		Ended			June 30,				March 31,
							December 12,			June 30,		June 30,
	2001			2002			2002			2003		2003			2004		2005		2005		2006

	(In millions)
Net (loss) income	$	(38	)	$	(37	)	$	(892	)	$	24	$	(868	)	$	5	$	47	$	45	$	37
Interest expense, net(14)		48			105			46			35		81			64		73		53		67
Income tax expense (benefit)		21			54			(34	)		16		(18	)		4		31		29		52

Income (loss) from operations	$	31		$	122		$	(880	)	$	75	$	(805	)	$	73	$	151	$	127	$	156
Depreciation, and amortization		151			161			43			43		86			63		74		53		63

EBITDA	$	182		$	283		$	(837	)	$	118	$	(719	)	$	136	$	225	$	180	$	219


		This presentation of EBITDA may not be directly comparable to similarly titled measures of other companies, since not all companies use identical calculations.



	(6)	Pro forma amounts give effect to (a) the sponsor management termination fee of $30 million resulting in an after-tax adjustment of $18 million to stockholders’ equity and (b) an assumed payment of $125 million in taxes associated with the realignment of our European and Asian businesses. See “Prospectus Summary— Recent Developments” and “Management Discussion and Analysis — Liquidity.”



	(7)	Pro forma as adjusted amounts give effect to (a) the sponsor management termination fee, (b) an assumed payment of $125 million in taxes associated with the realignment of our European and Asian businesses and (c) the issuance and sale of 25,000,000 shares of common stock by us in this offering at an assumed initial public offering price of $16.00 per share, the midpoint of the range set forth on the cover page of this prospectus, and the application of the net proceeds of this offering, after deducting estimated underwriting discounts and commissions and offering expenses payable by us, as set forth under “Use of Proceeds.” See “Use of Proceeds” and “Capitalization.”



	(8)	These are our key business measures, which are analyzed on a constant currency basis, which means they are calculated using the same exchange rate 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 trend, without distortion from the effect of foreign currency movements. System-wide sales growth includes sales at company restaurants and franchise restaurants. We do not record franchise restaurant sales as revenues. However, our


		royalty revenues are calculated based on a percentage of franchise restaurant sales. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Key Business Measures.”


	(9)	Comparable sales growth refers to the change in restaurant sales in one period from a comparable period for restaurants that have been open for thirteen months or longer. Comparable sales growth includes sales at company restaurants and franchise restaurants. We do not record franchise restaurant sales as revenues. However, our royalty revenues are calculated based on a percentage of franchise restaurant sales.



(10)	Refers to our operations in Europe, the Middle East, Africa, Asia, Australia and Guam.



(11)	Refers to our operations in Mexico, Central and South America, the Caribbean and Puerto Rico.



(12)	Unallocated includes corporate support costs in areas such as facilities, finance, human resources, information technology, legal, marketing and supply chain management.



(13)	Franchise sales represent sales at franchise restaurants and revenue to our franchisees. We do not record franchise restaurant sales as revenues. However, our royalty revenues are calculated based on a percentage of franchise restaurant sales.



(14)	Includes $14 million recorded as a loss on early extinguishment of debt in connection with our July 2005 refinancing and February 2006 financing.

RISK FACTORS

You should carefully consider the following risks and all of the other information set forth in this prospectus before deciding to invest in shares of our common stock. The following risks comprise all the material risks of which we are aware; however, these risks and uncertainties may not be the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also adversely affect our business or financial performance. If any of the events or developments described below actually occurred, our business, financial condition or results of operations would likely suffer. In that case, the trading price of our common stock would likely decline, and you would lose all or part of your investment in our common stock.

Risks Related to Our Business

Our recent improvements in comparable sales, average restaurant sales and system-wide sales may not be indicative of future operating results.

Although our comparable sales, average restaurant sales and system-wide sales have improved significantly, these positive results may not continue. Our results of operations may fluctuate significantly because of a number of factors, including the risk factors discussed in this section. Moreover, we may not be able to successfully implement the business strategy described in this prospectus and implementing our business strategy may not sustain or improve our results of operations or increase our market share. As a result of the factors discussed in this section, operating results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year and system-wide sales, comparable sales, and average restaurant sales for any future period may decrease. In the future, our operating results may fall below investor expectations. In that event, the price of our common stock would likely decrease.

Our success depends on our ability to compete with our major competitors.

The restaurant industry is intensely competitive and we compete in the United States and internationally with many well-established food service companies on the basis of price, service, location and food quality. Our competitors include a large and diverse group of restaurant chains and individual restaurants that range from independent local operators to well-capitalized national and international restaurant companies. McDonald’s Corporation, or McDonald’s, and Wendy’s International, Inc., or Wendy’s, are our principal competitors. As our competitors expand their operations, including through acquisitions or otherwise, we expect competition to intensify. Some of our competitors have substantially greater financial and other resources than we do, which may allow them to react to changes in pricing, marketing and the quick service restaurant segment in general better than we can. We also compete against regional hamburger restaurant chains, such as Carl’s Jr., Jack in the Box and Sonic.

To a lesser degree, we compete against national food service businesses offering alternative menus, such as Subway and Yum! Brands, Inc.’s Taco Bell, Pizza Hut and Kentucky Fried Chicken, casual restaurant chains, such as Applebee’s, Chili’s, Ruby Tuesday’s and “fast casual” restaurant chains, such as Panera Bread, as well as convenience stores and grocery stores that offer menu items comparable to that of Burger King restaurants. During the past year, the fast food hamburger restaurant, or FFHR, category has experienced flat or declining traffic which we believe is due in part to competition from these competitors. In one of our major European markets, the United Kingdom, much of the growth in the quick service restaurant segment is expected to come from bakeries and new entrants that are diversifying into healthier options to respond to nutritional concerns. We believe that the large hamburger chains in the United Kingdom have experienced declining sales as they face increased competition from not only the bakeries, but also from pubs that are repositioning themselves as family venues and offering inexpensive food.

Finally, the restaurant industry has few non-economic barriers to entry, and therefore new competitors may emerge at any time. To the extent that one of our existing or future competitors offers items that are better priced or more appealing to consumer tastes or a competitor increases the number of restaurants it operates in one of our key markets or offers financial incentives to personnel, franchisees or prospective

sellers of real estate in excess of what we offer, it could have a material adverse effect on our financial condition and results of operations. We also compete with other restaurant chains and other retail businesses for quality site locations and hourly employees.

Our operating results are closely tied to the success of our franchisees. Over the last several years, many franchisees in the United States, Canada and the United Kingdom have experienced severe financial distress, and our franchisees may experience financial distress in the future.

We receive revenues in the form of royalties and fees from our franchisees. As a result, our operating results substantially depend upon our franchisees’ restaurant profitability, sales volumes and financial viability. In December 2002, over one-third of our franchisees in the United States and Canada were facing financial distress primarily due to over-leverage. Many of these franchisees became over-leveraged because they took advantage of the lending environment in the late 1990s to incur additional indebtedness without having to offer significant collateral. Others became over-leveraged because they financed the acquisition of restaurants from other franchisees at premium prices on the assumption that sales would continue to grow. When sales began to decline, many of these franchisees were unable to service their indebtedness. Our largest franchisee, with over 300 restaurants, declared bankruptcy in December 2002 and a number of our other large franchisees defaulted on their indebtedness. This distress affected our results of operations as the franchisees did not pay, or delayed or reduced payments of royalties, national advertising fund contributions and rents for properties we leased to them.

In response to this situation, we established the Franchisee Financial Restructuring Program, or FFRP program, in February 2003 to address our franchisees’ financial problems in the United States and Canada. At the FFRP program’s peak in August 2003, over 2,540 restaurants were in the FFRP program. From December 2002 through June 30, 2005, we wrote off approximately $106 million in the United States in uncollectible accounts receivable (principally royalties, advertising fund contributions and rents). We have introduced a similar program on a smaller scale in the United Kingdom to respond to negative trends in that market. For more information on the FFRP program and its financial impact on us, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Factors Affecting Comparability of Results— Historical Franchisee Financial Distress.”

Our franchisees are independent operators, and their decision to incur indebtedness is generally outside of our control and could result in financial distress in the future due to over-leverage. In connection with sales of company restaurants to franchisees, we have guaranteed certain lease payments of franchisees arising from leases assigned to the franchisees as part of the sale, by remaining secondarily liable for base and contingent rents under the assigned leases of varying terms. The aggregate contingent obligation arising from these assigned lease guarantees was $119 million at March 31, 2006, expiring over an average period of 10 years. In addition, franchisees that have completed the FFRP program in the United States, Canada or the United Kingdom, and franchisees that have not experienced financial distress in the past may experience financial distress in the future. The resolution of future franchisee financial difficulties, if possible, could be difficult and would likely result in additional costs to us, including potentially under our lease guarantees, and might result in a decrease in our revenues and earnings. In addition, lenders to our franchisees were affected by the financial distress and there can be no assurance that current or prospective franchisees can obtain necessary financing in light of the history of financial distress.

Approximately 90% of our restaurants are franchised and this restaurant ownership mix presents a number of disadvantages and risks.

Approximately 90% of our restaurants are franchised and we do not expect the percentage of franchise restaurants to change significantly as we implement our growth strategy. Although we believe that this restaurant ownership mix is beneficial to us because the capital required to grow and maintain our system is funded primarily by franchisees, it also presents a number of drawbacks, such as our limited control over franchisees and limited ability to facilitate changes in restaurant ownership.

Franchisees are independent operators and have a significant amount of flexibility in running their operations, including the ability to set prices of our products in their restaurants. Their employees are not our employees. Although we can exercise control over our franchisees and their restaurant operations to a limited extent through our ability under the franchise agreements to mandate signage, equipment and standardized operating procedures and approve suppliers, distributors and products, the quality of franchise restaurant operations may be diminished by any number of factors beyond our control. Consequently, franchisees may not successfully operate restaurants in a manner consistent with our standards and requirements, or may not hire and train qualified managers and other restaurant personnel. In addition, we set minimum restaurant opening hours, but we have no right to mandate longer hours. While we ultimately can take action to terminate franchisees that do not comply with the standards contained in our franchise agreements, we may not be able to identify problems and take action quickly enough and, as a result, our image and reputation may suffer, and our franchise and property revenues could decline.

Our principal competitors may have greater control over their respective restaurant systems than we do. McDonald’s exercises control through its significantly higher percentage of company restaurants and ownership of franchisee real estate. Wendy’s also has a higher percentage of company restaurants than we do. As a result of the greater number of company restaurants, McDonald’s and Wendy’s may have a greater ability to implement operational initiatives and business strategies, including their marketing and advertising programs.

Our business plan includes price discounting which may lead to declines in our margins and operating profits.

In order to respond to competitive pressures and to improve customer traffic in our restaurants, we have regionally tested a new BK Value Menu over an 18 month period at approximately 1,000 restaurants. We launched this BK Value Menu nationally in the United States in February 2006 and it includes a number of nationally mandated products, such as the Whopper Jr. sandwich, small fries and small sodas priced at no more than $1 and local options to sell other products at varying maximum prices. While the BK Value Menu has been extensively tested and has the support of our franchisees, it may not ultimately succeed due to the potential reaction of our major competitors, including the introduction of similar discounting, flaws in our testing methodologies or other factors. In addition, the BK Value Menu may not prove successful in every market in the United States due to existing franchisee pricing patterns and business conditions in those markets.

We have frequently in the past responded to competitive pressures by discounting our products and while this discounting has increased the number of customers that frequent our restaurants in the short term, it often has significantly eroded margins and profitability. For example, in fiscal 2003, we introduced without prior regional testing a different value menu that offered a variety of new products at $0.99. Our customers responded by purchasing these less expensive items instead of higher margin products like our flagship product, the Whopper sandwich. At the same time, McDonald’s introduced a competing $1 menu, and we responded by discounting the Whopper sandwich and other menu items not part of the initial value menu, which further eroded our margins and profitability. We believe that our new BK Value Menu differs substantially from the one introduced in fiscal 2003. The margins on the products on the new BK Value Menu are higher than the margins on the products on the old value menu. In addition, unlike in fiscal 2003, we currently offer a variety of premium products which we have continued to advertise as we launch the BK Value Menu. However, there can be no assurance that launching the BK Value Menu on a national basis will be successful and will not ultimately lead to declines in our margins and operating profits due to the actions of our competitors or for other reasons.

If we fail to successfully implement our international growth strategy, our ability to increase our revenues and operating profits could be adversely affected and our overall business could be adversely affected.

A significant component of our growth strategy involves opening new international restaurants in both existing and new markets. We and our franchisees face many challenges in opening new international restaurants, including, among others:


	•	the selection and availability of suitable restaurant locations;

	•	the negotiation of acceptable lease terms;

	•	the ability of franchisees to obtain acceptable financing terms;

	•	securing required foreign governmental permits and approvals;

	•	securing acceptable suppliers; and

	•	employing and training qualified personnel.

We are planning to expand our international operations in markets where we currently operate and in selected new markets. Operations in foreign markets may be affected by consumer preferences and local market conditions. For example, we have experienced declining sales and operating profits in certain foreign markets, such as the United Kingdom, due in part to franchisee financial distress and concerns about obesity as well as high operating expenses. We may not be successful in developing effective initiatives to reverse these trends. Therefore, to the extent that we open new company restaurants in existing foreign markets, we may not experience the operating margins we expect, and our expected growth in our results of operations may be negatively impacted.

We expect that most of our international growth will be accomplished through the opening of additional franchise restaurants. However, our franchisees may be unwilling or unable to increase their investment in our system by opening new restaurants, particularly if their existing restaurants are not generating positive financial results. Moreover, opening new franchise restaurants depends, in part, upon the availability of prospective franchisees who meet our criteria, including extensive knowledge of the local market. In the past, we have approved franchisees that were unsuccessful in implementing their expansion plans, particularly in new markets. There can be no assurance that we will be able to find franchisees who meet our criteria, or if we find such franchisees, that they will successfully implement their expansion plans.

Our operating results depend on the effectiveness of our marketing and advertising programs and franchisee support of these programs.

Our revenues are heavily influenced by brand marketing and advertising. Our marketing and advertising programs may not be successful, which may lead us to fail to attract new customers and retain existing customers. If our marketing and advertising programs are unsuccessful, our results of operations could be materially adversely affected. Moreover, because franchisees and company restaurants contribute to our marketing fund based on a percentage of their gross sales, our marketing fund expenditures are dependent upon sales volumes at system-wide restaurants. If system sales decline, there will be a reduced amount available for our marketing and advertising programs.

The support of our franchisees is critical for the success of our marketing programs and any new strategic initiatives we seek to undertake. In the United States, we poll our franchisees before introducing any nationally-or locally-advertised price or discount promotion to gauge the level of support for the campaign. While we can mandate certain strategic initiatives through enforcement of our franchise agreements, we need the active support of our franchisees if the implementation of these initiatives is to be successful. At the time of the December 2002 acquisition, our relationships with franchisees were strained. Although we believe that our current relationships with our franchisees are generally good, there can be no assurance that our franchisees will continue to support our marketing programs and strategic initiatives. The failure of our franchisees to support our marketing programs and strategic initiatives would adversely

affect our ability to implement our business strategy and could materially harm our business, results of operations and financial condition.

We recently promoted members of our existing senior management team as a result of the departure of our Chairman and Chief Executive Officer; failure to manage a smooth transition of those senior management into their new positions, the loss of key management personnel or our inability to attract and retain new qualified personnel could hurt our business and inhibit our ability to operate and grow successfully.

On April 7, 2006, we announced the promotion of John Chidsey, who had been our President and Chief Financial Officer, to Chief Executive Officer as a result of the departure of Greg Brenneman, who had been our Chairman and Chief Executive Officer since August 2004. On the same date, we announced the promotion of Ben Wells, who had been our Senior Vice President and Treasurer, to Chief Financial Officer and Treasurer. Changes in senior management, even changes involving the promotion of existing senior management, involve inherent disruptions. If we fail to manage a smooth transition of Messrs. Chidsey and Wells into their new positions, our ability to operate and grow successfully and our business generally could be harmed.

In addition, the success of our business to date has been, and our continuing success will be, dependent to a large degree on the continued services of our executive officers, including Messrs. Chidsey and Wells; Chief Marketing Officer, Russell Klein; Chief Operations Officer, Jim Hyatt; and other key personnel who have extensive experience in the franchising and food industries. If we lose the services of any of these key personnel and fail to manage a smooth transition to new personnel, our business would suffer.

Incidents of food-borne illnesses or food tampering could materially damage our reputation and reduce our restaurant sales.

Our business is susceptible to the risk of food-borne illnesses (such as e-coli, bovine spongiform encephalopathy or “mad cow’s disease”, hepatitis A, trichinosis or salmonella). We cannot guarantee that our internal controls and training will be fully effective in preventing all food-borne illnesses. Furthermore, our reliance on third-party food suppliers and distributors increases the risk that food-borne illness incidents could be caused by third-party food suppliers and distributors outside of our control and/or multiple locations being affected rather than a single restaurant. New illnesses resistant to any precautions may develop in the future, or diseases with long incubation periods could arise, such as bovine spongiform encephalopathy, that could give rise to claims or allegations on a retroactive basis. Reports in the media of one or more instances of food-borne illness in one of our restaurants or in one of our competitor’s restaurants could negatively affect our restaurant sales, force the closure of some of our restaurants and conceivably have a national or international impact if highly publicized. This risk exists even if it were later determined that the illness had been wrongly attributed to the restaurant. Furthermore, other illnesses, such as foot and mouth disease or avian influenza, could adversely affect the supply of some of our food products and significantly increase our costs.

In addition, our industry has long been subject to the threat of food tampering by suppliers, employees or customers, such as the addition of foreign objects in the food that we sell. Reports, whether or not true, of injuries caused by food tampering have in the past severely injured the reputations of restaurant chains in the quick service restaurant segment and could affect us in the future as well. Instances of food tampering, even those occurring solely at restaurants of our competitors could, by resulting in negative publicity about the restaurant industry, adversely affect our sales on a local, regional, national or system-wide basis. A decrease in customer traffic as a result of these health concerns or negative publicity could materially harm our business, results of operations and financial condition.

Our business is affected by changes in consumer preferences and consumer discretionary spending.

The restaurant industry is affected by consumer preferences and perceptions. If prevailing health or dietary preferences and perceptions cause consumers to avoid our products in favor of alternative or healthier foods, our business could suffer.

Our success depends to a significant extent on discretionary consumer spending, which is influenced by general economic conditions and the availability of discretionary income. Changes in economic conditions affecting our customers could reduce traffic in some or all of our restaurants or limit our ability to raise prices, either of which could have a material adverse effect on our financial condition and results of operations. Accordingly, we may experience declines in sales during economic downturns or periods of prolonged elevated energy prices or due to possible terrorist attacks. Any material decline in the amount of discretionary spending either in the United States or, as we continue to expand internationally, in other countries in which we operate, could have a material adverse effect on our business, results of operations and financial condition.

A substantial number of franchise agreements will expire in the next five years and there can be no assurance that the franchisees can or will renew their franchise agreements with us.

Our franchise agreements typically have a 20-year term, and franchise agreements covering approximately 2,000 restaurants, or approximately 20% of the total number of franchise restaurants, will expire in the next five years. These franchisees may not be willing or able to renew their franchise agreements with us. For example, franchisees may decide not to renew due to low sales volumes or may be unable to renew due to the failure to secure lease renewals. In order for a franchisee to renew its franchise agreement with us, it typically must pay a $50,000 franchise fee, remodel its restaurant to conform to our current standards and, in many cases, renew its property lease with its landlord. The average cost to remodel a stand-alone restaurant in the United States is approximately $230,000 and franchisees generally require additional capital to undertake the required remodeling and pay the franchise fee, which may not be available to the franchisee on acceptable terms or at all.

Over the past two fiscal years and during the nine-month period ended March 31, 2006, we have experienced lower levels of franchisees in the United States renewing their franchise agreements for a standard additional 20-year term than we have historically experienced. In many cases, however, we agreed to extend the existing franchise agreements to avoid the closing of restaurants by giving franchisees additional time to comply with our renewal requirements. In addition, during fiscal 2000 and 2001, we offered an incentive program to franchisees in the United States in which franchisees could renew their franchise agreements prior to expiration and pay reduced royalties for a limited period. Approximately 1,100 restaurants participated in this incentive program. Many of these participants had franchise agreements that would have otherwise expired over the next several years. We believe that this program had a significant impact on our renewal rates in fiscal 2004 and 2005 because franchisees that would otherwise have renewed during those fiscal years had already signed new franchise agreements for a standard additional 20-year term.

During fiscal 2004 and 2005, a total of 333 and 435 franchise agreements, respectively, expired in the United States, including, for each year, an estimated 150 that had expired during previous years but were extended. We expect that approximately 450 franchise agreements will expire in fiscal 2006, including approximately 160 franchise agreements that had expired during previous years but were extended. Of the 333 agreements that expired in fiscal 2004, 53, or 16%, were renewed and 103, or 31%, were extended for periods that ranged from nine months to two years. Of the 435 agreements that expired in fiscal 2005, 168, or 39%, were renewed and 130, or 30%, were extended for periods that also ranged from nine months to two years. Of the approximately 300 agreements that have been processed during the nine-month period ended March 31, 2006, 134, or 45%, were renewed and 88, or 29%, were extended for similar periods. Additionally, 87, 89 and 71 restaurants with expiring franchise agreements closed during fiscal 2004, 2005 and the nine-month period ended March 31, 2006, respectively, or 26%, 20% and 24% of the total number of expiring franchise agreements for such periods, respectively. The balance of the restaurants with

expiring franchise agreements had no agreement in place by the end of the relevant fiscal period, in many cases because franchisees had not completed the renewal documentation, but continued to operate and pay royalty and advertising fund contributions in compliance with the terms of their expired franchise agreements.

We have instituted a program in the United States to allow franchisees to pay the $50,000 franchise fee in installments and delay the required restaurant remodel for up to two years, while providing an incentive to accelerate the completion of the remodel by offering reduced royalties for a limited period. If a substantial number of our franchisees cannot or decide not to renew their franchise agreements with us, then our business, results of operations and financial condition would suffer.

Increases in the cost of food, paper products and energy could harm our profitability and operating results.

The cost of the food and paper products we use depends on a variety of factors, many of which are beyond our control. Food and paper products typically represent approximately 31% of our company restaurant revenues. Fluctuations in weather, supply and demand and economic conditions could adversely affect the cost, availability and quality of some of our critical products, including beef. Our inability to obtain requisite quantities of high-quality ingredients would adversely affect our ability to provide the menu items that are central to our business, and the highly competitive nature of our industry may limit our ability to pass through increased costs to our customers.

We purchase large quantities of beef and our beef costs in the United States represent approximately 19% of our food costs. The market for beef is particularly volatile and is subject to significant price fluctuations due to seasonal shifts, climate conditions, industry demand and other factors. For example, recent demand in beef constrained supply and required us to pay significantly higher prices for the beef we purchased. If the price of beef or other food products that we use in our restaurants increase in the future and we choose not to pass, or cannot pass, these increases on to our customers, our operating margins would decrease.

The recent increase in energy costs in the United States has also adversely affected our business. Energy costs in the United States, principally electricity for lighting restaurants and natural gas for our broilers, have increased 8% to $30 million in fiscal 2005 and typically represent approximately 4% of our cost of sales. We have generally not been able to pass these increased costs on to our customers and continued high energy costs could adversely affect our and our franchisees’ business, results of operation and financial condition.

We rely on distributors of food, beverages and other products that are necessary for our and our franchisees’ operations. If these distributors fail to provide the necessary products in a timely fashion, our business would face supply shortages and our results of operations might be adversely affected.

We and our franchisees are dependent on frequent deliveries of perishable food products that meet our specifications. Five distributors service approximately 84% of our U.S. system and the loss of any one of these distributors would likely adversely affect our business. Moreover, our distributors operate in a competitive and low-margin business environment and, as a result, they often extend favorable credit terms to our franchisees. If certain of our franchisees experience financial distress and do not pay distributors for products bought from them, those distributors’ operations would likely be adversely affected which could jeopardize their ability to continue to supply us and our other franchisees with needed products. Finally, unanticipated demand, problems in production or distribution, disease or food-borne illnesses, inclement weather, further terrorist attacks or other conditions could result in shortages or interruptions in the supply of perishable food products. A disruption in our supply and distribution network as a result of the financial distress of our franchisees or otherwise could result in increased costs to source needed products and could have a severe impact on our and our franchisees’ ability to continue to offer menu items to our customers. Such a disruption could adversely affect our and our franchisees’ business, results of operation and financial condition.

Labor shortages or increases in labor costs could slow our growth or harm our business.

Our success depends in part upon our ability to continue to attract, motivate and retain regional operational and restaurant general managers with the qualifications to succeed in our industry and the motivation to apply our core service philosophy. If we are unable to continue to recruit and retain sufficiently qualified managers or to motivate our employees to achieve sustained high service levels, our business and our growth could be adversely affected. Competition for these employees could require us to pay higher wages which could result in higher labor costs. In addition, increases in the minimum wage or labor regulations could increase our labor costs. For example, the European markets have seen increased minimum wages due to a higher level of regulation. We may be unable to increase our prices in order to pass these increased labor costs on to our customers, in which case our and our franchisees’ margins would be negatively affected.

Our international operations subject us to additional risks and costs and may cause our profitability to decline.

Our restaurants are currently operated, directly by us or by franchisees, in 64 foreign countries and U.S. territories (Guam and Puerto Rico, which are considered part of our international business). During fiscal 2005 and the nine months ended March 31, 2006, our revenues from international operations were approximately $794 million and $600 million, or 41% and 40% of total revenues, respectively. Our financial condition and results of operations may be adversely affected if international markets in which our company and franchise restaurants compete are affected by changes in political, economic or other factors. These factors, over which neither we nor our franchisees have control, may include:


	•	economic recessions;

	•	changing labor conditions and difficulties in staffing and managing our foreign operations;

	•	increases in the taxes we pay and other changes in applicable tax laws;

	•	legal and regulatory changes and the burdens and costs of our compliance with a variety of foreign laws;

	•	changes in inflation rates;

	•	changes in exchange rates;

	•	difficulty in collecting our royalties and longer payment cycles;

	•	expropriation of private enterprises;

	•	political and economic instability and anti-American sentiment; and

	•	other external factors.

These factors may increase in importance as we expect to open additional company and franchise restaurants in international markets as part of our growth strategy.

Our business is subject to fluctuations in foreign currency exchange and interest rates.

Exchange rate fluctuations may affect the translated value of our earnings and cash flow associated with our foreign operations, as well as the translation of net asset or liability positions that are denominated in foreign currencies. In countries outside of the United States where we operate company restaurants, we generate revenues and incur operating expenses and selling, general and administrative expenses denominated in local currencies. In fiscal 2005, operating income in these countries would have decreased or increased $1 million if all foreign currencies uniformly weakened or strengthened 10% relative to the U.S. dollar.

sales that are denominated in the local currency and are converted to U.S. dollars during the month of sales and as a result we bear the foreign currency exposure associated with revenues and expenses in these countries. In fiscal 2005, operating income in these countries would have decreased or increased $3 million if all foreign currencies uniformly weakened or strengthened 10% relative to the U.S. dollar.

Fluctuations in interest rates may also affect our business. We attempt to minimize this risk and lower our overall borrowing costs through the utilization of derivative financial instruments, primarily interest rate swaps. These swaps are entered into with financial institutions and have reset dates and critical terms that match those of the underlying debt. Accordingly, any change in market value associated with interest rate swaps is offset by the opposite market impact on the related debt. We do not attempt to hedge all of our debt and, as a result, may incur higher interest costs for portions of our debt which are not hedged.

We or our franchisees may not be able to renew leases or control rent increases at existing restaurant locations or obtain leases for new restaurants.

Many of our company restaurants are presently located on leased premises. In addition, our franchisees generally lease their restaurant locations. At the end of the term of the lease, we or our franchisees might be forced to find a new location to lease or close the restaurant. If we are able to negotiate a new lease at the existing location or an extension of the existing lease, the rent may increase significantly. Any of these events could adversely affect our profitability or our franchisees’ profitability. Some leases are subject to renewal at fair market value, which could involve substantial rent increases, or are subject to renewal with scheduled rent increases, which could result in rents being above fair market value. We compete with numerous other retailers and restaurants for sites in the highly competitive market for retail real estate and some landlords and developers may exclusively grant locations to our competitors. As a result, we may not be able to obtain new leases or renew existing ones on acceptable terms, which could adversely affect our sales and brand-building initiatives. In the United Kingdom, we have approximately 70 leases for properties that we sublease to franchisees in which the lease term with our landlords are longer than the sublease. As a result, we may be liable for lease obligations if such franchisees do not renew their subleases or if we cannot find substitute tenants.

Current restaurant locations may become unattractive, and attractive new locations may not be available for a reasonable price, if at all.

The success of any restaurant depends in substantial part on its location. There can be no assurance that current locations will continue to be attractive as demographic patterns change. Neighborhood or economic conditions where restaurants are located could decline in the future, thus resulting in potentially reduced sales in these locations. If we or our franchisees cannot obtain desirable locations at reasonable prices, our ability to effect our growth strategy will be adversely affected.

We may not be able to adequately protect our intellectual property, which could harm the value of our brand and branded products and adversely affect our business.

We depend in large part on our brand, which represents 37% of the total assets on our balance sheet, and we believe that it is very important to our success and our competitive position. We rely on a combination of trademarks, copyrights, service marks, trade secrets and similar intellectual property rights to protect our brand and branded products. The success of our business depends on our continued ability to use our existing trademarks and service marks in order to increase brand awareness and further develop our branded products in both domestic and international markets. We have registered certain trademarks and have other trademark registrations pending in the United States and foreign jurisdictions. Not all of the trademarks that we currently use have been registered in all of the countries in which we do business, and they may never be registered in all of these countries. We may not be able to adequately protect our trademarks, and our use of these trademarks may result in liability for trademark infringement, trademark dilution or unfair competition. The steps we have taken to protect our intellectual property in the United States and in foreign countries may not be adequate. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States.

We may from time to time be required to institute litigation to enforce our trademarks or other intellectual property rights, or to protect our trade secrets. Such litigation could result in substantial costs and diversion of resources and could negatively affect our sales, profitability and prospects regardless of whether we are able to successfully enforce our rights.

Our indebtedness under our senior secured credit facility is substantial and could limit our ability to grow our business.

In connection with the refinancing in July 2005 of our and BKC’s existing indebtedness and our February 2006 financing, we incurred a significant amount of indebtedness. As of March 31, 2006, we had total indebtedness under our senior secured credit facility of $1.35 billion. While we expect to pay down some of this indebtedness with the proceeds of this offering, our substantial indebtedness could have important consequences to you.

For example, it could:


	•	increase our vulnerability to general adverse economic and industry conditions;

	•	require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness if we do not maintain specified financial ratios, thereby reducing the availability of our cash flow for other purposes; or

	•	limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, thereby placing us at a competitive disadvantage compared to our competitors that may have less indebtedness.

In addition, our senior secured credit facility permits us to incur substantial additional indebtedness in the future. As of March 31, 2006, we had $108 million available to us for additional borrowing under our $150 million revolving credit facility portion of our senior secured credit facility (net of $42 million in letters of credit issued under the revolving credit facility). We do not currently expect to borrow under our revolving credit facility in the near term unless we incur higher than expected costs in connection with our proposed realignment of our European and Asian businesses. If we increase our indebtedness by borrowing under the revolving credit facility or incur other new indebtedness, the risks described above would increase.

Our senior secured credit facility has restrictive terms and our failure to comply with any of these terms could put us in default, which would have an adverse effect on our business and prospects.

Our senior secured credit facility contains a number of significant covenants. These covenants limit our ability and the ability of our subsidiaries to, among other things:


	•	incur additional indebtedness;

	•	make capital expenditures and other investments above a certain level;

	•	merge, consolidate or dispose of our assets or the capital stock or assets of any subsidiary;

	•	pay dividends, make distributions or redeem capital stock in certain circumstances;

	•	enter into transactions with our affiliates;

	•	grant liens on our assets or the assets of our subsidiaries;

	•	enter into the sale and subsequent lease-back of real property; and

	•	make or repay intercompany loans.

Our senior secured credit facility requires us to maintain specified financial ratios. Our ability to meet these financial ratios and tests can be affected by events beyond our control, and we may not meet those ratios. A breach of any of these restrictive covenants or our inability to comply with the required financial ratios would result in a default under our senior secured credit facility or require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness. If the banks

accelerate amounts owing under our senior secured credit facility because of a default and we are unable to pay such amounts, the banks have the right to foreclose on the stock of BKC and certain of its subsidiaries.

We face risks of litigation and pressure tactics, such as strikes, boycotts and negative publicity from customers, franchisees, suppliers, employees and others, which could divert our financial and management resources and which may negatively impact our financial condition and results of operations.

Class action lawsuits have been filed, and may continue to be filed, against various quick service restaurants alleging, among other things, that quick service restaurants have failed to disclose the health risks associated with high-fat foods and that quick service restaurant marketing practices have targeted children and encouraged obesity. In addition, we face the risk of lawsuits and negative publicity resulting from injuries, including injuries to infants and children, allegedly caused by our products, toys and other promotional items available in our restaurants or our playground equipment.

In addition to decreasing our sales and profitability and diverting our management resources, adverse publicity or a substantial judgment against us could negatively impact our business, results of operations, financial condition and brand reputation, hindering our ability to attract and retain franchisees and grow our business in the United States and internationally.

In addition, activist groups, including animal rights activists and groups acting on behalf of franchisees, the workers who work for our suppliers and others, have in the past, and may in the future, use pressure tactics to generate adverse publicity about us by alleging, for example, inhumane treatment of animals by our suppliers, poor working conditions or unfair purchasing policies. These groups may be able to coordinate their actions with other groups, threaten strikes or boycotts or enlist the support of well-known persons or organizations in order to increase the pressure on us to achieve their stated aims. In the future, these actions or the threat of these actions may force us to change our business practices or pricing policies, which may have a material adverse effect on our business, results of operations and financial condition.

Further, we may be subject to employee, franchisee and other claims in the future based on, among other things, mismanagement of the system, unfair or unequal treatment, discrimination, harassment, wrongful termination and wage, rest break and meal break issues, including those relating to overtime compensation. We have been subject to these types of claims in the past, and if one or more of these claims were to be successful or if there is a significant increase in the number of these claims, our business, results of operations and financial condition could be harmed.

Our failure to comply with existing or increased government regulations or becoming subject to future regulations relating to the products that we sell could adversely affect our business and operating results.

We are currently subject to numerous federal, state, local and foreign laws and regulations, including those relating to:


	•	the preparation and sale of food;

	•	building and zoning requirements;

	•	environmental protection and litter removal;

	•	minimum wage, overtime, immigration and other labor requirements;

	•	the taxation of our business;

	•	compliance with the Americans with Disabilities Act (ADA); and

	•	working and safety conditions.

If we fail to comply with existing or future laws and regulations, we may be subject to governmental or judicial fines or sanctions. In addition, our and our franchisees’ capital expenditures could increase due to remediation measures that may be required if we are found to be noncompliant with any of these laws or regulations.

We are also subject to a Federal Trade Commission rule and to various state and foreign laws that govern the offer and sale of franchises. Additionally, these laws regulate various aspects of the franchise relationship, including terminations and the refusal to renew franchises. The failure to comply with these laws and regulations in any jurisdiction or to obtain required government approvals could result in a ban or temporary suspension on future franchise sales, fines, other penalties or require us to make offers of rescission or restitution, any of which could adversely affect our business and operating results. We could also face lawsuits by our franchisees based upon alleged violations of these laws.

The ADA prohibits discrimination on the basis of disability in public accommodations and employment. We have, in the past, been required to make certain modifications to our restaurants pursuant to the ADA. Although our obligations under those requirements are substantially complete, future mandated modifications to our facilities to make different accommodations for disabled persons could result in material unanticipated expense to us and our franchisees.

In addition, we may become subject to legislation or regulation seeking to tax and/or regulate high-fat and high-sodium foods, particularly in the United States and the United Kingdom. We cannot predict whether we will become subject in the future to these or other regulatory or tax regimes or how burdensome they could be to our business. Any future regulation or taxation of our products or payments from our franchisees could materially adversely affect our business, results of operations and financial condition.

Compliance with or cleanup activities required by environmental laws may hurt our business.

We are subject to various federal, state, local and foreign environmental laws and regulations. These laws and regulations govern, among other things, discharges of pollutants into the air and water as well as the presence, handling, release and disposal of and exposure to, hazardous substances. These laws and regulations provide for significant fines and penalties for noncompliance. If we fail to comply with these laws or regulations, we could be fined or otherwise sanctioned by regulators. Third parties may also make personal injury, property damage or other claims against owners or operators of properties associated with releases of, or actual or alleged exposure to, hazardous substances at, on or from our properties.

Environmental conditions relating to prior, existing or future restaurants or restaurant sites, including franchised sites, may have a material adverse effect on us. Moreover, the adoption of new or more stringent environmental laws or regulations could result in a material environmental liability to us and the current environmental condition of the properties could be harmed by tenants or other third parties or by the condition of land or operations in the vicinity of our properties.

Regulation of genetically modified food products may force us to find alternative sources of supply.

As is the case with many other companies in the restaurant industry, some of our products contain genetically engineered food ingredients. Our U.S. suppliers are not required to label their products as such. Environmental groups, some scientists and consumers, particularly in Europe, are raising questions regarding the potential adverse side effects, long-term risks and uncertainties associated with genetically modified foods. Regulatory agencies in Europe and elsewhere have imposed labeling requirements on genetically modified food products. Increased regulation of and opposition to genetically engineered food products have in the past forced us and may in the future force us to use alternative non-genetically engineered sources at increased costs.

Risks Related to Investing in Our Stock

The price of our common stock may be volatile and you may not be able to sell your shares at or above the initial offering price.

Prior to this offering, there has been no public market for our common stock. An active and liquid public market for our common stock may not develop or be sustained after this offering. The price of our common stock in any such market may be higher or lower than the price you pay. If you purchase shares

of common stock in this offering, you will pay a price that was not established in a competitive market. Rather, you will pay the price that we negotiated with the representatives of the underwriters. Many factors could cause the market price of our common stock to rise and fall, including the following:


	•	variations in our or our competitors’ actual or anticipated operating results;

	•	our or our competitors’ growth rates;

	•	our or our competitors’ introduction of new locations, menu items, concepts, or pricing policies;

	•	recruitment or departure of key personnel;

	•	changes in the estimates of our operating performance or changes in recommendations by any securities analysts that follow our stock;

	•	changes in the conditions in the restaurant industry, the financial markets or the economy as a whole;

	•	substantial sales of our common stock;

	•	announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us; and

	•	changes in accounting principles.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Due to the potential volatility of our stock price, we may therefore be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business.

Our current principal stockholders will continue to own the majority of our voting stock after this offering, which will allow them to control substantially all matters requiring stockholder approval.

Upon the completion of this offering, private equity funds controlled by the sponsors will together beneficially own approximately 77.1% of our outstanding common stock (or 74.3% if the underwriters exercise their option to purchase additional shares). In addition, we expect that six of our thirteen directors following this offering will be representatives of the private equity funds controlled by the sponsors. Following this offering, each sponsor will retain the right to nominate two directors, subject to reduction and elimination as the stock ownership percentage of the private equity funds controlled by the applicable sponsor declines. See “Certain Relationships and Related Transactions— Shareholders’ Agreement”. As a result, these private equity funds will have significant influence over our decision to enter into any corporate transaction and may have the ability to prevent any transaction that requires the approval of stockholders, regardless of whether or not other stockholders believe that such transaction is in their own best interests. Such concentration of voting power could have the effect of delaying, deterring or preventing a change of control or other business combination that might otherwise be beneficial to our stockholders.

We will be a “controlled company” within the meaning of the New York Stock Exchange rules, and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements that provide protection to stockholders of other companies.

After the completion of this offering, the private equity funds controlled by the sponsors will collectively own more than 50% of the total voting power of our common shares and we will be a “controlled company” under the New York Stock Exchange, or NYSE, corporate governance standards. As a controlled company,

we intend to utilize certain exemptions under the NYSE standards that free us from the obligation to comply with certain NYSE corporate governance requirements, including the requirements:


	•	that a majority of our board of directors consists of independent directors;

	•	that we have a nominating and governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

	•	that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

	•	for an annual performance evaluation of the nominating and governance committee and compensation committee.

While our executive and corporate governance committee and our compensation committee have charters that comply with New York Stock Exchange requirements, we are not required to maintain those charters. As a result of our use of the “controlled company” exemptions, you will not have the same protection afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements.

Your percentage ownership in us may be diluted by future issuances of capital stock, which could reduce your influence over matters on which stockholders vote.

Following the completion of this offering, our board of directors has the authority, without action or vote of our stockholders, to issue all or any part of our authorized but unissued shares of common stock, including shares issuable upon the exercise of options, or shares of our authorized but unissued preferred stock. Issuances of common stock or voting preferred stock would reduce your influence over matters on which our stockholders vote, and, in the case of issuances of preferred stock, would likely result in your interest in us being subject to the prior rights of holders of that preferred stock.

The sale of a substantial number of shares of our common stock after this offering may cause the market price of shares of our common stock to decline.

Sales of our common stock by existing investors may begin shortly after the completion of this offering. Sales of a substantial number of shares of our common stock in the public market following this offering, or the perception that these sales could occur, could cause the market price of our common stock to decline. The shares of our common stock outstanding prior to this offering will be eligible for sale in the public market at various times in the future. We, all of our executive officers, directors and holders of substantially all of our common stock and certain of our other officers have agreed, subject to certain exceptions, not to sell any shares of our common stock for a period of 180 days after the date of this prospectus without the prior written consent of J.P. Morgan Securities Inc. Upon expiration of the lock-up period described above, up to approximately 4,859,324 additional shares of common stock may be eligible for sale in the public market without restriction, and up to approximately 106,868,078 shares of common stock held by affiliates may become eligible for sale, subject to the restrictions under Rule 144 under the Securities Act of 1933. In addition, holders of substantially all of our common stock have the right to require us to register their shares. For more information, see “Shares Eligible for Future Sale” and “Certain Relationships and Related Transactions— Shareholders’ Agreement”.

You will incur immediate and substantial dilution in the net tangible book value of your shares.

If you purchase shares in this offering, the value of your shares based on our actual book value will immediately be less than the price you paid. This reduction in the value of your equity is known as dilution. This dilution occurs in large part because our earlier investors paid substantially less than the initial public offering price when they purchased their shares of our common stock. Based upon the issuance and sale of 25,000,000 shares of our common stock by us at an assumed initial public offering price of $16.00 per share, the midpoint of the price range set forth on the cover page of this prospectus,

you will incur immediate dilution of $20.70 in the net tangible book value per share. For more information, see “Dilution”.

Investors will incur additional dilution upon the exercise of outstanding stock options and the settlement of outstanding restricted stock unit awards.

We will incur increased costs as a result of being a public company, which may divert management attention from our business and adversely affect our financial results.

As a public company, we will be subject to a number of additional requirements, including the reporting requirements of the Securities Exchange Act of 1934, as amended, the Sarbanes-Oxley Act of 2002 and the listing standards of the New York Stock Exchange. These requirements might place a strain on our systems and resources. The Securities Exchange Act of 1934 requires, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight will be required. As a result, our management’s attention might be diverted from other business concerns, which could have a material adverse effect on our business, results of operations and financial condition. Furthermore, we might not be able to retain our independent directors or attract new independent directors for our committees.

Provisions in our certificate of incorporation could make it more difficult for a third party to acquire us and could discourage a takeover and adversely affect existing stockholders.

Our certificate of incorporation authorizes our board of directors to issue up to 10,000,000 preferred shares and to determine the powers, preferences, privileges, rights, including voting rights, qualifications, limitations and restrictions on those shares, without any further vote or action by our stockholders. The rights of the holders of our common shares will be subject to, and may be adversely affected by, the rights of the holders of any preferred shares that may be issued in the future. The issuance of preferred shares could have the effect of delaying, deterring or preventing a change in control and could adversely affect the voting power or economic value of your shares. See “Description of Capital Stock— Preferred Stock”.

We currently do not intend to pay dividends on our common stock and consequently, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.

We currently do not plan to pay dividends on shares of our common stock in the near future. The terms of our senior secured credit facility limit our ability to pay cash dividends. Furthermore, if we are in default under this credit facility, our ability to pay cash dividends will be limited in certain circumstances in the absence of a waiver of that default or an amendment to that facility. In addition, because we are a holding company, our ability to pay cash dividends on shares of our common stock may be limited by restrictions on our ability to obtain sufficient funds through dividends from our subsidiaries. Consequently, your only opportunity to achieve a return on your investment in our company will be if the market price of our common stock appreciates.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made statements under the captions “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and in other sections of this prospectus that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, based on our growth strategies and anticipated trends in our business.

These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. In particular, you should consider the factors listed below and the numerous risks outlined under “Risk Factors.”

These factors include, but are not limited to, 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 related to price discounting;

	•	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 manage a smooth transition of our new CEO and CFO and our ability to retain or replace our executive officers and other key members of management with qualified personnel;

	•	Changes in consumer perceptions of dietary health and food safety;

	•	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;

	•	Interruptions in the supply of necessary products to us;

	•	Risks related to our international operations;


	•	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. Other sections of this prospectus may include additional 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 are under no duty to update any of these forward-looking statements after the date of this prospectus to conform our prior statements to actual results or revised expectations.

USE OF PROCEEDS

We will receive net proceeds from this offering of approximately $374 million assuming an initial public offering price of $16.00 per share, the midpoint of the range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses. A $1.00 increase (decrease) in the assumed initial public offering price of $16.00 per share would increase (decrease) the net proceeds to us from this offering by $24 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We expect to use almost all of the net proceeds to repay $350 million in outstanding amounts under the term loan A and the term loan B-1 of our senior secured credit facility that were incurred to finance, in large part, the February 2006 dividend of $367 million, which was paid principally to the private equity funds controlled by the sponsors and members of senior management with the balance used for general corporate purposes. As a result, almost all of the proceeds of this offering will not be invested in our business. The interest rate under the senior secured credit facility for term loan A and the revolving credit facility is at our option either (a) the greater of the federal funds effective rate plus 0.50% and the prime rate, which we refer to as ABR, plus a rate not to exceed 0.75%, which varies according to our leverage ratio or (b) LIBOR plus a rate not to exceed 1.75%, which varies according to our leverage ratio. The interest rate for term loan B-1 is at our option either (a) ABR, plus a rate of 0.50% or (b) LIBOR plus 1.50%, in each case so long as our leverage ratio remains at or below certain levels (but in any event not to exceed 0.75%, in the case of ABR loans, and 1.75% in the case of LIBOR loans). The interest rate for term loan A and term loan B-1 was 6.75% and 6.50%, respectively, as of March 31, 2006. The term loan A matures in June 2011 and the term loan B-1 matures in June 2012.

We will not receive any of the net proceeds from any sale of common stock by the selling stockholders pursuant to the option granted by the selling stockholders to the underwriters.

DIVIDEND POLICY

On February 21, 2006, we paid an aggregate cash dividend of $367 million to holders of record of our common stock on February 9, 2006. At the same time, we paid the compensatory make-whole payment of $33 million to holders of our options and restricted stock unit awards, primarily members of senior management. This compensatory make-whole payment was recorded as compensation expense in the third quarter of fiscal 2006.

We currently do not plan to declare further dividends on shares of our common stock in the near future. We expect to retain our future earnings, if any, for use in the operation and expansion of our business. The terms of our senior secured credit facility limit our ability to pay cash dividends in certain circumstances. Furthermore, if we are in default under our credit facility, our ability to pay cash dividends will be limited in the absence of a waiver of that default or an amendment to that facility. In addition, because we are a holding company, our ability to pay cash dividends on shares of our common stock may be limited by restrictions on our ability to obtain sufficient funds through dividends from our subsidiaries, including the restrictions under our senior secured credit facility. For more information on our senior secured credit facility, see “Description of Our Credit Facility”. Subject to the foregoing, the payment of cash dividends in the future, if any, will be at the discretion of our board of directors and will depend upon such factors as earnings levels, capital requirements, our overall financial condition and any other factors deemed relevant by our board of directors.

CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2006:


	•	on a historical basis;

	•	on a pro forma basis to reflect:



	•	the payment of the sponsor management termination fee of $30 million; and


	•	an assumed payment of $125 million in taxes associated with the realignment of our European and Asian businesses; and


	•	on a pro forma as adjusted basis to reflect:



	•	the payment of the sponsor management termination fee of $30 million;


	•	an assumed payment of $125 million in taxes associated with the realignment of our European and Asian businesses; and


	•	the sale by us of 25,000,000 shares of common stock in this offering, assuming an initial public offering price of $16.00 per share, the midpoint of the range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses and application of the net proceeds to us therefrom as described in “Use of Proceeds”.

This table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto appearing elsewhere in this prospectus.


	March 31, 2006 (Unaudited)

							Pro Forma
	Historical			Pro Forma			as Adjusted

Cash and cash equivalents	$	197		$	42		$	66

Short-term debt	$	30		$	30		$	30
Long-term debt		1,317			1,317			967
Capital leases		65			65			65
Stockholders’ equity:
Common stock, $0.01 par value per share, 300,000,000 shares authorized, 132,578,053 shares issued and outstanding as adjusted for this offering⁽¹⁾		1			1			1
Restricted stock units		5			5			5
Additional paid-in capital		146			146			519
Retained earnings		13			(5	)		(5	)
Unearned compensation		(1	)		(1	)		(1	)
Accumulated other comprehensive loss		1			1			1
Treasury stock, at cost		(2	)		(2	)		(2	)

Total stockholders’ equity	$	163		$	145		$	519

Total capitalization⁽²⁾	$	1,575		$	1,557		$	1,581



(1)	Excludes (i) 9,628,913 shares of our common stock issuable upon the exercise of options or the settlement of restricted stock unit awards outstanding as of March 31, 2006, of which options to purchase 1,834,609 shares were exercisable as of March 31, 2006, (ii) 2,589,925 additional shares of our common stock issuable under the Burger King Holdings, Inc. Equity Incentive Plan and (iii) 7,113,442 additional shares of our common stock issuable under the Burger King Holdings, Inc. 2006 Omnibus Incentive Plan. While we have not issued any options to employees or directors since March 31, 2006, we intend to grant approximately 447,884 options, restricted shares or restricted stock units to several employees at the effective time of this offering at the initial public offering price. Shares authorized and outstanding give effect to the increase in authorized shares and the stock split authorized on May 1, 2006.



(2)	A $1.00 increase (decrease) in the assumed initial public offering price of $16.00 per share would increase (decrease) each of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by $24 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share and the historical adjusted net tangible book value per share of common stock upon the consummation of this offering.

Our adjusted net tangible book value as of March 31, 2006 was approximately $(997) million, or approximately $(7.52) per share of common stock, as adjusted to reflect the payment of the sponsor management termination fee of $30 million and an assumed payment of $125 million in taxes associated with the realignment of our European and Asian businesses. The number of shares outstanding excludes (i) 9,628,913 shares of our common stock issuable upon the exercise of options or the settlement of restricted stock unit awards outstanding as of March 31, 2006, of which options to purchase 1,834,609 shares were exercisable as of March 31, 2006, (ii) 2,589,925 additional shares of our common stock issuable under the Burger King Holdings, Inc. Equity Incentive Plan and (iii) 7,113,442 additional shares of our common stock issuable under the Burger King Holdings, Inc. 2006 Omnibus Incentive Plan. Adjusted net tangible book value per share is determined by dividing our tangible net worth, total tangible assets less total liabilities, by the aggregate number of shares of common stock outstanding. Our adjusted net tangible book value at March 31, 2006 excludes the book value of our intangible assets totaling $996 million, of which $900 million related to the book value of our brand. After giving effect to the sale by us of the 25,000,000 shares of common stock in this offering, at an assumed initial public offering price of $16.00 per share, the midpoint of the range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses and the receipt and application of the net proceeds, our pro forma net tangible book value as of March 31, 2006 would have been approximately $(623) million, or approximately $(4.70) per share. This represents an immediate increase in pro forma net tangible book value to existing stockholders of $2.82 per share and an immediate dilution to new investors of $20.70 per share. The following table illustrates this per share dilution:


Assumed initial public offering price per share		$	16.00
	Adjusted net tangible book value per share as of March 31, 2006 (excluding this offering)		(7.52	)
	Increase in net tangible book value per share attributable to new investors		2.82
Pro forma net tangible book value per share after offering			(4.70	)

Dilution per share to new investors		$	20.70

A $1.00 increase (decrease) in the assumed initial public offering price of $16.00 per share would increase (decrease) our pro forma net tangible book value by $24 million, the pro forma net tangible book value per share after this offering by $0.18 and the dilution per share to new investors by $0.18, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The following table summarizes as of March 31, 2006 the number of shares of our common stock purchased from us, the total consideration paid to us, and the average price per share paid to us by our existing stockholders and to be paid by holders of vested options exercisable as of March 31, 2006, and to be paid by new investors purchasing shares of our common stock in this offering, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The table assumes an initial public offering price of $16.00 per share, as specified above:


		Shares Purchased					Total Consideration					Average
												Price Per
		Number		Percentage			Amount		Percentage			Share

Existing stockholders⁽¹⁾			107,578,053		80.0	%	$	84,000,000		17.1	%	$	0.78
Vested options exercisable			1,834,609		1.4	%		8,486,900		1.7	%		4.63

New investors			25,000,000		18.6	%	$	400,000,000		81.2	%	$	16.00

	Total		134,412,662		100.0	%	$	492,486,900		100.0	%	$	3.66


(1)	Total consideration and average price per share paid by existing stockholders gives effect to the $367 million February 2006 dividend.

The number of shares outstanding excludes (i) 9,628,913 shares of our common stock issuable upon the exercise of options or the settlement of restricted stock unit awards outstanding as of March 31, 2006, of which options to purchase 1,834,609 shares were exercisable as of March 31, 2006, (ii) 2,589,925 additional shares of our common stock issuable under the Burger King Holdings, Inc. Equity Incentive Plan and (iii) 7,113,442 additional shares of our common stock issuable under the Burger King Holdings, Inc. 2006 Omnibus Incentive Plan. Based on an estimated initial public offering price of $16.00, the fair value of the options outstanding at March 31, 2006 was $83 million, of which $20 million related to vested options and $63 million related to unvested options. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Newly Issued Accounting Standards” for a discussion of the determination of the fair value of vested and unvested options.

If these outstanding options are exercised, new investors will experience further dilution.

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

On December 13, 2002, we acquired BKC through private equity funds controlled by the sponsors. In this prospectus, unless the context otherwise requires, all references to “we”, “us” and “our” refer to Burger King Holdings, Inc. and its subsidiaries, including BKC, for all periods subsequent to our December 13, 2002 acquisition of BKC. All references to our “predecessor” refer to BKC and its subsidiaries for all periods prior to the acquisition, which operated under a different ownership and capital structure. In addition, the acquisition was accounted for under the purchase method of accounting and resulted in purchase accounting allocations that affect the comparability of results of operations between periods before and after the acquisition.

The following tables present selected consolidated financial and other data for us and our predecessor for each of the periods indicated. The selected historical financial data for our predecessor as of June 30, 2001 and 2002 and for the fiscal years ended June 30, 2001 and 2002 have been derived from the audited consolidated financial statements and notes thereto of our predecessor, which are not included herein. The selected historical financial data for our predecessor for the period July 1, 2002 to December 12, 2002 have been derived from the audited consolidated financial statements and notes thereto of our predecessor for that period included herein.

The selected historical financial data as of June 30, 2004 and 2005 and for the period December 13, 2002 to June 30, 2003, and for the fiscal years ended June 30, 2004 and 2005 have been derived from our audited financial statements and the notes thereto included herein. The combined financial data for the combined fiscal year ended June 30, 2003 have been derived from the audited consolidated financial statements and notes thereto of our predecessor and us, but have not been audited on a combined basis, do not comply with generally accepted accounting principles and are not intended to represent what our operating results would have been if the acquisition of BKC had occurred at the beginning of the period. The selected consolidated balance sheet data as of June 30, 2003 have been derived from our audited consolidated balance sheet and the notes thereto, which are not included herein. The selected historical financial data as of March 31, 2005 and 2006 and for the nine months ended March 31, 2005 and 2006 have been derived from our unaudited consolidated financial statements and the notes thereto included herein. The other operating data for the fiscal years ended June 30, 2001 and 2002, and for the period July 1, 2002 to December 12, 2002 have been derived from the internal records of our predecessor. The other operating data for the period December 13, 2002 to June 30, 2003, for the fiscal years ended June 30, 2004 and 2005 and for the nine months ended March 31, 2005 and 2006 have been derived from our internal records.

The selected consolidated financial and other operating data presented below contain all normal recurring adjustments that, in the opinion of management, are necessary to present fairly our financial position and results of operations as of and for the periods presented. The selected historical consolidated financial and other operating data included below and elsewhere in this prospectus are not necessarily indicative of future results. The information presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited consolidated financial statements and related notes and other financial information appearing elsewhere in this prospectus.


											Burger King
		Predecessor									Holdings, Inc.						Burger King Holdings, Inc.

		For the						For the			For the			Combined			For the				For the
		Fiscal Year						Period from			Period from			Twelve			Fiscal Year				Nine Months
		Ended						July 1,			December 13,			Months			Ended				Ended
		June 30,						2002 to			2002 to			Ended			June 30,				March 31,
								December 12,			June 30,			June 30,
		2001			2002			2002			2003			2003			2004		2005		2005		2006

		(In millions, except per share data)
Income Statement Data:
Revenues:
	Company restaurant revenues	$	1,019		$	1,130		$	526		$	648		$	1,174		$	1,276	$	1,407	$	1,043	$	1,122
	Franchise revenues		395			392			170			198			368			361		413		306		309
	Property revenues		127			124			55			60			115			117		120		88		84

Total revenues		$	1,541		$	1,646		$	751		$	906		$	1,657		$	1,754	$	1,940	$	1,437	$	1,515
Company restaurant expenses:
	Food, paper and product costs		330			354			162			197			359			391		437		322		351
	Payroll and employee benefits		298			335			157			192			349			382		415		308		330
	Occupancy and other operating costs		266			298			146			168			314			314		343		256		280

Total company restaurant expenses		$	894		$	987		$	465		$	557		$	1,022		$	1,087	$	1,195	$	886	$	961
Selling, general and administrative expenses(1)			400			429			225			253			478			482		496		363		361
Property expenses			59			58			27			28			55			58		64		43		42
Impairment of goodwill(2)			43			5			875			—			875			—		—		—		—
Other operating expenses (income), net(2)			114			45			39			(7	)		32			54		34		18		(5	)

Total operating costs and expenses		$	1,510		$	1,524		$	1,631		$	831		$	2,462		$	1,681	$	1,789	$	1,310	$	1,359
Income (loss) from operations			31			122			(880	)		75			(805	)		73		151		127		156
Interest expense, net			48			105			46			35			81			64		73		53		53
Loss on early extinguishment of debt			—			—			—			—			—			—		—		—		14

(Loss) income before income taxes		$	(17	)	$	17		$	(926	)	$	40		$	(886	)	$	9	$	78	$	74	$	89
Income tax expense (benefit)			21			54			(34	)		16			(18	)		4		31		29		52

Net (loss) income		$	(38	)	$	(37	)	$	(892	)	$	24		$	(868	)	$	5	$	47	$	45	$	37

Burger King

Predecessor

Holdings, Inc.

Burger King Holdings, Inc.

For the

Combined

For the

Fiscal Year

Period from

Twelve

Fiscal Year

Nine Months

Ended

July 1,

December 13,

Months

Ended

June 30,

2002 to

Ended

June 30,

March 31,

December 12,

June 30,

2001

2002

2003

2004

2005

2006

(In millions, except per share data)

Per common share:

Net income basic

0.23

0.05

0.44

0.42

0.35

Net income diluted

0.23

0.05

0.44

0.42

0.33

Pro forma net income, basic(3)

0.37

0.29

Pro forma net income, diluted(3)

0.37

0.28

Adjusted pro forma net income, basic(4)

0.22

0.11

0.45

0.41

0.35

Adjusted pro forma net income, diluted(4)

0.22

0.11

0.44

0.41

0.34

Shares outstanding, basic

105

106

107

Shares outstanding, diluted

105

106

107

111

* Not meaningful


										Burger King
	Predecessor									Holdings, Inc.						Burger King Holdings, Inc.

	For the						For the			For the			Combined			For the						For the
	Fiscal Year						Period from			Period from			Twelve			Fiscal Year						Nine Months
	Ended						July 1,			December 13,			Months			Ended						Ended
	June 30,						2002 to			2002 to			Ended			June 30,						March 31,
							December 12,			June 30,			June 30,
	2001			2002			2002			2003			2003			2004			2005			2005			2006

	(In millions, except per share data)
Other Financial Data:
Cash provided by operating activities	$	324		$	212		$	1		$	81		$	82		$	199		$	218		$	151		$	21
Cash provided by (used for) investing activities		(271	)		(349	)		(102	)		(485	)		(587	)		(184	)		(5	)		(243	)		(42	)
Cash provided by (used for) financing activities		(52	)		155			112			607			719			3			(2	)		(1	)		(214	)
Capital expenditures		199			325			95			47			142			81			93			51			48
EBITDA(2)(5)	$	182		$	283		$	(837	)	$	118		$	(719	)	$	136		$	225		$	180		$	219


	Predecessor				Burger King Holdings, Inc.

	As of June 30,				As of June 30,						As of March 31,

	2001		2002		2003		2004		2005		2005		2006

	(In millions)
Balance Sheet Data:
Cash and cash equivalents	$	36	$	54	$	203	$	221	$	432	$	415	$	197
Total assets		3,237		3,329		2,458		2,665		2,723		2,714		2,466
Total debt and capital lease obligations		1,120		1,323		1,251		1,294		1,339		1,310		1,412
Total liabilities		2,193		2,186		2,026		2,241		2,246		2,238		2,303
Total stockholders’ equity	$	1,044	$	1,143	$	432	$	424	$	477	$	476	$	163


							Burger King Holdings, Inc.

				Combined			For the						For the
				Twelve			Fiscal Year						Nine Months
				Months			Ended						Ended
				Ended			June 30,						March 31,
				June 30,
				2003			2004			2005			2005			2006

				(In constant currencies)
Other System-Wide Operating Data:
Comparable sales growth(6)(7)					(5.9	)%		1.0	%		5.6	%		7.0	%		2.0	%
Average restaurant sales (in thousands)(6)				$	972		$	994		$	1,066		$	791		$	814
System-wide sales growth(6)					(4.7	)%		1.2	%		6.1	%		7.9	%		1.9	%
Company restaurants:
	United States and Canada				735			759			844			818			877
	EMEA/ APAC(8)				280			277			283			276			286
	Latin America(9)				46			51			60			54			64

		Total company restaurants			1,061			1,087			1,187			1,148			1,227
Franchise restaurants:
	United States and Canada				7,529			7,217			6,876			6,999			6,712
	EMEA/ APAC(8)				2,179			2,308			2,373			2,326			2,449
	Latin America(9)				566			615			668			649			721

		Total franchise restaurants			10,274			10,140			9,917			9,974			9,882

			Total restaurants		11,335			11,227			11,104			11,122			11,109

Segment Data:
Operating income (in millions):
	United States and Canada			$	(551	)	$	115		$	255		$	193		$	219
	EMEA/ APAC(8)				(143	)		95			36			36			51
	Latin America(9)				22			26			25			19			22
	Unallocated(10)				(133	)		(163	)		(165	)		(121	)		(136	)

		Total operating income		$	(805	)	$	73		$	151		$	127		$	156

Company Restaurant Revenues (in millions):
	United States and Canada			$	768		$	802		$	923		$	678		$	761
	EMEA/ APAC(8)				363			429			435			329			319
	Latin America(9)				43			45			49			36			42

		Total company restaurant revenues		$	1,174		$	1,276		$	1,407		$	1,043		$	1,122

Company Restaurant Margin:
	United States and Canada				12.1	%		11.3	%		14.2	%		13.9	%		13.6	%
	EMEA/ APAC(8)				12.4	%		18.9	%		15.2	%		15.7	%		14.1	%
	Latin America(9)				32.6	%		37.8	%		30.6	%		30.5	%		28.6	%
	Total company restaurant margin				12.9	%		14.8	%		15.1	%		15.0	%		14.3	%
Franchise Revenues (in millions):
	United States and Canada			$	261		$	234		$	269		$	201		$	197
	EMEA/ APAC(8)				84			102			114			84			87
	Latin America(9)				23			25			30			21			25

		Total franchise revenues		$	368		$	361		$	413		$	306		$	309

Franchise sales (in millions)(11)				$	9,812		$	10,055		$	10,817		$	9,056		$	8,106


	(1)	Selling, general and administrative expenses included $73 million and $72 million of intangible asset amortization in the fiscal years ended June 30, 2001 and 2002, respectively. Selling, general and administrative expenses also included $14 million and $7 million of fees paid to Diageo plc in the fiscal years ended June 30, 2001 and 2002, respectively.

	(2)	In connection with our acquisition of BKC, our predecessor recorded $35 million of intangible asset impairment charges within other operating expenses (income), net and goodwill impairment charges of $875 million during the period from July 1, 2002 to December 12, 2002.


	(3)	Pro forma net income, basic and diluted, per share for the year ended June 30, 2005 and nine months ended March 31, 2006 has been computed to give effect to the number of shares to be sold in this offering that would have been necessary to pay the portion of the February 2006 dividend of $367 million in excess of current period earnings.



	(4)	Amounts in calculation as compared to basic and diluted earnings per share adjusted as follows: (a) net income adjusted for reduction in interest expense at the weighted average interest rate during the period multiplied by the net proceeds from this offering, and (b) weighted average shares during the period increased by the 25,000,000 shares issued in this offering.



	(5)	EBITDA is defined as net income before interest, taxes, depreciation and amortization, and is used by management to measure operating performance of the business. Management believes that EBITDA incorporates certain operating drivers of our business such as sales growth, operating costs, 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 us to calculate incentive compensation for management and corporate-level employees. Further, management believes that EBITDA is a useful measure as it improves comparability of predecessor and successor results of operations, as purchase accounting renders depreciation and amortization non-comparable between predecessor and successor periods. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Factors Affecting Comparability of Results— Purchase Accounting”.


	While EBITDA is not a recognized measure under generally accepted accounting principles, we believe EBITDA is useful to investors because it is frequently used by security analysts, investors and other interested parties to evaluate companies in our industry and us. EBITDA is not intended to be a measure of liquidity or cash flows from operations nor a measure comparable to net income as it does not consider certain requirements such as capital expenditures and related depreciation, principal and interest payments and tax payments.

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


										Burger King
	Predecessor									Holdings, Inc.					Burger King Holdings, Inc.

	For the						For the			For the		Combined			For the				For the
	Fiscal Year						Period from			Period from		Twelve			Fiscal Year				Nine Months
	Ended						July 1,			December 13,		Months			Ended				Ended
	June 30,						2002 to			2002 to		Ended			June 30,				March 31,
							December 12,			June 30,		June 30,
	2001			2002			2002			2003		2003			2004		2005		2005		2006

	(In millions)
Net (loss) income	$	(38	)	$	(37	)	$	(892	)	$	24	$	(868	)	$	5	$	47	$	45	$	37
Interest expense, net(12)		48			105			46			35		81			64		73		53		67
Income tax expense (benefit)		21			54			(34	)		16		(18	)		4		31		29		52

Income (loss) from operations	$	31		$	122		$	(880	)	$	75	$	(805	)	$	73	$	151	$	127	$	156
Depreciation and amortization		151			161			43			43		86			63		74		53		63

EBITDA	$	182		$	283		$	(837	)	$	118	$	(719	)	$	136	$	225	$	180	$	219


	This presentation of EBITDA may not be directly comparable to similarly titled measures of other companies, since not all companies use identical calculations.



	(6)	These are our key business measures, which are analyzed on a constant currency basis, which means they are calculated using the same exchange rate 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 trend, without distortion from the effect of foreign currency movements. System-wide sales growth includes sales at company restaurants and franchise restaurants. We do not record franchise restaurant sales as revenues. However, our royalty revenues are calculated based on a percentage of franchise restaurant sales. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Key Business Measures”.



	(7)	Comparable sales growth refers to the change in restaurant sales in one period from a comparable period for restaurants that have been open for thirteen months or longer. Comparable sales growth includes sales at company restaurants and franchise restaurants. We do not record franchise restaurant sales as revenues. However, our royalty revenues are calculated based on a percentage of franchise restaurant sales.



	(8)	Refers to our operations in Europe, the Middle East, Africa, Asia, Australia and Guam.


	(9)	Refers to our operations in Mexico, Central and South America, the Caribbean and Puerto Rico.



(10)	Unallocated includes corporate support costs in areas such as facilities, finance, human resources, information technology, legal, marketing and supply chain management.



(11)	Franchise sales represent sales at franchise restaurants and revenue to our franchisees. We do not record franchise restaurant sales as revenues. However, our royalty revenues are calculated based on a percentage of franchise restaurant sales.



(12)	Includes $14 million recorded as a loss on early extinguishment of debt in connection with our July 2005 and February 2006 refinancings.

Burger King Holdings, Inc. and Subsidiaries Restaurant Count Analysis

The following tables present information relating to the analysis of our restaurants for the geographic areas and periods indicated.


	*Worldwide*


		Company			Franchise			Total

Beginning Balance July 1, 2002			1,014			10,441			11,455
	Openings		31			314			345
	Closings		(13	)		(452	)		(465	)
	Acquisitions, net of refranchisings		29			(29	)		—

Ending Balance June 30, 2003			1,061			10,274			11,335

	Openings		29			275			304
	Closings		(20	)		(392	)		(412	)
	Acquisitions, net of refranchisings		17			(17	)		—

Ending Balance June 30, 2004			1,087			10,140			11,227

	Openings		63			251			314
	Closings		(23	)		(414	)		(437	)
	Acquisitions, net of refranchisings		60			(60	)		—

Ending Balance June 30, 2005			1,187			9,917			11,104

	Openings		14			217			231
	Closings		(13	)		(213	)		(226	)
	Acquisitions, net of refranchisings		39			(39	)		—

Ending Balance March 31, 2006			1,227			9,882			11,109


	*USA and Canada*


		Company			Franchise			Total

Beginning Balance July 1, 2002			706			7,810			8,516
	Openings		11			88			99
	Closings		(11	)		(340	)		(351	)
	Acquisitions, net of refranchisings		29			(29	)		—

Ending Balance June 30, 2003			735			7,529			8,264

	Openings		3			43			46
	Closings		(16	)		(318	)		(334	)
	Acquisitions, net of refranchisings		37			(37	)		—

Ending Balance June 30, 2004			759			7,217			7,976

	Openings		33			21			54
	Closings		(9	)		(301	)		(310	)
	Acquisitions, net of refranchisings		61			(61	)		—

Ending Balance June 30, 2005			844			6,876			7,720

	Openings		2			35			37
	Closings		(9	)		(159	)		(168	)
	Acquisitions, net of refranchisings		40			(40	)		—

Ending Balance March 31, 2006			877			6,712			7,589


	*EMEA/ APAC*


		Company			Franchise			Total

Beginning Balance July 1, 2002			268			2,095			2,363
	Openings		14			177			191
	Closings		(2	)		(93	)		(95	)
	Acquisitions, net of refranchisings		—			—			—

Ending Balance June 30, 2003			280			2,179			2,459

	Openings		21			177			198
	Closings		(4	)		(68	)		(72	)
	Acquisitions, net of refranchisings		(20	)		20			—

Ending Balance June 30, 2004			277			2,308			2,585

	Openings		21			165			186
	Closings		(14	)		(101	)		(115	)
	Acquisitions, net of refranchisings		(1	)		1			—

Ending Balance June 30, 2005			283			2,373			2,656

	Openings		8			125			133
	Closings		(4	)		(50	)		(54	)
	Acquisitions, net of refranchisings		(1	)		1			—

Ending Balance March 31, 2006			286			2,449			2,735


	*Latin America*


		Company		Franchise			Total

Beginning Balance July 1, 2002			40		536			576
	Openings		6		49			55
	Closings		—		(19	)		(19	)
	Acquisitions, net of refranchisings		—		—			—

Ending Balance June 30, 2003			46		566			612

	Openings		5		55			60
	Closings		—		(6	)		(6	)
	Acquisitions, net of refranchisings		—		—			—

Ending Balance June 30, 2004			51		615			666

	Openings		9		65			74
	Closings		—		(12	)		(12	)
	Acquisitions, net of refranchisings		—		—			—

Ending Balance June 30, 2005			60		668			728

	Openings		4		57			61
	Closings		—		(4	)		(4	)
	Acquisitions, net of refranchisings		—		—			—

Ending Balance March 31, 2006			64		721			785

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with “Selected Consolidated Financial and Other Data” and our audited and unaudited consolidated financial statements and the notes thereto included elsewhere in this prospectus. 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 under “Risk Factors”, “Special Note Regarding Forward-Looking Statements” and elsewhere in this prospectus.

All references to fiscal 2003 in this section are to the twelve months ended June 30, 2003, derived by adding the audited results of operations of our predecessor from July 1, 2002 through December 12, 2002 to the audited results of our operations from December 13, 2002 through June 30, 2003. The combined financial data for fiscal 2003 have not been audited on a combined basis, do not comply with generally accepted accounting principles and are not intended to represent what our operating results would have been if the acquisition of BKC had occurred at the beginning of the period because the periods being combined are under two different bases of accounting as a result of our acquisition of BKC on December 13, 2002. See “Factors Affecting Comparability of Results— Purchase Accounting.” References to fiscal 2004, fiscal 2005 and fiscal 2006 in this section are to the fiscal years ended June 30, 2004, 2005 and 2006, respectively.

Overview

We are the second largest fast food hamburger restaurant, or FFHR, chain in the world as measured by the number of restaurants and system-wide sales. As of March 31, 2006, we owned or franchised a total of 11,109 restaurants in 65 countries and U.S. territories, of which 7,589 were located in the United States and Canada. At that date, 1,227 restaurants were company-owned and 9,882 were owned by our franchisees. We operate in the FFHR category of the quick service restaurant, or QSR, segment of the restaurant industry. 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: the United States and Canada; Europe, Middle East, Africa and Asia Pacific, or EMEA/ APAC; and Latin America. United States and Canada is our largest segment and comprised 66% of total revenues and 81% of operating income, excluding unallocated corporate general and administrative expenses, in fiscal 2005. EMEA/ APAC comprised 30% of total revenues and 11% of operating income, excluding unallocated corporate general and administrative expenses, and Latin America comprised the remaining 4% of revenues and 8% of operating income, excluding unallocated corporate general and administrative expenses, in fiscal 2005.

We generate revenue from three sources:


	•	sales at our company restaurants;

	•	royalties and franchise fees paid to us by our franchisees; and

	•	property income from restaurants that we lease or sublease to franchisees.

We refer to sales generated at our company restaurants and franchise restaurants as system-wide sales. In fiscal 2005, franchise restaurants generated approximately 90% of system-wide sales. Royalties paid by franchisees are based on a percentage of franchise restaurant sales and are recorded as franchise revenues. Franchise fees and franchise renewal fees are recorded as revenues in the year received. In fiscal 2005, company restaurant and franchise revenues represented 73% and 21% of total revenues, respectively. The remaining 6% of total revenues was derived from property income.

We have a higher percentage of franchise restaurants to company restaurants than our major competitors in the fast food hamburger restaurant category. We believe that this restaurant ownership mix provides us with a strategic advantage because the capital required to grow and maintain our system is

funded primarily by franchisees while giving us a sizable base of company restaurants to demonstrate credibility with our franchisees in launching new initiatives. As a result of the high percentage of franchise restaurants in our system, we have lower capital requirements compared to our major competitors. Moreover, due to the steps that we have taken to improve the health of our franchise system in the United States and Canada, we expect that this mix will produce more stable earnings and cash flow in the future. However, our franchisee dominated business model also presents a number of drawbacks, such as our limited control over franchisees and limited ability to facilitate changes in restaurant ownership.

At the time of our December 2002 acquisition of BKC from Diageo plc, we faced significant challenges, including declining average restaurant sales, low restaurant profitability, shrinking U.S. restaurant count, financial distress in our franchise system in the United States and Canada, menu and marketing strategies that did not resonate with customers, relationships with our franchisees that were strained and poor service in many of our restaurants. We also experienced significant senior management turnover after the acquisition. These factors led to disappointing financial performance for the remainder of fiscal 2003 and fiscal 2004.

Our management team has implemented a number of strategic initiatives to stabilize and improve overall operations and financial performance. These strategic initiatives included:


	•	launching an award-winning advertising and promotion program focused on our core customers (consumers who reported eating at a fast food hamburger outlet nine or more times in a month);

	•	implementing a new product development process aimed at improving our menu and generating a pipeline of new products;


	•	improving restaurant operations, including interior cleanliness, food temperature and speed of service, through our operational excellence programs, as measured by third-party vendors and our employees;



	•	improving our communication and relationships with our franchisees;



	•	providing assistance to franchisees in the United States and Canada that were in financial distress primarily due to over-leverage through our Franchisee Financial Restructuring Program, or the FFRP program;


	•	integrating our domestic and international operations and support functions to provide the foundation on which to operate as a global brand by aligning core business functions such as marketing, operations, and finance and standardizing menu design, product development, and standards for customer service;

	•	expanding our international presence and entering new international markets;

	•	improving restaurant profitability by introducing cost reduction and profit improvement programs for our franchisees in the United States through arrangements with strategic vendors; and

	•	developing a new, smaller restaurant design to make Burger King a more attractive investment to existing and potential franchisees by reducing the non-real estate costs associated with building a new restaurant. The current average non-real estate costs associated with building a new restaurant using that design have decreased approximately 25% from approximately $1.2 million using the prior design to approximately $900,000. These savings are partially due to a smaller restaurant design, which is primarily driven by a change in consumer preference from dine-in to drive-thru (60% of U.S. system-wide sales are currently made at the drive-thru).

Our achievements to date include:


	•	eight consecutive quarters of positive comparable sales growth in the United States as compared to negative comparable sales growth in the previous seven consecutive quarters, our best comparable sales growth in a decade;


	•	an 11% increase in average restaurant sales in the United States over the past two fiscal years and continued growth in the first nine months of fiscal 2006;


	•	a significant reduction in the number of franchise restaurants in the United States and Canada in the FFRP program, which declined from over 2,540 in August 2003 to approximately 125 as of March 31, 2006, demonstrating the improved financial health of our franchise system accomplished primarily through franchisee financial restructurings, as well as the closing of approximately 400 restaurants participating in the FFRP program and our acquisition of approximately 150 franchise restaurants;


	•	a significantly improved collection rate of franchisee royalty and advertising contribution payments (defined as collections divided by billings on a one-month trailing basis) from 91% during the six months ended June 30, 2003 and fiscal 2004 to 100% in fiscal 2005 and the first nine months of fiscal 2006; and

	•	increasing net income from $5 million in fiscal 2004 to $47 million in fiscal 2005, with EBITDA increasing 65%, from $136 million in fiscal 2004 to $225 million in fiscal 2005. Net income decreased from $45 million in the first nine months of fiscal 2005 to $37 million (including a $14 million pre-tax debt extinguishment charge and the $33 million pre-tax compensatory make-whole payment) in the first nine months of fiscal 2006. EBITDA increased 22%, from $180 million to $219 million over the same nine-month period. See Note 3 to the Selected Consolidated Financial and Other Data for a definition of EBITDA, its calculation and a description of its usefulness to management.

Our Business


	*Revenues*

System-wide revenues are heavily influenced by brand advertising, menu selection and initiatives to improve restaurant operations. Company restaurant revenues are affected by comparable sales, timing of company restaurant openings and closings, acquisitions by us of franchise restaurants and sales of company restaurants to franchisees. Royalties are paid to us based on a percentage of franchise restaurant sales, while franchise fees are paid upon the opening of a new franchise restaurant, or the renewal of an existing franchise agreement. Our property revenues represent income we earn under leasing and subleasing arrangements with our franchisees. Royalties, franchise fees and property revenues from franchisees are affected primarily by sales at franchise restaurants, the timing of franchise restaurant openings and closings and the financial strength and stability of the franchise system.


	*Costs and Expenses*

Company restaurants incur three types of operating expenses:


	•	food, paper and other product costs, which represent the costs of the food and beverages that we sell to consumers in company restaurants;

	•	payroll and employee benefits costs, which represent the wages paid to company restaurant managers and staff, as well as the cost of their health insurance, other benefits and training; and

	•	occupancy and other operating costs, which represent all other direct costs of operating our company restaurants, including the cost of rent or real estate depreciation (for restaurant properties owned by us), depreciation on equipment, repairs and maintenance, insurance, restaurant supplies, and utilities.

As average restaurant sales increase, we can leverage payroll and employee benefits costs and occupancy and other costs, resulting in a direct improvement in restaurant profitability. As a result, we believe our continued focus on increasing average restaurant sales will result in improved profitability to our system-wide restaurants.

Our general and administrative expenses include the costs of field management for company and franchise restaurants, costs of our operational excellence programs (including program staffing, training and Clean & Safe certifications), and corporate overhead, including corporate salaries and facilities. We believe that our current staffing and structure will allow us to expand our business globally without increasing general and administrative expenses significantly. Our selling expenses are comprised of advertising and bad debt expenses. Selling, general and administrative expenses also include amortization of intangible assets and management fees paid to the sponsors under our management agreement with them.

Property expenses include costs of depreciation and rent on properties we lease and sublease to franchisees, respectively.

Items classified as other operating expenses, net include gains and losses on asset and business disposals, impairment charges, settlement losses recorded in connection with acquisitions of franchise operations, gains and losses on foreign currency transactions and other miscellaneous items.


	*Advertising Funds*

We promote our brand and products by advertising in all the countries and territories in which we operate. In countries where we have company restaurants, such as the United States, Canada, the United Kingdom and Germany, we manage an advertising fund for that country by collecting required advertising contributions from company and franchise restaurants and purchasing advertising and other marketing initiatives on behalf of all Burger King restaurants in that country. These advertising contributions are based on a percentage of sales at company and franchise restaurants. We do not record advertising contributions collected from franchisees as revenues or expenditures of these contributions as expenses. Amounts which are contributed to the advertising funds by company restaurants are recorded as selling expenses. In countries where we manage an advertising fund, we plan the marketing calendar in advance based on expected contributions for that year into the fund. To the extent that contributions received exceed advertising and promotional expenditures, the excess contributions are recorded as accrued advertising liability on our consolidated balance sheets. If franchisees fail to make the expected contributions, we may not be able to continue with our marketing plan for that year unless we make additional contributions into the fund. These additional contributions are also recorded as selling expenses. In fiscal 2005, we made $15 million in additional contributions and we made no significant payments in the first nine months of fiscal 2006.

Key Business Measures

We track our results of operations and manage our business by using three key business measures, comparable sales growth, average restaurant sales and system-wide sales growth. These measures are analyzed on a constant currency basis, which means they are calculated using the same exchange rate 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 trend, 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 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									Nine Months
		Fiscal Year Ended									Ended
		June 30,									March 31,

		2003			2004			2005			2005			2006

		(In constant currencies)
Comparable Sales Growth:
United States and Canada			(7.0	)%		(0.5	)%		6.6	%		8.5	%		2.7	%
EMEA/ APAC			(3.4	)		5.4			2.8			2.9			0.2
Latin America			3.6			4.0			5.5			6.7			1.5
	Total System-Wide		(5.9	)%		1.0%			5.6	%		7.0	%		2.0	%

Our fiscal 2003 and early fiscal 2004 results were negatively affected by competitive discounting, particularly in the United States and Canada. Comparable sales growth in the United States and Canada began to improve in the second half of fiscal 2004 as a result of our strategic initiatives, including new premium products, our new advertising campaign targeting our core customers and our operational excellence programs. In the United States and Canada, our comparable sales performance improved significantly in fiscal 2005, as we continued to make improvements to our menu, advertising and operations. The improved financial health of our franchise system in fiscal 2005 and lower comparable sales in fiscal 2004 also contributed to our exceptionally strong fiscal 2005 comparable sales performance.

The comparable sales growth performance in EMEA/ APAC has been led by positive sales performance in markets such as Spain and Turkey partially offset by poor sales performance in the United Kingdom and Germany. Latin America demonstrated strong results in the three-year period and continues to grow, driven by our franchise restaurants.

Comparable sales growth continued to improve for the nine months ended March 31, 2006, driven by new products and marketing and operational initiatives, but did not increase at the same rate due to the high growth rate in the first nine months of fiscal 2005, as described above, to which the first nine months of fiscal 2006 is compared. We believe that our system-wide comparable sales growth for the nine months ended March 31, 2006 is more indicative of our future performance than the higher comparable sales growth that we achieved in fiscal 2005.


	*Average Restaurant Sales*

Average restaurant sales is an important measure of the financial performance of our restaurants and changes in the overall direction and trends of sales. Average restaurant sales is influenced by comparable sales performance and restaurant openings and closings.


							For the
	For the						Nine Months
	Fiscal Year Ended						Ended
	June 30,						March 31,

	2003		2004		2005		2005		2006

	(In thousands)
	(In constant currencies)
Average Restaurant Sales	$	972	$	994	$	1,066	$	791	$	814

Our improvement in average restaurant sales in fiscal 2004 and fiscal 2005 was primarily due to improved comparable sales, the opening of new restaurants and closure of under-performing restaurants. Our comparable sales increased by 1% and 5.6% in fiscal 2004 and 2005, respectively, driven primarily by our strategic initiatives related to operational excellence, advertising and our menu. Additionally, we and our franchisees closed 1,314 restaurants between fiscal 2003 and fiscal 2005. Approximately 70% of these

closures were franchise restaurants in the United States, which had average restaurant sales of approximately $630,000 in the 12 months prior to closure. We and our franchisees also opened 93 new restaurants in the United States between fiscal 2004 and 2005, of which 74 were open for at least 12 months as of March 31, 2006. The average restaurant sales of these new restaurants was approximately $1.3 million for the 12 months ended March 31, 2006. We expect these closures of unviable restaurants, combined with continued improvements to average restaurant sales of existing restaurants and strong sales at new restaurants, to result in financially stronger operators throughout our franchise base.


	*System-Wide Sales Growth*

System-wide sales refer to sales at all company 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									Nine Months
		Fiscal Year Ended									Ended
		June 30,									March 31,

		2003			2004			2005			2005			2006

		(In constant currencies)
System-Wide Sales Growth:
United States and Canada			(8.0	)%		(2.2	)%		4.9	%		7.3	%		0.6	%
EMEA/ APAC			7.4			11.5			7.9			7.8			5.5
Latin America			1.6			8.4			14.5			15.2			12.5
	Total System-Wide		(4.7	)%		1.2%			6.1	%		7.9	%		2.4	%

The increases in system-wide sales growth in fiscal 2004 and fiscal 2005 primarily reflected improved comparable sales in all regions and sales at 618 new restaurants opened during that two-year period, which were partially offset by the closing of 849 under-performing restaurants during the same two-year period. This improving trend continued during the nine months ended March 31, 2006, when comparable sales continued to increase on a system-wide basis although at a slower rate due to the high growth rate in the first nine months of fiscal 2005, to which the first nine months of fiscal 2006 is compared. Additionally, there were 231 restaurant openings during the period, partially offset by 226 restaurant closings during the same period. We expect restaurant closures to continue to decline and that restaurant openings will gradually accelerate. We believe that our system-wide sales growth for the nine months ended March 31, 2006 is more indicative of our future performance than the higher system-wide sales growth that we achieved in fiscal 2005.

Following a pattern of declining sales in fiscal 2003 and the first half of fiscal 2004, sales in the United States and Canada increased 4.9% in fiscal 2005, primarily due to the implementation of our strategic initiatives related to advertising, our menu and our operational excellence programs. Our system-wide sales in the United States and Canada increased slightly in the first nine months of fiscal 2006, primarily as a result of positive comparable sales growth partially offset by restaurant closings. We had 6,712 franchise restaurants in the United States and Canada at March 31, 2006, compared to 6,999 franchise restaurants at March 31, 2005.

EMEA/ APAC demonstrated strong system-wide sales growth during the three-year period which reflected growth in several markets, including Germany, Spain, the Netherlands and smaller markets in the Mediterranean and Middle East. Partially offsetting this growth was the United Kingdom, where changes in consumer preferences away from the FFHR category have adversely affected sales for us. We opened 71 restaurants (net of closures) in EMEA/ APAC during fiscal 2005 and 79 (net of closures) during the first nine months of fiscal 2006, increasing our total system restaurant count in this segment to 2,735 at March 31, 2006.

Latin America’s system-wide sales growth was driven by new restaurant openings and strong comparable sales from fiscal 2003 through fiscal 2005. We opened 62 restaurants (net of closures) in Latin America during fiscal 2005 and 57 (net of closures) during the first nine months of fiscal 2006, increasing our total system restaurant count in this segment to 785 at March 31, 2006.

Factors Affecting Comparability of Results


	*Purchase Accounting*

The acquisition of BKC was accounted for using the purchase method of accounting, or purchase accounting, in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations. Purchase accounting required a preliminary allocation of the purchase price to the assets acquired and liabilities assumed at their estimated fair market values at the time of our acquisition of BKC in fiscal 2003. In December 2003, we completed our fair market value calculations and finalized the adjustments to these preliminary purchase accounting allocations. As part of finalizing our assessment of fair market values, we reviewed all of our lease agreements worldwide. Some of our lease payments were at below-market lease rates while other lease payments were at above-market lease rates. In cases where we were making below-market lease payments, we recorded an asset reflecting this favorable lease. We amortize this intangible asset over the underlying lease term, which has the effect of increasing our rent expense on a non-cash basis to the market rate. Conversely, in cases where we were making above-market lease payments, we recorded a liability reflecting this unfavorable lease. We amortize this liability over the underlying lease term, which has the effect of decreasing our rent expense on a non-cash basis to the market rate.

During fiscal 2004 and fiscal 2005, we recorded a net benefit from favorable and unfavorable lease amortization of $51 million and $29 million, respectively. The fiscal 2004 unfavorable and favorable benefit was higher than fiscal 2005 primarily as a result of final adjustments to our purchase price allocation which resulted in a higher benefit of $19 million associated with favorable and unfavorable lease amortization. The favorable and unfavorable lease benefit and other miscellaneous adjustments were partially offset by $18 million of incremental depreciation expense, resulting in a net benefit of $2 million in fiscal 2004, when we finalized our purchase accounting allocations.

In addition to the amortization of these favorable and unfavorable leases, purchase accounting resulted in certain other items that affect the comparability of the results of operations between us and our predecessor, including changes in asset carrying values (and related depreciation and amortization), expenses related to incurring the debt that financed the acquisition that were capitalized and amortized as interest expense, and the recognition of intangible assets (and related amortization).


	*Historical Franchisee Financial Distress*

During the second half of fiscal 2003, we began to experience delinquencies in payments of royalties, advertising fund contributions and rents from certain franchisees in the United States and Canada. In February 2003, we initiated the FFRP program designed to proactively assist franchisees experiencing financial difficulties due to over-leverage and other factors including weak sales, the impact of competitive discounting on operating margins and poor cost management. Under the FFRP program, we worked with those franchisees with strong operating track records, their lenders and other creditors to attempt to strengthen the franchisees’ financial condition. The FFRP program also resulted in closing unviable franchise restaurants and our acquisition of certain under-performing franchise restaurants in order to improve their performance. In addition, we entered into agreements to defer certain royalty payments, which we did not recognize as revenue during fiscal 2004, and acquired a limited amount of franchisee debt, often as part of broader agreements to acquire franchise restaurants or real estate. We also contributed funds to cover shortfalls in franchisee advertising contributions. See “— Other Commercial Commitments and Off-Balance Sheet Arrangements” for further information about the support we committed to provide in connection with the FFRP program, including an aggregate remaining commitment of $35 million to fund certain loans to renovate franchise restaurants, to make renovations to

certain restaurants that we lease or sublease to franchisees, and to provide rent relief and/or contingent cash flow subsidies to certain franchisees.

Franchise system distress had a significant impact on our results of operations during these periods:


										For the
			For the							Nine Months
			Fiscal Year Ended							Ended
			June 30,							March 31,

			2003		2004		2005			2005		2006

			(In millions)
Revenues:
		Revenue not recognized	$	—	$	22	$	(3	) ⁽¹⁾	$	—	$	—
Selling, general and administrative:
		Bad debt expense		53		11		1			2		(1	)
		Incremental advertising contributions		49		41		15			15		2
		Internal and external costs of FFRP program administration		3		11		12			9		—

	Total effect on selling, general and administrative		$	105	$	63	$	28		$	26	$	1
Other operating expenses (income), net:
		Reserves on acquired debt, net		—		19		4			4		(2	)
		Other, net		—		1		4			4		1

	Total effect on other operating expenses (income), net			—		20		8			8		(1	)

Total effect on income from operations			$	105	$	105	$	33		$	34	$	—


(1)	This amount reflects the collection and recognition of revenue that was not recognized in fiscal 2004.

As a result of the franchisees’ distress, we did not recognize revenues associated with royalties and rent for certain franchise restaurants where collection was uncertain in fiscal 2004, although we retained the legal right pursuant to the applicable franchise agreement to collect these amounts. In accordance with SFAS No. 45, we recognize revenue for the previously unrecognized revenue at the time such amounts are actually collected. In addition, provisions for bad debt expense were significantly higher than historical levels during fiscal 2003 and 2004, as a result of a substantial increase in past due receivables. As brand advertising is a significant element of our success, we contributed an incremental $49 million, $41 million and $15 million to the U.S. and Canada advertising fund for each of fiscal 2003, 2004 and 2005, respectively, to fund the shortfall in franchisee contributions. We also incurred significant internal and external costs to manage the FFRP program. During the first nine months of fiscal 2006, we did not make significant incremental advertising contributions.

We believe the FFRP program has significantly improved the financial health and performance of our franchisee base in the United States and Canada. We believe that restaurant profitability has increased. Franchise restaurant average restaurant sales in the United States and Canada has improved from $973,000 in fiscal 2003 to $1.07 million in fiscal 2005. Our collection rates, which we define as collections divided by billings on a one-month trailing basis, also improved during this period. Collection rates in the United States and Canada have improved from 91% during the six months ended June 30, 2003 and for fiscal 2004 to 100% in fiscal 2005, which reflects the improvement of our franchise system’s financial health. During the first nine months of fiscal 2006, our collections have remained at 100%, consistent with fiscal 2005.

Our franchisees are independent operators, and their decision to incur indebtedness is generally outside of our control. Although franchisees may experience financial distress in the future due to over-leverage, we believe that there are certain factors that may reduce the likelihood of such a recurrence. We have established a compliance program to monitor the financial condition of restaurants that were formerly in the FFRP program. We review our collections on a monthly basis to identify potentially distressed

franchisees. Further, we believe that the best way to reduce the likelihood of another wave of franchisee financial distress in our system is for us to focus on driving sales growth and improving restaurant profitability, and that the successful implementation of our business strategy will help us to achieve these objectives.

We believe the investments we made historically in the FFRP program will continue to provide a return to us in the form of a reinvigorated franchise system in the United States and Canada.


	*Our Global Reorganization*

After our acquisition of BKC, we retained consultants to assist us in the review of the management and efficiency of our business, focusing on our operations, marketing, supply chain and corporate structure. In connection with these reviews, we reorganized our corporate structure to allow us to operate as a global brand, including through the elimination of certain corporate and international functions. Also in connection with those reviews, we implemented operational initiatives, which have helped us improve restaurant operations.

In connection with these reviews and the resulting corporate restructuring, we incurred costs of $10 million, $22 million and $17 million in fiscal 2003, fiscal 2004 and fiscal 2005, respectively, consisting primarily of consulting and severance-related costs, which included severance payments, outplacement services and relocation costs. The following table presents, for the periods indicated, such costs:


								For the
		For the						Nine Months
		Fiscal Year Ended						Ended
		June 30,						March 31,

		2003		2004		2005		2005		2006

		(In millions)
Consulting fees		$	1	$	14	$	2	$	2	$	—
Severance-related costs of the global reorganization			9		8		15		8		—

	Total	$	10	$	22	$	17	$	10	$	—

Results of Operations

The following table presents, for the periods indicated, our results of operations:


															For the Nine Months Ended
		For the Fiscal Year Ended June 30,													March 31,

		2003			2004					2005					2005		2006

							Increase/					Increase/								Increase/
		Amount			Amount		(Decrease)			Amount		(Decrease)			Amount		Amount			(Decrease)

		(In millions, except percentages)
Revenues:
	Company restaurant revenues	$	1,174		$	1,276		9	%	$	1,407		10	%	$	1,043	$	1,122			8	%
	Franchise revenues		368			361		(2	)%		413		14	%		306		309			1	%
	Property revenues		115			117		2	%		120		3	%		88		84			(5	)%

Total revenues		$	1,657		$	1,754		6	%	$	1,940		11	%	$	1,437	$	1,515			5	%
Company restaurant expenses			1,022			1,087		6	%		1,195		10	%		886		961			8	%
Selling, general and administrative expenses			478			482		1	%		496		3	%		363		361			(1	)%
Property expenses			55			58		5	%		64		10	%		43		42			(2	)%
Impairment of goodwill			875			—		*			—		*			—		—			*
Other operating expenses (income), net			32			54		69	%		34		(37	)%		18		(5	)		(128	)%

Total operating costs and expenses		$	2,462		$	1,681		(32	)%	$	1,789		6	%	$	1,310	$	1,359			4	%
(Loss) income from operations			(805	)		73		*			151		107	%		127		156			23	%
Interest expense, net			81			64		(21	)%		73		14	%		53		53			0	%
Loss on early extinguishment of debt			—			—		—			—		—			—		14			*

(Loss) income before income taxes		$	(886	)	$	9		*		$	78		*		$	74	$	89			*
Income tax (benefit) expense			(18	)		4		*			31		*			29		52			*

Net (loss) income		$	(868	)	$	5		*		$	47		*		$	45	$	37			(18	)%


*	Not meaningful.

Nine Months Ended March 31, 2006 Compared to Nine Months Ended March 31, 2005


	*Revenues*

Company restaurant revenues increased 8% to $1,122 million in the first nine months of fiscal 2006 compared to the same period in fiscal 2005, primarily as a result of the acquisition of 79 franchise restaurants since March 31, 2005 and positive comparable sales in the United States and Canada. Partially offsetting these factors were negative comparable sales in EMEA/ APAC and Latin America.

In the United States and Canada, company restaurant revenues increased 12% to $761 million in the first nine months of fiscal 2006 compared to the same period in fiscal 2005, primarily as a result of positive comparable sales and the acquisition of 78 franchise restaurants, most of which were located in the United States.

Company restaurant revenues decreased 3% to $319 million in EMEA/ APAC, primarily as a result of negative comparable sales in the United Kingdom and Germany, where 77% of our EMEA/ APAC company restaurants were located at March 31, 2006, partially offset by strong performance in the Netherlands. In Latin America, company restaurant revenues increased 17%, as revenues generated by ten new company restaurants were partially offset by negative comparable sales.

Franchise revenues increased 1% to $309 million in the first nine months of fiscal 2006 compared to the same period in fiscal 2005. Comparable sales increased at franchise restaurants in all segments during the first nine months of fiscal 2006, and 284 new franchise restaurants were opened since the end of the third quarter of fiscal 2005, including 253 new international franchise restaurants. Offsetting these factors was the elimination of royalties from 390 franchise restaurants that were closed or acquired by us, primarily in the United States and Canada.

Franchise revenues decreased 1% to $197 million in the United States and Canada in the first nine months of fiscal 2006 compared to the same period in fiscal 2005, primarily as a result of the elimination of royalties from 316 franchise restaurants that were closed or acquired by us, partially offset by positive comparable sales.

Our EMEA/ APAC franchisees opened 121 new franchise restaurants, net of closures, since March 31, 2005 resulting in a 4% increase in franchise revenues to $87 million in the first nine months of fiscal 2006 compared to the same period in fiscal 2005. Latin America franchise revenues increased 19% to $25 million during the first nine months of fiscal 2006 compared to the same period in fiscal 2005, primarily as a result of 72 new franchise restaurants, net of closures, since March 31, 2005 and positive comparable sales.

Property revenues decreased by 5% to $84 million in the first nine months of fiscal 2006 compared to the same period in fiscal 2005, as a result of a decrease in the number of properties that we lease or sublease to franchisees due to franchise restaurants that were closed or acquired by us. On a segment basis, property revenues increased 3% in the United States and Canada to $62 million, primarily as a result of higher contingent rent payments resulting from increased franchise restaurant sales, partially offset by the effect of franchise restaurants that were closed or acquired by us. Our EMEA/ APAC property revenues decreased 21% to $22 million, primarily as a result of the closure of certain franchise restaurants in fiscal 2005 and the first nine months of fiscal 2006.


	*Operating Costs and Expenses*


	Company restaurant expenses

Food, paper and product costs increased 9% to $351 million, primarily as a result of an 8% increase in company restaurant revenues. As a percentage of company restaurant revenues, food, paper and product costs increased 0.4% to 31.3% during the first nine months of fiscal 2006 compared to the same period in fiscal 2005, primarily due to increases in beef prices and competitive discounting in Europe.

On a segment basis, food, paper and product costs increased 12% to $242 million in the United States and Canada in the first nine months of fiscal 2006 compared to the same period in fiscal 2005, primarily as a result of a 12% increase in company restaurant revenues. Food, paper and product costs decreased 0.2% to 31.8% of company restaurant revenues in the United States and Canada.

Food, paper and product costs increased 3% to $94 million in EMEA/ APAC, primarily as a result of increased beef prices in Europe and competitive discounting in Germany, where 52% of our EMEA/ APAC company restaurants were located at March 31, 2006, partially offset by a 3% decrease in company restaurant revenues. Food, paper and product costs increased to 29.4% of company restaurant revenues in EMEA/ APAC in the first nine months of fiscal 2006 from 27.8% of company restaurant revenues in the same period in fiscal 2005.

Food, paper and product costs increased 13% in Latin America in the first nine months of fiscal 2006 compared to the same period in fiscal 2005, primarily as a result of a 15% increase in company restaurant revenues.

During the first nine months of fiscal 2006, payroll and employee benefits costs increased 7% to $330 million, or 29.4% of company restaurant revenues compared to the first nine months of fiscal 2005, when payroll and employee benefits costs were 29.6% of company restaurant revenues. Payroll and employee benefits costs have continued to increase in fiscal 2006 as a result of increases in wages and

other costs of labor, particularly health insurance, as well as an increase in the number of company restaurants from the acquisition of franchise restaurants. Partially offsetting these increased costs was a reduction in the labor required to operate our restaurants, due to our operational excellence programs and operational efficiency programs implemented in Europe.

On a segment basis, payroll and employee benefits costs increased 14% to $230 million in the United States and Canada in the first nine months of fiscal 2006 compared to the same period in fiscal 2005, primarily as a result of the acquisition of 78 franchise restaurants and increased wages and health insurance benefit costs. Payroll and employee benefits costs were 30.3% of company restaurant revenues in the United States and Canada in the first nine months of fiscal 2006, compared to 30.0% in the first nine months of fiscal 2005, as efficiency gains resulting from our operational excellence initiatives partially offset these higher costs.

In EMEA/ APAC, payroll and employee benefits costs decreased 6% to $95 million in the first nine months of fiscal 2006 compared to the same period in fiscal 2005, as a result of operational efficiency programs implemented in Europe in connection with our global reorganization. Payroll and employee benefits costs decreased to 29.7% of company restaurant revenues in EMEA/ APAC in the first nine months of fiscal 2006 compared to 30.7% in the first nine months of fiscal 2005 as a result of these programs.

In Latin America, where labor costs are lower than in the United States and Canada and EMEA/ APAC segments, payroll and employee benefits costs increased 14% to $5 million in the first nine months of fiscal 2006 compared to the same period in fiscal 2005, primarily as a result of ten new company restaurant openings since March 31, 2005. Payroll and employee benefits costs were 11.6% of company restaurant revenues in Latin America in the first nine months of fiscal 2006 and 2005.

Occupancy and other operating costs include amortization of unfavorable and favorable leases from our acquisition of BKC, which resulted in a reduction in occupancy and other operating expenses. The net reduction in occupancy and other operating costs resulting from amortization of unfavorable and favorable leases was $12 million during the first nine months of fiscal 2006 compared to $16 million in the same period in fiscal 2005, primarily as a result of the termination of certain unfavorable leases. Excluding unfavorable and favorable lease amortization, occupancy and other operating costs increased 7% to $292 million in the first nine months of fiscal 2006, primarily as a result of our acquisition of franchise restaurants and new company restaurant openings, as well as increased costs, such as utilities and restaurant supplies.

On a segment basis, occupancy and other operating costs increased to 24.3% of company restaurant revenues in the United States and Canada in the first nine months of fiscal 2006 compared to 24.1% in the first nine months of fiscal 2005, primarily as a result of acquired restaurants and increased utility and restaurant supply costs.

In EMEA/ APAC, occupancy and other operating costs increased to 26.5% of company restaurant revenues in the first nine months of fiscal 2006, compared to 25.8% in the same period in fiscal 2005, as a result of decreased restaurant sales and the closure of certain restaurants with high rents, partially offset by increased utilities in the segment and increased rents in the United Kingdom.

Occupancy and other operating costs increased to 23.9% of company restaurant revenues in Latin America in the first nine months of fiscal 2006 compared to 20.2% in the first nine months of fiscal 2005, primarily as a result of a decrease in comparable sales and increased utility costs.


	Worldwide selling, general and administrative expenses

Selling, general and administrative expenses decreased by $2 million to $361 million during the first nine months of fiscal 2006 compared to the same period in fiscal 2005. We recorded the compensatory make-whole payment of $33 million and related taxes of $2 million as compensation expense in the third quarter of fiscal 2006. Our board decided to pay the compensatory make-whole payment because it recognized that the payment of the February 2006 dividend and the February 2006 financing would

decrease the value of the equity interests of holders of our options and restricted stock unit awards as these holders were not otherwise entitled to receive the dividend. Our board also recognized that the holders of our options and restricted stock unit awards had significantly contributed to the improvement in our business performance and equity value over the past two years. Accordingly, it decided to pay the same amount of the February 2006 dividend, on a per share basis, to the holders of our options and restricted stock unit awards to compensate them for this potential decline in the value of their equity interests.

Additionally, our acquisition of 78 franchise restaurants resulted in increased general and administrative expenses related to the management of our company restaurants. Offsetting these increased expenses was a $35 million reduction in expenses related to franchise system distress and our global reorganization costs in the first nine months of fiscal 2006 compared to the comparable period in fiscal 2005.

Under the management agreement with the sponsors, which we entered into in connection with our acquisition of BKC, we paid a management fee to the sponsors equal to 0.5% of our total current year revenues, which amount was limited to 0.5% of the prior year’s total revenues. Management fee expense was $7 million in both nine-month periods. In February 2006, we entered into an agreement with the sponsors to pay a termination fee of $30 million to the sponsors to terminate the management agreement upon completion of an initial public offering of common stock.


	Property expenses

Property expenses decreased by $1 million to $42 million in the first nine months of fiscal 2006 from the same period in fiscal 2005, as a result of a decrease in the number of properties that we lease or sublease to franchisees, primarily due to restaurant closures and our acquisition of franchise restaurants. Property expenses were 35% of property revenues in the United States and Canada in the first nine months of fiscal 2006 compared to 32% in the first nine months of fiscal 2005. Our property expenses in EMEA/ APAC approximate our property revenues because most of the EMEA/ APAC property operations consist of properties that are subleased to franchisees on a pass-through basis.


	Worldwide other operating expenses (income), net

Other operating income, net was $5 million in the first nine months of fiscal 2006 compared to other operating expenses, net of $18 million in the same period in fiscal 2005. Other operating income, net was comprised primarily of gains on property disposals and other miscellaneous items in the nine months ended March 31, 2006. Other operating expenses, net, in the first nine months of fiscal 2005 consisted primarily of (i) $5 million of settlement losses recorded in connection with the acquisition of franchise operations in the United States, (ii) $4 million of reserves recorded on franchisee debt acquired in the United States, (iii) $4 million of costs associated with the FFRP program in the United States and Canada and (iv) $4 million of losses on lease terminations and property disposals in the United Kingdom.


	Operating income

In the first nine months of fiscal 2006, our operating income increased by $29 million to $156 million compared to the same period in fiscal 2005, primarily as a result of improved restaurant sales and the improved financial health of our franchise system and reduced costs of our global reorganization. See Note 19 to our audited consolidated financial statements contained herein for segment information disclosed in accordance with SFAS No. 131.

Operating income in the United States and Canada increased by $26 million to $219 million in the first nine months of fiscal 2006 compared to the same period in fiscal 2005, primarily as a result of increased sales and reductions in the negative effect of franchise system distress, which decreased by $34 million in the first nine months of fiscal 2006 compared to the same period in fiscal 2005. The decrease in the negative effect of franchise system distress was comprised primarily of a $13 million reduction in incremental advertising contributions and a $9 million reduction in costs of FFRP administration, both of which resulted from the improved financial health of our franchise system. These

improvements were partially offset by a $3 million reduction in franchise revenues as a result of franchise restaurant closures.

Operating income in EMEA/ APAC increased by $15 million to $51 million in the first nine months of fiscal 2006 compared to the same period in fiscal 2005, as a result of an $11 million reduction in losses on property disposals and other income and expense items, a $6 million decrease in selling, general and administrative expenses attributable to the effects of our global reorganization and a $3 million increase in franchise revenues, partially offset by a $6 million decrease in margins from company restaurants driven primarily by results in the United Kingdom and Germany, due to decreased sales, increased beef prices and occupancy costs, including rents and utilities.

Operating income in Latin America increased by $3 million to $22 million in the first nine months of fiscal 2006 compared to the same period in fiscal 2005, primarily as a result of increased revenues.

Our unallocated corporate expenses increased 12% to $136 million in the first nine months of fiscal 2006 compared to the same period in fiscal 2005, primarily as a result of the compensation expense recorded in connection with the compensatory make-whole payment of $33 million and related taxes of $2 million, partially offset by the elimination of $7 million of global reorganization costs and a $5 million decrease in incentive compensation costs, resulting from changes to certain benefit plans.


	Interest expense, net

Interest expense, net was $53 million in the first nine months of fiscal 2006 and fiscal 2005. Interest expense was $59 million in the first nine months of fiscal 2006 and fiscal 2005, as the effect of increased borrowings was offset by lower interest rates as a result of our July 2005 and February 2006 refinancings. Interest income was approximately $6 million in the first nine months of fiscal 2006 and fiscal 2005, as increased interest rates offset a reduction in cash invested.


	Loss on early extinguishment of debt

In connection with our July 2005 financing and February 2006 financing, $14 million of deferred financing fees were recorded as a loss on early extinguishment of debt.


	Income tax expense

Income tax expense increased $23 million to $52 million in the first nine months of fiscal 2006 from the same period in fiscal 2005, partially due to a $15 million increase in income before income taxes in the first nine months of fiscal 2006 compared to the first nine months of fiscal 2005. In addition, our effective tax rate increased by 19% for the first nine months of fiscal 2006 to 58%. The higher effective tax rate is primarily attributable to adjustments to deferred tax asset valuation reserves in certain foreign countries and higher tax expense associated with adjustments to valuation reserves, established during purchase accounting, which are required to be applied against intangible assets recorded in purchase accounting rather than recording a benefit to tax expense. The adjustments to these valuation reserves resulted from our ability to utilize net operating losses as a result of improved operations in certain foreign countries.


	*Net Income*

Our net income decreased 18% to $37 million in the first nine months of fiscal 2006 compared to the same period in fiscal 2005. This reduction resulted primarily from $35 million of compensation expense recorded in connection with the compensatory make-whole payment and related taxes, the $14 million loss recorded on the early extinguishment of debt in connection with our July 2005 refinancing and February 2006 financing and increased income tax expense, which were partially offset by increased revenues and reduced costs of franchise system distress and our global reorganization.

Fiscal Year Ended June 30, 2005 Compared to Fiscal Year Ended June 30, 2004


	*Revenues*

Company restaurant revenues increased 10% to $1,407 million in fiscal 2005 as a result of strong comparable sales in the United States and Canada and Latin America, where approximately 76% of our company restaurants are located.

In the United States and Canada, company restaurant revenues increased 15% to $923 million, primarily as a result of strong comparable sales generated from the implementation of strategic initiatives related to our menu, advertising and operational excellence programs, as well as the acquisition of 99 franchise restaurants.

In EMEA/ APAC and Latin America, company restaurant revenues increased 1% and 8%, respectively, to $435 million and $49 million, respectively, primarily as a result of new restaurant openings and positive comparable sales.

Franchise revenues increased 14% to $413 million in fiscal 2005 as a result of improved sales at franchise restaurants in all segments.

Franchise revenues increased 15% to $269 million in the United States and Canada in fiscal 2005, primarily as a result of the implementation of our menu, marketing and operational excellence initiatives and the improved financial condition of our franchise system. In addition to increased royalties from improved franchise restaurant sales, we recognized $3 million of franchise revenues not previously recognized in the United States and Canada, compared to $17 million of franchise revenues not recognized in fiscal 2004. Partially offsetting these factors was the elimination of royalties from franchise restaurants that were closed or acquired by us in fiscal 2005.

In EMEA/ APAC, our franchisees opened 165 new franchise restaurants in fiscal 2005, contributing to a 3% net increase in the number of EMEA/ APAC franchise restaurants from fiscal 2004. This increase in franchise restaurants and positive comparable sales in EMEA/ APAC resulted in a 13% increase in franchise revenues to $114 million. In Latin America, franchise revenues increased 17% to $30 million, primarily as a result of 65 new franchise restaurants and positive comparable sales.

Property revenues increased 3% to $120 million in fiscal 2005. On a segment basis, property revenues increased 1% and 5%, respectively, in the United States and Canada and EMEA/ APAC to $83 million and $37 million, respectively. Our fiscal 2004 property revenues in the United States and Canada excluded $5 million of property revenues not recognized, partially offset by $3 million of revenues recognized in connection with finalizing our purchase accounting allocations.


	*Operating Costs and Expenses*


	Company restaurant expenses

Food, paper and product costs increased 12% to $437 million in fiscal 2005, primarily as a result of a 10% increase in company restaurant revenues. Food, paper and product costs increased 0.5% to 31.1% of company restaurant revenues in fiscal 2005, primarily as a result of increases in the price of beef in the United States.

On a segment basis, food, paper and product costs increased 16% to $297 million in the United States and Canada, primarily as a result of a 15% increase in company restaurant revenues. Food, paper and product costs increased 0.3% to 32.1% of company restaurant revenues in the United States and Canada, primarily as a result of increases in the price of beef. Food, paper and product costs increased 2% to $122 million in EMEA/ APAC and 7% to $18 million in Latin America, primarily as a result of increased company restaurant revenues in EMEA/ APAC and Latin America of 1% and 8%, respectively.

Payroll and employee benefits costs increased 9% to $415 million in fiscal 2005 as a result of increased wages, health insurance and training expenses, as well as the acquisition of franchise restaurants in fiscal 2005. Payroll and employee benefits costs decreased 0.4% to 29.5% of company restaurant

revenues in fiscal 2005 as higher costs of wages and health insurance benefits were more than offset by increasing restaurant sales and efficiency gains from our operational excellence programs to reduce the labor required to operate our restaurants.

On a segment basis, payroll and employee benefits costs increased 12% to $276 million in the United States and Canada in fiscal 2005, primarily as a result of the acquisition of franchise restaurants and increased wages and health insurance benefit costs. Payroll and employee benefits costs were 29.9% of company restaurant revenues in the United States and Canada in fiscal 2005, compared to 30.8% in fiscal 2004, primarily as a result of leveraging payroll costs from increased sales and efficiency gains resulting from our operational improvement initiatives.

In EMEA/ APAC, payroll and employee benefits costs increased 3% to $134 million in fiscal 2005, primarily as a result of new company restaurants in Germany and increased wages and benefits costs. Payroll and employee benefits costs were 30.8% of company restaurant revenues in EMEA/ APAC in fiscal 2005, compared to 30.3% in fiscal 2004.

In Latin America, payroll and employee benefits costs increased 12% to $6 million, primarily as a result of new company restaurants. Payroll and employee benefits costs were 11.4% of company restaurant revenues in Latin America in fiscal 2005, compared to 11.0% in fiscal 2004.

The net reduction to occupancy and other operating costs resulting from the amortization of unfavorable and favorable leases was $20 million in fiscal 2005, compared to $37 million in fiscal 2004. Excluding this net reduction and depreciation adjustments of $14 million recorded in fiscal 2004 when we finalized our purchase accounting allocations, occupancy and other operating costs increased 8% to $363 million in fiscal 2005. This increase resulted primarily from the acquisition of franchise restaurants and increases in certain other operating costs, such as rents and utilities. Excluding this net reduction and the other adjustments, occupancy and other operating costs decreased as a percentage of company restaurant revenues to 25.8% in fiscal 2005 from 26.4% in fiscal 2004.

On a segment basis, occupancy and other operating costs, excluding the favorable and unfavorable lease amortization and the fiscal 2004 depreciation adjustments discussed above, were 24.5% of company restaurant revenues in the United States and Canada in fiscal 2005 compared to 26.5% in fiscal 2004, primarily as a result of leveraging base rents from increased sales.

In EMEA/ APAC, occupancy and other operating costs, excluding the favorable and unfavorable lease amortization and the fiscal 2004 depreciation adjustments discussed above, were 28.6% of company restaurant revenues in fiscal 2005 compared to 26.9% in fiscal 2004, primarily as a result of increased rents and utilities in the United Kingdom.

Occupancy and other operating costs, excluding the favorable and unfavorable lease amortization and fiscal 2004 depreciation adjustments discussed above, were 23.4% of company restaurant revenues in Latin America in fiscal 2005 compared to 20.1% in fiscal 2004, primarily as a result of increased utility costs.


	Worldwide selling, general and administrative expenses

Selling, general and administrative expenses increased 3% to $496 million in fiscal 2005. General and administrative costs increased 10% to $408 million in fiscal 2005, while our selling expenses decreased 21% to $88 million in fiscal 2005.

General and administrative expenses included $29 million and $33 million of costs associated with the FFRP program’s administration and severance and consulting fees incurred in connection with our global reorganization in fiscal 2005 and fiscal 2004, respectively. Our fiscal 2005 general and administrative cost increases also included $14 million of incremental incentive compensation as a result of improved restaurant operations and our improved financial performance, as well as $7 million of increased costs associated with operational excellence initiatives. Our remaining general and administrative expense increases in fiscal 2005 were attributable to the acquisition of franchise restaurants and increases in restaurant operations and business development teams, particularly in EMEA/ APAC where our general

and administrative expenses increased by $18 million in fiscal 2005. Management fee expense paid to the sponsors totaled $9 million and $8 million in fiscal 2005 and fiscal 2004, respectively.

The decrease in selling expenses is attributable to a decrease in advertising expense and bad debt expense. Our bad debt expense decreased to $1 million in fiscal 2005 from $11 million in fiscal 2004 and our incremental advertising expense resulting from franchisee non-payment of advertising contributions was $15 million in fiscal 2005 compared to $41 million in fiscal 2004. These improvements resulted from the strengthening of our franchise system during fiscal 2005. We do not expect to incur significant incremental marketing expenses as a result of franchisee non-payment of advertising contributions in fiscal 2006. Partially offsetting these reductions were incremental advertising expenses for company restaurants opened or acquired in fiscal 2005.


	Property expenses

The net reduction to property expenses resulting from the amortization of unfavorable and favorable leases was $9 million in fiscal 2005, compared to $14 million in fiscal 2004. Excluding the amortization of unfavorable and favorable leases and other adjustments recorded when we finalized our purchase accounting allocations in fiscal 2004, property expenses increased 6% to $73 million in fiscal 2005. Excluding the amortization of unfavorable and favorable leases and the other adjustments discussed above, property expenses decreased to 60.8% of property revenues in fiscal 2005 from 61.4% in fiscal 2004. Also excluding the amortization of unfavorable and favorable leases and the other adjustments discussed above, property expenses were 42.5% of property revenues in the United States and Canada in fiscal 2005 compared to 45.2% in fiscal 2004. This improvement is primarily attributable to the non-recognition of $5 million in property revenues in fiscal 2004.


	Worldwide other operating expenses (income), net


		For the
		Fiscal Year
		Ended
		June 30,

		2004		2005

		(In millions)
Losses on asset disposals		$	15	$	13
Impairment of long-lived assets			—		4
Impairment of investments in franchisee debt			19		4
Impairment of investments in unconsolidated investments			4		—
Litigation settlements and reserves			4		2
Other, net			12		11

	Total other operating expenses (income), net	$	54	$	34

Gains and losses on asset disposals are primarily related to exit costs associated with restaurant closures and gains and losses from selling company restaurants to franchisees. In fiscal 2005, the United States and Canada recorded $7 million in net losses on asset disposals compared to $6 million in fiscal 2004. EMEA/ APAC recorded $6 million in net losses on asset disposals in fiscal 2005, compared to $8 million in fiscal 2004, including a loss of $3 million recorded in connection with the refranchising of company restaurants in Sweden.

All of the fiscal 2005 and $12 million of the fiscal 2004 impairment of investments in franchisee debt related to our assessments of the net realizable value of certain third-party debt of franchisees that we acquired, primarily in connection with the FFRP program in the United States and Canada. The remaining fiscal 2004 impairment of debt investments was recorded in connection with the forgiveness of a note receivable from an unconsolidated affiliate in Australia.

Other, net included $5 million of settlement losses recorded in connection with the acquisition of franchise restaurants and $5 million of costs associated with the FFRP program in fiscal 2005 in the United States and Canada. In fiscal 2004, other, net included $3 million of losses from unconsolidated investments in EMEA/ APAC and $2 million each of losses from transactions denominated in foreign currencies, property valuation reserves, and re-branding costs related to our operations in Asia.


	Operating income

In fiscal 2005, our operating income increased by $78 million to $151 million, primarily as a result of increased revenues and the improved financial health of our franchise system.

Operating income in the United States and Canada increased by $140 million to $255 million in fiscal 2005, primarily as a result of increased revenues and a reduction in the negative effect of franchise system distress, which decreased by $72 million in fiscal 2005 in the United States and Canada. This decrease was comprised primarily of a $25 million increase in franchise and property revenue recognition, a $26 million reduction in incremental advertising contributions and a $15 million reduction in reserves on acquired debt, all of which resulted from the improved financial health of our franchise system.

EMEA/ APAC operating income decreased by $59 million to $36 million in fiscal 2005, as a result a number of factors, including: (i) a $16 million decrease in margins from company restaurants, as a result of higher operating costs, (ii) a $12 million increase in selling, general and administrative expenses to support growth, (iii) a $6 million increase in expenses related to our global reorganization, (iv) $8 million of lease termination and exit costs, including $5 million in the United Kingdom, and (v) $2 million of litigation settlement costs in Asia.

Operating income in Latin America decreased by $1 million to $25 million in fiscal 2005, primarily as a result of higher company restaurant expenses. Our unallocated corporate expenses increased 1% to $165 million in fiscal 2005.


	Interest expense, net

Interest expense, net increased 14% to $73 million in fiscal 2005 due to higher interest rates related to term debt and debt payable on our payment-in-kind, or PIK notes to Diageo plc and the private equity funds controlled by the sponsors incurred in connection with our acquisition of BKC. Interest income was $9 million in fiscal 2005, an increase of $5 million from fiscal 2004, primarily as a result of an increase in cash and cash equivalents due to improved cash provided by operating activities and increased interest rates on investments.


	Income tax expense

Income tax expense increased $27 million to $31 million in fiscal 2005 primarily due to the $69 million increase in income before income taxes in fiscal 2005. Our effective tax rate declined by 4.7% for fiscal 2005 to 39.7%, partially offsetting the effect of the increase in income before income taxes. The majority of the change in our effective tax rate is attributable to adjustments to our valuation allowances related to deferred tax assets in foreign countries and certain state income taxes in fiscal 2005. See Note 12 to our audited consolidated financial statements for further information regarding our effective tax rate and valuation allowances.


	*Net Income*

In fiscal 2005, our net income increased by $42 million to $47 million. This improvement resulted primarily from increased revenues as described above, a decrease in expenses related to franchise system distress, particularly bad debt expense, incremental advertising fund contributions and reserves recorded on acquired franchisee debt, and a decrease in global reorganization costs.

Fiscal Year Ended June 30, 2004 Compared to Fiscal Year Ended June 30, 2003

All references to fiscal 2003 are to the twelve months ended June 30, 2003, derived by adding the audited results of operations of our predecessor from July 1, 2002 through December 12, 2002 to the audited results of our operations from December 13, 2002 through June 30, 2003. The combined financial data for fiscal 2003 have not been audited on a combined basis, do not comply with generally accepted accounting principles and are not intended to represent what our operating results would have been if the acquisition of BKC had occurred at the beginning of the period.

We do not believe that the combined financial data for fiscal 2003 are comparable to our current results of operations as our predecessor operated under a different ownership, management and capital structure. In addition, our acquisition of BKC was accounted for under the purchase method of accounting which also affects comparability.


	*Revenues*

Company restaurant revenues increased 9% to $1,276 million in fiscal 2004 as a result of positive comparable sales due to the implementation of our menu, advertising and operational excellence initiatives and the acquisition of 38 franchise restaurants, most of which were located in the United States.

In the United States and Canada, company restaurant revenues increased 5% to $802 million, primarily as a result of positive comparable sales and the acquisition of 37 franchise restaurants, primarily in the United States.

In EMEA/ APAC and Latin America, company restaurant revenues increased 18% and 5%, respectively, to $429 million and $45 million, respectively, primarily as a result of new restaurant openings.

Franchise revenues declined 2% to $361 million in fiscal 2004 due to the financial distress of our franchise system in the United States and Canada.

Franchise revenues decreased 10% to $234 million in the United States and Canada in fiscal 2004, as a result of the effects of franchise system distress. A total of 318 under-performing franchise restaurants closed in the United States and Canada in fiscal 2004, compared to 43 new franchise restaurants that opened. Our franchise revenues were also affected in fiscal 2004 by the non-recognition of $17 million of franchise revenues related to franchisees in the United States and Canada from which collection of royalties was not reasonably assured due to their deteriorating financial condition.

In EMEA/ APAC, franchise revenues increased by 20% to $102 million in fiscal 2004, primarily as a result of 109 franchise restaurant openings, net of closures. In Latin America, franchise revenues increased 10% to $25 million, primarily as a result of 49 new franchise restaurants, net of closures, and positive comparable sales. These increases in EMEA/ APAC and Latin America franchise revenues partially offset the impact of franchise system distress on franchise revenues in the United States and Canada.

Property revenues increased 2% to $117 million in fiscal 2004. On a segment basis, property revenues decreased 6% in the United States and Canada, primarily as a result of restaurant closures. Additionally, our fiscal 2004 United States and Canada property revenues excluded $5 million of revenues not recognized, partially offset by $3 million of revenue recognized in connection with finalizing our purchase accounting allocations. Property revenues increased 14% to $37 million in EMEA/ APAC in fiscal 2005, primarily as a result of an increase in the number of properties leased to franchisees.


	*Operating Costs and Expenses*


	Company restaurant expenses

Food, paper and product costs increased 9% to $391 million in fiscal 2004, principally as a result of increased sales volume. Food, paper and product costs remained a consistent percentage of company restaurant revenues in fiscal 2004 and fiscal 2003, as an increase in the price of beef was mitigated by the

introduction of premium products and a strategic shift in our menu strategy to discontinue lower margin products and Whopper discounting during fiscal 2004.

On a segment basis, food, paper and product costs increased 6% to $255 million in the United States and Canada in fiscal 2004, primarily as a result of a 5% increase in company restaurant sales. Food, paper and product costs increased 0.5% to 31.8% of company restaurant revenues in the United States and Canada in fiscal 2004 primarily as a result of increases in the price of beef, partially offset by reductions in discounting and the introduction of premium products with higher margins. Food, paper and product costs increased 17% to $119 million in EMEA/ APAC and 6% to $17 million in Latin America in fiscal 2004, primarily as a result of increased company restaurant revenues of 18% and 5%, respectively.

Payroll and employee benefits costs increased 9% to $382 million in fiscal 2004 as a result of increased wages, health insurance and training expenses, as well as the acquisition of 38 franchise restaurants in fiscal 2004. Payroll and employee benefits increased 0.2% to 29.9% of company restaurant revenues in fiscal 2004 as higher costs of wages and health insurance benefits were partially offset by increasing restaurant sales and efficiency gains from our strategic initiatives to improve restaurant profitability and from our operational excellence programs to reduce the labor required to operate our restaurants.

On a segment basis, payroll and employee benefits costs increased 5% to $247 million in the United States and Canada in fiscal 2004, primarily as a result of the acquisition of franchise restaurants and increased wages and health insurance benefit costs. Payroll and employee benefits costs were 30.8% of company restaurant revenues in the United States and Canada in fiscal 2004 compared to 30.7% in fiscal 2003.

In EMEA/ APAC, payroll and employee benefits costs increased 19% to $130 million in fiscal 2004, primarily as a result of new company restaurants in Germany and increased wages and benefits costs. Payroll and employee benefits costs were 30.3% of company restaurant revenues in EMEA/ APAC in fiscal 2004, compared to 30.0% in fiscal 2003.

In Latin America, payroll and employee benefits costs increased 2% to $5 million in fiscal 2004, primarily as a result of new company restaurants. Payroll and employee benefits costs were 11.0% of company restaurant revenues in Latin America in fiscal 2004, compared to 11.5% in fiscal 2003.

Occupancy and other operating costs remained flat at $314 million in each of fiscal 2004 and fiscal 2003 as increased depreciation expense arising from purchase accounting, the acquisition of franchise restaurants and increases in certain other operating costs, such as utilities in the United States and rent in the United Kingdom, were offset by the amortization of unfavorable and favorable leases.

On a segment basis, occupancy and other operating costs, excluding unfavorable and favorable lease amortization and other adjustments recorded when we finalized our purchase accounting allocations in fiscal 2004, were 26.5% of company restaurant revenues in the United States and Canada in fiscal 2004 compared to 25.6% in fiscal 2003, primarily as a result of increased depreciation arising from purchase accounting.

In EMEA/ APAC, occupancy and other operating costs, excluding unfavorable and favorable lease amortization and the aforementioned fiscal 2004 depreciation adjustment, were 26.9% of company restaurant revenues in fiscal 2004 compared to 29.5% in fiscal 2003, primarily as a result of increased sales.

Occupancy and other operating costs, excluding unfavorable and favorable lease amortization and the aforementioned fiscal 2004 depreciation adjustment, were 20.1% of company restaurant revenues in Latin America in fiscal 2004 compared to 20.3% in fiscal 2003.


	Worldwide selling, general and administrative expenses

Selling, general and administrative expenses increased 1% to $482 million in fiscal 2004. General and administrative costs increased 17% to $371 million in fiscal 2004, while our selling expenses decreased 31% to $111 million in fiscal 2004.

General and administrative expenses included $33 million and $13 million of costs associated with FFRP program administration and severance and consulting fees incurred in connection with our global reorganization in fiscal 2004 and fiscal 2003, respectively. Our fiscal 2004 general and administrative cost increases also included $14 million of incremental incentive compensation as a result of improved restaurant operations and our improved financial performance, $3 million of incremental depreciation expense, as a result of finalizing purchase accounting, and $3 million of increased costs associated with our operational excellence programs. Our remaining general and administrative expense increases in fiscal 2004 were attributable to increases in restaurant operations and business development teams in EMEA/ APAC where our general and administrative expenses increased by $14 million in fiscal 2004. Partially offsetting these increases was the elimination of $14 million in corporate expenses, primarily due to savings from our global reorganization. Management fee expense paid to the sponsors totaled $5 million for the period December 13, 2002 to June 30, 2003. Prior to our acquisition of BKC, $1 million in management fees were paid to Diageo plc for the period July 1, 2002 to December 12, 2002.

Selling expenses decreased in fiscal 2004 as a result of a decrease in bad debt expenses and advertising expenses. Our bad debt expense decreased to $11 million in fiscal 2004 from $53 million in fiscal 2003, partially as a result of our non-recognition of $22 million in franchise and property revenues in fiscal 2004, and partially as a result of improvements in our collection rates in the second half of fiscal 2004. Our incremental advertising expense resulting from franchisee non-payment of advertising contributions was $41 million in fiscal 2004 compared to $49 million in fiscal 2003. Additional factors affecting our selling expenses were incremental advertising expenses for company restaurants opened or acquired in fiscal 2004.


	Property expenses

Property expenses increased 5% to $58 million in fiscal 2004 primarily due to increased depreciation expense arising from a net increase in asset carrying values in connection with the purchase accounting allocations we finalized in fiscal 2004, offset in large part by the amortization of unfavorable and favorable leases. Excluding the amortization of unfavorable and favorable leases and other fiscal 2004 purchase accounting adjustments, property expenses were 45.2% of property revenues in the United States and Canada, where we recorded the fair value adjustments to certain properties we lease to franchisees under direct financing-type capital leases, in fiscal 2004 compared to 28.7% in fiscal 2003.


	Impairment of goodwill

Our predecessor recorded a goodwill impairment charge of $875 million in fiscal 2003 in connection with a reduction to the purchase price paid in our acquisition of BKC, $709 million of which was recorded in the United States and Canada and $166 million of which was recorded in EMEA/ APAC. The purchase price was reduced prior to the completion of the acquisition as a result of BKC’s deteriorating financial performance and franchise system financial distress.


	Worldwide other operating expenses (income), net


		For the
		Fiscal Year
		Ended
		June 30,

		2003			2004

		(In millions)
Losses on asset disposals		$	(3	)	$	15
Impairment of long-lived assets			52			—
Impairment of investments in franchisee debt			—			19
Impairment of investments in unconsolidated investments			—			4
Litigation settlements and reserves			(5	)		4
Other, net			(12	)		12

	Total other operating expenses (income), net	$	32		$	54

Of the impairment of long-lived assets in fiscal 2003, $35 million pertained to the Burger King brand, which was impaired in the United States and Canada in connection with the reduction in the purchase price paid for our acquisition of BKC. The remaining long-lived asset impairment charges in fiscal 2003 pertained to long-lived assets in Europe, which were impaired as a result of deteriorating financial performance in that region.

Other, net includes a gain of $7 million in fiscal 2003, recorded in connection with the final settlement of the bankruptcy of a former supplier in the United States, prior to our acquisition of BKC. The remaining components of fiscal 2003 other, net are comprised primarily of $10 million in net gains from foreign exchange forward contracts and transactions denominated in foreign currency. During fiscal 2003, we carried large intercompany balances with our international subsidiaries, which were subject to gains and losses from foreign currency translation. During fiscal 2004, we reduced this exposure to foreign currency translation by substantially settling these intercompany balances.


	Operating income

In fiscal 2004, our operating income increased by $878 million to $73 million, primarily as a result of the elimination of the $875 million goodwill and $35 million brand impairment charges recorded in fiscal 2003.

In the United States and Canada, where $709 million of the goodwill and all of the brand impairment charges were recorded, operating income increased by $666 million to $115 million. Increased general and administrative expenses and losses on asset disposals partially offset the elimination of the goodwill and brand impairment charges in fiscal 2004.

EMEA/ APAC operating income increased by $238 million to $95 million in fiscal 2005, primarily as a result of the elimination of $166 million in goodwill impairment charges and $17 million in long-lived asset impairment charges in fiscal 2004, as well from increased revenues.

Operating income in Latin America increased by $4 million to $26 million in fiscal 2004, primarily as a result of increased revenues.

Our unallocated corporate expenses increased $30 million to $163 million in fiscal 2004, primarily as a result of increased incentive compensation due to improved financial and operational performance.


	Interest expense, net

Interest expense, net was $64 million in fiscal 2004, compared to $81 million in fiscal 2003. Included in the $81 million for fiscal 2003 was $43 million of interest paid to Diageo plc by our predecessor, and $33 million of interest related to the debt financing used to complete our acquisition of BKC. Interest income increased to $4 million in fiscal 2004 from $3 million in fiscal 2003.


	Income tax expense

We recorded an income tax benefit of $18 million in fiscal 2003 related to our loss before income taxes.


	*Net Income*

Our net income was $5 million in fiscal 2004 compared to a net loss of $868 million in fiscal 2003. The comparability of our net income and income from operations is affected by purchase accounting subsequent to our acquisition of BKC in December 2002 and goodwill and brand impairment of $875 million and $35 million, respectively, in fiscal 2003.

Quarterly Financial Data

The following table presents unaudited consolidated income statement data for each of the eleven fiscal quarters in the period ended March 31, 2006. The operating results for any quarter are not necessarily indicative of the results for any future period. These quarterly results were prepared in accordance with generally accepted accounting principles and reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results.


			Three Months Ended

			September 30,		December 31,		March 31,			June 30,			September 30,		December 31,		March 31,		June 30,		September 30,		December 31,			March 31,
			2003		2003		2004			2004			2004		2004		2005		2005		2005		2005			2006

			(In millions)
Company restaurant revenues			$	309	$	315	$	310		$	342		$	350	$	354	$	339	$	364	$	375	$	379		$	368
Franchise revenues				95		79		83			104			102		104		100		107		105		104			100
Property revenues				30		24		33			30			29		30		29		32		28		29			27

		Total revenues	$	434	$	418	$	426		$	476		$	481	$	488	$	468	$	503	$	508	$	512		$	495
Company restaurant expenses:
	Food, paper and product costs			94		97		93			107			108		110		104		115		118		119			114
	Payroll and employee benefits			92		95		95			100			103		101		104		107		110		109			111
	Occupancy and other operating costs			80		73		80			81			87		81		88		87		91		93			96

		Total company restaurant expenses		266		265		268			288			298		292		296		309		319		321			321
Selling, general and administrative expenses				125		110		108			139			112		125		126		133		101		112			148
Property expenses				16		6		20			16			14		15		14		21		14		14			14
Other operating expenses (income), net				3		8		20			23			1		2		15		16		2		(5	)		(2	)

		Total operating costs and expenses		410		389		416			466			425		434		451		479		436		442			481

Income (loss) from operations				24		29		10			10			56		54		17		24		72		70			14

Net income (loss)			$	4	$	9	$	(5	)	$	(3	)	$	21	$	23	$	1	$	2	$	22	$	27		$	(12	)

Restaurant sales are affected by the timing and effectiveness of our advertising, new products and promotional programs. Our results of operations also fluctuate from quarter to quarter as a result of seasonal trends and other factors, such as the timing of restaurant openings and closings and our acquisition of franchise restaurants as well as variability of the weather. Restaurant sales are typically higher in our fourth and first fiscal quarters, which are the spring and summer months when weather is warmer, than in our second and third fiscal quarters, which are the fall and winter months. 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.

New restaurants typically have lower operating margins for three months after opening, as a result of start-up expenses. Similarly, many franchise restaurants that we acquire are under-performing and continue to have lower margins before we make operational improvements. The timing of new restaurant openings has not caused a material fluctuation in our quarterly results of operations. However, we acquired 80 franchise restaurants in the fourth quarter of fiscal 2005 and the first nine months of fiscal 2006, which resulted in increased revenues and operating expenses in the first three quarters of fiscal 2006 compared to fiscal 2005.

Our quarterly results also fluctuate due to the timing of expenses and charges associated with franchisee distress, our global reorganization, gains and losses on asset and business disposals, impairment charges, and settlement losses recorded in connection with acquisitions of franchise restaurants. Our results of operations for the quarter ended September 30, 2005 also reflect a $14 million loss on the early extinguishment of debt, recorded in connection with our July 2005 refinancing, and our results of operations for the quarter ended March 31, 2006 reflect the $33 million compensatory make-whole payment and $2 million of related taxes as compensation expense.

Liquidity and Capital Resources


	*Overview*

Historically, our cash flow from operations has been positive. Our cash flow from operations for the second half of fiscal 2006 will be adversely affected by our payment of the compensatory make-whole payment and the sponsor management termination fee. As a result of our proposed realignment of our European and Asian businesses, we expect to incur approximately $125 to $143 million in tax liability, which is expected to be partially offset by the utilization of approximately $25 million of net operating loss carryforwards and other foreign tax credits and be paid in the first quarter of fiscal 2007. We also expect to incur $10 million in other related costs during calendar 2006.

We had cash and cash equivalents of $197 and $432 million at March 31, 2006 and June 30, 2005, respectively. In addition, we currently have a borrowing capacity of $108 million under our $150 million revolving credit facility (net of $42 million in letters of credit issued under the revolving credit facility). We do not expect to borrow funds to meet our expected capital expenditures or other expenses for the foreseeable future unless we incur higher than expected costs in connection with our proposed realignment of our European and Asian businesses.

We expect that cash on hand, cash flow from operations and our borrowing capacity under our revolving credit facility will allow us to meet cash requirements, including capital expenditures and debt service payments, in the short-term and for the foreseeable future.

If additional funds are needed for strategic initiatives or other corporate purposes, we believe we could borrow additional funds or raise funds through the issuance of our securities or asset sales.


	*July 2005 Refinancing, February 2006 Financing and Dividend, the Compensatory Make-Whole Payment and the Sponsor Management Termination Fee*

On July 13, 2005, BKC entered into a $1.15 billion senior secured credit facility guaranteed by us, which we refer to as the July 2005 refinancing and which consisted of a $150 million revolving credit facility, a $250 million term loan, which we refer to as term loan A, and a $750 million term loan, which we refer to as term loan B. We used $1 billion in proceeds from the term loans A and B, $47 million of the revolving credit facility, and cash on hand to repay in full the existing senior secured credit facility and payment-in-kind notes payable to Diageo plc, the private equity funds controlled by the sponsors and certain directors that we incurred in connection with our acquisition of BKC and to pay $16 million in financing costs.

On February 15, 2006, we and BKC amended and restated the senior secured credit facility in order to declare and pay the February 2006 dividend and pay the compensatory make-whole payment and the sponsor management termination fee. At that time, we also borrowed an additional $350 million under our

senior secured credit facility, all the proceeds of which were used to pay, along with $55 million of cash on hand, the February 2006 dividend, the compensatory make-whole payment and financing costs and expenses. The amendments replaced the $746 million then outstanding under term loan B with a new term loan B, which we refer to as term loan B-1, in an amount of $1.096 billion.

The interest rate under the senior secured credit facility for term loan A and the revolving credit facility is at our option either (a) the greater of the federal funds effective rate plus 0.50% and the prime rate, which we refer to as ABR, plus a rate not to exceed 0.75%, which varies according to our leverage ratio or (b) LIBOR plus a rate not to exceed 1.75%, which varies according to our leverage ratio. The interest rate for term loan B-1 is at our option either (a) ABR, plus a rate of 0.50% or (b) LIBOR plus 1.50%, in each case so long as our leverage ratio remains at or below certain levels (but in any event not to exceed 0.75%, in the case of ABR loans, and 1.75% in the case of LIBOR loans).

The quarterly principal payments will begin on September 30, 2006 for term loan A and began on March 31, 2006 for term loan B-1 and the level of required principal repayments will increase over time. The maturity dates of term loan A, term loan B-1, and amounts drawn under the revolving credit facility are June 2011, June 2012, and June 2011, respectively.

The senior secured credit facility contains customary financial and other covenants and restrictions. For more information on our senior secured credit facility, see “Description of Our Credit Facility.”

We used the $350 million in additional borrowings under the February 2006 financing and $55 million in cash on hand to pay the $367 million February 2006 dividend and the $33 million compensatory make-whole payment on February 21, 2006 and $5 million in financing costs and expenses. We expect to use almost all of the net proceeds from this offering to repay $350 million of the amounts outstanding under our senior secured credit facility with the balance used for general corporate purposes. We also expect to pay the one-time $30 million sponsor management termination fee upon completion of this offering.


	*Other Debt Facilities*

As of March 31, 2006, we had agreements with foreign banks to provide lines of credit in an aggregate amount of $4 million. We had no outstanding borrowings under these lines of credit at March 31, 2006.


	*Comparative Cash Flows*

Operating Activities. Cash flows from operating activities were $21 million and $151 million in the first nine months of fiscal 2006 and fiscal 2005, respectively. The $130 million decrease was due primarily to the payment of interest on the PIK notes in connection with our July 2005 refinancing, partially offset by improved collections from franchisees and increases in net income. Our cash flow from operations will be negatively affected by our payment of the compensatory make-whole payment and the sponsor management termination fee in the second half of fiscal 2006.

Cash flows from operating activities increased to $218 million in fiscal 2005, compared to $199 million and $81 million for fiscal 2004 and fiscal 2003, respectively, primarily as a result of improved operating results.

Investing Activities. Cash used in investing activities was $42 million in the first nine months of fiscal 2006 and cash used by investing activities was $243 million in the first nine months of fiscal 2005. The $201 million decrease was due primarily to the net purchase of securities available for sale in the first nine months of fiscal 2005, and by reduced spending on acquisitions of franchisee operations and debt in the first nine months of fiscal 2005.

Cash used in investing activities was $5 million in fiscal 2005 compared to $184 million in fiscal 2004 and $587 million in fiscal 2003. In fiscal 2005, $122 million of securities purchased as short-term investments in fiscal 2004 were sold for $122 million. In fiscal 2003, we used $439 million to partially fund the acquisition of our predecessor and pay costs incurred in connection with the acquisition. In fiscal 2005,

we acquired franchise restaurants for $28 million compared to $6 million in fiscal 2004 and $14 million in fiscal 2003. We also acquired third party debt and loaned an aggregate of $24 million to franchisees in fiscal 2005 compared to $19 million in fiscal 2004.

Historically, the most significant ongoing component of our investing activities was for capital expenditures to open new company restaurants, remodel and maintain restaurant properties to our standards and to develop our corporate infrastructure in connection with our acquisition of BKC, particularly investment in information technology. The following table presents capital expenditures, by type of expenditure:


								For the
		For the						Nine Months
		Fiscal Year Ended						Ended
		June 30,						March 31,

		2003		2004		2005		2005		2006

		(In millions)
New restaurants		$	23	$	22	$	26	$	12	$	12
Real estate purchases			4		5		5		4		5
Maintenance capital			81		43		44		25		26
Other, including corporate			34		11		18		10		5

	Total	$	142	$	81	$	93	$	51	$	48

Maintenance capital includes renovations to company restaurants, including restaurants acquired from franchisees, investments in new equipment and normal annual capital investments for each company restaurant to maintain its appearance in accordance with our standards, which typically range from $10,000 to $15,000 per restaurant per year. Maintenance capital also includes investments in improvements to properties we lease and sublease to franchisees, including contributions we make towards improvements completed by franchisees.

Other capital expenditures include significant investments in information technology systems, as well as investments in technologies for deployment in restaurants, such as point-of-sale software.

Capital expenditures increased $12 million to $93 million in fiscal 2005, primarily as a result of increased development of new restaurants, improvements to acquired restaurants, and funding of corporate projects, partially offset by decreased spending on new equipment for company restaurants. Our fiscal 2003 capital expenditures reflect investments to remodel company restaurants and properties leased or subleased to franchisees, as well as substantial investments in corporate projects, primarily related to information technology as we continued to invest in a new corporate infrastructure, which our predecessor initiated in fiscal 2003.

We expect capital expenditures of approximately $98 million in fiscal 2006, of which $48 million was spent and $11 million was contractually committed as of March 31, 2006. In addition, we expect cash requirements for acquiring restaurants in fiscal 2006 to range from $10 million to $15 million, of which $7 million was spent as of March 31, 2006.

Financing Activities. Financing activities used cash of $214 million and $1 million in the first nine months of fiscal 2006 and fiscal 2005, respectively. The $213 million increase was due primarily to cash used in our July 2005 refinancing.

Financing activities used cash of $2 million and provided cash of $3 million and $719 million in fiscal 2005, fiscal 2004 and fiscal 2003, respectively. Cash provided by financing activities in fiscal 2003 related primarily to the financing of our acquisition of BKC.


	Realignment of our European and Asian businesses

During fiscal 2005, we realigned our business to operate as a global brand by moving to common systems and platforms, standardizing our marketing efforts, and introducing a uniform product offering

supplemented by offerings targeting local consumer preferences. We also reorganized our international management structure by instituting a regional structure for the United States and Canada, EMEA/ APAC and Latin America.

To further this initiative, we currently plan to regionalize the activities associated with managing our European and Asian businesses, including our intellectual property in EMEA/ APAC, in a new European and a new Asian holding company. Each of these new holding companies is expected to be responsible in its region for (a) management, development and expansion of the Burger King trade names and trademarks, (b) management of existing and future franchises and licenses for both franchise and company-owned restaurants, and (c) collections and redeployment of funds. Currently, all of our foreign intellectual property assets are owned by a U.S. company, with the result that all cash flows currently return to the United States and then are transferred back to these regions to fund their growing capital requirements. We believe this change will more closely align the intellectual property to the respective regions, provide funding in the proper regions and lower our effective tax rate going forward.

According to our current plans, the new holding companies anticipate acquiring the intellectual property rights from BKC, a U.S. company, in a transaction that would generate a taxable gain for BKC in the United States. As a result of this transfer, we expect to incur approximately $125 to $143 million in tax liability in the first quarter of 2007. We expect to partially offset this tax payment by the utilization of approximately $25 million of net operating loss carryforwards and other foreign tax credits and fund the payment from cash on hand or borrowings under our revolving credit facility. Approximately $100 million of existing deferred tax liability associated with this intellectual property would be eliminated in connection with this transaction and any difference between the deferred tax liability and the cash tax payment would be recognized as a prepaid tax asset and amortized over a period of approximately 10 years. We are currently in the process of finalizing our plans to execute this realignment. The final amount of taxes required to be paid and the impact to the consolidated financial statements will depend on the final structure, timing and implementation steps.

In addition to tax costs, we expect to incur consulting, legal, information technology, finance and relocation costs of approximately $10 million during calendar 2006 to implement this realignment. The relocation costs would be incurred and paid in connection with the relocation of certain key officers, finance, accounting and legal staff of the EMEA/ APAC businesses to locations within Europe and Asia.

Contractual Obligations and Commitments

The following table presents information relating to our contractual obligations as of June 30, 2005, except for long-term debt, which reflects our debt balance as of February 28, 2006, after giving effect to the February 2006 financing:


		Payment Due by Period

				Less Than						More Than
Contractual Obligations		Total		1 Year		1-3 Years		3-5 Years		5 Years

		(In millions)
Capital lease obligations		$	112	$	11	$	20	$	19	$	62
Operating lease obligations⁽¹⁾			1,359		143		266		220		730
Long-term debt, including current portion and interest⁽²⁾⁽³⁾			1,867		77		244		294		1,252

	Total	$	3,338	$	231	$	530	$	533	$	2,044


(1)	Operating lease obligations include lease payments for company restaurants and franchise restaurants that sublease the property from us. Rental income from these franchisees was $88 million and $91 million for fiscal 2004 and fiscal 2005, respectively.

(2)	We have estimated our interest payments based on (i) projected LIBOR rates, (ii) the portion of our debt we converted to fixed rates through interest rate swaps and (iii) the amortization schedule of the debt.

(3)	We intend to use the net proceeds of this offering to repay certain long term debt. See “Use of Proceeds.”

As of June 30, 2005, we leased 1,132 restaurant properties to franchisees. At June 30, 2005, we also leased land, buildings, office space and warehousing under operating leases, and leased or subleased land and buildings that we own or lease, respectively, to franchisees under operating leases. In addition to the minimum obligations included in the table above, contingent rentals may be payable under certain leases on the basis of a percentage of sales in excess of stipulated amounts. See Note 14 to our audited consolidated financial statements for further information about our leasing arrangements.

As of June 30, 2005, the projected benefit obligation of our defined benefit pension plans exceeded pension assets by $88 million. We have historically used Moody’s long-term corporate bond yield indices for Aa bonds (“Moody’s Aa rate”), plus an additional 25 basis points to reflect the longer duration of our plans, as the discount rate used in the calculation of the projected benefit obligation as of the measurement date. The Moody’s Aa rate as of the March 31, 2005 measurement date for fiscal 2006 was 5.61%, resulting in a discount rate of 5.86%. We made contributions totaling $17 million into our pension plans during fiscal year 2005. Estimates of reasonably likely future pension contributions are dependent on future events outside our control, such as future pension asset performance, future interest rates, future tax law changes, and future changes in regulatory funding requirements. We estimate contributions to our pension plans in fiscal year 2006 will be $1 million and estimated benefit payments will be $4 million.

In November 2005, we announced the curtailment of our pension plans in the United States and we froze future pension benefit accruals, effective December 31, 2005. These plans will continue to pay benefits and invest plan assets. We recognized a one-time pension curtailment gain of approximately $6 million in December 2005. In conjunction with this curtailment gain, we accrued a contribution totaling $6 million as of December 31, 2005, on behalf of those pension participants who were affected by the curtailment. The curtailment gain and contribution offset each other to result in no net effect on our results of operation.

We commit to purchase advertising and other marketing services from third parties in advance on behalf of the Burger King system in the United States and Canada. These commitments are typically made in September of each year for the upcoming twelve-month period. If our franchisees fail to pay required advertising contributions we could be contractually committed to fund any shortfall to the degree we are unable to cancel or reschedule the timing of such committed amounts. We have similar arrangements in other international markets where we operate company restaurants. At September 30, 2005, the time of the year when our advertising commitments are typically highest and at March 31, 2006, our advertising commitments totaled $135 million and $81 million, respectively.

In May 2005, we entered into an agreement to lease a building to serve as our global headquarters, which will allow us to move out of two facilities that currently serve in such capacity. The estimated annual rent for the 15-year initial lease term is expected to approximate the $6 million in annual rent for the two facilities to be replaced, and will be finalized upon completion of the building’s construction. We will also incur moving and tenant improvement costs in connection with our move to the building, to be partially offset by a tenant improvement allowance under the building’s lease, estimated at approximately $8 million, to be finalized upon completion of the building’s construction. We have not reflected the rent for this building in the table above, because it will not be finalized until construction is complete, which is expected in 2008. Similarly, we have not projected the costs of moving and making tenant improvements to the building for inclusion in the table above. One of our directors has an ownership interest in this building. See “Certain Relationships and Related Transactions— New Global Headquarters”.

Other Commercial Commitments and Off-Balance Sheet Arrangements


	*Guarantees*

We guarantee certain lease payments of franchisees, arising from leases assigned in connection with sales of company restaurants to franchisees, by remaining secondarily liable under the assigned leases of varying terms, for base and contingent rents. The maximum contingent rent amount payable is not determinable as the amount is based on future revenues. In the event of default by the franchisees, we have 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 $119 million at March 31, 2006, expiring over an average period of seven years.

Other commitments, arising out of normal business operations, were $8 million as of March 31, 2006. These commitments consist primarily of guarantees covering foreign franchisees’ obligations, obligations to suppliers, and acquisition-related guarantees.


	*Letters of Credit*

At March 31, 2006, we had $42 million in irrevocable standby letters of credit outstanding, of which $41 million were issued to certain insurance carriers to guarantee payment for various insurance programs such as health and commercial liability insurance and were issued under our $150 million revolving credit facility and $1 million was posted by Diageo plc on behalf of us and which relate to open casualty claim matters. Additionally, $1 million in letters of credit were issued relating to our headquarters. As of March 31, 2006, none of these irrevocable standby letters of credit had been drawn.

As of March 31, 2006, we had posted bonds totaling $2 million, which related to certain marketing activities.


	*Commitments Related to the FFRP Program*

In connection with the FFRP program we have made commitments:


	•	to fund loans to certain franchisees for the purpose of remodeling restaurants;

	•	to remodel certain properties we lease or sublease to franchisees;

	•	to provide temporary rent reductions to certain franchisees; and

	•	to fund shortfalls in certain franchisee cash flow beyond specified levels (to annual and aggregate maximums).

As of March 31, 2006 our remaining commitments under the FFRP program totaled $35 million, the majority of which are scheduled to expire over the next five years.


	*Vendor Relationships*

In fiscal 2000, we 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 June 30, 2005, we estimate that it will take approximately 17 years and 19 years to complete the Coca-Cola and Dr Pepper purchase commitments, respectively.


	*Other*

We expect to pay the $30 million sponsor management termination fee upon the completion of this offering.

We are self-insured for most workers’ compensation, health care claims, and general liability losses. These self-insurance programs are supported by third-party insurance policies to cover losses above our self-insured amounts. If we determine that the liability exceeds the recorded obligation, the cost of self-insurance programs will increase in the future, as insurance reserves are increased to revised expectations, resulting in an increase in self-insurance program expenses.

Impact of Inflation

We believe that our results of operations are not materially impacted by moderate changes in the inflation rate. Inflation and changing prices did not have a material impact on our operations in fiscal

2003, fiscal 2004, fiscal 2005 or the nine months ended March 31, 2006. Severe increases in inflation, however, could affect the global and U.S. economies and could have an adverse impact on our business, financial condition and results of operations.

Critical Accounting Policies and Estimates

This discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosures of contingent assets and liabilities. We evaluate our estimates on an ongoing basis and we base our estimates on historical experience and various other assumptions we deem reasonable to the situation. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Changes in our estimates could materially impact our results of operations and financial condition in any particular period.

Based on the high degree of judgment or complexity in their application, we consider our critical accounting policies and estimates to be:


	*Business Combinations and Intangible Assets*

The December 2002 acquisition of our predecessor required the application of the purchase method of accounting in accordance with SFAS No. 141, Business Combinations. The purchase method of accounting involves the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed. This allocation process involves the use of estimates and assumptions to derive fair values and to complete the allocation. Due to the high degree of judgment and complexity involved with the valuation process, we hired a third party valuation firm to assist with the determination of the fair value of the net assets acquired.

In the event that actual results vary from any of the estimates or assumptions used in any valuation or allocation process under SFAS No. 141, we may be required to record an impairment charge or an increase in depreciation or amortization in future periods, or both. See Note 1 and Note 7 to our audited consolidated financial statements included elsewhere in this prospectus for further information about purchase accounting allocations, related adjustments and intangible assets recorded in connection with our acquisition of BKC.


	*Long-Lived Assets*

Long-lived assets (including definite-lived intangible assets) are reviewed for impairment at least annually or more frequently if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Assets are grouped for recognition and measurement of impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. Assets are grouped together for impairment testing at the operating market level (based on geographic areas) in the case of the United States, Canada, the United Kingdom and Germany. The operating market asset groupings within the United States and Canada are predominantly based on major metropolitan areas within the United States and Canada. Similarly, operating markets within the other foreign countries with larger asset concentrations (the United Kingdom and Germany) are comprised of geographic regions within those countries (three in the United Kingdom and four in Germany). These operating market definitions are based upon the following primary factors:


	•	we do not evaluate individual restaurants to build, acquire or close independent of an analysis of other restaurants in these operating markets; and

	•	management views profitability of the restaurants within the operating markets as a whole, based on cash flows generated by a portfolio of restaurants, rather than by individual restaurants and area managers receive incentives on this basis.

In the smaller countries in which we have long-lived assets (the Netherlands, Spain, Mexico and China) most operating functions and advertising are performed at the country level, and shared by all restaurants in the country. As a result, we have defined operating markets as the entire country in the case of the Netherlands, Spain, Mexico and China.

Some of the events or changes in circumstances that would trigger an impairment review include, but are not limited to:


	•	significant under-performance relative to expected and/or historical results (negative comparable sales or cash flows for two years);

	•	significant negative industry or economic trends; or

	•	knowledge of transactions involving the sale of similar property at amounts below our carrying value.

When assessing the recoverability of our long-lived assets, we make assumptions regarding estimated future cash flows and other factors. Some of these assumptions involve a high degree of judgment and also bear a significant impact on the assessment conclusions. Included among these assumptions are estimating future cash flows, including the projection of comparable sales, restaurant operating expenses, and capital requirements for property and equipment. We formulate estimates from historical experience and assumptions of future performance, based on business plans and forecasts, recent economic and business trends, and competitive conditions. In the event that our estimates or related assumptions change in the future, we may be required to record an impairment charge in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.


	*Impairment of Indefinite-Lived Intangible Assets*

Indefinite-lived intangible assets consist of values assigned to brands which we own and goodwill recorded upon acquisitions. The most significant indefinite lived asset we have is our brand asset with a carrying book value of $900 million at March 31, 2006. We test our indefinite-lived intangible assets for impairment on an annual basis or more often if an event occurs or circumstances change that indicates impairment might exist. Our impairment test for indefinite-lived intangible assets consists of a comparison of the fair value of the asset with its carrying amount in each segment, as defined by SFAS No. 131, which are the United States and Canada, EMEA/ APAC, and Latin America. When assessing the recoverability of these assets, we make assumptions regarding estimated future cash flow similar to those when testing long-lived assets, as described above. In the event that our estimates or related assumptions change in the future, we may be required to record an impairment charge in accordance with SFAS No. 142, Goodwill and Other Intangible Assets.


	*Reserves for Uncollectible Accounts and Revenue Recognition*

We collect from franchisees royalties, advertising fund contributions and, in the case of approximately 11% of our franchise restaurants, rents. We recognize revenue that is estimated to be reasonably assured of collection, and also record reserves for estimated uncollectible revenues and advertising contributions, based on monthly reviews of franchisee accounts, average sales trends, and overall economic conditions. In the event that franchise restaurant sales declined, or the financial health of franchisees otherwise deteriorated, we may be required to increase our reserves for uncollectible accounts and/or defer or not recognize revenues, the collection of which we deem to be less than reasonably assured.


	*Accounting for Income Taxes*

We record income tax liabilities utilizing known obligations and estimates of potential obligations. A deferred tax asset or liability is recognized whenever there are future tax effects from existing temporary differences and operating loss and tax credit carry-forwards. When considered necessary, we record a valuation allowance to reduce deferred tax assets to the balance that is more likely than not to be realized. We must make estimates and judgments on future taxable income, considering feasible tax planning

strategies and taking into account existing facts and circumstances, to determine the proper valuation allowance. When we determine that deferred tax assets could be realized in greater or lesser amounts than recorded, the asset balance and income statement reflects the change in the period such determination is made. Due to changes in facts and circumstances and the estimates and judgments that are involved in determining the proper valuation allowance, differences between actual future events and prior estimates and judgments could result in adjustments to this valuation allowance.

We use an estimate of the annual effective tax rate at each interim period based on the facts and circumstances available at that time, while the actual effective tax rate is calculated at fiscal year-end.


	*Self-Insurance Programs*

We are self-insured for most workers’ compensation, health care claims, and general liability losses. These self-insurance programs are supported by third-party insurance policies to cover losses above our self-insured amounts. We record estimates of insurance liabilities based on independent actuarial studies and assumptions based on historical and recent claim cost trends and changes in benefit plans that could affect self-insurance liabilities. We review all self-insurance reserves at least quarterly, and review our estimation methodology and assumptions at least annually. If we determine that the liability exceeds the recorded obligation, the cost of self-insurance programs will increase in the future, as insurance reserves are increased to revised expectations, resulting in an increase in self-insurance program expenses.

Newly Issued Accounting Standards

In December 2004, the FASB issued Statement No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123(R)”), which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”). SFAS No. 123(R) supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”). SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. Under SFAS No. 123(R) the effective date for a nonpublic entity that becomes a public entity after June 15, 2005 is the first interim or annual reporting period beginning after becoming a public company. Further, SFAS No. 123(R) states that an entity that makes a filing with a regulatory agency in preparation for the sale of any class of equity securities in a public market is considered a public entity for purposes of SFAS No. 123(R). We expect to implement SFAS No. 123(R) effective July 1, 2006, the beginning of our next fiscal year.

As permitted by SFAS No. 123, we currently account for share-based payments to employees using APB No. 25’s intrinsic value method and, as such, generally recognize no compensation expense for employee stock options. As we currently apply SFAS No. 123 pro forma disclosure using the minimum value method of accounting, we are required to adopt SFAS No. 123(R) using the prospective transition method. Under the prospective transition method, non-public entities that previously applied SFAS No. 123 using the minimum value method continue to account for non-vested awards outstanding at the date of adoption of SFAS No. 123(R) in the same manner as they had been accounted to prior to adoption. For us, since we currently account for our equity awards using the minimal value method under APB No. 25, we will continue to apply APB No. 25 in future periods to equity awards outstanding at the date we adopt SFAS No. 123(R), and as a result not recognize compensation expense for awards issued prior to the date of this filing. The fair value of awards granted under APB No. 25 for the twelve months ended March 24, 2006 was based on contemporaneous valuations performed by an independent valuation services provider and by feedback received from potential underwriters for the purpose of discussing a potential initial public offering, utilizing the income approach and supported by the market comparable approach. The significant assumptions used in the income approach include historical and projected discounted net cash flows, and the assumptions used for the market comparable approach include a multiple of a financial performance measure of ours as compared to our industry peers. See “Dilution” for a discussion of the fair value and number of vested and unvested options outstanding as of March 31, 2006.

After the filing date of this registration statement, we will be required to apply the modified prospective transition method to any share-based payments issued subsequent to the filing of this registration statement but prior to the effective date of our adoption of SFAS No. 123(R). Under the modified prospective transition method, compensation expense is recognized for any unvested portion of the awards granted between filing date and adoption date of SFAS No. 123(R) over the remaining vesting period of the awards beginning on the adoption date, for us July 1, 2006.

For any awards granted subsequent to the adoption of SFAS No. 123(R), compensation expense will be recognized generally over the vesting period of the award. As a result of the transition method described above, we do not expect to recognize any compensation expense under SFAS No. 123(R) for awards outstanding at the date of this filing, unless the awards are modified after the date of this filing.

Quantitative and Qualitative Disclosures About Market Risk


	*Market Risk*

We are exposed to financial market risks associated with foreign currency exchange rates, interest rates and commodity prices. In the normal course of business and in accordance with our policies, we manage these risks through a variety of strategies, which may include the use of derivative financial instruments to hedge our underlying exposures. Our policies prohibit the use of derivative instruments for trading purposes, and we have procedures in place to monitor and control their use.


	*Foreign Currency Exchange Risk*

Movements in foreign currency exchange rates may affect the translated value of our earnings and cash flow associated with our foreign operations, as well as the translation of net asset or liability positions that are denominated in foreign countries. In countries outside of the United States where we operate company restaurants, we generate revenues and incur operating expenses and selling, general and administrative expenses denominated in local currencies. In fiscal 2005, operating income in these countries would have decreased or increased $1 million if all foreign currencies uniformly weakened or strengthened 10% relative to the U.S. dollar.

In countries where we do not have company restaurants, our franchise agreements require franchisees to pay us in U.S. dollars. Royalty payments received from the franchisees are based upon a percentage of sales that are denominated in the local currency and are converted to U.S. dollars during the month of sales. As a result we bear the foreign currency exposure associated with revenues and expenses in these countries. In fiscal 2005, operating income in these countries would have decreased or increased $3 million if all foreign currencies uniformly weakened or strengthened 10% relative to the U.S. dollar.


	*Interest Rate Risk*

We have a market risk exposure to changes in interest rates, principally in the United States. We attempt to minimize this risk and lower our overall borrowing costs through the utilization of derivative financial instruments, primarily interest rate swaps. These swaps are entered into with financial institutions and have reset dates and critical terms that match those of the underlying debt. Accordingly, any change in market value associated with interest rate swaps is offset by the opposite market impact on the related debt.

During the fiscal quarter ended September 30, 2005, we entered into interest rate swaps with a notional value of $750 million that qualify as cash flow hedges under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The interest rate swap helps us manage exposure to interest rate risk by converting the floating interest-rate component of approximately 75% of our total debt obligations outstanding at December 31, 2005 to fixed rates. A 1% change in interest rates on our existing debt of $1.35 billion would result in an increase or decrease in interest expense of approximately $6 million in a given year, as we have hedged $750 million of our debt.


	*Commodity Price Risk*

We purchase certain products, particularly beef, which are subject to price volatility that is caused by weather, market conditions and other factors that are not considered predictable or within our control. Additionally, our ability to recover increased costs is typically limited by the competitive environment in which we operate. We do not utilize commodity option or future contracts to hedge commodity prices and do not have long-term pricing arrangements. As a result, we purchase beef and other commodities at market prices, which fluctuate on a daily basis.

The estimated change in company restaurant food, paper and product costs from a hypothetical 10% change in average beef prices would have been approximately $8 million and $7 million in fiscal 2005 and the first nine months fiscal 2006, respectively. The hypothetical change in food, paper and product costs could be positively or negatively affected by changes in prices or product sales mix.

BUSINESS

Overview

We are the world’s second largest fast food hamburger restaurant, or FFHR, chain as measured by the number of restaurants and system-wide sales. As of March 31, 2006, we owned or franchised a total of 11,109 restaurants in 65 countries and U.S. territories, of which 1,227 restaurants were company-owned and 9,882 were owned by our franchisees. Of these restaurants, 7,262 or 65% were located in the United States and 3,847 or 35% were located in our international markets. Our restaurants feature flame-broiled hamburgers, chicken and other specialty sandwiches, french fries, soft drinks and other reasonably-priced food items. During our more than 50 years of operating history, we have developed a scalable and cost-efficient quick service hamburger restaurant model that offers customers fast food at modest prices.

We believe that the Burger King and Whopper brands are two of the world’s most widely-recognized consumer brands. These brands, together with our signature flame-broiled products and the Have It Your Way brand promise, are among the strategic assets that we believe set Burger King restaurants apart from other regional and national FFHR chains. Have It Your Way is increasingly relevant as consumers continue to demand personalization and choice over mass production. In a competitive industry, we believe we have differentiated ourselves through our attention to individual customers’ preferences, by offering great tasting fresh food served fast and in a friendly manner and by conducting recent advertising campaigns aimed at becoming a part of the popular culture.

We generate revenues from three sources: sales at our company restaurants; royalties and franchise fees paid to us by our franchisees; and property income from certain franchise restaurants that lease or sublease property from us. Approximately 90% of our restaurants are franchised and we have a higher percentage of franchise restaurants to company restaurants than our major competitors in the fast food hamburger category. We believe that this restaurant ownership mix provides us with a strategic advantage because the capital required to grow and maintain our system is funded primarily by franchisees, while giving us a sizeable base of company restaurants to demonstrate credibility with our franchisees in launching new initiatives. As a result of the high percentage of franchise restaurants in our system, we have lower capital requirements compared to our major competitors. Moreover, due to the steps that we have taken to improve the health of our franchise system in the United States and Canada, we expect that this mix will produce more stable earnings and cash flow in the future. Although we believe that this restaurant ownership mix is beneficial to us, it also presents a number of drawbacks, such as our limited control over franchisees and limited ability to facilitate changes in restaurant ownership.

Our History

Burger King Corporation, which we refer to as BKC, was founded in 1954 when James McLamore and David Edgerton opened the first Burger King restaurant in Miami, Florida. The Whopper sandwich was introduced in 1957. BKC opened its first international restaurant in the Bahamas in 1966. BKC opened the first Burger King restaurant in Canada in 1969, in APAC in Australia in 1971 and in EMEA in Madrid, Spain in 1975. BKC also established its brand identity with the introduction of the “bun halves” logo in 1969 and the launch of the first Have It Your Way campaign in 1974. BKC introduced drive-thru service, designed to satisfy customers “on-the-go” in 1975. In 1985, BKC rounded out its menu offerings by adding breakfast on a national basis.

In 1967, Mr. McLamore and Mr. Edgerton sold BKC to Minneapolis-based The Pillsbury Company. BKC became a subsidiary of Grand Metropolitan plc in 1989 when it acquired Pillsbury. Grand Metropolitan plc merged with Guinness plc to form Diageo plc in 2000. These conglomerates were focused more on their core operations than on BKC. On December 13, 2002, Diageo plc sold BKC to private equity funds controlled by the sponsors, and for the first time since 1967 BKC became an independent company, which has allowed us to focus exclusively on our restaurant business. We are a holding company formed in connection with the December 2002 acquisition in order to own 100% of BKC.

Our Industry

We operate in the FFHR category of the quick service restaurant, or QSR, segment of the restaurant industry. In the United States, the QSR segment is the largest segment of the restaurant industry and has demonstrated steady growth over a long period of time. According to NPD Group, Inc., which prepares and disseminates the Consumer Report of Eating Share Trends (CREST), QSR sales have grown at an average annual rate of 4.8% over the past 10 years, totaling approximately $206 billion for the year ended October 31, 2005 and up 4.5% over the same period last year. According to NPD Group, Inc., QSR sales are projected to increase at an annual rate of 4% between 2006 and 2011. We believe this attractive historical and projected growth is the result of a number of favorable trends:


	•	an increasing percentage of meals being eaten out of the home;

	•	growing disposable incomes;

	•	favorable demographic trends in the Echo Boomer generation (those born between the late 1970s and early 1990s), who are typically inclined toward QSR dining;

	•	new marketing vehicles such as the internet and video games, which lend themselves to marketing QSR concepts; and

	•	the continued expansion of QSR menu offerings into more varied and premium products.

Furthermore, we believe the QSR sector is generally resistant to economic downturns, due to the value that QSRs deliver to consumers, as well as some “trading down” by customers from other restaurant industry segments during adverse economic conditions, as they seek to preserve the “away from home” dining experience on tighter budgets.

According to NPD Group, Inc., the FFHR category is the largest category in the QSR segment, generating sales of over $50 billion in the United States for the year ended October 31, 2005, representing 27% of total QSR sales. The FFHR category grew 3.6% in terms of sales during the same period and, according to NPD Group, Inc., is expected to increase at an average rate of 4.2% per year over the next five years. For the year ended October 31, 2005, the top three FFHR chains (McDonald’s, Burger King and Wendy’s) accounted for 73% of the category’s total sales, with 15% attributable to Burger King.

The FFHR category is highly competitive with respect to price, service, location and food quality. During the past year, the FFHR category has experienced flat or declining customer traffic, although sales are up due to the sale of premium products. In order to increase sales, we believe that FFHR chains have focused on improving menu offerings and drive-thru efficiency, growing breakfast and late-night sales and accepting credit/debit cards.

Our Competitive Strengths

We believe that we are well-positioned to capitalize on the following competitive strengths to achieve future growth:



	•	Distinctive brand with global platform. We believe that our Burger King and Whopper brands are two of the most widely-recognized consumer brands in the world. In 2005, Brandweek magazine ranked Burger King number 15 among the top 2,000 brands in the United States. We also believe that consumers associate our brands with our signature flame-broiled products and Have It Your Way brand promise. According to National Adult Tracking data, our flame-broiled preparation method is preferred over frying, and our flagship product, the Whopper sandwich, is the number one large branded burger in the United States. We believe the ability of our major competitors to duplicate our flame-broiled method is limited by the substantial cost necessary to convert their existing systems and retrain their staff.


	•	Attractive business model. Approximately 90% of our restaurants are franchised, which is a higher percentage than our major competitors in the fast food hamburger restaurant category. We believe that our franchise restaurants will generate a consistent, profitable royalty stream to us, with minimal

associated capital expenditures or incremental expense by us. We also believe this will provide us with significant cash flow to reinvest in strengthening our brand and enhancing shareholder value.

• Established and scalable international business. We have one of the largest restaurant networks in the world, with more than 3,800 franchise and company-owned restaurants outside the United States. We believe that the demand for new international franchise restaurants is growing and our established infrastructure is capable of supporting substantial restaurant expansion in the years ahead.

• Experienced management team with significant ownership. We have assembled a seasoned management team with significant experience. John Chidsey, our Chief Executive Officer, has extensive experience in managing franchised and branded businesses, including the Avis Rent-A-Car and Budget Rent-A-Car systems, Jackson Hewitt Tax Services and PepsiCo. Russ Klein, our Chief Marketing Officer, has 26 years of retail and consumer marketing experience, including at 7-Eleven Inc. Ben Wells, our Chief Financial Officer and Treasurer, has 25 years of finance experience, including at Compaq Computer Corporation and British Petroleum. Jim Hyatt, our Global Operations Officer, has more than 30 years of brand experience as both a franchisee and senior executive of Burger King. In addition, other members of our management team have worked at McDonald’s, Taco Bell, The Coca-Cola Company and KFC. Ten out of 14 members of our management team are new to BKC in the last three years. Following this offering, our executive officers will own approximately 1.2% of our outstanding common stock, on a fully diluted basis, which we believe aligns their interests with those of our other shareholders.

Our Business Strategy

We intend to achieve further growth and strengthen our competitive position through the continued implementation of the following key elements of our business strategy:


	•	*Drive sales growth and profitability of our U.S. business.* Although we have achieved eight consecutive quarters of comparable sales growth and increased average restaurant sales by 11% since fiscal 2003 in our U.S. business, we believe that we have a long way to go to reach our comparable sales and average restaurant sales growth potential in the United States. We also believe that our purchasing scale, coupled with our initiatives to promote restaurant efficiency, will further improve restaurant-level profitability. We have reduced the capital costs to build a restaurant which, together with the improved financial health of our franchise system in the United States, is leading to increased restaurant development in our U.S. business.


	We intend to continue to meet our customers’ needs and drive sales growth and profitability by implementing the following strategic initiatives:


	•	Promote innovative advertising campaigns. We believe that our innovative and award-winning advertising campaigns have helped drive improvements in comparable sales and average restaurant sales. Our advertising campaigns have outperformed our main competitors in terms of message recall, brand recall and likeability. Our marketing strategy is focused on our core customer, who we refer to as the SuperFan. SuperFans are consumers who reported eating at a fast food hamburger outlet nine or more times in the past month. We plan to concentrate our marketing on television advertising, which we believe is the most effective way to reach the SuperFan.

	•	Launch new products to fill gaps in our menu. The strength of our menu has been built on the core assets of allowing consumers to customize their hamburgers “their way” and using our distinct flame-broiled cooking platform to make better tasting hamburgers. Our menu strategy seeks to optimize our menu by further leveraging these core assets while improving menu variety. To fill product gaps in our breakfast, late night and snack offerings, we expect to launch a variety of new products over the next year, such as breakfast sandwiches, cheesy hash browns and a new line of soft serve ice cream products. In addition, work is underway to launch over 15 other products and product improvements in the second half of fiscal 2006 and 2007.


	•	Enhance the price/value proposition of our products. We will continue to use a variety of strategies to enhance the price/value proposition offered to our customers, including value meals, limited time offers, free samples and coupon mailings. We have also developed a national BK Value Menu which was launched in February 2006. The BK Value Menu includes six core items priced at no more than $1 and local options to sell other products at varying maximum prices.


	•	Improve restaurant operations. We will continue our efforts to improve restaurant operations by making our restaurants clean and safe, serving hot and fresh food, providing fast and friendly service to our customers and implementing systems to measure our performance. We believe that these initiatives have significantly improved the customer experience and resulted in increased comparable sales and average restaurant sales growth. As a result of these efforts, our key customer satisfaction and operations metrics were at all-time highs in March 2006, and we were rated ahead of McDonald’s and Wendy’s in the overall rankings of the annual drive-thru study published by QSR Magazine, a leading industry publication.


	•	Extend hours of operations. For the convenience of our customers and to more effectively compete with other quick service restaurant chains, we have implemented a program to encourage U.S. franchisees to keep extended hours, particularly at the drive-thru window. As an incentive to franchisees, we will provide free merchandising materials and a one-time cash payment of $400 for each restaurant that stays open until 2:00 a.m. on Thursdays, Fridays and Saturdays for five consecutive months. Additional cash incentives will be provided to franchisees that agree to operate restaurants on a 24-hour basis for one full year. We believe that reducing the gap between our operating hours and those of our competitors will be a key component in improving customer traffic and driving future growth in comparable sales and average restaurant sales.


	•	Improve restaurant profitability. We believe that significant opportunities exist to enhance restaurant profitability by better utilizing our fixed cost base and continuing to explore ways to reduce variable costs. For example, we have negotiated arrangements with strategic vendors which we believe will deliver cost reductions and profit improvement for our franchisees. In addition, we have developed a labor scheduling system which we believe will reduce labor costs. We have started to implement this system in our U.S. company restaurants and expect to begin introducing it to U.S. franchisees in fiscal 2007. We have also developed a new flexible broiler that we expect will reduce utility costs when introduced, which is expected in fiscal 2007.


	•	Improve return on investment. We are focused on making Burger King a more attractive investment by improving the return on invested capital for ourselves and our franchisees. We have designed a new, smaller restaurant model that allows us and our franchisees to reduce the current average non-real estate costs to build a new restaurant from approximately $1.2 million to approximately $900,000. We have opened seven new restaurants in this format to date, with an additional five to eight scheduled to open in calendar 2006. The cost reductions achieved from this new restaurant model are now being reviewed to understand which potential reductions can be applied to the remodeling of existing restaurants. As a result of this ongoing effort and other cost saving initiatives, we have identified and recommended over $115,000 worth of savings for standard remodels.


	•	*Expand our large international platform.* We will continue to build upon our substantial international infrastructure, franchise network and restaurant base, focusing mainly on under-penetrated markets where we already have a presence. Internationally we are about one-fourth of the size of our largest competitor, which we believe demonstrates significant growth opportunities for us. We have developed a detailed global development plan to seed worldwide growth over the next five years. We expect that most of this growth will come from franchisees in our established markets, particularly in Germany, Spain and Mexico, although we also intend to aggressively pursue market expansion opportunities in Brazil. In addition, we will focus on expanding our presence in many of our under-penetrated European and Asian markets.

We believe that our established infrastructure is capable of supporting substantial restaurant expansion in the years ahead with a limited increase in general and administrative costs because we believe we have already made the necessary investments in personnel and systems to support our projected growth. For example, we have increased the number of management, development and operations personnel in EMEA and hired a new president for APAC. We have also made significant investments in our global information technology infrastructure that are scalable for future growth, such as deploying common platforms for SAP software across all regions, implementing an internet-based communication system for international franchisees and developing an internet-based system for the collection of key franchisee operational and financial metrics.



	•	*Continue to build relationships with franchisees.* We succeed when our franchisees succeed, and we will continue building our relationships with our franchisees. In the past two years, we have held regional conferences with franchisees to promote our operations and marketing initiatives and share best practices, and we intend to continue holding these conferences in the future. We have established quarterly officer and director visits to franchisees, which have more closely aligned the people in our company to our franchise base. We have implemented advisory committees for marketing, operations, finance and people, which we believe will ensure that franchisee expertise and best practices are incorporated into all U.S. system initiatives prior to rollout. We held our first global franchisee convention in Las Vegas in May 2005, and the second global franchisee convention was held in Orlando, Florida in April 2006. We will continue to dedicate resources toward the creation of a cohesive organization that is focused on supporting the Burger King brand globally.


	•	*Become a world-class global company.* Since 2004, we have integrated our domestic and international operations into one global company. For fiscal 2006, we have developed a global marketing calendar to create more consistent advertising and brand positioning strategies across our markets. We have also established a global product development team to reduce complexity and increase consistency in our worldwide menu. We expect to leverage our global purchasing power to negotiate lower product costs and savings for our restaurants outside of the United States and Canada. We believe that the organizational realignments that we have implemented will position us to execute our global growth strategy, while remaining responsive to national differences in consumer preferences and local requirements.

Global Operations

We operate in three repo


		associated capital expenditures or incremental expense by us. We also believe this will provide us with significant cash flow to reinvest in strengthening our brand and enhancing shareholder value.

	•	Established and scalable international business. We have one of the largest restaurant networks in the world, with more than 3,800 franchise and company-owned restaurants outside the United States. We believe that the demand for new international franchise restaurants is growing and our established infrastructure is capable of supporting substantial restaurant expansion in the years ahead.


	•	Experienced management team with significant ownership. We have assembled a seasoned management team with significant experience. John Chidsey, our Chief Executive Officer, has extensive experience in managing franchised and branded businesses, including the Avis Rent-A-Car and Budget Rent-A-Car systems, Jackson Hewitt Tax Services and PepsiCo. Russ Klein, our Chief Marketing Officer, has 26 years of retail and consumer marketing experience, including at 7-Eleven Inc. Ben Wells, our Chief Financial Officer and Treasurer, has 25 years of finance experience, including at Compaq Computer Corporation and British Petroleum. Jim Hyatt, our Global Operations Officer, has more than 30 years of brand experience as both a franchisee and senior executive of Burger King. In addition, other members of our management team have worked at McDonald’s, Taco Bell, The Coca-Cola Company and KFC. Ten out of 14 members of our management team are new to BKC in the last three years. Following this offering, our executive officers will own approximately 1.2% of our outstanding common stock, on a fully diluted basis, which we believe aligns their interests with those of our other shareholders.