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Executives

Amy Wagner – Sr. VP IR

John Chidsey – CEO

Ben Wells – CFO

Russ Kline - President Global Marketing, Strategy, and Innovation

Analysts

Steven West - Stifel Nicolaus

Matt DiFrisco - Oppenheimer

John Glass - Morgan Stanley

Steven Kron - Goldman Sachs

David Palmer – UBS

John Ivankoe – JP Morgan

Jeffery Bernstein – Barclays Capital

Nicole Miller Regan – Piper Jaffray

Jeffrey Omohundro - Wachovia

Joseph Buckley - Banc of America

Mitchell Speiser - Buckingham Research

Thomas Forte - Telsey Group

Keith Siegner – Credit Suisse

Jason West - Deutsche Bank

Penny Howard – Research Edge

Burger King Holdings, Inc. (BKC) Q1 2009 Earnings Call October 31, 2008 10:00 PM ET

Operator

Good day, ladies and gentlemen. Thank you very much for your participation and welcome to the Burger King Holdings first quarter fiscal year 2009 earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s conference, Ms. Amy Wagner, Senior Vice President of Investor Relations and Global Communications; please proceed.

Amy Wagner

Good morning, everyone. Welcome to Burger King's first quarter fiscal 2009 conference call. We have prepared an earnings call PowerPoint presentation to assist in presenting our first quarter results. These slides, as well as the audio broadcast of this call, may be accessed through our Investor Relations page on our website at www.bk.com. Both the audio portion and the slideshow will be archived on our website where it will be available for future reference.

Presenting on the call today are John Chidsey, Chairman and Chief Executive Officer, and Ben Wells, Chief Financial Officer. Also with us on the call is Russ Kline, President Global Marketing, Strategy, and Innovation, who will be available to answer any questions you may have about our marketing, advertising and products during the Q&A portion of the call.

We’ll spend about 20 minutes today discussing our first quarter performance before opening the call up for questions.

Before we begin today, I would like to remind everyone that this conference call includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management’s current expectations based on currently available data.

However, actual results may be impacted by future events and uncertainties and could differ materially from what is discussed today. More detailed information about these uncertainties is contained within the forward-looking statements section of this morning’s earnings release.

The presentation also includes non-GAAP financial measures as defined in Regulation G. The reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures and other information required by Reg G are also included in the appendix to the presentation.

Now with that, I will turn the call over to John.

John Chidsey

Thank you Amy and thank you for joining us on today’s call. This morning we will discuss our worldwide first quarter fiscal 2009 results and provide our outlook for the remainder of fiscal 2009. We’ll then move to the Q&A portion of the call.

These are certainly unprecedented times and I’m very pleased with our team’s performance and our ability to deliver results in spite of many economic and consumer pressures. We stayed focused on executing against our strategic growth drivers and made progressive improvements across all our strategic growth pillars.

We were able to post solid top line revenue growth of 12% and grew our earnings per share by 3% or 9% on an adjusted basis. Our business fundamentals are strong, our roadmap remains on course, we have not wavered.

Our guests continue to seek our affordable pricing, elevated quality and convenience. Our franchisees continue to open new restaurants globally and invest in our current infrastructure, moving the brand forward in terms of image and appeal.

We believe our brand is positioned to perform well despite the current economic slowdown as proven by our multi year track record of positive comp sales, net restaurant growth, increasing ARS, increasing revenues, and profits.

Specifically during the quarter we continued to lead the market with our innovative products and build upon our successful barbell menu strategy. Globally we capitalized on several Whopper Sandwich limited time offerings and rolled our new regional favorites.

In July we launched our new Kid’s Meal in the US which includes BK Fresh Apple Fries, and Kraft Macaroni and Cheese which meets our stringent nutritional guidelines and we certainly delivered value to our guest during a time when value for the money is paramount.

We introduced both a breakfast and lunch value Wrapper. Not only did these products play a key role in building out our value menu offerings but they also helped drive traffic into our most opportunistic dayparts; breakfast and late night.

We also promoted several high margin products including the Cheesy Bacon Tendercrisp and the Steakhouse Burger, both aimed at satisfying our guests’ demand for affordable, indulgeable products while generating a higher average ticket.

Also contributing to sales were family promotions used throughout many markets including Pokemon, Crayola and Neopets. And in the US we continued to appeal to super families with our [Jonas] Brothers Burning Up Tour promotional tie-in.

Additionally we implemented pricing in many markets where we believe we have pricing elasticity. Using our four corners pricing tool, our analysis concluded that we had significant pricing power in certain markets and we appropriately increased prices in many of our company restaurants partially offsetting the impact of historically high commodity costs.

Our operations teams continue to elevate the guest experience with improvements across all operation metrics. We have successfully rolled out our new flexible broiler to over a third of our restaurants worldwide, and we will begin offering new products on this platform starting in our fiscal third quarter.

We integrated 72 newly acquired restaurants into our US company portfolio, seamlessly integrating them while leveraging our existing overhead. Our G&A as a percentage of revenue has once again improved quarter-over-quarter with a 100 basis point improvement.

And we excelled in one of our biggest growth drivers, development. We increased our restaurant count in the quarter by 67 net new units, the highest number first quarter net restaurant openings in seven years and we are currently on target to increase our worldwide footprint by a total of 350 to 400 net new restaurants during this fiscal year representing a worldwide net restaurant growth of 3% to 3.5%; one of the highest in the industry.

On page four is our scorecard, we continue to post great results in most of our key operating metrics. Again our net restaurant count increased markedly and we have 342 more restaurants open today then we did a year ago.

We recorded our 19th quarter of worldwide positive comps of 3.6%, well on our way to posting five consecutive years of positive comp sales. In the US and Canada we attained our 18th consecutive quarter of positive comps of 3%.

Comps across the globe were fueled by the implementation of strategic pricing as well as a strong mixture of indulgent and value product offerings and promotional tie-ins. Worldwide first quarter ARS increased 5% to $343,000 compared to $327,000 in the same quarter last year.

And trailing 12-month average restaurant sales reached a new record high, an 8% increase to $1.32 million compared to $1.22 million in the same period last year. During the quarter company restaurant margins were clearly impacted by historically high commodity cost.

On a net basis food inflation impacted margins by 160 basis points, substantially offset by strategic pricing. Our US and Canada reimaging program also impacted margins by 30 basis points. To date we have now completed the reimaging of 46 restaurant in our US and Canada company portfolio.

Given our forecasted sales uplifts we expect the program will begin posting net increases in the second half of our fiscal year. Additionally regulatory and contractual increases in hourly wages in our German company owned restaurants added another 80 basis points of pressure.

As we forecasted commodity prices reached historical highs in July and since then we have seen a substantial decline in costs across many of our food items. We are therefore expecting margins to improve in the second quarter.

Our royalty rate continues to accrete as more new restaurants come on board and restaurants renewed at the higher royalty rate. Our net debt to EBITDA ration was 2x, a similar level compared to last year. Our increased trailing 12-month EBITDA offset the slight increase in our borrowings during the quarter due to the use of our revolver to help fund the acquisition of 72 franchise restaurants.

Most of these funds were repaid from cash generated from operations during the quarter. Before turning the call over to Ben, I want to state that despite record high commodity costs and additional headwinds from the currency and interest rate markets, we still met our internal earnings plan for the quarter.

This demonstrates that our highly franchised business model, multiple growth levers, and consistent maniacal focus are true differentiators uniquely positioning us to deliver earnings results now and in the future driving profitable growth and significant returns for our shareholders.

Ben Wells

Thanks John and good morning to everyone. Our quarter’s highlights are depicted on page five of the presentation. The company posted strong top line growth despite the tough macroeconomic environment.

Revenue of $674 million was up across all categories and grew 12% compared to the same period last year. Quarter-over-quarter EBITDA was $116 million compared to $117 million. EBITDA adjusted for $3 million in one-time charges related to the acquisition of company restaurants was $119 million, up 2% versus the prior year period.

As John mentioned EBITDA was significantly impacted by historical high commodity inflation, increased labor costs in our German company restaurants and expenses related to our US and Canadian reimaging program.

Also of significance are $9 million of incremental expenses incurred within our other income and expense category as compared to zero in the same period last year, $5 million of the increase consisted of primarily non-cash expenses, resulting from volatility in foreign currencies and interest rate markets, specifically $3 million was related to the re-measurement of foreign denominated assets and $2 million of net charges from the use of foreign currency forward contracts.

The $9 million also included $2 million of one-time non-cash charges related to the acquisition of franchise restaurants excluded from adjusted EBITDA. Going forward we expect OI&E to be a quarterly expense in the range of $2 million to $3 million but ultimately the markets will determine what the actual expenses will be in any given quarter.

EPS increased 3% to $0.36 quarter-over-quarter while adjusted EPS increased 9% to $0.38 compared to $0.35 in the same quarter last year. Included in the adjusted EPS of $0.38 was $0.02 of expense resulting from the unusual volatility in the foreign currency and interest rate markets. The year-over-year increase in EPS was boosted by G&A leverage, lower interest expense driven by lower interest rates and reduced tax rate.

Again our quarterly results were inline with our internal forecast in a full year plan. The quarter’s effective tax rate was 34.2% compared to 38.8% in the same quarter last year. This quarter’s tax rate was aided by higher foreign income tax in lower rate jurisdictions, and lower US income earned in the highest tax rate jurisdictions.

For the year as US income improves we anticipate and overall consolidated tax rate of 36.5%. During the quarter we opportunistically repurchased $18 million worth of shares. Therefore our diluted shares outstanding decreased by a net $400,000 to $137.3 million including the dilutive effect of executive stock option exercises.

Turning to page six of the presentation for the quarter revenues increased in all reporting segments as a result of positive comps, significant net restaurant expansion and an increased number of company restaurants.

In the US and Canada total revenues grew by 14%, income from operations decreased 12% and adjusted income from operations decreased 9%. Revenues benefited from the acquisition of 141 company restaurants and the opening of 26 net new restaurants over the past 12 months.

Positive comps of 3% lapped 6.6%, our toughest quarterly comparison in four years also contributed to revenue growth. As John mentioned earlier, our top line benefited from super family promotional tie-ins and from the launch of new indulgent and value priced menu offerings.

Company restaurant margin decreased 320 basis points to 12.1% from 15.3% in the same period last year. Our total food costs net of pricing was up approximately 7% in the US quarter-over-quarter driven by a sharp increase in feed costs of 23%. As a result food, [inaudible] on product and paper costs increased 230 basis points.

We also incurred 30 basis points of mainly non-cash expense largely related to accelerated appreciation on asset disposals from reimaged restaurants. These costs were partially offset by higher comps. In mid August we used our four corner pricing tool to assess product pricing in our company restaurants.

As a result of our analysis we increased our prices by approximately 200 basis points in the US to help offset some of the impact of food inflation on our P&L. Net of the reimaging program which impacted margin by 40 basis points, CRM would have been 12.5% or 280 basis points lower compared to the same quarter last year.

EMEA and APAC revenues grew 7% and income from operations grew 15% over the same period last year. These increases were largely driven by strong comp sales of 4.8% and 4.6% in the same quarter last year and the opening of 214 net new restaurants over the last 12 months.

Foreign exchange rates positively effected revenues by $11 million and earnings by $1 million, segment profitability was positively impacted by our ongoing portfolio management strategy, including benefits realized from the closure and re-franchising of underperforming UK company restaurants.

Segment margins also benefited from favorable food, paper and product costs quarter-over-quarter. From an operating income perspective these benefits more then offset decreased due to the re-franchising of 11 company restaurants in Germany. Our focus on indulgent and margin generating add-on products continued with Whopper sandwich limited offerings across many markets, ribs and mozzarella sticks in the UK, BK Fusion Real Ice Cream and the Long Chicken sandwich in Spain and the caramel [beaned] cup coffee in Korea.

In Latin America revenues grew by 19% and income from operations increased 11%. Earnings were primarily driven by strong comps of 5.2% compared to 3.8% in the same period last year and the opening of 102 net new restaurants during the last 12 months.

The strong acceleration in comp sales is reflective of the continued strength in Central and South America as well as our Caribbean markets. Comps were driven by our barbell menu strategy featuring an everyday value platform like our new Come Como Rey, or Eat Like A King value menu launched in Mexico and our new Steakhouse burger rollout in Central America and throughout the Caribbean.

I want to reiterate even with US commodity pressures because of our global diversified company restaurant base, our food and paper costs were only impacted by 160 basis points worldwide quarter-over-quarter.

As we said in August on our fiscal year-end call commodity costs came in at their historical high in July and have significantly come down especially during the last two months. The general economy is afforded a rapid decline in many of the food costs inside our commodity basket.

Going forward costs should decrease significantly. We are already seeing substantial decreases in commodities such as corn, wheat, oils, beef, and cheese. We will anticipate an overall commodity cost increase of 5% to 7% year-over-year for fiscal 2009.

Commodity pressures will have a bigger impact on our company restaurant margin in the first half as we expect moderation and even improvements beginning in the second half of our fiscal year as compared to the same period last year.

Moving to page seven, this page depicts our capital structure and uses of cash. In the first quarter we effectively utilized our balance sheet to pay a quarterly dividend, repurchase our shares, build new company restaurants, and reimage existing ones.

We also acquired 72 restaurants from one of our largest franchisees in the US as part of our ongoing portfolio management. Even amidst the current economic slowdown, our ability to generate solid cash flow is a fundamental benefit of our highly franchised business model.

We generated an incremental $13 million in cash flow from operations over this period. Recognizing the strength of our solid capital structure, Fitch ratings upgraded our long-term issuer default rating to BB from BB minus and revised our credit outlook to positive citing our same store sales momentum, substantial cash flow growth, and stable debt balances as key factors.

During the quarter we spent $33 million in CapEx including $15 million on our US and Canadian reimaging program where we significantly upgraded 14 of our new company restaurants. We also spent $8 million on building new restaurants worldwide. We believe that deploying our capital to our company restaurant portfolio is a superior use of our cash as it is generating compelling average rate of return on investments.

As a reminder we reimaged a total of 32 company restaurants in the US and Canada in fiscal 2008 and plan on reimaging approximately 40 restaurants this fiscal year. During the first quarter we incurred $1 million of expense primarily related to accelerated depreciation and in the second quarter we expect to incur and additional $1 million to $2 million.

Program costs should be substantially offset by incremental sales lifts expected from the reimaged restaurants. As we have said in the past, the program is intended to become self funding, having minimal net impact on earnings starting in the second half of this fiscal year.

We met our own internal plan for the quarter and our earnings are forecasted to increase as we continue to execute on our multiple growth drivers. Our underlying business and balance sheet are strong and we are uniquely positioned to continue investing in our brand driving future growth.

John will now walk us through an update on each of our growth drivers.

John Chidsey

Thanks Ben, during the last several years we fixed what was broken, built a solid foundation and are now executing the growth drivers that will propel us into the future. Today the brand is solid, and the business fundamentals remain strong.

The brand’s momentum continues in the areas of development, operations excellence, marketing and products. As we’ve said many times before we have so much runway ahead of us in terms of development. We are in 72 countries but we only have 100 plus restaurants in just nine of them.

So our job is to continue to expand in existing markets and penetrate just a few new ones and as we grow we will continue to leverage our overhead and infrastructure. Our development team is off to a great start this year, we are currently on track to add 350 to 400 net new restaurants in fiscal 2009.

Currently our franchisees in the US are still able to get financing and internationally our franchisees tend to be larger, well-capitalized organizations and the company intends to build restaurants in key company markets using cash generated from operations.

I thought you may be interested in some of our new development activities which are improving curb appeal and enhancing the guest dine-in experience. They are pictured on page 10 of the presentation.

As you may have heard we are rolling out our first Whopper Bar this fiscal year at Universal Studios in Orlando. These new Whopper Bars are intended to reach new guests in new locales with high foot traffic such as college campuses and casinos.

We are also rolling out our new design concept called 20/20. The new design package will be implemented in new Burger King restaurants globally. These restaurants showcase a fresh eye-catching design and a modern décor the first of which will open in Bogotá, Columbia during our third quarter.

Our design team has also developed retrofit packages which can be used to convert rock-engineered buildings with 20/20 elements and graphics. And our remodeling efforts continue. For approximately the next five years we expect about 7% to 8% annually of the US and Canada system to be significantly remodeled in order to enhance the guest experience and in turn drive sales.

Another significant driver of performance is our commitment to our global operations platforms and our progressive improvement across all areas of execution. Our Ops excellence, GuestTrac scores and speed of service performance have increased as we have worked hard to standardize processes globally.

Our improvement in turnover and employee satisfaction scores have improved and we have been successful in reducing the competitive hours gap. Our most recent survey indicates that we have reduced the overall competitive hours gap to 7.5 hours on average per week per restaurant in the US, down from 14.5 average hours in January, 2008 when we completed our last survey.

Also we rolled out our new flexible broiler to 37% of the total system worldwide. Not only does this new cooking platform enable us to provide our guests with new offerings never before available in QSR, it reduces energy consumption and food costs by fully cooking our extra thick burgers and chicken breasts from fresh frozen.

We have achieved our 19th consecutive quarter of worldwide positive comp sales through innovative marketing alliances, creative advertising, and great tasting products and our marketing leadership continues.

On page 12 of the presentation we provided you with a glimpse into our fiscal 2009 marketing and products calendar. We have once again partnered up with proven properties such as Sponge Bob, The Simpsons, the NFL and iDog.

We have created a sequel to the wildly popular Whopper [Freak Out] campaign, and will generate excitement around a new gaming promotion that will be available in time for the holidays. And we believe our movie lineup with The Pink Panther, Star Trek, and Transformers will resonate with super fans and super families globally.

I’m also very pleased with our fiscal 2009 product pipeline. All of the products pictured on the presentation have market tested extremely well and will be rolling out throughout the fiscal year. Our product team created several offerings that are sure to please those value minded and indulgent seeking guests.

We are also focusing on products that will drive traffic in the breakfast and late-night dayparts as well as those aimed at strengthening our snacking and dessert portfolio.

In conclusion we recognize that we are operating in a difficult macroeconomic environment but we have the focus and discipline to execute on our plan. Our business fundamentals remain strong and we believe that our brand is well positioned to drive future profitable growth.

We remain focused on our proven strategies, expanding our global footprint, accelerating our company restaurant reimaging program, providing our guests with an exceptional value for the money dining experience, and maintaining our industry leading marketing.

Our strategies remain on course, therefore we are reaffirming our full year forecast for 12% to 15% EPS growth which equates to an EPS range of $1.54 to $1.59 based on our outlook for continued positive comp sales, significant restaurant development, and increased income from operations.

Before opening the call for questions, I want to address a question that has already come up numerous times, how do you get to your 5% to 7% commodity increases given the 17% increase in your commodity basket in the US this quarter?

Well, as we have said, we have seen a significant decline in commodity inflation in the US over the past two months. In the quarter that we are now in food inflation has declined to 8% to 10% year-over-year from the 17% we saw in the first quarter.

We will get to the 5% to 7% commodity increases based on where the commodity markets are today, our expectation of continued moderation and on our already executed commodity contracts. And as a reminder we will be lapping significant commodity cost increase that were in the third and fourth quarters of our past fiscal year.

Therefore our year-over-year inflationary increases are expected to significantly improve in the third and fourth quarters of this year.

We also have diversification in our global portfolio and we have not seen and do not expect the same level of commodity inflation in our international markets as evidenced by EMEA APAC expanding gross profits.

I’d like to thank everyone on the call for their time and continued interest. We are now ready for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Steven West - Stifel Nicolaus

Steven West - Stifel Nicolaus

I wanted to talk, with the weakening consumer that we’ve been seeing and hearing a lot of news about how consumers really getting weaker significantly and drastically over the last month or so, can you talk about your comps to date for the second quarter and how those are looking for you right now?

John Chidsey

We’ll do our normal commentary that we say on the phone, October is a positive month and we expect that the quarter will be positive as we’ve said in the past and we will continue our string of positive quarters here, not just in the US but globally, October was good for us as well.

In terms of a little more color about what we’re seeing out there, Russ may have something to add.

Russ Kline

I would add that we have been fortunate to be able to take pricing power in the market in a way that is not had a disproportionately negative effect on traffic, something we couldn’t have done in the last downturn in 2001, 2002 and so the price check traffic mix is changing a little bit from the way it was running during the last few years but we see light at the end of the tunnel related to what John said in terms of commodity costs and our ability to get focus back on the top line and a richer traffic contribution.

Steven West - Stifel Nicolaus

On the FX, can you address, can you tell me what your expectations for FX getting more negative and how you think about that as far as having an impact on EPS going forward?

Ben Wells

The currency markets have been extremely volatile and they’re hugely effected right now with the reallocation of capital across the globe, so its very difficult to forecast at the current time however we expect that we will continue to see at least these levels in a slightly stronger US dollar as we look out but that’s going to have to be the market that makes that call.

Steven West - Stifel Nicolaus

Seeing Carol’s with some weak financials lately, the Burger King business is doing pretty well there, have you thought about what you might have to do if something drastic were to happen with that company, are you thinking about it, are you prepared to step in if you need to, to keep those stores going?

Ben Wells

We have to rely and we encourage everyone to rely on their public statements and I’d note that they did not have a qualified opinion in their last filing and as we look at where they’re at, vis-a-vie, their ability to service their debt from those public statements, we are not seeing them in any kind of difficult situation at the current time and we would ask you to refer all those questions to Carol’s.

Operator

Your next question comes from the line of Matt DiFrisco - Oppenheimer

Matt DiFrisco - Oppenheimer

On the FX I guess in that other income line, other expense line, is that, it sounds like you have some contracts in there so are we going to see potentially an offset, have you hedged the exposure that you have as the US dollar gets stronger that your operations are going to get adversely impacted by the FX exchange, but it seems like you have derivative instruments that might generate some income for you, is that correct?

Ben Wells

Basically what you saw in there given the erratic fall of the pound which was the steepest fall in I think 32 years, 37 years, you saw it impact certain elements of our balance sheet. We are going to be reassessing as we go forward elements of that that we hedged but I would encourage you to remember that a lot of our hedges are focused around protecting the cash value or the cash flow and then the EPS does fluctuate a bit but we protect our cash flow which is approximately two-thirds hedged inside the broader program.

So yes, we’re going to continue to monitor that closely and I think we can see some improvement but I would also point out all of last year we saw $300,000 worth of that floating through and we saw $3 million in one quarter, kind of gives you a sense of the volatility that we saw inside the market as the world economic scene tried to seek out a new equilibrium.

Matt DiFrisco - Oppenheimer

So your guidance, basis for the guidance for the first quarter would be this $0.38 number I presume and then also your basis for guidance, what assumption do you have working against you as far as foreign exchange?

Ben Wells

Inside the OI&E line we’re basically suggesting that everybody model around that $2 to $3 million number inside there. That’s premised off of the interest rate differentials that we have to absorb and basically the rest is left to the market to determine and that’s basically the situation.

Matt DiFrisco - Oppenheimer

You gave a little color on the financing strength of your franchisees, does that also relate then with the pace of remodels and updating some of the stores backlog of remodels on the franchise side, are you seeing that pace continue?

John Chidsey

The answer is yes, there’s two positives for us. One is that most of our franchisees out there are really borrowing from their local community banks that were obviously not any where near as impacted, if at all, by a lot of the assets that a lot of the larger banks owned. And secondly because most of our franchisees own the building, own the land, these community banks are lending against hard assets and therefore to date we have not seen any slowdown in terms of projects being put into the ground this year which is why we remain very comfortable that we can hit our 350 to 400 net new restaurants and we have seen no slowdown on the reimaging program either. We’re still expecting about 200 franchise restaurants above and beyond the normal renewals to get reimaged this year.

Matt DiFrisco - Oppenheimer

You mentioned contracts also give you some confidence in the COGS outlook, I presume that’s your chicken contract although its up in December, are you in negotiations now for a favorable contract when that is up?

John Chidsey

It would be a fair statement to say we are in negotiation. To say, who knows if its favorable or not, we’re just in the midst of negotiating that now so can’t really comment yet.

Operator

Your next question comes from the line of John Glass - Morgan Stanley

John Glass - Morgan Stanley

I’m still unclear about the guidance do you include foreign exchange, do you include any assumptions about FX going forward in that number, negative impact, aside from the currency hedges just do you model current currency rates going forward or is it absent any change in currencies?

John Chidsey

I think the only reason that we highlighted so much this quarter as we’ve said, we’ve just never seen the volatility we saw, so normally in a quarter we would see $0.50 million to $1 million for these things so to have a $5 million impact for us is huge, that’s another $0.02 to $0.03 we got dinged for which is why we called it out.

But again on a go forward basis we’re saying from an OI&E standpoint, $2 to $3 million per quarter given what we see today, again the markets will ultimately determine what that number is and then in terms of just overall foreign exchange impact, while there’s impacts on the revenue they go the other way on costs so when you work your way all the way down to earnings, its really not a big impact.

Ben Wells

That’s absolutely right. We view our P&L as a largely self-hedging mechanism and again, the dislocation in the current market effected our OI&E in a disproportionate amount that frankly has caught us a little bit by surprise there so we are encouraging people to continue to assume that our P&L is largely self-hedging as we move forward.

John Glass - Morgan Stanley

That doesn’t really make sense, because a third of your income is in foreign denominated currencies that get translated into dollars and just like McDonalds or Yum, they all have benefits and the currency is in their favor and they all have detriments when it goes against them and you’re saying that doesn’t occur at Burger King?

John Chidsey

Well if you look at this quarter all the ins and outs, it had a $1 million impact on our bottom line after all of that impact worked its way through the P&L so I think it does prove it, and I’m trying to think back over the past seven, eight quarters, it has never had more then $1 to $2 million max in a quarter.

Ben Wells

That’s right, what you basically see inside our model is you sell argumentatively product in euro, you buy your raw materials in euro, you pay your people in euro, and basically it falls out so the reality check is we do operate a slightly different model then some of the other concepts.

John Glass - Morgan Stanley

In the US comps were up 1.3% at company stores, what was traffic in that number?

John Chidsey

We don’t disclose traffic but obviously if you know what pricing was, you know what sales were, you can have some—

John Glass - Morgan Stanley

What was pricing, I think the 2% was taking in August so would I just split that in half or was there any other pricing in that before the 2%?

John Chidsey

I don’t remember the exact date, it was the like the second week so I think splitting it in half is probably pretty close to accurate.

John Glass - Morgan Stanley

In other words there wasn’t the residual pricing from a prior increase earlier in the year?

Ben Wells

What we disclosed was that in November of last year, there was 80 basis points and then in May was another 220.

John Glass - Morgan Stanley

So there was more then 2% then. In the last quarter you made an acquisition of two franchisees and you said that [wasn’t] accretive to this year but you thought you maybe you’d sell restaurants at the same time so maybe it would end up washing out, given that the financing environment particularly I think for transactional financing with respect to franchisees has gotten worse, do you still expect to sell stores or would you maybe keep the benefit of the franchise acquisitions this year and not do that?

John Chidsey

I’d say the size of deals that we’re looking at, again and the kind of lenders these guys are using, I still think you’ll see us sell some restaurants this year, you’re right it is a difficult environment but given that there’s a handful of things we’re talking about out there my guess is one or two of them will come to fruition by the end of the year.

Operator

Your next question comes from the line of Steven Kron - Goldman Sachs

Steven Kron - Goldman Sachs

Just to go back to the pricing, if I’m adding it right, do you have over 500 basis points or 5% in price right now for this on a go forward basis, am I adding that correctly?

John Chidsey

I think its closer to four if I’m correct here, four four.

Steven Kron - Goldman Sachs

You took the 200 basis points you had the 240 in May—

John Chidsey

But remember you only got half. But on a go forward basis, you’re correct.

Steven Kron - Goldman Sachs

Related to that you had commented that the mix between price and traffic has certainly changed then what it was in the current environment not a huge surprise, but what kind of role is pricing playing in that and what gives you the comfort of that additional price and are franchisees doing the same price increases?

Russ Kline

Well there are two factors that are driving check, on is nominal price increases that we’re taking on products and the other is the ability to manage our mix toward premium products that are higher priced and drive check. So we’ve been fortunate in managing those two factors. There has therefore created a different mix between check and traffic but we continue to be confident that the innovation that’s forthcoming in the pipeline this quarter and particularly into the back half of our fiscal year is going to allow us to have yet more pricing power and yet also start to light up our traffic performance a bit so that that mix will improve as part of our sales as well.

Steven Kron - Goldman Sachs

And the franchisees are taking price as well to a similar magnitude?

Russ Kline

Yes, I would say that franchisees have taken pricing probably ahead of the company and probably more aggressively and the numbers that we look at on the data we have on franchisees shows similar mix changes so we’re continuing to push them into more sophisticated pricing support with four corner pricing. We think they’re going to be that much more precise in the back half of calendar 2009 to take advantage of that but even in the meantime, our focus has been on improving pricing sophistication in company restaurants both in the US and around the world and that’s where you’re going to see where obviously we have the most leverage in terms of what to gain from smarter pricing and that’s what our first priority is until we can get our franchise system up to date on adoption of that model.

Steven Kron - Goldman Sachs

On the value menu, can you give an update as to what the mix was as a percentage of sales in the quarter and maybe how that compared to the prior quarter and is that maybe contributing to some of the COGS pressure as well and its well publicized that McDonalds is probably going to unveil something related to the $1 menu, maybe increase the price on the double cheeseburger, if they were to do that, how would you think about the pricing of your existing dollar menu, how might you react with the Whopper Junior pricing or other products?

Russ Kline

We continue to like our construct of our value menu even though the commodity pressures were putting a lot on strain on it for a period of time. We’ve seen abatement already on cost of goods and improvement on margin of our value menu and we like the Whopper Junior as the flagship traffic driver. The composition and contribution to sales is somewhere around 12% to 13% and so we’re comfortable with that number. We think it could go yet higher and what McDonalds does remains to be seen. I know there’s been a lot of press releases around it but we’ll believe the price move on their double cheeseburger when we see it and when we see it we’ll evaluate whether or not that makes any indicated actions for us or whether or not we stay with the pat hand and continue to develop our own menu.

Steven Kron - Goldman Sachs

You made comments around the commodities and why you’re sticking with the 5% to 7% guidance, just to be clear on this, are you anticipating that the spot prices of commodities will go down further and that’s inclusive in the 5% to 7% guidance or is it just that because there’s a lag effect of it rolling through your P&L that you will start to realize the benefit more and more as the year progresses and cycling over weaker numbers. Are you anticipating further declines in that number related to spot prices going down?

John Chidsey

Its both, yes I think you will see prices come down further and definitely you have the lagging and lapping effect. So both contribute to that statement.

Operator

Your next question comes from the line of David Palmer – UBS

David Palmer – UBS

About the batch broiler, how on target are you there with the rollout, when will you have that high enough penetration that you can start to introduce some of those items that may depend on this cooking system?

John Chidsey

The global number is 37% of the system and the US is at about 51% but there is some more DMA specifics around that that impact it.

Russ Kline

We’re around 50% in the US which we’re really heartened by. We’re starting to see some acceleration in the adoption and changeover to the new batch broiler. We’ve got DMAs representing about 20% of our business that are already restaurant ready to take on the new pipeline. We have Ops tests in test markets going on on a variety of products that will be able to be cooked on that broiler and so by the beginning of calendar 2009 we expect big chunks of US geography and certain selected chunks of geography around the world to be in some of our new up market products. So we’re very excited about that.

David Palmer – UBS

Is it like 90% plus is the magic number where you can start to nationally advertise and when do you think you might roughly get to that number?

Russ Kline

We actually used the number 80% even within a DMA because when we have a DMA with 80% or more penetration we feel that that’s a reasonable level to be on the air with it. So I would think we’d use the same rule of thumb nationally and my guess is that if we reached 50% US already, going into our fiscal third quarter that I would expect that certainly by the end of the fiscal year, we will have a large majority of the system in position to start rolling out products going into FY10.

David Palmer – UBS

It appears that premium innovation and extended hours have not been the fast food industry sales drivers that they were, and conversely it seems like the fastest comping chains are those big national chains with heavily branded value platforms. Wendy’s has done more with this lately and they may be improving in October adding to the number of big guys that are pushing value, do you think right now Burger King has enough every day value menu power to be competitive particularly as you’ve got to believe with deflation that folks in 2009 may be encouraged to play more at the low tier?

Russ Kline

What we like about our menu strategy is it’s the most broad shouldered menu in the industry and so we want to be able to play competitively on value and there are two ways to look at value. You have to look at value in terms of price point accessibility, which is what our value menu provides but then value for the money also comes with premium products that are on par with casual dining that are available for a fraction of the price.

We work the value for the money equation on both ends of our menu. We have no plans to abate our advertising levels around the value menu but we’re going to continue to drive against higher quality and innovation which are better values for the money then one can find in casual dining as well.

Operator

Your next question comes from the line of John Ivankoe - JPMorgan

John Ivankoe - JPMorgan

Just wanted to make sure that I understand everything, the remodels in the US, the scrapes and rebuilds in the US have been done at company stores and its tough to see in the first quarter performance how scrapes and rebuilds and remodels have been benefiting company store performance, so could we go through the actuals in terms of what the sales benefit has been in 2008 and also what kind of benefit that you expect in fiscal 2009?

John Chidsey

We were going to do that and we are going to do that when we have a full year impact because if you remember we didn’t really get going until July, August. So give us another quarter or two and I think we can give you a lot more detail around that.

John Ivankoe - JPMorgan

As you’ve begun to integrate acquisitions and maybe especially most recently the [Simmons] acquisition, what do you think the acquired franchise stores does to company store margins in fiscal 2009 as we move throughout the year in the US?

John Chidsey

I’d say it has a neutral impact.

John Ivankoe - JPMorgan

As we go forward and it sounds like some of the new premium products are preparing for rollout in the system in fiscal 2009, I have in my notes that a third of DMAs will be advertised in the early part of calendar 2009? Is that still right?

Russ Kline

Yes, that’s a fair assumption. We’re right now between a quarter and a third in terms of being at that 80% equipment ready mode and we’ve got some time to go while we’re still moving through Ops testing so I think a third is still a good objective.

John Ivankoe - JPMorgan

Let me ask in terms of testing, because actually the number is a bit higher then what I thought it was in terms of a batch broiler rollout, what has been the operational impact at the store level? Not from a cost perspective because you have articulated that but from a speed of service perspective, and then if its possible to talk about how some of the marketed products have actually done, are they outperforming the system as you’ve begun to test some of the new products from the broiler?

Russ Kline

We see no speed of service impact whatsoever on the batch broiler. In fact we’ve seen things like maintenance because they are so fewer parts in this new piece of equipment and upkeep even breakdowns in equipment, all of them have been favorable versus the old equipment.

In terms of products it’s a little early to tell other then we’re very bullish about the product concepts that have been central locations tested with our four consumers, there’s some real innovation that we’re excited about that is testing very very high and based on the bank of experience that we have on our CCTs with all the other products we’ve been testing over the past few years, these up market products are going to meet with great reception, great value for the money perceptions. They cook out beautifully on the new equipment so we think, again that we have license as Burger King to be in the business of thicker burgers, products like ribs, and I won’t go any further because there are still some that under wraps, but I have no question that these products are going to perform well in the market.

Operator

Your next question comes from the line of Jeffery Bernstein – Barclays Capital

Jeffery Bernstein – Barclays Capital

On your uses of cash and the cash balance is healthy, it looks like at this point it’s the lowest we’ve seen it in a few years, I know some of your restaurant peers have spoken about perhaps starting to stockpile or build their cash balances in this environment, just wondering whether that’s a similar assumption we should make for Burger King or whether you can offer some guidance on your expected uses of cash for the rest of 2009 as it relates to the priorities for additional acquisition versus debt payment and share repurchase thoughts?

John Chidsey

As I’ve said on the call before I don’t think you should expect to see us making any more sizable acquisitions for the balance of this year. Again we’re now more focused on what are the key company markets to be in and probably more divestiture then looking at acquisitions.

Ben Wells

I think on the other aspect of it, keep in mind this is our seasonal low as we come out of our compensation cycle and then we are anticipating the cash to accrete as we move through the balance of 2009. We will continue to assess our stock repurchase activity as we go forward and we will basically move forward from that perspective.

At $118 million which is the number you see on balance sheet basically we’re very comfortable and it gives us a very very comfortable cushion inside this space so you should see that go up as we go through the year.

Jeffery Bernstein – Barclays Capital

Are you inclined at all to pay down more debt if perhaps your assessment of the share repurchase isn’t as optimal as you’d like, is that the other option that you would consider or would you build cash before doing that?

Ben Wells

We’re going to probably do a little bit of both as we noted, we did draw down the revolver to help us assimilate the acquisitions. We will probably retire the revolver throughout the course of the year but as far as going down after incremental principal we’ll evaluate the markets as we go forward but our thought is to reinvest in the brand through our expenditure program and our stock repurchase program.

Jeffery Bernstein – Barclays Capital

More specifically on the fundamentals of the US business, I think you mentioned getting a nice lift from breakfast and late-night, just wondering if you can give us an update on where we stand as a percentage of the system that has that implemented as well as where your percentage of sales is for each versus your longer term projection?

John Chidsey

As I said, we’ve made progress on the hours gap so we feel good that slowly but surely we’re getting franchisees in the right place for the late night business. Our 24-hour franchisees continue to climb. About almost two-thirds of our system is open until 2 am on Friday and Saturday and the other third are in malls and places where they realistically can’t be open so virtually we’re there.

I would say that late night and breakfast continue to be the work horse in terms of driving the most growth but in terms of knowing how much its over indexing against what’s happening at lunch or dinner I’m not sure. Breakfast I think we said on the last call, still around 13%, 13.5% of our overall mix. Again we think we can drive that considerably higher over time.

Russ Kline

Late night is growing at about 2x our overall growth rate. It is our highest performing daypart and I think you should look at the those two dayparts differently. They are certainly both growth opportunities. Late night is a matter of competitive hours of operation and running great restaurants and running great P&L management around those extended hours. Breakfast is also an hours opportunity but its also an innovation and an advertising and a promotion opportunity for us and so we have a more full complement of initiatives aimed at driving our growth in that position.

So that may take a little longer for us to keep it at that sort of 1.5, 2x multiple times our overall growth rate. Late night though is clearly leading the way.

Jeffery Bernstein – Barclays Capital

In terms of the attention Burger King has gotten about franchisees access to capital with a 90% franchise system, at this point the thought is that the US business, you’re not seeing any negative implications from your smaller franchisees or perhaps smaller banks, still loaning money, no big delays and that internationally these are larger franchisees, but they’re not seeing any impact on the global scale from borrowings in terms of achieving your 350 to 400 unit target or is that already in the pipeline and you’re pretty confident you’re going to hit that number?

John Chidsey

One yes, knowing what the pipeline is and if you don’t have it in the pipeline at this point its unlikely you’re going to get there. We significantly exceeded our internal plan for the first quarter and actually when you go around the globe and talk to our four development guys in each of our regions, our rollup would be ahead of our internal plan so I feel good about hitting that 350 to 400 number.

And again in the US most of the guys out there are dealing with small community banks, local banks etc. and are able to get financing. I’m not going to say its 100% because obviously there are some of them who deal with some of the larger money center banks, but the vast majority of them do not and it has not become an issue to date.

Operator

Your next question comes from the line of Nicole Miller Regan – Piper Jaffray

Nicole Miller Regan – Piper Jaffray

What was the stock option expense in the quarter and do you still project $17.5 million for the year?

John Chidsey

The answer is yes.

Nicole Miller Regan – Piper Jaffray

What was it for the quarter?

Ben Wells

For the quarter it was $4 million.

Nicole Miller Regan – Piper Jaffray

The guidance is off the $0.38 for this quarter, correct?

Ben Wells

Yes.

Nicole Miller Regan – Piper Jaffray

Can you just walk through how many remodels you did in this first quarter and how many you’ll still do for the first pass?

John Chidsey

We did 10 remodels and four scrapes in the first quarter and again we are trying, I think the goal is to get to 40 in our company portfolio and then there’ll be more in BKL portfolio which is akin to our company portfolio because that’s where we own the land, we one the building so when you put all that together you’re probably closer to that 50 to 60 number that we are trying to get to on a go forward run rate basis.

Nicole Miller Regan – Piper Jaffray

I was a little surprised where that fell through. It didn’t look like the pressure was as bad from the remodels, and was there something in the dynamic that they just [inaudible] better immediately or because you did fewer and you’ll do more in the second quarter, what is the shift there?

Ben Wells

Actually that’s correct, it was not as intense and the reason is is that once you identify something for remodeling the accounting rules require you to begin the depreciation at that time and so a lot of the activity had occurred in prior quarters so basically as we go forward, that’s why we have a relatively high degree of confidence that it will become self funding as we move forward.

Nicole Miller Regan – Piper Jaffray

And that would be the same trend and would it been even a little bit more favorable then for the second quarter?

John Chidsey

No I think the second quarter we said $1 To $2 million, part of it is whether if you remodel a building that’s 10 years old its got a lot more depreciation left then if you remodel one that’s 25 years old so part of it is just which ones you hit in the quarter and how much depreciation gets written off and part of that’s driven by when you actually get the permits to do the work, weather conditions and which part of the country obviously dictates when you can do this stuff. So a bit of it is just timing issues but in the second quarter it should be $1 to $2 million and we should hit steady state in quarters three and four.

Nicole Miller Regan – Piper Jaffray

And then all in as you look at store level margins for the year, do you think it should be up or down? Company restaurant margin for the company.

John Chidsey

Well on a go forward basis they’re obviously going to be up on a full year basis, I think they should be flattish, maybe just slightly down.

Ben Wells

Yes, that’s more likely. We gave guidance in the past around 14% for the full year.

Operator

Your next question comes from the line of Jeffrey Omohundro - Wachovia

Jeffrey Omohundro - Wachovia

On the reimaging program, I understand you’re going to wait for full year results on giving the impact on results, just wondering though, in the past you have given some indication of sales performance breakdown between the scrapes and rebuilds and reimage, could you give us an update on how the sales performance is tracking and also how the dine in business might be tracking at those reimage units?

John Chidsey

We haven’t backed off and as our sample size obviously gets larger, still we’re seeing the same 16%, 17% sales lift overall on the remodels and on the scrapes it continues to be in that 25% to 35% range so we have seen really no movement as we continue to add to the data set.

We’re very happy which is again why we want to continue with the program. There’s nothing that would tell us its not a good use of capital or not a good return on capital.

Jeffrey Omohundro - Wachovia Securities

Any shift in the dine in versus drive thru?

John Chidsey

No.

Operator

Your next question comes from the line of Joseph Buckley - Banc of America

Joseph Buckley - Banc of America

On the company sales performance in the US how much of that is because of your presence in Florida? Is that one of the weakest markets in the US and therefore skewing the company performance down?

John Chidsey

Yes, absolutely I think two reasons, one is it’s a very competitive market. Two given where gas prices were and when you look at tourism numbers in Florida and I think if you certainly listened to the McDonalds call I think everybody would say that the state of Florida was a tough road to hoe and as you know for us that’s a third or more of our restaurant portfolio.

Joseph Buckley - Banc of America

Just to clarify, was the product mix effect on the same store sales number in the first quarter positive from the premium products, so you get some benefit from price and then some benefit also from sales mix in the company comp?

Russ Kline

I would say its really been, the check has been a balance between some nominal price increases that preceded the quarter and also took place during the quarter and focus on our Steakhouse burger and our Tendercrisp sandwich, the introduction of our am/pm wrapper products which even richened up the value menu mix in terms of the average price of a product coming off the value menu because those are flex pricing products at $1.39, actually now $1.49 in some cases.

But the real ability to drive premium pricing influence on our mix is going to start at another level in January, February, March, so I would say its really probably 50/50 in the first quarter.

Joseph Buckley - Banc of America

Your anticipation of the mix getting better in the March quarter is that related to the broiler or is that just the product pipeline that you have lined up for the year?

Russ Kline

Well it is the broiler and the products that are associated with it. There are some other products that would be possible even in the absence of the broiler so its both.

Joseph Buckley - Banc of America

When you talked about the credit situation you indicated most of your franchisees own the land and building, do you have a feel what percent of the franchisees own the real estate?

John Chidsey

I’d say that probably half of it is owned by them, but what I mean by that is I think a lot of them own it so the percentage of franchisees that own land would be a lot but you could be a guy with 20 and maybe you own 10 and 10 of them you lease. So the percentage of franchisees who own some land and some building would be very high but if I looked across all 6,500 franchised restaurants, I’m going to take a guess that its in the 40% to 50% range that they have some ownership stake in.

Joseph Buckley - Banc of America

That could be owning the building but not the land or--?

John Chidsey

Generally I would say its more the land and the building. There’s probably some out there where its just the building, but I would say in most cases it would be the land and the building.

Operator

Your next question comes from the line of Mitchell Speiser - Buckingham Research

Mitchell Speiser - Buckingham Research

First on costs, the 17% food cost inflation in the first quarter I believe that was just the US, can you give us a sense of what that was outside the US or just in the EMEA segment?

Ben Wells

Actually inside the EMEA segment the prices fell as they did in the EMEA APAC segment it fell and it was nominal inside the Latin American space. So we had a good portfolio effect. It muted the increases that we saw inside the US.

Russ Kline

As we’ve travelled around the world, there’s certainly been price pressure on commodities but the US has been the most pressurized and you’ve seen certainly people trying to price their way through this around the world but the US has had the most acute pressure on our commodities.

John Chidsey

So to be clear on the Europe thing, they definitely had cost pressures its just they priced their way through that so net of price increase gross profits were up.

Mitchell Speiser - Buckingham Research

And 17% in the US was a gross cost number?

John Chidsey

Right. It was 7% net if you recall we said.

Mitchell Speiser - Buckingham Research

On the foreign exchange in this quarter ended September foreign exchange seemed to be a positive effect by about $2 million in profits that was offset by the OIE and if I look at the 10-K I believe you do mention that a 10% change in FX effects earning by about $0.06 to $0.07, so on a go forward basis it looks like foreign exchange will swing negative this quarter is that offset by strategies within that OIE line?

Ben Wells

The answer is partially, we will assess how we go after elements of our hedging program which should mute that on a go forward basis but then if the currency falls year-over-year the answer is, is yes we will see a negative effect as it flows through but again what we were trying to say is is that it is in fact muted and at the same time everyone should keep in the back of their mind is that the euro cash flow is largely hedged. So we’ll see an accounting impact but the cash impact will be muted.

Mitchell Speiser - Buckingham Research

On the acquisitions, I believe last quarter you mentioned that the acquisitions added about $0.07 to earnings on an annual basis, I believe that included some Germany operations on the refranchising side, just on the two acquisitions in the US how much will that be accretive in fiscal 2009?

Ben Wells

I believe we said $0.05 net of the German refranchising you’re talking about because there was obviously some ins and outs there and that’s obviously how we’re set up today. If we end up doing more divestitures as I suspect in that US that number would change. But just knowing what we know today between those two US acquisitions less the German it nets out to about $0.05.

Mitchell Speiser - Buckingham Research

And I believe the strategy is to eventually sell these two franchises that you bought, any update on how that’s going? Has it been at all effected by the credit markets?

John Chidsey

No the strategy was not to see these, the strategy very much was that we would have lots of ins and outs over the next four or five years. For instance the Hartland’s that we bought Hartland very much fit into our Carolina company portfolio so that’s a keeper. The ones we bought from Simmons gave us finally our first market west of the Mississippi so we have a good test market. That’s probably something that we want to keep on a go forward basis. So the outs will be elsewhere within our portfolio potentially not from those.

Ben Wells

And I would say that the credit markets based on the negotiations that we’re having at this particular point in time have not been a factor in our refranchising activity.

Operator

Your next question comes from the line of Thomas Forte - Telsey Group

Thomas Forte - Telsey Group

To the extent that you’re starting to see commodity costs ease what are your thoughts on pricing in that environment and then there have been reports that you were tinkering with the size of the Whopper Junior because of commodity cost pressure, in an easing environment does that stop?

Russ Kline

We have historically been encouraging our franchisees to use great restraint around just reflexively pricing their way through commodity costs because of the volatility that exists and as we said, we expect because of demand destruction for their to be continued declines and tapering around commodity costs so we’re hesitant to react short-term based on spikes in commodities given what we know is the power of our value menu to drive traffic when we have that dollar price point on our Whopper Junior flagship.

That said we’re always in a learning mode. We are in several test markets testing the Whopper Junior at higher price points to understand what kind of elasticity there is around traffic in this market but its simply a learning project that we’ll look at the results and we’ll make the judgment on whether or not there is head room there.

In general we still feel like demand destruction is what’s driving commodity costs down further and when you think about that that also means we need to exercise restraint on the top line because now the shift of gravity is going to the top line I think for a lot of us going forward and we have to make sure our value for the money is in good shape there and you don’t want to get too head long into price increases in that kind of environment.

Operator

Your next question comes from the line of Keith Siegner – Credit Suisse

Keith Siegner – Credit Suisse

On demographics, do Kid’s Meal products sound like they’ve been very successful? You’ve had other value additions to the menu, can you talk about any changes in the customer demographic breakdown that you might have seen over the course of the last couple of quarters?

Russ Kline

Interestingly the product mix even with the economic pressures has not materially changed. For instance our Whopper business is as big as its ever been even with the advent of the deteriorating economy and the importance of the value menu to be in place to drive traffic our Whopper volumes are still up over last year.

We have to be very careful to not over react to headlines in terms of looking at our own product mix where we don’t see that much change. Around Kid’s Meals again we continue to have push into what we know is a broader variety of opportunities in parties with kids. Kid’s Meals are something that I think you talk to any competitor in the space they will tell you that that’s been a tough [inaudible] for everybody. Everybody’s Kid’s Meals, McDonalds, ourselves are down. That doesn’t mean that kids frequency in the restaurants has gone down, it just means they’re eating differently off the value menu or other parts of the menu and so we broadened our approach beyond our super fan to what we call our super family and innovations like Apple Fries, the Mac and Cheese, and other nutritionally compliant meals are all aimed at making sure that we retain our appeal to parties with kids and moms sensibilities around what they want their kids to eat.

Keith Siegner – Credit Suisse

Given some of that push and some of that success then, I was surprised not to see any FY 2009 upcoming product promotions anything about the Grilled Chicken Tenders because that seems like not only differentiated for kids but something that I would probably buy as well. Is there any change in that plan for those products?

Russ Kline

We loved the idea of Grilled Chicken Tenders, the marketplace has not shown that they love that product so we’re continuing to push into other positive step nutritional moves around Kid’s Meals and Apple Fries and Mac and Cheese was our first entre there but there will be more innovation on the way. Grilled Chicken Tenders just haven’t rung the bell in parties with kids so far. That doesn’t mean that they may not again, maybe we’ll look at other ways to innovate around that but we’ve already been down that track. In fact that was one of our leading ideas as our debut meal but it did not sell like Mac and Cheese did in the test markets. So right now its not on the front burner.

Operator

Your next question comes from the line of Jason West - Deutsche Bank

Jason West - Deutsche Bank

I noticed the margins in Latin America on the company side were down about 500 basis points and you mentioned something about a charge for a store closure, how big was that?

Ben Wells

We don’t disclose the charges for one store but basically we had a store in which a highway was built over it and we had to expense it.

Jason West - Deutsche Bank

Was that the primary driver of the big margin decline in that market?

Ben Wells

Yes it was 100% of it.

Jason West - Deutsche Bank

On pensions, I know you have a legacy pension program, its pretty small but any impact there as we see market values declining and the outlook for expenses or potential cash contributions over the next 12 months?

Ben Wells

We are okay for the next 12 months and as you point out it is very small and it has been frozen but we’re very comfortable that we’re not going to have any expenses or cash injections in the next 12 months of any materiality.

Operator

Your next question comes from the line of Penny Howard – Research Edge

Penny Howard – Research Edge

The discounting is really the only way anybody’s been able to drive traffic either casual dining or QSR in this market and I guess you could make a case that the spread between casual dining and QSR is narrowing, they’re doing more discounting and you’re raising prices and you I mean QSR in general. So as that narrows and it sounds like you’re going to try to drive incremental traffic through the premium products which is dependent on more people trading down, but I can’t imagine a whole lot more people are going to trade down given where casual dining is going, is there an acceleration in this most recent quarter in your traffic trends associated with the pricing that you’ve taken and am I correct or incorrect in that the traffic that you’re going to get is coming from the premium product side and not incremental discounting?

Russ Kline

Well first off we can’t really talk to you in detail about our current performance but I will say that while your theory about a narrowing between casual dining through their increased discounting and some of the price increase work that’s come out of our space, may theoretically look like a narrowing but there’s no narrowing going on in terms of performance.

Casual dining concepts from a sales performance standpoint are performing significantly worse then QSR in general. I would also tell you that even inside FFHR that beyond the value menus, that Burger King is in a handful of DMAs with additional aggressive discounting where competitors like McDonalds are in probably 100 plus DMAs doing additional competitive discounting.

So from our point of view we’ve been trying to maintain an integrity to our pricing structure and our value for the money offering. We do continue to use our value menu, our couponing activities and to encourage local activity where it makes sense for our restaurants to grow but right now I think the overall construct of the models in our space is one that we think we can, is durable as we move through the economy.

John Chidsey

Thanks very much for your questions today, and thanks for your interest and we look forward to talking to you next quarter.

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Source: Burger King Holdings, Inc. Q1 2009 (Qtr End 09/30/08) Earnings Call Transcript
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