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Executives

Amy Wagner - Senior Vice President, Investor Relations and Global Communications

John W. Chidsey - Chief Executive Officer, Director

Ben K. Wells - Chief Financial Officer

Analysts

Steven West - Stifel Nicolaus

Matt Difrisco - Oppenheimer

John Glass - Morgan Stanley

Jeffery A. Bernstein - Lehman Brothers

Steven Kron - Goldman Sachs

John Ivankoe - JPMorgan

Jeffrey F. Omohundro - Wachovia Securities

Jason West - Deutsche Bank

Joseph T. Buckley - Banc of America

Thomas Forte - Telsey Group

Mitchell Speiser - Buckingham Research

Burger King Holdings, Inc. (BKC) F4Q08 Earnings Call August 21, 2008 10:00 AM ET

Operator

Good day, ladies and gentlemen. Thank you very much for your participation and welcome to the Burger King Holdings fourth quarter fiscal year 2008 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

Thank you, Michelle and good morning, everyone. Welcome to Burger King's fourth quarter fiscal 2008 and fiscal year-end conference call. We have prepared an earnings call PowerPoint presentation to assist in presenting our fourth quarter and fiscal year-end 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 30 minutes today discussing our fourth quarter and fiscal year-end 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 included in the appendix to this presentation.

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

John W. Chidsey

Thank you, Amy and thank you for joining us on today’s call. This morning we will discuss our strong worldwide fourth quarter and fiscal 2008 year-end results and provide our outlook for fiscal ‘09. We will then move to the Q&A portion of the call.

I am pleased to announced that our strong worldwide momentum continued in the fourth quarter. As a result, we delivered another record year posting top-of-the-industry performance. Our strong results across our strategic global growth pillars, marketing, products, operations, and development confirm the strength and positive momentum of our worldwide business.

Page three of the earnings presentation highlights these results. Worldwide revenue for the quarter increased 9% to $646 million, compared to $590 million in the same period last year. Every segment contributed to our strong comps and substantial net restaurant expansion. As a result, we recorded our 18th consecutive quarter of positive comps of 5.3%, marking 4.5 years of comp sales acceleration.

We fuel performance by leveraging our products and promotions across many markets, including the launch of the Indy Whopper sandwich in connection with the Indiana Jones blockbuster movie, The Kingdom of the Crystal Skull. We continued to implement our highly successful barbell menu strategy of indulgent and value products and our laser focus on operations continued to drive a positive guest experience.

Traffic and sales continued to climb in the U.S. and Canada, enabling us to post our 17th consecutive quarter of positive comps. Our strong performance was driven by products such as the breakfast day part value menu item, the Cheesy Bacon BK Wrapper, and the launch of the Indy Double Whopper.

In May, we extended our hours of operations, enabling us to capture a larger share of the fastest growing day parts in our space, breakfast and late night. We also drove super family traffic with adventure filled promotions, including The Incredible Hulk, Iron Man, and SpongeBob.

In EMEA, we continue to respond to consumer demand for high margin indulgent products. Offerings such as the Steakhouse Burger platform and New York Steak Sandwich enabled the region to achieve solid comps.

In Asia-Pacific, we drove results by focusing on the snacking category with our value snacking menu and we launched our breakfast platform in New Zealand.

In Latin America, core products such as the BK Stacker Sandwich and Steakhouse Burger drove strong demand throughout the region.

We continued our strategic worldwide expansion, opening 282 net restaurants for the fiscal year, approximately two times higher than the prior year’s 154 net restaurant additions. This also represents the highest number of annual net restaurant openings in nearly a decade.

In the U.S. and Canada, we achieved annual net restaurant growth for the first time in six years, and in Latin America we opened our thousandth restaurant. And as previously discussed, over 80% of our net restaurant growth was attained by developing a new and existing international markets. We ended fiscal 2008 with the highest restaurant count in the brand’s history.

Worldwide trailing 12 month average restaurant sales also reached record highs. We posted a 9% increase to $1.3 million, compared to $1.19 million in the same period last year, surpassing the $1.3 million ARS mark for the first time. Worldwide company restaurant ARS was approximately $80,000 higher than the system as a whole, completing the year at just under $1.4 million.

Our quarter’s highlights continue on to page four. Our top line expansion, driven by strong comps and net restaurant growth, yielded significant increases in profitability. Diluted earnings per share increased 28% to $0.37 compared to adjusted earnings per share of $0.29 in the same quarter last year. Last year’s adjusted earnings excluded a one-time $7 million charge which impacted EPS by $0.03 for expenses related to the lease termination of a new headquarters facility that the company proposed to build in [Carl Gables]. The year-over-year increase in EPS was boosted by G&A leverage, lower interest expense, and a reduced tax rate.

Our fourth quarter earnings include $4.3 million of expense related to our restaurant reimaging program in the U.S. and Canada. Earnings were also negatively impacted by an additional $4 million as a result of our ongoing portfolio management initiatives, which included charges associated with the 56 restaurant Heartland acquisition and charges related to closures, primarily in the U.K.

We believe that both initiatives, the reimaging program and our portfolio management strategy, have compelling returns on investment and are expected to drive future profitability. However, during the quarter these initiatives had a combined negative impact on EPS of $0.04 and net of these initiatives, EBITDA would have grown by 13% compared to the prior quarter.

The quarter’s effective tax rate was 26.1% compared to 35.7% in the same quarter last year. This quarter’s tax rate was lower than normal primarily due to the positive resolution of a federal tax audit. Ben will discuss taxes in more detail later on the call.

During the quarter, we used our balance sheet to acquire 56 Carolina based restaurants from Heartland and paid a quarterly dividend of $0.0625 per share. And as previously announced in July, we acquired 72 restaurants in Nebraska and Iowa from a large franchisee, Simmons Restaurant Management. This transaction enables us to leverage our existing corporate infrastructure and establish a company restaurant presence in attractive Midwest markets.

Turning to page five of the presentation, for the quarter revenues increased 9%, fueled primarily by a 9% increase in company restaurant revenues and a 13% increase in franchise revenues. Substantial improvements in comps and net restaurant growth in all reporting segments drove solid top line results for the quarter.

Worldwide company restaurant margin decreased 170 basis points to 13.1% from 14.8% in the year-ago period, primarily driven by higher commodity costs and expenses associated with the company’s reimaging program in the U.S. and Canada, including accelerated depreciation expense and lost revenues due to temporary restaurant closures.

Net or reimaging program expenses, worldwide company restaurant margin would have been 14%, or 80 basis points lower compared to the year-ago period. Strong company restaurant margin performance in both the EMEA, APAC, and Latin America segments helped to offset U.S. and Canada margin pressures, demonstrating the power of our global presence in diversification.

We continue to focus on and effectively control our G&A. Our fourth quarter G&A of $106 million decreased compared to $108 million in the same period last year. As a percentage of revenues, G&A decreased to 16% from 18% in the year-ago quarter. G&A decreased in spite of incremental stock-based compensation expense of $2 million and incremental negative FX impact of $5 million. Net of these expenses, G&A decreased 8% to $99 million compared to $108 million in the same quarter last year.

Our focus is to drive top line growth while leveraging our existing infrastructure and controlling expenses.

On page six we highlight our full fiscal year 2008 results and I am pleased to announce that we delivered another record year posting best-in-industry performance. Compared to last year, revenue was up a strong 10% at $2.5 billion from $2.2 billion, a new record high, driven by a 200 basis point increase in annual comp sales and 282 net new restaurants.

EBITDA was up 16% at $450 million compared to adjusted EBITDA of $387 million, and diluted earnings per share was up 24% at $1.38 versus adjusted diluted earnings per share of $1.11.

Our solid annual performance substantiates the strength of our global business. In EMEA, we expanded our presence into Eastern Europe, with restaurant openings in Poland, Bulgaria, and Romania, and significant expansion in Turkey, Spain, and Germany.

In Asia-Pacific, all markets delivered positive sales and traffic, and in Latin America, we continued to successfully expand into new and existing markets, including Columbia and Brazil. And in the U.S. and Canada, new and existing franchisees are energized and are continuing to open new restaurants.

We are delivering strong results despite significant headwinds, including a slowing economy and higher food costs. We have and are continuing to demonstrate our ability to thrive in this challenging macro environment as guests seek our elevated quality, convenience, and affordability worldwide.

Page seven provides a financial overview by reporting segment. In the U.S. and Canada, revenues grew by 11% and adjusted income from operations decreased 3%. Revenues benefited from strong comps of 5.5% compared to 4.8% in the same quarter last year, and during the last 12 months the segment posted positive net restaurant growth for the first time in six years, with a total of 24 net new restaurants.

Our top line benefited from incremental super family traffic, as we presented our guests with the summer of adventure, highlighted by the Indiana Jones blockbuster movie. During the quarter, we launched innovative new products in accordance with our barbell menu strategy, including the indulgent Steakhouse Burger and the BK breakfast value menu item, the Cheesy Bacon BK Wrapper.

Company restaurant margin decreased 360 basis points to 12.2% from 15.8% in the same period last year. This decrease was impacted by 200 basis points of incremental food, product, and paper costs, and 130 basis points of mainly non-cash expense, primarily related to accelerated depreciation on asset disposals from reimaged restaurants. These costs were partially offset by higher comps, driven by increases in both traffic and pricing.

In mid-May, we increased our prices by 240 basis points in the U.S. to help offset some of the impact of food inflation on our P&L. To implement the price increase, we used for the first time elements of our four corner pricing strategy, which takes into account key variables such as competitive set and trade area dynamics. Net of the reimaging program, which impacted earnings by $4.3 million, margins would have been 13.5% or 230 basis points lower compared to the same quarter last year.

EMEA/APAC revenues grew 6% and income from operations almost doubled to $19 million from $11 million in the same period last year. These increase were largely driven by strong comp sales of 4.7% versus 4.1% in the same quarter last year, and the opening of 159 net new restaurants over the last 12 months.

Foreign exchange rates positively impacted revenues by $20 million and earnings by $8 million. Segment profitability was also impacted by our ongoing portfolio management strategy, including the refranchising of 27 restaurants and the closure of 10 underperforming restaurants primarily located in the U.K.

Our focus on indulgent products and on improving the guest experience continued to drive performance across key markets, including Spain, Turkey, Australia, New Zealand, and the U.K. As a result, company restaurant margins increased 140 basis points to 13% compared to 11.6% in the same period last year.

In Latin America, revenues grew by 15% and income from operations expanded by 33%. Earnings were primarily driven by strong comps of 5.2% compared to 1.5% in the same period last year and the opening of 99 net new restaurants during the last 12 months. The strong acceleration in comp sales reflects the success of our future products and promotions, including the BK Stacker Sandwich and Steakhouse Burger, along with our tie-ins for global market properties, such as the Indiana Jones movie.

Company restaurant margins increased 270 basis points to 28.6% from 25.9%, the highest company restaurant margin worldwide.

Page eight includes segments for our full fiscal year 2008. Significant development in comp acceleration worldwide contributed to our solid business performance, resulting in revenue growth of 10% to $2.5 billion, and adjusted net income growth of 25% to $190 million, and the team remains focused and committed to delivering best in industry performance in this next fiscal year.

On page nine is our company scorecard. We met or exceeded our upwardly revised annual guidance for revenue and adjusted earnings per share. I will now briefly discuss each of our scorecard metrics.

Page 10 includes worldwide and U.S. system comp sales. We are very pleased with our quarterly and annual comp sales results. Our performance confirms that our marketing and advertising initiatives, product offerings, and ongoing operational improvements are resonating with guests despite the challenging macroeconomic environment.

Our market leadership enables us to select best in class marketing alliance and movie tie-ins, such as this past quarter’s affiliations with Indiana Jones, Iron Man, The Incredible Hulk, and SpongeBob.

We continue to have multiple growth drivers aimed at top line expansion, such as extended hours, new product innovation, and day part expansion, including the breakfast, late night, and snacking hours.

We have successfully posted four-and-a-half years of consecutive positive comp sales. Comps for fiscal ’08 were 5.4%, lapping a respectable 3.4%. On a two-year basis, we achieved comps of 8.8%, a fourth quarter two-year comp of nearly 10%.

As we move into fiscal ’09, we feel good about our scheduled products and promotions. On June 30th, we launched new innovative products expected to drive incremental super family traffic, including nutritionally fortified Kraft Macaroni & Cheese and BK Fresh Apple Fries, which are fresh-cut, skinless red apples sliced to resemble real fries. Since the launch of our Apple Fries product in the U.S., we have sold over 3 million units. Initial results for both products are exceeding expectations.

Additional first quarter marketing efforts include the promotional tie-ins with family favorites such as Pokemon and Crayola. Our product lineup includes our Steakhouse Burger and the BK a.m. and p.m. wrappers, featured on the BK value menu.

I do want to remind everyone that we are lapping our extremely successful Simpsons and Transformers promotions, which helped fuel first quarter fiscal ’08 U.S. comps of 6.8%, our best quarter since the beginning of our turnaround in 2004. However, we are confident we will continue our string of quarterly consecutive positive comp performance throughout this upcoming year.

Now, Ben will update you on the rest of the metrics.

Ben K. Wells

Thanks, John and good morning. We delivered solid fourth quarter and fiscal year results by making substantial progress across key financial metrics. Annual restaurant sales are at an all-time high. Our royalty rate continues to accrete. We continue to control G&A and last year’s early debt retirement initiative enabled us to benefit from lower interest expense this year. As a result, both out top line and bottom line expanded significantly in spite of commodity pressures.

Page 11 of the presentation reflects some of this progressive improvement. During the quarter, worldwide average restaurant sales increased 9% to $338,000 from $311,000 in the fourth quarter last year. As John mentioned, our trailing 12-month ARS surpassed the $1.3 million dollar mark for the first time, up $108,000 or 9% higher over the prior year period. We now have 40% of our restaurants worldwide achieving sales of $1.3 million or higher.

As a result, we are rapidly approaching our $1.5 million average restaurant sales interim goal. We remain focused on driving top line sales as restaurant profitability significantly benefits from the operating leverage achieved by higher sales. This leverage is depicted by the graph on the left. Higher sales translates into significantly higher margins.

Now is a good time to discuss what is on everyone’s mind these days, the volatile commodity markets. As John mentioned, U.S. and Canadian company restaurant margins were negatively impacted by 200 basis points of increased food, product, and paper costs during the quarter. These costs were partially offset by company comps of 2.7% and by price increases implemented in our U.S. company restaurants during mid-May.

In the fourth quarter, beef costs increased 11% and chicken costs remain unchanged, largely due to our multi-year fixed price contract, compared to the same period last year. We believe commodity costs peaked last month and it appears that over the next six months, the general economy is likely to support a decline in food costs. U.S. farmers are expected to produce the second-largest grain crop ever this year. However, global demand for grain is rising so quickly that even a bumper harvest can’t puncture the two-year grain price rally that has been inflating food prices. So even though the cost of grain should, could decrease slightly, along with grain-fed animal proteins, crop prices are settling in at a new higher plateau. Consequently, over the next six months, we expect our basket of commodity costs to decline 2% to 3% from where they are today, but still up 5% to 7% over the prior year. This is our best forecast, given the ongoing volatility in the commodity markets and what we know today.

I am pleased to announce that our blended worldwide royalty rate is now at 4%, up nine basis points compared to 3.91% in the same period last year, driven by more restaurants renewing at the higher royalty rate than new unit growth. As we move forward, we expect the royalty rate to increase five to seven basis points per year. A renewal rate and extensions in North America was 90%, the highest in recent years.

Moving to page 12, we added a page to our presentation this quarter to help walk through the impact of the restaurant reimaging program in the U.S. and Canada on the company restaurant P&L. As a reminder, the financial impact of the reimaging program primarily stems from non-cash accelerated depreciation on asset disposals related to those restaurants participating in the program, and to a lesser extent the loss of sales resulting from temporary closures during renovations.

For the quarter, company restaurant margin included $4.3 million of expense related to this initiative. Excluding these costs, U.S. and Canadian margins would have been 13.5% and worldwide margins would have been 14%. For the year, company restaurant margin reflects approximately $8 million of these incremental costs. Net of these expenses, U.S. and Canadian margins for the year would have been 14.5% and worldwide margins would have been 14.8%, or 20 basis points declined over fiscal 2007.

Last quarter, we stated that the U.S. company restaurant margins were expected to be negatively impacted by $10 million to $12 million for the full fiscal ’08 year due to expenses associated with this program. Total expenses for the year of $8 million came in lower than expected, primarily due to construction permitting delays.

During fiscal ’08, we reimaged a total of 32 restaurants and we currently have 19 restaurants in progress. As John noted earlier, preliminary returns from these newly reimaged restaurants are on average generating the sales lifts we forecasted.

For fiscal ’09, we expect to reimage a total of 39 restaurants, the vast majority of which are old restaurants and have been fully or largely depreciated. As a result, we anticipate a net $2 million to $4 million impact to earnings for full fiscal ’09, significantly less than the expenses incurred on those restaurants reimaged in fiscal ’08.

Incremental costs associated with this program in the second half of the fiscal year should be substantially mitigated by the incremental sales lift expected from the reimaged restaurants. The reimaging program is therefore intended to be self-funding starting in the second half of fiscal ’09 and to have a minimal net impact on earnings on a go-forward basis.

Page 13 includes information on our capital structure and uses of cash. In the fourth quarter, we effectively utilized our balance sheet to pay a quarterly dividend and to fund each of our identified strategic initiatives, including a reimaging program and ongoing portfolio management. In addition to our reimaging program, we also finalized various transactions as a part of our ongoing portfolio management. The program’s goal is to pair optimal ownership structures with the right development opportunities while maintaining our overall 90-10 franchised company restaurant ownership ratio.

As we previously announced in April, we completed a 56 restaurant acquisition in the Carolinas with Heartland and in July, we acquired an additional 72 restaurants from one of our largest franchisees, Simmons Restaurant Management. These transactions enabled us to leverage our existing corporate infrastructure and expand our established company presence in attractive new and existing company markets.

As a result of the Simmons transaction, we expect the U.S. company restaurant revenues and EBITDA, including $4 million of one-time charges comprised of start-up costs and required booking of GAAP settlement losses, to increase by approximately $99 million and $7 million to $8 million respectively in fiscal ’09.

We are pleased with the deployment of our free cash flow during the year. We increased our total capital expenditure to $178 million, directed towards expanding and reimaging our company restaurant portfolio in anticipation of creating significant value. We also returned $34 million to shareholders in the form of dividend payments.

We opportunistically repurchased approximately $35 million of our stock, paid down $56 million in debt, and we reinvested $54 million on our acquisitions. These strategic initiatives are expected to substantially increase profitability and shareholder value as we move forward.

As mentioned, our fourth quarter tax rate was abnormally low at 26.1%, positively impacted primarily by the favorable conclusion of the 2005 IRS audit, which benefited EPS by $0.03. Our full year effective tax rate of 35.2% was therefore lower than our normalized rate of 37.5. We are forecasting our normalized tax rate to decrease 100 basis points to 36.5% for fiscal ’09 as we grow our international restaurant footprint in lower tax rate jurisdictions.

On page 14, we have broken down our capital expenditures by category for your review. As you can see, we have clearly stepped up expenditures in the company restaurant portfolio versus the prior year. We exceeded our initial CapEx plan of $120 million to $150 million for fiscal ’08, primarily due to investments in real estate for future sites of BK restaurants. Preliminary results of our reimaging restaurants that have been open more than 90 days are generating significant sales lifts with remodels at approximately 17% and scrape and rebuilds at about 24%.

Our last 50 freestanding company and franchised restaurants opened in the U.S. that have operated for at least 12 months are continuing to deliver average restaurant sales of approximately $1.5 million. We believe that deploying our capital to our company restaurant portfolio is a superior use of our cash, as it is generating a compelling return on investment, based on preliminary results. In fiscal ’09, we expect our capital spending to be relatively in line with prior years in the range of $170 million to $190 million.

Before turning the call back to John, I want to mention that we have once again included additional data and reconciliations in the appendix of the presentation. Thank you for your interest and participation in our call.

Question-and-Answer Session

Operator

(Operator Instructions)

Amy Wagner

I’m sorry, Operator. Before we answer questions, I’m going to have John wrap up, okay? So please withdraw that and we’ll get back to that in about five minutes.

John W. Chidsey

Okay, once again I am extremely pleased with our fourth quarter and full year results. The team delivered record sales and earnings in one of the toughest economic environments we have seen in recent history. In fiscal ’07, we experienced our best traffic performance in a decade and in fiscal ’08, we managed to break that record yet again as guests sought our convenience and affordable quality products around the world.

We remain laser focused on our strategic growth pillars, marketing, products, operations, and development, and made progressive improvements in each one of these areas. We continued our promotional partnerships with blockbuster movies and focused on super family fun with innovative and nutritional product offerings. And our new product development team introduced products to fill the demand at breakfast and during late night, again the fastest growing day parts in the QSR segment.

We kicked off our company restaurant reimaging program and are seeing the expected incremental sales lift and returns on our invested capital. Our development pipeline continues to strengthen and new and existing franchisees are opening more restaurants each year.

And we executed several strategic acquisitions and refranchisings, in line with our ongoing portfolio management strategy, an initiative which is expected to drive growth by pairing optimal ownership structures with profitable development opportunities in new and existing markets.

We exceeded our annual financial targets, growing revenue by 10% and adjusted EPS by 24% over the prior year, our second year in a row of delivering EPS growth in excess of 20%. These results clearly demonstrate that we have the discipline and the maniacal focus to deliver best-in-class performance and with that said, I would like to discuss our fiscal year FY09 growth outlook.

Our goal is to once again deliver significant growth over our past fiscal year by focusing on expanding top line sales and increasing the number of Burger King restaurants around the world. Our fiscal ’09 plan assumes that our comps will grow 3% to 4%, higher than our long-term comp growth of 2% to 3% based on the momentum we are seeing in our business today.

We also expect to add 350 to 400 net new restaurants to our system, 80% of these again coming from international markets.

And our worldwide blended royalty rate continued to improve as more U.S. restaurants migrate to the higher 4.5% contractual royalty rate. We expect our North America company restaurant margin to remain in line with this past year CRM, adjusted for the expense of the reimaging program of 14.5%. During the year, we expect the sales lifts from the newly reimaged restaurants to largely offset the $2 million to $4 million of program expenses planned in fiscal ’09 as the initiative is expected to be self-funding.

In addition, we anticipate largely offsetting the forecasted 5% to 7% food cost inflation by continuing our solid comp performance and strategic pricing decisions. Therefore, we expect North America fiscal ’09 CRM to be relatively unchanged from prior year’s adjusted CRM.

Our goal is to continue to grow G&A at the rate of inflation, as we did this past year, significantly less than our revenue growth rate. And as Ben mentioned, our effective tax rate is forecasted to be around 36.5% and CapEx is expected to come in at $170 million to $190 million.

These assumptions, including the food inflation forecast of 5% to 7%, will result in an EPS of $1.54 to $1.59, or an implied year-over-year EPS growth rate of 12% to 15%. Without the $0.03 benefit realized from the completion of the IRS tax audit, our fiscal 2008 EPS would have been $1.35, implying a fiscal 2009 EPS growth rate of 14% to 18%.

Our ability to deliver this past fiscal year’s great results in a challenging macroeconomic environment was in large part due to our intense focus on our strategic growth pillar as part of our internal plan, which we refer to as the true north plan for balanced growth. I remain confident that our continued focus on and execution of our plan will fuel further growth and allow us to once again deliver on our financial targets.

I would like to thank everyone on the call for their time and continued interest. Operator, you can now open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Steve West of Stifel Nicolaus.

Steven West - Stifel Nicolaus

Just a quick question on the plans for the repurchased units you’ve done. I know in the past you’ve talked about buying some of these bigger franchisees, maybe breaking them up and refranchising them into smaller groups. Is that the plan now? Are you planning on really keeping these in the system and then get your 80% to 90% franchised mix by just accelerating the franchise growth going forward?

John W. Chidsey

It’s very much in line with what our strategy was. The acquisition of those Heartland restaurants, Heartland was approximately 250 restaurants, so by acquiring that 56, that was a great way to shrink the size of one of our larger franchisees. It fit very nicely into our company market there. Simmons, another large franchisee, gave us a great test market in the Midwest, which we did not have and that franchisee really dominates the -- they have all the restaurants in Omaha, which will allow that to be a great market for us.

On the flip side though, you will see us -- over the next year, you will see sales. You know, we’ve talked in past calls about prioritizing our company markets because we’ve got more markets than we can possibly develop, so you will see divestitures over the coming quarters as well, and that’s really what’s going to keep it in that 90-10 range over the next two to five years.

Steven West - Stifel Nicolaus

Okay, so you will refranchise, not necessarily in those markets you just bought but in other areas that might be farther out from where you core markets are, something like that?

John W. Chidsey

Exactly.

Steven West - Stifel Nicolaus

Okay, got it. All right, that’s all I have right now.

Operator

Your next question comes from the line of Matt Difrisco of Oppenheimer. Please proceed.

Matt Difrisco - Oppenheimer

Thank you. Can you give us a little bit of color on what the price is right now and what you are looking at in that 3 to 4 guidance for the company owned stores?

John W. Chidsey

What the price -- do you mean how much do we expect to take in pricing in ’09? I’m not sure exactly --

Matt Difrisco - Oppenheimer

That’s your year-over-year price factor. I think it’s running around -- it was 1.8 prior. I was curious how that looks right now as far as contributing towards the same-store sales.

John W. Chidsey

Yeah, well the 2.4% that we just took in May, in mid-May, then we took another 0.8 in November, so you are really talking about 3.2 is what you are running through right now.

Matt Difrisco - Oppenheimer

Okay, until November -- sorry, I missed that. And then when I look at the guidance for flat CRMs, is that also inclusive of the $4 million or does that reverse out the $4 million drain from the future reimaging in ’09?

John W. Chidsey

That includes the $4 million.

Matt Difrisco - Oppenheimer

Okay, so on an organic basis, you are looking for margins to improve then. I guess also, last question, can you give us what the franchise margins might be looking like? I know a lot of us use your company margins as a proxy but I think the company same-store sales are closer into that lower 2% range and being that you are in Florida, I’m just curious where are the company, where are the franchise margins now on a year-over-year basis? If you can just give us some color. And then I guess my question is also how much appetite is there for the reimaging campaign by the franchisees and what would you expect in the system for ’09 from the franchisees?

John W. Chidsey

As I’ve often said on the calls over the years, my opinion, franchisees generally run slightly better margins than the company does. That would certainly be the case this year because of the aggressive reimaging we did. So I think if you used our restaurant margin degradation, if you will, net of that reimaging, that’s going to be roughly in line but to your point, they do run higher comps than we do, just because of where our stores are located.

So it’s slightly better than what we have but I think the real -- to get to the real crux of your question, we have seen no slow-down. We’re obviously -- we feel very strong about net restaurant growth. We pretty much know where that’s going to come out this year. We know what franchisees are committed to from not just a new build but from a reimaging standpoint. Our DMA investment spending is at the highest it has ever been, so from a cash flow standpoint from our franchisees, we haven’t seen any indicator that they are taking their foot off the gas from a reimaging or an investment spending standpoint.

Matt Difrisco - Oppenheimer

That’s great. Can you give us a number on what ’08 looked like as far as franchisees reimaging and what ’09 will look like as far as franchise reimaging?

John W. Chidsey

You know, I don’t know that number off the top of my head. We’ve talked about there’s an opportunity to redo 15% to 20% of the franchised restaurants over the next three to five years, so we would have to come back to you and tell you. I really don’t know specifically how many were -- I know how many were built, I just don’t know how many were reimaged.

Matt Difrisco - Oppenheimer

Okay. Thank you.

Operator

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

John Glass - Morgan Stanley

Year to year. First, can you talk about the accretion of the two franchise acquisitions that you made? In other words, what was the addition to, expected addition to ’09 earnings net of financing costs for these two? And is that -- that’s in the guidance, I presume?

John W. Chidsey

Yes, so if you -- again, you will see ongoing portfolio management so if you just looked at those two and assumed nothing happened throughout the year, that we weren’t subtracting anything, it would add $0.07 in total for the Heartland and the Simmons deal. And that also includes the German refranchising we did earlier this year.

John Glass - Morgan Stanley

And that’s part of the $1.54 to $1.59 guidance?

John W. Chidsey

Yes.

John Glass - Morgan Stanley

Okay, but are you assuming that your -- do you not assume that other assets are sold, or do you assume that?

John W. Chidsey

We do not assume that.

John Glass - Morgan Stanley

Okay, and then just in understanding how the reimaging helps or hurts U.S. margins, the $2 million to $4 million that you are experiencing in ’09, I presume that’s in the first half of the year. That’s my first part of the question. And secondly, is that just the overage from last year, the projects that ran over or is there any incremental impact for reimaging is washed out with stores coming back online? Is that how we think about it?

John W. Chidsey

Yes, it’s basically when we decided to do our reimaging program last year as part of our plan, by the time we actually got going, got permits and got moving, it all ended up being in the back half of the year. And so obviously you had no impact in the first two quarters, so you are going to have it this year for the first two quarters in ’09, then you should hit a steady state and from that point forward over the next three to five years, it should just be a constant -- no impact because you will just be lapping comparable numbers.

John Glass - Morgan Stanley

And then the last question, so comp store sales momentum -- on the one hand, you cautioned about tough laps in the first quarter; on the other hand, you talked about comping above trend for the year ’09 versus ’08. So where is the first quarter then? Is it somewhere between that guidance and last quarter, or --

John W. Chidsey

No, all I was trying to point out is if you look back at some of the quarters we’ve been doing recently at fives and sixes, if you look on a two-year basis, you’re looking somewhere around 8% to 10%. And so on a two-year basis, my point is I don’t think you’re going to see that much of a difference. But given that you are lapping almost a seven, I just wanted to make sure people weren’t thinking that you would necessarily be putting another five or a six on top of a seven, because it’s a tall mountain to be climbing there. But as I said, we are very confident that we will be positive throughout the year in our quarters from a sales standpoint.

John Glass - Morgan Stanley

Thank you.

Operator

Your next question comes from the line of Jeffery Bernstein of Lehman Brothers.

Jeffery A. Bernstein - Lehman Brothers

Thank you. A couple of questions; first I guess, Ben, you’ve talked about the hot topic of commodities. I think you mentioned that the overall basket was a 5% to 7% increase. I know you had said something about over the next six months. I just want to clarify -- I think if that’s the expectation over the full year, and within that, if you could just talk abut the assumptions that go along with that in terms of what percent you are contracted in some of your key products, whether you are seeing push back from suppliers in terms of the length of the contracts or the fixed versus float. And then how you feel about perhaps additional pricing -- I think you said you have some pricing flexibility. It sounds like now you are running 3.2%, whether you’d consider increasing pricing further as we move forward to [offset the cost pressure].

Ben K. Wells

Well, first question is -- that’s for the full year. Second, we’re not going to delve into our RSI food basket here. The volatility inside the market obviously speaks for itself. We clearly have seen a significant correction inside the broader markets. We’ve got a great -- a significant harvest coming at us. I think everybody can talk around the edges of this but frankly, it’s an up and down market that appears, in our opinion, to have seen its peak. And so from that perspective, we’re comfortable with that five to seven.

As far as hedging, as you know inside the U.S., we rely heavily on RSI and for the most part, while we have some hedges out there on some of the lesser commodities inside the beef space, we don’t hedge, which is very much in our favor right now, we believe, as we begin to move forward.

And as far as the chicken, we’ve reiterated we have a contract that expires in December. But as you know, the chicken protein has not materially changed. That’s an industry that has been able to weather the volatility.

As far as pricing --

John W. Chidsey

Well, as far as pricing, I think we would just continue to look at the market as we have in the past and monitor what the competition does, monitor what happens with commodity prices. But again, the model we built, which I hope 2008 demonstrated that despite a very tough environment, we still delivered double-digit EBITDA growth and 20% EPS growth, so we feel like the model we put together, the plan we put together for the year positions us very nicely.

Jeffery A. Bernstein - Lehman Brothers

Okay, and then just two smaller questions; one, if you could just comment on perhaps the sequential comp trends for this past quarter. I know we’re almost two months through your next quarter -- I just wanted to see if there were any sequential trends that we’ve seen of late.

And then if you could just comment on the recent news about the franchisee push-back that’s been in the news lately about the extended hours, whether that’s going to be something with a sizable portion of your franchisees, perhaps a percent of the system or any impacts that you would think might come from that? Thanks.

John W. Chidsey

Again, just when you look back, we were just trying to point out what it was we were lapping, and as I said, we still say where we are sitting in the quarter, July was a positive month and we said we feel like all of our quarters will be positive, so that’s really -- no more to say on that front.

In terms of the couple of franchisees on the extended hours thing, 99% of our franchisees are complying with our extended hours policy. I think the vast majority of them definitely understand it is the fastest growing day part out there, not just because we tell them but third party validators certainly would state the same thing.

You know, in any franchising environment when you have 1,000 franchisees, you are always going to have a few nay-sayers or a few that are out-layers but I think the vast, vast majority of our franchisees support that day part, believe it’s a great growth opportunity and are willing to invest and help us develop that day part.

Jeffery A. Bernstein - Lehman Brothers

Great. Thank you.

Operator

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

Steven Kron - Goldman Sachs

Good morning. A couple of questions; first I guess a follow-up on the pricing side -- just so I’m clear, you took another 230 basis points or 240 basis points of price in the middle of the quarter. You had 80 basis points running at that point, so are we to assume that for the quarter, the net price that you had in there was basically 80 plus half of that 240, such that you were running somewhere around call it 200 basis points and we are now starting this quarter at 320 basis points?

John W. Chidsey

You could roughly say -- I mean, we didn’t put it in until mid-May, so that’s probably -- half is probably fair, so that’s good enough for government work.

Steven Kron - Goldman Sachs

Okay, and then to follow-up on the margin discussion in North America, down 230 basis points net of the reimaging stuff, guiding to flat or next year. I guess John, as you look at that, are you thinking that the closure of that gap is going to come more from the pricing same-store sales side or some other kind of operational or moderation in commodity costs? How should we be thinking about that? Because that seems like a pretty big gap or a run-rate to close.

John W. Chidsey

I think more of it is going to -- as we said, we had baked in commodity costs being higher but from looking back, it’s down 2% or 3% from the year that we have experienced. So I don’t want you to think we’re suggesting that it’s down completely. It’s just over what we’re lapping against. And then I think the rest of it is while we’ve said 2% to 3%, I think you’ve seen us -- I’m looking at Russ, I think our CAGR over the last four or five years is north of 5% on our same-store sales growth. He’s nodding his head, so that’s almost 6%.

So I think we, while we’ve got 3% to 4% on that model, I think we all remain confident that we can continue to be innovative around products and promotions and we can drive outsized comp growth that we need to deliver the margins we are modeling.

Steven Kron - Goldman Sachs

Okay, and on the G&A side, you guys talked about, and you’ve talked about in the past, getting leverage through the franchise business model here. But you did indicate I guess in the release $7 million of miscellaneous cost savings. Can you guys just talk a little bit about that? What exactly is that and is that a sustainable run-rate going forward, from a G&A perspective?

John W. Chidsey

I think it is. It was predominantly driven by $7 million in miscellaneous cost savings, including things like decreased insurance cost. I mean, I think the insurance market is going to continue to be soft. And we had an increase in the amount of capitalized indirect labor costs on capital projects, which is just an accounting change, which is something that we will do on a go-forward basis. We were not capitalizing those.

Steven Kron - Goldman Sachs

Okay, and then just last question for Ben -- if I think about the chart you put up on the use of cash in ’07 versus ’08, if I think about ’09, it doesn’t appear that you are going to be active in paying down debt. It appears as though your guidance would suggest operating cash flow would be higher, CapEx generally in line, so are we to assume that the excess going forward will be used for repurchases?

Ben K. Wells

That’s a very good assumption.

Steven Kron - Goldman Sachs

Okay. Thanks very much.

Operator

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

John Ivankoe - JPMorgan

Thank you. The question is on the $40 million to $45 million that you are planning on reimaging in 2009, and I saw in the release that you are actually planning to do 39 units. Should we assume that every one of those is a rebuild as opposed to a remodel because of the CapEx per unit?

Ben K. Wells

No. Essentially, in the ’09 timeframe, we are going to have approximately 60 new restaurants globally and then there will be another -- excuse me, 60 to 80 globally and we’ll have another 40 to 60 remodels inside the space. Clearly we are favoring the remodels. As time progresses, we are getting great up-lift. So as you look forward inside our year, fully 70% of our budget is going to be just focusing with a concentration around those remodels.

John Ivankoe - JPMorgan

Okay. So the average cost of the remodel looks like it is a little over $1 million a box.

Ben K. Wells

On the scrapes, that’s correct. The actual remodels is going for substantially less, so that we are basically got something somewhere between 500 to 800 per remodel, depending on what we do.

John Ivankoe - JPMorgan

Okay, fair enough. Ben, since I have you, should we expect the interest rate swap rate to continue for fiscal ’09?

Ben K. Wells

Yes.

John Ivankoe - JPMorgan

Okay. And when does that expire? It looks to be a very good rate that you are currently booking.

Ben K. Wells

It’s got a staggered maturity. It will not affect ’09. The full revolver or bank deal expires in ’12, and you’ll start seeing it play itself out in late ’10 all the way through ’11, but basically the hedge will end when the bank deal ends.

John Ivankoe - JPMorgan

Okay, very good. And finally, I have --

John W. Chidsey

One last thing to clarify on your question there about the remodels is there’s -- the number you were looking at there, John, on the 40 to 45, 39 of those are in the U.S. but 20 of those are outside the U.S. that will be done as well. Those tend to be slightly higher, so you are also looking at a much bigger number, so you are looking at 59, almost 60 projects in total.

John Ivankoe - JPMorgan

John, thanks for clarifying that. I did miss that. And the final question on the flexible batch broiler, I know there’s been some discussion previously that you would be able to have that in 25% I think of BMAs by the end of this calendar year, according to my notes. Is that something that you are still considering? And at what point might we see some of the new products coming through the U.S. system to help comps?

John W. Chidsey

The batch broiler, John?

John Ivankoe - JPMorgan

Yes, new products with the batch broiler.

John W. Chidsey

Yes, we are on track and in fact maybe ahead of schedule a bit. We’re driving very aggressively.

John Ivankoe - JPMorgan

Okay. That’s it for me. Thank you.

Operator

Your next question comes from the line of Jeff Omohundro of Wachovia.

Jeffrey F. Omohundro - Wachovia Securities

I just wonder if you could give us an update on margin trends around the value menu in this commodity environment. Is the assumption going into fiscal ’09 that the value menu mix stays relatively stable versus ’08? Thanks, that’s all I have.

John W. Chidsey

The value menu mix has actually gone up about 1 to 2 points in terms of the contribution to overall sales mix, which is not really that shocking to us. Again remember we’re late in the game in getting into the value menu business, so really that’s the kind of natural growth in terms of increased mix that we would have wanted anyway because we are under-developed versus competition.

Jeffrey F. Omohundro - Wachovia Securities

And the margins around that?

John W. Chidsey

The GPM of the value menu itself is probably off about 3 to 4 points but again, that would be commensurate with the overall cost of goods pressures that are affecting the entire market basket.

Jeffrey F. Omohundro - Wachovia Securities

And is the outlook --

John W. Chidsey

But GP dollars again are up, given overall growth.

Jeffrey F. Omohundro - Wachovia Securities

And in the outlook for ’09, do you expect the momentum in the value menu to continue in terms of building mix?

John W. Chidsey

I think we might see it inch up but we have been -- we continue to feature our most premium priced products on our marketing calendar, like the Steakhouse Burger, the Tendercrisp, and to the earlier question with our rollout of the batch broiler, you are going to see us put more and more up-market premium quality products on menus. So you are going to see us driving that side of our menu architecture as well.

So we’ll push value but we will continue to push our popularly priced core items, like our Whopper lineup and our premium products. So I wouldn’t expect anything too distorted coming out of the value side of the menu.

Jeffrey F. Omohundro - Wachovia Securities

That’s helpful. Thanks.

Operator

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

Jason West - Deutsche Bank

I think in the past you guys had talked about some hesitancy to take price because you feel like your relative value, you want to improve where you guys stand versus competition. Do you guys still feel that is the case or do you feel like now with competitors probably taking a little more price than you have over the last couple of years that that’s improved substantially?

John W. Chidsey

Well on the last call in May, we were right in the middle of that price increase, which we talked about and then since have instituted another price move. The key is that we have evolved a more sophisticated pricing model that moves us more to the right kind of relationships in terms of anchors and tethers, location based pricing. So we are still confident that there is more pricing headroom out there, as long as we have the right kind of sophisticated trading area based visibility in making those decisions.

Jason West - Deutsche Bank

And how far along are you guys in rolling out that model nationwide, or is that kind of up and running now or is there more markets that don’t have that yet?

John W. Chidsey

Well company restaurants going forward are pretty much up and running on use of that model and we have a number of large franchise groups by the end of the year that are employing that model as well, so moving certainly into calendar ’09, most -- the larger part of our franchise system will be on board utilizing that tool.

Jason West - Deutsche Bank

Okay, and then one other thing -- okay, and on the cost side, is anything -- if you can give us an update on the labor scheduling and any other cost savings you guys are working on as we move into fiscal ’09, particularly with what’s going on with commodities, and I guess the minimum wage is going up again next year.

John W. Chidsey

On the labor scheduling, it’s in our company restaurants but as we said, given that our company restaurants are 99% east of the Mississippi and that we were paying substantially above minimum wage, it’s not really going to have that much of an impact in terms of wages -- more how you deploy labor across state parts and can you be more efficient with the labor you are using. In some cases, you might have too much labor and in some cases you might find that if you had more, you would actually run better ops and drive better sales, so it’s more of a labor optimization opportunity.

But around cost savings, and Ben can certainly jump in, he’s aware of more than I am -- you know, we’re working on things like high efficiency fryers, our new broiler allows us to have a dramatically smaller hood than the one we’ve had in the past, so it sucks far less air out of the restaurant, therefore you get much better HVAC savings. So there’s a whole host of items that we are working on to try to drive cost out of the middle of the P&L.

Jason West - Deutsche Bank

Okay, thanks a lot.

Operator

Your next question comes from the line of Joe Buckley of Banc of America. Please proceed.

Joseph T. Buckley - Banc of America

Ben, I wanted to follow-up your comment on beef -- I think you said you are not hedged on beef and right now, that’s a good thing. And I think you ran up 11% year over year in the fourth quarter, so just curious about that comment, maybe what you are seeing right now in terms of beef prices and what you are thinking for the first half of your new fiscal year?

Ben K. Wells

Well, again without following every ups and downs but basically, we see ourselves coming out of the summer, which is a peak beef price period and as we move into the fall and the balance of the year, we see a lot of activity occurring. The grain prices -- excuse me, the grain harvest is what we think it’s going to be, this, that, and the other. You’ve got currency that’s floating through. We see the dollar coming off significantly. You know, I think we’ll end up seeing the moderation of prices as we move through the course of the year and I think panicking early on in the year would not have been a good plan, and so we think we’ve actually benefited from our strategy.

Joseph T. Buckley - Banc of America

Okay, and then a question on the restaurant margins -- would you expect the first half of the year, the restaurant margins to still be down significantly year over year, and then making up that ground in the back half of the year to get to your flat expectation?

Ben K. Wells

Well, you will for two reasons, Joe -- one, because again you are going to have the reimaging impact in the first two quarters, which is going to impact you. I think too, just looking at where most of the commodity cost pressure came from in ’08, it mostly came in the back half of the year so therefore the biggest pressure we are going to have in terms of the lapping impact is in the first half of the year. So I would assume you are correct. I mean, only the crystal ball will tell us if we are both right but I think your assumptions are accurate there.

Joseph T. Buckley - Banc of America

Okay, and then just one more, a follow-up on the G&A -- you mentioned capitalizing some indirect labor costs with the remodels. Could you just describe that a little bit more, or maybe quantify it?

Ben K. Wells

Sorry, I should have said capitalized IT projects.

Joseph T. Buckley - Banc of America

Oh, IT projects, okay. And how much of an impact was that in the quarter?

Ben K. Wells

I honestly don’t know the question -- it’s less than a penny. It wasn’t significant.

John W. Chidsey

It’s not a meaningful number.

Joseph T. Buckley - Banc of America

Okay. Thank you.

Operator

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

Thomas Forte - Telsey Group

Thank you very much. The first question I had was when we think about the promotional tie-ins from the quarter, Indiana Jones and then the tough comparisons with Simpsons and Transformers, can you give us a sense as far as how much they contribute to same-store sales?

John W. Chidsey

Well, the items that are on our marketing calendar around the edges generally drive anywhere from -- if you look back at your absolute sales, you can probably trace anywhere from 15% to 25% of your overall product performance to that event. But the important thing is that they represent the incremental part of your sales and represent whatever it might be -- the 5% to 7% growth that you generate. So certainly the Indy Whopper event was a very strong event for us but we don’t call out the monthly performances of those individual events, so I’m a little bit at a disadvantage to give you anymore insight into that. I’m sorry.

Thomas Forte - Telsey Group

Okay, thanks.

Ben K. Wells

Well, not just that -- I would also argue these tie-ins, I mean, you can never really quantify how much you got out of them and you know it is better to have them than to not have them but to actually go in and intercept every single customer and say would you have been here but for this movie and would you have bought this product but for the promotional tie-in, you’ll never know for sure.

So we clearly like them but there’s no way to quantify them.

John W. Chidsey

We are getting more intel on how to quantify them. There are increasingly tools available to research their effectiveness and I think it’s fair to say that we know that when we are associate with one that is not as effective, we see it, particularly if it’s up against something that was more effective the prior year. So they certainly will continue to be part of our strategy.

Thomas Forte - Telsey Group

And then the second question is when we think about gas prices and sales, you’ve seen gas prices come down recently. Can you talk a little about the relationship that you’ve seen historically between how your sales have done versus gas price trends?

John W. Chidsey

Most of the literature out there that has modeled gas prices in particular against the restaurant space has shown that QSR is a relatively in-elastic space, not completely in-elastic but more in-elastic than casual dining is. And I think you are seeing evidence of that fact this most recent time around as well.

Thomas Forte - Telsey Group

Great. Thank you very much.

Operator

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

Mitchell Speiser - Buckingham Research

Thanks very much. A few questions -- first on the comp, I think you said in the U.S., company-operated comps of 2.4, pricing about 2%. Can you give us a sense of what the menu mix number was?

Ben K. Wells

You’re talking about for the quarter?

Mitchell Speiser - Buckingham Research

For the quarter, yes.

Ben K. Wells

I’m just looking here at the numbers for traffic to get you the mix -- company comps were 2.7 for the quarter and I think the traffic for the quarter, as I recall, was maybe a third to a half, somewhere in there. It was a positive -- you know, as we said in our call, we had the best traffic year in a decade on a worldwide basis and U.S. traffic was positive for the quarter as well.

Mitchell Speiser - Buckingham Research

Got it. Thank you and moving to Europe, the comps were solid but my question is did you see or experience any I guess slowdown related to slower economies in any of the regions, and maybe in particular the U.K.?

Ben K. Wells

No, the U.K. continues, as we’ve talked about for the last six or seven quarters, the U.K. continued to run at double-digit comps and they are certainly well into lapping their year -- I think they are six quarters into that turnaround there, so we saw no deceleration at all in the U.K. The Mediterranean area in Europe had a very strong quarter, as did most of Scandinavia. Germany, while not as strong as maybe the rest of Europe certainly had a reasonable quarter as well.

We didn’t see any deceleration I guess is what I would say in those markets, and on a yearly basis certainly they are up -- I think we did a 3 last year and we did a 5.4 this year, so on a two-year basis, we strengthened across Europe.

Mitchell Speiser - Buckingham Research

Great. Moving along, I think you mentioned that the scrape and rebuilds are generating an ROI of like 24%. I think maybe in previous conference calls, you were mentioning or you indicated in the 35% range. I’m just wondering if you can comment on those numbers.

Ben K. Wells

The numbers that we quoted earlier were really based off things that we had seen franchisees do, because as we said all along, we didn’t have a big data bank, so to speak, and we still only have scraped nine or 10 of our company restaurants, so the 25% that w are seeing, that’s the average on those 10 but even those 10, only one or two of those have even been open a full year now, so that’s really even seasonalizing what we have seen for the first three months, four months. So I would still say 25% to 35% -- we just need another year to get a big enough data sampling to give you a definitive answer on that one.

Mitchell Speiser - Buckingham Research

Okay, thanks. And moving along, just on G&A, you did comment on it down about 2%, even more excluding foreign exchange and some other things. As you -- and you’ve acquired a couple of franchisees. Can you comment, did you -- it sounds like you didn’t buy any of their infrastructure. That should just kind of hit the top line. I guess my question is could G&A remain on an absolute basis flat for the year, or how should we think about G&A for fiscal ’09?

Ben K. Wells

Well, I think John earlier gave guidance that we are going to continue to track our G&A consistent with the inflation rate, so it is going to go up gradually. But now also, please keep in mind we are going to have a stock comp that is going to continue to go through that line and it goes -- it will level out in ’11, so basically we are going to have another jump of approximately 5 to 6 in stock comp next year. But you are correct in your assumption -- we did not buy their G&A. We are using our restaurant model and our existing RSC staff to manage those restaurants.

Mitchell Speiser - Buckingham Research

Great. And my last question is just on the margin target for fiscal ’09 for flat -- was that just the U.S. or was that a global number?

Ben K. Wells

That was a North American number. Globally, I don’t think you will see a big difference there. I mean, you saw actually margin accretion in Europe but that was principally due to the closure of the restaurants that -- we call it project Chelsea that we’ve been talking about for the last four to six quarters, and we have worked our way through most of that. I think there’s a small handful left to be closed, so maybe you get a little benefit of that in terms of some margin help in Europe. Latin America is already at a very healthy level so I think you would assume Latin America would stay flat and probably the same for Asia. So I don’t think the picture really changes that dramatically when you look at it globally.

Operator

And that does conclude the question-and-answer session. I’ll now turn it back to John Chidsey for closing remarks.

John W. Chidsey

Thank you very much for your time today. Again, we feel very strong about the year we delivered and we feel very confident about delivering comparable outsized financial returns in ’09, so thanks a lot.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the presentation. You may now disconnect. Have a good day.

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