01—Abstract
Summary
Summary of the 10-K filed March 2, 2015. Cited figures are marked; the original filing is the authoritative source.
Restaurant Brands International Inc. (QSR) reported its first annual results as a combined company following the December 12, 2014 Transactions, in which it acquired Tim Hortons and combined it with Burger King Worldwide.
The company operated 19,043 system-wide restaurants in approximately 100 countries and U.S. territories as of December 31, 2014, of which 18,978 were franchised. Reported 2014 results show total revenues of $1,197.3 milliona (versus $1,146.3 million in 2013) but a net loss of $277.4 million, compared with net income of $233.7 million in 2013. The loss was driven largely by $326.9 million of other operating expenses, including $290.9 million of net losses on derivatives, $125.0 million of Tim Hortons transaction and restructuring costs, and a $155.4 million loss on early extinguishment of debt, alongside higher interest expense of $280.1 million.
The balance sheet changed substantially. Total assets rose to $21,164.0 millionb from $5,828.5 million, and total debt and capital lease obligations reached $9,192.5 million. Cash and cash equivalents were $1,803.2 million at year-end.
Adjusted EBITDA, a non-GAAP measure, was $761.1 millionc in 2014 compared with $665.6 million in 2013. The company also carries $3,297.0 million of redeemable preferred shares held by a Berkshire Hathaway subsidiary, which pay a 9.0% dividend, and 3G Capital controls 47% of the voting power.
For investors, the key considerations are the scale of leverage, the preferred share dividend obligation of $67.5 milliond per quarter going forward, the franchise-dependent revenue model, and the Tim Hortons Canadian concentration. Management expects capital expenditures of approximately $180.0 million in 2015 and states that cash flow from operations and revolving credit availability should cover obligations over the next twelve months.
02—Key points
Key Highlights
- Completed the acquisition of Tim Hortons on December 12, 2014, creating a combined company with 19,043 system-wide restaurants at year-end 2014, of which 18,978 were franchised.
- Reported a 2014 net loss of $277.4 million, versus net income of $233.7 million in 2013, driven by $290.9 million of net losses on derivatives and a $155.4 million loss on early extinguishment of debt.
- Total revenues rose to $1,197.3 million from $1,146.3 million, with franchise and property revenues increasing to $1,029.9 million from $923.6 million.
- Adjusted EBITDA was $761.1 million in 2014, up from $665.6 million in 2013, with increases in all Burger King segments and a contribution from the TH segment.
- Total debt and capital lease obligations were $9,192.5 million at year-end 2014, and interest expense, net, was $280.1 million, with a weighted average interest rate on long-term debt of 6.0%.
- Issued $3,000.0 million of 9.0% cumulative compounding perpetual voting preferred shares to a Berkshire Hathaway subsidiary, with quarterly preferred dividends expected to total $67.5 million going forward.
- Burger King system-wide sales growth was 6.8% and Tim Hortons system-wide sales growth was 6.6% for 2014, with BK comparable sales growth of 2.1% and TH comparable sales growth of 3.1%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Restaurant Brands International kept $0.13.
- Revenue$1.20B100.0%
- Cost of revenue−$372.3M31.1%
- Gross profit$826.5M68.9%
- Operating costs−$645.4M53.8%
- Operating income$181.1M15.1%
- Interest, other & tax−$23.1M1.9%
- Net income$158.0M13.2%
Where FY2014 revenue went
$1.20B- Other operating costs: $515.9M, 43% of revenue
- SG&A: $345.4M, 29% of revenue
- Net income: $158.0M, 13% of revenue
- Cost of revenue: $156.4M, 13% of revenue
- Interest, other & tax: $23.1M, 1.9% of revenue
Kept 13% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed March 2, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $1.20B$1.15B | +4.6% |
| Cost of Revenue | $156.40M$195.30M | −19.9% |
| Gross Profit | $826.50M$743.10M | +11.2% |
| SG&A Expenses | $345.40M$242.40M | +42.5% |
| Operating Expenses | $1.02B$624.10M | +63.1% |
| Operating Income | $181.10M$522.20M | −65.3% |
| Net Income | $158.00M$233.70M | −32.4% |
| EPS (Basic) | $-1.16$0.67 | −273.1% |
| EPS (Diluted) | $-2.32$0.65 | −456.9% |
| Shares Outstanding (Basic) | 343.70M351.00M | −2.1% |
| Shares Outstanding (Diluted) | 358.20M357.80M | +0.1% |
05—Questions
Frequently Asked Questions
Why did the company report a net loss in 2014 after a profit in 2013?
The 2014 net loss of $277.4 million was driven mainly by other operating expenses of $326.9 million, which included $290.9 million of net losses on derivatives tied to the Tim Hortons financing and hedging. The company also recorded a $155.4 million loss on early extinguishment of debt, $125.0 million of Tim Hortons transaction and restructuring costs, and interest expense, net, of $280.1 million, up from $200.0 million in 2013.
How is the company's debt structure following the Transactions?
At December 31, 2014, total debt was $10,042.9 million principal, including a $6,750.0 million senior secured term loan due December 12, 2021, $2,250.0 million of 6.00% second lien senior secured notes due April 1, 2022, and Tim Hortons notes of $1,044.8 million. The company had $495.4 million of remaining borrowing capacity under its $500.0 million revolving credit facility.
What are the obligations related to the preferred shares?
The 68.5 million Class A 9.0% preferred shares carry cumulative cash dividends of 9.0% annually on the purchase price, payable quarterly. The company declared $82.5 million for the period from December 12, 2014 through the first quarter of 2015 and expects quarterly dividend payments of $67.5 million, or $270.0 million per year, going forward. Holders may require redemption after the tenth anniversary of issuance at 109.9% of the purchase price.
How concentrated is the business in Canada and in franchisees?
Substantially all Burger King and Tim Hortons restaurants are franchised, which the filing notes makes royalty income dependent on franchisee performance. The Tim Hortons brand depends substantially on its Canadian business, which accounted for the substantial majority of its 2014 revenues and operating income. Revenues from operations outside the United States represented 47.3% of total revenues as of December 31, 2014.
What does the company expect for 2015 capital spending and dividends?
The company expects capital expenditures of approximately $180.0 million in 2015, to be funded from cash on hand and operating cash flow. The board declared a quarterly dividend of $0.09 per common share payable April 2, 2015. The company states it does not have a formal dividend policy, and future common dividends depend on board discretion and restrictions under the preferred shares and debt agreements.
06—Continue