01—Abstract
Summary
Summary of the 10-K filed February 17, 2017. Cited figures are marked; the original filing is the authoritative source.
Restaurant Brands International Inc. (QSR) reported 2016 total revenues of $4.15 billiona, up from $4.05 billion in 2015, and income from operations of $1.67 billion versus $1.19 billion.
Net income rose to $955.9 millionb from $511.7 million, driven primarily by higher operating income, the non-recurrence of a $40.0 million loss on early extinguishment of debt, and lower SG&A, partly offset by higher income tax expense of $243.9 million. Adjusted EBITDA was $1.89 billion for 2016 compared with $1.67 billion in 2015, with Tim Hortons segment income of $1.07 billion and Burger King segment income of $815.9 million. System-wide sales were more than $24 billion across over 20,000 restaurants in more than 100 countries and U.S. territories, and approximately 100% of restaurants are franchised.
The balance sheet remains highly leveraged. Total debt and capital lease obligations were $8.72 billionc at year-end 2016, and the company also has 68.5 million Class A 9.0% cumulative compounding perpetual voting preferred shares held by Berkshire Hathaway's National Indemnity Company, carried at $3.30 billion, with annual preferred dividends of $270.0 million. On February 17, 2017, the company entered into a second amendment to its Credit Facilities, reducing the Term Loan Facility to $4.90 billion after a $146.1 million repayment, lowering its interest margin, and extending its maturity to February 17, 2024.
Cash and cash equivalents were $1.46 billiond at year-end. The company declared a quarterly common dividend of $0.18 per share for payment in April 2017, up from $0.17 paid in January 2017. Investors should note the concentration of voting control: 3G Restaurant Brands Holdings LP owns 42.6% of the combined voting power, and the filing identifies the company's dependence on franchisees, its significant leverage, its tax exposure related to Section 7874 of the Internal Revenue Code, and its exposure to foreign currency fluctuations, since substantially all debt is denominated in U.S. dollars.
02—Key points
Key Highlights
- Total revenues of $4,145.8 million in 2016, up from $4,052.2 million in 2015; income from operations of $1,666.7 million versus $1,192.2 million.
- Net income of $955.9 million in 2016 compared with $511.7 million in 2015, with diluted earnings per share of $1.45 versus $0.50.
- Adjusted EBITDA of $1,888.2 million in 2016, up from $1,666.2 million, with Tim Hortons segment income of $1,072.3 million and Burger King segment income of $815.9 million.
- Comparable sales growth of 2.5% for Tim Hortons and 2.3% for Burger King in 2016; system-wide sales growth of 5.2% for Tim Hortons and 7.8% for Burger King.
- Total debt and capital lease obligations of $8,722.5 million at December 31, 2016, plus $3,297.0 million of redeemable preferred shares carrying a 9.0% dividend.
- On February 17, 2017, the Term Loan Facility was reduced to $4,900.0 million, its interest margin was lowered, and its maturity was extended to February 17, 2024.
- 3G Restaurant Brands Holdings LP holds 42.6% of the combined voting power, giving it significant influence over company decisions.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Restaurant Brands International kept $0.08.
- Revenue$4.15B100.0%
- Cost of revenue−$1.73B41.7%
- Gross profit$2.42B58.3%
- Operating costs−$751.7M18.1%
- Operating income$1.67B40.2%
- Interest, other & tax−$1.32B31.9%
- Net income$346.0M8.3%
Where FY2016 revenue went
$4.15B- Cost of revenue: $1.73B, 42% of revenue
- Interest, other & tax: $1.32B, 32% of revenue
- Net income: $346.0M, 8.3% of revenue
- SG&A: $319.0M, 7.7% of revenue
- Other operating costs: $432.7M, 10% of revenue
Kept 8.3% as net incomeNet income $346.0M · 8.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 17, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $4.15B$4.05B | +2.3% |
| Cost of Revenue | $1.73B$1.81B | −4.5% |
| Gross Profit | $2.42B$2.24B | +7.8% |
| SG&A Expenses | $319.00M$437.70M | −27.1% |
| Operating Expenses | $2.48B$2.86B | −13.3% |
| Operating Income | $1.67B$1.19B | +39.8% |
| Net Income | $346.00M$103.90M | +233.0% |
| EPS (Basic) | $1.48$0.51 | +190.2% |
| EPS (Diluted) | $1.45$0.50 | +190.0% |
| Shares Outstanding (Basic) | 233.00M203.50M | +14.5% |
| Shares Outstanding (Diluted) | 470.00M476.00M | −1.3% |
05—Questions
Frequently Asked Questions
How did Restaurant Brands International perform financially in 2016?
Total revenues rose to $4,145.8 million from $4,052.2 million, income from operations increased to $1,666.7 million from $1,192.2 million, and net income reached $955.9 million compared with $511.7 million in 2015. The company attributed the improvement mainly to higher operating income, lower SG&A expenses, and the absence of a $40.0 million loss on early extinguishment of debt recorded in 2015.
How much debt does the company carry and how is it structured?
As of December 31, 2016, aggregate outstanding indebtedness was $8,672.1 million, including a senior secured term loan of $5,046.1 million, $1,250.0 million of 4.625% first lien senior notes due 2022, and $2,250.0 million of 6.00% second lien senior secured notes due 2022. The company also had a $500.0 million revolving credit facility with $498.5 million of borrowing availability at year-end.
What dividends does the company pay?
On February 13, 2017, the board declared a cash dividend of $0.18 per common share, payable April 4, 2017 to shareholders of record on March 3, 2017, and a dividend of $0.98 per Preferred Share, totaling $67.5 million, payable April 3, 2017. The company expects quarterly preferred dividend payments of $67.5 million, or $270.0 million per year.
What is the company's business model?
Approximately 100% of Tim Hortons and Burger King system-wide restaurants are franchised. The company earns revenue from franchise royalties, franchise fees, property revenues from leases and subleases to franchisees, and supply chain sales to Tim Hortons franchisees, along with sales at a small number of Company-operated restaurants (29 Tim Hortons and 71 Burger King at year-end 2016).
What are the main risks identified in the filing?
Key risks include intense competition, dependence on franchisee success and limited influence over franchisees, high leverage and restrictive debt covenants, sensitivity to consumer discretionary spending, food and commodity cost volatility, foreign currency and interest rate exposure, and tax risk, including the possibility that the company and Partnership could be treated as U.S. corporations under Section 7874 of the Internal Revenue Code. The filing also notes that 3G's concentrated voting power may conflict with other shareholders' interests.
06—Continue