01—Abstract
Summary
Summary of the 10-K filed February 23, 2018. Cited figures are marked; the original filing is the authoritative source.
Restaurant Brands International Inc. (QSR) reported that it operates over 24,000 restaurants in more than 100 countries and U.S. territories as of December 31, 2017, with more than $30 billiona in system-wide sales, and that approximately 100% of its restaurants are franchised.
The company completed its acquisition of Popeyes Louisiana Kitchen, Inc. on March 27, 2017 for total consideration of $1,654.7 millionb, and its 2017 results include $202.3 million of PLK revenues and $106.9 million of PLK segment income. Total revenues rose to $4,576.1 million in 2017 from $4,145.8 million in 2016, and net income rose to $1,235.3 million from $955.9 million, helped by a $419.9 million provisional tax benefit from remeasuring net deferred tax liabilities under the Tax Cuts and Jobs Act. Adjusted EBITDA (segment income) was $2,145.8 million, compared with $1,888.2 million in 2016.
Leverage remains a central consideration for investors. Aggregate indebtedness was $12,027.8 millionc at December 31, 2017, and the company redeemed its 9.0% Class A preferred shares for $3,115.6 million in December 2017, funded largely by new 4.25% first lien and 5.00% second lien senior secured notes. Comparable sales were mixed: Tim Hortons was (0.1)%, Burger King 3.1% and Popeyes (1.5)%.
The company also disclosed two lawsuits filed in Ontario by Tim Hortons franchisees, which it describes as without merit but whose outcome it cannot predict. Management targets $1.80d in declared dividends per common share for 2018, with a $0.45 quarterly dividend declared for the first quarter of 2018.
02—Key points
Key Highlights
- Total revenues increased to $4,576.1 million in 2017 from $4,145.8 million in 2016, with the Popeyes acquisition contributing $202.3 million.
- Net income was $1,235.3 million in 2017 versus $955.9 million in 2016, including a $419.9 million provisional benefit from Tax Act remeasurement of net deferred tax liabilities.
- Adjusted EBITDA (segment income) was $2,145.8 million in 2017 versus $1,888.2 million in 2016; TH segment income was $1,135.8 million, BK $903.1 million and PLK $106.9 million.
- Total debt and capital lease obligations were $12,122.9 million at December 31, 2017, up from $8,722.5 million, reflecting incremental term loans and new senior notes used to fund the Popeyes acquisition and preferred share redemption.
- System-wide sales were $6,716.9 million for Tim Hortons, $20,075.1 million for Burger King and $3,511.5 million for Popeyes in 2017; Burger King system-wide sales growth was 10.1%.
- Comparable sales were (0.1)% for Tim Hortons, 3.1% for Burger King and (1.5)% for Popeyes in 2017.
- Management targets $1.80 in declared dividends per common share for 2018, and the board declared a $0.45 dividend for the first quarter of 2018.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Restaurant Brands International kept $0.14.
- Revenue$4.58B100.0%
- Cost of revenue−$1.85B40.4%
- Gross profit$2.73B59.6%
- Operating costs−$990.7M21.6%
- Operating income$1.74B37.9%
- Interest, other & tax−$1.11B24.2%
- Net income$626.0M13.7%
Where FY2017 revenue went
$4.58B- Cost of revenue: $1.85B, 40% of revenue
- Interest, other & tax: $1.11B, 24% of revenue
- Net income: $626.0M, 14% of revenue
- Other operating costs: $574.7M, 13% of revenue
- SG&A: $416.0M, 9.1% of revenue
Kept 14% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 23, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $4.58B$4.15B | +10.4% |
| Cost of Revenue | $1.85B$1.73B | +7.1% |
| Gross Profit | $2.73B$2.42B | +12.7% |
| SG&A Expenses | $416.00M$319.00M | +30.4% |
| Operating Expenses | $2.84B$2.48B | +14.6% |
| Operating Income | $1.74B$1.67B | +4.1% |
| Net Income | $626.00M$346.00M | +80.9% |
| EPS (Basic) | $2.64$1.48 | +78.4% |
| EPS (Diluted) | $2.54$1.45 | +75.2% |
| Shares Outstanding (Basic) | 237.00M233.00M | +1.7% |
| Shares Outstanding (Diluted) | 477.00M470.00M | +1.5% |
05—Questions
Frequently Asked Questions
How much debt does the company carry and how is it structured?
Aggregate indebtedness was $12,027.8 million at December 31, 2017, including a $6,388.7 million senior secured term loan facility, $2,750.0 million of first lien notes and $2,800.0 million of second lien notes. The filing states that substantially all of the company's debt is denominated in U.S. dollars and that its credit facilities carry variable rates subject to LIBOR floors.
What drove the increase in net income in 2017?
Net income rose to $1,235.3 million from $955.9 million, primarily because of a $133.6 million income tax benefit in 2017 compared with a $243.9 million expense in 2016. Segment income in TH and BK also increased by $150.7 million, and 2017 included $106.9 million of PLK segment income. These gains were partially offset by a $122.0 million loss on early extinguishment of debt and $61.7 million of PLK transaction costs.
What legal proceedings could affect the company?
Two lawsuits were filed in the Ontario Superior Court of Justice by Tim Hortons franchisees, one on June 19, 2017 concerning the Tim Hortons Canada advertising fund and one on October 6, 2017 concerning the treatment of members of the Great White North Franchisee Association. The company believes the claims are without merit and intends to defend them vigorously, but states it is unable to predict the outcome or estimate the range of possible loss.
How does the company's business model generate revenue?
Approximately 100% of restaurants for each brand are franchised. Revenue comes mainly from royalties based on franchise sales, franchise fees, property revenues from properties leased or subleased to franchisees, and sales at the few Company-operated restaurants. Tim Hortons also generates supply chain sales to franchisees and retailers. Franchise and property revenues were $2,185.8 million in 2017 and sales were $2,390.3 million.
What is the impact of the Tax Cuts and Jobs Act on the company?
The company recorded a provisional benefit of $419.9 million from remeasuring net deferred tax liabilities, provisional charges of $102.6 million related to carryforward deductions, and a provisional Transition Tax of $119.4 million, which may be paid over eight years. The company has not finalized these amounts and expects to complete its analysis no later than December 22, 2018, so adjustments may occur during 2018.
06—Continue