Management of Restaurant Brands International Inc. (RBI), the sole general partner of Restaurant Brands International
Limited Partnership (the Partnership), is responsible for the preparation, integrity and fair presentation of the consolidated financial statements, related notes and other information included in this annual report. The financial
statements were prepared in accordance with accounting principles generally accepted in the United States of America and include certain amounts based on managements estimates and assumptions. Other financial information presented in the
annual report is derived from the financial statements.
Management is also responsible for establishing and maintaining adequate internal control over
financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2016. Internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our system of internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Partnership; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Partnership are being made only in accordance with authorizations
of management and directors of RBI; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Partnerships assets that could have a material effect on the financial
statements.
Management performed an assessment of the effectiveness of Partnerships internal control over financial reporting as of
December 31, 2016 based on criteria established in
Internal Control
Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our
assessment and those criteria, management determined that Partnerships internal control over financial reporting was effective as of December 31, 2016.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The effectiveness of Partnerships internal control over financial reporting as of December 31, 2016 has been audited by KPMG LLP,
Partnerships independent registered public accounting firm, as stated in its report which is included herein.
Approved on behalf of the Board of Directors of Restaurant Brands International Inc., as general partner of Restaurant Brands International Limited
Partnership:
Notes to Consolidated Financial Statements
Note 1. Description of Business and Organization
Description of Business
Restaurant Brands International Limited Partnership (Partnership, we, us or our) was formed on
August 25, 2014 as a general partnership and was registered on October 27, 2014 as a limited partnership in accordance with the laws of the Province of Ontario. Pursuant to Rule
12g-3(a)
under the
Securities Exchange Act of 1934, as amended, Partnership is a successor issuer to Burger King Worldwide, Inc. We franchise and operate quick service restaurants serving premium coffee and other beverage and food products under the
Tim
Hortons
®
brand (Tim Hortons), and fast food hamburger restaurants principally under the
Burger
King
®
brand (Burger King). We are one of the worlds largest quick service restaurant, or QSR, companies as measured by total number of restaurants, and operate in
more than 100 countries and U.S. territories. Approximately 100% of current Tim Hortons and Burger King system-wide restaurants are franchised. The following table outlines our restaurant count, by brand and consolidated, as of the dates indicated.
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December 31,
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Number of system-wide restaurants:
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2016
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2015
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2014
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Tim Hortons
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4,613
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4,413
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4,258
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Burger King
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15,738
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|
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15,003
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14,372
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Total system-wide restaurants
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20,351
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19,416
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18,630
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We are a subsidiary of Restaurant Brands International Inc. (RBI). RBI is our sole general
partner, and as such, RBI has the exclusive right, power and authority to manage, control, administer and operate the business and affairs and to make decisions regarding the undertaking and business of Partnership in accordance with the partnership
agreement of Partnership (partnership agreement) and applicable laws.
All references to $ or dollars
are to the currency of the United States unless otherwise indicated. All references to Canadian dollars or C$ are to the currency of Canada unless otherwise indicated.
On December 12, 2014, a series of transactions (the Transactions) were completed resulting in Burger King Worldwide, Inc. and
The TDL Group Corp. (f/k/a Tim Hortons ULC and Tim Hortons Inc.) becoming indirect subsidiaries of RBI and Partnership. The following unaudited consolidated pro forma summary has been prepared by adjusting our historical data to give effect to the
Transactions as if Tim Hortons was consolidated for all of 2014 (in millions, except per share amounts):
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Pro Forma
(Unaudited)
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2014
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Total Revenues
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$
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4,221.6
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Net income
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301.7
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Net income attributable to noncontrolling interests
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20.7
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Net income attributable to Restaurant Brands International Inc.
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281.0
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Preferred shares dividends
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270.0
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Net income attributable to common shareholders
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$
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11.0
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Earnings per common share - basic and diluted
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$
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0.06
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The unaudited consolidated pro forma financial information was prepared in accordance with the acquisition
method of accounting under existing standards and is not necessarily indicative of the results of operations that would have occurred if the Transactions had been completed on the date indicated, nor is it indicative of our future operating results.
The unaudited pro forma results do not reflect future events that either have occurred or may occur after the Transactions, including,
but not limited to, the anticipated realization of ongoing savings from operating synergies in subsequent periods. They also do not give effect to certain charges that we incurred in 2015 related to a strategic realignment of our global structure to
better accommodate the needs of the combined business and support successful global growth.
62
Note 2. Significant Accounting Policies
Basis of Presentation
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
(GAAP) and related rules and regulations of the U.S. Securities and Exchange Commission requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the
related disclosure of contingent assets and liabilities. Actual results could differ from these estimates.
Fiscal Year
We operate on a monthly calendar, with a fiscal year that ends on December 31. Prior to December 31, 2015, the fiscal year of our Tim
Hortons subsidiaries ended on the Sunday nearest to December 31 which was December 28 in 2014. The effect of changing the fiscal year of our Tim Hortons subsidiaries during 2015 did not have a material impact on our consolidated results of
operations, financial position or cash flows.
Principles of Consolidation
The consolidated financial statements include our accounts and the accounts of entities in which we have a controlling financial interest, the
usual condition of which is ownership of a majority voting interest. All material intercompany balances and transactions have been eliminated in consolidation. Investments in other affiliates that are owned 50% or less where we have significant
influence are accounted for by the equity method.
We also consider for consolidation entities in which we have certain interests, where
the controlling financial interest may be achieved through arrangements that do not involve voting interests. Such an entity, known as a variable interest entity (VIE), is required to be consolidated by its primary beneficiary. The
primary beneficiary is the entity that possesses the power to direct the activities of the VIE that most significantly impact its economic performance and has the obligation to absorb losses or the right to receive benefits from the VIE that are
significant to it. Our maximum exposure to loss resulting from involvement with VIEs is attributable to accounts and notes receivable balances, outstanding loan guarantees and future lease payments, where applicable.
Tim Hortons has historically entered into certain arrangements in which an operator acquires the right to operate a restaurant, but Tim
Hortons owns the restaurants assets. In these arrangements, Tim Hortons has the ability to determine which operators manage the restaurants and for what duration. We perform an analysis to determine if the legal entity in which operations are
conducted is a VIE and consolidate a VIE entity if we also determine Tim Hortons is the entitys primary beneficiary (Restaurant VIEs). As Burger King franchise and master franchise arrangements provide the franchise and master
franchise entities the power to direct the activities that most significantly impact their economic performance, we do not consider ourselves the primary beneficiary of any such entity that might be a VIE.
As of December 31, 2016 and 2015, we determined that we are the primary beneficiary of 96 and 141 Restaurant VIEs, respectively, and
accordingly, have consolidated the financial results of operations, assets and liabilities, and cash flows of these Restaurant VIEs in Partnerships consolidated financial statements. Material intercompany accounts and transactions have been
eliminated in consolidation.
Assets and liabilities related to consolidated VIEs are not significant to our total consolidated assets and
liabilities. Liabilities recognized as a result of consolidating these VIEs do not necessarily represent additional claims on our general assets; rather, they represent claims against the specific assets of the consolidated VIEs. Conversely, assets
recognized as a result of consolidating these VIEs do not represent additional assets that could be used to satisfy claims by our creditors as they are not legally included within our general assets.
Reclassifications
Certain prior year amounts in the accompanying consolidated financial statements and notes to the consolidated financial statements have been
reclassified in order to be comparable with the current year classifications. These reclassifications had no effect on previously reported net income.
63
Foreign Currency Translation and Transaction Gains and Losses
Our functional currency is the U.S. dollar, since our Partnership preferred units and related preferred distributions, our term loan and senior
secured notes are denominated in U.S. dollars. The functional currency of each of our operating subsidiaries is generally the currency of the economic environment in which the subsidiary primarily does business. Our foreign subsidiaries
financial statements are translated into U.S. dollar using the foreign exchange rates applicable to the dates of the financial statements. Assets and liabilities are translated using the
end-of-period
spot foreign exchange rates. Income, expenses and cash flows are translated at the average foreign exchange rates for each period. Equity accounts are translated at historical foreign exchange
rates. The effects of these translation adjustments are reported as a component of accumulated other comprehensive income (loss) (AOCI) in the consolidated statements of equity.
For any transaction that is denominated in a currency different from the entitys functional currency, we record a gain or loss based on
the difference between the foreign exchange rate at the transaction date and the foreign exchange rate at the transaction settlement date (or rate at period end, if unsettled) which is included within other operating expenses (income), net in the
consolidated statements of operations.
Cash and Cash Equivalents
All highly liquid investments with original maturities of three months or less and credit card receivables are considered cash equivalents.
Inventories
Inventories are carried at the lower of cost or net realizable value and consist primarily of raw materials such as green coffee beans and
finished goods such as new equipment, parts, paper supplies and restaurant food items. The moving average method is used to determine the cost of raw material and finished goods inventories held for sale to Tim Hortons franchisees.
Property and Equipment, net
We record property and equipment at historical cost less accumulated depreciation and amortization, which is recognized using the straight-line
method over the following estimated useful lives: (i) buildings and improvements up to 40 years; (ii) restaurant equipment up to 18 years; (iii) furniture, fixtures and other up to 10 years;
(iv) manufacturing equipment up to 30 years; and (v) capital leases up to 40 years or lease term. Leasehold improvements to properties where we are the lessee are amortized over the lesser of the remaining term of the lease
or the estimated useful life of the improvement.
We are considered to be the owner of certain restaurants leased from unrelated lessors
because Tim Hortons constructed some of the structural elements of those restaurants. Accordingly, lessors contributions to the construction costs of these restaurants was recognized as other debt, and was $83.2 million and
$85.2 million at December 31, 2016 and 2015, respectively.
Major improvements are capitalized, while maintenance and repairs
are expensed when incurred.
Leases
We define lease term as the initial term of a lease plus any renewals covered by bargain renewal options or that are reasonably assured of
exercise because
non-renewal
would create an economic penalty, plus any periods that the lessee has use of the property but is not charged rent by a landlord (rent holiday). We record rental income and rental
expense for operating leases on a straight-line basis over the lease term, net of any applicable lease incentive amortization. Contingent rental income is recognized on an accrual basis as earned.
Assets we acquire as lessee under capital leases are stated at the lower of the present value of future minimum lease payments or fair market
value at the date of inception of the lease. Capital lease assets are depreciated using the straight-line method over the shorter of the useful life of the asset or the underlying lease term.
We also have net investments in properties leased to franchisees, which meet the criteria of direct financing leases. Investments in direct
financing leases are recorded on a net basis, consisting of the gross investment and residual value in the lease, less unearned income. Earned income on direct financing leases is recognized when earned and collectability is reasonably assured.
Unearned income is recognized over the lease term yielding a constant periodic rate of return on the net investment in the lease. Direct financing leases are reviewed for impairment whenever events or circumstances indicate that the carrying amount
of the asset may not be recoverable based on the payment history under the lease.
64
We have recorded favorable and unfavorable operating leases in connection with the acquisition
method of accounting. We amortize favorable and unfavorable leases on a straight-line basis over the remaining term of the leases, as determined at the acquisition date.
Goodwill and Intangible Assets Not Subject to Amortization
Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in connection with the
Transactions and the 2010 acquisition of Burger King Holdings, Inc. by 3G Capital Partners Ltd. Our indefinite-lived intangible assets consist of the
Tim Hortons
brand and the
Burger King
brand (each a Brand and together,
the Brands). Goodwill and the Brands are tested for impairment at least annually as of October 1 of each year and more often if an event occurs or circumstances change, which indicate impairment might exist. Our annual
impairment tests of goodwill and the Brands may be completed through qualitative assessments. We may elect to bypass the qualitative assessment and proceed directly to a
two-step
quantitative impairment test,
for any reporting unit or either Brand, in any period. We can resume the qualitative assessment for any reporting unit or Brand in any subsequent period.
Under a qualitative approach, our impairment review for goodwill consists of an assessment of whether it is
more-likely-than-not
that a reporting units fair value is less than its carrying amount. If we elect to bypass the qualitative assessment for any reporting unit, or if a qualitative assessment
indicates it is
more-likely-than-not
that the estimated carrying value of a reporting unit exceeds its fair value, we perform a
two-step
quantitative goodwill impairment
test. The first step requires us to estimate the fair value of the reporting unit. If the fair value of the reporting unit is less than its carrying amount, the estimated fair value of the reporting unit is allocated to all its underlying
assets and liabilities, including both recognized and unrecognized tangible and intangible assets, based on their fair value. If necessary, goodwill is then written down to its implied fair value.
Under a qualitative approach, our impairment review for the Brands consists of an assessment of whether it is
more-likely-than-not
that a Brands fair value is less than its carrying amount. If we elect to bypass the qualitative assessment for either Brand, or if a qualitative assessment indicates it is
more-likely-than-not
that the estimated carrying value of a Brand exceeds its fair value, we estimate the fair value of the Brand and compare it to its carrying amount. If the carrying amount exceeds fair value, an
impairment loss is recognized in an amount equal to that excess.
We completed our impairment tests for goodwill and the Brands as of
October 1, 2016, 2015 and 2014 and no impairment resulted.
Long-Lived Assets
Long-lived assets, such as property and equipment and intangible assets subject to amortization, are tested for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Some of the events or changes in circumstances that would trigger an impairment review include, but are not limited to, bankruptcy proceedings or other
significant financial distress of a lessee; significant negative industry or economic trends; knowledge of transactions involving the sale of similar property at amounts below the carrying value; or our expectation to dispose of long-lived assets
before the end of their estimated useful lives. The impairment test for long-lived assets requires us to assess the recoverability of long-lived assets by comparing their net carrying value to the sum of undiscounted estimated future cash flows
directly associated with and arising from use and eventual disposition of the assets. Long-lived assets are grouped for recognition and measurement of impairment at the lowest level for which identifiable cash flows are largely independent of the
cash flows of other assets. If the net carrying value of a group of long-lived assets exceeds the sum of related undiscounted estimated future cash flows, we record an impairment charge equal to the excess, if any, of the net carrying value over
fair value.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) (OCI) refers to revenues, expenses, gains and losses that are included in comprehensive income
(loss), but are excluded from net income (loss) as these amounts are recorded directly as an adjustment to equity, net of tax. Our other comprehensive income (loss) is comprised of unrealized gains and losses on foreign currency translation
adjustments, unrealized gains and losses on hedging activity, net of tax, and minimum pension liability adjustments, net of tax.
65
Derivative Financial Instruments
We recognize and measure all derivative instruments as either assets or liabilities at fair value in the consolidated balance sheets. We may
enter into derivatives that are not initially designated as hedging instruments for accounting purposes, but which largely offset the economic impact of certain transactions.
Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensive income
(loss) and recognized in the consolidated statements of operations when the hedged item affects earnings, depending on the purpose of the derivatives and whether they qualify for, and we have applied, hedge accounting treatment. The ineffective
portion of gains or losses on derivatives is reported in current earnings.
When applying hedge accounting, we designate at a
derivatives inception, the specific assets, liabilities or future commitments being hedged, and to assess the hedges effectiveness at inception and on an ongoing basis. We discontinue hedge accounting when: (i) we determine that the
cash flow derivative is no longer effective in offsetting changes in the cash flows of a hedged item; (ii) the derivative expires or is sold, terminated or exercised; (iii) it is no longer probable that the forecasted transaction will
occur; or (iv) management determines that designation of the derivatives as a hedge instrument is no longer appropriate. We do not enter into or hold derivatives for speculative purposes.
Disclosures about Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants in the principal market, or if none exists, the most advantageous market, for the specific asset or liability at the measurement date (the exit price). The fair value is based on assumptions that market participants would use
when pricing the asset or liability. The fair values are assigned a level within the fair value hierarchy, depending on the source of the inputs into the calculation, as follows:
Level
1
Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active
markets.
Level
2
Inputs other than quoted prices included in Level 1 that are observable for the
asset or liability either directly or indirectly.
Level
3
Unobservable inputs reflecting managements
own assumptions about the inputs used in pricing the asset or liability.
The carrying amounts for cash and equivalents, accounts and
notes receivable and accounts and drafts payable approximate fair value based on the short-term nature of these amounts.
We carry all of
our derivatives at fair value and value them using various pricing models or discounted cash flow analyses that incorporate observable market parameters, such as interest rate yield curves and currency rates, which are Level 2 inputs.
Derivative valuations incorporate credit risk adjustments that are necessary to reflect the probability of default by the counterparty or us. For disclosures about the fair value measurements of our derivative instruments, see Note 11,
Derivatives.
The fair value of variable rate term debt is estimated using inputs based on bid and offer prices that are
Level 2 inputs and was $8.77 billion and $8.67 billion at December 31, 2016 and 2015, respectively, compared to a principal carrying amount of $8.59 billion on the same dates.
The determinations of fair values of certain tangible and intangible assets for purposes of the application of the acquisition method of
accounting to the acquisition of Tim Hortons were based upon Level 3 inputs. The determination of fair values of our reporting units and the determination of the fair value of the Brands for impairment testing using a quantitative approach
during 2016 and 2015 were based upon Level 3 inputs.
Revenue Recognition
Sales include supply chain sales and sales from Company restaurants, which are presented net of any related sales tax. Supply chain sales
represent sales of products, supplies and restaurant equipment, other than equipment sales related to initial restaurant establishment or renovations that are shipped directly from our warehouses or by third-party distributors to restaurants or
retailers, as well as sales to retailers. Revenues from supply chain sales are recognized upon delivery. Sales at Company restaurants (including Restaurant VIEs) represent restaurant-level sales to our guests and are recognized at the point of sale.
66
Franchise and property revenues include franchise revenues, consisting primarily of royalties,
initial and renewal franchise fees paid by franchisees, revenues derived from equipment sales at establishment of a restaurant and in connection with a restaurant renewal or renovation and property revenues from properties we lease or sublease to
franchisees.
Royalties are based on a percentage of gross sales at franchise restaurants and are recognized when earned and
collectability is reasonably assured. Initial franchise fees and equipment sales are recognized as revenue when the related restaurant begins operations and our completion of all material services and conditions. Fees collected in advance are
deferred until earned. Renewal franchise fees are recognized as revenue upon receipt of the
non-refundable
fee and execution of a new franchise agreement. Upfront fees paid by franchisees in connection with
development agreements are deferred when the development agreement includes a minimum number of restaurants to be opened by the franchisee. The deferred amounts are recognized as franchise fee revenue on a pro rata basis as the franchisee opens each
respective restaurant. The cost recovery accounting method is used to recognize revenues for franchisees for which collectability is not reasonably assured.
Deferred Financing Costs
Deferred financing costs are amortized over the term of the related debt agreement into interest expense using the effective interest method.
Advertising and Promotional Costs
Company restaurants and franchise restaurants contribute to advertising funds that our subsidiaries manage in the United States and Canada and
certain other international markets. The advertising funds expense the production costs of advertising when the advertisements are first aired or displayed. All other advertising and promotional costs are expensed in the period incurred. Under our
franchise agreements, advertising contributions received from franchisees must be spent on advertising, product development, marketing and related activities. Since we act as an agent for these specifically designated contributions, the revenues and
expenses of the advertising funds are generally netted in our consolidated statements of operations.
Advertising expense, which primarily
consists of advertising contributions by Company restaurants (including Restaurant VIEs) based on a percentage of gross sales, totaled $5.5 million for 2016, $13.7 million for 2015, and $2.4 million for 2014 and is included in
selling, general and administrative expenses in the accompanying consolidated statements of operations.
Income Taxes
Amounts in the financial statements related to income taxes are calculated using the principles of Accounting Standards Codification
(ASC) 740,
Income Taxes.
Under these principles, deferred tax assets and liabilities reflect the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the
amounts recognized for tax purposes, as well as tax credit carry-forwards and loss carry-forwards. These deferred taxes are measured by applying currently enacted tax rates. A deferred tax asset is recognized when it is considered
more-likely-than-not
to be realized. The effects of changes in tax rates on deferred tax assets and liabilities are recognized in income in the year in which the law is enacted. A valuation allowance reduces
deferred tax assets when it is
more-likely-than-not
that some portion or all of the deferred tax assets will not be realized.
Income tax benefits credited to equity relate to tax benefits associated with amounts that are deductible for income tax purposes but do not
affect earnings. These benefits are principally generated from employee exercises of nonqualified stock options and settlement of restricted stock awards.
We recognize positions taken or expected to be taken in a tax return in the financial statements when it is
more-likely-than-not
(i.e., a likelihood of more than 50%) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit
with greater than 50% likelihood of being realized upon ultimate settlement.
Translation gains and losses resulting from the
remeasurement of foreign deferred tax assets or liabilities denominated in a currency other than the functional currency are classified as other operating expenses (income), net in the consolidated statements of operations.
67
Share-based Compensation
Compensation expense related to the issuance of share-based awards to our employees is measured at fair value on the grant date. We use the
Black-Scholes option pricing model to value RBI stock options. The compensation expense for awards that vest over a future service period is recognized over the requisite service period on a straight-line basis, adjusted for estimated forfeitures of
awards that are not expected to vest. The compensation expense for awards that do not require future service is recognized immediately. Upon the end of the service period, compensation expense is adjusted to account for the actual forfeiture rate.
Cash settled share-based awards are classified as liabilities and are
re-measured
at the end of each reporting period. The compensation expense for awards that contain performance conditions is recognized when
it is probable that the performance conditions will be achieved.
Restructuring
The determination of when we accrue for employee involuntary termination benefits depends on whether the termination benefits are provided
under an
on-going
benefit arrangement or under a
one-time
benefit arrangement. We record charges for ongoing benefit arrangements in accordance with ASC 712,
Nonretirement Postemployment Benefits
. We record charges for
one-time
benefit arrangements in accordance with ASC 420,
Exit or Disposal Cost Obligations
.
New Accounting Pronouncements
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (FASB) issued a new single comprehensive
model for entities to use in accounting for revenue arising from contracts with customers. In August 2015, the FASB deferred adoption of the new standard by one year. Several updates have been issued since to clarify the implementation guidance. The
new guidance supersedes most current revenue recognition guidance, including industry-specific guidance, and is now effective commencing in 2018. The guidance allows for either a full retrospective or modified retrospective transition method. We
have not yet selected a transition method.
We have performed a preliminary analysis of the impact of the new revenue recognition guidance
and developed a comprehensive plan to guide the implementation. The project plan includes analyzing the impact on our current revenue streams, comparing our historical accounting policies to the new guidance, and identifying potential differences
from applying the requirements of the new guidance to our contracts. Under current accounting guidance, we recognize initial franchise fees when we have performed all material obligations and services, which generally occurs when the franchised
restaurant opens. Under the new guidance, we anticipate deferring the initial franchise fees and recognizing revenue over the term of the related franchise agreement. We anticipate that the new guidance will also change our reporting of advertising
fund contributions from franchisees and the related advertising expenditures, which are currently reported on a net basis in our consolidated statements of operations. Under the current guidance, as of the balance sheet date, advertising fund
contributions received may not equal advertising expenditures for the period due to the timing of promotions. To the extent that contributions received exceeded advertising expenditures, the excess contributions are treated as a deferred liability.
To the extent that advertising expenditures temporarily exceeded advertising fund contributions, the difference is recorded as a receivable from the fund. Under the new guidance, we anticipate advertising fund contributions from franchisees and
advertising fund expenditures will be reported on a gross basis and the related advertising fund revenues and expenses may be reported in different periods.
We anticipate that estimated breakage income on gift cards will be recognized as gift cards are utilized instead of our current policy of
deferring the breakage income until it is deemed remote the unused gift card balance will be redeemed. We do not believe this guidance will materially impact our recognition of revenue from Company restaurant sales, our recognition of royalty
revenues from franchisees, or our recognition of revenues from property rentals. We are continuing to evaluate the impact the adoption of this guidance will have on the recognition of revenue from other sources.
Lease Accounting
In February 2016, the FASB issued new guidance on leases. The new guidance requires lessees to recognize on the
balance sheet the assets and liabilities for the rights and obligations created by finance and operating leases with lease terms of more than 12 months, as well as enhanced disclosures. The amendment requires the recognition and measurement of
leases at the beginning of the earliest period presented using a modified retrospective approach and is effective commencing in 2019. We expect this new guidance to cause a material increase to our assets and liabilities on our consolidated balance
sheet since the Partnership has a significant number of operating lease arrangements for which we are the lessee. We are currently evaluating the impact that adoption of this guidance will have on our consolidated statements of operations. The
impact of this accounting standards update is
non-cash
in nature. As such, we do not expect the adoption of this new guidance to have a material impact on the Partnerships cash flows and liquidity.
68
Derivative Contract Novations on Existing Hedges
In March 2016, the FASB issued an
accounting standards update that clarifies that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under existing accounting guidance does not, in and of itself, require
de-designation
of that hedging relationship provided that all other hedge accounting criteria continue to be met. The amendments are effective for 2017 and can be applied either prospectively or retrospectively on a
modified basis. We do not expect the adoption of this new guidance to have a material impact on our consolidated financial statements.
Equity Method Accounting
In March 2016, the FASB issued an accounting standards update which eliminates the requirement to
retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in level of ownership interest or degree of influence. The amendment requires prospective adoption and is effective
commencing in 2017. We do not expect the adoption of this guidance to have an impact on our consolidated financial statements.
Employee Share-Based Payment Accounting
In March 2016, the FASB issued an accounting standards update to simplify several
aspects of the accounting for share-based payment transactions, including the accounting for income taxes, forfeitures and statutory withholding requirements, as well as statement of cash flows presentation. The transition requirement is mostly
modified retrospective, with the exception of recognition of excess tax benefits and tax deficiencies which requires prospective adoption. The amendments are effective for 2017. The adoption of this accounting standards update will result in an
increase to our diluted weighted average shares outstanding, as well as recognition of excess tax benefits as a reduction in the provision for income taxes rather than an addition to additional
paid-in
capital, as required by current accounting guidance. We will continue to estimate forfeitures instead of accounting for them as they occur as permitted by the new standard. We do not expect the adoption of other provisions of this new guidance to
have an impact on our consolidated financial statements.
Classification of Certain Cash Receipts and Cash Payments
In
August 2016, the FASB issued an accounting standards update to reduce the existing diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments are effective for 2018. We do not
expect the adoption of this new guidance to have a material impact on our consolidated financial statements.
Intra-Entity Transfers of
Assets Other Than Inventory
In October 2016, the FASB issued guidance amending the accounting for income taxes. The new guidance requires the recognition of the income tax consequences of an intercompany asset transfer, other than
transfers of inventory, when the transfer occurs. For intercompany transfers of inventory, the income tax effects will continue to be deferred until the inventory has been sold to a third party. The amendment is effective for 2018. We are currently
evaluating the impact that the adoption of this accounting standards update will have on our consolidated financial statements.
Goodwill Impairment
In January 2017, the FASB issued guidance to simplify how an entity measures goodwill impairment by removing
the second step of the
two-step
quantitative goodwill impairment test. An entity will no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be
measured at the amount by which the carrying value exceeds the fair value of a reporting unit. An entity still has the option to perform a qualitative assessment of whether it is
more-likely-than-not
that a
reporting units fair value is less than its carrying amount. The amendment requires prospective adoption and is effective commencing in 2020. We do not expect the adoption of this guidance to have an impact on our consolidated financial
statements.
Note 3. Earnings Per Unit/Share
Partnership uses the
two-class
method in the computation of earnings per unit. Pursuant to the terms of
the partnership agreement, RBI, as the holder of the Class A common units, is entitled to receive distributions from Partnership in an amount equal to the aggregate dividends payable by RBI to holders of RBI common shares, and the holders of
Partnership exchangeable units are entitled to receive distributions from Partnership in an amount per unit equal to the dividends payable by RBI on each RBI common share. Partnerships net income available to common unitholders / shareholders
is allocated between RBI common shares, the Class A common units and Partnership exchangeable units on a fully-distributed basis and reflects residual net income after noncontrolling interests, Partnership preferred unit distributions and
accretion of Partnership preferred units. Basic and diluted earnings per Class A common unit is determined by dividing net income allocated to Class A common unit holders by the weighted average number of Class A common units
outstanding for the period. Basic and diluted earnings per Partnership exchangeable unit is determined by dividing net income allocated to the Partnership exchangeable units by the weighted average number of Partnership exchangeable units
outstanding during the period.
69
During 2014, the net income (loss) allocated to Class A units was calculated as 43.3% of net
income (loss) attributable to common unitholders for the period December 12, 2014 through December 31, 2014, and the net income (loss) allocated to Partnership exchangeable units was calculated as 56.7% of net income (loss) attributable to
common unitholders for the period December 12, 2014 through December 31, 2014. The calculation of weighted average Class A common units outstanding for 2014 reflects (i) the 87.0 million Class A common units issued to
correspond to the Burger King Worldwide, Inc. common shares exchanged for RBI common shares, as outstanding for the period December 12, 2014 through December 31, 2014 and (ii) the 115.0 million Class A common units issued to
RBI in connection with the issuance of common shares by RBI for the acquisition of Tim Hortons and exercise of a warrant see Note 13, which were outstanding for the period December 12, 2014 through December 31, 2014. The weighted
average Partnership exchangeable units for 2014 reflects the 265.0 million Partnership exchangeable units received in exchange for Burger King Worldwide, Inc. common shares, which were outstanding for the period December 12, 2014 through
December 31, 2014.
Prior to the Transactions, our equity reflected 100% ownership by Burger King Worldwide, Inc. shareholders. Basic
and diluted earnings (loss) per common share for the period January 1, 2014 through December 11, 2014 is computed by dividing net income (loss) allocated to common shareholders by the weighted average number of shares outstanding for
Burger King Worldwide, Inc. shareholders during this period.
There are no dilutive securities for Partnership as the exercise of stock
options will not affect the numbers of Class A common units or Partnership exchangeable units outstanding. However, the issuance of shares by RBI in future periods will affect the allocation of net income attributable to common unitholders
between Partnerships Class A common units and Partnership exchangeable units.
The following table summarizes the basic and
diluted earnings per unit/share calculations (in millions, except per unit/share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Allocation of net income (loss) among partner interests and common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocated to Class A common unitholders
|
|
$
|
345.6
|
|
|
$
|
103.9
|
|
|
$
|
(329.0
|
)
|
Net income (loss) allocated to Partnership exchangeable unitholders
|
|
|
336.8
|
|
|
|
133.2
|
|
|
|
(430.7
|
)
|
Net income (loss) allocated to common shareholders
|
|
|
|
|
|
|
|
|
|
|
(69.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common unitholders / shareholders
|
|
$
|
682.4
|
|
|
$
|
237.1
|
|
|
$
|
(829.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator - basic and diluted partnership units:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Class A common units
|
|
|
202.0
|
|
|
|
202.0
|
|
|
|
202.0
|
|
Weighted average Partnership exchangeable units
|
|
|
227.8
|
|
|
|
263.5
|
|
|
|
265.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average basic and diluted units outstanding
|
|
|
429.8
|
|
|
|
465.5
|
|
|
|
467.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator - basic and diluted common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares - basic and diluted (a)
|
|
|
|
|
|
|
|
|
|
|
351.9
|
|
|
|
|
|
Earnings (loss) per unit / share - basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common units
|
|
$
|
1.71
|
|
|
$
|
0.51
|
|
|
$
|
(1.63
|
)
|
Partnership exchangeable units
|
|
$
|
1.48
|
|
|
$
|
0.51
|
|
|
$
|
(1.63
|
)
|
Common shares
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(0.20
|
)
|
(a)
|
There is no effect of other dilutive securities for the year ended December 31, 2014 because a net loss was
reported during this period causing any potentially dilutive securities to be anti-dilutive. Therefore, 21.3 million shares of potentially dilutive securities were excluded in the calculation of diluted earnings (loss) per share since their
impact would have been anti-dilutive.
|
70
Note 4. Property and Equipment, net
Property and equipment, net, consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Land
|
|
$
|
957.2
|
|
|
$
|
969.6
|
|
Buildings and improvements
|
|
|
1,089.4
|
|
|
|
1,055.6
|
|
Restaurant equipment
|
|
|
109.3
|
|
|
|
118.8
|
|
Furniture, fixtures, and other
|
|
|
147.8
|
|
|
|
120.3
|
|
Capital leases
|
|
|
210.3
|
|
|
|
180.3
|
|
Construction in progress
|
|
|
15.2
|
|
|
|
45.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,529.2
|
|
|
|
2,489.9
|
|
Accumulated depreciation and amortization
|
|
|
(474.5
|
)
|
|
|
(339.3
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
2,054.7
|
|
|
$
|
2,150.6
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense on property and equipment totaled $144.1 million for 2016,
$154.9 million for 2015 and $51.2 million for 2014.
Included in our property and equipment, net at December 31, 2016 and
2015 are $166.6 million and $152.8 million, respectively, of assets leased under capital leases (mostly buildings and improvements), net of accumulated depreciation and amortization of $43.7 million and $27.5 million,
respectively.
Note 5. Intangible Assets, net and Goodwill
Intangible assets, net and goodwill consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
Weighted
Average Life as
of December
31, 2016
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Identifiable assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise agreements
|
|
$
|
655.1
|
|
|
$
|
(132.4
|
)
|
|
$
|
522.7
|
|
|
$
|
653.0
|
|
|
$
|
(106.8
|
)
|
|
$
|
546.2
|
|
|
|
20.5 Years
|
|
Favorable leases
|
|
|
436.0
|
|
|
|
(149.7
|
)
|
|
|
286.3
|
|
|
|
436.5
|
|
|
|
(107.5
|
)
|
|
|
329.0
|
|
|
|
9.9 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,091.1
|
|
|
|
(282.1
|
)
|
|
|
809.0
|
|
|
|
1,089.5
|
|
|
|
(214.3
|
)
|
|
|
875.2
|
|
|
|
16.8 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tim Hortons
brand
|
|
$
|
6,341.6
|
|
|
$
|
|
|
|
$
|
6,341.6
|
|
|
$
|
6,175.4
|
|
|
$
|
|
|
|
$
|
6,175.4
|
|
|
|
|
|
Burger King
brand
|
|
|
2,077.4
|
|
|
|
|
|
|
|
2,077.4
|
|
|
|
2,097.2
|
|
|
|
|
|
|
|
2,097.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
8,419.0
|
|
|
|
|
|
|
|
8,419.0
|
|
|
|
8,272.6
|
|
|
|
|
|
|
|
8,272.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
$
|
9,228.0
|
|
|
|
|
|
|
|
|
|
|
$
|
9,147.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tim Hortons segment
|
|
$
|
4,087.8
|
|
|
|
|
|
|
|
|
|
|
$
|
3,988.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burger King segment
|
|
|
587.3
|
|
|
|
|
|
|
|
|
|
|
|
586.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,675.1
|
|
|
|
|
|
|
|
|
|
|
$
|
4,574.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense on intangible assets totaled $71.9 million for 2016, $78.3 million for 2015 and
$35.9 million for 2014. The change in the Brands and goodwill balances during 2016 and 2015 was due to foreign currency translation.
71
As of December 31, 2016, the estimated future amortization expense on identifiable assets
subject to amortization is as follows (in millions):
|
|
|
|
|
Twelve-months ended December 31,
|
|
Amount
|
|
2017
|
|
$
|
67.8
|
|
2018
|
|
|
64.5
|
|
2019
|
|
|
60.9
|
|
2020
|
|
|
55.9
|
|
2021
|
|
|
51.1
|
|
Thereafter
|
|
|
508.8
|
|
|
|
|
|
|
Total
|
|
$
|
809.0
|
|
|
|
|
|
|
Note 6. Equity Method Investments
The aggregate carrying amount of our equity method investments was $151.1 million and $139.0 million as of December 31, 2016 and
2015, respectively, and is included within other assets, net in our consolidated balance sheets. Select information about our most significant equity method investments, based on the carrying value as of December 31, 2016, was as follows:
|
|
|
|
|
|
|
Entity
|
|
Country
|
|
Equity
Interest
|
|
TIMWEN Partnership
|
|
Canada
|
|
|
50.00
|
%
|
Carrols Restaurant Group, Inc.
|
|
United States
|
|
|
20.81
|
%
|
Pangaea Foods (China) Holdings, Ltd.
|
|
China
|
|
|
27.50
|
%
|
With respect to our Tim Hortons (TH) business, the most significant equity method investment is
our 50% joint venture interest with The Wendys Company (the TIMWEN Partnership), which jointly holds real estate underlying Canadian combination restaurants. Distributions received from this joint venture were $11.3 million
and $12.7 million during 2016 and 2015, respectively.
The aggregate market value of our equity interest in Carrols Restaurant Group,
Inc. (Carrols) the most significant equity investment to our Burger King (BK) business, based on the quoted market price on December 31, 2016, is approximately $143.6 million. No quoted market prices are
available for our other equity method investments.
With respect to our BK operations, most of the entities in which we have an equity
interest own or franchise Burger King restaurants. Franchise and property revenue recognized from franchisees that are owned or franchised by entities in which we have an equity interest consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenues from affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise royalties
|
|
$
|
131.7
|
|
|
$
|
93.2
|
|
|
$
|
88.5
|
|
Property revenues
|
|
|
27.8
|
|
|
|
27.7
|
|
|
|
29.2
|
|
Franchise fees and other revenue
|
|
|
19.6
|
|
|
|
13.1
|
|
|
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
179.1
|
|
|
$
|
134.0
|
|
|
$
|
129.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recognized $19.6 million and $20.8 million of contingent rent expense associated to the TIMWEN
Partnership during 2016 and 2015, respectively. Contingent rent expense associated to this joint venture was not significant during 2014.
At December 31, 2016 and 2015, we had $25.7 million and $23.9 million, respectively, of accounts receivable from our equity
method investments which were recorded in accounts and notes receivable, net in our consolidated balance sheets.
(Income) loss from
equity method investments reflects our share of investee net income or loss,
non-cash
dilution gains or losses from changes in our ownership interests in equity method investees and basis difference
amortization. We recorded increases to the carrying value of our equity method investment balances and
non-cash
dilution gains in the amounts of $11.6 million, $10.9 million and $5.8 million
during 2016, 2015, and 2014, respectively. The dilution gains resulted from the issuance of capital stock by our equity method investees, which reduced our ownership interests in these equity method investments. The dilution gains we recorded in
connection with the issuance of capital stock reflect adjustments to the differences between the amount of underlying equity in the net assets of equity method investees before and after their issuance of capital stock.
72
Note 7. Other Accrued Liabilities and Other Liabilities
Other accrued liabilities (current) and other liabilities, net
(non-current)
consist of the following
(in millions):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
|
|
Dividend payable
|
|
$
|
146.1
|
|
|
$
|
128.3
|
|
Interest payable
|
|
|
63.3
|
|
|
|
63.1
|
|
Accrued compensation and benefits
|
|
|
60.5
|
|
|
|
61.6
|
|
Taxes payable - current
|
|
|
43.3
|
|
|
|
46.9
|
|
Deferred income - current
|
|
|
54.7
|
|
|
|
33.5
|
|
Closed property reserve
|
|
|
11.0
|
|
|
|
14.0
|
|
Other
|
|
|
90.4
|
|
|
|
90.9
|
|
|
|
|
|
|
|
|
|
|
Other accrued liabilities
|
|
$
|
469.3
|
|
|
$
|
438.3
|
|
|
|
|
|
|
|
|
|
|
Non-current:
|
|
|
|
|
|
|
|
|
Unfavorable leases
|
|
$
|
275.8
|
|
|
$
|
322.0
|
|
Taxes payable - noncurrent
|
|
|
252.2
|
|
|
|
236.7
|
|
Accrued pension
|
|
|
82.9
|
|
|
|
80.2
|
|
Derivatives liabilities - noncurrent
|
|
|
55.1
|
|
|
|
47.3
|
|
Lease liability - noncurrent
|
|
|
27.2
|
|
|
|
29.5
|
|
Deferred income - noncurrent
|
|
|
27.1
|
|
|
|
23.7
|
|
Other
|
|
|
64.6
|
|
|
|
56.5
|
|
|
|
|
|
|
|
|
|
|
Other liabilities, net
|
|
$
|
784.9
|
|
|
$
|
795.9
|
|
|
|
|
|
|
|
|
|
|
Note 8. Long-Term Debt
Long-term debt consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Term Loan Facility
|
|
$
|
5,046.1
|
|
|
$
|
5,097.7
|
|
2015 Senior Notes
|
|
|
1,250.0
|
|
|
|
1,250.0
|
|
2014 Senior Notes
|
|
|
2,250.0
|
|
|
|
2,250.0
|
|
Tim Hortons Notes (a)
|
|
|
40.6
|
|
|
|
39.4
|
|
Other
|
|
|
85.4
|
|
|
|
88.5
|
|
Less: unamortized deferred financing costs and deferred issuance discount
|
|
|
(187.1
|
)
|
|
|
(224.3
|
)
|
|
|
|
|
|
|
|
|
|
Total debt, net
|
|
|
8,485.0
|
|
|
|
8,501.3
|
|
Less: current maturities of debt
|
|
|
(74.8
|
)
|
|
|
(39.0
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt, net of current portion
|
|
$
|
8,410.2
|
|
|
$
|
8,462.3
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Tim Hortons Notes comprise three series of senior notes: (i) C$48.0 million of series 1 notes, due June 1, 2017 bearing interest at 4.20%, (ii) C$2.6 million of series 2 notes, due December 1,
2023, bearing interest at 4.52%, and (iii) C$3.9 million of series 3 notes, due April 1, 2019, bearing interest at 2.85%. No principal payments are due until maturity.
|
Credit Facilities
At December 31, 2016, two of our subsidiaries (the Borrowers) have a senior secured term loan facility maturing on
December 12, 2021 (the Term Loan Facility) and a senior secured revolving credit facility of up to $500.0 million of revolving extensions of credit outstanding at any time (including revolving loans, swingline loans and letters
of credit) maturing on December 12, 2019 (the Revolving Credit Facility and together with the Term Loan Facility, the Credit Facilities). We may prepay the Term Loan Facility in whole or in part at any time.
Additionally, subject to certain exceptions, the Term Loan Facility may be subject to mandatory prepayments using (i) proceeds from
non-ordinary
course asset dispositions, (ii) proceeds from certain
incurrences of debt or (iii) a portion of our annual excess cash flows based upon certain leverage ratios.
73
The interest rate applicable to the Credit Facilities is, at our option, either (i) a base
rate plus an applicable margin equal to 1.75% in respect of the Term Loan Facility and 2.00% in respect of the Revolving Credit Facility, or (ii) a Eurocurrency rate plus an applicable margin equal to 2.75% in respect of the Term Loan Facility
and ranging from 2.50% to 3.00%, depending on our leverage ratio, in respect of the Revolving Credit Facility. Borrowings are subject to a floor of 2.00% in the case of the base rate and a floor of 1.00% in the case of Eurocurrency rate. Amounts
drawn under each letter of credit that is issued and outstanding under this facility bear interest at LIBOR plus a margin ranging from 2.50% to 3.00%, depending on our leverage ratio. The unused portion of the Revolving Credit Facility is subject to
a commitment fee ranging from 0.375% to 0.50%, depending on our leverage ratio, and our current rate is 0.375%. Funds available under the Revolving Credit Facility may be used to repay other debt, finance debt or share repurchases, to fund
acquisitions or capital expenditures and for other general corporate purposes. We have a $125.0 million letter of credit sublimit as part of the Revolving Credit Facility, which reduces our borrowing availability thereunder by the cumulative
amount of outstanding letters of credit. We are also required to pay (i) letters of credit fees on the aggregate face amounts of outstanding letters of credit plus a fronting fee to the issuing bank and (ii) administration fees. As of
December 31, 2016, the interest rate on our Term Loan Facility was 3.75%. The principal amount of the Term Loan Facility amortizes in quarterly installments equal to 0.25% of the aggregate principal amount of the Term Loan Facility (as of the
May 2015 amendment), with the balance payable at maturity.
Obligations under the Credit Facilities are guaranteed on a senior secured
basis, jointly and severally, by the direct parent company of one of the Borrowers and substantially all of its Canadian and U.S. subsidiaries, including The TDL Group Corp., Burger King Worldwide, Inc. and substantially all of their respective
Canadian and U.S. subsidiaries (the Credit Guarantors). Amounts borrowed under the Credit Facilities are secured on a first priority basis by a perfected security interest in substantially all of the present and future property (subject
to certain exceptions) of each Borrower and Credit Guarantor.
As of December 31, 2016, we had no amounts outstanding under the
Revolving Credit Facility, had $1.5 million of letters of credit issued against the facility, and our borrowing availability was $498.5 million.
Senior Notes
The
Borrowers are party to an indenture (the 2015 Senior Notes Indenture) in connection with the issuance of $1,250.0 million of 4.625% first lien senior notes due January 15, 2022 (the 2015 Senior Notes). The Borrowers
are also party to an indenture (the 2014 Senior Notes Indenture) in connection with the issuance of $2,250.0 million of 6.00% second lien secured notes due April 1, 2022 (the 2014 Senior Notes). No principal
payments are due on the 2015 Senior Notes or 2014 Senior Notes until maturity and interest is paid semi-annually.
Obligations under the
2015 Senior Notes and 2014 Senior Notes are guaranteed on a senior secured basis, jointly and severally, by the Borrowers and substantially all of the Borrowers Canadian and U.S. subsidiaries, including The TDL Group Corp., Burger King
Worldwide, Inc. and substantially all of their respective Canadian and U.S. subsidiaries (the Note Guarantors). The 2015 Senior Notes are first lien senior secured obligations and rank equal in right of payment with all of the existing
and future senior debt of the Borrowers and Note Guarantors, including borrowings and guarantees of the Credit Facilities. The 2014 Senior Notes are second lien senior secured obligations.
Our 2015 Senior Notes and 2014 Senior Notes may be redeemed in whole or in part, on or after October 1, 2017, at the redemption prices
set forth in the corresponding indenture, plus accrued and unpaid interest, if any, at the date of redemption. The 2015 Senior Note Indenture and 2014 Senior Note Indenture also contain optional redemption provisions related to tender offers, change
of control and equity offerings, among others.
Restrictions and Covenants
Our Credit Facilities, 2015 Senior Notes Indenture, 2014 Senior Notes Indenture and the Tim Hortons Notes indentures contain a number of
customary affirmative and negative covenants that, among other things, limit or restrict the ability of Partnership and certain of our subsidiaries to: incur additional indebtedness; incur liens; engage in mergers, consolidations, liquidations and
dissolutions; sell assets; pay dividends and make other payments in respect of capital stock; make investments, loans and advances; pay or modify the terms of certain indebtedness; engage in certain transactions with affiliates. In addition, the
Borrowers are not
permitted to exceed a first lien senior secured leverage ratio of 6.50 to 1.00 when, as of the end of any fiscal quarter, the sum of
(i) the amount of letters of credit outstanding exceeding $50.0 million (other than those that are cash collateralized); (ii) outstanding amounts under the Revolving Credit Facility and (iii) outstanding amounts of swing line loans,
exceeds 30% of the commitments under the Revolving Credit Facility.
74
The restrictions under the Credit Facilities, the 2015 Senior Notes Indenture, the 2014 Senior
Notes Indenture and the Tim Hortons Notes indentures have resulted in substantially all of our consolidated assets being restricted.
As
of December 31, 2016, we were in compliance with all debt covenants under the Credit Facilities, 2015 Senior Notes Indenture and 2014 Senior Notes Indenture and the indenture covering the Tim Hortons Notes, and there were no limitations on our
ability to draw on the remaining availability under our Revolving Credit Facility.
Debt Issuance Costs
During 2015 and 2014, we incurred aggregate deferred financing costs of $80.3 million and $160.2 million, respectively. No costs were
incurred in 2016.
Loss on Early Extinguishment of Debt
During 2015, we recorded a $40.0 million loss on early extinguishment of debt, which primarily reflects the
write-off
of unamortized debt issuance costs and unamortized discounts in connection with a prepayment of our Term Loan Facility. Similarly, during 2014, we recorded a $155.4 million loss on early
extinguishment of debt related to a refinancing of a previous credit facility and redemptions of previously outstanding notes. The loss reflects the
write-off
of unamortized debt issuance costs and discounts,
commitment fees associated with a bridge loan related to the acquisition of Tim Hortons, and the payment of premiums to redeem the notes.
Maturities
The
aggregate maturities of long-term debt as of December 31, 2016 are as follows (in millions):
|
|
|
|
|
Year Ended December 31,
|
|
Principal Amount
|
|
2017
|
|
$
|
74.8
|
|
2018
|
|
|
56.8
|
|
2019
|
|
|
60.1
|
|
2020
|
|
|
57.6
|
|
2021
|
|
|
4,863.8
|
|
Thereafter
|
|
|
3,559.0
|
|
|
|
|
|
|
Total
|
|
$
|
8,672.1
|
|
|
|
|
|
|
Interest Expense, net
Interest expense, net consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Debt
|
|
$
|
412.2
|
|
|
$
|
426.8
|
|
|
$
|
266.0
|
|
Capital lease obligations
|
|
|
19.9
|
|
|
|
20.8
|
|
|
|
5.7
|
|
Amortization of deferred financing costs and debt issuance discount
|
|
|
38.9
|
|
|
|
34.9
|
|
|
|
11.7
|
|
Interest income
|
|
|
(4.1
|
)
|
|
|
(4.2
|
)
|
|
|
(3.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
466.9
|
|
|
$
|
478.3
|
|
|
$
|
279.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
Note 9. Leases
Partnership as Lessor
As of December 31, 2016, we leased or subleased 5,224 restaurant properties to franchisees and 160
non-restaurant
properties to third parties under direct financing leases and operating leases where we are the lessor. Initial lease terms generally range from 10 to 20 years. Most leases to franchisees
provide for fixed monthly payments and many provide for future rent escalations and renewal options. Certain leases also include provisions for contingent rent, determined as a percentage of sales, generally when annual sales exceed specific levels.
Generally, lessees bear the cost of maintenance, insurance and property taxes.
Assets leased to franchisees and others under operating
leases where we are the lessor and which are included within our property and equipment, net was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Land
|
|
$
|
893.9
|
|
|
$
|
888.7
|
|
Buildings and improvements
|
|
|
1,112.9
|
|
|
|
1,066.3
|
|
Restaurant equipment
|
|
|
14.7
|
|
|
|
24.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,021.5
|
|
|
|
1,979.7
|
|
Accumulated depreciation and amortization
|
|
|
(312.5
|
)
|
|
|
(228.0
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment leased, net
|
|
$
|
1,709.0
|
|
|
$
|
1,751.7
|
|
|
|
|
|
|
|
|
|
|
Our net investment in direct financing leases was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Future rents to be received:
|
|
|
|
|
|
|
|
|
Future minimum lease receipts
|
|
$
|
96.3
|
|
|
$
|
126.6
|
|
Contingent rents (a)
|
|
|
51.2
|
|
|
|
63.7
|
|
Estimated unguaranteed residual value
|
|
|
18.9
|
|
|
|
20.7
|
|
Unearned income
|
|
|
(56.5
|
)
|
|
|
(75.7
|
)
|
Allowance on direct financing leases
|
|
|
(0.2
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
109.7
|
|
|
|
135.0
|
|
Current portion included within accounts receivables
|
|
|
(17.8
|
)
|
|
|
(17.8
|
)
|
|
|
|
|
|
|
|
|
|
Net investment in property leased to franchisees
|
|
$
|
91.9
|
|
|
$
|
117.2
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Amounts represent estimated contingent rents recorded in connection with the acquisition method of accounting.
|
Property revenues are comprised primarily of rental income from operating leases and earned income on direct financing leases with franchisees
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Rental income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
$
|
452.8
|
|
|
$
|
453.9
|
|
|
$
|
182.1
|
|
Contingent
|
|
|
282.5
|
|
|
|
281.7
|
|
|
|
38.1
|
|
Amortization of favorable and unfavorable
income lease contracts, net
|
|
|
8.5
|
|
|
|
11.0
|
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental income
|
|
|
743.8
|
|
|
|
746.6
|
|
|
|
227.4
|
|
Earned income on direct financing leases
|
|
|
8.9
|
|
|
|
13.6
|
|
|
|
15.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property revenues
|
|
$
|
752.7
|
|
|
$
|
760.2
|
|
|
$
|
242.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
Partnership as Lessee
In addition, we lease land, building, equipment, office space and warehouse space, including 718 restaurant buildings under capital leases
where we are the lessee. Land and building leases generally have an initial term of 10 to 30 years, while land-only lease terms can extend longer, and most leases provide for fixed monthly payments. Many of these leases provide for future rent
escalations and renewal options. Certain leases also include provisions for contingent rent, determined as a percentage of sales, generally when annual sales exceed specific levels. Most leases also obligate us to pay the cost of maintenance,
insurance and property taxes.
Rent expense associated with these lease commitments is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Rental expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
$
|
193.5
|
|
|
$
|
199.5
|
|
|
$
|
109.1
|
|
Contingent
|
|
|
70.6
|
|
|
|
73.1
|
|
|
|
8.0
|
|
Amortization of favorable and unfavorable payable lease contracts, net
|
|
|
9.2
|
|
|
|
10.1
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental expense (a)
|
|
$
|
273.3
|
|
|
$
|
282.7
|
|
|
$
|
120.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Amounts include rental expense related to properties subleased to franchisees of $253.9 million for 2016, $267.0 million for 2015, and $103.3 million for 2014.
|
As of December 31, 2016, future minimum lease receipts and commitments were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Receipts
|
|
|
Lease Commitments (a)
|
|
|
|
Direct
Financing
Leases
|
|
|
Operating
Leases
|
|
|
Capital
Leases
|
|
|
Operating Leases
|
|
2017
|
|
$
|
19.5
|
|
|
$
|
339.3
|
|
|
$
|
33.7
|
|
|
$
|
164.2
|
|
2018
|
|
|
18.2
|
|
|
|
312.9
|
|
|
|
32.1
|
|
|
|
152.1
|
|
2019
|
|
|
14.9
|
|
|
|
284.8
|
|
|
|
30.2
|
|
|
|
136.9
|
|
2020
|
|
|
10.0
|
|
|
|
254.4
|
|
|
|
28.1
|
|
|
|
124.6
|
|
2021
|
|
|
7.1
|
|
|
|
227.5
|
|
|
|
26.9
|
|
|
|
110.5
|
|
Thereafter
|
|
|
26.6
|
|
|
|
1,357.9
|
|
|
|
204.3
|
|
|
|
762.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum receipts / payments
|
|
$
|
96.3
|
|
|
$
|
2,776.8
|
|
|
$
|
355.3
|
|
|
$
|
1,451.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less amount representing interest
|
|
|
|
|
|
|
|
|
|
|
(117.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum capital lease payments
|
|
|
|
|
|
|
|
|
|
|
237.5
|
|
|
|
|
|
Current portion of capital lease obligation
|
|
|
|
|
|
|
|
|
|
|
(19.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of capital lease obligation
|
|
|
|
|
|
|
|
|
|
$
|
218.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Minimum lease payments have not been reduced by minimum sublease rentals of $1,772.5 million due in the future under
non-cancelable
subleases.
|
Note 10. Income Taxes
Income (loss)
before income taxes, classified by source of income (loss), is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Canadian
|
|
$
|
1,050.1
|
|
|
$
|
546.9
|
|
|
$
|
(261.7
|
)
|
Foreign
|
|
|
149.7
|
|
|
|
127.0
|
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
1,199.8
|
|
|
$
|
673.9
|
|
|
$
|
(254.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
Income tax expense (benefit) attributable to income from continuing operations consists of the
following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian
|
|
$
|
78.6
|
|
|
$
|
107.2
|
|
|
$
|
25.5
|
|
U.S. Federal
|
|
|
45.4
|
|
|
|
46.1
|
|
|
|
16.1
|
|
U.S. state, net of federal income tax benefit
|
|
|
1.5
|
|
|
|
4.1
|
|
|
|
(0.3
|
)
|
Other Foreign
|
|
|
38.3
|
|
|
|
37.1
|
|
|
|
35.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
163.8
|
|
|
$
|
194.5
|
|
|
$
|
76.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian
|
|
$
|
49.0
|
|
|
$
|
(48.1
|
)
|
|
$
|
(29.8
|
)
|
U.S. Federal
|
|
|
37.0
|
|
|
|
21.0
|
|
|
|
(28.4
|
)
|
U.S. state, net of federal income tax benefit
|
|
|
(6.9
|
)
|
|
|
(7.5
|
)
|
|
|
(4.1
|
)
|
Other Foreign
|
|
|
1.0
|
|
|
|
2.3
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
80.1
|
|
|
$
|
(32.3
|
)
|
|
$
|
(61.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
243.9
|
|
|
$
|
162.2
|
|
|
$
|
14.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The statutory rate reconciles to the effective income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Statutory rate
|
|
|
26.5
|
%
|
|
|
26.5
|
%
|
|
|
26.5
|
%
|
Costs and taxes related to foreign operations
|
|
|
9.6
|
|
|
|
16.7
|
|
|
|
(9.8
|
)
|
Foreign exchange gain (loss)
|
|
|
0.1
|
|
|
|
(1.9
|
)
|
|
|
(2.2
|
)
|
Foreign tax rate differential
|
|
|
(1.0
|
)
|
|
|
(5.4
|
)
|
|
|
29.8
|
|
Tax effect of Transactions
|
|
|
|
|
|
|
0.7
|
|
|
|
(41.7
|
)
|
Change in valuation allowance
|
|
|
0.2
|
|
|
|
4.7
|
|
|
|
(3.0
|
)
|
Change in accrual for tax uncertainties
|
|
|
1.0
|
|
|
|
0.7
|
|
|
|
(0.3
|
)
|
Deductible FTC
|
|
|
|
|
|
|
|
|
|
|
3.7
|
|
Capital gain (loss) rate differential
|
|
|
|
|
|
|
|
|
|
|
(8.6
|
)
|
Intercompany financing
|
|
|
(16.0
|
)
|
|
|
(20.2
|
)
|
|
|
|
|
Other
|
|
|
(0.1
|
)
|
|
|
2.3
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
20.3
|
%
|
|
|
24.1
|
%
|
|
|
(5.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our effective income tax rate was 20.3% for 2016 and 24.1% for 2015, primarily due to the mix of income from
multiple tax jurisdictions and differing tax rules applicable to certain subsidiaries outside Canada. Our effective income tax rate was (5.9)% for 2014, primarily due to the impact of the Transactions, including
non-deductible
transaction related costs, and the mix of income from multiple tax jurisdictions.
Income tax expense (benefit) allocated to continuing operations and amounts separately allocated to other items was (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Income tax expense from continuing operations
|
|
$
|
243.9
|
|
|
$
|
162.2
|
|
|
$
|
14.9
|
|
Cash flow hedge in accumulated other comprehensive income (loss)
|
|
|
(1.6
|
)
|
|
|
(21.5
|
)
|
|
|
(60.3
|
)
|
Net investment hedge in accumulated other comprehensive income (loss)
|
|
|
12.3
|
|
|
|
111.7
|
|
|
|
20.9
|
|
Pension liability in accumulated other comprehensive income (loss)
|
|
|
(1.6
|
)
|
|
|
(7.0
|
)
|
|
|
(13.4
|
)
|
Stock option tax benefit in Partners capital
|
|
|
(8.6
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
244.4
|
|
|
$
|
244.9
|
|
|
$
|
(37.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
The significant components of deferred income tax expense (benefit) attributable to income from
continuing operations are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Deferred income tax (benefit) expense
|
|
$
|
77.6
|
|
|
$
|
(51.9
|
)
|
|
$
|
(71.9
|
)
|
Change in valuation allowance
|
|
|
2.1
|
|
|
|
31.8
|
|
|
|
6.7
|
|
Change in effective U.S. state income tax rate
|
|
|
(2.9
|
)
|
|
|
(7.2
|
)
|
|
|
3.0
|
|
Change in effective foreign income tax rate
|
|
|
3.3
|
|
|
|
(5.0
|
)
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
80.1
|
|
|
$
|
(32.3
|
)
|
|
$
|
(61.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities are presented below (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accounts and notes receivable
|
|
$
|
6.7
|
|
|
$
|
7.3
|
|
Accrued employee benefits
|
|
|
67.9
|
|
|
|
66.1
|
|
Unfavorable leases
|
|
|
153.8
|
|
|
|
162.0
|
|
Liabilities not currently deductible for tax
|
|
|
42.4
|
|
|
|
45.1
|
|
Tax loss and credit carryforwards
|
|
|
231.3
|
|
|
|
287.3
|
|
Other
|
|
|
17.2
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
519.3
|
|
|
|
569.0
|
|
Valuation allowance
|
|
|
(132.9
|
)
|
|
|
(124.6
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
386.4
|
|
|
|
444.4
|
|
Less deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment, principally due to differences in depreciation
|
|
|
64.8
|
|
|
|
46.0
|
|
Intangible assets
|
|
|
1,723.8
|
|
|
|
1,633.9
|
|
Leases
|
|
|
150.9
|
|
|
|
161.2
|
|
Statutory impairment
|
|
|
23.5
|
|
|
|
24.3
|
|
Derivatives
|
|
|
25.4
|
|
|
|
90.2
|
|
Outside basis difference
|
|
|
102.9
|
|
|
|
98.9
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
2,091.3
|
|
|
|
2,054.5
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
1,704.9
|
|
|
$
|
1,610.1
|
|
|
|
|
|
|
|
|
|
|
The valuation allowance had a net increase of $8.3 million during 2016 primarily due to current year
losses and
true-up
adjustments related to prior year foreign tax credits.
Changes in the
valuation allowance are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Beginning balance
|
|
$
|
124.6
|
|
|
$
|
68.8
|
|
|
$
|
97.7
|
|
Additions due to Tim Hortons acquisition
|
|
|
|
|
|
|
|
|
|
|
19.5
|
|
Change in estimates recorded to deferred income tax expense
|
|
|
2.1
|
|
|
|
31.8
|
|
|
|
6.7
|
|
Expiration of foreign tax credits and capital losses
|
|
|
|
|
|
|
(3.2
|
)
|
|
|
(11.3
|
)
|
Changes from foreign currency exchange rates
|
|
|
(0.7
|
)
|
|
|
(8.2
|
)
|
|
|
(2.1
|
)
|
True-ups
from changes in losses and credits
|
|
|
6.9
|
|
|
|
35.4
|
|
|
|
(41.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
132.9
|
|
|
$
|
124.6
|
|
|
$
|
68.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
The gross amount and expiration dates of operating loss and tax credit carry-forwards as of
December 31, 2016 are as follows (in millions):
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Expiration Date
|
Canadian net operating loss carryforwards
|
|
$
|
120.7
|
|
|
2032-2036
|
Canadian capital loss carryforwards
|
|
|
473.1
|
|
|
Indefinite
|
U.S. federal net operating loss carryforwards
|
|
|
367.4
|
|
|
2017-2035
|
U.S. state net operating loss carryforwards
|
|
|
58.2
|
|
|
2018
|
U.S. capital loss carryforwards
|
|
|
61.0
|
|
|
2020-2026
|
U.S. foreign tax credits
|
|
|
122.6
|
|
|
Indefinite
|
Other foreign net operating loss carryforwards
|
|
|
0.3
|
|
|
2023-2026
|
Other foreign net operating loss carryforwards
|
|
|
29.1
|
|
|
Indefinite
|
Other foreign capital loss carryforward
|
|
|
3.2
|
|
|
Indefinite
|
Other
|
|
|
1.5
|
|
|
2023-2036
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,237.1
|
|
|
|
|
|
|
|
|
|
|
Income taxes have not been provided on the excess of the amount for financial reporting over the tax basis of
investment in foreign subsidiaries that are considered indefinitely reinvested. Determination of the amount of unrecognized deferred income tax liabilities on this temporary difference is not practical because of the complexity of the hypothetical
calculation. Income taxes of approximately $102.9 million have been recognized on foreign unremitted earnings that are expected to be repatriated.
We had $240.6 million of unrecognized tax benefits at December 31, 2016, which if recognized, would favorably affect the effective
income tax rate. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Beginning balance
|
|
$
|
238.6
|
|
|
$
|
41.6
|
|
|
$
|
27.7
|
|
Additions on tax position related to the current year
|
|
|
2.0
|
|
|
|
0.8
|
|
|
|
2.7
|
|
Additions for tax positions of prior years
|
|
|
6.2
|
|
|
|
4.3
|
|
|
|
2.5
|
|
Additions for tax positions taken in conjunction with Transactions
|
|
|
|
|
|
|
202.5
|
|
|
|
13.4
|
|
Reductions for tax positions of prior year
|
|
|
(1.0
|
)
|
|
|
(2.8
|
)
|
|
|
(3.6
|
)
|
Reductions for settlement
|
|
|
(4.6
|
)
|
|
|
(7.4
|
)
|
|
|
(0.3
|
)
|
Reductions due to statute expiration
|
|
|
(0.6
|
)
|
|
|
(0.4
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
240.6
|
|
|
$
|
238.6
|
|
|
$
|
41.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the twelve months beginning January 1, 2017, it is reasonably possible we will reduce unrecognized
tax benefits by approximately $1.1 million, primarily as a result of the expiration of certain statutes of limitations and the resolution of audits.
We recognize interest and penalties related to unrecognized tax benefits in income tax expense. The total amount of accrued interest and
penalties was $27.3 million and $16.1 million at December 31, 2016 and 2015, respectively. Potential interest and penalties associated with uncertain tax positions recognized was $11.2 million during 2016, $3.3 million
during 2015 and $0.5 million during 2014. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision.
We file income tax returns with Canada and its provinces and territories. Generally we are subject to routine examinations by the Canada
Revenue Agency (CRA). The CRA is conducting examinations of the 2010 through 2013 taxation years. Additionally, income tax returns filed with various provincial jurisdictions are generally open to examination for periods of three to five
years subsequent to the filing of the respective return.
We also file income tax returns, including returns for our subsidiaries, with
U.S. federal, U.S. state, and foreign jurisdictions. Generally we are subject to routine examination by taxing authorities in the U.S. jurisdictions, as well as foreign tax jurisdictions. None of the foreign jurisdictions should be individually
material. The examination phase of our U.S. federal income tax returns for fiscal 2009, 2010, the period July 1, 2010 through October 18, 2010 and the period October 19, 2010 through December 31, 2010 was completed during 2015.
Various tax positions related to those years are currently under appeals. We have various U.S. state and foreign income tax returns in the process of examination. From time to time, these audits result in proposed assessments where the ultimate
resolution may result in owing additional taxes. We believe that our tax positions comply with applicable tax law and that we have adequately provided for these matters.
80
Note 11. Derivative Instruments
Disclosures about Derivative Instruments and Hedging Activities
We enter into derivative instruments for risk management purposes, including derivatives designated as cash flow hedges, derivatives designated
as net investment hedges and those utilized as economic hedges. We use derivatives to manage our exposure to fluctuations in interest rates and currency exchange rates.
Interest Rate Swaps Outstanding as of December 31, 2016
During 2015, we entered into a series of receive-variable,
pay-fixed
interest rate swaps to hedge the
variability in the interest payments on $2,500.0 million of our Term Loan Facility beginning May 28, 2015, through the expiration of the final swap on March 31, 2021. The notional value of the swaps is $2,500.0 million. There are
six sequential interest rate swaps to achieve the hedged position. Each year on March 31, the existing interest rate swap is scheduled to expire and be immediately replaced with a new interest rate swap until the expiration of the final swap on
March 31, 2021. At inception, these interest rate swaps were designated as cash flow hedges for hedge accounting, and as such, the effective portion of unrealized changes in market value are recorded in AOCI and reclassified into earnings
during the period in which the hedged forecasted transaction affects earnings. Gains and losses from hedge ineffectiveness are recognized in current earnings.
Interest Rate Swaps Settled Prior to December 31, 2015
During 2015, we settled a series of receive-variable,
pay-fixed
interest rate swaps that were hedging
the variability in the interest payments associated with our Term Loan Facility. At inception, these interest rate swaps were designated as cash flow hedges for hedge accounting, and as such, the effective portion of unrealized changes in market
value were recorded in AOCI and reclassified into earnings during the period in which the hedged forecasted transaction affects earnings. Gains and losses from hedge ineffectiveness were recognized in earnings. During 2015, we temporarily
discontinued hedge accounting on the entire balance of these swaps as a result of the $42.7 million mandatory prepayment of our Term Loan Facility, as well as changes to forecasted cash flows, and settled $42.7 million of these instruments
equal to the amount of the mandatory prepayment of our Term Loan Facility. During the same period, we
re-designated
$5,690.4 million of the remaining $6,690.4 million of notional outstanding as a
cash flow hedge for hedge accounting. The remaining $1,000.0 million of notional amount was not
re-designated
for hedge accounting and as such changes in fair value on this portion of the interest rate
swaps were recognized in earnings. During April 2015, in order to offset the cash flows associated with this $1,000.0 million notional value receive-variable,
pay-fixed
interest rate swap, we entered into
a
pay-variable,
receive-fixed mirror interest rate swap with a notional value of $1,000.0 million and a maturity date of March 31, 2021.
During 2015, we also settled a series of receive-variable,
pay-fixed
interest rate swaps with a
combined initial notional value of $6,750.0 million that was amortized each quarter at the same rate of the Term Loan Facility. To offset the cash flows associated with these interest rate swaps, in November 2014 we entered into a series of
receive-fixed,
pay-variable
mirror interest rate swaps with a combined initial notional value of $6,750.0 million that was amortized each quarter at the same rate of the Term Loan Facility. For all of
these derivative instruments, each year on March 31, the existing interest rate swap was scheduled to expire and be immediately replaced with a new interest rate swap until the expiration of the arrangement on March 31, 2021. These
interest rate swaps were not designated for hedge accounting and as such changes in fair value were recognized in earnings.
In connection
with the foregoing settlement of these interest rate swaps, we paid $36.2 million, which is reflected as a use of cash within investing activities in the consolidated statement of cash flows for 2015. The net unrealized loss remaining in AOCI
totaled $84.6 million at the date of settlement and will be reclassified into interest expense, net as the original hedged forecasted transaction affects earnings. The amount of
pre-tax
losses in AOCI as
of December 31, 2016 that we expect to be reclassified into interest expense within the next 12 months is $12.5 million.
Interest Rate Swaps Settled Prior to December 31, 2014
During 2014, we settled three forward-starting interest rate swaps with a total notional value of $2,300.0 million that were hedging the
variability of forecasted interest payments on our forecasted debt issuance attributable to changes in LIBOR.
81
Cross-Currency Rate Swaps
To protect the value of our investments in our foreign operations against adverse changes in foreign currency exchange rates, we may, from time
to time, hedge a portion of our net investment in one or more of our foreign subsidiaries by using cross-currency rate swaps. At December 31, 2016, we had outstanding cross-currency rate swap contracts between the Canadian dollar and U.S.
dollar and the Euro and U.S. dollar that have been designated as net investment hedges of a portion of our equity in foreign operations in those currencies. The component of the gains and losses on our net investment in these designated foreign
operations driven by changes in foreign exchange rates are economically offset by movements in the fair value of our cross currency swap contracts. The fair value of the swaps is calculated each period with changes in fair value reported in AOCI net
of tax. Such amounts will remain in AOCI until the complete or substantially complete liquidation of our investment in the underlying foreign operations.
At December 31, 2016, we had outstanding cross-currency rate swaps in which we pay quarterly between 4.802% and 7.002% on a tiered
payment structure per annum on the Canadian dollar notional amount of C$5,641.7 million and receive quarterly between 3.948% and 6.525% on a tiered payment structure per annum on the U.S. dollar notional amount of $5,000.0 million through
the maturity date of March 31, 2021. At inception, these derivative instruments were not designated for hedge accounting and, as such, changes in fair value were initially recognized in earnings. On December 12, 2014, we designated these
cross-currency rate swaps as hedges and began accounting for these derivative instruments as net investment hedges.
At December 31,
2016, we also had outstanding a cross-currency rate swap in which we pay quarterly fixed-rate interest payments on the Euro notional amount of 1,107.8 million and receive quarterly fixed-rate interest payments on the U.S. dollar notional
amount of $1,200.0 million through the maturity date of March 31, 2021. At inception, this cross-currency rate swap was designated as a hedge and is accounted for as a net investment hedge.
During 2015, we terminated some cross-currency rate swaps with an aggregate notional value of $315.0 million. In connection with this
termination, we received $52.1 million which is reflected as a source of cash provided by investing activities in the consolidated statement of cash flows for 2015. The net unrealized gains totaled $31.8 million as of the termination date.
Such amounts will remain in AOCI until the complete or substantially complete liquidation of our investment in the underlying foreign operations. At inception, these cross-currency rate swaps were designated as a hedge and were accounted for as net
investment hedges.
Foreign Currency Exchange Contracts
During 2014, we settled certain foreign currency forward contracts and foreign currency option contracts with an aggregate notional value that
never exceeded $9,230.0 million. The foreign currency option contracts had a total premium of $59.9 million that was paid at expiration. These derivative instruments did not qualify for hedge accounting and changes in fair values were
immediately recognized in other operating expenses (income), net in current earnings.
We use foreign exchange derivative instruments to
manage the impact of foreign exchange fluctuations on U.S. dollar purchases and payments, such as coffee purchases made by our Canadian Tim Hortons operations. At December 31, 2016, we had outstanding forward currency contracts to manage this
risk in which we sell Canadian dollars and buy U.S. dollars with a notional value of $167.9 million with maturities to March 2018. We have designated these instruments as cash flow hedges, and as such, the effective portion of unrealized
changes in market value are recorded in AOCI and are reclassified into earnings during the period in which the hedged forecasted transaction affects earnings. Gains and losses from hedge ineffectiveness are recognized in current earnings.
Interest Rate Caps Settled Prior to December 31, 2014
During 2014, we terminated some interest rate cap agreements and discontinued hedge accounting in connection with the repayment of then
outstanding senior debt.
Credit Risk
By entering into derivative contracts, we are exposed to counterparty credit risk. Counterparty credit risk is the failure of the counterparty
to perform under the terms of the derivative contract. When the fair value of a derivative contract is in an asset position, the counterparty has a liability to us, which creates credit risk for us. We attempt to minimize this risk by selecting
counterparties with investment grade credit ratings and regularly monitoring our market position with each counterparty.
82
Credit-Risk Related Contingent Features
Our derivative instruments do not contain any credit-risk related contingent features.
Quantitative Disclosures about Derivative Instruments and Fair Value Measurements
The following tables present the required quantitative disclosures for our derivative instruments, including their estimated fair values (all
estimated using Level 2 inputs) and their location on our consolidated balance sheets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in
Other Comprehensive Income (Loss)
(Effective Portion)
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1.9
|
)
|
Forward-starting interest rate swaps
|
|
$
|
(22.7
|
)
|
|
$
|
(128.2
|
)
|
|
$
|
(155.5
|
)
|
Forward-currency contracts
|
|
$
|
(4.8
|
)
|
|
$
|
18.2
|
|
|
$
|
1.1
|
|
Derivatives designated as net investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency rate swaps
|
|
$
|
(87.0
|
)
|
|
$
|
798.5
|
|
|
$
|
66.3
|
|
|
|
Affected Line Item in Statements of Operations
|
|
Gain (Loss) Reclassified from AOCI into
Earnings
(Effective Portion)
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Interest expense, net
|
|
$
|
(21.3
|
)
|
|
$
|
(12.0
|
)
|
|
$
|
(6.6
|
)
|
Other operating expenses (income), net
|
|
$
|
|
|
|
$
|
(27.6
|
)
|
|
$
|
13.4
|
|
Cost of sales
|
|
$
|
|
|
|
$
|
12.3
|
|
|
$
|
|
|
|
|
|
|
Gain (Loss) Recognized in
Other Operating Expenses (Income), net
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1.0
|
)
|
Interest rate swaps
|
|
$
|
|
|
|
$
|
(12.4
|
)
|
|
$
|
55.4
|
|
Cross-currency rate swaps
|
|
$
|
|
|
|
$
|
4.3
|
|
|
$
|
(358.7
|
)
|
Ineffectiveness of cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
|
|
|
$
|
(1.6
|
)
|
|
$
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of
December 31,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Balance Sheet Location
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
|
|
$
|
|
|
|
$
|
6.6
|
|
|
|
Accounts and notes receivable, net
|
|
Foreign currency
|
|
|
2.8
|
|
|
|
|
|
|
|
Prepaids and other current assets
|
|
Derivatives designated as net investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
|
|
|
717.9
|
|
|
|
830.9
|
|
|
|
Derivative assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
720.7
|
|
|
$
|
837.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate
|
|
$
|
55.1
|
|
|
$
|
40.9
|
|
|
|
Other liabilities, net
|
|
Foreign currency
|
|
|
1.1
|
|
|
|
|
|
|
|
Other accrued liabilities
|
|
Derivatives designated as net investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
|
|
|
|
|
|
|
6.3
|
|
|
|
Other liabilities, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
56.2
|
|
|
$
|
47.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 12. Partnership Preferred Units
We have 68,530,939 Partnership preferred units issued to RBI. Under the terms of the partnership agreement, Partnership is required to make
distributions on the Partnership preferred units (all of which are owned by RBI) that correspond to preferred dividends declared and payable by RBI on the 68,530,939 Class A 9.0% cumulative compounding perpetual voting preferred shares of RBI
(Preferred Shares) sold by RBI to a subsidiary of Berkshire Hathaway, Inc. Additionally, in the event the Preferred Shares are redeemed for cash, Partnership is required to make a distribution on the Partnership preferred units in an
amount sufficient for RBI to fund the redemption amount.
The 9.0% annual dividend accrues on the amount of $43.775848 per Preferred
Share, which was the per share purchase price, whether or not declared by RBIs board of directors, and is payable quarterly in arrears, only when declared and approved by RBIs board of directors. In the event of a liquidation,
dissolution or winding up of RBIs affairs, whether voluntary or involuntary, after satisfaction of all liabilities and obligations to RBIs creditors, holders of the Preferred Shares shall be entitled to receive payment in full, in cash,
equal to $48.109657 per Preferred Share, plus accrued and unpaid dividends, including any additional dividends owing with respect to
past-due
dividends and any unpaid make-whole dividend (as defined below),
before any distributions to RBIs common shareholders (the Class A Liquidation Preference). If the Class A Liquidation Preference has been paid in full on all Preferred Shares, the holders of RBIs other shares shall
be entitled to receive all of RBIs remaining assets (or proceeds thereof) according to their respective rights and preferences.
In
addition to the preferred dividends, RBI may be required to pay the holder of the Preferred Shares an additional amount (the make-whole dividend) determined by a formula designed to ensure that on an
after-tax
basis, the net amount of dividends received by the holder of the Preferred Shares from the original issue date is the same as it would have been if RBI were a U.S. corporation. The make-whole
dividend can be paid, at RBIs option, in cash, common shares, or any combination thereof. The make-whole dividend is payable not later than 75 days after the close of each fiscal year, beginning with the fiscal year ended December 31,
2017. The right to receive the make-whole dividend will terminate if and at the time that 100% of the outstanding Preferred Shares are no longer held by the original purchaser or any of its subsidiaries.
Holders of the Preferred Shares have voting rights equal to one vote per each Preferred Share. Except as otherwise provided, holders of the
Preferred Shares and common shares vote together as a single class. The purchaser of the Preferred Shares agreed that (i) with respect to the Preferred Shares representing 10% of the total votes attached to all voting shares, the holder may
vote such shares in any manner it wishes, and (ii) with respect to Preferred Shares representing in excess of 10% of the total votes attached to all voting shares, the holder will vote such shares in a manner proportionate to the manner in
which the other holders of shares voted in respect of such matter. This voting agreement does not apply with respect to certain special approval matters.
The Preferred Shares may be redeemed at RBIs option on and after December 12, 2017. After December 12, 2024, holders of not
less than a majority of the outstanding Preferred Shares may cause RBI to redeem their Preferred Shares. In either case, the fixed redemption price is $48.109657 per Preferred Share plus accrued and unpaid dividends including any unpaid make-whole
dividend and any additional dividends (the redemption price). Holders of the Preferred Shares also hold a contingently exercisable option to cause RBI to redeem their Preferred Shares at the redemption price in the event of a change of
control.
84
Since the redemption features of the Preferred Shares are not solely in the control of
Partnership, we classify the Partnership preferred units as temporary equity. During 2014, we adjusted the carrying value of the Partnership preferred units to the redemption price of the RBI Preferred Shares, which is reflected as a
$546.4 million reduction in net income (loss) attributable to common unitholders/shareholders.
Note 13. Equity
For the period from January 1, 2014 through December 11, 2014, our equity reflected 100% ownership by Burger King Worldwide, Inc.
common shareholders. As a result of the Transactions, Burger King Worldwide, Inc. completed a reorganization into Partnership and holders of 352.0 million shares of common stock of Burger King Worldwide, Inc. exchanged their holdings for
265.0 million Partnership exchangeable units and 87.0 million RBI common shares. During 2014, we also issued 202.0 million Class A common units to RBI, which correspond to (i) the 87.0 million RBI common shares issued
by RBI to former holders of Burger King Worldwide, Inc. common stock, (ii) 106.6 million RBI common shares issued by RBI to former holders of Tim Hortons common stock in connection with the acquisition of Tim Hortons and (iii) 8.4 million
RBI common shares issued by RBI to the holder of RBI Preferred Shares in connection with the exercise of a warrant. As a result of the foregoing, during 2014 the carrying amount of Partnerships equity was allocated between Class A common
units and Partnership exchangeable units to reflect the relative ownership interests of the two classes of common equity.
Pursuant to the
terms of the partnership agreement, RBI, as the holder of Class A common units, is entitled to distributions from Partnership in an amount equal to the aggregate dividends payable by RBI to holders of RBI common shares, and the holders of
Partnership exchangeable units are entitled to receive distributions from Partnership in an amount per unit equal to the dividend payable by RBI on each RBI common share. Additionally, if RBI proposes to redeem, repurchase or otherwise acquire any
RBI common shares, the partnership agreement requires that Partnership, immediately prior to such redemption, repurchase or acquisition, make a distribution to RBI on the Class A common units in an amount sufficient for RBI to fund such
redemption, repurchase or acquisition, as the case may be. Each holder of a Partnership exchangeable unit is entitled to vote in respect of matters on which holders of RBI common shares are entitled to vote through one special voting share of RBI.
Since December 12, 2015, the holder of a Partnership exchangeable unit may require Partnership to exchange all or any portion of such holders Partnership exchangeable units for RBI common shares at a ratio of one common share for each
Partnership exchangeable unit, subject to RBIs right as the general partner of Partnership, in its sole discretion, to deliver a cash payment in lieu of RBI common shares. If RBI elects to make a cash payment in lieu of issuing common shares,
the amount of the payment will be the weighted average trading price of the RBI common shares on the New York Stock Exchange for the 20 consecutive trading days ending on the last business day prior to the exchange date.
During 2016, Partnership exchanged 6,744,244 Partnership exchangeable units pursuant to exchange notices received. In accordance with the
terms of the partnership agreement, Partnership satisfied the exchange notices by exchanging these Partnership exchangeable units for the same number of newly issued RBI common shares. During 2015, Partnership received exchange notices representing
31,302,135 Partnership exchangeable units. In accordance with the terms of the partnership agreement, Partnership satisfied the exchange notices by repurchasing 8,150,003 Partnership exchangeable units for approximately $293.7 million in cash
and exchanging 23,152,132 Partnership exchangeable units for the same number of newly issued RBI common shares. The issuances of shares was accounted for as a capital contribution by RBI to Partnership. The exchanges of Partnership exchangeable
units were recorded as increases to the Class A common units balance within partners capital in our consolidated balance sheet in an amount equal to the market value of the newly issued RBI common shares and a reduction to the Partnership
exchangeable units balance within partners capital of our consolidated balance sheet in an amount equal to the cash paid by Partnership and the market value of the newly issued RBI common shares. Pursuant to the terms of the partnership
agreement, upon the exchange of Partnership exchangeable units, each such Partnership exchangeable unit was cancelled concurrently with the exchange.
85
Accumulated Other Comprehensive Income (Loss)
The following table displays the change in the components of AOCI (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
Pensions
|
|
|
Foreign
Currency
Translation
|
|
|
Accumulated Other
Comprehensive
Income (Loss)
|
|
Balances at December 31, 2013
|
|
$
|
68.8
|
|
|
$
|
16.0
|
|
|
$
|
(30.2
|
)
|
|
$
|
54.6
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
(219.1
|
)
|
|
|
(219.1
|
)
|
Net change in fair value of derivatives, net of tax
|
|
|
(53.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(53.3
|
)
|
Amounts reclassified to earnings of cash flow hedges, net of tax
|
|
|
(4.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(4.1
|
)
|
Pension and post-retirement benefit plans, net of tax
|
|
|
|
|
|
|
(23.8
|
)
|
|
|
|
|
|
|
(23.8
|
)
|
Amortization of prior service (credits) costs, net of tax
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
(1.8
|
)
|
Amortization of actuarial (gains) losses, net of tax
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2014
|
|
$
|
11.4
|
|
|
$
|
(10.6
|
)
|
|
$
|
(249.3
|
)
|
|
$
|
(248.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
(1,830.8
|
)
|
|
|
(1,830.8
|
)
|
Net change in fair value of derivatives, net of tax
|
|
|
605.8
|
|
|
|
|
|
|
|
|
|
|
|
605.8
|
|
Amounts reclassified to earnings of cash flow hedges, net of tax
|
|
|
19.8
|
|
|
|
|
|
|
|
|
|
|
|
19.8
|
|
Pension and post-retirement benefit plans, net of tax
|
|
|
|
|
|
|
(13.8
|
)
|
|
|
|
|
|
|
(13.8
|
)
|
Amortization of prior service (credits) costs, net of tax
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
(1.8
|
)
|
Amortization of actuarial (gains) losses, net of tax
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2015
|
|
$
|
637.0
|
|
|
$
|
(24.7
|
)
|
|
$
|
(2,080.1
|
)
|
|
$
|
(1,467.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
224.4
|
|
|
|
224.4
|
|
Net change in fair value of derivatives, net of tax
|
|
|
(119.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(119.6
|
)
|
Amounts reclassified to earnings of cash flow hedges, net of tax
|
|
|
15.7
|
|
|
|
|
|
|
|
|
|
|
|
15.7
|
|
Pension and post-retirement benefit plans, net of tax
|
|
|
|
|
|
|
(6.5
|
)
|
|
|
|
|
|
|
(6.5
|
)
|
Amortization of prior service (credits) costs, net of tax
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
(1.8
|
)
|
Amortization of actuarial (gains) losses, net of tax
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2016
|
|
$
|
533.1
|
|
|
$
|
(32.8
|
)
|
|
$
|
(1,855.7
|
)
|
|
$
|
(1,355.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table displays the reclassifications out of AOCI (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about AOCI Components
|
|
Affected Line Item in the
Statements of Operations
|
|
|
Amounts Reclassified from AOCI
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Gains (losses) on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivative contracts
|
|
|
Interest expense, net
|
|
|
$
|
(21.3
|
)
|
|
$
|
(12.0
|
)
|
|
$
|
(6.6
|
)
|
Interest rate derivative contracts
|
|
|
Other operating expenses (income), net
|
|
|
|
|
|
|
|
(27.6
|
)
|
|
|
13.4
|
|
Forward-currency contracts
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
12.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total before tax
|
|
|
|
(21.3
|
)
|
|
|
(27.3
|
)
|
|
|
6.8
|
|
|
|
|
Income tax (expense) benefit
|
|
|
|
5.6
|
|
|
|
7.5
|
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of tax
|
|
|
$
|
(15.7
|
)
|
|
$
|
(19.8
|
)
|
|
$
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service credits (costs)
|
|
|
SG&A (a)
|
|
|
$
|
2.9
|
|
|
$
|
2.9
|
|
|
$
|
2.9
|
|
Amortization of actuarial gains (losses)
|
|
|
SG&A (a)
|
|
|
|
(0.4
|
)
|
|
|
(2.6
|
)
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total before tax
|
|
|
|
2.5
|
|
|
|
0.3
|
|
|
|
3.9
|
|
|
|
|
Income tax (expense) benefit
|
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of tax
|
|
|
$
|
1.6
|
|
|
$
|
0.3
|
|
|
$
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications
|
|
|
Net of tax
|
|
|
$
|
(14.1
|
)
|
|
$
|
(19.5
|
)
|
|
$
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Refers to selling, general and administrative expenses in the consolidated statements of operations.
|
86
Note 14. Share-based Compensation
Subsequent to the Transactions, share-based compensation expense associated with the participation of Partnership and its subsidiaries in
RBIs share-based compensation plans is recognized in Partnerships financial statements.
On January 30, 2015, RBIs
board of directors approved: (i) adoption of the Restaurant Brands International Inc. 2014 Omnibus Incentive Plan (the Omnibus Plan), to provide for the grant of awards to employees, directors, consultants and other persons who
provide services to RBI and its subsidiaries; (ii) assumption and amendment of various legacy plans of BK, and assumption of the obligation for all BK stock options and restricted stock units (RSUs) outstanding; and
(iii) assumption and amendment of various legacy plans of TH, and assumption of the obligation for each vested and unvested TH stock option issued with tandem stock appreciation rights (SARs) that was not surrendered in connection
with the Transactions on the same terms and conditions of the original awards, as adjusted. No new awards may be granted under these legacy BK plans or legacy TH plans.
RBI is currently issuing awards under the Omnibus Plan and the number of shares available for issuance under such plan as of December 31,
2016 was 6,232,392. The Omnibus Plan permits the grant of several types of awards with respect to RBIs common shares, including stock options, time-vested RSUs, and performance-based RSUs, which may include RBI and/or individual performance
based-vesting conditions. Under the terms of the Omnibus Plan, RSUs are entitled to dividend equivalents. Dividends are not distributed unless the awards vest. Upon vesting, the amount of the dividend, which is distributed in additional RSUs, is
equal to the equivalent of the aggregate dividends declared on common shares during the period from the date of grant of the award compounded until the date the shares underlying the award are delivered.
Stock option awards are granted with an exercise price or market value equal to the closing price of RBIs common shares on the trading
day preceding the date of grant. RBI satisfies stock option exercises through the issuance of authorized but previously unissued common shares. New stock option grants generally cliff vest five years from the original grant date, provided the
employee is continuously employed by RBI or one of its subsidiaries, and the stock options expire ten years following the grant date. Additionally, if RBI terminates the employment of a stock option holder without cause prior to the vesting date, or
if the employee retires or becomes disabled, the employee will become vested in the number of stock options as if the stock options vested 20% on each anniversary of the grant date. If the employee dies, the employee will become vested in the number
of stock options as if the stock options vested 20% on the first anniversary of the grant date, 40% on the second anniversary of the grant date and 100% on the third anniversary of the grant date. If an employee is terminated with cause or resigns
before vesting, all stock options are forfeited. If there is an event such as a return of capital or dividend that is determined to be dilutive, the exercise price of the awards will be adjusted accordingly.
Share-based compensation expense consisted of the following for the periods presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Stock options, stock options with tandem SARs and RSUs (a)
|
|
$
|
35.1
|
|
|
$
|
50.8
|
|
|
$
|
43.1
|
|
Accelerated vesting of Tim Hortons RSUs and performance stock units (b)
|
|
|
|
|
|
|
|
|
|
|
14.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense (c)
|
|
$
|
35.1
|
|
|
$
|
50.8
|
|
|
$
|
57.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes (i) $5.1 million and $9.8 million due to accelerated vesting of awards due to terminations in 2015 and 2014, respectively, and (ii) $0.9 million, $9.0 million, and $10.4 million due to
modification of awards in 2016, 2015 and 2014, respectively. There was no accelerated vesting of awards due to terminations in 2016.
|
(b)
|
Represents expense attributed to the post-combination service associated with the accelerated vesting of restricted and performance stock units in connection with the Transactions.
|
(c)
|
Generally classified as selling, general and administrative expenses in the consolidated statements of operations.
|
As of December 31, 2016, total unrecognized compensation cost related to share-based compensation arrangements was $98.1 million and
is expected to be recognized over a weighted-average period of approximately 1.8 years.
87
The following assumptions were used in the Black-Scholes option-pricing model to determine the
fair value of stock option awards at the grant date:
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Risk-free interest rate
|
|
0.85%
|
|
1.17% - 2.07%
|
|
0.96% - 2.11%
|
Expected term (in years)
|
|
6.74
|
|
3.53 - 7.35
|
|
1.00 - 6.71
|
Expected volatility
|
|
26.6%
|
|
24.0% - 25.0%
|
|
20.0% - 25.0%
|
Expected dividend yield
|
|
1.81%
|
|
1.00% - 1.09%
|
|
1.00% - 1.03%
|
The risk-free interest rate was based on the U.S. Treasury or Canadian Sovereign bond yield with a remaining
term equal to the expected option life assumed at the date of grant. The expected term was calculated based on the analysis of a three to five-year vesting period coupled with our expectations of exercise activity. Expected volatility was based on a
review of the equity volatilities of publicly-traded guideline companies. The expected dividend yield is based on the annual dividend yield at the time of grant.
The following is a summary of stock option activity under our plans for the year ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
Options (in 000s)
|
|
|
Weighted Average
Exercise Price
|
|
|
Aggregate Intrinsic
Value (a)
(in 000s)
|
|
|
Weighted Average
Remaining
Contractual Term
(Years)
|
|
Outstanding at January 1, 2016
|
|
|
24,016
|
|
|
$
|
16.28
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,041
|
|
|
$
|
34.49
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,598
|
)
|
|
$
|
9.58
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(796
|
)
|
|
$
|
33.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
23,663
|
|
|
$
|
17.89
|
|
|
$
|
704,757
|
|
|
|
6.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
8,793
|
|
|
$
|
4.56
|
|
|
$
|
378,934
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at December 31, 2016
|
|
|
21,872
|
|
|
$
|
17.20
|
|
|
$
|
666,182
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The intrinsic value represents the amount by which the fair value of our stock exceeds the option exercise price at December 31, 2016.
|
The weighted-average grant date fair value per stock option granted was $7.53, $10.12, and $7.17 during 2016, 2015 and 2014, respectively. The
total intrinsic value of stock options exercised was $46.9 million during 2016, $40.3 million during 2015, and $4.9 million during 2014.
The total fair value for liability classified stock options with tandem SARs outstanding was $5.0 million and $5.5 million at
December 31, 2016 and December 31, 2015, respectively, and is classified within other liabilities, net in the consolidated balance sheets. During 2015, RBI modified a portion of these awards to remove the SAR and such SARs were cancelled
as a result. The modification to remove the SARs resulted in a change in classification of the awards from liability to equity and a corresponding reclassification of $10.2 million from other liabilities, net to common shares in the
consolidated balance sheets. As such, these modified awards are no longer being remeasured to fair value. Cash settlements of stock options with tandem SARs was $2.5 million in 2016 and $30.6 million in 2015. There were no cash settlements
of stock options with tandem SARs in 2014.
The fair value of the time-vested RSUs and performance-based RSUs is based on the closing
price of RBIs common shares on the trading day preceding the date of grant. New grants generally cliff vest five years from the original grant date. RBI has awarded a limited number of performance-based RSUs that proportionally vest over a
four year period. Time-vested RSUs and performance-based RSUs are expensed on a straight-line basis over the vesting period, based upon the probability that the performance target will be met. We grant time-vested RSUs to
non-employee
members of RBIs board of directors in lieu of a cash retainer and committee fees. All time-vested RSUs will settle and common shares of RBI will be issued upon termination of service by the board
member.
The time-vested RSUs generally cliff vest five years from the December 31st of the year preceding the grant date (the
Anniversary Date). If the employee is terminated for any reason within the first two years of the Anniversary Date, 100% of the RSUs granted will be forfeited. If we terminate the employment of an RSU holder without cause two
years after the Anniversary Date, or if the employee retires, the employee will become vested in the number of RSUs as if the RSUs vested 20% for each year after the Anniversary Date. An alternate ratable vesting schedule applies to the extent the
participant ends employment by reason of death or disability.
88
The following is a summary of time-vested RSUs and performance-based RSUs activity for the year
ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-vested RSUs
|
|
|
Performance-based RSUs
|
|
|
|
Total Number of
Shares
(in 000s)
|
|
|
Weighted Average
Grant Date Fair
Value
|
|
|
Total Number of
Shares
(in 000s)
|
|
|
Weighted Average
Grant Date Fair
Value
|
|
Outstanding at January 1, 2016
|
|
|
324
|
|
|
$
|
20.06
|
|
|
|
262
|
|
|
$
|
34.71
|
|
Granted
|
|
|
737
|
|
|
$
|
33.97
|
|
|
|
1,354
|
|
|
$
|
33.85
|
|
Vested and settled
|
|
|
(78
|
)
|
|
$
|
36.81
|
|
|
|
|
|
|
$
|
|
|
Forfeited
|
|
|
(44
|
)
|
|
$
|
33.67
|
|
|
|
(66
|
)
|
|
$
|
34.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
939
|
|
|
$
|
29.03
|
|
|
|
1,550
|
|
|
$
|
33.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 15. Franchise and Property Revenues
Franchise and property revenues consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Franchise royalties
|
|
$
|
993.5
|
|
|
$
|
936.5
|
|
|
$
|
701.1
|
|
Property revenues
|
|
|
752.7
|
|
|
|
760.2
|
|
|
|
242.7
|
|
Franchise fees and other revenue
|
|
|
194.9
|
|
|
|
186.5
|
|
|
|
87.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise and property revenues
|
|
$
|
1,941.1
|
|
|
$
|
1,883.2
|
|
|
$
|
1,031.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to Note 9,
Leases,
for the components of property revenues.
Note 16. Other Operating Expenses (Income), net
Other operating expenses (income), net, consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net losses on disposal of assets, restaurant closures and refranchisings
|
|
$
|
17.7
|
|
|
$
|
22.0
|
|
|
$
|
25.4
|
|
Litigation settlements and reserves, net
|
|
|
1.6
|
|
|
|
1.3
|
|
|
|
4.0
|
|
Net losses on derivatives
|
|
|
|
|
|
|
37.3
|
|
|
|
290.9
|
|
Net losses (gains) on foreign exchange
|
|
|
(20.1
|
)
|
|
|
46.7
|
|
|
|
(3.8
|
)
|
Other, net
|
|
|
0.1
|
|
|
|
(1.8
|
)
|
|
|
10.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses (income), net
|
|
$
|
(0.7
|
)
|
|
$
|
105.5
|
|
|
$
|
327.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses (gains) on disposal of assets, restaurant closures and refranchisings represent sales of properties
and other costs related to restaurant closures and refranchisings. Gains and losses recognized in the current period may reflect certain costs related to closures and refranchisings that occurred in previous periods.
During 2014, we entered into foreign currency forward and foreign currency option contracts to hedge our exposure to the volatility of the
Canadian dollar in connection with the cash portion of the purchase price of the Tim Hortons acquisition. We recorded a net loss on derivatives of $133.0 million related to the change in fair value on these instruments and an expense of
$59.9 million related to the premium on the foreign currency option contracts. These instruments were settled in the fourth quarter of 2014. Additionally, as a result of discontinuing hedge accounting on our interest rate caps and
forward-starting interest rate swaps, we recognized a loss of $34.5 million related to the change in fair value related to both instruments and a net gain of $13.4 million related to the reclassification of amounts from AOCI into earnings
related to both instruments. These instruments were settled in the fourth quarter of 2014. Additionally, during the same period, we entered into a series of forward-starting interest rate swaps to hedge the variability in the interest payments
associated with our Term Loan Facility and recorded a gain of $88.9 million related to the change in fair value related to these instruments. Lastly, during the fourth quarter of 2014, we entered into a series of cross-currency rate swaps to
protect the value of our investments in our foreign operations against adverse changes in foreign currency exchange rates and recorded a loss of $165.8 million related to the change in fair value on these instruments. See Note 11,
Derivative
Instruments
for additional information about accounting for our derivative instruments.
89
Note 17. Commitments and Contingencies
Letters of Credit
As of December 31, 2016, we had $24.6 million in irrevocable standby letters of credit outstanding, which were issued primarily to
certain insurance carriers to guarantee payments of deductibles for various insurance programs, such as health and commercial liability insurance. Of these letters of credit outstanding, $1.5 million are secured by the collateral under our
Revolving Credit Facility and the remainder are secured by cash collateral. As of December 31, 2016, no amounts had been drawn on any of these irrevocable standby letters of credit.
Purchase Commitments
We have arrangements for information technology and telecommunication services with an aggregate contractual obligation of $71.0 million
over the next five years, some of which have early termination fees. We also enter into commitments to purchase advertising. As of December 31, 2016, these commitments totaled $265.4 million and run through 2022.
Litigation
From
time to time, we are involved in legal proceedings arising in the ordinary course of business relating to matters including, but not limited to, disputes with franchisees, suppliers, employees and customers, as well as disputes over our intellectual
property.
New BK Global Headquarters
In November 2015, we entered into an agreement to lease a building in Miami, Florida, to serve as our U.S. headquarters and BK global
restaurant support center beginning in 2018. The initial term of the lease is for 15 years with two
5-year
renewal options. The annual base rent steps up over the term of the lease from $1.8 million in
the first year to $4.9 million in the final year.
Note 18. Segment Reporting and Geographical Information
As stated in Note 1,
Description of Business and Organization,
we manage two brands. Under the Tim Hortons brand, we operate in the
donut/coffee/tea category of the quick service segment of the restaurant industry. Under the Burger King brand, we operate in the fast food hamburger restaurant category of the quick service segment of the restaurant industry. We generate revenue
from four sources: (i) sales exclusive to Tim Hortons franchisees related to our supply chain operations, including manufacturing, procurement, warehousing and distribution, as well as sales to retailers; (ii) franchise revenues,
consisting primarily of royalties based on a percentage of sales reported by franchise restaurants and franchise fees paid by franchisees; (iii) property revenues from properties we lease or sublease to franchisees; and (iv) sales at
Company restaurants.
Each Brand is managed by a brand president that reports directly to our Chief Executive Officer, who is our Chief
Operating Decision Maker. Therefore, we have two operating segments: (1) TH, which includes all operations of our
Tim Hortons
brand, and (2) BK, which includes all operations of our
Burger King
brand. Our two operating
segments represent our reportable segments.
90
The following tables present revenues, by segment and by country, depreciation and amortization,
(income) loss from equity method investments, and capital expenditures by segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenues by operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
TH
|
|
$
|
3,001.4
|
|
|
$
|
2,956.9
|
|
|
$
|
143.6
|
|
BK
|
|
|
1,144.4
|
|
|
|
1,095.3
|
|
|
|
1,055.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,145.8
|
|
|
$
|
4,052.2
|
|
|
$
|
1,198.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by country (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
2,671.6
|
|
|
$
|
2,623.2
|
|
|
$
|
152.0
|
|
United States
|
|
|
1,004.4
|
|
|
|
982.2
|
|
|
|
630.9
|
|
Other
|
|
|
469.8
|
|
|
|
446.8
|
|
|
|
415.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,145.8
|
|
|
$
|
4,052.2
|
|
|
$
|
1,198.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
TH
|
|
$
|
108.3
|
|
|
$
|
121.4
|
|
|
$
|
4.5
|
|
BK
|
|
|
63.5
|
|
|
|
60.4
|
|
|
|
64.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
171.8
|
|
|
$
|
181.8
|
|
|
$
|
68.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income) loss from equity method investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
TH
|
|
$
|
(7.7
|
)
|
|
$
|
(7.9
|
)
|
|
$
|
(0.3
|
)
|
BK
|
|
|
(12.5
|
)
|
|
|
12.0
|
|
|
|
9.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(20.2
|
)
|
|
$
|
4.1
|
|
|
$
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
TH
|
|
$
|
11.8
|
|
|
$
|
88.1
|
|
|
$
|
8.0
|
|
BK
|
|
|
21.9
|
|
|
|
27.2
|
|
|
|
22.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33.7
|
|
|
$
|
115.3
|
|
|
$
|
30.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Only Canada and the United States represented 10% or more of our total revenues in each period presented.
|
Total assets by segment, and long-lived assets by segment and country were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
Long-Lived Assets
|
|
|
|
As of December 31,
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
By operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TH
|
|
$
|
13,417.5
|
|
|
$
|
12,646.8
|
|
|
$
|
1,354.0
|
|
|
$
|
1,407.5
|
|
BK
|
|
|
4,746.5
|
|
|
|
4,693.1
|
|
|
|
792.6
|
|
|
|
860.3
|
|
Unallocated
|
|
|
961.3
|
|
|
|
1,068.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,125.3
|
|
|
$
|
18,408.5
|
|
|
$
|
2,146.6
|
|
|
$
|
2,267.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By country:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
|
|
|
|
|
|
|
$
|
1,034.5
|
|
|
$
|
1,056.9
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
1,097.6
|
|
|
|
1,187.0
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
14.5
|
|
|
|
23.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
2,146.6
|
|
|
$
|
2,267.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets include property and equipment, net, and net investment in property leased to franchisees.
Only Canada and the United States represented 10% or more of our total long-lived assets as of December 31, 2016 and December 31, 2015.
91
Our measure of segment income is Adjusted EBITDA. Adjusted EBITDA represents earnings (net income
or loss) before interest, (gain) loss on early extinguishment of debt, taxes, and depreciation and amortization, adjusted to exclude the
non-cash
impact of share-based compensation and
non-cash
incentive compensation expense and (income) loss from equity method investments, net of cash distributions received from equity method investments, as well as other operating expenses (income), net. Other
specifically identified costs associated with
non-recurring
projects are also excluded from Adjusted EBITDA, including acquisition accounting impact on cost of sales, Tim Hortons transaction and restructuring
costs and integration costs, each of which is associated with the acquisition of Tim Hortons. Adjusted EBITDA is used by management to measure operating performance of the business, excluding these
non-cash
and other specifically identified items that management believes are not relevant to managements assessment of operating performance or the performance of an acquired business. A reconciliation of segment income to net income (loss) consists
of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Segment Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
TH
|
|
$
|
1,072.3
|
|
|
$
|
906.7
|
|
|
$
|
34.9
|
|
BK
|
|
|
815.9
|
|
|
|
759.5
|
|
|
|
726.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
1,888.2
|
|
|
|
1,666.2
|
|
|
|
760.9
|
|
Share-based compensation and
non-cash
incentive
compensation expense
|
|
|
42.0
|
|
|
|
51.8
|
|
|
|
37.3
|
|
Acquisition accounting impact on cost of sales
|
|
|
|
|
|
|
0.5
|
|
|
|
11.8
|
|
Integration costs
|
|
|
16.4
|
|
|
|
|
|
|
|
|
|
TH transaction and restructuring costs
|
|
|
|
|
|
|
116.7
|
|
|
|
125.0
|
|
Impact of equity method investments (a)
|
|
|
(8.0
|
)
|
|
|
17.7
|
|
|
|
9.5
|
|
Other operating expenses (income), net
|
|
|
(0.7
|
)
|
|
|
105.5
|
|
|
|
327.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
1,838.5
|
|
|
|
1,374.0
|
|
|
|
249.9
|
|
Depreciation and amortization
|
|
|
171.8
|
|
|
|
181.8
|
|
|
|
68.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,666.7
|
|
|
|
1,192.2
|
|
|
|
181.1
|
|
Interest expense, net
|
|
|
466.9
|
|
|
|
478.3
|
|
|
|
279.7
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
40.0
|
|
|
|
155.4
|
|
Income tax expense
|
|
|
243.9
|
|
|
|
162.2
|
|
|
|
14.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
955.9
|
|
|
$
|
511.7
|
|
|
$
|
(268.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Represents (i) (income) loss from equity method investments and (ii) cash distributions received from our equity method investments. Cash distributions received from our equity method investments are included in
segment income.
|
Note 19. Quarterly Financial Data (Unaudited)
Summarized unaudited quarterly financial data (in millions, except per share data) was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
$
|
918.5
|
|
|
$
|
933.3
|
|
|
$
|
1,040.2
|
|
|
$
|
1,042.2
|
|
|
$
|
1,075.7
|
|
|
$
|
1,019.7
|
|
|
$
|
1,111.4
|
|
|
$
|
1,057.0
|
|
Income from operations
|
|
$
|
330.6
|
|
|
$
|
224.1
|
|
|
$
|
424.0
|
|
|
$
|
302.1
|
|
|
$
|
420.5
|
|
|
$
|
344.0
|
|
|
$
|
491.6
|
|
|
$
|
322.0
|
|
Net income
|
|
$
|
168.3
|
|
|
$
|
50.6
|
|
|
$
|
247.6
|
|
|
$
|
93.8
|
|
|
$
|
238.6
|
|
|
$
|
182.9
|
|
|
$
|
301.4
|
|
|
$
|
184.4
|
|
Basic and diluted earnings (loss) per unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common units
|
|
$
|
0.25
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.45
|
|
|
$
|
0.05
|
|
|
$
|
0.43
|
|
|
$
|
0.25
|
|
|
$
|
0.58
|
|
|
$
|
0.25
|
|
Partnership exchangeable units
|
|
$
|
0.22
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.39
|
|
|
$
|
0.05
|
|
|
$
|
0.37
|
|
|
$
|
0.25
|
|
|
$
|
0.50
|
|
|
$
|
0.25
|
|
Note 20. Supplemental Financial Information
On May 22, 2015, 1011778 B.C. Unlimited Liability Company (the Parent Issuer) and New Red Finance Inc. (the
Co-Issuer
and together with the Parent Issuer, the Issuers) entered into an amended credit agreement that provides for obligations under the Credit Facilities. On May 22, 2015 the
Issuers entered into the 2015 Senior Notes Indenture with respect to the 2015 Senior Notes. On October 8, 2014 the Issuers entered into the 2014 Senior Notes Indenture with respect to the 2014 Senior Notes.
92
The agreement governing our Credit Facilities, the 2015 Senior Notes Indenture and the 2014
Senior Notes Indenture allow the financial reporting obligation of the Parent Issuer to be satisfied through the reporting of Partnerships consolidated financial information, provided that the consolidated financial information of the Parent
Issuer and its restricted subsidiaries is presented on a standalone basis.
The following represents the condensed consolidating financial
information for the Parent Issuer and its restricted subsidiaries (Consolidated Borrowers) on a consolidated basis, together with eliminations, as of and for the periods indicated. The condensed consolidating financial information of
Partnership is combined with the financial information of its wholly-owned subsidiaries that are also parent entities of the Parent Issuer and presented in a single column under the heading RBILP. The consolidating financial information
may not necessarily be indicative of the financial position, results of operations or cash flows had the Issuers and Partnership operated as independent entities.
93
RESTAURANT BRANDS INTERNATIONAL LIMITED PARTNERSHIP AND SUBSIDIARIES
Condensed Consolidating Balance Sheets
(In millions)
As of
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Borrowers
|
|
|
RBILP
|
|
|
Eliminations
|
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,420.4
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,420.4
|
|
Accounts and notes receivable, net
|
|
|
403.5
|
|
|
|
|
|
|
|
|
|
|
|
403.5
|
|
Inventories, net
|
|
|
71.8
|
|
|
|
|
|
|
|
|
|
|
|
71.8
|
|
Advertising fund restricted assets
|
|
|
57.7
|
|
|
|
|
|
|
|
|
|
|
|
57.7
|
|
Prepaids and other current assets
|
|
|
103.6
|
|
|
|
|
|
|
|
|
|
|
|
103.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,057.0
|
|
|
|
|
|
|
|
|
|
|
|
2,057.0
|
|
Property and equipment, net
|
|
|
2,054.7
|
|
|
|
|
|
|
|
|
|
|
|
2,054.7
|
|
Intangible assets, net
|
|
|
9,228.0
|
|
|
|
|
|
|
|
|
|
|
|
9,228.0
|
|
Goodwill
|
|
|
4,675.1
|
|
|
|
|
|
|
|
|
|
|
|
4,675.1
|
|
Net investment in property leased to franchisees
|
|
|
91.9
|
|
|
|
|
|
|
|
|
|
|
|
91.9
|
|
Derivative assets
|
|
|
717.9
|
|
|
|
|
|
|
|
|
|
|
|
717.9
|
|
Intercompany receivable
|
|
|
|
|
|
|
146.1
|
|
|
|
(146.1
|
)
|
|
|
|
|
Investment in subsidiaries
|
|
|
|
|
|
|
6,786.0
|
|
|
|
(6,786.0
|
)
|
|
|
|
|
Other assets, net
|
|
|
300.7
|
|
|
|
|
|
|
|
|
|
|
|
300.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
19,125.3
|
|
|
$
|
6,932.1
|
|
|
$
|
(6,932.1
|
)
|
|
$
|
19,125.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, PARTNERSHIP PREFERRED UNITS AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and drafts payable
|
|
$
|
369.8
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
369.8
|
|
Other accrued liabilities
|
|
|
323.2
|
|
|
|
146.1
|
|
|
|
|
|
|
|
469.3
|
|
Gift card liability
|
|
|
194.4
|
|
|
|
|
|
|
|
|
|
|
|
194.4
|
|
Advertising fund liabilities
|
|
|
83.3
|
|
|
|
|
|
|
|
|
|
|
|
83.3
|
|
Current portion of long term debt and capital leases
|
|
|
93.9
|
|
|
|
|
|
|
|
|
|
|
|
93.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,064.6
|
|
|
|
146.1
|
|
|
|
|
|
|
|
1,210.7
|
|
Term debt, net of current portion
|
|
|
8,410.2
|
|
|
|
|
|
|
|
|
|
|
|
8,410.2
|
|
Capital leases, net of current portion
|
|
|
218.4
|
|
|
|
|
|
|
|
|
|
|
|
218.4
|
|
Other liabilities, net
|
|
|
784.9
|
|
|
|
|
|
|
|
|
|
|
|
784.9
|
|
Payables to affiliates
|
|
|
146.1
|
|
|
|
|
|
|
|
(146.1
|
)
|
|
|
|
|
Deferred income taxes, net
|
|
|
1,715.1
|
|
|
|
|
|
|
|
|
|
|
|
1,715.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
12,339.3
|
|
|
|
146.1
|
|
|
|
(146.1
|
)
|
|
|
12,339.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership preferred units
|
|
|
|
|
|
|
3,297.0
|
|
|
|
|
|
|
|
3,297.0
|
|
Partners capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common units
|
|
|
|
|
|
|
3,364.1
|
|
|
|
|
|
|
|
3,364.1
|
|
Partnership exchangeable units
|
|
|
|
|
|
|
1,476.2
|
|
|
|
|
|
|
|
1,476.2
|
|
Common shares
|
|
|
6,825.8
|
|
|
|
|
|
|
|
(6,825.8
|
)
|
|
|
|
|
Retained earnings
|
|
|
1,311.5
|
|
|
|
|
|
|
|
(1,311.5
|
)
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
(1,355.4
|
)
|
|
|
(1,355.4
|
)
|
|
|
1,355.4
|
|
|
|
(1,355.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Partners capital/shareholders equity
|
|
|
6,781.9
|
|
|
|
3,484.9
|
|
|
|
(6,781.9
|
)
|
|
|
3,484.9
|
|
Noncontrolling interests
|
|
|
4.1
|
|
|
|
4.1
|
|
|
|
(4.1
|
)
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
6,786.0
|
|
|
|
3,489.0
|
|
|
|
(6,786.0
|
)
|
|
|
3,489.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, Partnership preferred units and equity
|
|
$
|
19,125.3
|
|
|
$
|
6,932.1
|
|
|
$
|
(6,932.1
|
)
|
|
$
|
19,125.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
RESTAURANT BRANDS INTERNATIONAL LIMITED PARTNERSHIP AND SUBSIDIARIES
Condensed Consolidating Balance Sheets
(In millions)
As of
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Borrowers
|
|
|
RBILP
|
|
|
Eliminations
|
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
753.7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
753.7
|
|
Accounts and notes receivable, net
|
|
|
421.7
|
|
|
|
|
|
|
|
|
|
|
|
421.7
|
|
Inventories, net
|
|
|
81.3
|
|
|
|
|
|
|
|
|
|
|
|
81.3
|
|
Advertising fund restricted assets
|
|
|
57.5
|
|
|
|
|
|
|
|
|
|
|
|
57.5
|
|
Prepaids and other current assets
|
|
|
50.9
|
|
|
|
|
|
|
|
|
|
|
|
50.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,365.1
|
|
|
|
|
|
|
|
|
|
|
|
1,365.1
|
|
Property and equipment, net
|
|
|
2,150.6
|
|
|
|
|
|
|
|
|
|
|
|
2,150.6
|
|
Intangible assets, net
|
|
|
9,147.8
|
|
|
|
|
|
|
|
|
|
|
|
9,147.8
|
|
Goodwill
|
|
|
4,574.4
|
|
|
|
|
|
|
|
|
|
|
|
4,574.4
|
|
Net investment in property leased to franchisees
|
|
|
117.2
|
|
|
|
|
|
|
|
|
|
|
|
117.2
|
|
Derivative assets
|
|
|
830.9
|
|
|
|
|
|
|
|
|
|
|
|
830.9
|
|
Intercompany receivable
|
|
|
|
|
|
|
128.3
|
|
|
|
(128.3
|
)
|
|
|
|
|
Investment in subsidiaries
|
|
|
|
|
|
|
6,210.1
|
|
|
|
(6,210.1
|
)
|
|
|
|
|
Other assets, net
|
|
|
222.5
|
|
|
|
|
|
|
|
|
|
|
|
222.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
18,408.5
|
|
|
$
|
6,338.4
|
|
|
$
|
(6,338.4
|
)
|
|
$
|
18,408.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, PARTNERSHIP PREFERRED UNITS AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and drafts payable
|
|
$
|
361.5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
361.5
|
|
Other accrued liabilities
|
|
|
310.0
|
|
|
|
128.3
|
|
|
|
|
|
|
|
438.3
|
|
Gift card liability
|
|
|
168.5
|
|
|
|
|
|
|
|
|
|
|
|
168.5
|
|
Advertising fund liabilities
|
|
|
93.6
|
|
|
|
|
|
|
|
|
|
|
|
93.6
|
|
Current portion of long term debt and capital leases
|
|
|
56.1
|
|
|
|
|
|
|
|
|
|
|
|
56.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
989.7
|
|
|
|
128.3
|
|
|
|
|
|
|
|
1,118.0
|
|
Term debt, net of current portion
|
|
|
8,462.3
|
|
|
|
|
|
|
|
|
|
|
|
8,462.3
|
|
Capital leases, net of current portion
|
|
|
203.4
|
|
|
|
|
|
|
|
|
|
|
|
203.4
|
|
Other liabilities, net
|
|
|
795.9
|
|
|
|
|
|
|
|
|
|
|
|
795.9
|
|
Payables to affiliates
|
|
|
128.3
|
|
|
|
|
|
|
|
(128.3
|
)
|
|
|
|
|
Deferred income taxes, net
|
|
|
1,618.8
|
|
|
|
|
|
|
|
|
|
|
|
1,618.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
12,198.4
|
|
|
|
128.3
|
|
|
|
(128.3
|
)
|
|
|
12,198.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership preferred units
|
|
|
|
|
|
|
3,297.0
|
|
|
|
|
|
|
|
3,297.0
|
|
Partners capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common units
|
|
|
|
|
|
|
2,876.7
|
|
|
|
|
|
|
|
2,876.7
|
|
Partnership exchangeable units
|
|
|
|
|
|
|
1,503.5
|
|
|
|
|
|
|
|
1,503.5
|
|
Common shares
|
|
|
7,318.1
|
|
|
|
|
|
|
|
(7,318.1
|
)
|
|
|
|
|
Retained earnings
|
|
|
359.1
|
|
|
|
|
|
|
|
(359.1
|
)
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
(1,467.8
|
)
|
|
|
(1,467.8
|
)
|
|
|
1,467.8
|
|
|
|
(1,467.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Partners capital/shareholders equity
|
|
|
6,209.4
|
|
|
|
2,912.4
|
|
|
|
(6,209.4
|
)
|
|
|
2,912.4
|
|
Noncontrolling interests
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
(0.7
|
)
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
6,210.1
|
|
|
|
2,913.1
|
|
|
|
(6,210.1
|
)
|
|
|
2,913.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, Partnership preferred units and equity
|
|
$
|
18,408.5
|
|
|
$
|
6,338.4
|
|
|
$
|
(6,338.4
|
)
|
|
$
|
18,408.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
RESTAURANT BRANDS INTERNATIONAL LIMITED PARTNERSHIP AND SUBSIDIARIES
Condensed Consolidating Statements of Operations
(In millions)
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Borrowers
|
|
|
RBILP
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
2,204.7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,204.7
|
|
Franchise and property revenues
|
|
|
1,941.1
|
|
|
|
|
|
|
|
|
|
|
|
1,941.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
4,145.8
|
|
|
|
|
|
|
|
|
|
|
|
4,145.8
|
|
Cost of sales
|
|
|
1,727.3
|
|
|
|
|
|
|
|
|
|
|
|
1,727.3
|
|
Franchise and property expenses
|
|
|
454.1
|
|
|
|
|
|
|
|
|
|
|
|
454.1
|
|
Selling, general and administrative expenses
|
|
|
318.6
|
|
|
|
|
|
|
|
|
|
|
|
318.6
|
|
(Income) loss from equity method investments
|
|
|
(20.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(20.2
|
)
|
Other operating expenses (income), net
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
2,479.1
|
|
|
|
|
|
|
|
|
|
|
|
2,479.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,666.7
|
|
|
|
|
|
|
|
|
|
|
|
1,666.7
|
|
Interest expense, net
|
|
|
466.9
|
|
|
|
|
|
|
|
|
|
|
|
466.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,199.8
|
|
|
|
|
|
|
|
|
|
|
|
1,199.8
|
|
Income tax expense
|
|
|
243.9
|
|
|
|
|
|
|
|
|
|
|
|
243.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
955.9
|
|
|
|
|
|
|
|
|
|
|
|
955.9
|
|
Equity in earnings of consolidated subsidiaries
|
|
|
|
|
|
|
955.9
|
|
|
|
(955.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
955.9
|
|
|
|
955.9
|
|
|
|
(955.9
|
)
|
|
|
955.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to noncontrolling interests
|
|
|
3.5
|
|
|
|
3.5
|
|
|
|
(3.5
|
)
|
|
|
3.5
|
|
Partnership preferred unit distributions
|
|
|
|
|
|
|
270.0
|
|
|
|
|
|
|
|
270.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common unitholders / shareholders
|
|
$
|
952.4
|
|
|
$
|
682.4
|
|
|
$
|
(952.4
|
)
|
|
$
|
682.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
1,068.3
|
|
|
$
|
1,068.3
|
|
|
$
|
(1,068.3
|
)
|
|
$
|
1,068.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96
RESTAURANT BRANDS INTERNATIONAL LIMITED PARTNERSHIP AND SUBSIDIARIES
Condensed Consolidating Statements of Operations
(In millions)
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Borrowers
|
|
|
RBILP
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
2,169.0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,169.0
|
|
Franchise and property revenues
|
|
|
1,883.2
|
|
|
|
|
|
|
|
|
|
|
|
1,883.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
4,052.2
|
|
|
|
|
|
|
|
|
|
|
|
4,052.2
|
|
Cost of sales
|
|
|
1,809.5
|
|
|
|
|
|
|
|
|
|
|
|
1,809.5
|
|
Franchise and property expenses
|
|
|
503.2
|
|
|
|
|
|
|
|
|
|
|
|
503.2
|
|
Selling, general and administrative expenses
|
|
|
437.7
|
|
|
|
|
|
|
|
|
|
|
|
437.7
|
|
(Income) loss from equity method investments
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
4.1
|
|
Other operating expenses (income), net
|
|
|
105.5
|
|
|
|
|
|
|
|
|
|
|
|
105.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
2,860.0
|
|
|
|
|
|
|
|
|
|
|
|
2,860.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,192.2
|
|
|
|
|
|
|
|
|
|
|
|
1,192.2
|
|
Interest expense, net
|
|
|
478.3
|
|
|
|
|
|
|
|
|
|
|
|
478.3
|
|
Loss on early extinguishment of debt
|
|
|
40.0
|
|
|
|
|
|
|
|
|
|
|
|
40.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
673.9
|
|
|
|
|
|
|
|
|
|
|
|
673.9
|
|
Income tax expense
|
|
|
162.2
|
|
|
|
|
|
|
|
|
|
|
|
162.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
511.7
|
|
|
|
|
|
|
|
|
|
|
|
511.7
|
|
Equity in earnings of consolidated subsidiaries
|
|
|
|
|
|
|
511.7
|
|
|
|
(511.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
511.7
|
|
|
|
511.7
|
|
|
|
(511.7
|
)
|
|
|
511.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to noncontrolling interests
|
|
|
3.4
|
|
|
|
3.4
|
|
|
|
(3.4
|
)
|
|
|
3.4
|
|
Partnership preferred unit distributions
|
|
|
|
|
|
|
271.2
|
|
|
|
|
|
|
|
271.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common unitholders / shareholders
|
|
$
|
508.3
|
|
|
$
|
237.1
|
|
|
$
|
(508.3
|
)
|
|
$
|
237.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
(707.6
|
)
|
|
$
|
(707.6
|
)
|
|
$
|
707.6
|
|
|
$
|
(707.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
RESTAURANT BRANDS INTERNATIONAL LIMITED PARTNERSHIP AND SUBSIDIARIES
Condensed Consolidating Statements of Operations
(In millions)
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Borrowers
|
|
|
RBILP
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
167.4
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
167.4
|
|
Franchise and property revenues
|
|
|
1,031.4
|
|
|
|
|
|
|
|
|
|
|
|
1,031.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,198.8
|
|
|
|
|
|
|
|
|
|
|
|
1,198.8
|
|
Cost of sales
|
|
|
156.4
|
|
|
|
|
|
|
|
|
|
|
|
156.4
|
|
Franchise and property expenses
|
|
|
179.0
|
|
|
|
|
|
|
|
|
|
|
|
179.0
|
|
Selling, general and administrative expenses
|
|
|
345.4
|
|
|
|
|
|
|
|
|
|
|
|
345.4
|
|
(Income) loss from equity method investments
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
9.5
|
|
Other operating expenses (income), net
|
|
|
327.4
|
|
|
|
|
|
|
|
|
|
|
|
327.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
1,017.7
|
|
|
|
|
|
|
|
|
|
|
|
1,017.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
181.1
|
|
|
|
|
|
|
|
|
|
|
|
181.1
|
|
Interest expense, net
|
|
|
279.7
|
|
|
|
|
|
|
|
|
|
|
|
279.7
|
|
Loss on early extinguishment of debt
|
|
|
155.4
|
|
|
|
|
|
|
|
|
|
|
|
155.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
(254.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(254.0
|
)
|
Income tax expense
|
|
|
14.9
|
|
|
|
|
|
|
|
|
|
|
|
14.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
(268.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(268.9
|
)
|
Equity in earnings of consolidated subsidiaries
|
|
|
|
|
|
|
(268.9
|
)
|
|
|
268.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(268.9
|
)
|
|
|
(268.9
|
)
|
|
|
268.9
|
|
|
|
(268.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to noncontrolling interests
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
(0.2
|
)
|
|
|
0.2
|
|
Partnership preferred unit distributions
|
|
|
|
|
|
|
13.8
|
|
|
|
|
|
|
|
13.8
|
|
Accretion of Partnership preferred units
|
|
|
|
|
|
|
546.4
|
|
|
|
|
|
|
|
546.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common unitholders / shareholders
|
|
$
|
(269.1
|
)
|
|
$
|
(829.3
|
)
|
|
$
|
269.1
|
|
|
$
|
(829.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
(572.0
|
)
|
|
$
|
(572.0
|
)
|
|
$
|
572.0
|
|
|
$
|
(572.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RESTAURANT BRANDS INTERNATIONAL LIMITED PARTNERSHIP AND SUBSIDIARIES
|
|
Condensed Consolidating Statements of Cash Flows
|
|
(In millions)
|
|
2016
|
|
|
|
Consolidated
Borrowers
|
|
|
RBILP
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
955.9
|
|
|
$
|
955.9
|
|
|
$
|
(955.9
|
)
|
|
$
|
955.9
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in loss (earnings) of consolidated subsidiaries
|
|
|
|
|
|
|
(955.9
|
)
|
|
|
955.9
|
|
|
|
|
|
Depreciation and amortization
|
|
|
172.1
|
|
|
|
|
|
|
|
|
|
|
|
172.1
|
|
Amortization of deferred financing costs and debt issuance discount
|
|
|
38.9
|
|
|
|
|
|
|
|
|
|
|
|
38.9
|
|
(Income) loss from equity method investments
|
|
|
(20.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(20.2
|
)
|
Loss (gain) on remeasurement of foreign denominated transactions
|
|
|
(20.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(20.1
|
)
|
Net losses on derivatives
|
|
|
21.3
|
|
|
|
|
|
|
|
|
|
|
|
21.3
|
|
Share-based compensation expense
|
|
|
35.1
|
|
|
|
|
|
|
|
|
|
|
|
35.1
|
|
Deferred income taxes
|
|
|
80.1
|
|
|
|
|
|
|
|
|
|
|
|
80.1
|
|
Other
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
3.5
|
|
Changes in current assets and liabilities, excluding acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and notes receivable
|
|
|
(15.8
|
)
|
|
|
|
|
|
|
|
|
|
|
(15.8
|
)
|
Inventories and prepaids and other current assets
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
7.7
|
|
Accounts and drafts payable
|
|
|
27.5
|
|
|
|
|
|
|
|
|
|
|
|
27.5
|
|
Advertising fund restricted assets and fund liabilities
|
|
|
(10.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(10.1
|
)
|
Other accrued liabilities and gift card liability
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.2
|
)
|
Other long-term assets and liabilities
|
|
|
(41.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(41.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,233.1
|
|
|
|
|
|
|
|
|
|
|
|
1,233.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property and equipment
|
|
|
(33.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(33.7
|
)
|
Proceeds (payments) from disposal of assets, restaurant closures and refranchisings
|
|
|
30.0
|
|
|
|
|
|
|
|
|
|
|
|
30.0
|
|
Return of investment on direct financing leases
|
|
|
16.6
|
|
|
|
|
|
|
|
|
|
|
|
16.6
|
|
Settlement/sale of derivatives, net
|
|
|
11.0
|
|
|
|
|
|
|
|
|
|
|
|
11.0
|
|
Other investing activities, net
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities
|
|
|
26.9
|
|
|
|
|
|
|
|
|
|
|
|
26.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt and capital leases
|
|
|
(69.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(69.7
|
)
|
Dividends and distributions paid on common, preferred and exchangeable units/shares
|
|
|
|
|
|
|
(538.1
|
)
|
|
|
|
|
|
|
(538.1
|
)
|
Capital contribution from RBI Inc.
|
|
|
13.7
|
|
|
|
|
|
|
|
|
|
|
|
13.7
|
|
Excess tax benefits from share-based compensation
|
|
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
8.6
|
|
Distributions from subsidiaries
|
|
|
(538.1
|
)
|
|
|
538.1
|
|
|
|
|
|
|
|
|
|
Other financing activities, net
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities
|
|
|
(590.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(590.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(2.4
|
)
|
Increase (decrease) in cash and cash equivalents
|
|
|
666.7
|
|
|
|
|
|
|
|
|
|
|
|
666.7
|
|
Cash and cash equivalents at beginning of period
|
|
|
753.7
|
|
|
|
|
|
|
|
|
|
|
|
753.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
1,420.4
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,420.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
RESTAURANT BRANDS INTERNATIONAL LIMITED PARTNERSHIP AND SUBSIDIARIES
Condensed Consolidating Statements of Cash Flows
(In millions)
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Borrowers
|
|
|
RBILP
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
511.7
|
|
|
$
|
511.7
|
|
|
$
|
(511.7
|
)
|
|
$
|
511.7
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in loss (earnings) of consolidated subsidiaries
|
|
|
|
|
|
|
(511.7
|
)
|
|
|
511.7
|
|
|
|
|
|
Depreciation and amortization
|
|
|
182.0
|
|
|
|
|
|
|
|
|
|
|
|
182.0
|
|
Loss on early extinguishment of debt
|
|
|
40.0
|
|
|
|
|
|
|
|
|
|
|
|
40.0
|
|
Amortization of deferred financing costs and debt issuance discount
|
|
|
34.9
|
|
|
|
|
|
|
|
|
|
|
|
34.9
|
|
(Income) loss from equity method investments
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
4.1
|
|
Loss (gain) on remeasurement of foreign denominated transactions
|
|
|
37.0
|
|
|
|
|
|
|
|
|
|
|
|
37.0
|
|
Net losses on derivatives
|
|
|
53.6
|
|
|
|
|
|
|
|
|
|
|
|
53.6
|
|
Share-based compensation expense
|
|
|
50.8
|
|
|
|
|
|
|
|
|
|
|
|
50.8
|
|
Deferred income taxes
|
|
|
(32.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(32.3
|
)
|
Other
|
|
|
9.6
|
|
|
|
|
|
|
|
|
|
|
|
9.6
|
|
Changes in current assets and liabilities, excluding acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash and cash equivalents
|
|
|
79.2
|
|
|
|
|
|
|
|
|
|
|
|
79.2
|
|
Accounts and notes receivable
|
|
|
(26.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(26.2
|
)
|
Inventories and prepaids and other current assets
|
|
|
9.2
|
|
|
|
|
|
|
|
|
|
|
|
9.2
|
|
Accounts and drafts payable
|
|
|
191.2
|
|
|
|
|
|
|
|
|
|
|
|
191.2
|
|
Advertising fund restricted assets and fund liabilities
|
|
|
32.9
|
|
|
|
|
|
|
|
|
|
|
|
32.9
|
|
Other accrued liabilities and gift card liability
|
|
|
53.2
|
|
|
|
|
|
|
|
|
|
|
|
53.2
|
|
Other long-term assets and liabilities
|
|
|
(30.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(30.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,200.7
|
|
|
|
|
|
|
|
|
|
|
|
1,200.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property and equipment
|
|
|
(115.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(115.3
|
)
|
Proceeds (payments) from disposal of assets, restaurant closures and refranchisings
|
|
|
19.6
|
|
|
|
|
|
|
|
|
|
|
|
19.6
|
|
Return of investment on direct financing leases
|
|
|
16.3
|
|
|
|
|
|
|
|
|
|
|
|
16.3
|
|
Settlement/sale of derivatives, net
|
|
|
14.2
|
|
|
|
|
|
|
|
|
|
|
|
14.2
|
|
Other investing activities, net
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities
|
|
|
(61.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(61.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
1,250.0
|
|
|
|
|
|
|
|
|
|
|
|
1,250.0
|
|
Repayments of long-term debt and capital leases
|
|
|
(2,627.8
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,627.8
|
)
|
Payment of financing costs
|
|
|
(81.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(81.3
|
)
|
Dividends and distributions paid on common, preferred and exchangeable units/shares
|
|
|
|
|
|
|
(362.4
|
)
|
|
|
|
|
|
|
(362.4
|
)
|
Repurchase of Partnership exchangeable units
|
|
|
|
|
|
|
(293.7
|
)
|
|
|
|
|
|
|
(293.7
|
)
|
Capital contribution from RBI Inc.
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
Excess tax benefits from share-based compensation
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
Distributions from subsidiaries
|
|
|
(656.1
|
)
|
|
|
656.1
|
|
|
|
|
|
|
|
|
|
Other financing activities, net
|
|
|
(3.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(3.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities
|
|
|
(2,115.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,115.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
(73.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(73.5
|
)
|
Increase (decrease) in cash and cash equivalents
|
|
|
(1,049.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,049.5
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
1,803.2
|
|
|
|
|
|
|
|
|
|
|
|
1,803.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
753.7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
753.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RESTAURANT BRANDS INTERNATIONAL LIMITED PARTNERSHIP AND SUBSIDIARIES
|
|
Condensed Consolidating Statements of Cash Flows
|
|
(In millions)
|
|
2014
|
|
|
|
|
|
|
|
|
Consolidated
Borrowers
|
|
|
RBILP
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
(268.9
|
)
|
|
$
|
(268.9
|
)
|
|
$
|
268.9
|
|
|
$
|
(268.9
|
)
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in loss (earnings) of consolidated subsidiaries
|
|
|
|
|
|
|
268.9
|
|
|
|
(268.9
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
68.8
|
|
|
|
|
|
|
|
|
|
|
|
68.8
|
|
Loss on early extinguishment of debt
|
|
|
127.3
|
|
|
|
|
|
|
|
|
|
|
|
127.3
|
|
Amortization of deferred financing costs and debt issuance discount
|
|
|
60.2
|
|
|
|
|
|
|
|
|
|
|
|
60.2
|
|
(Income) loss from equity method investments
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
9.5
|
|
Loss (gain) on remeasurement of foreign denominated transactions
|
|
|
(6.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(6.2
|
)
|
Net losses on derivatives
|
|
|
297.5
|
|
|
|
|
|
|
|
|
|
|
|
297.5
|
|
Share-based compensation expense
|
|
|
43.1
|
|
|
|
|
|
|
|
|
|
|
|
43.1
|
|
Deferred income taxes
|
|
|
(61.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(61.9
|
)
|
Other
|
|
|
27.4
|
|
|
|
|
|
|
|
|
|
|
|
27.4
|
|
Changes in current assets and liabilities, excluding acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash and cash equivalents
|
|
|
(36.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(36.4
|
)
|
Accounts and notes receivable
|
|
|
(24.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(24.5
|
)
|
Inventories and prepaids and other current assets
|
|
|
(23.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(23.0
|
)
|
Accounts and drafts payable
|
|
|
(17.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(17.9
|
)
|
Advertising fund restricted assets and fund liabilities
|
|
|
(35.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(35.9
|
)
|
Other accrued liabilities and gift card liability
|
|
|
122.7
|
|
|
|
|
|
|
|
|
|
|
|
122.7
|
|
Other long-term assets and liabilities
|
|
|
(22.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(22.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
259.3
|
|
|
|
|
|
|
|
|
|
|
|
259.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property and equipment
|
|
|
(30.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(30.9
|
)
|
Proceeds (payments) from disposal of assets, restaurant closures and refranchisings
|
|
|
(7.8
|
)
|
|
|
|
|
|
|
|
|
|
|
(7.8
|
)
|
Net payment for purchase of Tim Hortons, net of cash acquired
|
|
|
(7,374.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,374.7
|
)
|
Return of investment on direct financing leases
|
|
|
15.5
|
|
|
|
|
|
|
|
|
|
|
|
15.5
|
|
Settlement/sale of derivatives, net
|
|
|
(388.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(388.9
|
)
|
Other investing activities, net
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities
|
|
|
(7,790.8
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,790.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
8,932.5
|
|
|
|
|
|
|
|
|
|
|
|
8,932.5
|
|
Proceeds from issuance of preferred units, net
|
|
|
|
|
|
|
2,998.2
|
|
|
|
|
|
|
|
2,998.2
|
|
Repayments of long-term debt and capital leases
|
|
|
(3,102.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,102.0
|
)
|
Payment of financing costs
|
|
|
(158.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(158.0
|
)
|
Dividends on common stock
|
|
|
(105.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(105.6
|
)
|
Capital contribution from RBI Inc.
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
Distributions from subsidiaries
|
|
|
2,998.2
|
|
|
|
(2,998.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities
|
|
|
8,565.6
|
|
|
|
|
|
|
|
|
|
|
|
8,565.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
(17.8
|
)
|
|
|
|
|
|
|
|
|
|
|
(17.8
|
)
|
Increase (decrease) in cash and cash equivalents
|
|
|
1,016.3
|
|
|
|
|
|
|
|
|
|
|
|
1,016.3
|
|
Cash and cash equivalents at beginning of period
|
|
|
786.9
|
|
|
|
|
|
|
|
|
|
|
|
786.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
1,803.2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,803.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
Note 21. Subsequent Events
Dividends
On January 4, 2017, RBI paid a cash dividend of $0.17 per RBI common share to common shareholders of record on December 8, 2016.
Partnership made a distribution to RBI as holder of Class A common units in the amount of the aggregate dividends declared and paid by RBI on RBI common shares and also made a distribution in respect of each Partnership exchangeable unit in the
amount of $0.17 per exchangeable unit to holders of record on December 8, 2016. On January 3, 2017, RBI paid a cash dividend of $0.98 per Preferred Share, for a total dividend of $67.5 million, to the holder of the Preferred Shares.
The dividend on the Preferred Shares included the amount due for the fourth calendar quarter of 2016. Partnership made a distribution to RBI as holder of the Partnership preferred units in an equal amount on the same date.
On February 13, 2017, the RBI board of directors declared a cash dividend of $0.18 per RBI common share, which will be paid on
April 4, 2017 to RBI common shareholders of record on March 3, 2017. Partnership will make a distribution to RBI as holder of Class A common units in the amount of the aggregate dividends declared and paid by RBI on RBI common shares.
Partnership will also make a distribution in respect of each Partnership exchangeable unit in the amount of $0.18 per Partnership exchangeable unit, and the record date and payment date for such distribution will be the same as the record date and
payment date for the cash dividend per RBI common share set forth above. On February 13, 2017, the RBI board of directors declared a cash dividend of $0.98 per Preferred Share, for a total dividend of $67.5 million which will be paid to
the holder of the Preferred Shares on April 3, 2017. The dividend on the Preferred Shares includes the amount due for the first calendar quarter of 2017. Partnership will make a distribution to RBI as holder of the Partnership preferred units
in an equal amount on the same date.
Refinancing of Credit Facilities
On February 17, 2017, we entered into the second amendment to our Credit Facilities (the Second Amendment). Under this Second
Amendment, (i) the outstanding aggregate principal amount under our Term Loan Facility was decreased to $4,900.0 million as a result of a repayment of $146.1 million from cash on hand, (ii) the interest rate applicable to our
Term Loan Facility was reduced to, at our option, either (a) a base rate plus an applicable margin equal to 1.25%, or (b) a Eurocurrency rate plus an applicable margin equal to 2.25%, (iii) the maturity of our Term Loan Facility was
extended from December 12, 2021 to February 17, 2024, and (iv) the Borrowers and their subsidiaries were provided with additional flexibility under certain negative covenants, including incurrence of indebtedness, making of
investments, dispositions and restricted payments, and prepayment of subordinated indebtedness. The Second Amendment does not contain any material changes to other terms of the Credit Facilities, except as described herein. We incurred approximately
$14.1 million in fees related to the refinancing and we also expect to recognize debt extinguishment costs in the first quarter of 2017.
*****