Restaurant Brands International(US:QSR)2023-02-21 16:00Business Operations - The company operates four reportable segments: TH, BK, PLK, and FHS[29]. - As of December 31, 2022, the company leased or subleased 3,531 properties to TH franchisees, 1,364 properties to BK franchisees, and 83 properties to PLK franchisees[48]. - The typical royalty rates for BK, PLK, and FHS franchisees in the U.S. and Canada are 4.5%, 5.0%, and 6.0% respectively[45]. - The company has established master franchise agreements for PLK in Indonesia, New Zealand, Poland, the Czech Republic, and Taiwan, and for BK in Poland, the Czech Republic, and Romania[47]. - The company has adopted a master franchise development model to accelerate international growth, which involves risks related to joint venture partners' performance and market conditions[121]. Financial Performance - Total revenues for 2022 were $6,505 million, an increase from $5,739 million in 2021, representing a growth of approximately 13.4%[340]. - Net income for 2022 was $1,482 million, compared to $1,253 million in 2021, reflecting a year-over-year increase of about 18.3%[343]. - Earnings per common share for 2022 were $3.28, up from $2.71 in 2021, indicating an increase of approximately 20.9%[340]. - The company’s cash and cash equivalents increased from $1,087 million in 2021 to $1,178 million in 2022, a rise of about 8.4%[338]. - The company reported a comprehensive income of $1,533 million for 2022, compared to $1,504 million in 2021, showing a slight increase[344]. - The company’s retained earnings increased from $791 million in 2021 to $1,121 million in 2022, reflecting a growth of approximately 41.6%[338]. - The company experienced a net cash used for investing activities of $64 million in 2022, a significant improvement from $1,103 million in 2021[349]. - The company’s total comprehensive income for 2022 was $4,268 million, reflecting a strong performance compared to previous years[349]. Employment and Workforce - As of December 31, 2022, the company employed approximately 6,400 employees, with franchisees employing over 500,000 team members[62]. - In 2022, the company hired approximately 670 new corporate employees, 5,800 new restaurant employees, and 430 new distribution and manufacturing employees[64]. - The company is committed to creating a diverse and inclusive workplace, with initiatives to attract and retain diverse talent exceeding targets[64]. Marketing and Technology - The company plans to continue investing in technology capabilities to support and drive its business, including enhancing its proprietary point-of-sale software[50][52]. - The company aims to modernize the drive-thru experience with outdoor digital menu boards for TH, BK, and PLK brands[51]. - The company relies on effective marketing and successful new product launches to attract and retain customers; failure in these areas could adversely affect operations[87]. - The company is investing in technology and digital engagement to enhance customer experience, but the anticipated benefits may not be fully realized[88]. Sustainability and Social Responsibility - The company aims to reduce greenhouse gas emissions by 50% by 2030 and achieve net-zero emissions by 2050 or sooner[59]. - The Burger King Foundation has awarded over $55 million in scholarship funds and supported over 250,000 children and families since its inception[70]. - The Tim Hortons Foundation's annual Camp Day has raised over C$237 million and sent more than 300,000 youth to camps[71]. - The Popeyes Foundation has provided $1.7 million and over 4 million meals to children in local communities since 2018[72]. - The Firehouse Subs Public Safety Foundation has granted $73 million to support first responders and public safety organizations since its establishment[73]. Risks and Challenges - The company faces intense competition in the restaurant industry, impacting its ability to respond to consumer preferences and manage operational complexities[78]. - Economic conditions, including inflation and unemployment, significantly affect consumer discretionary spending, which correlates with restaurant sales and profitability[82]. - The COVID-19 pandemic has led to store closures and reduced operations, negatively impacting restaurant traffic and system-wide sales[85]. - The company faces risks related to securing desirable restaurant locations, which are critical for growth and sales[99]. - Food safety concerns and negative publicity regarding health risks associated with fast food could adversely affect brand reputation and sales[101]. - The company faces ongoing litigation risks that could harm its reputation and financial condition, including disputes with franchisees and suppliers[149]. - The company is subject to various laws and regulations, including food safety regulations governed by the U.S. Food and Drug Administration[54]. Financial Management and Debt - As of December 31, 2022, the company had aggregate outstanding indebtedness of $13,045 million, including senior secured term loan facilities of $6,440 million, senior secured first lien notes of $2,800 million, and senior secured second lien notes of $3,650 million[122]. - The company's substantial leverage may limit its ability to take certain actions, including making investments or acquisitions, which could hinder future growth opportunities[124]. - A breach of covenants under the company's indebtedness could result in an event of default, allowing debt holders to accelerate repayment and potentially impacting financial stability[125]. Taxation and Regulatory Environment - The company is subject to income and other taxes in Canada, the U.S., and various foreign jurisdictions, which may lead to unanticipated tax liabilities affecting profitability[128]. - The 2021 Canadian Federal Budget proposed tax law changes that could limit the deductibility of interest expenses, potentially increasing future income taxes[133]. - The Inflation Reduction Act of 2022 introduced a 15% corporate alternative minimum tax effective January 1, 2023, which may impact financial results[134]. - The OECD and EU are pursuing substantial changes to tax principles, including a 15% global minimum tax, which could increase future income taxes if enacted[135]. Currency and Interest Rate Risks - The company is exposed to market risks related to currency exchange rates, interest rates, commodity prices, and inflation, managed through various strategies[280]. - The company has entered into cross-currency rate swaps with a notional value of $5,000 million between Canadian dollars and U.S. dollars, and $2,250 million between Euros and U.S. dollars to hedge against foreign currency exchange rate fluctuations[282]. - A hypothetical 10% uniform weakening or strengthening of all foreign currencies relative to the U.S. dollar could have resulted in an approximate $190 million change in income from operations for 2022[284]. - The company has $4,000 million in notional value of interest rate swaps to hedge variability in interest payments, with $3,500 million expiring on October 31, 2028, and $500 million expiring on September 30, 2026[285]. - A hypothetical 1.00% increase in LIBOR and SOFR would increase the company's annual interest expense by approximately $24 million[286]. Operational Efficiency - The company aims to become one of the most efficient franchised QSR operators globally, leveraging its fully franchised business model for growth[302]. - The company is focused on driving traffic and expanding its customer base through new product innovations[302]. - The company is implementing cost management initiatives across its brands to enhance profitability[303].