Segment Reporting

3 Months Ended

Mar. 31, 2015

Segment Reporting [Abstract]

Segment Reporting

Note 20. Segment Reporting

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 primary sources: (i) franchise revenues, consisting primarily of royalties based on a percentage of sales reported by franchise restaurants and franchise fees paid by franchisees; (ii) property revenues we derive from properties we lease or sublease to our franchisees; (iii) retail sales at Company restaurants; and (iv) distribution sales exclusive to Tim Hortons related to our supply chain operations, including manufacturing, procurement, warehousing and distribution.

Prior to the first quarter of 2015, we had five operating segments consisting of TH and four geographical regions of BK. We completed an internal reorganization of our business following the Transactions, which resulted in two brand presidents, both of whom report to our chief operating decision maker (“CODM”), who is our Chief Executive Officer. This reorganization changed the way our CODM manages and evaluates our business. Accordingly, during the first quarter of 2015, we determined we had 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.

We also determined that our two operating segments represent our reportable segments. This change had no effect on our previously reported consolidated results of operations, financial position or cash flows. In connection with this change, we have reclassified historical amounts to conform to our current segment presentation.

Revenues by operating segment consist of the following:

	Three Months Ended
	March 31,
	2015		2014
Revenues:
TH	$	682.4	$	—
BK		249.6		240.9
Total revenues	$	932.0	$	240.9

Only Canada and the U.S. represented more than 10% of our total revenues during the three months ended March 31, 2015 and only the U.S. represented more than 10% of our total revenues during the three months ended March 31, 2014. Revenues in Canada and the U.S. totaled $602.2 million and $232.8 million for the three months ended March 31, 2015, respectively. Revenues in the U.S. totaled $142.8 million for the three months ended March 31, 2014.

Our measure of segment income is adjusted EBITDA. Adjusted EBITDA represents earnings (net income or loss) before interest, taxes, depreciation and amortization, adjusted to exclude the impact of share-based compensation and non-cash incentive compensation expense, other operating expenses (income), net, (income) loss from equity method investments, net of cash distributions received from equity method investments, and all other specifically identified items that management believes do not directly reflect our core operations and assists management in comparing segment performance by removing the impact of such items, including amortization of cost of sales step-up and Tim Hortons transaction and restructuring costs. A reconciliation of segment income to net income (loss) consists of the following:

	Three Months Ended
	March 31,
	2015			2014
Segment Income:
TH	$	183.9		$	—
BK		170.7			159.7
Adjusted EBITDA		354.6			159.7
Share-based compensation and non-cash incentive compensation expense		13.9			3.5
Amortization of cost of sales step-up (a)		4.7			—
TH transaction and restructuring costs		28.0			—
Impact of equity method investments (b)		(0.2	)		4.0
Other operating expenses (income), net		35.5			4.5
EBITDA		272.7			147.7
Depreciation and amortization		50.9			16.4
Income from operations		221.8			131.3
Interest expense, net		123.9			50.0
(Gain) loss on early extinguishment of debt		(0.3	)		—
Income tax expense		47.3			20.9
Net income (loss)	$	50.9		$	60.4

(a) In connection with the Acquisition, we acquired inventory that is recorded at fair value at the time of the Acquisition. We recorded a charge equal to the difference between the fair value and historical carrying value as the underlying product sold. Based on our management judgment, these non-cash charges are not indicative of underlying business trends or operational performance.

(b) Represents the impact of (i) our proportionate share of the net (income) loss recognized by our 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.