Tim Hortons faced a higher effective tax rate in 3Q14



Income tax expenses

Recently, Burger King (BKW) announced that it will acquire Tim Hortons (THI). The deal was structured as tax inversion deal. In this part of the series, we’ll see what THI’s effective tax rate has been over the years. After the deal, BKW is expected to get benefits from lower tax rates.


THI is headquartered in Ontario, Canada. It had an effective tax rate of 34% in the third quarter. Its tax rate increased from 28.3% in the same quarter last year. The increase was due to the company’s favorable tax impact last year. THI’s effective tax rates were 23%–29% over the last four-year period. The period started in 2010.

BKW is headquartered in the US. It had an effective tax rate of 23%–35% over the same period. McDonald’s (MCD) and Yum! Brands (YUM) had effective tax rates of 31.9% and 31.4%, respectively, at the end of the financial year in 2013.

MCD and YUM are part of the Consumer Discretionary Select Sector SPDR Fund (XLY).

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Increased interest expenses

THI’s debt increased to $900 million year-over-year (or YoY). The debt was mainly used to retire its revolving credit facility. This increased the interest expense. The interest expense almost doubled from $9 million to $18 million during the quarter. It increased from 27 million to $54 million year-to-date (or YTD).

The increased costs led to a net income of $98 million. The net income was $113 million during the same quarter last year. This excludes the income attributed to non-controlling interest. The margins declined from 13.7% to 10.7% YoY.

In the next part of this series, we’ll look at THI’s dividend yields.


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