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Section 1: 8-K (8-K)

Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

FORM 8-K

 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 1, 2018

 

 RESTAURANT BRANDS INTERNATIONAL INC.
RESTAURANT BRANDS INTERNATIONAL LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
 
 
Canada
 
001-36786
 
98-1202754
Ontario
 
001-36787
 
98-1206431
(State or other jurisdiction of
 
(Commission
 
(I.R.S. Employer
incorporation)
 
File Number)
 
Identification No.)

Restaurant Brands International Inc.
Restaurant Brands International Limited Partnership
226 Wyecroft Road
Oakville, Ontario L6K 3X7
(Address of principal executive offices, including Zip Code)

(905) 845-6511
(Registrant’s telephone number, including area code)

N/A
(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)





☐     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
 








Item 2.02     Results of Operations and Financial Condition.

On August 1, 2018, Restaurant Brands International Inc. (the “Company”) issued a press release and supplemental financial and operational information regarding results for the three and six months ended June 30, 2018. The press release and supplemental financial and operational information are furnished as Exhibit 99 hereto.

Item 9.01     Financial Statements and Exhibits

Exhibit
Number
  
Description
 






SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
RESTAURANT BRANDS INTERNATIONAL INC.
RESTAURANT BRANDS INTERNATIONAL LIMITED PARTNERSHIP, by its general partner RESTAURANT BRANDS INTERNATIONAL INC.
 
 
 
Date: August 1, 2018
 
/s/ Matthew Dunnigan
 
 
Name:
Matthew Dunnigan
 
 
Title:
Chief Financial Officer



(Back To Top)

Section 2: EX-99 (EXHIBIT 99)

Exhibit


EXHIBIT 99394458858_rbilogoa13.jpg
Restaurant Brands International Inc. Reports Second Quarter 2018 Results
Good progress against ‘Winning Together’ plan to drive improved comparable sales at TIM HORTONS®
BURGER KING® continues system-wide sales growth and crosses 17,000 restaurants worldwide
POPEYES® achieves double-digit profitability growth through accelerated restaurant expansion
 
Oakville, Ontario – August 1, 2018 – Restaurant Brands International Inc. (TSX/NYSE: QSR, TSX: QSP) today reported financial results for the second quarter ended June 30, 2018.
 
Daniel Schwartz, Chief Executive Officer of Restaurant Brands International Inc. ("RBI") commented, "During the second quarter, we continued to grow each of our three iconic brands, and we made good progress against the 2018 priorities that we outlined last quarter. At Tim Hortons, we have implemented a number of initiatives under our 'Winning Together' plan - including the launch of Breakfast Anytime - which we believe will drive improved comparable sales over the long run. We also delivered strong system-wide sales growth at Burger King and Popeyes, driven by accelerated net restaurant growth. We are very optimistic about the long-term growth potential for each of our brands and remain focused on driving improved guest satisfaction and franchisee profitability."
 
Consolidated Operational Highlights
 
Three Months Ended June 30,
 
2018
 
2017
 
(Unaudited)
System-wide Sales Growth
 
 
 
 
 
    TH
 
2.2
%
 
 
2.6
 %
    BK
 
8.4
%
 
 
10.6
 %
    PLK
 
10.7
%
 
 
3.3
 %
System-wide sales (in US$ millions)
 
 
 
 
 
    TH
$
1,741.7
 
$
1,645.9
    BK
$
5,403.4
 
$
4,961.1
    PLK
$
937.6
 
$
890.4
Comparable Sales
 
 
 
 
 
    TH
 
%
 
 
(0.8
)%
    BK
 
1.8
%
 
 
3.9
 %
    PLK
 
2.9
%
 
 
(2.7
)%
Net Restaurant Growth
 
 
 
 
 
    TH
 
3.0
%
 
 
4.3
 %
    BK
 
6.4
%
 
 
6.0
 %
    PLK
 
7.5
%
 
 
5.3
 %
System Restaurant Count at Period End
 
 
 
 
 
    TH
 
4,794
 
 
4,655
    BK
 
17,022
 
 
16,000
    PLK
 
2,975
 
 
2,768
 

Note: System-wide sales growth and comparable sales are calculated on a constant currency basis and include sales at franchise restaurants and company-owned restaurants. System-wide sales are driven by sales at franchised restaurants, as approximately 100% of current restaurants are franchised. We do not record franchise sales as revenues; however, our franchise revenues include royalties based on a percentage of franchise sales.

1




Consolidated Financial Highlights
 
Three Months Ended June 30,
(in US$ millions, except per share data)
2018
 
2018
 
2017
 
New Standard
 
Previous Standards
 
Previous Standards
 
(Unaudited)
Total Revenues
$
1,343.4

 
$
1,144.3

 
$
1,132.7

Net Income Attributable to Common Shareholders
$
167.6

 
$
169.1

 
$
89.5

Net Income Attributable to Common Shareholders and Noncontrolling Interests
$
314.0

 
$
316.8

 
$
175.6

Diluted Earnings per Share
$
0.66

 
$
0.67

 
$
0.37

 
 
 
 
 
 
TH Adjusted EBITDA(1)
$
285.5

 
$
288.6

 
$
281.1

BK Adjusted EBITDA(1)
$
236.4

 
$
232.0

 
$
216.8

PLK Adjusted EBITDA(1)
$
40.2

 
$
42.5

 
$
33.2

Adjusted EBITDA(2)
$
562.1

 
$
563.1

 
$
531.1

 
 
 
 
 
 
Adjusted Net Income(2)
$
313.2

 
$
312.4

 
$
241.7

Adjusted Diluted Earnings per Share(2)
$
0.66

 
$
0.66

 
$
0.51


(1)
TH Adjusted EBITDA, BK Adjusted EBITDA and PLK Adjusted EBITDA are our measures of segment profitability.
(2)
Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share are non-GAAP financial measures. Please refer to "Non-GAAP Financial Measures" for further detail.

Effective January 1, 2018, we adopted the new revenue recognition accounting standard ("New Standard"). Our consolidated financial statements for 2018 reflect the application of the New Standard, while our consolidated financial statements for 2017 were prepared under the guidance of previously applicable accounting standards ("Previous Standards"). Our results presented herein indicate which revenue recognition methodology applies in each respective period.

The implementation of the New Standard impacted our year-over-year results on a consolidated basis and for
each segment as follows:
Total Revenues increased primarily as a result of the inclusion of advertising fund contributions
Selling, General, and Administrative Expenses increased as a result of the inclusion of advertising fund expenditures

Under Previous Standards, Total Revenues for the second quarter grew primarily as a result of system-wide sales growth, as well as a favorable impact of FX movements, partially offset by a decrease in supply chain related revenues at TH.

Net Income Attributable to Common Shareholders for the quarter, under both Previous Standards and the New Standard, was driven by growth in segment income, the change in other operating expenses (income), net (driven by FX), and the redemption of our preferred shares in December of 2017.

Under Previous Standards, Adjusted EBITDA for the quarter grew 3.7% on an organic basis versus prior year results, driven primarily by an increase in revenues at BK and PLK, partially offset by a decrease in supply chain related revenues at TH.


2




TH Segment Results
 
Three Months Ended June 30,
(in US$ millions)
2018
 
2017
 
New Standard
 
Previous Standards
 
(Unaudited)
System-wide Sales Growth
 
2.2
%
 
 
2.6
 %
System-wide Sales
$
1,741.7
 
$
1,645.9
Comparable Sales
 
%
 
 
(0.8
)%
 
 
 
 
 
 
Net Restaurant Growth
 
3.0
%
 
 
4.3
 %
System Restaurant Count at Period End
 
4,794
 
 
4,655
 
 
 
 
 
 
Sales
$
548.0
 
$
553.9
Franchise and Property Revenues
$
275.0
 
$
218.4
Total Revenues
$
823.0
 
$
772.3
 
 
 
 
 
 
Cost of Sales
$
417.4
 
$
417.1
Franchise and Property Expenses
$
68.8
 
$
79.8
Segment SG&A
$
80.3
 
$
22.2
Segment Depreciation and Amortization
$
25.8
 
$
24.7
Adjusted EBITDA(1)(3)
$
285.5
 
$
281.1

(3)
TH Adjusted EBITDA includes $3.2 million of cash distributions received from equity method investments for the three months ended June 30, 2018 and 2017.

For the second quarter of 2018, system-wide sales growth was primarily driven by net restaurant growth of 3.0%. Comparable sales were flat, including Canada comparable sales of 0.3%.

Under Previous Standards, Total Revenues for the quarter declined (0.3)% ((3.8)% excluding the impact of FX movements) versus prior year, primarily reflecting a decrease in supply chain related revenues, partially offset by a favorable impact of FX movements.

Under Previous Standards, Adjusted EBITDA for the quarter increased 2.7% ((1.0)% excluding the impact of FX movements) versus prior year, primarily as a result of a favorable impact of FX movements, partially offset by a decrease in Total Revenues.


3




BK Segment Results
 
Three Months Ended June 30,
(in US$ millions)
2018
 
2017
 
New Standard
 
Previous Standards
 
(Unaudited)
System-wide Sales Growth
 
8.4
%
 
 
10.6
%
System-wide Sales
$
5,403.4
 
$
4,961.1
Comparable Sales
 
1.8
%
 
 
3.9
%
 
 
 
 
 
 
Net Restaurant Growth
 
6.4
%
 
 
6.0
%
System Restaurant Count at Period End
 
17,022
 
 
16,000
 
 
 
 
 
 
Sales
$
18.9
 
$
25.2
Franchise and Property Revenues
$
399.2
 
$
268.5
Total Revenues
$
418.1
 
$
293.7
 
 
 
 
 
 
Cost of Sales
$
16.7
 
$
23.9
Franchise and Property Expenses
$
31.4
 
$
31.6
Segment SG&A
$
145.5
 
$
34.1
Segment Depreciation and Amortization
$
11.9
 
$
12.7
Adjusted EBITDA(1)
$
236.4
 
$
216.8

For the second quarter of 2018, system-wide sales growth was driven by net restaurant growth of 6.4% and comparable sales of 1.8%, including US comparable sales of 1.8%.

Under Previous Standards, Total Revenues for the quarter grew 4.3% (3.3% excluding the impact of FX movements) versus prior year, reflecting growth in system-wide sales.

Under Previous Standards, Adjusted EBITDA for the quarter grew 7.0% (6.3% excluding the impact of FX movements) versus prior year, primarily as a result of an increase in Total Revenues.


4




PLK Segment Results

 
Three Months Ended June 30,
(in US$ millions)
2018
 
2017
 
New Standard
 
Previous Standard
 
(Unaudited)
System-wide Sales Growth
 
10.7
%
 
 
3.3
 %
System-wide Sales
$
937.6
 
$
890.4
Comparable Sales
 
2.9
%
 
 
(2.7
)%
 
 
 
 
 
 
Net Restaurant Growth
 
7.5
%
 
 
5.3
 %
System Restaurant Count at Period End
 
2,975
 
 
2,768
 
 
 
 
 
 
Sales
$
19.3
 
$
23.0
Franchise and Property Revenues
$
83.0
 
$
43.7
Total Revenues
$
102.3
 
$
66.7
 
 
 
 
 
 
Cost of Sales
$
14.8
 
$
19.2
Franchise and Property Expenses
$
2.2
 
$
2.3
Segment SG&A
$
47.6
 
$
14.4
Segment Depreciation and Amortization
$
2.5
 
$
2.4
Adjusted EBITDA(1)
$
40.2
 
$
33.2

For the second quarter of 2018, system-wide sales growth was driven by net restaurant growth of 7.5% and comparable sales of 2.9%, including US comparable sales of 1.8%.

Under Previous Standards, Total Revenues for the quarter grew 1.6% (1.8% excluding the impact of FX movements) versus prior year, reflecting growth in system-wide sales.

Under Previous Standards, Adjusted EBITDA for the quarter grew 28.0% (28.4% excluding the impact of FX movements) versus prior year, as a result of an increase in Total Revenues as well as effective cost management.




5




Cash and Liquidity

As of June 30, 2018, total debt was $12.2 billion, and net debt (total debt less cash and cash equivalents of $1.0 billion) was $11.3 billion. The RBI Board of Directors has declared a dividend of $0.45 per common share and partnership exchangeable unit of Restaurant Brands International Limited Partnership for the third quarter of 2018. The dividend will be payable on October 1, 2018 to shareholders and unitholders of record at the close of business on September 7, 2018.

Investor Conference Call
 
We will host an investor conference call and webcast at 8:30 a.m. Eastern Time on Wednesday, August 1, 2018, to review financial results for the second quarter ended June 30, 2018. The earnings call will be broadcast live via our investor relations website at http://investor.rbi.com and a replay will be available for 30 days following the release. The dial-in number is (877) 317-6711 for U.S. callers, (866) 450-4696 for Canadian callers, and (412) 317-5475 for callers from other countries.

Contacts

Investors: investor@rbi.com
Media: media@rbi.com
 
About Restaurant Brands International Inc.
 
Restaurant Brands International Inc. ("RBI") is one of the world's largest quick service restaurant companies with more than $30 billion in system-wide sales and over 24,000 restaurants in more than 100 countries and U.S. territories. RBI owns three of the world's most prominent and iconic quick service restaurant brands – TIM HORTONS®, BURGER KING®, and POPEYES®. These independently operated brands have been serving their respective guests, franchisees and communities for over 40 years. To learn more about RBI, please visit the company's website at www.rbi.com.

Forward-Looking Statements

This press release contains certain forward-looking statements and information, which reflect management's current beliefs and expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties. These forward-looking statements include statements about our expectations regarding our progress implementing initiatives under our “Winning Together” plan and the drivers of comparable sales over the long run; our expectations and belief regarding the long-term growth potential for each of our brands and our focus on improving guest satisfaction and franchisee profitability; and the amount and timing of PLK transaction costs. The factors that could cause actual results to differ materially from RBI’s expectations are detailed in filings of RBI with the Securities and Exchange Commission and applicable Canadian securities regulatory authorities, such as its annual and quarterly reports and current reports on Form 8-K, and include the following: risks related to RBI’s ability to successfully implement its domestic and international growth strategy; and risks related to RBI’s ability to compete domestically and internationally in an intensely competitive industry. Other than as required under U.S. federal securities laws or Canadian securities laws, we do not assume a duty to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, change in expectations or otherwise.



6




RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In millions of U.S. dollars, except per share data)
(Unaudited)

 
Three Months Ended June 30,
 
2018
 
2018
 
2018
 
2017
 
New Standard
 
Total Adjustments
 
Previous Standards
 
Previous Standards
Revenues:
 
 
 
 
 
 
 
Sales
$
586.2

 
$

 
$
586.2

 
$
602.1

Franchise and property revenues
757.2

 
(199.1
)
 
558.1

 
530.6

Total revenues
1,343.4

 
(199.1
)
 
1,144.3

 
1,132.7

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of sales
448.9

 

 
448.9

 
460.2

Franchise and property expenses
102.4

 

 
102.4

 
113.7

Selling, general and administrative expenses
317.6

 
(200.1
)
 
117.5

 
96.7

(Income) loss from equity method investments
1.2

 
(3.6
)
 
(2.4
)
 
0.9

Other operating expenses (income), net
(29.4
)
 

 
(29.4
)
 
46.8

Total operating costs and expenses
840.7

 
(203.7
)
 
637.0

 
718.3

Income from operations
502.7

 
4.6

 
507.3

 
414.4

Interest expense, net
129.8

 
0.7

 
130.5

 
128.0

Income before income taxes
372.9

 
3.9

 
376.8

 
286.4

Income tax expense
58.7

 
1.1

 
59.8

 
42.9

Net income
314.2

 
2.8

 
317.0

 
243.5

Net income attributable to noncontrolling interests
146.6

 
1.3

 
147.9

 
86.5

Preferred share dividends

 

 

 
67.5

Net income attributable to common shareholders
$
167.6

 
$
1.5

 
$
169.1

 
$
89.5

Earnings per common share
 
 
 
 
 
 
 
Basic
$
0.67

 
$
0.01

 
$
0.68

 
$
0.38

Diluted
$
0.66

 
$
0.01

 
$
0.67

 
$
0.37

Weighted average shares outstanding
 
 
 
 
 
 
 
Basic
249.3

 

 
249.3

 
235.8

Diluted
474.1

 

 
474.1

 
478.0

Cash dividends declared per common share
$
0.45

 
 
 
$
0.45

 
$
0.19



7




RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In millions of U.S. dollars, except per share data)
(Unaudited)

 
Six Months Ended June 30,
 
2018
 
2018
 
2018
 
2017
 
New Standard
 
Total Adjustments
 
Previous Standards
 
Previous Standards
Revenues:
 
 
 
 
 
 
 
Sales
$
1,134.0

 
$

 
$
1,134.0

 
$
1,152.5

Franchise and property revenues
1,463.2

 
(381.1
)
 
1,082.1

 
980.8

Total revenues
2,597.2

 
(381.1
)
 
2,216.1

 
2,133.3

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of sales
878.0

 

 
878.0

 
883.6

Franchise and property expenses
206.8

 
(0.2
)
 
206.6

 
224.7

Selling, general and administrative expenses
618.9

 
(390.6
)
 
228.3

 
218.6

(Income) loss from equity method investments
(13.1
)
 
(3.6
)
 
(16.7
)
 
(4.8
)
Other operating expenses (income), net
(16.7
)
 

 
(16.7
)
 
60.6

Total operating costs and expenses
1,673.9

 
(394.4
)
 
1,279.5

 
1,382.7

Income from operations
923.3

 
13.3

 
936.6

 
750.6

Interest expense, net
269.9

 
1.2

 
271.1

 
239.4

Loss on early extinguishment of debt

 

 

 
20.4

Income before income taxes
653.4

 
12.1

 
665.5

 
490.8

Income tax expense
60.4

 
3.2

 
63.6

 
80.7

Net income
593.0

 
8.9

 
601.9

 
410.1

Net income attributable to noncontrolling interests
277.6

 
4.2

 
281.8

 
135.4

Preferred share dividends

 

 

 
135.0

Net income attributable to common shareholders
$
315.4

 
$
4.7

 
$
320.1

 
$
139.7

Earnings per common share
 
 
 
 
 
 
 
Basic
$
1.27

 
$
0.02

 
$
1.29

 
$
0.59

Diluted
$
1.25

 
$
0.02

 
$
1.27

 
$
0.57

Weighted average shares outstanding
 
 
 
 
 
 
 
Basic
247.6

 

 
247.6

 
235.2

Diluted
474.0

 

 
474.0

 
477.3

Cash dividends declared per common share
$
0.90

 
 
 
$
0.90

 
$
0.37




8




RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In millions of U.S. dollars, except share data)
(Unaudited)
 
As of
 
June 30, 2018
 
December 31, 2017
 
New Standard
 
Previous Standards
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
987.5

 
$
1,097.4

Accounts and notes receivable, net of allowance of $17.4 and $16.4, respectively
441.8

 
488.8

Inventories, net
85.5

 
78.0

Prepaids and other current assets
116.1

 
85.4

Total current assets
1,630.9

 
1,749.6

Property and equipment, net of accumulated depreciation and amortization of $682.9 and $623.3, respectively
2,033.9

 
2,133.3

Intangible assets, net
10,736.4

 
11,062.2

Goodwill
5,619.9

 
5,782.3

Net investment in property leased to franchisees
61.8

 
71.3

Other assets, net
531.9

 
424.8

Total assets
$
20,614.8

 
$
21,223.5

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts and drafts payable
$
474.4

 
$
496.2

Other accrued liabilities
662.7

 
865.7

Gift card liability
102.5

 
214.9

Current portion of long term debt and capital leases
78.8

 
78.2

Total current liabilities
1,318.4

 
1,655.0

Term debt, net of current portion
11,776.0

 
11,800.9

Capital leases, net of current portion
231.1

 
243.8

Other liabilities, net
1,664.2

 
1,455.1

Deferred income taxes, net
1,400.8

 
1,508.1

Total liabilities
16,390.5

 
16,662.9

Shareholders’ equity:
 
 
 
Common shares, no par value; unlimited shares authorized at June 30, 2018 and December 31, 2017; 249,567,271 shares issued and outstanding at June 30, 2018; 243,899,476 shares issued and outstanding at December 31, 2017
2,116.4

 
2,051.5

Retained earnings
607.8

 
650.6

Accumulated other comprehensive income (loss)
(647.4
)
 
(475.7
)
Total Restaurant Brands International Inc. shareholders’ equity
2,076.8

 
2,226.4

Noncontrolling interests
2,147.5

 
2,334.2

Total shareholders’ equity
4,224.3

 
4,560.6

Total liabilities and shareholders’ equity
$
20,614.8

 
$
21,223.5


9




RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In millions of U.S. dollars)
(Unaudited)
 
Six Months Ended June 30,
 
2018
 
2017
 
New Standard
 
Previous Standards
Cash flows from operating activities:
 
 
 
Net income
$
593.0

 
$
410.1

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
92.6

 
88.7

Premiums paid and non-cash loss on early extinguishment of debt

 
17.9

Amortization of deferred financing costs and debt issuance discount
14.5

 
16.7

(Income) loss from equity method investments
(13.1
)
 
(4.8
)
Loss (gain) on remeasurement of foreign denominated transactions
(16.2
)
 
47.1

Net (gains) losses on derivatives
(14.8
)
 
14.9

Share-based compensation expense
26.6

 
27.2

Deferred income taxes
(58.1
)
 
22.4

Other
4.3

 
9.8

Changes in current assets and liabilities, excluding acquisitions and dispositions:
 
 
 
Accounts and notes receivable
36.2

 
27.4

Inventories and prepaids and other current assets
(15.6
)
 
(4.9
)
Accounts and drafts payable
(11.4
)
 
(5.4
)
Other accrued liabilities and gift card liability
(347.4
)
 
(164.2
)
Other long-term assets and liabilities
(3.2
)
 
(12.9
)
Net cash provided by operating activities
287.4

 
490.0

Cash flows from investing activities:
 
 
 
Payments for property and equipment
(21.6
)
 
(11.7
)
Proceeds from disposal of assets, restaurant closures, and refranchisings
3.4

 
9.6

Net payment for purchase of Popeyes, net of cash acquired

 
(1,635.9
)
Return of investment on direct financing leases
8.3

 
7.8

Settlement/sale of derivatives, net
11.2

 
772.0

Other investing activities, net
0.2

 
0.3

Net cash provided by (used for) investing activities
1.5

 
(857.9
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of long-term debt

 
3,050.0

Repayments of long-term debt and capital leases
(43.3
)
 
(377.7
)
Payment of financing costs

 
(47.0
)
Payment of dividends on common and preferred shares and distributions on Partnership exchangeable units
(307.0
)
 
(296.6
)
Payments in connection with redemption of preferred shares
(60.1
)
 

Proceeds from stock option exercises
29.0

 
12.3

Other financing activities, net
(1.8
)
 
(2.3
)
Net cash (used for) provided by financing activities
(383.2
)
 
2,338.7

Effect of exchange rates on cash and cash equivalents
(15.6
)
 
13.3

Increase (decrease) in cash and cash equivalents
(109.9
)
 
1,984.1

Cash and cash equivalents at beginning of period
1,097.4

 
1,475.8

Cash and cash equivalents at end of period
$
987.5

 
$
3,459.9

Supplemental cash flow disclosures:
 
 
 
Interest paid
$
273.6

 
$
205.6

Income taxes paid
$
374.0

 
$
116.9


10




RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Key Operating Metrics
 
We evaluate our restaurants and assess our business based on the following operating metrics.
 
System-wide sales growth refers to the percentage change in sales at all franchise and company-owned restaurants in one period from the same period in the prior year. Comparable sales refers to the percentage change in restaurant sales in one period from the same prior year period for restaurants that have been open for 13 months or longer for TH and BK and 17 months or longer for PLK. System-wide sales growth and comparable sales are measured on a constant currency basis, which means that results exclude the effect of foreign currency translation and are calculated by translating prior year results at current year monthly average exchange rates. We analyze key operating metrics on a constant currency basis as this helps identify underlying business trends, without distortion from the effects of currency movements.
 
System-wide sales represent sales at all franchise restaurants and company-owned restaurants. We do not record franchise sales as revenues; however, our franchise revenues include royalties based on a percentage of franchise sales.


 
Three Months Ended June 30,
Comparable Sales by Largest Market
2018
 
2017
TH - Canada
0.3
%
 
(0.6
)%
BK - US
1.8
%
 
3.0
 %
PLK - US
1.8
%
 
(3.3
)%





11




RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Supplemental Disclosure
(Unaudited)

Selling, General and Administrative Expenses

 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in US$ millions)
2018
 
2017
 
2018
 
2017
 
New Standard
 
Previous Standards
 
New Standard
 
Previous Standards
Segment SG&A TH(1)
$
80.3

 
$
22.2

 
$
162.6

 
$
47.3

Segment SG&A BK(1)
145.5

 
34.1

 
285.8

 
72.3

Segment SG&A PLK(1)
47.6

 
14.4

 
93.0

 
14.4

Share-based compensation and non-cash incentive compensation expense
15.5

 
11.9

 
30.8

 
30.4

Depreciation and amortization(2)
5.3

 
5.6

 
11.1

 
11.3

PLK Transaction costs
4.6

 
8.5

 
9.7

 
42.9

Corporate restructuring and tax advisory fees
6.4

 

 
13.5

 

Office centralization and relocation costs
12.4

 

 
12.4

 

Selling, general and administrative expenses
$
317.6

 
$
96.7

 
$
618.9

 
$
218.6


(1)
Segment SG&A includes segment selling expenses, including advertising fund expenses, and segment general and administrative expenses and excludes share-based compensation and non-cash incentive compensation expense, depreciation and amortization, PLK transaction costs, corporate restructuring and tax advisory fees, and office centralization and relocation costs.
(2)
Segment depreciation and amortization reflects depreciation and amortization included in the respective segment cost of sales and the respective segment franchise and property expenses. Depreciation and amortization included in selling, general and administrative expenses reflects all other depreciation and amortization.

Other Operating Expenses (Income), net

 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in US$ millions)
2018
 
2017
 
2018
 
2017
 
New Standard
 
Previous Standards
 
New Standard
 
Previous Standards
Net losses (gains) on disposal of assets, restaurant closures, and refranchisings(3)
$
3.0

 
$
8.6

 
$
9.7

 
$
11.5

Litigation settlements (gains) and reserves, net
0.4

 
1.1

 
(5.7
)
 
1.1

Net losses (gains) on foreign exchange(4)
(32.6
)
 
36.8

 
(16.2
)
 
47.2

Other, net
(0.2
)
 
0.3

 
(4.5
)
 
0.8

     Other operating expenses (income), net
$
(29.4
)
 
$
46.8

 
$
(16.7
)
 
$
60.6


(3)
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.
(4)
Net losses (gains) on foreign exchange is primarily related to revaluation of foreign denominated assets and liabilities.


12



RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Non-GAAP Financial Measures
(Unaudited)
 
Below, we define the non-GAAP financial measures, provide a reconciliation of each non-GAAP financial measure to the most directly comparable financial measure calculated in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), and discuss the reasons why we believe this information is useful to management and may be useful to investors. These measures do not have standardized meanings under GAAP and may differ from similarly captioned measures of other companies in our industry.
 
Non-GAAP Measures
 
To supplement our condensed consolidated financial statements presented on a GAAP basis, RBI reports the following non-GAAP financial measures: EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted Earnings per Share (“Adjusted Diluted EPS”), Combined Total Revenues, Combined Adjusted EBITDA, Organic revenue growth and Organic Adjusted EBITDA growth. We believe that these non-GAAP measures are useful to investors in assessing our operating performance, as it provides them with the same tools that management uses to evaluate our performance and is responsive to questions we receive from both investors and analysts. By disclosing these non-GAAP measures, we intend to provide investors with a consistent comparison of our operating results and trends for the periods presented.
EBITDA is defined as earnings (net income or loss) before interest expense, net, (gain) loss on early extinguishment of debt, income tax (benefit) expense, and depreciation and amortization and is used by management to measure operating performance of the business.
 
Adjusted EBITDA is defined as EBITDA excluding 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 PLK transaction costs associated with the acquisition of Popeyes, corporate restructuring and tax advisory fees, and office centralization and relocation costs. 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 management’s assessment of operating performance or the performance of an acquired business. Adjusted EBITDA, as defined above, also represents our measure of segment income for each of our three operating segments.

Combined Total Revenues and Combined Adjusted EBITDA include results of PLK prior to the acquisition.
 
Adjusted Net Income is defined as net income excluding (i) franchise agreement amortization, which is a non-cash expense arising as a result of acquisition accounting that may hinder the comparability of our operating results to our industry peers, (ii) amortization of deferred financing costs and debt issuance discount, a non-cash component of interest expense, and (gains) losses on early extinguishment of debt, which are non-cash charges that vary by the timing, terms and size of debt financing transactions, (iii) (income) loss from equity method investments, net of cash distributions received from equity method investments, (iv) other operating expenses (income), net, and (v) other specifically identified costs associated with non-recurring projects. Adjusted Net Income includes preferred share dividends through December 2017.
 
Adjusted Diluted EPS is calculated by dividing Adjusted Net Income by the number of diluted shares of RBI during the reporting period. Adjusted Net Income and Adjusted Diluted EPS are used by management to evaluate the operating performance of the business, excluding certain non-cash and other specifically identified items that management believes are not relevant to management’s assessment of operating performance or the performance of an acquired business.
 
Revenue growth and Adjusted EBITDA growth, on an organic basis, are non-GAAP measures that exclude the impact of FX movements. Management believes that organic growth is an important metric for measuring the operating performance of our business as it helps identify underlying business trends, without distortion from the effects of FX movements. We calculate the impact of FX movements by translating prior year results at current year monthly average exchange rates. Additionally, for comparability purposes, we are calculating organic growth under Previous Standards for both periods presented.

13



RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Non-GAAP Financial Measures
Organic Growth in Revenue and Adjusted EBITDA
Three Months Ended June 30, 2018
(Unaudited)
 
 
 
 
 
 
 
 
 
 
Impact of FX
 
 
 
 
 
 
Actual
 
Q2 '18 vs. Q2 '17
 
Movements
 
Organic Growth
(in US$ millions)
 
Q2 '18
 
Q2 '17
 
$
 
%
 
$
 
$
 
%
 
 
Previous Standards
 
Previous Standards
 
 
 
 
 
 
 
 
 
 
Calculation:
 
 
 
A
 
B
 
 
 
C
 
B-C=D
 
D/(A+C)
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TH
 
$
770.3

 
$
772.3

 
$
(2.0
)
 
(0.3
)%
 
$
28.1

 
$
(30.1
)
 
(3.8
)%
BK
 
$
306.2

 
$
293.7

 
$
12.5

 
4.3
 %
 
$
2.6

 
$
9.9

 
3.3
 %
PLK
 
$
67.8

 
$
66.7

 
$
1.1

 
1.6
 %
 
$
(0.1
)
 
$
1.2

 
1.8
 %
Total Revenues
 
$
1,144.3

 
$
1,132.7

 
$
11.6

 
1.0
 %
 
$
30.6

 
$
(19.0
)
 
(1.6
)%
Adjusted EBITDA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TH
 
$
288.6

 
$
281.1

 
$
7.5

 
2.7
 %
 
$
10.4

 
$
(2.9
)
 
(1.0
)%
BK
 
$
232.0

 
$
216.8

 
$
15.2

 
7.0
 %
 
$
1.4

 
$
13.8

 
6.3
 %
PLK
 
$
42.5

 
$
33.2

 
$
9.3

 
28.0
 %
 
$
(0.1
)
 
$
9.4

 
28.4
 %
Adjusted EBITDA
 
$
563.1

 
$
531.1

 
$
32.0

 
6.0
 %
 
$
11.7

 
$
20.3

 
3.7
 %


 



14



RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Non-GAAP Financial Measures
(Unaudited)

Reconciliation of EBITDA and Adjusted EBITDA to Net Income
 
Three Months Ended June 30,
(in US$ millions)
2018
 
2018
 
2018
 
2017
 
New Standard
 
Total Adjustments
 
Previous Standards
 
Previous Standards
Segment income:
 
 
 
 
 
 
 
TH
$
285.5

 
$
3.1

 
$
288.6

 
$
281.1

BK
236.4

 
(4.4
)
 
232.0

 
216.8

PLK
40.2

 
2.3

 
42.5

 
33.2

Adjusted EBITDA
562.1

 
1.0

 
563.1

 
531.1

Share-based compensation and non-cash incentive compensation expense(1)
15.5

 

 
15.5

 
11.9

PLK Transaction costs(2)
4.6

 

 
4.6

 
8.5

Corporate restructuring and tax advisory fees(3)
6.4

 

 
6.4

 

Office centralization and relocation costs(4)
12.4

 

 
12.4

 

Impact of equity method investments(5)
4.4

 
(3.6
)
 
0.8

 
4.1

Other operating expenses (income), net
(29.4
)
 

 
(29.4
)
 
46.8

EBITDA
548.2

 
4.6

 
552.8

 
459.8

Depreciation and amortization
45.5

 

 
45.5

 
45.4

Income from operations
502.7

 
4.6

 
507.3

 
414.4

Interest expense, net
129.8

 
0.7

 
130.5

 
128.0

Income tax expense(6)
58.7

 
1.1

 
59.8

 
42.9

Net income
$
314.2

 
$
2.8

 
$
317.0

 
$
243.5


 
Six Months Ended June 30,
(in US$ millions)
2018
 
2018
 
2018
 
2017
 
New Standard
 
Total Adjustments
 
Previous Standards
 
Previous Standards
Segment income:
 
 
 
 
 
 
 
TH
$
530.7

 
$
8.4

 
$
539.1

 
$
537.3

BK
450.5

 
(3.5
)
 
447.0

 
403.9

PLK
78.7

 
4.6

 
83.3

 
33.2

Adjusted EBITDA
1,059.9

 
9.5

 
1,069.4

 
974.4

Share-based compensation and non-cash incentive compensation expense(1)
30.8

 

 
30.8

 
30.4

PLK Transaction costs(2)
9.7

 

 
9.7

 
42.9

Corporate restructuring and tax advisory fees(3)
13.5

 

 
13.5

 

Office centralization and relocation costs(4)
12.4

 

 
12.4

 

Impact of equity method investments(5)
(5.6
)
 
(3.6
)
 
(9.2
)
 
1.2

Other operating expenses (income), net
(16.7
)
 

 
(16.7
)
 
60.6

EBITDA
1,015.8

 
13.1

 
1,028.9

 
839.3

Depreciation and amortization
92.5

 
(0.2
)
 
92.3

 
88.7

Income from operations
923.3

 
13.3

 
936.6

 
750.6

Interest expense, net
269.9

 
1.2

 
271.1

 
239.4

Loss on early extinguishment of debt

 

 

 
20.4

Income tax expense(6)
60.4

 
3.2

 
63.6

 
80.7

Net income
$
593.0

 
$
8.9

 
$
601.9

 
$
410.1


15



RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Non-GAAP Financial Measures
(Unaudited)
Reconciliation of Net Income to Adjusted Net Income and Adjusted Diluted EPS
 
Three Months Ended June 30,
(in US$ millions, except per share data)
2018
 
2018
 
2018
 
2017
 
New Standard
 
Total Adjustments
 
Previous Standards
 
Previous Standards
Net income
$
314.2

 
$
2.8

 
$
317.0

 
$
243.5

Income tax expense(6)
58.7

 
1.1

 
59.8

 
42.9

Income before income taxes
372.9

 
3.9

 
376.8

 
286.4

Adjustments:
 
 
 
 
 
 
 
Franchise agreement amortization
7.8

 

 
7.8

 
7.6

Amortization of deferred financing costs and debt issuance discount
7.3

 

 
7.3

 
8.2

Interest expense and loss on extinguished debt(7)
2.4

 

 
2.4

 
3.1

PLK Transaction costs(2)
4.6

 

 
4.6

 
8.5

Corporate restructuring and tax advisory fees(3)
6.4

 

 
6.4

 

Office centralization and relocation costs(4)
12.4

 

 
12.4

 

Impact of equity method investments(5)
4.4

 
(3.6
)
 
0.8

 
4.1

Other operating expenses (income), net
(29.4
)
 

 
(29.4
)
 
46.8

Total adjustments
15.9

 
(3.6
)
 
12.3

 
78.3

Adjusted income before income taxes
388.8

 
0.3

 
389.1

 
364.7

Adjusted income tax (benefit) expense(6)(8)
75.6

 
1.1

 
76.7

 
55.5

Adjusted net income before preferred share dividends
313.2

 
(0.8
)
 
312.4

 
309.2

Preferred share dividends

 

 

 
67.5

Adjusted net income
$
313.2

 
$
(0.8
)
 
$
312.4

 
$
241.7

Adjusted diluted earnings per share
$
0.66

 
$

 
$
0.66

 
$
0.51

Weighted average diluted shares outstanding
474.1

 

 
474.1

 
478.0

 
Six Months Ended June 30,
(in US$ millions, except per share data)
2018
 
2018
 
2018
 
2017
 
New Standard
 
Total Adjustments
 
Previous Standards
 
Previous Standards
Net income
$
593.0

 
$
8.9

 
$
601.9

 
$
410.1

Income tax expense(6)
60.4

 
3.2

 
63.6

 
80.7

Income before income taxes
653.4

 
12.1

 
665.5

 
490.8

Adjustments:
 
 
 
 
 
 
 
Franchise agreement amortization
15.6

 

 
15.6

 
14.5

Amortization of deferred financing costs and debt issuance discount
14.5

 

 
14.5

 
16.7

Interest expense and loss on extinguished debt(7)
5.5

 

 
5.5

 
26.6

PLK Transaction costs(2)
9.7

 

 
9.7

 
42.9

Corporate restructuring and tax advisory fees(3)
13.5

 

 
13.5

 

Office centralization and relocation costs(4)
12.4

 

 
12.4

 

Impact of equity method investments(5)
(5.6
)
 
(3.6
)
 
(9.2
)
 
1.2

Other operating expenses (income), net
(16.7
)
 

 
(16.7
)
 
60.6

Total adjustments
48.9

 
(3.6
)
 
45.3

 
162.5

Adjusted income before income taxes
702.3

 
8.5

 
710.8

 
653.3

Adjusted income tax (benefit) expense(6)(8)
75.8

 
3.2

 
79.0

 
106.0

Adjusted net income before preferred share dividends
626.5

 
5.3

 
631.8

 
547.3

Preferred share dividends

 

 

 
135.0

Adjusted net income
$
626.5

 
$
5.3

 
$
631.8

 
$
412.3

Adjusted diluted earnings per share
$
1.32

 
$
0.01

 
$
1.33

 
$
0.86

Weighted average diluted shares outstanding
474.0

 

 
473.7

 
477.3


16




Non-GAAP Financial Measures
Footnotes to Reconciliation Tables
 
(1)
Represents share-based compensation expense associated with equity awards for the periods indicated; also includes the portion of annual non-cash incentive compensation expense that eligible employees elected to receive or are expected to elect to receive as common equity in lieu of their 2017 and 2018 cash bonus, respectively.

(2)
In connection with the acquisition of Popeyes Louisiana Kitchen, Inc., we incurred certain non-recurring selling, general and administrative expenses primarily consisting of professional fees and compensation related expenses. We do not expect to incur additional PLK Transaction costs in 2018.

(3)
Costs arising primarily from professional advisory and consulting services associated with corporate restructuring initiatives related to the interpretation and implementation of the Tax Cuts and Jobs Act, which was enacted on December 22, 2017.

(4)
In connection with the centralization and relocation of our Canadian and U.S. restaurant support centers to new offices in Toronto, Ontario, and Miami, Florida, respectively, we incurred certain non-operational expenses consisting primarily of duplicate rent expense, moving costs, and relocation-driven compensation expenses.

(5)
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.

(6)
As a result of the accounting standard related to the tax impact of equity based compensation, our effective tax rate was reduced by 0.6% and 2.9% for the three months ended June 30, 2018 and 2017, respectively, and our adjusted effective tax rate was reduced by 0.6% and 2.3% for the three months ended June 30, 2018 and 2017, respectively. As a result of the accounting standard related to the tax impact of equity based compensation, our effective tax rate was reduced by 10.1% and 3.3% for the six months ended June 30, 2018 and 2017, respectively, and our adjusted effective tax rate was reduced by 9.4% and 2.5% for the six months ended June 30, 2018 and 2017, respectively.

(7)
Represents loss on early extinguishment of debt and non-cash interest expense related to losses reclassified from accumulated other comprehensive income (loss) into interest expense in connection with interest rate swaps settled in May 2015.

(8)
Adjusted income tax expense includes the tax impact of the non-GAAP adjustments and is calculated using our statutory tax rate in the jurisdiction in which the costs were incurred.




17

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