01—Abstract
Summary
Summary of the 10-K filed February 22, 2019. Cited figures are marked; the original filing is the authoritative source.
Restaurant Brands International Inc. (QSR) reported fiscal 2018 results in its 10-K filed February 22, 2019.
The company is a Canadian corporation operating three brands, Tim Hortons, Burger King and Popeyes, with more than $30 billiona in system-wide sales and 25,744 restaurants in more than 100 countries and U.S. territories as of December 31, 2018. Approximately 100% of restaurants for each brand are franchised. Total revenues rose to $5,357 million in 2018 from $4,576 million in 2017, driven largely by the full-year inclusion of Popeyes and the adoption of ASC 606.
Net income was $1,144 millionb compared with $1,235 million in 2017, a decline the filing attributes mainly to a $372 million increase in income tax expense and higher interest and restructuring costs. Adjusted EBITDA was $2,212 million, up from $2,146 million, and cash provided by operating activities was $1,165 million. The balance sheet carries substantial leverage.
Total indebtedness was $12,038 millionc at December 31, 2018, including a $6,338 million senior secured term loan, $2,750 million of first lien notes and $2,800 million of second lien notes, against cash and cash equivalents of $913 million. The company paid $0.45 per share in January 2019 and declared $0.50 per share for the first quarter of 2019, targeting $2.00 in total declared dividends for 2019. Share repurchases of Partnership exchangeable units totaled approximately $561 million in 2018.
The filing also highlights ongoing risks, including franchisee-related exposure, international master franchise execution, U.S. tax reform effects and pending class action lawsuits alleging that Burger King's franchise agreements contain an unlawful no-hiring clause. 3G RBH holds approximately 41%d of the combined voting power. The company stated that it believes the claims are without merit but cannot predict the outcome.
02—Key points
Key Highlights
- Total revenues of $5,357 million in 2018, up from $4,576 million in 2017; sales were $2,355 million and franchise and property revenues were $3,002 million.
- Net income of $1,144 million in 2018 versus $1,235 million in 2017; diluted EPS was $2.42 versus $2.54.
- Adjusted EBITDA of $2,212 million in 2018 versus $2,146 million in 2017, with segment income of $1,127 million for TH, $928 million for BK and $157 million for PLK.
- Total indebtedness of $12,038 million at December 31, 2018, with cash and cash equivalents of $913 million and $480 million of revolver availability.
- Restaurant system of 25,744 locations, including 4,846 Tim Hortons, 17,796 Burger King and 3,102 Popeyes restaurants, approximately 100% franchised.
- Quarterly dividend of $0.50 per common share declared for Q1 2019, with a 2019 target of $2.00 in total declared dividends per share.
- Adoption of ASC 606 on January 1, 2018 changed revenue presentation, including gross advertising fund reporting, and was recorded as a $250 million cumulative effect to equity.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Restaurant Brands International kept $0.11.
- Revenue$5.36B100.0%
- Cost of revenue−$1.82B33.9%
- Gross profit$3.54B66.1%
- Operating costs−$1.62B30.3%
- Operating income$1.92B35.8%
- Interest, other & tax−$1.30B24.4%
- Net income$612.0M11.4%
Where FY2018 revenue went
$5.36B- Cost of revenue: $1.82B, 34% of revenue
- Interest, other & tax: $1.30B, 24% of revenue
- SG&A: $1.21B, 23% of revenue
- Net income: $612.0M, 11% of revenue
- Other operating costs: $408.0M, 7.6% of revenue
Kept 11% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 22, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $5.36B$4.58B | +17.1% |
| Cost of Revenue | $1.82B$1.85B | −1.7% |
| Gross Profit | $3.54B$2.73B | +29.8% |
| SG&A Expenses | $1.21B$416.00M | +191.8% |
| Operating Expenses | $3.44B$2.84B | +21.1% |
| Operating Income | $1.92B$1.74B | +10.5% |
| Net Income | $612.00M$626.00M | −2.2% |
| EPS (Basic) | $2.46$2.64 | −6.8% |
| EPS (Diluted) | $2.42$2.54 | −4.7% |
| Shares Outstanding (Basic) | 249.00M237.00M | +5.1% |
| Shares Outstanding (Diluted) | 473.00M477.00M | −0.8% |
05—Questions
Frequently Asked Questions
How did revenue and profitability change in 2018?
Total revenues rose to $5,357 million from $4,576 million, reflecting a full year of Popeyes and the ASC 606 presentation change. Net income declined to $1,144 million from $1,235 million, mainly because income tax expense rose by $372 million and selling, general and administrative expenses increased, including advertising fund expenses now reported gross.
How leveraged is the company?
Aggregate outstanding indebtedness was $12,038 million at December 31, 2018, including a $6,338 million senior secured term loan, $2,750 million of first lien senior secured notes and $2,800 million of second lien senior secured notes. The filing states that substantially all consolidated assets are restricted under the debt agreements.
What dividends does the company pay and what is the target for 2019?
The company paid $0.45 per common share on January 4, 2019 and declared $0.50 per common share for the first quarter of 2019, payable April 3, 2019. It is targeting $2.00 in total declared dividends per common share and Partnership exchangeable unit for 2019, though the filing states there is no assurance this will be achieved.
What legal risks does the filing disclose?
The filing discloses several proceedings, including Canadian class actions by Tim Hortons franchisees over the advertising fund and franchisee association treatment, and four class action complaints filed in October and November 2018 alleging that the Burger King franchise agreement's no-solicitation and no-hiring clause violates Section 1 of the Sherman Act. Management believes these claims are without merit but cannot predict the outcome.
Who controls the company's voting power?
3G RBH owns approximately 41% of the combined voting power with respect to the Company, and the filing states its interests may differ from those of other shareholders. This concentration could also delay or prevent a change in control.
06—Continue