01—Abstract
Summary
Summary of the 10-K filed February 21, 2020. Cited figures are marked; the original filing is the authoritative source.
Restaurant Brands International Inc. (QSR) reported that it is one of the world's largest quick service restaurant companies, with more than $34 billiona in system-wide sales and over 27,000 restaurants in more than 100 countries and U.S. territories as of December 31, 2019.
Approximately 100% of its restaurants are franchised across its Tim Hortons, Burger King and Popeyes brands. Consolidated revenues rose to $5.60 billionb in 2019 from $5.36 billion in 2018, while income from operations increased to $2.01 billion from $1.92 billion. Net income was $1.11 billion in 2019 compared with $1.14 billion in 2018, with the decline primarily attributed to a $103 million increase in income tax expense and a $23 million loss on early extinguishment of debt.
Adjusted EBITDA rose to $2.30 billionc from $2.21 billion, driven by Burger King and Popeyes segment income, partially offset by lower Tim Hortons segment income. Balance sheet and cash flow data show cash and cash equivalents of $1.53 billion at year-end and total debt and finance lease obligations of $12.15 billion, with $11.98 billion of indebtedness outstanding. Net cash from operating activities was $1.48 billion in 2019, compared with $1.17 billion in 2018.
The company reported an unrecognized tax benefit of $506 milliond and faces class action lawsuits related to no-solicitation and no-hiring clauses in franchise agreements, which management believes are without merit. The company declared a $0.52 per share dividend for the first quarter of 2020 and is targeting $2.08 in declared dividends per share for 2020.
02—Key points
Key Highlights
- System-wide sales of more than $34 billion and over 27,000 restaurants (27,086 as of December 31, 2019) across the Tim Hortons, Burger King and Popeyes brands, with approximately 100% of restaurants franchised.
- Total revenues increased to $5.60 billion in 2019 from $5.36 billion in 2018, and income from operations rose to $2.01 billion from $1.92 billion.
- Net income declined to $1.11 billion in 2019 from $1.14 billion in 2018, primarily due to a $103 million increase in income tax expense and a $23 million loss on early extinguishment of debt.
- Adjusted EBITDA increased to $2.30 billion from $2.21 billion, with Burger King segment income rising to $994 million and Popeyes segment income to $188 million, while Tim Hortons segment income declined to $1.12 billion.
- Consolidated system-wide sales growth was 8.3% in 2019, with Popeyes growing 18.5%, Burger King 9.3%, and Tim Hortons declining 0.3%.
- Total indebtedness of $11.98 billion at year-end, including $6.10 billion of term loan facilities, and the company reported $1.53 billion in cash and cash equivalents.
- Board declared a $0.52 per share dividend for the first quarter of 2020 and is targeting $2.08 in declared dividends per share for 2020.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Restaurant Brands International kept $0.11.
- Revenue$5.60B100.0%
- Cost of revenue−$1.81B32.4%
- Gross profit$3.79B67.6%
- Operating costs−$1.78B31.8%
- Operating income$2.01B35.8%
- Interest, other & tax−$1.36B24.3%
- Net income$643.0M11.5%
Where FY2019 revenue went
$5.60B- Cost of revenue: $1.81B, 32% of revenue
- Interest, other & tax: $1.36B, 24% of revenue
- SG&A: $1.26B, 23% of revenue
- Net income: $643.0M, 11% of revenue
- Other operating costs: $519.0M, 9.3% of revenue
Kept 11% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 21, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $5.60B$5.36B | +4.6% |
| Cost of Revenue | $1.81B$1.82B | −0.3% |
| Gross Profit | $3.79B$3.54B | +7.1% |
| SG&A Expenses | $1.26B$1.21B | +4.1% |
| Operating Expenses | $3.60B$3.44B | +4.5% |
| Operating Income | $2.01B$1.92B | +4.7% |
| Net Income | $643.00M$612.00M | +5.1% |
| EPS (Basic) | $2.40$2.46 | −2.4% |
| EPS (Diluted) | $2.37$2.42 | −2.1% |
| Shares Outstanding (Basic) | 268.00M249.00M | +7.6% |
| Shares Outstanding (Diluted) | 469.00M473.00M | −0.8% |
05—Questions
Frequently Asked Questions
How did the company's core profitability change in 2019?
Income from operations rose to $2,007 million in 2019 from $1,917 million in 2018, and Adjusted EBITDA rose to $2,304 million from $2,212 million. The increases were driven by higher Burger King and Popeyes segment income, partially offset by lower Tim Hortons segment income of $1,122 million, down from $1,127 million.
Why did net income decline in 2019 despite higher operating income?
Net income fell to $1,111 million from $1,144 million, primarily due to a $103 million increase in income tax expense, a $23 million loss on early extinguishment of debt, and a $19 million increase in share-based compensation and non-cash incentive compensation expense.
How much debt does the company carry and how is it structured?
As of December 31, 2019, aggregate outstanding indebtedness was $11,981 million, including $6,100 million of senior secured term loan facilities, $2,250 million of senior secured first lien notes and $3,550 million of senior secured second lien notes. Management stated it was in compliance with applicable debt covenants at year-end.
What legal risks does the company disclose?
The company disclosed class action complaints in the U.S. alleging that a no-solicitation and no-hiring clause in Burger King franchise agreements violated the Sherman Act, and a class action in Canada alleging a similar clause in Tim Hortons franchise agreements violated the Canadian Competition Act. Management believes these claims are without merit but cannot predict the outcome or estimate a range of possible loss.
What dividend commitments did the company make for 2020?
On February 10, 2020, the board declared a cash dividend of $0.52 per common share for the first quarter of 2020, payable April 3, 2020. The company is targeting a total of $2.08 in declared dividends per common share and Partnership exchangeable unit for 2020.
06—Continue