Restaurant Brands International Inc 10-Q for FY2020 Q1

Restaurant Brands International Inc. (QSR)

10-Q 2020-05-01 For: 2020-03-31

Added on April 12, 2026

About this 10-Q

Restaurant Brands International Inc filed this 10-Q on May 1, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.23B; down 3.2% from $1.27B a year earlier
Net income: $224M; down 8.9% from net income of $246M a year earlier
Diluted EPS: $0.48; down 9.4% from $0.53 a year earlier

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Canada		98-1202754
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

130 King Street West, Suite 300		M5X 1E1
Toronto,	Ontario
(Address of Principal Executive Offices)		(Zip Code)



Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbols	Name of each exchange on which registered
Common Shares, without par value	QSR	New York Stock Exchange
		Toronto Stock Exchange




Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐




		Page

PART I – Financial Information
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35

PART II – Other Information
Item 1A.	Risk Factors	37
Item 5.	Other Information	38
Item 6.	Exhibits	39
	Signatures	40



	As of
	March 31, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	2,498		$	1,533
Accounts and notes receivable, net of allowance of $16 and $13, respectively	414			527
Inventories, net	85			84
Prepaids and other current assets	62			52
Total current assets	3,059			2,196
Property and equipment, net of accumulated depreciation and amortization of $751 and $746, respectively	1,939			2,007
Operating lease assets, net	1,115			1,176
Intangible assets, net	10,085			10,563
Goodwill	5,376			5,651
Net investment in property leased to franchisees	49			48
Other assets, net	1,006			719
Total assets	$	22,629		$	22,360
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts and drafts payable	$	484		$	644
Other accrued liabilities	779			790
Gift card liability	106			168
Current portion of long term-debt and finance leases	103			101
Total current liabilities	1,472			1,703
Long-term debt, net of current portion	12,822			11,759
Finance leases, net of current portion	283			288
Operating lease liabilities, net of current portion	1,039			1,089
Other liabilities, net	1,774			1,698
Deferred income taxes, net	1,487			1,564
Total liabilities	18,877			18,101
Shareholders’ equity:
Common shares, no par value; unlimited shares authorized at March 31, 2020 and December 31, 2019; 299,767,716 shares issued and outstanding at March 31, 2020; 298,281,081 shares issued and outstanding at December 31, 2019	2,537			2,478
Retained earnings	761			775
Accumulated other comprehensive income (loss)	(1,113		)	(763		)
Total Restaurant Brands International Inc. shareholders’ equity	2,185			2,490
Noncontrolling interests	1,567			1,769
Total shareholders’ equity	3,752			4,259
Total liabilities and shareholders’ equity	$	22,629		$	22,360



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	Three Months Ended March 31,
	2020			2019
Revenues:
Sales	$	503		$	522
Franchise and property revenues	722			744
Total revenues	1,225			1,266
Operating costs and expenses:
Cost of sales	399			406
Franchise and property expenses	126			133
Selling, general and administrative expenses	325			312
(Income) loss from equity method investments	2			(2		)
Other operating expenses (income), net	(16		)	(17		)
Total operating costs and expenses	836			832
Income from operations	389			434
Interest expense, net	119			132
Income before income taxes	270			302
Income tax expense	46			56
Net income	224			246
Net income attributable to noncontrolling interests (Note 12)	80			111
Net income attributable to common shareholders	$	144		$	135
Earnings per common share
Basic	$	0.48		$	0.53
Diluted	$	0.48		$	0.53
Weighted average shares outstanding
Basic	299			252
Diluted	469			467



	Issued Common Shares			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Total
	Shares	Amount		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Total
Balances at December 31, 2019	298,281,081	$	2,478	$	775		(763		)	$	1,769		$	4,259
Stock option exercises	1,053,264	30		—			—			—			30
Share-based compensation	—	19		—			—			—			19
Issuance of shares	255,325	6		—			—			—			6
Dividends declared ($0.52 per share)	—	—		(156		)	—			—			(156		)
Dividend equivalents declared on restricted stock units	—	2		(2		)	—			—			—
Distributions declared by Partnership on Partnership exchangeable units ($0.52 per unit)	—	—		—			—			(86		)	(86		)
Exchange of Partnership exchangeable units for RBI common shares	178,046	2		—			—			(2		)	—
Restaurant VIE contributions (distributions)	—	—		—			—			(1		)	(1		)
Net income	—	—		144			—			80			224
Other comprehensive income (loss)	—	—		—			(350		)	(193		)	(543		)
Balances at March 31, 2020	299,767,716	$	2,537	$	761		$	(1,113	)	$	1,567		$	3,752



	Three Months Ended March 31,
	2020			2019
Cash flows from operating activities:
Net income	$	224		$	246
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	45			47
Amortization of deferred financing costs and debt issuance discount	6			7
(Income) loss from equity method investments	2			(2		)
(Gain) loss on remeasurement of foreign denominated transactions	(8		)	(15		)
Net (gains) losses on derivatives	(6		)	(20		)
Share-based compensation expense	19			22
Deferred income taxes	(31		)	38
Other	(4		)	3
Changes in current assets and liabilities, excluding acquisitions and dispositions:
Accounts and notes receivable	94			14
Inventories and prepaids and other current assets	(13		)	(13		)
Accounts and drafts payable	(136		)	(69		)
Other accrued liabilities and gift card liability	(67		)	(126		)
Tenant inducements paid to franchisees	(3		)	—
Other long-term assets and liabilities	14			22
Net cash provided by operating activities	136			154
Cash flows from investing activities:
Payments for property and equipment	(19		)	(5		)
Net proceeds from disposal of assets, restaurant closures, and refranchisings	4			4
Settlement/sale of derivatives, net	12			11
Other investing activities, net	—			1
Net cash (used for) provided by investing activities	(3		)	11
Cash flows from financing activities:
Proceeds from revolving line of credit and long-term debt	1,085			—
Repayments of long-term debt and finance leases	(25		)	(23		)
Payment of dividends on common shares and distributions on Partnership exchangeable units	(232		)	(207		)
Proceeds from stock option exercises	30			42
(Payments) proceeds from derivatives	(2		)	5
Other financing activities, net	(1		)	1
Net cash provided by (used for) financing activities	855			(182		)
Effect of exchange rates on cash and cash equivalents	(23		)	6
Increase (decrease) in cash and cash equivalents	965			(11		)
Cash and cash equivalents at beginning of period	1,533			913
Cash and cash equivalents at end of period	$	2,498		$	902
Supplemental cash flow disclosures:
Interest paid	$	104		$	140
Income taxes paid	$	48		$	45



	Three months ended March 31, 2020		Three months ended March 31, 2019
Lease income - operating leases
Minimum lease payments	$	112	$	111
Variable lease payments	63		84
Amortization of favorable and unfavorable income lease contracts, net	2		2
Subtotal - lease income from operating leases	177		197
Earned income on direct financing leases	1		2
Total property revenues	$	178	$	199



Contract Liabilities	TH			BK			PLK			Consolidated
Balance at December 31, 2019	$	64		$	449		$	28		$	541
Recognized during period and included in the contract liability balance at the beginning of the year	(2		)	(30		)	(1		)	(33		)
Increase, excluding amounts recognized as revenue during the period	2			6			3			11
Impact of foreign currency translation	(3		)	(4		)	—			(7		)
Balance at March 31, 2020	$	61		$	421		$	30		$	512



Contract liabilities expected to be recognized in	TH		BK		PLK		Consolidated
Remainder of 2020	$	6	$	26	$	2	$	34
2021	8		33		2		43
2022	7		32		2		41
2023	7		31		2		40
2024	6		30		2		38
Thereafter	27		269		20		316
Total	$	61	$	421	$	30	$	512



	As of
	March 31, 2020							December 31, 2019
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Identifiable assets subject to amortization:
Franchise agreements	$	706	$	(230	)	$	476	$	720	$	(225	)	$	495
Favorable leases	119		(62		)	57		127		(65		)	62
Subtotal	825		(292		)	533		847		(290		)	557
Indefinite lived intangible assets:
Tim Hortons brand	$	6,090	$	—		$	6,090	$	6,534	$	—		$	6,534
Burger King brand	2,107		—			2,107		2,117		—			2,117
Popeyes brand	1,355		—			1,355		1,355		—			1,355
Subtotal	9,552		—			9,552		10,006		—			10,006
Intangible assets, net						$	10,085						$	10,563

Goodwill
Tim Hortons segment	$	3,935						$	4,207
Burger King segment	595							598
Popeyes segment	846							846
Total	$	5,376						$	5,651


(a)	Amount includes $21 million and $18 million benefit during the three months ended March 31, 2020 and 2019, respectively, related to the amortization of the Excluded Component as defined in Note 13, Derivatives.



	As of
	March 31, 2020			December 31, 2019
Term Loan B (due November 19, 2026)	$	5,337		$	5,350
Term Loan A (due October 7, 2024)	745			750
Revolving Credit Facility (due October 7, 2024)	995			—
2017 4.25% Senior Notes (due May 15, 2024)	1,500			1,500
2019 3.875% Senior Notes (due January 15, 2028)	750			750
2017 5.00% Senior Notes (due October 15, 2025)	2,800			2,800
2019 4.375% Senior Notes (due January 15, 2028)	750			750
TH Facility and other	163			81
Less: unamortized deferred financing costs and deferred issue discount	(142		)	(148		)
Total debt, net	12,898			11,833
Less: current maturities of debt	(76		)	(74		)
Total long-term debt	$	12,822		$	11,759



	As of
	March 31, 2020		December 31, 2019
Fair value of our variable term debt and senior notes	$	12,148	$	12,075
Principal carrying amount of our variable term debt and senior notes	12,877		11,900



	Gain or (Loss) Recognized in Other Comprehensive Income (Loss)
	Three Months Ended March 31,
	2020			2019
Derivatives designated as cash flow hedges⁽¹⁾
Interest rate swaps	$	(300	)	$	(44	)
Forward-currency contracts	$	7		$	(2	)
Derivatives designated as net investment hedges
Cross-currency rate swaps	$	517		$	(102	)


(1)	We did not exclude any components from the cash flow hedge relationships presented in this table.



	Derivatives			Pensions			Foreign Currency Translation			Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2019	$	199		$	(19	)	$	(943	)	$	(763	)
Foreign currency translation adjustment	—			—			(751		)	(751		)
Net change in fair value of derivatives, net of tax	197			—			—			197
Amounts reclassified to earnings of cash flow hedges, net of tax	11			—			—			11
Amounts attributable to noncontrolling interests	(74		)	—			267			193
Balance at March 31, 2020	$	333		$	(19	)	$	(1,427	)	$	(1,113	)



	Location of Gain or (Loss) Reclassified from AOCI into Earnings	Gain or (Loss) Reclassified from AOCI into Earnings
		Three Months Ended March 31,
		2020			2019
Derivatives designated as cash flow hedges
Interest rate swaps	Interest expense, net	$	(15	)	$	(1	)
Forward-currency contracts	Cost of sales	$	—		$	2

	Location of Gain or (Loss) Recognized in Earnings	Gain or (Loss) Recognized in Earnings (Amount Excluded from Effectiveness Testing)
	Location of Gain or (Loss) Recognized in Earnings	Three Months Ended March 31,
		2020			2019
Derivatives designated as net investment hedges
Cross-currency rate swaps	Interest expense, net	$	21		$	18



	Fair Value as of
	March 31, 2020		December 31, 2019		Balance Sheet Location
Assets:
Derivatives designated as cash flow hedges
Interest rate	$	—	$	7	Other assets, net
Foreign currency	$	5	$	—	Prepaids and other current assets
Derivatives designated as net investment hedges
Foreign currency	377		22		Other assets, net
Total assets at fair value	$	382	$	29

Liabilities:
Derivatives designated as cash flow hedges
Interest rate	$	461	$	175	Other liabilities, net
Foreign currency	—		2		Other accrued liabilities
Derivatives designated as net investment hedges
Foreign currency	—		166		Other liabilities, net
Total liabilities at fair value	$	461	$	343


(a)	Only Canada and the United States represented 10% or more of our total revenues in each period presented.


(a)	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.


•	System-wide sales growth refers to the percentage change in sales at all franchise restaurants and Company restaurants (referred to as system-wide sales) 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. Additionally, if a restaurant is closed for a significant portion of a month, the restaurant is excluded from the monthly comparable sales calculation.


•	System-wide sales growth and comparable sales are measured on a constant currency basis, which means the results exclude the effect of foreign currency translation (“FX Impact”). For system-wide sales growth and comparable sales, we calculate the FX Impact by translating prior year results at current year monthly average exchange rates.


•	Net restaurant growth refers to the net increase in restaurant count (openings, net of permanent closures) over a trailing twelve month period, divided by the restaurant count at the beginning of the trailing twelve month period.



Consolidated	Three Months Ended March 31,						Variance			FX Impact (a)			Variance Excluding FX Impact
	2020			2019			Favorable / (Unfavorable)
Revenues:
Sales	$	503		$	522		$	(19	)	$	(5	)	$	(14	)
Franchise and property revenues	722			744			(22		)	(9		)	(13		)
Total revenues	1,225			1,266			(41		)	(14		)	(27		)
Operating costs and expenses:
Cost of sales	399			406			7			4			3
Franchise and property expenses	126			133			7			1			6
Selling, general and administrative expenses	325			312			(13		)	2			(15		)
(Income) loss from equity method investments	2			(2		)	(4		)	(1		)	(3		)
Other operating expenses (income), net	(16		)	(17		)	(1		)	(1		)	—
Total operating costs and expenses	836			832			(4		)	5			(9		)
Income from operations	389			434			(45		)	(9		)	(36		)
Interest expense, net	119			132			13			—			13
Income before income taxes	270			302			(32		)	(9		)	(23		)
Income tax expense	46			56			10			—			10
Net income	$	224		$	246		$	(22	)	$	(9	)	$	(13	)


(a)	We calculate the FX Impact by translating prior year results at current year monthly average exchange rates. We analyze these results on a constant currency basis as this helps identify underlying business trends, without distortion from the effects of currency movements.



TH Segment	Three Months Ended March 31,				Variance			FX Impact (a)			Variance Excluding FX Impact
	2020		2019		Favorable / (Unfavorable)
Revenues:
Sales	$	465	$	483	$	(18	)	$	(5	)	$	(13	)
Franchise and property revenues	234		266		(32		)	(2		)	(30		)
Total revenues	699		749		(50		)	(7		)	(43		)
Cost of sales	366		372		6			4			2
Franchise and property expenses	84		87		3			1			2
Segment SG&A	87		82		(5		)	1			(6		)
Segment depreciation and amortization (b)	26		26		—			—			—
Segment income (c)	189		237		(48		)	(2		)	(46		)


(b)	Segment depreciation and amortization consists of depreciation and amortization included in cost of sales and franchise and property expenses.


(c)	TH segment income includes $2 million and $3 million of cash distributions received from equity method investments for the three months ended March 31, 2020 and 2019, respectively.



BK Segment	Three Months Ended March 31,				Variance			FX Impact (a)			Variance Excluding FX Impact
	2020		2019		Favorable / (Unfavorable)
Revenues:
Sales	$	17	$	19	$	(2	)	$	—		$	(2	)
Franchise and property revenues	371		392		(21		)	(7		)	(14		)
Total revenues	388		411		(23		)	(7		)	(16		)
Cost of sales	17		18		1			—			1
Franchise and property expenses	39		43		4			—			4
Segment SG&A	145		141		(4		)	1			(5		)
Segment depreciation and amortization (b)	12		13		1			—			1
Segment income (d)	200		222		(22		)	(6		)	(16		)


(d)	BK segment income includes $1 million of cash distributions received from equity method investments for the three months ended March 31, 2019. No significant amounts were received for the three months ended March 31, 2020.



PLK Segment	Three Months Ended March 31,				Variance			FX Impact (a)		Variance Excluding FX Impact
	2020		2019		Favorable / (Unfavorable)
Revenues:
Sales	$	21	$	20	$	1		$	—	$	1
Franchise and property revenues	117		86		31			—		31
Total revenues	138		106		32			—		32
Cost of sales	16		16		—			—		—
Franchise and property expenses	3		3		—			—		—
Segment SG&A	66		49		(17		)	—		(17		)
Segment depreciation and amortization (b)	2		3		1			—		1
Segment income	55		41		14			—		14



	Three Months Ended March 31,
Key Business Metrics	2020			2019
System-wide sales growth
TH	(9.9		)%	0.5		%
BK	(3.0		)%	8.2		%
PLK	32.3		%	6.8		%
Consolidated	0.0		%	6.4		%
System-wide sales
TH	$	1,382		$	1,547
BK	$	4,999		$	5,289
PLK	$	1,258		$	955
Consolidated	$	7,639		$	7,791
Comparable sales
TH	(10.3		)%	(0.6		)%
BK	(3.7		)%	2.2		%
PLK	26.2		%	0.6		%

	As of March 31,
	2020			2019
Net restaurant growth
TH	1.2		%	1.9		%
BK	5.8		%	5.7		%
PLK	6.9		%	6.6		%
Consolidated	5.0		%	5.1		%
Restaurant count
TH	4,925			4,866
BK	18,848			17,823
PLK	3,336			3,120
Consolidated	27,109			25,809



			Payment Due by Period as of April 7, 2020
Contractual Obligations	Total as of March 31, 2020		Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
			(In millions)
Credit Facilities, including interest (a)	$	8,203	$	8,203	$	259	$	522	$	2,124	$	5,298
Senior Notes, including interest (b)	7,320		7,965		294		589		2,033		5,049
Other long term debt	186		186		9		24		36		117


(a)	We have estimated our interest payments through the maturity of our Credit Facilities based on LIBOR as of March 31, 2020.