Restaurant Brands International Reports Third Quarter 2015 Results

Consolidated Operational Highlights

Three Months Ended September 30,

2015

2014

(unaudited)

Comparable Sales Growth⁽¹⁾

TH ⁽²⁾

5.3%

3.8%

BK

6.2%

2.4%

System Net Restaurant Growth (NRG)

TH ⁽²⁾

69

44

BK

141

152

System-wide Sales Growth⁽¹⁾

TH ⁽²⁾

8.2%

7.5%

BK

11.2%

7.7%

System-wide Sales ⁽³⁾ (in US$ millions)

TH ⁽²⁾

$

1,600.0

$

1,741.3

BK

$

4,520.6

$

4,448.3

(1)

Comparable sales growth and system-wide sales growth are calculated on a constant currency basis and include sales at franchise restaurants and company-owned restaurants.

(2)

TH 2014 third quarter figures are shown for informational purposes only. 

(3)

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 revenue; however, our franchise revenues include royalties based on a percentage of franchise sales.

Consolidated Financial Highlights

Three Months Ended September 30,

(in US$ millions, except per share data)

2015

2014

2014 PF ⁽⁶⁾

(unaudited)

RBI Total Revenues

$

1,019.7

$

278.9

$

1,113.0

RBI Net Income (Loss) Attributable to

Common Shareholders

$

49.6

$

(23.5)

$

46.1

RBI Diluted Earnings (Loss) per Share

Attributable to Common Shareholders

$

0.24

$

(0.07)

$

0.23

TH Adjusted EBITDA ⁽⁴⁾

$

244.0

 n/a 

$

219.9

BK Adjusted EBITDA ⁽⁴⁾

$

196.7

$

194.4

$

194.4

RBI Adjusted EBITDA ⁽⁵⁾

$

440.7

$

194.4

$

414.3

RBI Adjusted Net Income (Loss) Attributable

to Common Shareholders ⁽⁵⁾

$

162.7

$

99.7

$

128.3

RBI Adjusted Diluted Earnings (Loss) per Share

Attributable to Common Shareholders ⁽⁵⁾

$

0.34

$

0.28

$

0.27

(4)

TH Adjusted EBITDA and BK Adjusted EBITDA are our measures of segment profitability.

(5)

RBI Adjusted EBITDA, RBI Adjusted Net Income (Loss), and RBI Adjusted Diluted Earnings (Loss) per Share are non-GAAP financial measures. Please refer to "Non-GAAP Financial Measures" for further detail.

(6)

Please refer to RBI's Form 8-K filed on April 27, 2015 with pro forma financial information for RBI, TH and BK.

TH Segment Results ⁽²⁾

Three Months Ended September 30,

(in US$ millions, except per share data)

2015

2014

2014 PF ⁽⁶⁾

(unaudited)

Comparable Sales Growth ⁽¹⁾

5.3%

3.8%

3.8%

System-wide Sales Growth ⁽¹⁾

8.2%

7.5%

7.5%

System-wide Sales ⁽³⁾

$

1,600.0

$

1,741.3

$

1,741.3

System Net Restaurant Growth (NRG)

69

44

44

System Restaurant Count at Period End

4,845

4,590

4,590

Sales

$

522.1

n/a

$

583.1

Franchise and Property Revenues

$

215.6

n/a

$

251.0

TH Total Revenues

$

737.7

n/a

$

834.1

Cost of Sales

$

426.7

 n/a 

$

497.3

Franchise & Property Expenses

$

79.2

 n/a 

$

109.9

Segment SG&A ⁽⁷⁾

$

18.5

 n/a 

$

43.1

Segment depreciation and amortization ⁽⁸⁾

$

27.3

 n/a 

$

32.7

TH Adjusted EBITDA ⁽⁴⁾⁽⁹⁾

$

244.0

 n/a 

$

219.9

(7)

Segment selling, general and administrative expenses consists of segment selling expenses and segment management general and administrative expenses.

(8)

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

(9)

TH Adjusted EBITDA for the three months ended September 30, 2015 excludes $(0.3) million of acquisition accounting impact on cost of sales and includes $3.7 million of cash distributions received from equity method investments. TH pro forma Adjusted EBITDA for the three months ended September 30, 2014 includes $3.1 million of cash distributions received from equity method investments.

BK Segment Results

Three Months Ended September 30,

(in US$ millions, except per share data)

2015

2014

(unaudited)

Comparable Sales Growth ⁽¹⁾

6.2%

2.4%

System-wide Sales Growth ⁽¹⁾

11.2%

7.7%

System-wide Sales⁽³⁾

$

4,520.6

$

4,448.3

System Net Restaurant Growth (NRG)

141

152

System Restaurant Count at Period End

14,669

13,960

Sales

$

23.8

$

18.9

Franchise and Property Revenues

$

258.2

$

260.0

BK Total Revenues

$

282.0

$

278.9

Cost of Sales

$

19.9

$

16.5

Franchise & Property Expenses

$

35.2

$

41.4

Segment SG&A ⁽⁷⁾

$

42.0

$

39.6

Segment depreciation and amortization ⁽⁸⁾

$

11.8

$

13.0

BK Adjusted EBITDA ⁽⁴⁾

$

196.7

$

194.4

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 September 30,

2015

2014

2014 PF

Revenues:

Sales

$

545.9

$

18.9

$

602.0

Franchise and property revenues

473.8

260.0

511.0

Total revenues

1,019.7

278.9

1,113.0

Cost of sales

446.6

16.5

513.8

Franchise and property expenses

114.4

41.4

151.3

Selling, general and administrative expenses 

104.3

78.3

93.1

(Income) loss from equity method investments

1.0

(4.1)

(7.8)

Other operating expenses (income), net 

9.4

145.9

(0.8)

Total operating costs and expenses

675.7

278.0

749.6

Income from operations

344.0

0.9

363.4

Interest expense, net

116.0

51.3

126.6

(Gain) loss on early extinguishment of debt

0.4

-

-

Income (loss) before income taxes

227.6

(50.4)

236.8

Income tax expense (benefit)

44.7

(26.9)

69.1

Net income (loss)

182.9

(23.5)

167.7

Net income attributable to noncontrolling interests

65.8

-

54.1

Preferred share dividends

67.5

-

67.5

Net income (loss) attributable to common shareholders

$

49.6

$

(23.5)

$

46.1

Earnings (loss) per common share:

Basic

$

0.25

$

(0.07)

$

0.23

Diluted

$

0.24

$

(0.07)

$

0.23

Weighted average shares outstanding

Basic

202.4

352.0

202.1

Diluted

476.5

352.0

476.1

Cash dividends declared per common share

$

0.12

$

0.08

Memo: Basic earnings (loss) per common share is determined by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding during the period. For the three months ended September 30, 2015, diluted EPS of $0.24 per share assumes $114.5 million net income (loss) available to common shareholders and noncontrolling interests related to the Class B exchangeable limited partnership units of RBI LP ("Partnership exchangeable units") and assumes conversion of Partnership exchangeable units to RBI common shares. The diluted earnings (loss) per share calculation assumes conversion of 100% of the Partnership exchangeable units under the "if converted" method.

RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In millions of U.S. dollars, except per share data)

(Unaudited)

Nine Months Ended September 30,

2015

2014

2014 PF

Revenues:

Sales

$

1,613.2

$

55.7

$

1,692.3

Franchise and property revenues

1,382.0

725.3

1,415.3

Total revenues

2,995.2

781.0

3,107.6

Cost of sales

1,354.6

47.7

1,451.3

Franchise and property expenses

365.2

114.5

410.1

Selling, general and administrative expenses 

317.3

173.5

274.9

(Income) loss from equity method investments

5.7

5.8

(4.5)

Other operating expenses (income), net 

82.2

155.8

13.0

Total operating costs and expenses

2,125.0

497.3

2,144.8

Income from operations

870.2

283.7

962.8

Interest expense, net

362.3

151.9

378.3

(Gain) loss on early extinguishment of debt

40.0

-

-

Income (loss) before income taxes

467.9

131.8

584.5

Income tax expense

140.7

19.8

172.1

Net income

327.2

112.0

412.4

Net income (loss) attributable to noncontrolling interests

71.3

-

(199.4)

Preferred share dividends

203.7

-

202.5

Accretion of preferred shares to redemption value

-

-

546.4

Net income (loss) attributable to common shareholders

$

52.2

$

112.0

$

(137.1)

Earnings (loss) per common share:

Basic

$

0.26

$

0.32

$

(0.68)

Diluted

$

0.25

$

0.31

$

(0.68)

Weighted average shares outstanding

Basic

202.3

351.9

202.1

Diluted

476.4

359.2

476.1

Cash dividends declared per common share

$

0.31

$

0.22

Memo: Basic earnings (loss) per common share is determined by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding during the period. For the nine months ended September 30, 2015, diluted EPS of $0.25 per share assumes $120.6 million net income (loss) available to common shareholders and noncontrolling interests related to the Partnership exchangeable units and assumes conversion of Partnership exchangeable units to RBI common shares. The diluted earnings (loss) per share calculation assumes conversion of 100% of the Partnership exchangeable units under the "if converted" method.

RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets 

(In millions of U.S. dollars, except share data)

(Unaudited)

As of

September 30, 2015

December 31, 2014

ASSETS

Current assets:

Cash and cash equivalents

$

975.5

$

1,803.2

Restricted cash and cash equivalents

-

84.5

Trade and notes receivable, net of allowance of $11.7 million and $20.1 million, respectively

371.5

441.2

Inventories and other current assets, net

154.7

172.3

Advertising fund restricted assets

58.6

53.0

Deferred income taxes, net

81.3

86.6

Total current assets

1,641.6

2,640.8

Property and equipment, net of accumulated depreciation of

$314.5 million and $225.1 million, respectively

2,212.0

2,437.1

Intangible assets, net

9,408.9

10,445.1

Goodwill

4,617.3

5,230.1

Net investment in property leased to franchisees

123.4

140.5

Other assets, net

1,031.5

444.4

Total assets

$

19,034.7

$

21,338.0

LIABILITIES, REDEEMABLE PREFERRED SHARES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts and drafts payable

$

337.5

$

223.0

Accrued advertising

47.4

25.9

Other accrued liabilities

608.6

335.6

Gift card liability

112.6

187.0

Advertising fund liabilities

53.1

45.5

Current portion of long term debt and capital leases

56.5

1,128.8

Total current liabilities

1,215.7

1,945.8

Term debt, net of current portion

8,471.7

8,826.5

Capital leases, net of current portion

207.9

243.7

Other liabilities, net

848.4

707.8

Deferred income taxes, net

1,689.2

1,982.8

Total liabilities

12,432.9

13,706.6

Redeemable preferred shares; $43.775848 par value;
   68,530,939 shares authorized, issued and outstanding at September 30, 2015 and December 31, 2014

3,297.0

3,297.0

Shareholders' Equity:

Common shares; no par value; unlimited shares authorized;

202,411,121 shares issued and outstanding at September 30, 2015;

202,052,741 shares issued and outstanding at December 31, 2014

1,794.6

1,755.0

Retained earnings

220.5

231.0

Accumulated other comprehensive income (loss)

(561.1)

(108.6)

Total Restaurant Brands International Inc. shareholders' equity

1,454.0

1,877.4

Noncontrolling interests

1,850.8

2,457.0

Total shareholders' equity

3,304.8

4,334.4

Total liabilities, redeemable preferred shares and shareholders' equity

$

19,034.7

$

21,338.0

RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows 

(In millions of U.S. dollars)

(Unaudited)

Nine Months Ended September 30,

2015

2014

Cash flows from operating activities:

Net income (loss)

$

327.2

$

112.0

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

137.8

48.7

(Gain) loss on early extinguishment of debt

40.0

Amortization of deferred financing costs and debt issuance discount

25.0

(Income) loss from equity method investments

5.7

5.8

Loss (gain) on remeasurement of foreign denominated transactions

(22.0)

Amortization of defined benefit pension and postretirement items

Net losses (gains) on derivatives

50.1

154.5

Net losses (gains) on refranchisings and dispositions of assets

Bad debt expense (recoveries), net

0.9

0.9

Share-based compensation expense

36.9

Acquisition accounting impact on cost of sales

0.5

Deferred income taxes

(114.8)

(59.1)

Changes in current assets and liabilities, excluding acquisitions and dispositions:

Reclassification of restricted cash to cash and cash equivalents

79.2

-

Trade and notes receivable

35.4

10.0

Inventories and other current assets

(5.1)

10.8

Accounts and drafts payable

138.8

1.8

Accrued advertising

29.8

(22.2)

Other accrued liabilities

172.2

88.0

Other long-term assets and liabilities

(34.5)

(18.2)

Net cash provided by operating activities

950.4

375.6

Cash flows from investing activities:

Payments for property and equipment

(82.9)

(10.7)

Proceeds (payments) from refranchisings, disposition of assets and restaurant closures

16.9

(6.6)

Net payments for acquired and disposed franchisee operations, net of cash acquired

-

(3.9)

Return of investment on direct financing leases

12.1

11.6

Settlement of derivatives, net

11.8

-

Other investing activities, net

2.1

(0.2)

Net cash provided by (used for) investing activities

(40.0)

(9.8)

Cash flows from financing activities:

Proceeds from Senior Notes

1,250.0

-

Repayments of term debt, Tim Hortons Notes and capital leases

(2,610.6)

(57.3)

Payment of financing costs

(81.3)

-

Dividends paid on common shares and preferred shares

(238.8)

(77.4)

Proceeds from stock option exercises

1.6

0.1

Proceeds from issuance of shares

2.1

-

Excess tax benefits from share-based compensation

-

0.2

Other financing activities

(3.9)

-

Net cash provided by (used for) financing activities

(1,680.9)

(134.4)

Effect of exchange rates on cash and cash equivalents

(57.2)

(4.6)

Increase (decrease) in cash and cash equivalents

(827.7)

226.8

Cash and cash equivalents at beginning of period

1,803.2

786.9

Cash and cash equivalents at end of period

$

975.5

$

1,013.7

Supplemental cashflow disclosures:

Interest paid

$

285.8

$

82.4

Income taxes paid

$

91.8

$

28.5

Non-cash investing and financing activities:

Acquisition of property with capital lease obligations

$

10.4

$

-

Consolidated RBI

 Three Months Ended September 30, 

Key Business Metrics

2015

2014

System-wide sales growth

TH

8.2%

7.5%

BK

11.2%

7.7%

System-wide sales (in US$ millions)

TH

$ 1,600.0

$ 1,741.3

BK

$ 4,520.6

$ 4,448.3

Comparable sales growth

TH

5.3%

3.8%

BK

6.2%

2.4%

System Net Restaurant Growth (NRG)

TH

69

44

BK

141

152

Restaurant counts at period end

TH

4,845

4,590

BK

14,669

13,960

Key Business Metrics by Brand Market

 Three Months Ended September 30, 

Key Business Metrics

2015

2014

System-wide Sales Growth

TH - Canada

8.1 %

6.9 %

TH - US

8.5 %

12.8 %

BK - US&C

5.6 %

3.1 %

BK - EMEA

16.5 %

11.3 %

BK - LAC

20.3 %

8.7 %

BK - APAC

17.7 %

16.1 %

Comparable Sales Growth

TH - Canada

5.4 %

3.5 %

TH - US

4.3 %

6.8 %

BK - US&C

5.2 %

3.6 %

BK - EMEA

7.3 %

1.3 %

BK - LAC

11.4 %

(3.0)%

BK - APAC

5.3 %

4.1 %

System NRG

TH - Canada

60

35

TH - US

3

3

BK - US&C

(20)

(3)

BK - EMEA

76

75

BK - LAC

25

29

BK - APAC

60

51

RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES

Supplemental Disclosure

(Unaudited)

Selling, general and administrative expenses

Three Months Ended September 30,

Nine Months Ended September 30,

(in US$ millions)

2015

2014

2015

2014

Selling expenses

$

3.0

$

0.6

$

11.3

$

0.9

Management general and administrative expenses

57.5

39.0

176.1

119.6

Share-based compensation and non-cash

incentive compensation expense (a)

15.5

4.5

37.5

12.2

Depreciation and amortization

4.0

3.5

12.7

10.1

Tim Hortons transaction and restructuring costs

24.3

30.7

79.7

30.7

Total general and administrative expenses

101.3

77.7

306.0

172.6

Selling, general and administrative expenses

$

104.3

$

78.3

$

317.3

$

173.5

(a) During the three and nine months ended September 30, 2015, the increase in share-based compensation and non-cash incentive compensation expense was primarily due to incremental expense of $3.8 million and $12.7 million related to the remeasurement of liability-classified stock options to fair value for the three and nine months ended September 30, 2015, respectively, incremental expense of $4.6 million related to a stock option modification during the three and nine months ended September 30, 2015, and additional stock options granted during 2015 and 2014.  

Other Operating Expenses (Income), net

Three Months Ended September 30,

Nine Months Ended September 30,

(in US$ millions)

2015

2014

2015

2014

Net losses (gains) on disposal of assets, restaurant closures and refranchisings (a)

$

0.5

$

8.4

$

(6.6)

$

16.3

Litigation settlements and reserves, net

0.1

1.6

1.8

3.8

Net losses (gains) on derivatives (b)

(1.5)

147.9

37.3

147.9

Net losses (gains) on foreign exchange (c)

10.9

(18.9)

45.1

(21.4)

Other, net

(0.6)

6.9

4.6

9.2

Other operating expenses (income), net

$

9.4

$

145.9

$

82.2

$

155.8

(a) Net losses (gains) on disposal of assets, restaurant closures and refranchisings for the nine months ended September 30, 2015 primarily reflects gains in connection with refranchisings in our TH business and gains related to a lease termination as well as the write-off of unfavorable lease balances related to this lease termination in our BK business.

(b) Net losses (gains) on derivatives for the nine months ended September 30, 2015 primarily reflects the reclassification of losses on cash flow hedges from accumulated other comprehensive income (loss) to earnings as a result of de-designation and settlement of certain interest rate swaps.

(c) The increase in net losses (gains) on foreign exchange is primarily related to revaluation of foreign denominated assets and liabilities.  

RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES

Organic Growth in Revenue and Adjusted EBITDA

Three Months Ended September 30, 2015

(Unaudited)

FX

Actual

Q3 '15 vs. Q3 '14

Impact

Organic Growth

(in US$ millions)

Q3 '15

Q3 '14

$

%

$

$

%

Calculation:

A

B

C

B-C=D

D/A

Revenue

TH

$

737.7

$

834.1

 {a} 

$

(96.4)

(11.6)%

$

(148.8)

$

52.4

6.3 %

BK

$

282.0

$

278.9

$

3.1

1.1 %

$

(20.9)

$

24.0

8.6 %

RBI

$

1,019.7

$

1,113.0

 {a} 

$

(93.3)

$

(169.7)

$

76.4

6.9 %

Adjusted EBITDA

TH

$

244.0

$

219.9

 {a} 

$

24.1

11.0 %

$

(49.5)

$

73.6

33.5 %

BK

$

196.7

$

194.4

$

2.3

1.2 %

$

(18.5)

$

20.8

10.7 %

RBI

$

440.7

$

414.3

 {a} 

$

26.4

6.4 %

$

(68.0)

$

94.4

22.8 %

{a} 2014 TH Pro Forma

RESTAURANT BRANDS INTERNATIONAL, INC. AND SUBSIDIARIES

Non-GAAP Financial Measures

Reconciliation of EBITDA and Adjusted EBITDA to Net Income (Loss)

(Unaudited)

(in US$ millions)

Three Months Ended September 30,

2015

2014

2014 PF

Segment Income:

TH

$

244.0

$

-

$

219.9

BK

196.7

194.4

194.4

Adjusted EBITDA

440.7

194.4

414.3

Share-based compensation and non-cash

incentive compensation expense ⁽²⁾

15.5

4.5

7.3

Acquisition accounting impact on cost of sales

(0.3)

-

-

TH transaction and restructuring costs ⁽³⁾

24.3

30.7

-

Impact of equity method investments ⁽⁴⁾

4.7

(4.1)

(4.7)

Other operating expenses (income), net

9.4

145.9

(0.8)

EBITDA

387.1

17.4

412.5

Depreciation and amortization

43.1

16.5

49.1

Income from operations

344.0

0.9

363.4

Interest expense, net

116.0

51.3

126.6

(Gain) loss on early extinguishment of debt

0.4

-

-

Income tax expense (benefit)

44.7

(26.9)

69.1

Net income (loss)

$

182.9

$

(23.5)

$

167.7

RESTAURANT BRANDS INTERNATIONAL, INC. AND SUBSIDIARIES

Non-GAAP Financial Measures

Reconciliation of EBITDA and Adjusted EBITDA to Net Income (Loss)

(Unaudited)

(in US$ millions)

Nine Months Ended September 30,

2015

2014

2014 PF

Segment Income:

TH

$

663.3

$

-

$

607.6

BK

560.3

536.9

536.9

Adjusted EBITDA

1,223.6

536.9

1,144.5

Share-based compensation and non-cash

incentive compensation expense ⁽²⁾

37.5

12.2

19.8

Acquisition accounting impact on cost of sales

0.5

-

-

TH transaction and restructuring costs ⁽³⁾

79.7

30.7

-

Impact of equity method investments ⁽⁴⁾

15.7