You should read the following discussion together with our unaudited condensed
consolidated financial statements and the related notes thereto included in
Part I, Item 1 "Financial Statements" of this report.
The following discussion includes information regarding future financial
performance and plans, targets, aspirations, expectations, and objectives of
management, which constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 and forward-looking
information within the meaning of Canadian securities laws as described in
further detail under "Special Note Regarding Forward-Looking Statements" set
forth below. Actual results may differ materially from the results discussed in
the forward-looking statements. Please refer to the risks and further discussion
in the "Special Note Regarding Forward-Looking Statements" below.
We prepare our financial statements in accordance with accounting principles
generally accepted in the United States ("U.S. GAAP" or "GAAP"). However, this
Management's Discussion and Analysis of Financial Condition and Results of
Operations also contains certain non-GAAP financial measures to assist readers
in understanding our performance. Non-GAAP financial measures either exclude or
include amounts that are not reflected in the most directly comparable measure
calculated and presented in accordance with GAAP. Where non-GAAP financial
measures are used, we have provided the most directly comparable measures
calculated and presented in accordance with U.S. GAAP, a reconciliation to GAAP
measures and a discussion of the reasons why management believes this
information is useful to it and may be useful to investors.
Operating results for any one quarter are not necessarily indicative of results
to be expected for any other quarter or for the fiscal year and our key business
measures, as discussed below, may decrease for any future period. Unless the
context otherwise requires, all references in this section to "RBI", the
"Company", "we", "us" or "our" are to Restaurant Brands International Inc. and
its subsidiaries, collectively.
Overview
We are one of the world's largest quick service restaurant ("QSR") companies
with approximately $31 billion in annual system-wide sales and approximately
27,000 restaurants in more than 100 countries and U.S. territories as of
September 30, 2020. Our Tim Hortons®, Burger King®, and Popeyes® brands have
similar franchised business models with complementary daypart mixes and product
platforms. Our three iconic brands are managed independently while benefiting
from global scale and sharing of best practices.
Tim Hortons restaurants are quick service restaurants with a menu that includes
premium blend coffee, tea, espresso-based hot and cold specialty drinks, fresh
baked goods, including donuts, Timbits®, bagels, muffins, cookies and pastries,
grilled paninis, classic sandwiches, wraps, soups, and more. Burger King
restaurants are quick service restaurants that feature flame-grilled hamburgers,
chicken, and other specialty sandwiches, french fries, soft drinks, and other
affordably-priced food items. Popeyes restaurants are quick service restaurants
featuring a unique "Louisiana" style menu that includes fried chicken, chicken
tenders, fried shrimp, and other seafood, red beans and rice, and other regional
items.
We have three operating and reportable segments: (1) Tim Hortons ("TH"); (2)
Burger King ("BK"); and (3) Popeyes Louisiana Kitchen ("PLK"). Our business
generates revenue from the following sources: (i) franchise revenues, consisting
primarily of royalties based on a percentage of sales reported by franchise
restaurants and franchise fees paid by franchisees; (ii) property revenues from
properties we lease or sublease to franchisees; and (iii) sales at restaurants
owned by us ("Company restaurants"). In addition, our TH business generates
revenue from sales to franchisees related to our supply chain operations,
including manufacturing, procurement, warehousing, and distribution, as well as
sales to retailers.
COVID-19
The global crisis resulting from the spread of coronavirus ("COVID-19") has had
a substantial impact on our global restaurant operations for the three and nine
months ended September 30, 2020, which is expected to continue with the timing
of recovery uncertain. System-wide sales growth, system-wide sales and
comparable sales were also negatively impacted for the three and nine months
ended September 30, 2020 as a result of the impact of COVID-19. During the first
nine months of 2020, substantially all TH, BK and PLK restaurants remained open
in North America with limited operations, such as Drive-thru, Takeout and
Delivery (where applicable) and that currently remains the case. While certain
markets have opened for dine-in guests, the capacity may be limited, and local
conditions may lead to closures or increased limitations. Some international
markets temporarily closed most or all restaurants and the restaurants that
remained open or have reopened may have limited operations. As of the end of
September, 96% of our restaurants were open worldwide, including substantially
all of our restaurants in North America, Asia Pacific and Europe, Middle East
and Africa and approximately 92% of our restaurants in Latin America.
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Our operating results substantially depend upon our franchisees' sales volumes,
restaurant profitability, and financial stability. The financial impact of
COVID-19 has had, and is expected to continue to have, an adverse effect on many
of our franchisees' liquidity and we have worked closely with our franchisees
around the world to monitor and assist them with access to appropriate sources
of liquidity in order to sustain their businesses throughout this crisis. During
the nine months ended September 30, 2020, we offered rent relief programs to
eligible TH franchisees in Canada and eligible BK franchisees in the U.S. and
Canada who lease property from us, a portion of which concluded during the third
quarter. While in effect, these programs provide working capital support to
franchisees and result in a reduction in our property revenues. See Note 4 to
the accompanying unaudited condensed consolidated financial statements.
We also provided cash flow support by extending loans to eligible BK franchisees
in the U.S. during the second and third quarters of 2020, and by advancing
certain cash payments to eligible TH franchisees in Canada during the second
quarter of 2020. Additionally, we temporarily deferred franchisee capital
investment commitments for restaurant renovations and new restaurant development
globally, based on the individual circumstances of relevant markets and
restaurant owners.
During the nine months ended September 30, 2020, we recorded higher bad debt
expense than the nine months ended September 30, 2019. While these receivables
remain contractually due and payable to us, the certainty of the amount and
timing of payments has been impacted by the COVID-19 pandemic. Therefore, our
bad debt expense during the nine months ended September 30, 2020 reflects an
adjustment to our historical collections experience to incorporate an estimate
of the impact of current economic conditions resulting from the COVID-19
pandemic. Actual collections may be materially higher or lower than this
estimate reflects since it is reasonably possible the duration and future impact
of the COVID-19 pandemic on our business or our franchisees may differ from our
assumptions.
While we do not know the future impact COVID-19 will have on our business, or
when our business will fully return to normal operations, we expect to see a
continued impact from COVID-19 on our results in the fourth quarter.
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 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.
•Unless otherwise stated, system-wide sales growth, system-wide sales and
comparable sales are presented on a system-wide basis, which means they include
franchise restaurants and Company restaurants. System-wide results are driven by
our franchise restaurants, as approximately 100% of system-wide restaurants are
franchised. Franchise sales represent sales at all franchise restaurants and are
revenues to our franchisees. We do not record franchise sales as revenues;
however, our royalty revenues are calculated based on a percentage of franchise
sales.
•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.
These metrics are important indicators of the overall direction of our business,
including trends in sales and the effectiveness of each brand's marketing,
operations and growth initiatives.

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Recent Events and Factors Affecting Comparability
Tax Restructuring and Reform
In December 2017, the U.S. government enacted comprehensive tax legislation
commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act") that
significantly revised the U.S. tax code generally effective January 1, 2018 by,
among other changes, lowering the federal corporate income tax rate from 35% to
21%, limiting deductibility of interest expense and performance based incentive
compensation and implementing a modified territorial tax system. As a Canadian
entity, we generally would be classified as a foreign entity (and, therefore, a
non-U.S. tax resident) under general rules of U.S. federal income taxation.
However, we have subsidiaries subject to U.S. federal income taxation and
therefore the Tax Act impacted our consolidated results of operations in 2019
and the current period, and is expected to continue to impact our consolidated
results of operations in future periods.
We recorded $3 million and $5 million of costs during the three months ended
September 30, 2020 and 2019, respectively, and $11 million and $22 million of
costs during the nine months ended September 30, 2020 and 2019, respectively,
which are classified as selling, general and administrative expenses in our
condensed consolidated statements of operations, arising primarily from
professional advisory and consulting services associated with certain
transformational corporate restructuring initiatives that rationalize our
structure and optimize cash movement within our structure, including consulting
services related to the interpretation of final and proposed regulations and
guidance issued by the U.S. Treasury, the IRS and state tax authorities in their
ongoing efforts to interpret and implement the Tax Act and related state and
local tax implications ("Corporate restructuring and tax advisory fees").
During the nine months ended September 30, 2020, various guidance was issued by
the U.S. Treasury relating to the Tax Act. After review of such guidance, we
recorded a deferred tax asset of approximately $64 million during the nine
months ended September 30, 2020 related to certain tax attribute carryforwards,
which we now expect to be able to deduct in future years under recently issued
regulations implementing the Tax Act.
Office Centralization and Relocation Costs
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 ("Office
centralization and relocation costs") totaling $6 million during the nine months
ended September 30, 2019 consisting primarily of moving costs and
relocation-driven compensation expenses, which are classified as selling,
general and administrative expenses in our condensed consolidated statements of
operations. We did not incur any Office centralization and relocation costs
during the three months ended September 30, 2019 and during 2020 and do not
expect to incur any additional Office centralization and relocation costs during
2020.
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Results of Operations for the Three and Nine Months Ended September 30, 2020 and
2019
Tabular amounts in millions of U.S. dollars unless noted otherwise. Segment
income may not calculate exactly due to rounding.

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