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 "Partnership",
"we", "us" or "our" are to Restaurant Brands International Limited Partnership
and its subsidiaries, collectively.
Overview
We are one of the world's largest quick service restaurant ("QSR") companies
with approximately $32 billion in annual system-wide sales and over 27,000
restaurants in more than 100 countries and U.S. territories as of June 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 six
months ended June 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 six months ended June 30,
2020 as a result of the impact of COVID-19. During the first and second
quarters, 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 July, in
Asia-Pacific substantially all of the restaurants are open; Europe, Middle-East
and Africa restaurants are now more than 90% open and approximately 80% of the
Latin America restaurants are open, in many cases with limited operations.
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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 are working 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 six months ended June 30, 2020, we initiated rent relief programs for
eligible TH franchisees in Canada and eligible BK franchisees in the U.S. and
Canada who lease property from us. 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.
During the second quarter of 2020, we provided cash flow support by extending
loans to eligible BK franchisees in the U.S. and advancing certain cash payments
to eligible TH franchisees in Canada. We also 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. In addition, we have dedicated resources across all three
of our brands to work one-on-one with restaurant owners and provide guidance and
support to franchisees.
During the three and six months ended June 30, 2020, we recorded higher bad debt
expense than the periods ended June 30, 2019. While all 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 three and six months ended June 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 cannot currently estimate the duration or future negative financial
impact of the COVID-19 pandemic on our business or our franchisees, we expect
the negative effects to continue into the third quarter of 2020.
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 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 $7 million and $11 million of costs during the three months ended
June 30, 2020 and 2019, respectively, and $8 million and $17 million of costs
during the six months ended June 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 interpretation, analysis and
corporate restructuring initiatives related to recently issued, 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 three months ended June 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 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 $2 million and $6 million during
the three and six months ended June 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 2020 and do not expect to incur any additional Office
centralization and relocation costs during 2020.
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Table of Contents Results of Operations for the Three and Six Months Ended June 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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