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<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>86
<PERIOD>20200930
<FILING-DATE>20201028
<DATE-OF-FILING-DATE-CHANGE>20201028
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<CONFORMED-NAME>Restaurant Brands International Inc.
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<STREET1>130 KING STREET WEST
<STREET2>SUITE 300
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<FORMER-CONFORMED-NAME>9060669 Canada Inc.
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<FORMER-CONFORMED-NAME>1011773 B.C. Unlimited Liability Co
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Section 1: 10-Q (10-Q)

qsr-20200930

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2020


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

For the transition period from to

Commission file number: 001-36786

RESTAURANT BRANDS INTERNATIONAL INC.

(Exact Name of Registrant as Specified in its Charter)



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)

(905) 845-6511

(Registrant’s telephone number, including area 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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 20, 2020, there were 303,902,641 common shares of the Registrant outstanding.

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RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES

TABLE OF CONTENTS



		Page

PART I – Financial Information
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	44

PART II – Other Information
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 6.	Exhibits	48
	Signatures	49

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PART I — Financial Information

Item 1. Financial Statements

RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

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

(Unaudited)


	As of
	September 30, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	1,919	$	1,533
Accounts and notes receivable, net of allowance of $37 and $13, respectively	589		527
Inventories, net	87		84
Prepaids and other current assets	85		52
Total current assets	2,680		2,196
Property and equipment, net of accumulated depreciation and amortization of $831 and $746, respectively	1,975		2,007
Operating lease assets, net	1,122		1,176
Intangible assets, net	10,415		10,563
Goodwill	5,571		5,651
Net investment in property leased to franchisees	63		48
Other assets, net	707		719
Total assets	$	22,533	$	22,360
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts and drafts payable	$	523	$	644
Other accrued liabilities	883		790
Gift card liability	108		168
Current portion of long-term debt and finance leases	107		101
Total current liabilities	1,621		1,703
Long-term debt, net of current portion	12,300		11,759
Finance leases, net of current portion	304		288
Operating lease liabilities, net of current portion	1,054		1,089
Other liabilities, net	1,917		1,698
Deferred income taxes, net	1,422		1,564
Total liabilities	18,618		18,101
Shareholders’ equity:
Common shares, no par value; Unlimited shares authorized at September 30, 2020 and December 31, 2019; 303,877,203 shares issued and outstanding at September 30, 2020; 298,281,081 shares issued and outstanding at December 31, 2019	2,648		2,478
Retained earnings	692		775
Accumulated other comprehensive income (loss)	(997)		(763)
Total Restaurant Brands International Inc. shareholders’ equity	2,343		2,490
Noncontrolling interests	1,572		1,769
Total shareholders’ equity	3,915		4,259
Total liabilities and shareholders’ equity	$	22,533	$	22,360

See accompanying notes to condensed consolidated financial statements.

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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,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenues:
Sales	$	541	$	624	$	1,450	$	1,735
Franchise and property revenues	796		834		2,160		2,389
Total revenues	1,337		1,458		3,610		4,124
Operating costs and expenses:
Cost of sales	418		475		1,156		1,334
Franchise and property expenses	128		133		388		401
Selling, general and administrative expenses	302		320		922		948
(Income) loss from equity method investments	18		(11)		36		(11)
Other operating expenses (income), net	54		(30)		59		(44)
Total operating costs and expenses	920		887		2,561		2,628
Income from operations	417		571		1,049		1,496
Interest expense, net	129		137		376		406
Loss on early extinguishment of debt	—		4		—		4
Income before income taxes	288		430		673		1,086
Income tax expense	65		79		62		232
Net income	223		351		611		854
Net income attributable to noncontrolling interests (Note 12)	78		150		216		376
Net income attributable to common shareholders	$	145	$	201	$	395	$	478
Earnings per common share
Basic	$	0.48	$	0.76	$	1.31	$	1.85
Diluted	$	0.47	$	0.75	$	1.30	$	1.82
Weighted average shares outstanding
Basic	303		267		301		258
Diluted	470		470		469		469

See accompanying notes to condensed consolidated financial statements.

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RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In millions of U.S. dollars)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income	$	223	$	351	$	611	$	854

Foreign currency translation adjustment	239		(173)		(170)		185
Net change in fair value of net investment hedges, net of tax of $40, $(37), $(12) and $2	(198)		143		39		27
Net change in fair value of cash flow hedges, net of tax of $7, $9, $99 and $43	(17)		(25)		(268)		(116)
Amounts reclassified to earnings of cash flow hedges, net of tax of $(8), $(2), $(18) and $(3)	22		5		51		7

Other comprehensive income (loss)	46		(50)		(348)		103
Comprehensive income (loss)	269		301		263		957
Comprehensive income (loss) attributable to noncontrolling interests	94		129		91		424
Comprehensive income (loss) attributable to common shareholders	$	175	$	172	$	172	$	533

See accompanying notes to condensed consolidated financial statements.

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RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity

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

(Unaudited)


	Issued Common Shares			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interest		Total
	Shares	Amount
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
Stock option exercises	316,172	11		—		—		—		11
Share-based compensation	—	20		—		—		—		20
Issuance of shares	45,071	—		—		—		—		—
Dividends declared ($0.52 per share)	—	—		(158)		—		—		(158)
Dividend equivalents declared on restricted stock units	—	1		(1)		—		—		—
Distributions declared by Partnership on Partnership exchangeable units ($0.52 per unit)	—	—		—		—		(85)		(85)
Exchange of Partnership exchangeable units for RBI common shares	2,494,854	33		—		(9)		(24)		—
Restaurant VIE contributions (distributions)	—	—		—		—		(1)		(1)
Net income	—	—		106		—		58		164
Other comprehensive income (loss)	—	—		—		97		52		149
Balances at June 30, 2020	302,623,813	$	2,602	$	708	$	(1,025)	$	1,567	$	3,852
Stock option exercises	567,636	19		—		—		—		19
Share-based compensation	—	16		—		—		—		16
Issuance of shares	63,686	—		—		—		—		—
Dividends declared ($0.52 per share)	—	—		(158)		—		—		(158)
Dividend equivalents declared on restricted stock units	—	3		(3)		—		—		—
Distributions declared by Partnership on Partnership exchangeable units ($0.52 per unit)	—	—		—		—		(84)		(84)
Exchange of Partnership exchangeable units for RBI common shares	622,068	8		—		(2)		(6)		—
Restaurant VIE contributions (distributions)	—	—		—		—		1		1
Net income	—	—		145		—		78		223
Other comprehensive income (loss)	—	—		—		30		16		46
Balances at September 30, 2020	303,877,203	$	2,648	$	692	$	(997)	$	1,572	$	3,915

See accompanying notes to condensed consolidated financial statements.

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RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity

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

(Unaudited)


	Issued Common Shares			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interest		Total
	Shares	Amount
Balances at December 31, 2018	251,532,493	$	1,737	$	674	$	(800)	$	2,007	$	3,618
Cumulative effect adjustment	—	—		12		—		9		21
Stock option exercises	2,019,620	42		—		—		—		42
Share-based compensation	—	22		—		—		—		22
Issuance of shares	134,809	7		—		—		—		7
Dividends declared ($0.50 per share)	—	—		(127)		—		—		(127)
Dividend equivalents declared on restricted stock units	—	2		(2)		—		—		—
Distributions declared by Partnership on Partnership exchangeable units ($0.50 per unit)	—	—		—		—		(104)		(104)
Exchange of Partnership exchangeable units for RBI common shares	141,190	2		—		(1)		(1)		—

Net income	—	—		135		—		111		246
Other comprehensive income (loss)	—	—		—		26		22		48
Balances at March 31, 2019	253,828,112	$	1,812	$	692	$	(775)	$	2,044	$	3,773
Stock option exercises	1,697,488	38		—		—		—		38
Share-based compensation	—	17		—		—		—		17
Issuance of shares	59,970	—		—		—		—		—
Dividends declared ($0.50 per share)	—	—		(128)		—		—		(128)
Dividend equivalents declared on restricted stock units	—	2		(2)		—		—		—
Distributions declared by Partnership on Partnership exchangeable units ($0.50 per unit)	—	—		—		—		(103)		(103)
Exchange of Partnership exchangeable units for RBI common shares	45,325	1		—		—		(1)		—
Restaurant VIE contributions (distributions)	—	—		—		—		1		1
Net income	—	—		142		—		115		257
Other comprehensive income (loss)	—	—		—		58		47		105
Balances at June 30, 2019	255,630,895	$	1,870	$	704	$	(717)	$	2,103	$	3,960
Stock option exercises	636,918	19		—		—		—		19
Share-based compensation	—	17		—		—		—		17
Issuance of shares	20,700	—		—		—		—		—
Dividends declared ($0.50 per share)	—	—		(141)		—		—		(141)
Dividend equivalents declared on restricted stock units	—	2		(2)		—		—		—
Distributions declared by Partnership on Partnership exchangeable units ($0.50 per unit)	—	—		—		—		(92)		(92)
Exchange of Partnership exchangeable units for RBI common shares	41,807,254	552		—		(118)		(434)		—
Restaurant VIE contributions (distributions)	—	—		—		—		(1)		(1)
Net income	—	—		201		—		150		351
Other comprehensive income (loss)	—	—		—		(29)		(21)		(50)
Balances at September 30, 2019	298,095,767	$	2,460	$	762	$	(864)	$	1,705	$	4,063

See accompanying notes to condensed consolidated financial statements.

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RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In millions of U.S. dollars)

(Unaudited)


	Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities:
Net income	$	611	$	854
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	139		139
Premiums paid and non-cash loss on early extinguishment of debt	—		4
Amortization of deferred financing costs and debt issuance discount	19		22
(Income) loss from equity method investments	36		(11)
(Gain) loss on remeasurement of foreign denominated transactions	54		(38)
Net (gains) losses on derivatives	14		(43)
Share-based compensation expense	55		56
Deferred income taxes	(120)		(16)
Other	23		1
Changes in current assets and liabilities, excluding acquisitions and dispositions:
Accounts and notes receivable	(83)		(7)
Inventories and prepaids and other current assets	(21)		(34)
Accounts and drafts payable	(110)		(15)
Other accrued liabilities and gift card liability	(12)		(85)
Tenant inducements paid to franchisees	(7)		(13)
Other long-term assets and liabilities	10		97
Net cash provided by operating activities	608		911
Cash flows from investing activities:
Payments for property and equipment	(71)		(32)
Net proceeds from disposal of assets, restaurant closures, and refranchisings	9		22

Settlement/sale of derivatives, net	29		17

Net cash (used for) provided by investing activities	(33)		7
Cash flows from financing activities:
Proceeds from revolving line of credit and long-term debt	1,585		750
Repayments of revolving line of credit, long-term debt and finance leases	(1,071)		(290)
Payment of financing costs	(10)		(13)
Payment of dividends on common shares and distributions on Partnership exchangeable units	(716)		(669)

Proceeds from stock option exercises	60		99
(Payments) proceeds from derivatives	(29)		17
Other financing activities, net	(1)		—
Net cash used for financing activities	(182)		(106)
Effect of exchange rates on cash and cash equivalents	(7)		7
Increase (decrease) in cash and cash equivalents	386		819
Cash and cash equivalents at beginning of period	1,533		913
Cash and cash equivalents at end of period	$	1,919	$	1,732
Supplemental cash flow disclosures:
Interest paid	$	315	$	433
Income taxes paid	$	163	$	171

See accompanying notes to condensed consolidated financial statements.

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RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Description of Business and Organization

Restaurant Brands International Inc. (the “Company”, “RBI”, “we”, “us” or “our”) was formed on August 25, 2014 and continued under the laws of Canada. The Company serves as the sole general partner of Restaurant Brands International Limited Partnership (“Partnership”). We franchise and operate quick service restaurants serving premium coffee and other beverage and food products under the Tim Hortons® brand (“Tim Hortons” or “TH”), fast food hamburgers principally under the Burger King® brand (“Burger King” or “BK”), and chicken under the Popeyes® brand (“Popeyes” or “PLK”). We are one of the world’s largest quick service restaurant, or QSR, companies as measured by total number of restaurants. As of September 30, 2020, we franchised or owned 4,934 Tim Hortons restaurants, 18,675 Burger King restaurants, and 3,418 Popeyes restaurants, for a total of 27,027 restaurants, and operate in more than 100 countries and U.S. territories. Approximately 100% of current system-wide restaurants are franchised.

All references to “$” or “dollars” are to the currency of the United States unless otherwise indicated. All references to “Canadian dollars” or “C$” are to the currency of Canada unless otherwise indicated.

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. During the three and nine months ended September 30, 2020, some TH, BK and PLK restaurants were temporarily closed in certain countries and many of the restaurants that remained open had limited operations, such as Drive-thru, Takeout and Delivery (where applicable). This has continued into the fourth quarter of 2020.

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 for an uncertain period to have, an adverse effect on many of our franchisees’ liquidity and we have worked closely with our franchisees to monitor and assist them with access to appropriate sources of liquidity in order to sustain their businesses throughout this crisis, such as offering rent relief programs for eligible franchisees who lease property from us. See Note 4, Leases, for further information about the rent relief programs. Additionally, we 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.

During the nine months ended September 30, 2020, we recorded bad debt expense of $27 million compared to $3 million during 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. Ongoing material adverse effects of the COVID-19 pandemic on our franchisees for an extended period could negatively affect our operating results, including reductions in revenue and cash flow and could impact our impairment assessments of accounts receivable, intangible assets, long-lived assets or goodwill.

Note 2. Basis of Presentation and Consolidation

We have prepared the accompanying unaudited condensed consolidated financial statements (the “Financial Statements”) in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. Therefore, the Financial Statements should be read in conjunction with the audited consolidated financial statements contained in our Annual Report on Form 10-K filed with the SEC and Canadian securities regulatory authorities on February 21, 2020.

The Financial Statements include our accounts and the accounts of entities in which we have a controlling financial interest, the usual condition of which is ownership of a majority voting interest. All material intercompany balances and transactions have been eliminated in consolidation. Investments in other affiliates that are owned 50% or less where we have significant influence are accounted for by the equity method.

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We are the sole general partner of Partnership and, as such we have the exclusive right, power and authority to manage, control, administer and operate the business and affairs and to make decisions regarding the undertaking and business of Partnership, subject to the terms of the amended and restated limited partnership agreement of Partnership (the “partnership agreement”) and applicable laws. As a result, we consolidate the results of Partnership and record a noncontrolling interest in our consolidated balance sheets and statements of operations with respect to the remaining economic interest in Partnership we do not hold.

We also consider for consolidation entities in which we have certain interests, where the controlling financial interest may be achieved through arrangements that do not involve voting interests. Such an entity, known as a variable interest entity (“VIE”), is required to be consolidated by its primary beneficiary. The primary beneficiary is the entity that possesses the power to direct the activities of the VIE that most significantly impact its economic performance and has the obligation to absorb losses or the right to receive benefits from the VIE that are significant to it. Our maximum exposure to loss resulting from involvement with VIEs is attributable to accounts and notes receivable balances, outstanding loan guarantees and future lease payments, where applicable.

As our franchise and master franchise arrangements provide the franchise and master franchise entities the power to direct the activities that most significantly impact their economic performance, we do not consider ourselves the primary beneficiary of any such entity that might be a VIE.

Tim Hortons has historically entered into certain arrangements in which an operator acquires the right to operate a restaurant, but Tim Hortons owns the restaurant’s assets. We perform an analysis to determine if the legal entity in which operations are conducted is a VIE and consolidate a VIE entity if we also determine Tim Hortons is the entity’s primary beneficiary (“Restaurant VIEs”). As of September 30, 2020 and December 31, 2019, we determined that we are the primary beneficiary of 40 and 35 Restaurant VIEs, respectively, and accordingly, have consolidated the results of operations, assets and liabilities, and cash flows of these Restaurant VIEs in our Financial Statements. Material intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included in the Financial Statements. The results for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the full year.

The preparation of consolidated financial statements in conformity with U.S. GAAP and related rules and regulations of the SEC requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. Actual results could differ from these estimates.

The carrying amounts for cash and cash equivalents, accounts and notes receivable and accounts and drafts payable approximate fair value based on the short-term nature of these amounts.

Certain prior year amounts in the accompanying Financial Statements and notes to the Financial Statements have been reclassified in order to be comparable with the current year classifications. These reclassifications had no effect on previously reported net income.

Note 3. New Accounting Pronouncements

Credit Losses – In June 2016, the Financial Accounting Standards Board (“FASB”) issued guidance that requires companies to measure and recognize lifetime expected credit losses for certain financial instruments, including trade accounts receivable and net investments in direct financing and sales-type leases. Expected credit losses are estimated using relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This amendment was effective commencing in 2020, using a modified retrospective approach. The adoption of this new guidance did not have a material impact on our Financial Statements.

Simplifying the Accounting for Income Taxes – In December 2019, the FASB issued guidance which simplifies the accounting for income taxes by removing certain exceptions and by clarifying and amending existing guidance applicable to accounting for income taxes. The amendment is effective commencing in 2021 with early adoption permitted. While we are currently evaluating the impact that the adoption of this new guidance will have on our Financial Statements, we do not currently anticipate this adoption will have a material impact on our Financial Statements.

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Accounting Relief for the Transition Away from LIBOR and Certain other Reference Rates – In March 2020, the FASB issued guidance which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This amendment is effective as of March 12, 2020 through December 31, 2022. The expedients and exceptions provided by this new guidance do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationships. We are currently evaluating the impact that the adoption of this new guidance will have on our Financial Statements and have not adopted any of the transition relief available under the new guidance as of September 30, 2020.

Note 4. Leases

During the nine months ended September 30, 2020, we offered a rent relief program for eligible TH franchisees in Canada who lease property from us (the “TH rent relief program”) and a rent relief program for eligible BK franchisees in the U.S. and Canada who lease property from us (the “BK rent relief program” and together with the TH rent relief program, the “rent relief programs”), a portion of which concluded during the three months ended September 30, 2020. Under the rent relief programs, we temporarily converted the rent structure from a combination of fixed plus variable rent to 100% variable rent. While in effect, these programs result in a reduction in our property revenues.

In April 2020, the FASB staff issued interpretive guidance that indicated it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Accounting Standards Codification Topic 842, Leases (“ASC 842”), as though enforceable rights and obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract). Consequently, for concessions related to the effects of the COVID-19 pandemic, an entity is not required to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and can elect to apply or not apply the lease modification guidance in ASC 842 to those contracts. This election is available for concessions related to the effects of the COVID-19 pandemic that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee.

We have elected to apply this interpretive guidance to the rent relief programs while in effect and have assumed that enforceable rights and obligations for those concessions exist in the lease contract. As such, we recognize reductions in rents arising from the rent relief programs as reductions in variable lease payments, as the rent reductions did not result in a substantial increase in the rights of the lessor or the obligations of the lessee.

Property revenues are comprised primarily of lease income from operating leases and earned income on direct financing leases with franchisees as follows (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Lease income - operating leases
Minimum lease payments	$	112	$	112	$	333	$	335
Variable lease payments	82		100		191		281
Amortization of favorable and unfavorable income lease contracts, net	1		1		4		5
Subtotal - lease income from operating leases	195		213		528		621
Earned income on direct financing leases	1		2		4		7
Total property revenues	$	196	$	215	$	532	$	628

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Note 5. Revenue Recognition

Contract Liabilities

Contract liabilities consist of deferred revenue resulting from initial and renewal franchise fees paid by franchisees, as well as upfront fees paid by master franchisees, which are generally recognized on a straight-line basis over the term of the underlying agreement. We may recognize unamortized upfront fees when a contract with a franchisee or master franchisee is modified and is accounted for as a termination of the existing contract. We classify these contract liabilities as Other liabilities, net in our condensed consolidated balance sheets. The following table reflects the change in contract liabilities between December 31, 2019 and September 30, 2020 (in millions):


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	(7)		(50)		(2)		(59)
Increase, excluding amounts recognized as revenue during the period	5		15		9		29
Impact of foreign currency translation	(1)		7		—		6
Balance at September 30, 2020	$	61	$	421	$	35	$	517

The following table illustrates estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2020 (in millions):


Contract liabilities expected to be recognized in	TH		BK		PLK		Consolidated
Remainder of 2020	$	2	$	9	$	1	$	12
2021	8		34		2		44
2022	8		33		2		43
2023	7		32		2		41
2024	7		31		2		40
Thereafter	29		282		26		337
Total	$	61	$	421	$	35	$	517

Disaggregation of Total Revenues

Total revenues consist of the following (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Sales	$	541	$	624	$	1,450	$	1,735
Royalties	581		602		1,576		1,706
Property revenues	196		215		532		628
Franchise fees and other revenue	19		17		52		55
Total revenues	$	1,337	$	1,458	$	3,610	$	4,124

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Note 6. Earnings per Share

An economic interest in Partnership common equity is held by the holders of Class B exchangeable limited partnership units (the “Partnership exchangeable units”), which is reflected as a noncontrolling interest in our equity. See Note 12, Shareholders’ Equity.

Basic and diluted earnings per share is computed using the weighted average number of shares outstanding for the period. We apply the treasury stock method to determine the dilutive weighted average common shares represented by outstanding equity awards, unless the effect of their inclusion is anti-dilutive. The diluted earnings per share calculation assumes conversion of 100% of the Partnership exchangeable units under the “if converted” method. Accordingly, the numerator is also adjusted to include the earnings allocated to the holders of noncontrolling interests.

The following table summarizes the basic and diluted earnings per share calculations (in millions, except per share amounts):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Numerator:
Net income attributable to common shareholders - basic	$	145	$	201	$	395	$	478
Add: Net income attributable to noncontrolling interests	78		150		215		376
Net income available to common shareholders and noncontrolling interests - diluted	$	223	$	351	$	610	$	854

Denominator:
Weighted average common shares - basic	303		267