Restaurant Brands International Inc. [QSR] Filings

10-Q 1 qsr-20240630.htm 10-Q qsr-20240630

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 June 30, 2024


☐			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) 339-6011

(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 August 1, 2024, there were 317,025,113 common shares of the Registrant outstanding. In addition, as of August 1, 2024, there were 133,576,590 Class B exchangeable limited partnership units of Restaurant Brands International Limited Partnership which are exchangeable, on a one for one basis, into common shares of the Registrant.

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RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES

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		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	47
Item 4.	Controls and Procedures	47

PART II – Other Information
Item 1.	Legal Proceedings	48
Item 5.	Other Information	48
Item 6.	Exhibits	49
	Signatures	50

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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
	June 30, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	942	$	1,139
Accounts and notes receivable, net of allowance of $37 and $37, respectively	737		749
Inventories, net	160		166
Prepaids and other current assets	191		119
Total current assets	2,030		2,173
Property and equipment, net of accumulated depreciation and amortization of $1,230 and $1,187, respectively	2,213		1,952
Operating lease assets, net	1,874		1,122
Intangible assets, net	11,266		11,107
Goodwill	6,140		5,775
Other assets, net	1,326		1,262
Total assets	$	24,849	$	23,391
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts and drafts payable	$	720	$	790
Other accrued liabilities	1,099		1,005
Gift card liability	181		248
Current portion of long-term debt and finance leases	617		101
Total current liabilities	2,617		2,144
Long-term debt, net of current portion	13,092		12,854
Finance leases, net of current portion	302		312
Operating lease liabilities, net of current portion	1,768		1,059
Other liabilities, net	823		996
Deferred income taxes, net	1,296		1,296
Total liabilities	19,898		18,661
Shareholders’ equity:
Common shares, no par value; Unlimited shares authorized at June 30, 2024 and December 31, 2023; 316,897,975 shares issued and outstanding at June 30, 2024; 312,454,851 shares issued and outstanding at December 31, 2023	2,138		1,973
Retained earnings	1,734		1,599
Accumulated other comprehensive income (loss)	(804)		(706)
Total Restaurant Brands International Inc. shareholders’ equity	3,068		2,866
Noncontrolling interests	1,883		1,864
Total shareholders’ equity	4,951		4,730
Total liabilities and shareholders’ equity	$	24,849	$	23,391

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 June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenues:
Supply chain sales	$	682	$	676	$	1,309	$	1,283
Company restaurant sales	347		68		449		129
Franchise and property revenues	747		742		1,459		1,410
Advertising revenues and other services	304		289		602		543
Total revenues	2,080		1,775		3,819		3,365
Operating costs and expenses:
Supply chain cost of sales	540		551		1,057		1,048
Company restaurant expenses	286		61		375		114
Franchise and property expenses	134		130		260		253
Advertising expenses and other services	334		312		645		583
General and administrative expenses	185		163		358		338
(Income) loss from equity method investments	(69)		11		(72)		18
Other operating expenses (income), net	7		(7)		(11)		10
Total operating costs and expenses	1,417		1,221		2,612		2,364
Income from operations	663		554		1,207		1,001
Interest expense, net	147		145		295		287
Loss on early extinguishment of debt	32		—		32		—
Income before income taxes	484		409		880		714
Income tax expense	85		58		153		86
Net income	399		351		727		628
Net income attributable to noncontrolling interests (Note 13)	119		110		217		198
Net income attributable to common shareholders	$	280	$	241	$	510	$	430
Earnings per common share
Basic	$	0.89	$	0.77	$	1.62	$	1.39
Diluted	$	0.88	$	0.77	$	1.60	$	1.37
Weighted average shares outstanding (in millions):
Basic	317		312		316		310
Diluted	453		458		453		457

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 June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net income	$	399	$	351	$	727	$	628

Foreign currency translation adjustment	(107)		194		(347)		234
Net change in fair value of net investment hedges, net of tax of $3, $4, $6 and $8	26		(84)		160		(115)
Net change in fair value of cash flow hedges, net of tax of $(10), $(31), $(36) and $(16)	27		86		96		43
Amounts reclassified to earnings of cash flow hedges, net of tax of $10, $6, $18 and $11	(27)		(17)		(49)		(30)
Gain (loss) recognized on other, net of tax of $0, $0, $0 and $0	—		2		—		2
Other comprehensive income (loss)	(81)		181		(140)		134
Comprehensive income (loss)	318		532		587		762
Comprehensive income (loss) attributable to noncontrolling interests	95		166		175		239
Comprehensive income (loss) attributable to common shareholders	$	223	$	366	$	412	$	523

See accompanying notes to condensed consolidated financial statements.

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RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES

Condensed Consolidated Statement 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, 2023	312,454,851	$	1,973	$	1,599	$	(706)	$	1,864	$	4,730
Stock option exercises	721,052	39		—		—		—		39
Share-based compensation	—	42		—		—		—		42
Issuance of shares	3,204,316	17		—		—		—		17
Dividends declared ($0.58 per share)	—	—		(184)		—		—		(184)
Dividend equivalents declared on restricted stock units	—	5		(5)		—		—		—
Distributions declared by Partnership on Partnership exchangeable units ($0.58 per unit)	—	—		—		—		(77)		(77)
Exchange of Partnership exchangeable units for RBI common shares	2,220	—		—		—		—		—

Restaurant VIE contributions (distributions)	—	—		—		—		(1)		(1)
Net income	—	—		230		—		98		328
Other comprehensive income (loss)	—	—		—		(41)		(18)		(59)
Balances at March 31, 2024	316,382,439	2,076		1,640		(747)		1,866		4,835
Stock option exercises	464,725	21		—		—		—		21
Share-based compensation	—	38		—		—		—		38
Issuance of shares	36,411	1		—		—		—		1
Dividends declared ($0.58 per share)	—	—		(184)		—		—		(184)
Dividend equivalents declared on restricted stock units	—	2		(2)		—		—		—
Distributions declared by Partnership on Partnership exchangeable units ($0.58 per unit)	—	—		—		—		(78)		(78)
Exchange of Partnership exchangeable units for RBI common shares	14,400	—		—		—		—		—


Net income	—	—		280		—		119		399
Other comprehensive income (loss)	—	—		—		(57)		(24)		(81)
Balances at June 30, 2024	316,897,975	$	2,138	$	1,734	$	(804)	$	1,883	$	4,951

See accompanying notes to condensed consolidated financial statements.

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RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES

Condensed Consolidated Statement 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, 2022	307,142,436	$	2,057	$	1,121	$	(679)	$	1,769	$	4,268
Stock option exercises	124,275	6		—		—		—		6
Share-based compensation	—	41		—		—		—		41
Issuance of shares	1,690,762	15		—		—		—		15
Dividends declared ($0.55 per share)	—	—		(171)		—		—		(171)
Dividend equivalents declared on restricted stock units	—	5		(5)		—		—		—
Distributions declared by Partnership on Partnership exchangeable units ($0.55 per unit)	—	—		—		—		(77)		(77)
Exchange of Partnership exchangeable units for RBI common shares	2,214,072	33		—		(5)		(28)		—

Restaurant VIE contributions (distributions)	—	—		—		—		(1)		(1)
Net income	—	—		189		—		88		277
Other comprehensive income (loss)	—	—		—		(32)		(15)		(47)
Balances at March 31, 2023	311,171,545	$	2,157	$	1,134	$	(716)	$	1,736	$	4,311
Stock option exercises	920,438	43		—		—		—		43
Share-based compensation	—	42		—		—		—		42
Issuance of shares	87,695	—		—		—		—		—
Dividends declared ($0.55 per share)	—	—		(172)		—		—		(172)
Dividend equivalents declared on restricted stock units	—	5		(5)		—		—		—
Distributions declared by Partnership on Partnership exchangeable units ($0.55 per unit)	—	—		—		—		(77)		(77)
Exchange of Partnership exchangeable units for RBI common shares	23,787	—		—		—		—		—

Restaurant VIE contributions (distributions)	—	—		—		—		(1)		(1)
Net income	—	—		241		—		110		351
Other comprehensive income (loss)	—	—		—		125		56		181
Balances at June 30, 2023	312,203,465	$	2,247	$	1,198	$	(591)	$	1,824	$	4,678

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)


	Six Months Ended June 30,
	2024		2023
Cash flows from operating activities:
Net income	$	727	$	628
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	108		95
Non-cash loss on early extinguishment of debt	22		—
Amortization of deferred financing costs and debt issuance discount	12		14
(Income) loss from equity method investments	(72)		18
(Gain) loss on remeasurement of foreign denominated transactions	(29)		7
Net (gains) losses on derivatives	(91)		(72)
Share-based compensation and non-cash incentive compensation expense	87		92
Deferred income taxes	10		(40)
Other	5		(6)
Changes in current assets and liabilities, excluding acquisitions and dispositions:
Accounts and notes receivable	9		(29)
Inventories and prepaids and other current assets	14		(45)
Accounts and drafts payable	(70)		(31)
Other accrued liabilities and gift card liability	(210)		(135)
Tenant inducements paid to franchisees	(11)		(9)
Other long-term assets and liabilities	(29)		—
Net cash provided by operating activities	482		487
Cash flows from investing activities:
Payments for property and equipment	(69)		(48)
Net proceeds from disposal of assets, restaurant closures, and refranchisings	7		13
Payment for purchase of Carrols Restaurant Group, net of cash acquired	(508)		—
Net payments for acquisition of franchised restaurants	(23)		—
Settlement/sale of derivatives, net	35		28
Other investing activities, net	(1)		(1)
Net cash (used for) provided by investing activities	(559)		(8)
Cash flows from financing activities:
Proceeds from long-term debt	1,950		2
Repayments of long-term debt and finance leases	(1,639)		(68)
Payment of financing costs	(32)		—
Payment of common share dividends and Partnership exchangeable unit distributions	(506)		(492)

Proceeds from stock option exercises	60		49
Proceeds from derivatives	57		63
Other financing activities, net	(2)		(2)
Net cash used for financing activities	(112)		(448)
Effect of exchange rates on cash and cash equivalents	(8)		4
(Decrease) increase in cash and cash equivalents	(197)		35
Cash and cash equivalents at beginning of period	1,139		1,178
Cash and cash equivalents at end of period	$	942	$	1,213
Supplemental cash flow disclosures:
Interest paid	$	390	$	380
Income taxes paid	$	186	$	146

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”) is a Canadian corporation that 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”), fast food hamburgers principally under the Burger King® brand (“Burger King”), chicken principally under the Popeyes® brand (“Popeyes”) and sandwiches under the Firehouse Subs® brand (“Firehouse”). We are one of the world’s largest quick service restaurant, or QSR, companies as measured by total number of restaurants. As of June 30, 2024, we franchised or owned 5,836 Tim Hortons restaurants, 19,446 Burger King restaurants, 4,735 Popeyes restaurants and 1,307 Firehouse Subs restaurants, for a total of 31,324 restaurants, and operate in more than 120 countries and territories. As of June 30, 2024, approximately 95% 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.

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 22, 2024.

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. Investments in other affiliates that are owned 50% or less where we have significant influence are accounted for by the equity method. All material intercompany balances and transactions have been eliminated in consolidation.

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 condensed consolidated balance sheets and statements of operations with respect to the remaining economic interest in Partnership we do not hold.

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 accounts.

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Supplier Finance Programs

Our TH business includes individually negotiated contracts with suppliers, which include payment terms that range up to 120 days. A global financial institution offers a voluntary supply chain finance (“SCF”) program to certain TH vendors, which provides suppliers that elect to participate with the ability to elect early payment, which is discounted based on the payment terms and a rate based on RBI's credit rating, which may be beneficial to the vendor. Participation in the SCF program is at the sole discretion of the suppliers and financial institution and we are not a party to the arrangements between the suppliers and the financial institution. Our obligations to suppliers are not affected by the suppliers’ decisions to participate in the SCF program and our payment terms remain the same based on the original supplier invoicing terms and conditions. No guarantees are provided by us or any of our subsidiaries in connection with the SCF Program.

Our confirmed outstanding obligations under the SCF program at June 30, 2024 and December 31, 2023 totaled $29 million and $36 million, respectively, and are classified as Accounts and drafts payable in our condensed consolidated balance sheets. All activity related to the obligations is classified as Supply chain cost of sales in our condensed consolidated statements of operations and presented within cash flows from operating activities in our condensed consolidated statements of cash flows.

Note 3. New Accounting Pronouncements

Segment Reporting – In November 2023, the Financial Accounting Standards Board (“FASB”) issued guidance that expands segment disclosures for public entities, including requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), the title and position of the CODM and an explanation of how the CODM uses reported measures of segment profit or loss in assessing segment performance and allocating resources. The new guidance also expands disclosures about a reportable segment’s profit or loss and assets in interim periods and clarifies that a public entity may report additional measures of segment profit if the CODM uses more than one measure of a segment’s profit or loss. The new guidance does not remove existing segment disclosure requirements or change how a public entity identifies its operating segments, aggregates those operating segments, or determines its reportable segments. The guidance is effective for annual disclosures for fiscal years beginning after December 15, 2023, and subsequent interim periods with early adoption permitted, and requires retrospective application to all prior periods presented in the financial statements. We are currently evaluating the impact this new guidance will have on our disclosures upon adoption.

Improvements to Income Tax Disclosures – In December 2023, the FASB issued guidance that expands income tax disclosures for public entities, including requiring enhanced disclosures related to the rate reconciliation and income taxes paid information. The guidance is effective for annual disclosures for fiscal years beginning after December 15, 2024, with early adoption permitted. The guidance should be applied on a prospective basis, with retrospective application to all prior periods presented in the financial statements permitted. We are currently evaluating the impact this new guidance will have on our disclosures upon adoption and expect to provide additional detail and disclosures under this new guidance.

Note 4. Carrols Acquisition

Prior to May 16, 2024, we owned a 15% equity interest in Carrols Restaurant Group, Inc. (“Carrols”), which was accounted for as an equity method investment. On May 16, 2024, we acquired the remaining 85% of Carrols issued and outstanding shares that were not already held by us or our affiliates for $9.55 per share in an all cash transaction (the “Carrols Acquisition”) in order to accelerate the reimaging of more than 600 Carrols restaurants before refranchising the majority of the acquired portfolio to new or existing smaller franchise operations. The Carrols Acquisition was accounted for as a business combination by applying the acquisition method of accounting and Carrols became our wholly owned consolidated subsidiary.

The acquisition of the 85% equity interest of Carrols was accounted for as a step acquisition, which required remeasurement of our existing 15% ownership interest in Carrols to fair value. We utilized the $9.55 per share acquisition price to determine the fair value of the existing equity interest. This resulted in an increase in the value of our existing 15% equity interest and the recognition of a gain of $79 million (the “Step Acquisition Gain”), which is included in (Income) loss from equity method investments in our condensed consolidated statements of operations for the three and six months ended June 30, 2024.

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Total cash paid in connection with the Carrols Acquisition was $543 million. Additionally, in connection with the Carrols Acquisition, we assumed approximately $431 million of outstanding debt, all of which was fully extinguished as of June 30, 2024. The cash purchase price and extinguishment of debt assumed in the Carrols Acquisition was funded with a combination of cash on hand and $750 million of incremental borrowings under our senior secured term loan facility.

The following table summarizes the purchase price consideration in connection with the Carrols Acquisition (in millions):


Total cash paid	$	543
Effective settlement of pre-existing balance sheet accounts (a)	15

Fair value of existing 15% equity interest	90
Total consideration	$	648

(a)Effective settlement of pre-existing balances with Carrols related to franchise and lease agreements prior to the date of acquisition.

Fees and expenses related to the Carrols Acquisition and related financings totaled approximately $11 million during the six months ended June 30, 2024, consisting of professional fees and compensation related expenses which are classified as general and administrative expenses in the accompanying condensed consolidated statements of operations (the “Carrols Acquisition Costs”).

The preliminary allocation of consideration to the net tangible and intangible assets acquired is presented in the table below (in millions):


	May 16, 2024
Total current assets	$	81
Property and equipment	293
Reacquired franchise rights	371
Operating lease assets	725

Other assets	14
Accounts and drafts payable	(12)
Other accrued liabilities	(151)
Current portion of long-term debt and finance leases	(434)

Finance leases, net of current portion	(6)
Operating lease liabilities, net of current portion	(689)
Other liabilities	(9)
Total identifiable net assets	183
Goodwill	465
Total consideration	$	648

The purchase price allocation reflects preliminary fair value estimates based on management's analysis, including preliminary work performed by third-party valuation specialists. We will continue to obtain information to assist in determining the fair value of net assets acquired during the measurement period.

Reacquired franchise rights, which represent the fair value of reacquired franchise agreements determined using the excess earnings method, are amortized over the remaining term of the reacquired franchise agreement and have an estimated weighted average remaining term of 13 years.

Goodwill is considered to represent the value associated with the workforce and synergies anticipated to be realized as a combined company. Goodwill will be allocated to reporting units when the purchase price allocation is finalized during the measurement period.

Total revenues of Carrols from the acquisition date of May 16, 2024 through June 30, 2024, which have been included within Company restaurant sales in our condensed consolidated financial statements, totaled $230 million.

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Supplemental Pro Forma Information

The following table presents unaudited supplemental pro forma consolidated revenue for the three and six months ended June 30, 2024 and 2023, as if the Carrols Acquisition had occurred on January 1, 2023 (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Total revenues	$	2,291	$	2,210	$	4,435	$	4,200

The unaudited supplemental pro forma consolidated revenue gives effect to actual revenues prior to the Carrols Acquisition, adjusted to exclude the elimination of intercompany transactions. Other than the impact of the Step Acquisition Gain and Carrols Acquisition Costs (as discussed above), supplemental pro forma net earnings, assuming the Carrols Acquisition had occurred on January 1, 2023, would not be materially different from the results reported during the three and six months ended June 30, 2024 and 2023.

The unaudited pro forma information has been prepared for comparative purposes only, in accordance with the acquisition method of accounting, and is not necessarily indicative of the results of operations that would have occurred if the Carrols Acquisition had been completed on the date indicated, nor is it indicative of our future operating results.

Note 5. Leases

Property revenues consist primarily of lease income from operating leases and earned income on direct financing leases and sales-type leases with franchisees as follows (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Lease income - operating leases
Minimum lease payments	$	92	$	97	$	186	$	195
Variable lease payments	119		119		230		215
Amortization of favorable and unfavorable income lease contracts, net	1		1		1		1
Subtotal - lease income from operating leases	212		217		417		411
Earned income on direct financing and sales-type leases	1		3		2		5
Total property revenues	$	213	$	220	$	419	$	416

Note 6. 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 franchise fees and 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 on a consolidated basis between December 31, 2023 and June 30, 2024 (in millions):

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Contract Liabilities
Balance at December 31, 2023	$	555
Recognized during period and included in the contract liability balance at the beginning of the year	(34)
Increase, excluding amounts recognized as revenue during the period	25
Effective settlement of pre-existing contract liabilities in connection with Carrols Acquisition	(21)
Impact of foreign currency translation	(6)
Balance at June 30, 2024	$	519

The following table illustrates estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) on a consolidated basis as of June 30, 2024 (in millions):


Contract liabilities expected to be recognized in
Remainder of 2024	$	27
2025	53
2026	49
2027	46
2028	43
Thereafter	301
Total	$	519

Disaggregation of Total Revenues

As described in Note 17, Segment Reporting, during the fourth quarter of 2023, we revised our internal reporting structure, which resulted in a change to our operating and reportable segments. Additionally, following the Carrols Acquisition and PLK China Acquisition (as defined below), we are reporting the operations of Burger King restaurants acquired as part of the Carrols Acquisition and commencing in the third quarter of 2024 the operations of PLK China restaurants into a new operating and reportable segment called Restaurant Holdings (“RH”).

The following tables disaggregate revenue by segment (in millions):


	Three Months Ended June 30, 2024
	TH		BK		PLK		FHS		INTL		RH		ELIM (a)		Total
Supply chain sales	$	682	$	—	$	—	$	—	$	—	$	—	$	—	$	682
Company restaurant sales	11		63		33		10		—		230		—		347
Royalties	86		122		76		19		200		—		(10)		493
Property revenues	160		52		4		—		1		—		(4)		213
Franchise fees and other revenue	13		3		5		8		12		—		—		41
Advertising revenues and other services	78		124		76		16		20		—		(10)		304
Total revenues	$	1,030	$	364	$	194	$	53	$	233	$	230	$	(24)	$	2,080

(a)Represents elimination of intersegment revenues that consists of royalties, property and advertising and other services revenue recognized by BK from intersegment transactions with RH.

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	Six Months Ended June 30, 2024
	TH		BK		PLK		FHS		INTL		RH		ELIM (a)		Total
Supply chain sales	$	1,309	$	—	$	—	$	—	$	—	$	—	$	—	$	1,309
Company restaurant sales	22		121		56		20		—		230		—		449
Royalties	163		238		151		36		388		—		(10)		966
Property revenues	307		108		7		—		1		—		(4)		419
Franchise fees and other revenue	20		6		7		16		25		—		—		74
Advertising revenues and other services	148		241		151		31		41		—		(10)		602
Total revenues	$	1,969	$	714	$	372	$	103	$	455	$	230	$	(24)	$	3,819


	Three Months Ended June 30, 2023
	TH		BK		PLK		FHS		INTL		Total
Supply chain sales	$	676	$	—	$	—	$	—	$	—	$	676
Company restaurant sales	12		24		22		10		—		68
Royalties	83		125		73		18		192		491
Property revenues	158		58		4		—		—		220
Franchise fees and other revenue	6		3		5		6		11		31
Advertising revenues and other services	73		117		69		14		16		289
Total revenues	$	1,008	$	327	$	173	$	48	$	219	$	1,775


	Six Months Ended June 30, 2023
	TH		BK		PLK		FHS		INTL		Total
Supply chain sales	$	1,283	$	—	$	—	$	—	$	—	$	1,283
Company restaurant sales	23		43		43		20		—		129
Royalties	154		238		141		35		365		933
Property revenues	295		113		7		—		1		416
Franchise fees and other revenue	11		7		7		12		24		61
Advertising revenues and other services	135		223		135		18		32		543
Total revenues	$	1,901	$	624	$	333	$	85	$	422	$	3,365

Note 7. 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 13, 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.

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Numerator:
Net income attributable to common shareholders - basic	$	280	$	241	$	510	$	430
Add: Net income attributable to noncontrolling interests	119		109		216		196
Net income available to common shareholders and noncontrolling interests - diluted	$	399	$	350	$	726	$	626

Denominator:
Weighted average common shares - basic	317		312		316		310
Exchange of noncontrolling interests for common shares (Note 13)	134		141		134		142
Effect of other dilutive securities	2		5		3		5
Weighted average common shares - diluted	453		458		453		457

Basic earnings per share (a)	$	0.89	$	0.77	$	1.62	$	1.39
Diluted earnings per share (a)	$	0.88	$	0.77	$	1.60	$	1.37
Anti-dilutive securities outstanding	5		5		5		5

(a) Earnings per share may not recalculate exactly as it is calculated based on unrounded numbers.

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Note 8. Intangible Assets, net and Goodwill

Intangible assets, net and goodwill consist of the following (in millions):


	As of
	June 30, 2024						December 31, 2023
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Identifiable assets subject to amortization:
Franchise agreements	$	718	$	(359)	$	359	$	727	$	(348)	$	379
Reacquired franchise rights	386		(4)		382		—		—		—
Favorable leases	80		(55)		25		81		(54)		27
Subtotal	1,184		(418)		766		808		(402)		406
Indefinite-lived intangible assets:
Tim Hortons brand	$	6,241	$	—	$	6,241	$	6,423	$	—	$	6,423
Burger King brand	2,088		—		2,088		2,107		—		2,107
Popeyes brand	1,355		—		1,355		1,355		—		1,355
Firehouse Subs brand	816		—		816		816		—		816
Subtotal	10,500		—		10,500		10,701		—		10,701
Intangible assets, net					$	11,266					$	11,107

Goodwill:
TH segment	$	4,006					$	4,118
BK segment	239						232
PLK segment	844						844
FHS segment	193						193
INTL segment