Tim Hortons Inc. announces strong 2010 third quarter underlying operating performance and provides update on important strategic developments
(Unaudited. All amounts in Canadian dollars and presented in accordance with U.S. GAAP)
Highlights
- Strength of underlying operations reflected in continued sales and
revenue momentum in Canada and the U.S.
- Same-store sales up 4.3% in Canada and 3.3% in the U.S.
- Total revenues up 9.8%
- Management to focus on its core growth markets in the Northeast and
Midwest U.S.; Company takes $20.9 million asset impairment charge and
will close its locations in two markets in the New England region
- Approximately $400 million in after-tax cash proceeds from sale of
interest in Maidstone Bakeries planned to be deployed to repurchase
shares and $30 million committed with the intent of helping
franchisees to mitigate anticipated rising operating costs
Financial & Sales Highlights
----------------------------
-------------------------------------------------------------------------
%
Year-over
Year
Q3 2010 Q3 2009 Change YTD 2010
-------------------------------------------------------------------------
Total revenues $ 670.5 $ 610.7 9.8% $ 1,893.0
Operating income $ 133.0 $ 136.8 (2.8)% $ 410.6
Adjusted operating income
attributable to THI(1) $ 144.9 $ 129.9 11.5% $ 408.2
Effective tax rate 35.7% 49.3% 32.0%
Net income attributable to
THI $ 73.8 $ 61.2 20.7% $ 246.8
Diluted earnings per share
(EPS) $ 0.42 $ 0.34 25.6% $ 1.41
Fully diluted shares 173.7 180.9 (3.9)% 175.0
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($ in millions, except EPS. Fully diluted shares in millions. All
numbers rounded.)
(1) Adjusted operating income attributable to THI is a non-GAAP measure.
Please refer to "Disclosure of Non-GAAP Measure" at the end of this
release for further information.
Results for 2010, and retroactively for 2009, incorporate adoption of new
accounting standard SFAS # 167. This standard relates to consolidation
of certain variable interest entities. Please refer to the Company's
Form 10-Q for additional information.
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Same-Store Sales(2) Q3 2010 Q3 2009 YTD 2010
-------------------------------------------------------------------------
Canada 4.3% 3.1% 5.3%
U.S. 3.3% 4.3% 3.1%
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(2) Includes sales at Franchised and Company-operated locations. As of
October 3rd, 2010, 99.4% of our restaurants in Canada and 99.7% in
the U.S. were franchised.
OAKVILLE, ON, Nov. 10 /PRNewswire-FirstCall/ - Tim Hortons Inc. (TSX: THI, NYSE: THI) today announced strong underlying operating results for the third quarter ended October 3rd, 2010. Earnings growth in the third quarter was negatively impacted by an asset impairment charge the Company took pertaining to three markets in the New England region.
Following a comprehensive review, we have decided to close 36 restaurants, 34 of which are located in the Providence and Hartford markets, in the fourth quarter in order to focus on and reinvest in our core growth markets in the Northeast and Midwest U.S. where the brand continues to demonstrate strengthening average unit volumes, cash flows and brand progression.
The Company has decided to deploy approximately $400 million of the $430 million in after-tax cash proceeds from the sale of its joint venture interest in Maidstone Bakeries to repurchase shares through an amended 2010 program, and through a 2011 share repurchase program, subject to receipt of regulatory approval. The Company has also committed the remaining $30 million from the sale with the intent of supporting our key relationship with restaurant owners to help to partially mitigate anticipated rising operating costs.
"We continued to create sales momentum in the third quarter with strong operating performances in both our Canadian and U.S. segments," said Don Schroeder, president and CEO. "However, at the same time, we incurred an asset impairment charge and subsequently made the decision to close all of our underperforming restaurants in two markets in the New England region. We expect this decision to have a positive impact on our U.S. business in terms of our continued business progression and management focus," added Schroeder. "We plan to reinvest a portion of the expected earnings improvement from these closures to increase our brand profile in our U.S. core growth markets where we are building critical mass."
Consolidated Results
All percentage increases and decreases represent year-over-year changes for the third quarter of 2010 compared to the third quarter of 2009, unless otherwise noted.
Systemwide sales(3) increased 7.4% on a constant currency basis in the third quarter. During the quarter total revenues were $670.5 million, an increase of 9.8% compared to $610.7 million last year.
Operating income declined 2.8% in the third quarter to $133.0 million compared to $136.8 million last year. Operating income was impacted by a $20.9 million asset impairment charge. Excluding this item, adjusted operating income attributable to THI(1) increased by 11.5% to $144.9 million.
Operating income benefited in the third quarter from higher systemwide sales which drove higher revenues and higher distribution income. Lower franchise fee income and higher general and administrative expenses in the quarter, primarily relating to strategic initiatives, partially offset these positive factors. Last year's operating income results in the third quarter were negatively impacted by $3.2 million for professional advisory fees and shareholder-related transaction costs pertaining to our reorganization as a Canadian public company.
Net income attributable to Tim Hortons, which excludes the impact of non-controlling interests, was $73.8 million, growing 20.7% from the $61.2 million recorded in the third quarter last year. The effective tax rate was 35.7% this quarter compared to 49.3% in the third quarter of last year. The year-over-year decrease in the effective tax rate was due primarily to discrete items pertaining to the public company reorganization in the third quarter of 2009 that did not recur in 2010. The tax rate in the third quarter this year was higher than earlier in the year due to the impact of the asset impairment charge for which no tax benefit was recorded. Interest expense increased year-over-year, resulting primarily from higher interest rates on our long-term debt, which also impacted net income.
In the third quarter diluted earnings per share (EPS) were $0.42, an increase of 25.6% compared to last year, with the significant increase due primarily to the change in the effective tax rate compared to last year. Our EPS growth rate benefited from 3.9% fewer shares outstanding compared to last year due to our share repurchase programs. The effect of the asset impairment charge taken in the third quarter this year negatively impacted EPS by approximately $0.12 per share.
The asset impairment and costs associated with the subsequent decision to close certain restaurants in the New England region, as well as the Maidstone Bakeries sale, were not contemplated as part of Management's 2010 guidance.
Segmented Performance Commentary
The strength of our underlying operations was again demonstrated through robust operating performance overall in both Canada and the U.S.
Canada
------
Our Canadian business had a 4.3% increase in same-store sales. We grew transactions again in the third quarter, as a result of continued traction from menu initiatives, promotions and operational strategies such as our hospitality program. Average cheque also increased this quarter, although there was reduced benefit from previous pricing in the system compared to earlier in the year.
In Canada, a total of 44 new locations were opened in the third quarter. We had 85 co-branded Cold Stone Creamery(C) locations in Canada at the end of the quarter, which contributed slightly to same-store sales growth in the segment.
Operating income in the Canadian segment was $148.2 million, an increase of 4.5% compared to $141.9 million last year. Our ongoing restaurant development program and continued strength of same-store sales growth contributed to the higher operating income from increased rents, royalties and distribution income. The new coffee roasting facility, which began operations in the fourth quarter of 2009, also contributed to manufacturing income growth in the quarter. The Canadian segment also benefited from higher earnings from our joint ventures, including the bakery. These positive contributors were partially offset by other factors such as higher general and administrative costs including professional advisory fees and increased salaries and benefits reflecting growth in the business as well as investments in our hospitality and co-branding strategies. Lower franchise fees also impacted Canadian segment operating income due to fewer resales and a shift in mix of restaurant types opened during the quarter. On a year-to-date basis Canadian segment operating income was up a solid 10.3% compared to 2009.
United States
-------------
The U.S. segment experienced growth of 3.3% in same-store sales in the third quarter, amid continued challenging economic circumstances in our core markets. Following a slower start in the quarter due to the significant positive sales impact of Cold Stone Creamery grand openings last year, same store-sales significantly strengthened later in the quarter in our core markets, with September delivering notably improved same-store sales growth.
Our U.S. business grew transactions slightly this quarter, benefiting from continued menu innovation, marketing programs designed to distinguish our quality and value position and ongoing operational programs. Average cheque benefited from pricing introduced early in the second quarter of 2010.
A total of 35 locations were opened this quarter in the U.S. These sites include 4 standard restaurants, 7 non-standard restaurants and 24 self-serve kiosks designed to build upon our strategy of pursuing strategic alliances and partnerships to deliver increased brand penetration to complement standard restaurant development. At the end of the third quarter there were 80 co-branded Tim Hortons and Cold Stone Creamery locations, with 77 of those sites being in Tim Hortons restaurants.
The U.S. segment had an operating loss of $17.5 million in the third quarter due to the $20.9 million asset impairment charge related to three markets in the New England region, described in further detail under Strategic Developments below. Absent this charge, the U.S. segment would have recorded operating income of $3.4 million. This underlying operating performance demonstrates the continued progress and development of our U.S. business.
The underlying operating income improvement was mainly due to increased systemwide sales, resulting in higher distribution income and higher rents and royalties. Operating income improvements from our U.S. coffee roasting operations and fewer Company-operated restaurants also contributed to performance improvements. Currency translation negatively impacted U.S. segment revenues by approximately 6.1% during the quarter and operating income by approximately 5.8% excluding the asset impairment charge.
Strategic Developments
Company records asset impairment charge, plans to close all of its
------------------------------------------------------------------
restaurants in two New England markets in order to focus on core growth
-----------------------------------------------------------------------
markets in Northeast and Midwest U.S.
-------------------------------------
Following a comprehensive review and analysis, as noted under segmented performance commentary, the Company has taken a non-cash $20.9 million asset impairment charge in the New England region.
Subsequent to the quarter, the Company has also decided to close all of its locations in the Providence and Hartford market areas, as well as two restaurants in the Portland market. A total of 36 restaurants and 18 self-serve kiosks will be closed in the fourth quarter, and we expect to take an additional charge, which is not expected to exceed $30 million, in the fourth quarter relating to lease and other location closing costs. This charge will be primarily cash.
"We are profitably growing our U.S. business in our core Northeast and Midwest U.S. markets and overall we are seeing sales develop consistent with our expectations and long-term views of success. The restaurants we are closing in the New England region have detracted from that performance and our overall development in the U.S. We believe this step removes a significant impediment to our long-term growth and development," said Don Schroeder, president and CEO. "These restaurants represent a small portion of our overall system in the U.S, but had a disproportionately large negative impact on earnings, average unit volumes and same-store sales growth in the segment," Schroeder added.
Average annual unit volumes for standard restaurants in the Providence and Hartford markets were approximately half of other core markets in the U.S. Collectively, the restaurants that are closing had a negative impact of about $4.4 million on operating income year-to-date to the end of the third quarter in the U.S. segment, excluding the asset impairment charge. We expect this decision to contribute directly to earnings improvement in the U.S. segment in 2011 and we also plan on reinvesting a portion of our savings from these closed restaurants into core growth markets to increase our advertising and marketing scale.
Up to $400 million in after-tax cash proceeds from sale of interest in
----------------------------------------------------------------------
Maidstone Bakeries to be deployed in share repurchases and $30 million
----------------------------------------------------------------------
committed to support franchisees with the intent of partially mitigating
------------------------------------------------------------------------
anticipated rising operating costs
----------------------------------
The Company realized after-tax cash proceeds of approximately $430 million from the sale of its interest in Maidstone Bakeries, which closed October 29th, 2010.
We expect to record an accounting gain on the sale of Maidstone Bakeries in the fourth quarter of 2010 of between $355 million and $365 million before taxes, and between $310 million and $320 million after-taxes. For accounting purposes, approximately $40 million to $45 million of the pre-tax gain on sale will be deferred and amortized over the remaining term of the supply agreement.
The Company plans to distribute the net cash proceeds through an amended 2010 share repurchase program, and through a 2011 program that will be subject to receipt of regulatory approval.
In order to facilitate distribution of the bakery proceeds, regulatory approval has been obtained from the Toronto Stock Exchange (TSX) to amend our 2010 share repurchase program to increase the number of shares that may be purchased under the program effective November 16th, 2010. Under the amended normal course issuer bid, which will terminate March 2nd, 2011, the Company plans to spend the $200 million originally contemplated in the 2010 normal course issuer bid, along with up to $200 million from proceeds from the Maidstone Bakeries transaction, with the final amount dependent upon average daily trading limits and share price.
It is our intention, subject to regulatory approval and in parallel with our capital allocation process, to distribute the remaining after-tax cash proceeds through a new 2011 share repurchase program, with the proceeds expected to be distributed in their entirety by the end of the third quarter of 2011.
The Company's common shares have been, and will continue to be, purchased through a combination of an automatic trading plan as well as at Management's discretion in compliance with regulatory requirements, and given market, cost and other considerations. There can be no assurance as to the precise number of shares that will be repurchased under share repurchase programs, or the aggregate dollar amount of the shares purchased. Tim Hortons may discontinue purchases at any time, subject to compliance with applicable regulatory requirements. Shares purchased pursuant to share repurchase programs will be cancelled.
The Company has also committed the remaining $30 million from the sale with the intent of supporting our key relationship with restaurant owners to help to partially mitigate anticipated rising operating costs.
Board declares dividend payment of $0.13 per common share
---------------------------------------------------------
A quarterly dividend of $0.13 per common share has been declared by the Board of Directors, payable on December 14th, 2010 to shareholders of record as of December 1st, 2010. Dividends are declared and paid in Canadian dollars to all shareholders with Canadian resident addresses. For U.S. shareholders, dividends paid will be converted to U.S. dollars based on prevailing exchange rates at the time of conversion by Tim Hortons for registered shareholders and by Clearing and Depository Services Inc. for beneficial shareholders.
Board of Directors Adopts Majority Voting Policy for Election of
----------------------------------------------------------------
Directors
---------
The Board of Directors has adopted a majority voting standard in its Governance Guidelines for the election of directors in uncontested elections. Under the new policy, if a nominee does not receive the affirmative vote of at least the majority of votes cast, the Director shall promptly tender a resignation for consideration by the Nominating and Corporate Governance Committee and the Board. A copy of the amended Governance Guidelines, with additional information on the policy, is available under the Corporate Governance section of the Company's investor relations website at www.timhortons-invest.com
Tim Hortons conference call tomorrow at 10:00 a.m. (EDST) Thursday, November 11th, 2010
Tim Hortons will host a conference call tomorrow to discuss the third quarter results, scheduled to begin at 10:00 a.m. (EDST). The dial-in number is (416) 641-6712 or (800) 354-6885. No access code is required. A simultaneous web cast of the call, including presentation material, will be available at www.timhortons-invest.com. A replay of the call will be available until November 19th, 2010 and can be accessed at (416) 626-4100 or (800) 558-5253. The call replay reservation number is 21485280. The call and presentation material will also be archived for a period of one-year in the Events and Presentations section.
Disclosure of Non-GAAP Financial Measure
(1) Operating income attributable to Tim Hortons Inc. is a non-GAAP
measure. Operating income attributable to Tim Hortons Inc. excludes
operating income attributable to noncontrolling interests. Prior to
the adoption of a new accounting standard at the beginning of the
first quarter of 2010, operating income was, for the most part,
unaffected by noncontrolling interests, which is not the case post-
adoption. This new accounting standard requires the consolidation of
variable interest entities of which we are considered to be the
primary beneficiary, including Maidstone Bakeries, as well as, on
average, approximately 277 non-owned restaurants. Previously, we did
not consolidate this joint venture and we consolidated approximately
120 non-owned restaurants, on average, in accordance with the prior
accounting standard. Management believes that operating income
attributable to Tim Hortons Inc. provides important information for
comparison purposes to prior periods and for purposes of evaluating
the Company's operating income performance without the effects of the
new accounting standard.
Adjusted operating income attributable to Tim Hortons Inc. is also a
non-GAAP measure. Adjusted operating income attributable to Tim
Hortons Inc. excludes operating income attributable to noncontrolling
interests, as described above, and the asset impairment charge. The
asset impairment charge impacted three U.S. operating markets, which
represents approximately 2% of our total systemwide restaurants.
Given the foregoing, we have excluded the asset impairment charge as
we consider this charge to have a disproportionate impact on overall
operating and financial performance of our consolidated business.
The presentation of these non-GAAP measures is made with operating
income, the most directly comparable U.S. GAAP measure. We present
information excluding amounts related to this new accounting standard
and the asset impairment charge as it is more reflective of the way
we manage and measure our performance internally. Therefore, these
measures provide a more consistent view of management's perspectives
on underlying performance than the closest equivalent U.S. GAAP
measure.
Table 1 Pro forma: Reconciliation of adjusted operating income to U.S.
GAAP
-------------------------------------------------------------------------
Quarter Ended Q3 2010 Q3 2009 % Change YTD 2010
-------------------------------------------------------------------------
Reported Operating income $ 133.0 $ 136.8 (2.8)% $ 410.6
Less: Operating income
attributable to
non-controlling interests (9.0) (6.9) (30.8)% (23.3)
--------------------------------------------
Operating income 124.0 129.9 (4.6)% 387.3
Add: Asset impairment charge 20.9 - N/M 20.9
--------------------------------------------
Adjusted operating income
attributable to THI $ 144.9 $ 129.9 11.5% $ 408.2
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($ in millions, all numbers rounded.)
N/M = not meaningful
Safe Harbor Statement
Certain information in this news release, particularly information regarding future economic performance, finances, and plans, expectations and objectives of management, including as they relate to the Company's progress in the Northeast and Midwest U.S., the use of approximately $430 million of after tax proceeds from the sale of our interest in the Maidstone Bakeries joint venture and other information constitutes forward-looking information within the meaning of Canadian securities laws and forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
We refer to all of these as forward-looking statements. Various factors including competition in the quick service segment of the food service industry, general economic conditions and others described as "risk factors" in the Company's 2009 Annual Report on Form 10-K filed March 4th, 2010 and the Quarterly Report on Form 10-Q filed August 12th, 2010 with the U.S. Securities and Exchange Commission and Canadian Securities Administrators, could affect the Company's actual results and cause such results to differ materially from those expressed in forward-looking statements.
As such, readers are cautioned not to place undue reliance on forward-looking statements contained in this news release, which speak only as of the date hereof. Forward-looking statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to, assumptions about: the absence of a material increase in competition within the quick service restaurant segment of the food service industry; the absence of an adverse event or condition that damages our strong brand position and reputation; continuing positive working relationships with the majority of the Company's franchisees; there being no significant change in the Company's ability to comply with current or future regulatory requirements; the absence of any material adverse effects arising as a result of litigation; and general worldwide economic conditions.
We are presenting this information for the purpose of informing you of management's current expectations regarding these matters, and this information may not be appropriate for any other purpose. We assume no obligation to update or alter any forward-looking statements after they are made, whether as a result of new information, future events, or otherwise, except as required by applicable law. Please review the Company's Safe Harbor Statement at www.timhortons.com/en/about/safeharbor.html.
(3) Total systemwide sales growth includes restaurant level sales at both
Company and Franchise restaurants. Approximately 99.4% of our
consolidated system is franchised as at October 3rd, 2010. Systemwide
sales growth is determined using a constant exchange rate to exclude the
effects of foreign currency translation. U.S. dollar sales are converted
to Canadian dollar amounts using the average exchange rate of the base
quarter for the period covered. Systemwide sales growth excludes sales
from our Republic of Ireland and United Kingdom licensed locations.
Systemwide sales growth in Canadian dollars, including the effects of
foreign currency translation, was 6.9% for both the third quarter ended
2010 and 2009.
Tim Hortons Inc. Overview
Tim Hortons is the fourth largest publicly-traded restaurant chain in North America based on market capitalization, and the largest in Canada. Operating in the quick service segment of the restaurant industry, Tim Hortons appeals to a broad range of consumer tastes, with a menu that includes premium coffee, flavored cappuccinos, specialty teas, home-style soups, fresh sandwiches, wraps, hot breakfast sandwiches and fresh baked goods, including our trademark donuts. As of October 3rd, 2010, Tim Hortons had 3,703 systemwide restaurants, including 3,082 in Canada and 621 in the United States. More information about the Company is available at www.timhortons.com.
TIM HORTONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands of Canadian dollars, except share and per share data)
(Unaudited)
Third quarter ended
October September
3, 2010 27, 2009 $ Change % Change
------------ ------------ ------------ ------------
(Note 1)
REVENUES
Sales $468,000 $422,995 $45,005 10.6%
Franchise revenues:
Rents and royalties 176,964 164,114 12,850 7.8%
Franchise fees 25,556 23,605 1,951 8.3%
------------ ------------ ------------ ------------
202,520 187,719 14,801 7.9%
------------ ------------ ------------ ------------
TOTAL REVENUES 670,520 610,714 59,806 9.8%
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Cost of sales 398,957 362,500 36,457 10.1%
Operating expenses 61,690 58,558 3,132 5.3%
Franchise fee costs 24,908 21,754 3,154 14.5%
General and
administrative
expenses 35,790 35,363 427 1.2%
Equity (income) (4,015) (3,931) (84) 2.1%
Asset impairment 20,888 0 20,888 N/M
Other (income), net (708) (359) (349) N/M
------------ ------------ ------------ ------------
TOTAL COSTS AND
EXPENSES, NET 537,510 473,885 63,625 13.4%
------------ ------------ ------------ ------------
OPERATING INCOME 133,010 136,829 (3,819) (2.8%)
Interest (expense) (6,472) (5,180) (1,292) 24.9%
Interest income 432 272 160 58.8%
------------ ------------ ------------ ------------
INCOME BEFORE INCOME
TAXES 126,970 131,921 (4,951) (3.8%)
INCOME TAXES 45,268 64,988 (19,720) (30.3%)
------------ ------------ ------------ ------------
Net Income 81,702 66,933 14,769 22.1%
Net income attributable
to noncontrolling
interests 7,874 5,754 2,120 36.8%
------------ ------------ ------------ ------------
NET INCOME ATTRIBUTABLE
TO TIM HORTONS INC. $73,828 $61,179 $12,649 20.7%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic earnings per
common share
attributable to Tim
Hortons Inc. $0.43 $0.34 $0.09 25.7%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted earnings per
common share
attributable to Tim
Hortons Inc. $0.42 $0.34 $0.09 25.6%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average number
of common shares
outstanding - Basic
(in thousands) 173,482 180,681 (7,199) (4.0%)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average number
of common shares
outstanding - Diluted
(in thousands) 173,743 180,864 (7,121) (3.9%)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Dividend per common
share $0.13 $0.10 $0.03
------------ ------------ ------------
------------ ------------ ------------
N/M - not meaningful
(all numbers rounded)
Note 1 - For comparative purposes, prior year figures have been presented
on a consistent basis to reflect the Company's adoption of SFAS # 167
TIM HORTONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands of Canadian dollars, except share and per share data)
(Unaudited)
Year-to-date period
ended
October September
3, 2010 27, 2009 $ Change % Change
------------ ------------ ------------ ------------
(Note 1)
REVENUES
Sales $1,318,292 $1,239,459 $78,833 6.4%
Franchise revenues:
Rents and royalties 512,803 469,102 43,701 9.3%
Franchise fees 61,899 63,319 (1,420) (2.2%)
------------ ------------ ------------ ------------
574,702 532,421 42,281 7.9%
------------ ------------ ------------ ------------
TOTAL REVENUES 1,892,994 1,771,880 121,114 6.8%
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Cost of sales 1,121,351 1,066,084 55,267 5.2%
Operating expenses 181,975 174,060 7,915 4.5%
Franchise fee costs 63,113 61,147 1,966 3.2%
General and
administrative
expenses 107,207 104,533 2,674 2.6%
Equity (income) (11,032) (10,363) (669) 6.5%
Asset impairment 20,888 0 20,888 N/M
Other (income), net (1,105) (675) (430) 63.7%
------------ ------------ ------------ ------------
TOTAL COSTS AND
EXPENSES, NET 1,482,397 1,394,786 87,611 6.3%
------------ ------------ ------------ ------------
OPERATING INCOME 410,597 377,094 33,503 8.9%
Interest (expense) (18,797) (15,695) (3,102) 19.8%
Interest income 892 1,056 (164) (15.5%)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME
TAXES 392,692 362,455 30,237 8.3%
INCOME TAXES 125,492 140,677 (15,185) (10.8%)
------------ ------------ ------------ ------------
Net Income 267,200 221,778 45,422 20.5%
Net income attributable
to noncontrolling
interests 20,362 16,400 3,962 24.2%
------------ ------------ ------------ ------------
NET INCOME ATTRIBUTABLE
TO TIM HORTONS INC. $246,838 $205,378 $41,460 20.2%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic earnings per
common share
attributable to Tim
Hortons Inc. $1.41 $1.14 $0.28 24.4%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted earnings per
common share
attributable to Tim
Hortons Inc. $1.41 $1.13 $0.28 24.4%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average number
of common shares
outstanding - Basic
(in thousands) 174,744 180,878 (6,134) (3.4%)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average number
of common shares
outstanding - Diluted
(in thousands) 175,002 181,076 (6,074) (3.4%)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Dividend per common
share $0.39 $0.30 $0.09
------------ ------------ ------------
------------ ------------ ------------
N/M - not meaningful
(all numbers rounded)
Note 1 - For comparative purposes, prior year figures have been presented
on a consistent basis to reflect the Company's adoption of SFAS # 167
TIM HORTONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands of Canadian dollars)
As at
-------------------------
October 3, January 3,
2010 2010
----------- -----------
(Note 1)
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $195,702 $121,653
Restricted cash and cash equivalents 14,056 60,629
Restricted investments 37,876 20,186
Accounts receivable, net 139,004 179,942
Notes receivable, net 12,180 20,823
Deferred income taxes 2,474 3,475
Inventories and other, net 104,202 80,490
Assets held for sale - variable interest
entity 190,466 0
Advertising fund restricted assets 28,074 26,681
----------- -----------
Total current assets 724,034 513,879
Property and equipment, net 1,338,065 1,494,032
Notes receivable, net 3,087 3,475
Deferred income taxes 10,582 8,919
Intangible assets, net 5,380 8,405
Equity investments 46,230 45,875
Other assets 27,912 19,706
----------- -----------
Total assets $2,155,290 $2,094,291
----------- -----------
----------- -----------
Note 1 - For comparative purposes, prior year figures have been presented
on a consistent basis to reflect the Company's adoption of SFAS # 167
TIM HORTONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands of Canadian dollars)
As at
-------------------------
October 3, January 3,
2010 2010
----------- -----------
(Note 1)
(Unaudited)
LIABILITIES AND EQUITY
Current liabilities
Accounts payable $143,014 $135,248
Accrued liabilities:
Salaries and wages 20,247 23,268
Taxes 27,278 27,586
Other 107,360 111,401
Liabilities held for sale - variable
interest entity 24,829 0
Deferred income taxes 118 376
Advertising fund restricted liabilities 42,235 43,944
Current portion of long-term obligations 109,526 7,821
----------- -----------
Total current liabilities 474,607 349,644
----------- -----------
Long-term obligations
Long-term debt 241,006 336,302
Advertising fund restricted debt 420 415
Capital leases 70,056 67,156
Deferred income taxes 4,232 10,159
Other long-term liabilities 75,054 74,929
----------- -----------
Total long-term obligations 390,768 488,961
----------- -----------
Equity
Equity of Tim Hortons Inc.
Common shares
Authorized: unlimited shares
Issued: 173,302,269 and 177,318,614
shares, respectively 491,542 502,872
Common stock held in trust, at cost:
330,405 and 278,500 shares, respectively (11,337) (9,437)
Contributed surplus 2,844 0
Retained earnings 850,363 796,235
Accumulated other comprehensive loss (133,605) (120,061)
----------- -----------
Total equity of Tim Hortons Inc. 1,199,807 1,169,609
Noncontrolling interests 90,108 86,077
----------- -----------
Total equity 1,289,915 1,255,686
----------- -----------
Total liabilities and equity $2,155,290 $2,094,291
----------- -----------
----------- -----------
Note 1 - For comparative purposes, prior year figures have been presented
on a consistent basis to reflect the Company's adoption of SFAS # 167
TIM HORTONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)
Year-to-date
period ended
October 3, September 27,
2010 2009
----------- ------------
(Note 1)
(Unaudited)
CASH FLOWS PROVIDED FROM (USED IN) OPERATING
ACTIVITIES
Net income $267,200 $221,778
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 88,368 83,383
Asset impairment 20,888 0
Stock-based compensation expense 9,500 6,801
Equity income, net of cash dividends (494) 88
Deferred income taxes 2,351 18,518
Changes in operating assets and liabilities
Restricted cash and cash equivalents 46,443 48,447
Accounts and notes receivable 37,141 (817)
Inventories and other (35,068) 6,625
Accounts payable and accrued liabilities 7,226 (40,431)
Settlement of cash flow hedges (4,791) 0
Other, net (1,904) 6,385
----------- -----------
Net cash provided from operating activities 436,860 350,777
----------- -----------
CASH FLOWS (USED IN) PROVIDED FROM INVESTING
ACTIVITIES
Capital expenditures (78,988) (113,028)
Proceeds from sale of restricted investments 20,240 0
Purchase of restricted investments (37,832) (20,136)
Principal payments received on notes receivable 8,491 2,263
Other investing activities (7,415) (14,991)
----------- -----------
Net cash used in investing activities (95,504) (145,892)
----------- -----------
CASH FLOWS (USED IN) PROVIDED FROM FINANCING
ACTIVITIES
Purchase of common shares/treasury stock (136,036) (16,701)
Purchase of common shares held in trust (3,252) (713)
Purchase of common shares for settlement of
restricted stock units (377) (232)
Dividend payments to common shareholders (68,004) (54,583)
Distributions and other to noncontrolling
interests (16,331) (24,759)
Proceeds from issuance of shares to
noncontrolling interest 0 1,305
Proceeds from issuance of debt, net of
issuance costs 200,518 2,707
Principal payments on other long-term debt
obligations (204,760) (3,893)
----------- -----------
Net cash used in financing activities (228,242) (96,869)
----------- -----------
Effect of exchange rate changes on cash (1,308) (5,115)
----------- -----------
Increase in cash and cash equivalents 111,806 102,901
Cash and cash equivalents at beginning of period 121,653 124,717
Less: Cash and cash equivalents included in
assets held for sale (37,757) 0
----------- -----------
Cash and cash equivalents at end of period $195,702 $227,618
----------- -----------
----------- -----------
Note 1 - For comparative purposes, prior year figures have been presented
on a consistent basis to reflect the Company's adoption of SFAS # 167
TIM HORTONS INC. AND SUBSIDIARIES
SEGMENT REPORTING
(In thousands of Canadian dollars)
(Note 1 and 2)
(Unaudited)
Third Quarter Ended
---------------------------------------------------
October September
3, 2010 % of Total 27, 2009 % of Total
------------ ------------ ------------ ------------
REVENUES
Canada $562,057 83.8% $485,807 79.5%
U.S. 33,573 5.0% 32,071 5.3%
------------ ------------ ------------ ------------
Total reportable
segments 595,630 88.8% 517,878 84.8%
Variable interest
entities 74,890 11.2% 92,836 15.2%
------------ ------------ ------------ ------------
Total $670,520 100.0% $610,714 100.0%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
SEGMENT OPERATING
INCOME (LOSS)
Canada $148,240 113.4% $141,897 99.2%
U.S. (note 3) (17,483) (13.4)% 1,079 0.8%
------------ ------------ ------------ ------------
Reportable Segment
Operating Income 130,757 100.0% 142,976 100.0%
------------ ------------
------------ ------------
Variable interest
entities 9,032 6,906
Corporate charges (6,779) (13,053)
------------ ------------
Consolidated Operating
Income 133,010 136,829
Interest expense, net (6,040) (4,908)
Income taxes (45,268) (64,988)
------------ ------------
Net Income 81,702 66,933
Net Income attributable
to noncontrolling
interests 7,874 5,754
------------ ------------
Net Income attributable
to Tim Hortons Inc. $73,828 $61,179
------------ ------------
------------ ------------
Year-to-date period ended
---------------------------------------------------
October September
3, 2010 % of Total 27, 2009 % of Total
------------ ------------ ------------ ------------
REVENUES
Canada $1,568,950 82.9% $1,383,234 78.1%
U.S. 91,421 4.8% 105,115 5.9%
------------ ------------ ------------ ------------
Total reportable
segments 1,660,371 87.7% 1,488,349 84.0%
Variable interest
entities 232,623 12.3% 283,531 16.0%
------------ ------------ ------------ ------------
Total $1,892,994 100.0% $1,771,880 100.0%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
SEGMENT OPERATING
INCOME (LOSS)
Canada $430,356 103.4% $390,066 99.1%
U.S. (note 3) (14,149) (3.4)% 3,656 0.9%
------------ ------------ ------------ ------------
Reportable Segment
Operating Income 416,207 100.0% 393,722 100.0%
------------ ------------
------------ ------------
Variable interest
entities 23,255 19,459
Corporate charges (28,865) (36,087)
------------ ------------
Consolidated Operating
Income 410,597 377,094
Interest expense, net (17,905) (14,639)
Income taxes (125,492) (140,677)
------------ ------------
Net Income 267,200 221,778
Net Income attributable
to noncontrolling
interests 20,362 16,400
------------ ------------
Net Income attributable
to Tim Hortons Inc. $246,838 $205,378
------------ ------------
------------ ------------
Third quarter ended
-------------------------
October September
3, 2010 27, 2009 $ Change % Change
------------ ------------ ------------ ------------
Sales is comprised of:
Distribution sales $387,030 $324,283 $62,747 19.3%
Company-operated
restaurant sales 6,080 5,876 204 3.5%
Sales from variable
interest entities 74,890 92,836 (17,946) (19.3)%
------------ ------------ ------------ ------------
$468,000 $422,995 $45,005 10.6%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Year-to-date period ended
-------------------------
October September
3, 2010 27, 2009 $ Change % Change
------------ ------------ ------------ ------------
Sales is comprised of:
Distribution sales $1,069,144 $937,311 $131,833 14.1%
Company-operated
restaurant sales 16,525 18,617 (2,092) (11.2)%
Sales from variable
interest entities 232,623 283,531 (50,908) (18.0)%
------------ ------------ ------------ ------------
$1,318,292 $1,239,459 $78,833 6.4%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Note 1 - For comparative purposes, prior year figures have been presented
on a consistent basis to reflect the Company's adoption of SFAS
# 167
Note 2 - While the adoption of SFAS # 167 resulted in the consolidation
of its 50-50 bakery joint venture, the Company's chief decision
maker continues to view and evaluate the performance of the
Canadian segment with this 50-50 bakery joint venture accounted
for on an equity accounting basis, which reflects 50% of its
operating income (consistent with views and evaluations prior to
the adoption of the Standard). As a result, the net revenues,
and the remaining 50% of operating income of this joint venture
have been included in Variable interest entities along with
revenues and operating income from our non-owned consolidated
restaurants.
Note 3 - The U.S. operating segment includes an asset impairment charge
of $20.9 million in the third quarter and year-to-date periods
of 2010.
TIM HORTONS INC. AND SUBSIDIARIES
SYSTEMWIDE RESTAURANT COUNT
Increase/ Increase/
As of As of (Decrease) As of (Decrease)
October January From September From
3, 2010 3, 2010 Year End 27, 2009 Prior Year
-----------------------------------------------------------
Canada
Company-
operated 19 13 6 18 1
Franchised -
self-serve
kiosks 98 98 0 99 (1)
Franchised 2,965 2,904 61 2,854 111
-----------------------------------------------------------
Total 3,082 3,015 67 2,971 111
% Franchised 99.4% 99.6% 99.4%
U.S.
Company-
operated 2 5 (3) 5 (3)
Franchised -
self-serve
kiosks 127 87 40 87 40
Franchised 492 471 21 464 28
-----------------------------------------------------------
Total 621 563 58 556 65
% Franchised 99.7% 99.1% 99.1%
Total Tim
Hortons
Company-
operated 21 18 3 23 (2)
Franchised -
self-serve
kiosks 225 185 40 186 39
Franchised 3,457 3,375 82 3,318 139
-----------------------------------------------------------
Total 3,703 3,578 125 3,527 176
-----------------------------------------------------------
-----------------------------------------------------------
% Franchised 99.4% 99.5% 99.3%
TIM HORTONS INC. AND SUBSIDIARIES
Income Statement Definitions
Sales Primarily includes sales of products, supplies and
restaurant equipment (except for initial equipment
packages sold to franchisees as part of the
establishment of their restaurant's business - see
"Franchise Fees") that are shipped directly from
our warehouses or by third party distributors to
the restaurants, which we include in distribution
sales. Sales include canned coffee sales through
the grocery channel. Sales also include sales from
Company-operated restaurants and sales from certain
non-owned restaurants that are consolidated in
accordance with ASC 810 (formerly FIN 46R) as well
as sales from our bakery joint venture which we are
required to consolidate.
Rents and Royalties Includes franchisee royalties and rental revenues.
Franchise Fees Includes the sales revenue from initial equipment
packages, as well as fees for various costs and
expenses related to establishing a franchisee's
business.
Cost of Sales Includes costs associated with our distribution
business, including cost of goods, direct labour
and depreciation, as well as the cost of goods
delivered by third-party distributors to the
restaurants, and for canned coffee sold through
grocery stores. Cost of sales also includes food,
paper and labour costs for Company-operated
restaurants and certain non-owned restaurants that
are consolidated in accordance with ASC 810
(formerly FIN 46R) as well as cost of sales from
our bakery joint venture.
Operating Expenses Includes rent expense related to properties leased
to franchisees and other property-related costs
(including depreciation).
Franchise fee costs Includes costs of equipment sold to franchisees as
part of the commencement of their restaurant
business, as well as training and other costs
necessary to ensure a successful restaurant
opening.
General and Includes costs that cannot be directly related to
Administrative generating revenue, including expenses associated
with our corporate and administrative functions,
and depreciation of office equipment, the majority
of our information technology systems, and head
office real estate.
Equity Income Includes income from equity investments in joint
ventures and other minority investments over which
we exercise significant influence, excluding joint
ventures that we are required to consolidate.
Equity income from these investments is considered
to be an integrated part of our business operations
and is, therefore, included in operating income.
Income amounts are shown as reductions to total
costs and expenses.
Asset impairment Represents a non-cash charge relating to the
impairment of long-lived assets.
Other (Income), net Includes expenses (income) that are not directly
derived from the Company's primary businesses.
Items include foreign currency adjustments, gains
and losses on asset sales, and other asset write-
offs.
Noncontrolling Relates to the consolidation of our bakery joint
interests venture and certain non-owned restaurants that the
Company is required to consolidate under ASC 810
(formerly SFAS # 167 and FIN 46R).
Comprehensive Income Represents the change in our net assets during the
reporting period from transactions and other events
and circumstances from non-owner sources. It
includes net income and other comprehensive income
such as foreign currency translation adjustments
and the impact of cash flow hedges.
SOURCE Tim Hortons Inc.
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