Higher same-store sales growth fueled strong consolidated earnings
(Unaudited. All amounts in Canadian dollars and presented in accordance
with U.S. GAAP)
Financial & Sales Highlights ---------------------------- ------------------------------------------------------------------------- Q2 2010 Q2 2009 % Change ------------------------------------------------------------------------- Total Revenues $ 639.9 $ 605.5 5.7% Operating income $ 149.9 $ 129.0 16.1% Effective Tax Rate 29.5% 32.8% Net Income attributable to THI $ 94.1 $ 77.8 21.0% Diluted Earnings Per Share (EPS) $ 0.54 $ 0.43 25.2% Fully Diluted Shares 174.9 180.9 (3.3)% ------------------------------------------------------------------------- ($ in millions, except EPS. Fully diluted shares in millions. All numbers rounded.) Results for 2010, and retroactively for 2009, incorporate adoption of new accounting standard SFAS No. 167 - Amendments to FASB No. 46(R), now codified within ASC 810 - Consolidations. This standard relates to consolidation of certain variable interest entities. Please refer to the Company's Form 10-Q for additional information. ------------------------------------------------------------------------- Same-Store Sales(1) Q2 2010 Q2 YTD Q2 2009 ------------------------------------------------------------------------- Canada 6.4% 5.8% 1.7% U.S. 3.1% 3.1% 3.3% ------------------------------------------------------------------------- (1) Includes sales at Franchised and Company-operated locations. As of July 4th, 2010, 99.5% of our restaurants in both Canada and in the U.S. were franchised. Quarterly Highlights -------------------- - Significant sales growth in Canada and strong performance in the U.S. - Systemwide sales(2) grew 9.2% on a constant currency basis - 6.4% increase in same-store sales in Canada - 3.1% increase in same-store sales in the U.S. - Strong consolidated operating income gain of 16.1% with solid contributions from both Canadian and U.S. segments - EPS growth of 25.2% in second quarter
OAKVILLE, ON, Aug. 12 /CNW/ - Tim Hortons Inc. (TSX: THI, NYSE: THI) today announced its results for the second quarter ended July 4th, 2010.
"Our quarterly same-store sales performance in Canada was the best in several quarters, and the strength of our same-store sales growth in the U.S. was gratifying given continued economic challenges in that market," said Don Schroeder, president and CEO. "We continue to make excellent progress on our growth initiatives and we believe our business is well positioned to continue to drive shareholder value," added Schroeder.
Consolidated Results
All percentage increases and decreases represent year-over-year changes for the second quarter of 2010 compared to the second quarter of 2009, unless otherwise noted.
Systemwide sales(2) increased 9.2% on a constant currency basis. During the quarter total revenues were $639.9 million, an increase of 5.7% compared to $605.5 million last year.
Strong systemwide sales growth was the primary driver of total revenue improvement. This growth was partially offset by lower revenues from consolidated variable interest entities and fewer Company-operated restaurants.
During the second quarter operating income was $149.9 million, a 16.1% increase compared to $129.0 million last year. Strong systemwide sales growth drove higher rents, royalties and distribution income. Costs continued to be well managed during the quarter, resulting in improved operating margin. Both equity income and franchise fees were not a significant factor affecting operating income growth in the quarter. The comparable period of 2009 included $2.7 million in costs relating to the public company reorganization.
Net income attributable to Tim Hortons, which excludes the impact of noncontrolling interests, was $94.1 million, an increase of 21.0% compared to $77.8 million in the second quarter of last year. Higher operating income, and a lower year-over-year tax rate primarily due to lower Canadian statutory rates resulting from our public company reorganization, contributed to our strong net income performance. Discrete items further reduced the effective tax rate during the second quarter by approximately 1.1%. The effective tax rate in the quarter was 29.5% compared to 32.8% in the same period last year. Net income in the second quarter was impacted by higher interest expense of $1.8 million primarily related to a partial settlement of an interest rate swap related to the portion of our term debt that was prepaid and the write-off of associated deferred financing costs.
Second quarter diluted earnings per share (EPS) was $0.54, climbing 25.2% compared to $0.43 per share last year. Our EPS growth rate benefited by 4.2% from fewer outstanding shares due to our share repurchase programs.
Note: The Company has retroactively adopted new accounting standard SFAS No. 167 which has impacted prior year reported results, and 2010 actual results, for most revenue and cost line items. The new standard pertains to the consolidation of variable interest entities ("VIEs"). Under the accounting standard, if the Company is determined to be the primary beneficiary of a VIE, we are required to consolidate the VIE assets, liabilities, results of operations and cash flows.
Segmented Performance Commentary
Both operating segments increased their year-over-year earnings performance, contributing to strong consolidated performance.
Canada ------
Same-store sales in the Canadian segment increased 6.4% compared to the second quarter of 2009, the strongest quarterly year-over-year growth performance since the third quarter of 2007. Successful menu initiatives and promotions, and operational initiatives such as our hospitality strategy, helped contribute to transaction growth during the quarter. Average cheque was positively impacted this quarter by previous pricing in the system, which we expect to have a more moderate impact in the second half of the year as pricing is lapped.
A total of 15 new restaurants were opened in Canada in the second quarter. Also, at the end of the quarter, we had 63 restaurants in Canada co-branded as Cold Stone Creamery(C) locations which contributed slightly to same-store sales growth in the segment. We have decided to broaden our initial 2010 plan for up to 60 co-branded locations in Canada by an additional 20 to 25 restaurants.
Canadian segment operating income was $149.7 million, increasing 13.1% compared to $132.3 million last year. The significant increase in same-store sales and ongoing restaurant development drove most of the year-over-year increase, benefiting rents, royalties and distribution income. Income also benefited from manufacturing income related to our new coffee roasting facility which began operations in the fourth quarter of 2009. These factors were partially offset by moderately higher general and administrative expenses.
United States -------------
Same-store sales in the U.S. segment grew by 3.1% in the second quarter. Transaction growth was driven by continued menu innovation, value promotions and to a lesser extent Cold Stone Creamery(C) co-branded locations. Average cheque benefited from additional pricing in the system, offset significantly by promotional activity and value pricing. These initiatives were designed to drive transactions in order to help address continuing economic weakness and ongoing competitive activity in our core U.S. markets. Late in the quarter we also lapped several of the high volume Cold Stone Creamery openings from 2009, which will likely impact year-over-year growth rates to some extent for second half of the year.
A total of 21 Tim Hortons locations opened in the second quarter, including 15 self-serve kiosks. In addition, at the end of the second quarter there were 70 co-branded Tim Hortons and Cold Stone Creamery locations, with 67 of those sites being Tim Hortons restaurants.
The U.S. segment continued its quarterly profitability improvement trend, with a 14% year-over-year increase to $3.6 million compared to $3.1 million last year. The U.S. segment benefited from continued systemwide sales growth which drove higher distribution contributions, and from higher rents and royalties. Fewer Company-operated restaurants than the comparable period was also a significant factor in the U.S. segment operating income performance. Currency translation negatively impacted U.S. segment revenues by 11.9% and operating income by approximately 10.5%.
Corporate Developments
Sale of 50% interest in Maidstone Bakeries ------------------------------------------
In a separate announcement issued this morning we have disclosed that, further to a previously announced receipt of a buy/sell notice from our joint venture partner Aryzta AG, we have decided to sell our 50% interest in Maidstone Bakeries to Aryzta for gross proceeds of CAD$475 million. The all-cash transaction is subject to receipt of regulatory approvals, and is expected to close before year-end 2010. Our arrangement with Aryzta includes supply chain sourcing and pricing commitments for Timbits(TM) and donuts that extend until early 2016, and it has supply rights for these products until late 2017 at our option.
The Company maintains flexibility to secure alternative means of supply after the agreement expires, if necessary, and plans to evaluate possible options for the use of net proceeds from a transaction including potential avenues to return value to shareholders. Final decisions regarding the use of proceeds will be announced at the appropriate time. Additional information on this transaction can be found in the separate announcement issued today.
Private placement of $200 million Senior Notes completed --------------------------------------------------------
During the second quarter of 2010 we successfully completed a private placement transaction in Canada of $200 million principal amount of senior unsecured 4.20% notes. The debt offering was significantly oversubscribed, indicating strong market support for the Company. The net proceeds of this offering were used primarily to refinance a portion of our outstanding term loan and for general corporate purposes.
Board declares dividend payment of $0.13 per common share ---------------------------------------------------------
The Board of Directors has declared a quarterly dividend of $0.13 per common share, consistent with our previously announced change in dividend rate and targeted payout range of 30% to 35% of normalized prior-year earnings. The dividend is payable on September 8th, 2010 to shareholders of record as of August 23rd, 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.
Tim Hortons conference call today at 2:30 p.m. (EDT) Thursday, August 12th, 2010
Tim Hortons will host a conference call today to discuss the second quarter results, scheduled to begin at 2:30 p.m. (EDT). 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 August 19th, 2010 and can be accessed at (416) 626-4100 or (800) 558-5253. The call replay reservation number is 21476996. The call and presentation material will also be archived for a period of one-year in the Events and Presentations section.
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 on growth initiatives and ability to drive shareholder value, the intention to close a transaction for the sale of the Company's 50% interest in a joint venture bakery, the evaluation of possible options for the use of the net proceeds from that sale transaction and related supply chain matters, 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.
(2) Total systemwide sales growth includes restaurant level sales at both Company and Franchise restaurants. Approximately 99.5% of our consolidated system is franchised as at July 4th, 2010. Systemwide sales growth is determined using a constant exchange rate, where noted, 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 year for the period covered. For the second quarter of 2010, systemwide sales growth on a constant currency basis was up 9.2% compared to the second quarter of 2009. Systemwide sales are important to understanding our business performance as they impact our franchise royalties and rental income, as well as our distribution income. Changes in systemwide sales are driven by changes in average same-store sales and changes in the number of systemwide restaurants.
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 July 4th, 2010, Tim Hortons had 3,627 systemwide restaurants, including 3,040 in Canada and 587 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) Second quarter ended July 4, June 28, 2010 2009 $ Change % Change ----------- ----------- ----------- ----------- (Note 1) REVENUES Sales $444,344 $425,348 $18,996 4.5% Franchise revenues: Rents and royalties 175,879 160,824 15,055 9.4% Franchise fees 19,639 19,287 352 1.8% ----------- ----------- ----------- ----------- 195,518 180,111 15,407 8.6% ----------- ----------- ----------- ----------- TOTAL REVENUES 639,862 605,459 34,403 5.7% ----------- ----------- ----------- ----------- COSTS AND EXPENSES Cost of sales 375,347 365,711 9,636 2.6% Operating expenses 61,560 58,909 2,651 4.5% Franchise fee costs 20,379 19,615 764 3.9% General and administrative expenses 36,745 35,694 1,051 2.9% Equity (income) (3,760) (3,367) (393) 11.7% Other (income), net (260) (152) (108) N/M ----------- ----------- ----------- ----------- TOTAL COSTS AND EXPENSES, NET 490,011 476,410 13,601 2.9% ----------- ----------- ----------- ----------- OPERATING INCOME 149,851 129,049 20,802 16.1% Interest (expense) (6,878) (5,058) (1,820) 36.0% Interest income 113 120 (7) (5.8%) ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 143,086 124,111 18,975 15.3% INCOME TAXES 42,161 40,648 1,513 3.7% ----------- ----------- ----------- ----------- Net Income 100,925 83,463 17,462 20.9% Net income attributable to noncontrolling interests 6,804 5,703 1,101 19.3% ----------- ----------- ----------- ----------- NET INCOME ATTRIBUTABLE TO TIM HORTONS INC. $94,121 $77,760 $16,361 21.0% ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Basic earnings per common share attributable to Tim Hortons Inc. $0.54 $0.43 $0.11 25.3% ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Diluted earnings per common share attributable to Tim Hortons Inc. $0.54 $0.43 $0.11 25.2% ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Weighted average number of common shares outstanding - Basic (in thousands) 174,586 180,731 (6,145) (3.4%) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Weighted average number of common shares outstanding - Diluted (in thousands) 174,873 180,923 (6,050) (3.3%) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 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 No. 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 July 4, June 28, 2010 2009 $ Change % Change ----------- ----------- ----------- ----------- (Note 1) REVENUES Sales $850,292 $816,464 $33,828 4.1% Franchise revenues: Rents and royalties 335,839 304,988 30,851 10.1% Franchise fees 36,343 39,714 (3,371) (8.5%) ----------- ----------- ----------- ----------- 372,182 344,702 27,480 8.0% ----------- ----------- ----------- ----------- TOTAL REVENUES 1,222,474 1,161,166 61,308 5.3% ----------- ----------- ----------- ----------- COSTS AND EXPENSES Cost of sales 722,394 703,584 18,810 2.7% Operating expenses 120,285 115,502 4,783 4.1% Franchise fee costs 38,205 39,393 (1,188) (3.0%) General and administrative expenses 71,417 69,170 2,247 3.2% Equity (income) (7,017) (6,432) (585) 9.1% Other (income), net (397) (316) (81) 25.6% ----------- ----------- ----------- ----------- TOTAL COSTS AND EXPENSES, NET 944,887 920,901 23,986 2.6% ----------- ----------- ----------- ----------- OPERATING INCOME 277,587 240,265 37,322 15.5% Interest (expense) (12,325) (10,515) (1,810) 17.2% Interest income 460 784 (324) (41.3%) ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 265,722 230,534 35,188 15.3% INCOME TAXES 80,224 75,689 4,535 6.0% ----------- ----------- ----------- ----------- Net Income 185,498 154,845 30,653 19.8% Net income attributable to noncontrolling interests 12,488 10,646 1,842 17.3% ----------- ----------- ----------- ----------- NET INCOME ATTRIBUTABLE TO TIM HORTONS INC. $173,010 $144,199 $28,811 20.0% ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Basic earnings per common share attributable to Tim Hortons Inc. $0.99 $0.80 $0.19 23.9% ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Diluted earnings per common share attributable to Tim Hortons Inc. $0.99 $0.80 $0.19 23.8% ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Weighted average number of common shares outstanding - Basic (in thousands) 175,318 180,975 (5,657) (3.1%) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Weighted average number of common shares outstanding - Diluted (in thousands) 175,571 181,140 (5,570) (3.1%) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Dividend per common share $0.26 $0.20 $0.06 ----------- ----------- ----------- ----------- ----------- ----------- 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 No. 167 TIM HORTONS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (In thousands of Canadian dollars) As at ----------------------------- July 4, January 3, 2010 2010 -------------- -------------- (Note 1) (Unaudited) ASSETS Current assets Cash and cash equivalents $157,495 $121,653 Restricted cash and cash equivalents 49,958 60,629 Restricted investments 4,997 20,186 Accounts receivable, net 160,105 179,942 Notes receivable, net 19,204 20,823 Deferred income taxes 2,064 3,475 Inventories and other, net 109,592 80,490 Advertising fund restricted assets 25,661 26,681 -------------- -------------- Total current assets 529,076 513,879 Property and equipment, net 1,489,517 1,494,032 Notes receivable, net 2,641 3,475 Deferred income taxes 10,771 8,919 Intangible assets, net 7,444 8,405 Equity investments 46,594 45,875 Other assets 25,876 19,706 -------------- -------------- Total assets $2,111,919 $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 No. 167 TIM HORTONS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (In thousands of Canadian dollars) As at ----------------------------- July 4, January 3, 2010 2010 -------------- -------------- (Note 1) (Unaudited) LIABILITIES AND EQUITY Current liabilities Accounts payable $128,214 $135,248 Accrued liabilities: Salaries and wages 15,092 23,268 Taxes 25,239 27,586 Other 109,862 111,401 Deferred income taxes 117 376 Advertising fund restricted liabilities 40,850 43,944 Current portion of long-term obligations 109,128 7,821 -------------- -------------- Total current liabilities 428,502 349,644 -------------- -------------- Long-term obligations Long-term debt 237,100 336,302 Advertising fund restricted debt 344 415 Capital leases 68,314 67,156 Deferred income taxes 12,545 10,159 Other long-term liabilities 73,114 74,929 -------------- -------------- Total long-term obligations 391,417 488,961 -------------- -------------- Equity Equity of Tim Hortons Inc. Common shares Authorized: unlimited shares Issued: 174,348,514 and 177,318,614 shares, respectively 494,512 502,872 Common stock held in trust, at cost: 330,405 and 278,500 shares, respectively (11,337) (9,437) Contributed surplus 1,937 - Retained earnings 834,184 796,235 Accumulated other comprehensive loss (115,405) (120,061) -------------- -------------- Total equity of Tim Hortons Inc. 1,203,891 1,169,609 Noncontrolling interests 88,109 86,077 -------------- -------------- Total equity 1,292,000 1,255,686 -------------- -------------- Total liabilities and equity $2,111,919 $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 No. 167 TIM HORTONS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of Canadian dollars) Year-to-date period ended July 4, 2010 June 28, 2009 -------------- -------------- (Note 1) (Unaudited) CASH FLOWS PROVIDED FROM (USED IN) OPERATING ACTIVITIES Net income $185,498 $154,845 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 57,874 54,972 Stock-based compensation expense 5,447 4,073 Equity income, net of cash dividends (696) 2,513 Deferred income taxes 1,493 3,714 Changes in operating assets and liabilities Restricted cash and cash equivalents 10,697 25,316 Accounts and notes receivable 19,835 19,659 Inventories and other (27,206) 3,978 Accounts payable and accrued liabilities (15,899) (74,610) Settlement of cash flow hedges (4,791) - Other, net 2,817 315 -------------- -------------- Net cash provided from operating activities 235,069 194,775 -------------- -------------- CASH FLOWS (USED IN) PROVIDED FROM INVESTING ACTIVITIES Capital expenditures (48,494) (69,324) Proceeds from sale of restricted investments 15,240 - Principal payments received on notes receivable 1,644 733 Other investing activities (7,418) (11,841) -------------- -------------- Net cash used in investing activities (39,028) (80,432) -------------- -------------- CASH FLOWS (USED IN) PROVIDED FROM FINANCING ACTIVITIES Purchase of common shares/treasury stock (98,018) (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 (45,413) (36,253) Distributions and other to noncontrolling interests (10,456) (14,147) Proceeds from issuance of debt, net of issuance costs 200,359 1,150 Principal payments on other long-term debt obligations (203,218) (2,551) -------------- -------------- Net cash used in financing activities (160,375) (69,447) -------------- -------------- Effect of exchange rate changes on cash 176 (1,552) -------------- -------------- Increase in cash and cash equivalents 35,842 43,344 Cash and cash equivalents at beginning of period 121,653 124,717 -------------- -------------- Cash and cash equivalents at end of period $157,495 $168,061 -------------- -------------- -------------- -------------- Note 1 - For comparative purposes, prior year figures have been presented on a consistent basis to reflect the Company's adoption of SFAS No. 167 TIM HORTONS INC. AND SUBSIDIARIES SEGMENT REPORTING (In thousands of Canadian dollars) (Note 1 and 2) (Unaudited) Second Quarter ended ----------------------------------------------- July 4, June 28, 2010 % of Total 2009 % of Total ----------- ----------- ----------- ----------- REVENUES Canada $538,228 84.1% $468,822 77.4% U.S. 30,135 4.7% 38,717 6.4% ----------- ----------- ----------- ----------- Total reportable segments 568,363 88.8% 507,539 83.8% Variable interest entities 71,499 11.2% 97,920 16.2% ----------- ----------- ----------- ----------- Total $639,862 100.0% $605,459 100.0% ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- SEGMENT OPERATING INCOME (LOSS) Canada $149,730 97.7% $132,347 97.7% U.S. 3,580 2.3% 3,141 2.3% ----------- ----------- ----------- ----------- Reportable Segment Operating Income 153,310 100.0% 135,488 100.0% ----------- ----------- ----------- ----------- Variable interest entities 7,743 6,279 Corporate Charges (11,202) (12,718) ----------- ----------- Consolidated Operating Income 149,851 129,049 Interest expense, net (6,765) (4,938) Income taxes (42,161) (40,648) ----------- ----------- Net Income 100,925 83,463 Net Income attributable to noncontrolling interests 6,804 5,703 ----------- ----------- Net Income attributable to Tim Hortons Inc. $94,121 $77,760 ----------- ----------- ----------- ----------- Year-to-date period ended ----------------------------------------------- July 4, June 28, 2010 % of Total 2009 % of Total ----------- ----------- ----------- ----------- REVENUES Canada $1,006,893 82.4% $897,427 77.3% U.S. 57,848 4.7% 73,044 6.3% ----------- ----------- ----------- ----------- Total reportable segments 1,064,741 87.1% 970,471 83.6% Variable interest entities 157,733 12.9% 190,695 16.4% ----------- ----------- ----------- ----------- Total $1,222,474 100.0% $1,161,166 100.0% ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- SEGMENT OPERATING INCOME (LOSS) Canada $282,116 98.8% $248,169 99.0% U.S. 3,334 1.2% 2,577 1.0% ----------- ----------- ----------- ----------- Reportable Segment Operating Income 285,450 100.0% 250,746 100.0% ----------- ----------- ----------- ----------- Variable interest entities 14,223 12,553 Corporate Charges (22,086) (23,034) ----------- ----------- Consolidated Operating Income 277,587 240,265 Interest expense, net (11,865) (9,731) Income taxes (80,224) (75,689) ----------- ----------- Net Income 185,498 154,845 Net Income attributable to noncontrolling interests 12,488 10,646 ----------- ----------- Net Income attributable to Tim Hortons Inc. $173,010 $144,199 ----------- ----------- ----------- ----------- Second Quarter ended ----------------------- July 4, June 28, 2010 2009 $ Change % Change ----------- ----------- ----------- ----------- Sales is comprised of: Distribution sales $367,390 $320,823 $46,567 14.5% Company-operated restaurant sales 5,455 6,605 (1,150) (17.4)% Sales from variable interest entities 71,499 97,920 (26,421) (27.0)% ----------- ----------- ----------- ----------- $444,344 $425,348 $18,996 4.5% ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Year-to-date period ended ----------------------- July 4, June 28, 2010 2009 $ Change % Change ----------- ----------- ----------- ----------- Sales is comprised of: Distribution sales $682,114 $613,028 $69,086 11.3% Company-operated restaurant sales 10,445 12,741 (2,296) (18.0)% Sales from variable interest entities 157,733 190,695 (32,962) (17.3)% ----------- ----------- ----------- ----------- $850,292 $816,464 $33,828 4.1% ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Note 1 - For comparative purposes, prior year figures have been presented on a consistent basis to reflect the Company's adoption of SFAS No. 167 Note 2 - While the adoption of SFAS No. 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. TIM HORTONS INC. AND SUBSIDIARIES SYSTEMWIDE RESTAURANT COUNT Increase/ Increase/ As of As of (Decrease) As of (Decrease) July 4, January 3, From June 28, From 2010 2010 Year End 2009 Prior Year ---------------------------------------------------- Tim Hortons ----------- Canada Company-operated 14 13 1 15 (1) Franchised 3,026 3,002 24 2,924 102 ---------------------------------------------------- Total 3,040 3,015 25 2,939 101 % Franchised 99.5% 99.6% 99.5% U.S. Company-operated 3 5 (2) 5 (2) Franchised 584 558 26 531 53 ---------------------------------------------------- Total 587 563 24 536 51 % Franchised 99.5% 99.1% 99.1% Total Tim Hortons Company-operated 17 18 (1) 20 (3) Franchised 3,610 3,560 50 3,455 155 ---------------------------------------------------- Total 3,627 3,578 49 3,475 152 ---------------------------------------------------- ---------------------------------------------------- % Franchised 99.5% 99.5% 99.4% 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. 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 No. 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.
For further information: Investors: Scott Bonikowsky, (905) 339-6186 or [email protected]; Media: Alexandra Cygal, (905) 339-5960 or [email protected]
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