2014

Tim Hortons Inc. announces 2013 second quarter results:

Same-store sales return to positive growth; solid earnings performance

Updated capital structure announced to include planned recapitalization and expanded share repurchase program

(Unaudited.  All amounts in Canadian dollars and presented in accordance with U.S. GAAP.)

Financial & Sales Highlights
         

Performance
Q2 2013 Q2 2012 %
Year-over-
Year Change
YTD 2013
Total revenues $      800.1   $     785.6 1.9% $   1,531.7
Operating income $    176.6 $     158.8 11.2% $      304.5
Adjusted operating income (1) $      177.2 $     160.1 10.7% $      314.6
Effective tax rate   26.1%   27.6%     26.7%
Net income attributable to THI $     123.7 $       108.1 14.5% $     209.9
Diluted earnings per share
  attributable to THI ("EPS")
$        0.81 $       0.69 17.0% $        1.37
Fully diluted shares   152.6   156.0 (2.2)%   153.1

(All numbers in millions, except EPS and effective tax rate.  All numbers rounded.)

(1)      Adjusted operating income is a non-GAAP measure, and excludes corporate reorganization expenses of $0.6 million in Q2 2013 ($10.1 million YTD 2013) and $1.3 million in Q2 2012 ($1.3 million YTD 2012).  Please refer to "Information on non-GAAP Measure" and the reconciliation information in footnote (3) of this release for details of reconciling items.

       
Same-Store Sales (2) Q2 2013 Q2 2012 YTD 2013
Canada 1.5% 1.8% 0.6%
U.S. 1.4% 4.9% 0.5%

(2)     Includes average same-store sales at Franchised and Company-operated locations open for 13 months or more.  Substantially all of our restaurants are franchised.
   

Highlights

  • EPS growth of 17.0% in the quarter, Adjusted operating income up 10.7%(3)
  • Company returns to positive same-store sales growth in both Canada and the U.S.
  • Maintaining 2013 EPS targets, but expecting full-year same-store sales growth in Canada and the U.S. to be below targeted ranges based on year-to-date performance
  • Company plans to maximize strong financial position through a $900 million recapitalization and expanded share repurchase program, while maintaining investment grade credit rating
  • Company committed to driving U.S. market success; focused on initiatives to improve returns including working with well-capitalized franchisees
  • Sherri Brillon and Thomas V. Milroy appointed to Board of Directors, bringing additional financial and strategic expertise to the Board

 

OAKVILLE, ON, Aug. 8, 2013 /PRNewswire/ - Tim Hortons Inc. (TSX: THI, NYSE: THI) today announced results for the second quarter ended June 30th, 2013.

"We delivered solid profitability in the quarter and progression in same-store sales.  Although the operating environment remains challenging, we are focused on building our market leadership to drive top line growth," said Marc Caira, president and CEO.

"Following a comprehensive review, we plan to take advantage of our considerable financial strength and the historic low interest rate environment by adding $900 million in incremental leverage to repurchase shares.  Adding leverage to repurchase shares while maintaining our investment grade rating is consistent with our ongoing focus on shareholder value creation, while preserving our strategic flexibility to invest in the business for the long-term benefit of all shareholders," added Caira.

Consolidated Results

All percentage increases and decreases represent year-over-year changes for the second quarter of 2013 compared to the second quarter of 2012, unless otherwise noted.

Systemwide sales(4) increased 5.0% on a constant currency basis.  This growth resulted from new restaurant development in Canada and the U.S., with net growth of 233 restaurants systemwide in the past year, and from same-store sales growth of 1.5% in Canada and 1.4% in the U.S.

Our total revenues increased 1.9% to $800.1 million, compared to $785.6 million last year. The revenue growth rate was below that of systemwide sales due to a decline in distribution sales, the largest component of revenues. Distribution sales decreased due to lower prices for coffee and other commodities, which were also reflected in lower cost of sales.  The decrease in distribution sales was partially offset by the growth in systemwide sales.

Variable interest entities ("VIEs") sales increased 9.4%.  While the number of non-owned restaurants consolidated for accounting purposes has decreased since the start of fiscal 2013, it remains higher than it was a year ago, driven primarily by the addition of U.S. restaurants.

Rents and royalties grew by 5.2% in the second quarter, consistent with the growth in systemwide sales.  Franchise fees decreased by 2.4%, due to a lower number and the type of restaurant sales, partially offset by a higher number of renovations during the quarter.

Total costs and expenses declined 0.5% in the second quarter, driven by lower cost of sales and general and administrative (G&A) expense, partly offset by higher operating expenses.

Cost of sales decreased by 0.8% due to the reduced commodity prices and operational improvements in our distribution centres, partially offset by increased VIE cost of sales.  Operating expenses increased by 6.5%, due largely to increased depreciation and rent expenses associated with the new properties added to the system, as well as the depreciation impact of the digital menu board program.  Franchise fee costs fell by 5.9% due to a lower number and the type of restaurant sales, partially offset by increased renovation activity.

G&A expenses decreased by 5.5% due to lower salaries and benefits, driven by vacancies, some of which are expected to be filled during fiscal 2013, and lower stock-based compensation expense.

We incurred $0.6 million of corporate reorganization expenses in the second quarter relating to the CEO transition, compared to $1.3 million of professional fees a year earlier.

Operating income of $176.6 million was up 11.2% from $158.8 million in the second quarter of 2012.  The growth was driven by increased systemwide sales, combined with reduced expenses, particularly G&A.  Adjusted operating income(3), which excludes the impact of the corporate reorganization expenses, increased 10.7% to $177.2 million. (Please refer to "Information on non-GAAP Measure" below for a reconciliation of adjusted operating income to operating income, the most directly comparable GAAP measure).

Net income attributable to Tim Hortons Inc. was $123.7 million, an increase of 14.5% from $108.1 million a year earlier.  The improvement resulted from higher operating income, as well as a lower effective tax rate due to discrete items that occurred during the quarter.

EPS of $0.81 grew by $0.12 or 17.0% due to the increase in net income attributable to THI, as well as the positive, cumulative impact of our share repurchase programs.  On average we had 2.2% fewer fully-diluted common shares outstanding in the second quarter compared to the same period last year.  We have maintained our previously established fiscal 2013 EPS target range of $2.87 to $2.97 per share.

Segmented Performance Commentary

The operating environment continued to be challenging in the second quarter.  We believe ongoing macro-economic uncertainty and low growth has been impacting consumer confidence and discretionary spending in both Canada and the U.S, leading to an overall intensified competitive environment, and ultimately, a negative impact on the performance of several restaurant chains and consumer companies.

Despite these challenges, we returned to positive same-store sales growth in the second quarter of 2013 after experiencing declines in the first quarter.  Although we anticipate further positive growth in the second half of the year, given our year-to-date performance, we expect full-year same-store sales growth to be below our previously established targeted ranges of 2% to 4% in Canada and 3% to 5% in the U.S.

We have reclassified the segment data for the second quarter of 2012 to conform to the current period's presentation, which has been revised consistent with changes to our reportable segments announced last quarter.

Canada

Same-store sales in our Canadian segment grew by 1.5%. The increase was driven by gains in average cheque resulting from pricing, and to a lesser extent, favourable product mix, partially offset by a decrease in transactions.  Systemwide transactions grew as we added more restaurants to our system.

Operating income in the Canadian segment was $174.8 million, an increase of $9.4 million or 5.7%.  Systemwide sales growth of 4.4% in Canada resulted in higher rents and royalties income and a higher allocation of supply chain income.  Segment operating income also benefited from increased franchise fee income and lower G&A expenses.  We opened 21 restaurants in Canada during the quarter.

United States

U.S. same-store sales increased by 1.4% in the quarter, driven primarily by an increase in transactions.  Operating income was $2.6 million in the U.S. segment, a decrease of $1.5 million from the second quarter of 2012.  Systemwide sales growth of 8.6% led to increased rents and royalties revenues, which were more than offset by an increase in relief primarily related to restaurants opened in fiscal 2012, as well as higher operating expenses resulting from an increase in the number of properties owned or leased.  In the second quarter of 2012, operating income benefitted from a $0.7 million reversal of previously accrued closure costs related to our New England markets. We opened 5 standard and non-standard restaurants in the U.S. during the quarter.

We believe the U.S. market has the potential to significantly contribute to the Company's long-term earnings growth, and we are committed to driving market success. Our sales progression in many U.S. markets mirrors that of many of our Canadian markets in their early development stages.  However, overall sales volumes in our newer U.S. markets do not yet match our larger, more developed markets in the U.S., and, as a result, do not generate a strong return. We are seeking meaningful improvement in the returns on the capital we have deployed in the U.S. segment, and we have accordingly begun to accelerate our initiative to partner with well-capitalized franchisees in the U.S. as part of our development approach. While development capital in 2013 is mostly committed, starting in 2014, we expect to reduce capital being deployed in the U.S. segment as we look to new ways to profitably develop the U.S. market.

Corporate services

The Corporate services segment incurred an operating loss of $1.4 million, compared to a loss of $11.1 million in the second quarter of 2012.  The improvement was driven by distribution services income resulting from operational improvements in our distribution centres, and favourable product margin variability which will partially reverse in the second half of 2013.  Also contributing to the reduced operating loss were lower G&A expenses and lower manufacturing costs.

Our International operations also contributed positively, due in part to our expansion into Saudi Arabia.  We opened 2 restaurants in the Gulf Cooperation Council (GCC) during the quarter.

Significant Developments & Initiatives

Board approves expanded share repurchase program, to be funded by new debt

We are acting to take advantage of the Company's considerable balance sheet strength and cash flows, with Board approval of $900 million in additional debt, expected to be in the form of bank debt and/or newly issued bonds, which the Company plans to use to repurchase shares subject to market conditions, the negotiation and execution of agreements, and regulatory approvals.

We are targeting $1 billion in share repurchases over the next 12 months, including the remaining authorization in the existing program, and the deployment of the $900 million in planned debt proceeds.  We expect our credit metrics to remain investment grade following the recapitalization, thereby preserving our strong balance sheet, cash flows, and access to capital as we pursue our strategic planning work.

Consistent with these plans, the Company has obtained regulatory approval from the Toronto Stock Exchange ("TSX") to amend its Normal Course Issuer Bid (NCIB) to remove the former maximum dollar cap of $250 million.  As a result, under our amended NCIB, we will be entitled to purchase up to 10% of our "public float" as at February 14, 2013 (being 15,239,531 common shares), subject to the negotiation and execution of an amended broker agreement.  We plan to retain flexibility and evaluate alternative means of purchasing shares, including, for example, implementing a new normal course or substantial issuer bid, subject to market conditions, the negotiation and execution of agreements, and regulatory approvals, for the remainder of the targeted $1 billion in share purchases in the most effective, efficient means possible.

Sherri Brillon and Thomas V. Milroy appointed to Board of Directors

Sherri Brillon and Thomas V. Milroy have been appointed to the Tim Hortons Board of Directors, effective August 8th, 2013.  Both new directors bring considerable financial expertise and leadership experience to the Board.  Ms. Brillon is Executive Vice-President and Chief Financial Officer of Encana Corporation, a leading North American energy producer. Mr. Milroy is Chief Executive Officer of BMO Capital Markets, and is responsible for all of BMO Financial Group's businesses involving corporate, institutional and government clients in North America and globally.

Board declares dividend payment of $0.26 per common share 

The Board of Directors has declared a quarterly dividend of $0.26 per common share, payable on September 4th, 2013 to shareholders of record as of August 19th, 2013.  Dividends are declared and paid in Canadian dollars to all shareholders with Canadian resident addresses. For U.S. resident 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 8th, 2013

Tim Hortons will host a conference call today to discuss second quarter results, scheduled to begin at 2:30 p.m. (EDT). The dial-in number is (416) 641-6712 or (800) 773-0497. 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 15th, 2013 and can be accessed at (416) 626-4100 or (800) 558-5253. The call replay reservation number is 21668941. 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, 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 2012 Annual Report on Form 10-K filed February 21st, 2013, and our Quarterly Report on Form 10-Q to be filed on August 8th, 2013 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 to management's expectations 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 an adverse event or condition that damages our strong brand position and reputation; the absence of a material increase in competition or in volume or type of competitive activity within the quick service restaurant segment of the food service industry; ability to obtain financing on favourable terms; ability to maintain investment grade credit ratings; prospects and execution risks concerning the U.S. market strategy; general worldwide economic conditions; cost and availability of commodities; the ability to retain our senior management team or the inability to attract and retain new qualified personnel; continuing positive working relationships with the majority of the Company's restaurant owners; the absence of any material adverse effects arising as a result of litigation; and there being no significant change in the Company's ability to comply with current or future regulatory requirements.

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) Information on non-GAAP Measure 

Adjusted operating income is a non-GAAP measure. See below reconciliations for adjusting items to calculate adjusted operating income. Management uses adjusted operating income to assist in the evaluation of year-over-year performance, and believes that it will be helpful to investors as a measure of underlying operational growth rates. This non-GAAP measure is not intended to replace the presentation of our financial results in accordance with GAAP. The Company's use of the term adjusted operating income may differ from similar measures reported by other companies. The reconciliation of operating income, a GAAP measure, to adjusted operating income, a non-GAAP measure, is set forth in the table below:

Reconciliation of Adjusted Operating Income

 

Q2 2013
  Q2 2012   YTD 2013   YTD 2012
  (in millions)   (in millions)
Operating income  $   176.6   $   158.8   $   304.5   $   290.5
Add: Corporate reorganization expenses  0.6   1.3   10.1   1.3
Adjusted operating income  $   177.2   $   160.1   $   314.6   $   291.7

______________

All numbers rounded

(4) Total systemwide sales growth includes restaurant level sales at both Company and Franchised restaurants. Approximately 99.5% of our systemwide restaurants were franchised as at June 30th, 2013. 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 2013, systemwide sales on a constant currency basis increased 5.0% compared to the second quarter of 2012. 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, and are ultimately driven by consumer demand.

We believe systemwide sales and same-store sales growth provide meaningful information to investors regarding the size of our system, the overall health and financial performance of the system, and the strength of our brand and restaurant owner base, which ultimately impacts our consolidated and segmented financial performance. Franchised restaurant sales are not generally included in our Condensed Consolidated Financial Statements (except for certain non-owned restaurants consolidated in accordance with applicable accounting rules). The amount of systemwide sales impacts our rental and royalties revenues, as well as distribution revenues.

Tim Hortons Inc. Overview

Tim Hortons is one of the largest publicly-traded restaurant chains 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, espresso-based hot and cold specialty drinks (including lattes, cappuccinos and espresso shots), specialty teas and fruit smoothies, fresh baked goods, grilled Panini and classic sandwiches, wraps, soups, prepared foods and other food products. As of June 30th, 2013, Tim Hortons had 4,304 systemwide restaurants, including 3,468 in Canada, 807 in the United States and 29 in the Gulf Cooperation Council. 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        
      June 30, 2013   July 1, 2012   $ Change   % Change
                   
REVENUES                  
Sales     $568,562   $563,772   $4,790   0.8%
Franchise revenues                  
    Rents and royalties     209,289   198,973   10,316   5.2%
    Franchise fees     22,288   22,836   (548)   (2.4%)
      231,577   221,809   9,768   4.4%
TOTAL REVENUES     800,139   785,581   14,558   1.9%
                   
COSTS AND EXPENSES                  
Cost of sales     489,092   492,900   (3,808)   (0.8%)
Operating expenses     76,986   72,314   4,672   6.5%
Franchise fee costs     23,326   24,794   (1,468)   (5.9%)
General and administrative expenses     38,038   40,272   (2,234)   (5.5%)
Equity income     (3,916)   (3,859)   (57)   1.5%
Corporate reorganization expenses     604   1,277   (673)   (52.7%)
Other (income) expense, net     (570)   (956)   386   (40.4%)
TOTAL COSTS AND EXPENSES, NET     623,560   626,742   (3,182)   (0.5%)
                   
OPERATING INCOME     176,579   158,839   17,740   11.2%
                   
Interest expense     (8,922)   (8,650)   (272)   3.1%
Interest income     791   723   68   9.4%
                   
INCOME BEFORE INCOME TAXES     168,448   150,912   17,536   11.6%
                   
Income taxes     43,886   41,675   2,211   5.3%
                   
Net income      124,562   109,237   15,325   14.0%
Net income attributable to noncontrolling interests     826   1,170   (344)   (29.4%)
                   
NET INCOME ATTRIBUTABLE TO TIM HORTONS INC.     $123,736   $108,067   $15,669   14.5%
                   
Basic earnings per common share attributable to Tim Hortons Inc.     $0.81   $0.70   $0.11   17.0%
                   
Diluted earnings per common share attributable to Tim Hortons Inc.     $0.81   $0.69   $0.12   17.0%
                   
Weighted average number of common shares outstanding (in thousands) - Basic     152,083   155,351   (3,268)   (2.1%)
                   
Weighted average number of common shares outstanding (in thousands) - Diluted     152,637   155,995   (3,358)   (2.2%)
                   
Dividends per common share     $0.26   $0.21   $0.05    
                   
(all numbers rounded)                  
                   

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        
      June 30, 2013   July 1, 2012   $ Change   % Change
                   
REVENUES                  
Sales     $1,092,449   $1,087,074   $5,375   0.5%
Franchise revenues                  
    Rents and royalties     396,743   379,159   17,584   4.6%
    Franchise fees     42,484   40,632   1,852   4.6%
      439,227   419,791   19,436   4.6%
TOTAL REVENUES     1,531,676   1,506,865   24,811   1.6%
                   
COSTS AND EXPENSES                  
Cost of sales     950,446   957,820   (7,374)   (0.8%)
Operating expenses     152,719   138,239   14,480   10.5%
Franchise fee costs     45,878   45,076   802   1.8%
General and administrative expenses     76,706   81,695   (4,989)   (6.1%)
Equity income     (7,265)   (7,105)   (160)   2.3%
Corporate reorganization expenses     10,079   1,277   8,802   n/m
Other (income) expense, net     (1,383)   (599)   (784)   n/m
TOTAL COSTS AND EXPENSES, NET     1,227,180   1,216,403   10,777   0.9%
                   
OPERATING INCOME     304,496   290,462   14,034   4.8%
                   
Interest expense     (17,585)   (16,548)   (1,037)   6.3%
Interest income     1,719   1,434   285   19.9%
                   
INCOME BEFORE INCOME TAXES     288,630   275,348   13,282   4.8%
                   
Income taxes     77,145   76,132   1,013   1.3%
                   
Net income      211,485   199,216   12,269   6.2%
Net income attributable to noncontrolling interests     1,578   2,370   (792)   (33.4%)
                   
NET INCOME ATTRIBUTABLE TO TIM HORTONS INC.     $209,907   $196,846   $13,061   6.6%
                   
Basic earnings per common share attributable to Tim Hortons Inc.     $1.38   $1.27   $0.11   8.7%
                   
Diluted earnings per common share attributable to Tim Hortons Inc.     $1.37   $1.26   $0.11   8.8%
                   
Weighted average number of common shares outstanding (in thousands) - Basic     152,597   155,589   (2,992)   (1.9%)
                   
Weighted average number of common shares outstanding (in thousands) - Diluted     153,133   156,207   (3,074)   (2.0%)
                   
Dividends per common share     $0.52   $0.42   $0.10    
                   
n/m - not meaningful                  
(all numbers rounded)                  
                   

TIM HORTONS INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands of Canadian dollars)
(Unaudited)
                           
                  As at
                  June 30, 2013   December 30, 2012
                           
                           
ASSETS                          
                           
Current assets                          
  Cash and cash equivalents                     $86,603   $120,139
  Restricted cash and cash equivalents                     104,780   150,574
  Accounts receivable, net                     188,989   171,605
  Notes receivable, net                     5,946   7,531
  Deferred income taxes                     6,844   7,142
  Inventories and other, net                     109,639   107,000
  Advertising fund restricted assets                     38,264   45,337
Total current assets                     541,065   609,328
                           
Property and equipment, net                     1,588,991   1,553,308
                           
Intangible assets, net                     3,195   3,674
                           
Notes receivable, net                     5,662   1,246
                           
Deferred income taxes                     11,540   10,559
                           
Equity investments                     41,830   41,268
                           
Other assets                     72,603   64,796
Total assets                     $2,264,886   $2,284,179
                           

TIM HORTONS INC. AND SUBSIDIARIES   
CONDENSED CONSOLIDATED BALANCE SHEET   
(in thousands of Canadian dollars, except share and per share data)
(Unaudited)
             
      As at
      June 30, 2013   December 30, 2012
             
             
LIABILITIES AND EQUITY            
             
Current liabilities            
  Accounts payable       $140,648   $169,762
  Accrued liabilities            
      Salaries and wages       14,642   21,477
      Taxes       12,574   8,391
      Tim Card Obligation and other       147,913   197,871
  Deferred income taxes       1,052   197
  Advertising fund liabilities       42,624   44,893
  Current portion of long-term obligations       20,130   20,781
Total current liabilities       379,583   463,372
             
Long-term obligations            
  Long-term debt       364,335   359,471
  Long-term debt - Advertising fund       44,393   46,849
  Capital leases       115,645   104,383
  Deferred income taxes       8,468   10,399
  Other long-term liabilities       116,601   109,614
Total long-term obligations       649,442   630,716
             
Commitments and contingencies            
             
Equity            
  Equity of Tim Hortons Inc.            
     Common shares            
       $2.84 stated value per share, Authorized: unlimited shares,            
       Issued: 151,319,384 and 153,404,839 shares, respectively       429,105   435,033
     Common shares held in Trust, at cost: 340,314 and 316,923 shares, respectively       (14,969)   (13,356)
     Contributed surplus         13,388     10,970
     Retained earnings       916,421   893,619
     Accumulated other comprehensive loss       (108,851)   (139,028)
Total equity of Tim Hortons Inc.       1,235,094   1,187,238
Noncontrolling interests       767   2,853
Total equity       1,235,861   1,190,091
Total liabilities and equity       $2,264,886   $2,284,179
             

TIM HORTONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of Canadian dollars)
(Unaudited)
             
        Year-to-date period ended
        June 30, 2013   July 1, 2012
             
             
CASH FLOWS PROVIDED FROM (USED IN) OPERATING ACTIVITIES            
Net income       $211,485   $199,216
Adjustments to reconcile net income to net cash provided from operating activities            
    Depreciation and amortization       72,368   62,379
    Stock-based compensation expense       12,535   11,869
    Deferred income taxes       (2,539)   (2,081)
  Changes in operating assets and liabilities            
    Restricted cash and cash equivalents       46,356   43,290
    Accounts receivable       (8,254)   (32,425)
    Inventories and other       (5,218)   7,285
    Accounts payable and accrued liabilities       (75,262)   (64,156)
    Taxes       4,144   (8,674)
  Other       2,714   (352)
             
Net cash provided from operating activities       258,329   216,351
             
CASH FLOWS (USED IN) PROVIDED FROM INVESTING ACTIVITIES            
Capital expenditures        (88,272)   (66,628)
Capital expenditures - Advertising fund       (5,224)   (30,830)
Other investing activities       6,125   (8,710)
             
Net cash (used in) investing activities       (87,371)   (106,168)
             
CASH FLOWS (USED IN) PROVIDED FROM FINANCING ACTIVITIES            
Repurchase of common shares       (113,803)   (136,509)
Dividend payments to common shareholders       (79,348)   (65,661)
Net proceeds from issue of debt - Advertising fund       0   32,262
Principal payments on long-term debt obligations       (8,543)   (4,078)
Other financing activities       (5,001)   (4,739)
             
Net cash (used in) financing activities       (206,695)   (178,725)
             
Effect of exchange rate changes on cash       2,201   (222)
             
(Decrease) in cash and cash equivalents       (33,536)   (68,764)
             
Cash and cash equivalents at beginning of period       120,139   126,497
             
Cash and cash equivalents at end of period       $86,603   $57,733
       

TIM HORTONS INC. AND SUBSIDIARIES
SEGMENT REPORTING
(in thousands of Canadian dollars)
(Unaudited)
                           
              Second quarter ended        
              June 30, 2013   July 1, 2012        
                           
                           
  REVENUES (1)                        
    Canada           $657,682   $651,361        
    U.S.           41,220   43,154        
    Corporate services           5,204   4,551        
  Total reportable segments           704,106   699,066        
  Variable interest entities           96,033   86,515        
  Total           $800,139   $785,581        
                           
  SEGMENT OPERATING INCOME (LOSS)                        
    Canada           $174,760   $165,360        
    U.S.           2,587   4,101        
    Corporate services           (1,424)   (11,117)        
  Total reportable segments           175,923   158,344        
  Variable interest entities           1,260   1,772        
  Corporate reorganization expenses           (604)   (1,277)        
  Consolidated Operating Income           176,579   158,839        
  Interest, net           (8,131)   (7,927)        
  Income before income taxes           $168,448   $150,912        
                           
(1) Inter-segment revenues have been eliminated.
   
                           
              Second quarter ended
              June 30, 2013   July 1, 2012   $ Change   % Change
                           
  Consolidated Sales is comprised of:                        
     Distribution sales           $468,597   $471,274   ($2,677)   (0.6%)
     Company-operated restaurant sales           6,501   7,039   (538)   (7.6%)
     Sales from variable interest entities           93,464   85,459   8,005   9.4%
  Total Sales           $568,562   $563,772   $4,790   0.8%
                           
              Second quarter ended
              June 30, 2013   July 1, 2012   $ Change   % Change
                           
  Consolidated Cost of sales is comprised of:                        
     Distribution cost of sales           $399,019   $410,224   ($11,205)   (2.7%)
     Company-operated restaurant cost of sales           6,613   7,697   (1,084)   (14.1%)
     Cost of sales of variable interest entities           83,460   74,979   8,481   11.3%
  Total Cost of sales           $489,092   $492,900   ($3,808)   (0.8%)
                           

TIM HORTONS INC. AND SUBSIDIARIES
SEGMENT REPORTING
(in thousands of Canadian dollars)
(Unaudited)
                           
              Year-to-date period ended        
              June 30, 2013   July 1, 2012        
                           
                           
  REVENUES (1)                        
    Canada           $1,251,355   $1,251,244        
    U.S.           85,668   81,583        
    Corporate services           9,329   9,022        
  Total reportable segments           1,346,352   1,341,849        
  Variable interest entities           185,324   165,016        
  Total           $1,531,676   $1,506,865        
                           
  SEGMENT OPERATING INCOME (LOSS)                        
    Canada           $320,581   $312,586        
    U.S.           3,497   5,755        
    Corporate services           (12,089)   (29,902)        
  Total reportable segments           311,989   288,439        
  Variable interest entities           2,586   3,300        
  Corporate reorganization expenses           (10,079)   (1,277)        
  Consolidated Operating Income           304,496   290,462        
  Interest, net           (15,866)   (15,114)        
  Income before income taxes           $288,630   $275,348        
                           
(1) Inter-segment revenues have been eliminated.
                           
                           
              Year-to-date period ended
              June 30, 2013   July 1, 2012   $ Change   % Change
                           
  Consolidated Sales is comprised of:                        
     Distribution sales           $899,748   $911,002   ($11,254)   (1.2)%
     Company-operated restaurant sales           12,477   12,599   (122)   (1.0)%
     Sales from variable interest entities           180,224   163,473   16,751   10.2%
  Total Sales           $1,092,449   $1,087,074   $5,375   0.5%
                           
              Year-to-date period ended
              June 30, 2013   July 1, 2012   $ Change   % Change
                           
  Consolidated Cost of sales is comprised of:                        
     Distribution cost of sales           $774,572   $800,172   ($25,600)   (3.2)%
     Company-operated restaurant cost of sales           13,623   13,777   (154)   (1.1)%
     Cost of sales of variable interest entities           162,251   143,871   18,380   12.8%
  Total Cost of sales           $950,446   $957,820   ($7,374)   (0.8)%
                           

TIM HORTONS INC. AND SUBSIDIARIES
SYSTEMWIDE RESTAURANT COUNT
                                   
                    Increase/             Increase/
        As at     As at     (Decrease)       As at     (Decrease)
        June 30, 2013     December 30, 2012     From Year End       July 1, 2012     From Prior Year
                                   
                                   
Canada                                  
      Company-operated       17     18     (1)       11     6
      Franchised - standard and non-standard       3,324     3,294     30       3,200     124
      Franchised - self-serve kiosks       127     124     3       115     12
Total       3,468     3,436     32       3,326     142
                                   
% Franchised       99.5%     99.5%             99.7%      
                                   
U.S.                                  
      Company-operated       3     4     (1)       10     (7)
      Franchised - standard and non-standard       627     621     6       551     76
      Franchised - self-serve kiosks       177     179     (2)       173     4
Total       807     804     3       734     73
                                   
% Franchised       99.6%     99.5%             98.6%      
                                   
International (Gulf Cooperation Council)                                  
      Franchised - standard and non-standard       29     24     5       11     18
Total       29     24     5       11     18
                                   
% Franchised       100.0%     100.0%             100.0%      
                                   
Total system                                  
      Company-operated       20     22     (2)       21     (1)
      Franchised - standard and non-standard       3,980     3,939     41       3,762     218
      Franchised - self-serve kiosks       304     303     1       288     16
Total       4,304     4,264     40       4,071     233
                                   
% Franchised       99.5%     99.5%             99.5%      
                                   

TIM HORTONS INC. AND SUBSIDIARIES
Income Statement Definitions
       
       
Sales     Sales include Distribution sales, sales from company-operated restaurants, and sales from consolidated Non-owned restaurants. Distribution sales comprise sales of products (including a minimal amount of manufacturing product sales to third parties), supplies, and restaurant equipment outside of initial restaurant establishment or renovations (see "Franchise Fees") that are shipped directly from our warehouses or by third-party distributors to restaurants or retailers through our supply chain. Sales from company-operated restaurants and consolidated Non-owned restaurants comprise restaurant-level sales to our guests. The consolidation of Non-owned restaurants essentially replaces our rents and royalties with restaurant sales, which are included in VIEs' sales. 
       
Rents and royalties     Includes royalties and rental revenues earned, net of relief, and certain advertising levies associated with our Canadian Advertising Fund relating primarily to the Expanded Menu Board Program.
       
Franchise fees     Includes license fees and equipment packages, at initiation of a restaurant and in connection with the renewal or renovation, and revenues related to master license agreements.
       
Cost of sales     Cost of sales includes costs associated with the management of our supply chain, including cost of goods, direct labour and depreciation, as well as the cost of goods delivered by third-party distributors to restaurants for which we manage the supply chain logistics, and for canned coffee sold through grocery stores. Cost of sales also includes food, paper and labour costs of Company-operated restaurants and consolidated Non-owned restaurants.
       
Operating expenses     Includes rent expense related to properties leased to restaurant owners and other property-related costs including depreciation. Also included are certain operating expenses related to our distribution business such as warehouse technology costs and utilities, and product development costs.
       
Franchise fee costs     Includes the cost of equipment sold to restaurant owners at the commencement or in connection with the renovation of their restaurant business, including training and other costs necessary to assist with a successful restaurant opening, and/or the introduction of our Cold Stone Creamery® co-branding offering into existing locations. Also includes support costs related to project-related and/or operational initiatives.
       
General and administrative expenses     Includes costs that cannot be directly related to generating revenue, including expenses associated with our corporate and administrative functions, depreciation of head office buildings and office equipment, and the majority of our information technology systems.
       
Corporate reorganization expenses     Includes termination costs and professional fees related to the implementation of our new Corporate Centre and Business Unit organizational structure, as well as CEO transition costs.
       
Equity income     Includes income from equity investments in partnerships and joint ventures and other minority investments over which we exercise significant influence. Equity income from these investments is considered to be an integrated part of our business operations and is therefore included in operating income.
       
Other (income) expense, net     Includes (income) expenses that are not directly derived from the Company's primary businesses, such as foreign currency adjustments, gains and losses on asset sales, and other asset write-offs.
       
Net income attributable to noncontrolling interests     Relates to the consolidation of Non-owned restaurants pursuant to applicable accounting rules.

 

 

 

 

 

 

 

SOURCE Tim Hortons



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