Tim Hortons Inc. Announces 2008 Third Quarter Results
Operating income increases 12.7% to $122.1 million
(All amounts in Canadian dollars)
Financial & Sales Highlights
----------------------------
-------------------------------------------------------------------------
Third Quarter Ended September September % Change
28, 2008 30, 2007
-------------------------------------------------------------------------
Total Revenues $ 509.0 $ 490.5 3.8%
Operating Income $ 122.1 $ 108.3 12.7%
Effective Tax Rate 32.5% 35.2%
Net Income $ 78.8 $ 67.4 16.9%
Diluted Earnings Per Share $ 0.43 $ 0.36 20.2%
Fully Diluted Shares 182.7 187.9 (2.8)%
-------------------------------------------------------------------------
($ in millions except EPS. Fully diluted shares in millions. All numbers
rounded.)
-------------------------------------------------------------------------
Same-Store Sales Q3 2008 Q3 2007
-------------------------------------------------------------------------
Canada 3.8% 7.7%
United States (0.6)% 4.5%
-------------------------------------------------------------------------
Same-store sales calculation methodology includes restaurants beginning
the 13th month after opening.
As of September 28, 2008, 99.5% of system restaurants in Canada and 92.9%
of U.S. restaurants were franchised.
Highlights
- Third quarter systemwide sales(1) increased 7.8%
- Operating income increased to $122.1 million, up 12.7%
- 49 restaurants opened
- Board declares quarterly dividend of $0.09 per share
- 1.6 million shares purchased as part of the share repurchase program
OAKVILLE, ON, Nov. 7 // PRNewswire-FirstCall // - Tim Hortons Inc. (NYSE: THI, TSX: THI) today announced operating results for the third quarter ended September 28, 2008.
Systemwide sales(1), which include sales from Company-operated and Franchise restaurants, grew 7.8% in the third quarter compared to the third quarter of 2007. Canadian same-store sales increased 3.8% and U.S. same-store sales were down 0.6%. Total revenues rose 3.8% to $509.0 million compared to $490.5 million in the same period last year. Operating income increased 12.7% to $122.1 million compared to $108.3 million last year. Net income was up 16.9% to $78.8 million compared to $67.4 million in the third quarter of 2007. Earnings per diluted share were $0.43, up 20.2% compared to $0.36 in the third quarter of last year.
"Our earnings performance and positive same-store sales growth in Canada demonstrates our brand strength in the face of unprecedented economic and consumer challenges," said Don Schroeder, president and CEO. "While our brand in the U.S. is less developed and we faced sales and earnings challenges due in large part to the current economic conditions, we delivered strong consolidated performance in the third quarter."
Consolidated Performance
The Company opened 49 restaurants during the quarter, compared to 40 units in the same period of last year.
During the quarter, promotional programs included Chocolate Brownie and Hazelnut Iced Capp Supremes, Gourmet Cookies and the Bagel B.E.L.T. Various baked goods featured during the quarter included Strawberry Blossom Donut and European Style Pastries. In the U.S., promotional activities also included Iced Coffee and a new Combo program called "Fresh Choice Sides" which included combos of apples, hashbrowns, muffins and donuts as part of a hot breakfast sandwich Combo program. In September we also featured Hearty Potato Bacon soup and Italian Wedding soup in the U.S. market.
Total revenues were $509.0 million in the third quarter, up 3.8% compared to $490.5 million in the third quarter of 2007. Sales, consisting primarily of distribution sales, increased 2.0% to $333.6 million compared to $327.0 million during the same period last year. Underlying product demand, excluding the impact of pricing, increased but year-over-year growth comparisons were impacted by specific sales items in 2007 that did not recur including a new uniform program. Total revenues and sales growth were both affected by our continued initiative to convert Company-operated restaurants to an owner-operator model, reducing revenues from Company-operated restaurants. There were 27 net fewer Company-operated restaurants at the end of the quarter versus the prior year, bringing the total number of Company-operated restaurants in the system to 43 compared to 70 in the same period of 2007. Revenues from Company-operated restaurants were down a corresponding 30.4%, or $3.9 million compared to last year, offset in part by sales increases related to restaurants consolidated in accordance with FIN 46R. A total of 98.7% of the systemwide restaurants are now franchised.
Revenues from rents and royalties were up 8.2% in the third quarter to $155.2 million, consistent with systemwide sales growth, compared to $143.4 million in the third quarter last year. Franchise fees were flat at $20.2 million in the quarter compared to $20.1 million last year. Increased openings and franchise renewal fees were mostly offset by lower resales and replacement fees and fewer equipment sales recognized from our U.S. franchise incentive program.
During the third quarter franchise fee costs decreased 2.9% compared to last year. Lower franchise fee costs resulted from fewer resales and replacements with lower associated costs per unit, and lower equipment costs recognized under the U.S. franchise incentive program. These factors were partially offset by higher costs from the increased number of restaurant openings and higher support costs associated with establishing a franchisee's business.
Cost of sales increased modestly, growing 1.7% in the quarter on a year-over-year basis. Warehouse cost of sales was the primary driver of the increase coupled with an increase in FIN 46R consolidated restaurants. These factors were partially offset by a decrease in Company-operated restaurants. Operating expenses increased 3.8% in the quarter compared to the third quarter of last year. The increase was mainly due to the increased number of restaurant openings and higher variable rent on existing properties due primarily to growth in the Canadian business, offset by the timing of certain expenses incurred in the prior year.
General and administrative costs were $30.0 million in the third quarter, down 2.5% from 2007 costs of $30.8 million. The year-over-year decrease in general and administrative costs was due primarily to a range of factors in the prior year that did not recur, the most significant of which was costs incurred in 2007 for the Company's franchisee convention.
Equity income was $9.4 million in the third quarter, a decrease of 4.4% compared to the same period of 2007. The Company had slightly higher earnings contributions from both of its largest joint ventures in the third quarter. An asset disposition in the third quarter of 2007 that did not recur reduced equity income on a year-over-year basis.
Operating income was up 12.7% to $122.1 million, compared to $108.3 million in the third quarter of 2007. Higher rents and royalties driven by increased systemwide sales was the most significant contributor to strong operating income growth. Other positive contributing factors included higher other income, higher franchise license renewals and lower general and administrative costs due to some costs in 2007 that did not recur in 2008. These positive factors were partially offset by lower equity income.
Net interest expense was 24.1% higher in the third quarter at $5.3 million, compared to $4.3 million in the same period of 2007. The increase in net interest expense was due primarily to lower interest income as a result of rate reductions and lower cash on hand.
Net income grew 16.9% in the quarter to $78.8 million, compared to $67.4 million in the third quarter of last year. The higher growth was the result primarily of a lower effective tax rate during the quarter of 32.5%, versus 35.2% in the comparable period of 2007. The decrease in effective tax rate was due primarily to a lower Canadian statutory rate in the third quarter as well as items that impacted the effective tax rate in 2007 that did not recur this year.
Diluted earnings per share (EPS) grew 20.2% to $0.43 compared to $0.36 last year in the third quarter. EPS growth was due primarily to higher net income and lower weighted average shares outstanding, which decreased 2.8% to 182.7 million shares due to the Company's share repurchase program.
Segmented Performance
Same-store sales in the third quarter for the Canadian segment were up 3.8%, most of which was due to previous price increases. The Canadian segment lapped very strong same-store sales growth of 7.7% in the comparable period of 2007.
Segment margins in Canada increased during the quarter primarily due to growth in rents and royalties from systemwide sales growth, higher franchise fee income and higher distribution income. Canadian operating income was $132.9 million, an increase of 11.6% compared to $119.1 million in the third quarter last year. A total of 30 restaurants were opened in Canada, bringing the total to 75 restaurants opened on a year-to-date basis.
Compared to the third quarter of 2007, U.S. same-store sales declined 0.6%, which includes the impact of about 3.2% of previously introduced pricing. The U.S. segment had a loss of $2.1 million in the third quarter. Higher franchisee relief accounted for most of the year-over-year change, more than offsetting the positive impact of the higher number of openings in the quarter.
A total of 19 restaurants were opened in the U.S. this quarter, and 30 units year-to-date. The Company has opened several new restaurants as part of its planned Syracuse expansion and is making substantial progress in opening locations as part of its recently announced agreement with Tops Friendly Markets. Under terms of this agreement, Tim Hortons sites, which will be primarily self-serve units, will be established in about 80 Tops stores in western and central New York, and northern Pennsylvania.
Based on year-to-date same-store sales performance of 1.2%, and continued economic weakness in the U.S., the Company does not expect to meet its 2008 same-store sales target in the U.S. of 2% to 4% growth. The Company does expect to exceed the restaurant expansion target of 90-110 locations, with a stronger orientation toward non-standard restaurants in the U.S. and self- serve kiosks consistent with the Tops Friendly Markets agreement.
The Company's focus on U.S. profitability has resulted in several proactive initiatives including conversion of Company-operated restaurants to the owner-operator model, seeding the brand through less capital intensive means including strategic alliances, and recently introducing product bundles with various value price points. As part of its profitability focus, the Company plans to rationalize some underperforming Company-operated restaurants in southern New England between the end of 2008 and early next year.
"Our brand has experienced tremendous systemwide growth in the U.S. over the past several years. The plan to close underperforming restaurants is consistent with management's efforts to improve profitability in the U.S. segment. We expect rationalization of underperforming restaurants will ultimately contribute to improved profitability, and improve sales performance at our remaining restaurants nearby," said Don Schroeder, president and CEO.
The Company's operating income performance to the end of the third quarter was generally consistent with its annualized expectations for operating income growth of 10% excluding the $3.1 million charge in the second quarter. While rationalization of some underperforming restaurants in southern New England will contribute to future earnings, the 2008 operating income target did not contemplate a charge for closed restaurants that will likely occur in the fourth quarter.
As part of its international platform, the number of Tim Hortons licensed sites in the Republic of Ireland and the United Kingdom has expanded to 261 locations.
Capital Expenditures
The Company invested $46.0 million in capital expenditures in the third quarter, and $112.1 million year-to-date, primarily on its restaurant expansion program and renovations. Due primarily to a higher number of leased restaurants versus owned restaurants and a higher mix of non-standard restaurants, the Company does not expect to spend the targeted 2008 capital expenditure range of $200 million to $250 million.
Corporate Developments
Ronald W. Osborne appointed to Board
The Board has appointed Mr. Ronald W. Osborne as a director of the Company. Mr. Osborne has been the Chairman of the Board of Directors of Sun Life Financial Inc. and Sun Life Assurance since May 2005. Mr. Osborne served as President and Chief Executive Officer and as a director of Ontario Power Generation Inc., and its predecessor company Ontario Hydro. He was formerly President of BCE Inc. and President and Chief Executive Officer of Bell Canada. Mr. Osborne is a director of RioCan Real Estate Investment Trust and Torstar Corporation. He is also a member of the board of governors of the Corporation of Massey Hall and Roy Thomson Hall, a member of the advisory board of Brookfield Power, a director of St. Lawrence Cement Group Inc., and a fellow of the Institute of Chartered Accountants of Ontario.
Share Repurchase Program
The Company spent $49.5 million in the third quarter to repurchase a total of approximately 1.6 million shares as part of its 2007-2008 share repurchase program. In 2008, $149.8 million was spent to purchase 4.5 million shares as part of the program to return value to shareholders. As of October 30, 2008, the Company has completed its 2007-2008 program.
The Company's Board of Directors has approved a 2009 share repurchase program for up to $200 million, planned to commence during the first quarter 2009. For future years, commencement of the program at the beginning of the year will allow the Company to fully align its annual budgeting and capital allocation process, including capital expenditures, dividends, and share repurchases. Implementation of the 2009 share repurchase program, and the extent of respective purchases under the program, are subject to regulatory compliance and will be at management's discretion given prevailing market conditions and cost considerations.
Board Declares Dividend Payment of $0.09 per Share
The Board of Directors has declared a quarterly dividend of $0.09 per share payable on December 4th, 2008 to shareholders of record as of November 20th, 2008. The Company's current dividend policy is to pay a total of 20-25% of prior year, normalized annual net earnings in dividends each year.
Dividends are paid in Canadian dollars to all shareholders with Canadian resident addresses whose shares are registered with Computershare, the Company's transfer agent. For all other shareholders, including all shareholders who hold their shares indirectly (i.e., through their broker) and regardless of country of residence, the dividend will be converted to U.S. dollars on November 26th, 2008 at the daily noon rate established by the Bank of Canada and paid in U.S. dollars on December 4th, 2008.
Tim Hortons to Host Conference Call Today at 10:30 a.m. EST
Tim Hortons will host a conference call to discuss its third quarter results beginning at 10:30 a.m. Eastern Standard Time (EST) on Friday, November 7th, 2008. Investors and the public may listen to the conference call by calling 416-641-6712 or 1-800-354-6885 (no access code required), or through simultaneous webcast by visiting the investor relations website at http://www.timhortons-invest.com, and clicking on the "Events and Presentations" tab. A slide presentation will be available to coincide with the conference call on this site. The conference call will be available for replay on the website for a period of one year.
Safe Harbor Statement
Certain information in this news release, particularly information regarding future economic performance and finances, and plans, expectations and objectives of management, is forward-looking. Factors set forth in the Company's Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995, including by reference the "risk factors" outlined in the Company's most recent Form 10-K filed February 26, 2008 in addition to other possible factors not listed or described in the Safe Harbor Statement, 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. Except as required by federal or provincial securities laws, the Company undertakes no obligation to publicly release any revisions to the forward looking statements contained in this release, or to update them to reflect events or circumstances occurring after the date of this release, or to reflect the occurrence of unanticipated events, even if new information, future events or other circumstances have made the forward-looking statements incorrect or misleading. Please review the Company's Safe Harbor Statement at http://www.timhortons.com/en/about/safeharbor.html.
(1) Total systemwide sales growth includes restaurant level sales at both Company and Franchise restaurants. Approximately 98.7% of our system is franchised as at September 28, 2008. 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 year for the period covered. For the third quarter of 2008, systemwide sales growth was up 7.8% compared to the third quarter of 2007. Systemwide sales impact our franchise royalties and rental income, as well as our distribution sales. Changes in systemwide sales are driven by changes in average same-store sales and changes in the number of systemwide restaurants. Management believes systemwide sales data is useful and important in assessing the overall health and financial performance of the brand and the Company's Franchisee base, and ultimately, the financial performance of the Company on a consolidated and segmented basis.
Tim Hortons Inc.
Overview Tim Hortons is the fourth largest publicly-traded quick service restaurant chain in North America based on market capitalization, and the largest in Canada. Tim Hortons appeals to a broad range of consumer tastes, with a menu that includes premium coffee and donuts, flavored cappuccinos, specialty teas, home-style soups, fresh sandwiches and fresh baked goods. As of September 28, 2008, Tim Hortons had 3,294 systemwide restaurants, including 2,870 in Canada and 424 in the United States. More information about the Company is available at http://www.timhortons-invest.com.
TIM HORTONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of Canadian dollars, except share and per share data)
(Unaudited)
Third Quarter Ended
September September
28, 2008 30, 2007 $ Change % Change
----------- ----------- ----------- -----------
REVENUES
Sales $ 333,581 $ 327,020 $ 6,561 2.0%
Franchise revenues
Rents and royalties 155,214 143,449 11,765 8.2%
Franchise fees 20,200 20,072 128 0.6%
----------- ----------- ----------- -----------
175,414 163,521 11,893 7.3%
----------- ----------- ----------- -----------
TOTAL REVENUES 508,995 490,541 18,454 3.8%
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of sales 293,056 288,168 4,888 1.7%
Operating expenses 53,596 51,617 1,979 3.8%
Franchise fee costs 19,840 20,432 (592) (2.9%)
General & administrative
expenses 29,986 30,758 (772) (2.5%)
Equity (income) (9,429) (9,861) 432 (4.4%)
Other (income) expense,
net (126) 1,090 (1,216) N/M
----------- ----------- ----------- -----------
TOTAL COSTS & EXPENSES,
NET 386,923 382,204 4,719 1.2%
----------- ----------- ----------- -----------
OPERATING INCOME 122,072 108,337 13,735 12.7%
Interest (expense) (6,288) (6,118) (170) 2.8%
Interest income 957 1,823 (866) (47.5%)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES 116,741 104,042 12,699 12.2%
INCOME TAXES 37,984 36,661 1,323 3.6%
----------- ----------- ----------- -----------
NET INCOME $78,757 $67,381 $11,376 16.9%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic earnings per share
of common stock $0.43 $0.36 $0.07 20.2%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted earnings per
share of common stock $0.43 $0.36 $0.07 20.2%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic shares of common
stock (in thousands) 182,431 187,684 (5,253) (2.8%)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted shares of common
stock (in thousands) 182,662 187,879 (5,217) (2.8%)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Dividend per share of
common stock $0.09 $0.07 $0.02
----------- ----------- -----------
----------- ----------- -----------
N/M - not meaningful
(all numbers rounded)
TIM HORTONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of Canadian dollars, except share and per share data)
(Unaudited)
Year-to-Date Ended
September September
28, 2008 30, 2007 $ Change % Change
----------- ----------- ----------- -----------
REVENUES
Sales $975,960 $913,364 $62,596 6.9%
Franchise revenues
Rents and royalties 444,640 410,803 33,837 8.2%
Franchise fees 59,404 56,239 3,165 5.6%
----------- ----------- ----------- -----------
504,044 467,042 37,002 7.9%
----------- ----------- ----------- -----------
TOTAL REVENUES 1,480,004 1,380,406 99,598 7.2%
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of sales 858,440 805,419 53,021 6.6%
Operating expenses 158,227 148,881 9,346 6.3%
Franchise fee costs 58,028 53,909 4,119 7.6%
General & administrative
expenses 96,996 90,318 6,678 7.4%
Equity (income) (26,792) (28,873) 2,081 (7.2%)
Other (income) expense,
net (596) 1,870 (2,466) N/M
----------- ----------- ----------- -----------
TOTAL COSTS & EXPENSES,
NET 1,144,303 1,071,524 72,779 6.8%
----------- ----------- ----------- -----------
OPERATING INCOME 335,701 308,882 26,819 8.7%
Interest (expense) (18,608) (17,882) (726) 4.1%
Interest income 4,020 5,143 (1,123) (21.8%)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES 321,113 296,143 24,970 8.4%
INCOME TAXES 105,562 102,262 3,300 3.2%
----------- ----------- ----------- -----------
NET INCOME $215,551 $193,881 $21,670 11.2%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic earnings per share
of common stock $1.17 $1.03 $0.14 13.8%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted earnings per
share of common stock $1.17 $1.02 $0.14 13.8%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic shares of common
stock (in thousands) 184,735 189,049 (4,314) (2.3%)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted shares of common
stock (in thousands) 185,013 189,319 (4,306) (2.3%)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Dividend per share of
common stock $0.27 $0.21 $0.06
----------- ----------- -----------
----------- ----------- -----------
N/M - not meaningful
(all numbers rounded)
TIM HORTONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands of Canadian dollars)
September 28, December 30,
2008 2007
------------- -------------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $67,614 $157,602
Restricted cash and cash equivalents 7,712 37,790
Restricted investments 11,959 -
Accounts receivable, net 118,091 104,889
Notes receivable, net 15,879 10,824
Deferred income taxes 10,680 11,176
Inventories and other, net 60,293 60,281
Advertising fund restricted assets 24,714 20,256
------------- -------------
Total current assets 316,942 402,818
Property and equipment, net 1,260,679 1,203,259
Notes receivable, net 16,862 17,415
Deferred income taxes 26,026 23,501
Intangible assets, net 2,740 3,145
Equity investments 132,929 137,177
Other assets 12,745 9,816
------------- -------------
Total assets $1,768,923 $1,797,131
------------- -------------
------------- -------------
TIM HORTONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands of Canadian dollars)
September 28, December 30,
2008 2007
------------- -------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $109,291 $133,412
Accrued liabilities:
Salaries and wages 13,673 17,975
Taxes 17,206 34,522
Other 64,982 95,777
Advertising fund restricted liabilities 43,602 39,475
Current portion of long-term obligations 6,768 6,137
------------- -------------
Total current liabilities 255,522 327,298
------------- -------------
Long-term liabilities
Term debt 330,737 327,956
Advertising fund restricted debt 8,471 14,351
Capital leases 57,858 52,524
Deferred income taxes 14,716 16,295
Other long-term liabilities 66,050 56,624
------------- -------------
Total long-term liabilities 477,832 467,750
------------- -------------
Stockholders' equity
Common stock, (US$0.001 par value per share)
Authorized: 1,000,000,000 shares
Issued: 193,302,977 shares 289 289
Capital in excess of par value 930,932 931,084
Treasury stock, at cost: 11,246,722 and
6,750,052 shares, respectively (384,405) (235,155)
Common stock held in trust, at cost: 439,864
and 421,344 shares, respectively (15,089) (14,628)
Retained earnings 624,761 458,958
Accumulated other comprehensive (loss) (120,919) (138,465)
------------- -------------
Total stockholders' equity 1,035,569 1,002,083
------------- -------------
Total liabilities and stockholders' equity $1,768,923 $1,797,131
------------- -------------
------------- -------------
TIM HORTONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)
(Unaudited)
Year-to-Date Ended
September 28, December 30,
2008 2007
------------- -------------
NET CASH FLOWS PROVIDED FROM OPERATING
ACTIVITIES $244,826 $236,049
------------- -------------
CASH FLOWS (USED IN) PROVIDED FROM INVESTING
ACTIVITIES
Capital expenditures (112,060) (114,611)
Purchase of restricted investments (11,959) -
Principal payments on notes receivable 2,563 5,285
Other investing activities (8,979) (2,715)
------------- -------------
Net cash used in investing activities (130,435) (112,041)
------------- -------------
CASH FLOWS (USED IN) PROVIDED FROM FINANCING
ACTIVITIES
Purchase of treasury stock (149,770) (135,039)
Dividend payments (49,748) (39,744)
Purchase of common stock held in trust (3,842) (7,202)
Purchase of common stock for settlement of
restricted stock units (226) (110)
Proceeds from issuance of debt, net of issuance
costs 2,068 2,588
Principal payments on other long-term debt
obligations (4,897) (3,433)
------------- -------------
Net cash used in financing activities (206,415) (182,940)
------------- -------------
Effect of exchange rate changes on cash 2,036 (7,191)
------------- -------------
Decrease in cash and cash equivalents (89,988) (66,123)
Cash and cash equivalents at beginning of period 157,602 176,083
------------- -------------
Cash and cash equivalents at end of period $67,614 $109,960
------------- -------------
------------- -------------
Other data:
Depreciation and amortization $66,811 $62,502
------------- -------------
------------- -------------
TIM HORTONS INC. AND SUBSIDIARIES
SEGMENT REPORTING
(In thousands of Canadian dollars)
(Unaudited)
Third Quarter Ended
September September
28, 2008 % of Total 30, 2007 % of Total
----------- ----------- ----------- -----------
REVENUES
Canada $472,430 92.8% $453,408 92.4%
U.S. 36,565 7.2% 37,133 7.6%
----------- ----------- ----------- -----------
Total Revenues $508,995 100.0% $490,541 100.0%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SEGMENT OPERATING INCOME
(LOSS)
Canada $132,892 101.6% $119,066 100.2%
U.S. (2,119) (1.6)% (288) (0.2)%
----------- ----------- ----------- -----------
Reportable Segment
Operating Income 130,773 100.0% 118,778 100.0%
----------- -----------
----------- -----------
Corporate Charges (8,701) (10,441)
----------- -----------
Consolidated Operating
Income 122,072 108,337
Interest, net (5,331) (4,295)
Income taxes (37,984) (36,661)
----------- -----------
Net Income $78,757 $67,381
----------- -----------
----------- -----------
Year-to-date Ended
September September
28, 2008 % of Total 30, 2007 % of Total
----------- ----------- ----------- -----------
REVENUES
Canada $1,369,012 92.5% $1,267,151 91.8%
U.S. 110,992 7.5% 113,255 8.2%
----------- ----------- ----------- -----------
Total Revenues $1,480,004 100.0% $1,380,406 100.0%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SEGMENT OPERATING INCOME
(LOSS)
Canada $369,860 101.4% $341,719 101.3%
U.S. (5,188) (1.4)% (4,327) (1.3)%
----------- ----------- ----------- -----------
Reportable Segment
Operating Income 364,672 100.0% 337,392 100.0%
----------- -----------
----------- -----------
Corporate Charges (28,971) (28,510)
----------- -----------
Consolidated Operating
Income 335,701 308,882
Interest, net (14,588) (12,739)
Income taxes (105,562) (102,262)
----------- -----------
Net Income $215,551 $193,881
----------- -----------
----------- -----------
Third Quarter Ended
September September
28, 2008 30, 2007 $ Change % Change
----------- ----------- ----------- -----------
Sales is comprised of:
Warehouse sales $289,174 $280,015 $9,159 3.3%
Company-operated restaurant
sales 8,869 12,741 (3,872) (30.4)%
Sales from restaurants
consolidated under FIN 46R 35,538 34,264 1,274 3.7%
----------- ----------- ----------- -----------
$333,581 $327,020 $6,561 2.0%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Year-to-date Ended
September September
28, 2008 30, 2007 $ Change % Change
----------- ----------- ----------- -----------
Sales is comprised of:
Warehouse sales $841,968 $776,808 $65,160 8.4%
Company-operated
restaurant sales 31,610 43,683 (12,073) (27.6)%
Sales from restaurants
consolidated under FIN 46R 102,382 92,873 9,509 10.2%
----------- ----------- ----------- -----------
$975,960 $913,364 $62,596 6.9%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TIM HORTONS INC. AND SUBSIDIARIES
SYSTEMWIDE RESTAURANT COUNT
Increase/ Increase/
As of As of (Decrease) As of (Decrease)
September June From Prior September From Prior
28, 2008 29, 2008 Quarter 30, 2007 Year
-------------------------------------------------------------
Tim Hortons
-----------
Canada
Company-operated 13 21 (8) 23 (10)
Franchise 2,857 2,830 27 2,735 122
-------------------------------------------------------------
2,870 2,851 19 2,758 112
% Franchised 99.5% 99.3% 99.2%
U.S.
Company-operated 30 33 (3) 47 (17)
Franchise 394 373 21 305 89
-------------------------------------------------------------
424 406 18 352 72
% Franchised 92.9% 91.9% 86.6%
Total Tim Hortons
Company-operated 43 54 (11) 70 (27)
Franchise 3,251 3,203 48 3,040 211
-------------------------------------------------------------
3,294 3,257 37 3,110 184
-------------------------------------------------------------
-------------------------------------------------------------
% Franchised 98.7% 98.3% 97.7%
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 refer to as warehouse
or distribution sales. Sales include canned coffee
sales through the grocery channel. Sales also
include sales from Company-operated restaurants and
sales from restaurants that are consolidated in
accordance with FIN 46R.
Rents and Royalties Includes franchisee royalties and rental revenues.
Franchise Fees Includes the sales revenue from initial equipment
packages, as well as fees 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 restaurants that are consolidated
in accordance with FIN 46R.
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,
allocation of expenses related to corporate
functions, 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. 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 and Includes expenses (income) that are not directly
Expense derived from the Company's primary businesses.
Items include restaurant closure costs, currency
adjustments, real estate sales, minority interest
related to the consolidation of restaurants
pursuant to FIN 46R, and other asset write-offs.
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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