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SYS-CON MEDIA Authors: Liz McMillan, Pat Romanski, William Schmarzo, Elizabeth White, Carmen Gonzalez

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Tim Hortons Inc. announces 2013 fourth quarter results:

Same-store sales growth finished ahead of full year

Quarterly dividend increased 23.1% to $0.32 per common share;
New share repurchase program of up to $440 million announced

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


Financial & Sales Highlights  
Performance Q4 2013
Q4 2012
%
Change
2013
Full Year
2012
Full Year
%
Change
Total revenues  $ 898.5   $ 811.6   10.7% $ 3,255.5   $ 3,120.5   4.3 %
Operating income $ 147.8   $ 150.4   (1.8)% $ 621.1   $ 594.5   4.5 %
Adjusted operating income(1) $ 167.5   $ 159.4   5.1% $ 651.9   $ 613.4   6.3 %
Effective tax rate 25.2
% 28.9
%   26.8
% 27.7
%  
Net income attributable to THI $ 100.6   $ 100.3   0.3% $ 424.4   $ 402.9   5.3 %
Diluted earnings per share
attributable to THI ("EPS")
$ 0.69   $ 0.65   6.2% $ 2.82   $ 2.59   8.9 %
Fully diluted shares 145.5
  154.1
  (5.6)% 150.6
  155.7
  (3.2) %

(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 $0.7 million in Q4 2013 ($11.8 million in fiscal 2013), Cold Stone Creamery de-branding costs of $19.0 million in Q4 2013 ($19.0 million in fiscal 2013), and corporate reorganization expenses of $9.0 million in Q4 2012 ($18.9 million in fiscal 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)   Q4 2013   Q4 2012   2013
Full Year
  2012
Full Year
Canada   1.6%   2.6%   1.1%   2.8%
U.S.   3.1%   3.2%   1.8%   4.6%

(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

  • In Q4 both the Canadian and U.S. segments delivered same-store sales growth ahead of full year
  • Q4 operating income affected by decisions to de-brand Cold Stone Creamery within Tim Hortons locations in Canada, and to close certain underperforming restaurants in the U.S.
  • Completed 139 restaurant renovations and 639 drive-thru enhancements in Canada in Q4
  • Completed $450 million private offering of senior unsecured notes during the fourth quarter
  • Quarterly dividend increased 23.1% to $0.32 per common share
  • Announced new share repurchase program of up to $440 million
  • 2014 performance and financial targets announced

 

OAKVILLE, ON, Feb. 20, 2014 /PRNewswire/ - Tim Hortons Inc. (TSX: THI, NYSE: THI) today announced results for the fourth quarter and fiscal year ended December 29, 2013.

"During the fourth quarter, we made important strides to position the Company for further success," said Marc Caira, president and CEO.  "We have worked to enhance our capital structure, as well as simplify our operations, strengthen our menu, and refresh our restaurants, all to provide the ultimate guest experience.  I believe the choices we are making today and the strategic roadmap we are developing will set the stage for continued long-term growth and profitability."

Consolidated Results

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

Systemwide sales(4) increased 5.4% on a constant currency basis.  This growth resulted from new restaurant development in Canada and the U.S., and from same-store sales growth of 1.6% in Canada and 3.1% in the U.S.

Total revenues increased 10.7% to $898.5 million compared to $811.6 million last year.  The revenue growth rate outpaced that of systemwide sales due to a significant increase in franchise fees, primarily resulting from higher levels of renovations and standard restaurant development, which also led to a significant increase in franchise fee costs.  Increases of 6.0% in rents and royalties revenues and 5.2% in distribution sales were more in line with the growth in systemwide sales.

Variable interest entities ("VIEs") sales increased 5.0%, as higher sales more than offset a slight decline in the number of non-owned restaurants consolidated for accounting purposes compared to the fourth quarter of 2012.

Cost of sales increased by 3.7%, which was below the growth rate of sales due to lower underlying commodity costs. Franchise fee costs grew significantly due to increased renovation and development activity.  G&A expenses increased by 6.7%, resulting primarily from higher professional fees.  We recognized corporate reorganization expenses of $0.7 million, compared to $9.0 million in the fourth quarter of 2012.  Operating expenses increased by 24.6%, which includes U.S. restaurant closure costs, as described below.

Operating income of $147.8 million was down 1.8% from $150.4 million a year earlier.  Two key decisions impacted operating income during the fourth quarter.  The first decision was to remove Cold Stone Creamery from Tim Hortons locations in Canada, following an evaluation of strategic considerations and the overall performance of the Cold Stone Creamery business in Tim Hortons restaurants in Canada.  This decision, which will allow our restaurant owners to simplify their operations and focus entirely on their core business, resulted in de-branding costs of $19.0 million in the fourth quarter.  This decision does not affect our U.S. Cold Stone Creamery co-branded operations, as the nature of the business, and the support required by the Company, is significantly different than in Canada.  The second decision was to close a small number of underperforming restaurants in various U.S. markets in the fourth quarter, resulting in a $6.6 million charge, which has been included in operating expenses.

Adjusted operating income(3) of $167.5 million, which excludes the impact of the corporate reorganization and Cold Stone Creamery de-branding costs, increased 5.1%, in line with systemwide sales growth.  (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 $100.6 million, a slight increase from $100.3 million a year earlier, as the impact of a lower effective tax rate, due to certain discrete items recognized in Q4 2013, was offset by reduced operating income.

EPS of $0.69 grew by $0.04 or 6.2% due to the expanded share repurchase program, which led to a decrease of 8.6 million shares outstanding year-over-year.  The Cold Stone Creamery de-branding costs and corporate reorganization expenses negatively impacted EPS by $0.11 in Q4 2013, and corporate reorganization expenses negatively impacted EPS by $0.04 in Q4 2012.

For the full year, systemwide sales(4) increased 4.7% in 2013, on a constant currency basis.  Total revenues rose 4.3% to $3.3 billion compared to $3.1 billion last year.  Operating income was $621.1 million, up 4.5% from $594.5 million in 2012.  Adjusted operating income(3) grew 6.3% to $651.9 million.  (Please refer to "Information on Non-GAAP Measure" below for a reconciliation of adjusted operating income to operating income, the nearest GAAP measure.)  Net income attributable to THI in 2013 was up 5.3% to $424.4 million.

EPS for the full year was $2.82, representing growth of 8.9%.  The 2013 earnings outlook we communicated in February 2013 of $2.87 to $2.97 per share did not include the $0.06 per share corporate reorganization charge taken during the fiscal year, and did not contemplate the $0.10 per share impact of the Cold Stone Creamery de-branding.  Full-year EPS benefited from 3.2% fewer shares in 2013, due to our share repurchase program, which was expanded mid-year.  EPS also benefited from an effective tax rate of 26.8% for the full year, compared to the 28% rate assumed in our earnings outlook, and 27.7% in 2012.

Segmented Performance Commentary

We have reclassified the segment data for 2012 to conform to the current period's presentation, consistent with changes to our reportable segments announced in 2013.

We grew same-store sales in both Canada and the U.S. in the fourth quarter, in the face of ongoing challenges relating to macro-economic conditions, weak consumer confidence and  persistent competitive intensity in the quick service restaurant sector.

Canada

Same-store sales in our Canadian segment grew by 1.6%, due to gains in average cheque, driven by favourable product mix and pricing.  Same-store transactions were lower year-over-year, while systemwide transactions grew as a result of new restaurants added to our system.

Operating income in the Canadian segment was $165.5 million, a decrease of $3.8 million or 2.3%.  The $19.0 million charge related to the removal of Cold Stone Creamery from Canadian Tim Hortons locations had the effect of reducing segment operating income growth by 11.2%.  A higher allocation of supply chain income and increased rents and royalties income, both resulting from systemwide sales growth of 4.7%, and increased franchise fee income due to additional restaurant sales and renovations, contributed positively to operating income.  We opened 89 restaurants in Canada in the fourth quarter.

On a full-year basis, 2013 same-store sales growth of 1.1% in the Canadian segment was  below our original target range of 2% to 4%; we believe this was due to ongoing challenging economic conditions and increased competitive intensity in our industry.  We opened 168 restaurants in 2013, within our targeted range of 160-180 openings, and we closed 16 locations.  The Canadian segment delivered operating income of $665.7 million, an increase of 1.8% over 2012.

United States

U.S. same-store sales increased by 3.1% in the quarter, driven primarily by favourable product mix and pricing.

The U.S. segment had an operating loss of $1.1 million, compared to operating income of $2.4 million in the fourth quarter of 2012.  Operating income was negatively affected by $6.6 million of restaurant closure costs.  The segment benefited from increased franchise fee income due to a higher number of franchised restaurant openings, and from systemwide sales growth of 10.7%, which led to increased rents and royalties income.  We opened 53 restaurants in the U.S. during the quarter.

On a full-year basis, same-store sales growth of 1.8% in the U.S. segment was below our targeted range of 3% to 5% growth.  We opened 79 new locations in the U.S. in 2013, comprised of 74 standard and non-standard full-serve restaurants and five self-serve kiosks.  Our targeted range was 70 to 90 full-serve restaurants.  We also closed 20 full-serve and four self-serve locations during the year.  Operating income for the segment was $5.1 million in 2013, compared to $9.6 million in 2012.

Corporate services

The operating loss in the Corporate services segment was $18.1 million, compared to a loss of $14.1 million in the fourth quarter of 2012.  The increased loss was driven by higher G&A expenses associated with strategic activities, and by reduced distribution income due to the reversal of favourability from commodity cost changes recognized earlier in the year, as anticipated.  The full-year operating loss in the segment was $44.5 million, compared to a loss of $57.0 million in 2012.

Our international partner, Apparel FZCO, opened five restaurants in the Gulf Cooperation Council (GCC) during the fourth quarter, and 14 locations for the full year.  At year-end, we had 38 restaurants in the GCC.

Significant Developments & Initiatives

Private offering of $450 million Senior Notes completed

During the fourth quarter of 2013, we successfully completed a Canadian private placement of $450 million principal amount of senior unsecured 4.52% notes, due December 1, 2023. The debt offering was significantly oversubscribed, indicating strong market support for the Company.  Net proceeds from the offering were used primarily to repay a bridge credit facility, which is available for general corporate purposes including share repurchases.  The debt offering represented the first phase of our plan to raise up to $900 million in additional debt, as approved by our Board of Directors in August 2013.

Board declares dividend payment of $0.32 per common share

The Board of Directors has approved an increase in the quarterly dividend of approximately 23.1%, to $0.32 per common share, payable on March 18, 2014, to shareholders of record as of the close of business on March 3, 2014. The payment of future dividends remains subject to Board approval. Dividends declared will be 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 CDS Clearing and Depository Services Inc. for beneficial shareholders.

New share repurchase program of up to $440 million announced

Tim Hortons has obtained regulatory approval from the Toronto Stock Exchange (TSX) to commence a new share repurchase program for up to $440 million in common shares, not to exceed the regulatory maximum of 13,726,219 shares, representing 10% of the Company's public float as of February 14th, 2014, as defined under TSX rules. This normal course issuer bid is planned to commence on February 28th, 2014 and to expire on February 27th, 2015.  The new program reflects the amount required to complete our expanded share repurchase, as approved by the Board in August 2013, in addition to our traditional annual program.

We have provided additional details on our new share repurchase program in a separate press release issued February 20, 2014.

Expanding single-serve coffee to retail channels

The Company announced that it will begin selling its single-serve coffee through the grocery channel this summer.  We currently sell premium Tim Hortons coffee in the TASSIMO® and Tim Hortons RealCupTM formats exclusively through our network of nearly 4,500 restaurants, online through our website, and in the U.S. through selective other channels.  By adding the grocery channel, through which we already distribute our canned coffee, we will increase the convenience for consumers who wish to purchase and enjoy Tim Hortons products.  We anticipate that responding to this unmet consumer need will benefit both the Company and our restaurant owners.

Investor Conference and 2014 Outlook

On February 25th, 2014, we will communicate our strategic roadmap, including growth initiatives and long-term financial aspirations beyond 2014.  Our Investor Conference will be webcast live, beginning at 11:00 a.m. (EST), at www.timhortons-invest.com under the Events and Presentations tab.

In 2014 we anticipate continued growth, but we will also be investing in key drivers intended to facilitate accelerated growth beyond 2014, which will be outlined at the Investor Conference.  The Company has established the following 2014 performance targets:

  • Diluted earnings per share (EPS) of $3.17 to $3.27
  • 2014 same-store sales growth of 1% to 3% in Canada and 2% to 4% in the U.S.
  • A total of 215 to 255 restaurant openings in Canada, the U.S. and the Gulf Cooperation Council, including:
    • 140 to 160 restaurant openings in Canada, approximately evenly split between standard and non-standard format restaurants
    • 40 to 60 full-serve restaurant openings in the U.S., approximately evenly split between standard and non-standard format restaurants
  • Capital expenditures between $180 million to $220 million, including approximately US$30 million in the U.S.
  • Effective tax rate of approximately 29%.

The operational objectives and financial outlook (collectively, targets) set forth above are for 2014 only, are forward-looking, and are based on our expectations and outlook and shall be effective only as of the date the targets were originally issued. The targets established for 2014 are based on accounting, tax and/or other regulatory or legislative rules in place at the time the targets were issued. The impact of future changes in accounting, tax and/or other regulatory or legislative rules that may or may not become effective in fiscal 2014, changes to our share repurchase activities, and accounting, tax, audit or other matters not contemplated at the time the targets were established, could affect our business and are not included in the determination of these targets.

Except as required by applicable securities laws, we do not intend to update our annual targets. These targets and our performance generally are subject to various risks and uncertainties ("risk factors") which may impact future performance and our achievement of these targets. Refer to our safe harbor statement, which incorporates by reference our "risk factors," set forth at the end of this release, and our Annual Report on Form 10-K for 2012 filed on February 21st, 2013, our Quarterly Report on Form 10-Q filed on November 7th, 2013, and our Annual Report on Form 10-K for 2013 (expected to be filed on or about February 25th, 2014).

Annual Meeting of Shareholders
The Board of Directors has set a record date of March 11th, 2014 for the annual meeting of shareholders. The meeting will be held on Thursday, May 8th at 10:30 a.m. EDT at the Metro Toronto Convention Centre, 255 Front Street West, in Toronto, Ontario.

Tim Hortons conference call today at 10:00 a.m. (EST) Thursday, February 20, 2014

Tim Hortons will host a conference call today to discuss fourth quarter results, scheduled to begin at 10:00 a.m. (EST). The dial-in number is (416) 915-3239 or (877) 881-1303. 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 February 27, 2014 and can be accessed at (800) 319-6413. The call replay reservation number is 6842#.  The call and presentation material will also be archived for one year in the Events and Presentations section of our website.

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, our Quarterly Report on Form 10-Q filed on November 7th, 2013, and our 2013 Annual Report on Form 10-K expected to be filed on or about February 25th, 2014 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, or implied by, 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; our ability to obtain financing on favourable terms; our ability to maintain investment grade credit ratings; prospects and execution risks concerning our 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 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/ca/en/about/safeharbor.html.

(3) Information on non-GAAP Measure

Adjusted operating income is a non-GAAP measure. 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

 
Q4 2013
 
Q4 2012
 
YTD 2013
YTD 2012
  (in millions)
(in millions)
Operating income  $ 147.8   $ 150.4   $ 621.1   $ 594.5  
Add: Corporate reorganization expenses  0.7
  9.0
  11.8
  18.9
 
Add: Cold Stone Creamery de-branding costs  19.0
  0.0
  19.0
  0.0
 
Adjusted operating income  $ 167.5   $ 159.4   $ 651.9   $ 613.4  

______________

All numbers rounded

(4) Total systemwide sales growth includes restaurant level sales at both Company-operated and franchised restaurants. Approximately 99.6% of our systemwide restaurants were franchised as at December 29, 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 fourth quarter of 2013, systemwide sales on a constant currency basis increased 5.4% compared to the fourth quarter of 2012.  Systemwide sales growth in Canadian dollars, including the effects of foreign currency translation, was 5.9% in the fourth quarter of 2013.  Full-year systemwide sales increased 4.7% on a constant currency basis in 2013, and 5.0% in Canadian dollars.  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, 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 December 29, 2013, Tim Hortons had 4,485 systemwide restaurants, including 3,588 in Canada, 859 in the United States and 38 in the Gulf Cooperation Council. More information about the Company is available at www.timhortons.com.

For Further information:

TIM HORTONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands of Canadian dollars, except share and per share data)
(Unaudited)
                               
      Fourth quarter ended                
      December 29,
2013
  December 30,
2012
  $ Change   % Change
Revenues                              
  Sales     $ 597,655   $ 570,044   $   27,611       4.8 %
  Franchise revenues                              
    Rents and royalties        212,364      200,277        12,087       6.0 %
    Franchise fees        88,485      41,278        47,207       n/m
         300,849      241,555        59,294       24.5 %
Total revenues        898,504      811,599        86,905       10.7 %
Costs and expenses                              
  Cost of sales        520,601      501,901        18,700       3.7 %
  Operating expenses        90,810      72,877        17,933       24.6 %
  Franchise fee costs        78,862      39,485        39,377       n/m
  General and administrative expenses        44,030      41,277        2,753       6.7 %
  Equity (income)        (3,830)      (3,637)        (193)       5.3 %
  Corporate reorganization expenses        729      9,032        (8,303)       n/m
  De-branding costs        19,016      —        19,016       n/m
  Other (income) expense, net        515      260        255       n/m
Total costs and expenses, net        750,733      661,195        89,538       13.5 %
Operating income        147,771      150,404        (2,633)       (1.8)%
  Interest (expense)        (12,087)      (8,652)        (3,435)       39.7 %
  Interest income        974      1,102        (128)       (11.6)%
Income before income taxes        136,658      142,854        (6,196)       (4.3)%
Income taxes        34,449      41,258        (6,809)       (16.5)%
Net income        102,209      101,596        613       0.6 %
Net income attributable to non controlling
interests
       1,610      1,255        355       28.3 %
Net income attributable to Tim Hortons Inc.     $ 100,599   $ 100,341   $   258       0.3 %
Basic earnings per common share attributable
to Tim Hortons Inc.
    $ 0.69   $ 0.65        0.04       6.2 %
Diluted earnings per common share
attributable to Tim Hortons Inc.
    $ 0.69   $ 0.65        0.04       6.2 %
Weighted average number of common shares
outstanding (in thousands) - Basic
       145,083      153,713        (8,630)       (5.6)%
Weighted average number of common shares
outstanding (in thousands) - Diluted
       145,533      154,142        (8,609)       (5.6)%
Dividends per common share     $ 0.26   $ 0.21        0.05
               
                               
TIM HORTONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands of Canadian dollars, except share and per share data)
(Unaudited)
                               
      Year-ended                
      December 29,
2013
  December 30,
2012
  $ Change   % Change
Revenues                              
  Sales     $ 2,265,884   $ 2,225,659   $   40,225       1.8 %
  Franchise revenues                              
    Rents and royalties        821,221      780,992        40,229       5.2 %
    Franchise fees        168,428      113,853        54,575       47.9 %
         989,649      894,845        94,804       10.6 %
Total revenues        3,255,533      3,120,504        135,029       4.3 %
Costs and expenses                              
  Cost of sales        1,972,903      1,957,338        15,565       0.8 %
  Operating expenses        321,836      284,321        37,515       13.2 %
  Franchise fee costs        162,605      116,644        45,961       39.4 %
  General and administrative expenses        159,523      163,885        (4,362)       (2.7)%
  Equity (income)        (15,170)      (14,693)        (477)       3.2 %
  Corporate reorganization expenses        11,761      18,874        (7,113)       (37.7)%
  De-branding costs        19,016      —        19,016       n/m
  Asset impairment        2,889      (372)        3,261       n/m
  Other (income) expense, net        (925)      (18)        (907)       n/m
Total costs and expenses, net        2,634,438      2,525,979        108,459       4.3 %
Operating income        621,095      594,525        26,570       4.5 %
  Interest (expense)        (39,078)      (33,709)        (5,369)       15.9 %
  Interest income        3,612      3,296        316       9.6 %
Income before income taxes        585,629      564,112        21,517       3.8 %
Income taxes        156,980      156,346        634       0.4 %
Net income        428,649      407,766        20,883       5.1 %
Net income attributable to non controlling
interests
       4,280      4,881        (601)       (12.3)%
Net income attributable to Tim Hortons Inc.     $ 424,369   $ 402,885   $   21,484       5.3 %
Basic earnings per common share attributable
to Tim Hortons Inc.
    $ 2.83   $ 2.60        0.23       8.8 %
Diluted earnings per common share
attributable to Tim Hortons Inc.
    $ 2.82   $ 2.59        0.23       8.9 %
Weighted average number of common shares
outstanding (in thousands) - Basic
       150,155      155,160        (5,005)       (3.2)%
Weighted average number of common shares
outstanding (in thousands) - Diluted
       150,622      155,676        (5,054)       (3.2)%
Dividends per common share     $ 1.04   $ 0.84        0.20
                       

TIM HORTONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands of Canadian dollars, except share and per share data)
(Unaudited)
                 
        As at
        December 29,
2013
  December 30,
2012
Assets                
  Current assets                
  Cash and cash equivalents       $ 50,414   $ 120,139
  Restricted cash and cash equivalents          155,006      150,574
  Accounts receivable, net          210,664      171,605
  Notes receivable, net          4,631      7,531
  Deferred income taxes          10,165      7,142
  Inventories and other, net          104,326      107,000
  Advertising fund restricted assets          39,783      45,337
Total current assets          574,989      609,328
Property and equipment, net          1,685,043      1,553,308
Notes receivable, net          4,483      1,246
Deferred income taxes          11,018      10,559
Equity investments          40,738      41,268
Other assets          117,552      68,470
Total assets       $ 2,433,823   $ 2,284,179
Liabilities and equity                
  Current liabilities                
  Accounts payable       $ 204,514   $ 169,762
  Accrued liabilities          274,008      227,739
  Deferred income taxes          —      197
  Advertising fund liabilities          59,912      44,893
  Short-term borrowings          30,000      —
  Current portion of long-term obligations          17,782      20,781
Total current liabilities          586,216      463,372
  Long-term obligations                
    Long-term debt          843,020      406,320
    Capital leases          121,049      104,383
    Deferred income taxes          9,929      10,399
    Other long-term liabilities          112,090      109,614
Total long-term obligations          1,086,088      630,716
Commitments and contingencies                
Equity                
  Equity of Tim Hortons Inc.                
    Common shares ($2.84 stated value per share). Authorized: unlimited
shares. Issued: 141,329,010 and 153,404,839 shares, respectively
         400,738      435,033
    Common shares held in Trust, at cost: 293,816 and 316,923 shares,
respectively
         (12,924)      (13,356)
    Contributed surplus          11,033      10,970
    Retained earnings          474,409      893,619
    Accumulated other comprehensive loss          (112,102)      (139,028)
Total equity of Tim Hortons Inc.          761,154      1,187,238
Non controlling interests          365      2,853
Total equity          761,519      1,190,091
Total liabilities and equity       $ 2,433,823   $ 2,284,179
             

TIM HORTONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of Canadian dollars)
(Unaudited)
               
      Year-ended
      December 29,
2013
  December 30,
2012
Cash flows provided from (used in) operating activities              
Net income     $ 428,649   $ 407,766
Adjustments to reconcile net income to net cash provided from operating
activities
             
  Depreciation and amortization        161,809      132,167
  Stock-based compensation expense        21,989      11,862
  Deferred income taxes        (4,885)      5,065
Changes in operating assets and liabilities              
  Restricted cash and cash equivalents        (3,391)      (20,182)
  Accounts receivable        (24,650)      (1,346)
  Inventories and other        2,836      33,415
  Accounts payable and accrued liabilities        46,766      6,692
  Taxes        6,092      (18,065)
Settlement of interest rate forwards        (9,841)      —
Deposit with tax authorities        (36,532)      —
Other        9,893      1,913
Net cash provided from operating activities        598,735      559,287
Cash flows (used in) provided from investing activities              
  Capital expenditures        (221,000)      (186,777)
  Capital expenditures - Advertising fund        (21,970)      (49,031)
  Other investing activities        5,708      (6,400)
Net cash (used in) investing activities        (237,262)      (242,208)
Cash flows (used in) provided from financing activities              
  Repurchase of common shares        (720,549)      (225,200)
  Dividend payments to common shareholders        (156,141)      (130,509)
  Distributions, net to non controlling interests        (2,858)      (3,913)
  Net proceeds from issue of debt        448,092      —
  Net proceeds from issue of debt - Advertising fund        —      51,850
  Short-term borrowing        30,000      —
  Principal payments on long-term debt obligations        (36,175)      (7,710)
  Other financing activities        3,550      (6,885)
Net cash (used in) financing activities        (434,081)      (322,367)
Effect of exchange rate changes on cash        2,883      (1,070)
(Decrease) in cash and cash equivalents        (69,725)      (6,358)
Cash and cash equivalents at beginning of period        120,139      126,497
Cash and cash equivalents at end of period     $ 50,414   $ 120,139
Supplemental disclosures of cash flow information:              
  Interest paid     $ 36,268   $ 31,447
  Income taxes paid     $ 191,503   $ 175,877
Non-cash investing and financing activities:              
  Capital lease obligations incurred     $ 34,712   $ 26,095
                 

TIM HORTONS INC. AND SUBSIDIARIES
SEGMENT REPORTING
(in thousands of Canadian dollars)
(Unaudited)
                             
        Fourth quarter ended   Year-ended
        December 29,
2013
  December 30,
2012
  December 29,
2013
  December 30,
2012
Revenues(1)                            
  Canada       $ 732,997   $ 671,993   $ 2,660,358    $ 2,595,921
  U.S.          64,539      44,886      197,226      165,723
  Corporate services          4,645      3,276      17,388      15,231
Total reportable segments          802,181      720,155      2,874,972      2,776,875
VIEs(2)          96,323      91,444      380,561      343,629
Total       $ 898,504   $ 811,599   $ 3,255,533   $ 3,120,504
Operating Income (Loss)                            
  Canada       $ 165,497   $ 169,340   $ 665,675   $ 653,916
  U.S.          (1,107)      2,407      5,107      9,620
  Corporate services          (18,103)      (14,111)      (44,517)      (57,013)
Total reportable segments          146,287      157,636      626,265      606,523
VIEs(2)          2,213      1,800      6,591      6,876
Corporate reorganization expenses          (729)      (9,032)      (11,761)      (18,874)
Consolidated Operating Income          147,771      150,404      621,095      594,525
Interest, net          (11,113)      (7,550)      (35,466)      (30,413)
Income before income taxes       $ 136,658   $ 142,854   $ 585,629   $ 564,112
 
(1) There are no inter-segment revenues included in the above table.
(2) Variable interest entities.
 
        Fourth quarter ended   Year-ended
        December 29,
2013
  December 30,
2012
  December 29,
2013
  December 30,
2012
Consolidated sales is comprised of:                            
  Distribution sales       $ 498,907   $ 474,438   $ 1,872,296   $ 1,860,683
  Company-operated restaurant sales          5,171      6,515      23,738      26,970
  Sales from VIEs          93,577      89,091      369,850      338,006
Total Sales       $ 597,655   $ 570,044   $ 2,265,884   $ 2,225,659
                             
                             
        Fourth quarter ended   Year-ended
        December 29,
2013
  December 30,
2012
  December 29,
2013
  December 30,
2012
Consolidated cost of sales is comprised of:                            
  Distribution cost of sales       $ 433,996   $ 416,480   $ 1,619,858   $ 1,631,091
  Company-operated restaurant cost of sales          5,616      7,038      25,446      28,857
  Cost of sales from VIEs          80,989      78,383      327,599      297,390
Total Cost of sales       $ 520,601   $ 501,901   $ 1,972,903   $ 1,957,338

 

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 excluding equipment sales related to
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 Ad Fund relating primarily to the Expanded Menu Board
Program.
       
Franchise fees     Includes revenues derived from 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 property-related costs, including depreciation and rent expense related to
properties leased to restaurant owners and other property-related costs. Also included
are certain operating expenses related to our distribution business such as 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. 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.
       
De-branding costs     Represents de-branding costs related to removing the Cold Stone Creamery brand
from Tim Hortons restaurants in Canada.
       
Asset Impairment     Represents non-cash charges relating to the impairment of long-lived assets, including
any reversals of previously recognized charges deemed no longer required.
       
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.

 

 

 

 

 

 

 

SOURCE Tim Hortons

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