10-Q

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 1, 2006

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 001-32843

TIM HORTONS INC.

(Exact name of Registrant as specified in its charter)

Delaware	51-0370507
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)

874 Sinclair Road, Oakville, ON, Canada	L6K 2Y1
(Address of principal executive offices)	(Zip code)

905-845-6511

(Registrant’s phone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at November 10, 2006
Common shares, US$0.001 par value per share	192,702,977

Exhibit Index on page 47.

TIM HORTONS INC. AND SUBSIDIARIES

INDEX

	Pages
PART I: Financial Information	3
Item 1. Financial Statements (Unaudited):	3
Condensed Consolidated Statements of Operations for the quarters and year-to-date periods ended October 1, 2006 and October 2, 2005	3
Condensed Consolidated Balance Sheets as of October 1, 2006 and January 1, 2006	5
Condensed Consolidated Statements of Cash Flows for the year-to-date periods ended October 1, 2006 and October 2, 2005	7
Notes to the Condensed Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3. Quantitative and Qualitative Disclosures about Market Risk	44
Item 4. Controls and Procedures	44
PART II: Other Information	44
Item 1A. Risk Factors	44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 6. Exhibits	45
Signature	46
Index to Exhibits	47
Exhibit (3)(ii) Amended and Restated Bylaws of Tim Hortons Inc.	48
Exhibit 10(i) Director Indemnification Agreement	Incorporated by Reference
Exhibit 10(ii) Officer Indemnification Agreement	Incorporated by Reference
Exhibit 10(iii) The TDL Group Corp. Amended and Restated Supplementary Retirement Plan	Incorporated by Reference
Exhibit 10(iv) Amended Governance Guidelines of Tim Hortons Inc.	64
Exhibit 31(a)	68
Exhibit 31(b)	69
Exhibit 32(a)	70
Exhibit 32(b)	71
Exhibit 99	72

2

TIM HORTONS INC. AND SUBSIDIARIES

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Canadian dollars in thousands, except share data)

	Third Quarter ended October 1, 2006			Third Quarter ended October 2, 2005
Revenues
Sales	$	271,534		$	251,766
Franchise revenues
Rents and royalties		127,912			115,730
Franchise fees		14,117			18,563
		142,029			134,293
Total revenues		413,563			386,059
Costs and expenses
Cost of sales		240,161			221,239
Operating expenses		45,532			40,204
Franchise fee costs		13,579			18,712
General and administrative expenses		31,647			23,196
Equity (income)		(9,082	)		(7,482	)
Other (income) expense, net		431			(5,678	)
Total costs and expenses, net		322,268			290,191
Operating income		91,295			95,868
Interest (expense)		(5,707	)		(1,295	)
Interest income		2,333			891
Affiliated interest (expense), net		—			(1,718	)
Income before income taxes		87,921			93,746
Income taxes		36,080			27,485
Net income	$	51,841		$	66,261
Basic and diluted earnings per share of common stock	$	0.27		$	0.41
Weighted average number of shares of common stock outstanding — Basic (in thousands)		193,303			159,953
Weighted average number of shares of common stock outstanding — Diluted (in thousands)		193,486			159,953
Dividend per share of common stock (post initial public offering)	$	0.07		$	—

See accompanying Notes to the Condensed Consolidated Financial Statements.

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TIM HORTONS INC. AND SUBSIDIARIES

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Canadian dollars in thousands, except share data)

	Year-to-date Period ended October 1, 2006			Year-to-date Period ended October 2, 2005
Revenues
Sales	$	777,638		$	703,484
Franchise revenues
Rents and royalties		370,279			333,026
Franchise fees		45,175			41,658
		415,454			374,684
Total revenues		1,193,092			1,078,168
Costs and expenses
Cost of sales		683,351			613,245
Operating expenses		132,275			119,479
Franchise fee costs		44,507			43,206
General and administrative expenses		87,426			73,728
Equity (income)		(26,679	)		(23,281	)
Other (income) expense, net		(702	)		(7,530	)
Total costs and expenses, net		920,178			818,847
Operating income		272,914			259,321
Interest (expense)		(16,475	)		(3,283	)
Interest income		9,195			2,300
Affiliated interest (expense), net		(7,876	)		(4,910	)
Income before income taxes		257,758			253,428
Income taxes		66,017			78,767
Net income	$	191,741		$	174,661
Basic and diluted earnings per share of common stock	$	1.05		$	1.09
Weighted average number of shares of common stock outstanding — Basic (in thousands)		182,797			159,953
Weighted average number of shares of common stock outstanding — Diluted (in thousands)		183,072			159,953
Dividend per share of common stock (post initial public offering)	$	0.07		$	—

See accompanying Notes to the Condensed Consolidated Financial Statements.

4

TIM HORTONS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Canadian dollars in thousands, except share data)

	October 1, 2006		January 1, 2006
ASSETS
Current assets
Cash and cash equivalents	$	185,567	$	186,182
Accounts receivable, net		92,491		85,695
Notes receivable, net		15,953		11,545
Deferred income taxes		6,019		4,273
Inventories and other		58,487		39,322
Advertising fund restricted assets		21,170		17,055
Total current assets		379,687		344,072
Property and equipment, net		1,104,812		1,061,646
Notes receivable, net		11,451		15,042
Deferred income taxes		12,157		17,913
Intangible assets, net		3,818		4,221
Equity investments		140,448		141,257
Other assets		10,001		12,712
Total assets	$	1,662,374	$	1,596,863

See accompanying Notes to the Condensed Consolidated Financial Statements.

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TIM HORTONS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Canadian dollars in thousands, except share data)

	October 1, 2006			January 1, 2006
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	88,335		$	110,086
Accrued expenses
Salaries and wages		13,127			15,033
Taxes		21,352			62,952
Other		38,696			61,944
Deferred income taxes		1,384			349
Advertising fund restricted liabilities		36,560			34,571
Amounts payable to Wendy’s		243			10,585
Notes payable to Wendy’s		—			1,116,288
Current portion of long-term obligations		7,883			7,985
Total current liabilities		207,580			1,419,793
Long-term obligations
Term debt		324,038			21,254
Advertising fund restricted debt		25,594			22,064
Capital leases		43,406			44,652
Total long-term obligations		393,038			87,970
Deferred income taxes		4,317			15,159
Other long-term liabilities		37,541			34,563
Commitments and contingencies
Stockholders’ equity
Common stock (U.S. $0.001 par value per share), Authorized: 1,000,000,000 shares, Issued: 193,302,977 and 159,952,977 shares, respectively		289			239
Capital in excess of stated value		917,703			81,249
Retained earnings		194,640			16,430
Accumulated other comprehensive loss:
Cumulative translation adjustments and other		(92,734	)		(52,911	)
		1,019,898			45,007
Unearned compensation — restricted stock		—			(5,629	)
Total stockholders’ equity		1,019,898			39,378
Total liabilities and stockholders’ equity	$	1,662,374		$	1,596,863

See accompanying Notes to the Condensed Consolidated Financial Statements.

6

TIM HORTONS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Canadian dollars in thousands)

	Year-to-date Period ended October 1, 2006			Year-to-date Period ended October 2, 2005
Net cash provided from operating activities	$	120,128		$	229,100
Cash flows from investing activities
Capital expenditures		(121,316	)		(140,888	)
Proceeds from property disposition		2,850			2,884
Principal payments on notes receivable		3,319			3,482
Investments in Joint Venture and other		68			1,732
Short-term loans to Wendy’s, net		—			(21,910	)
Other investing activities		(4,367	)		(6,011	)
Net cash used in investing activities		(119,446	)		(160,711	)
Cash flows from financing activities
Proceeds from share issuance		903,825			—
Share issue costs		(61,577	)		—
Purchase of common stock for settlement of restricted stock units		(5,489	)		—
Proceeds from issuance of debt, net		500,432			2,166
Dividends		(13,531	)		—
Repayment of borrowings from Wendy’s		(1,087,968	)		(77,448	)
Principal payments on long-term obligations		(203,212	)		(2,765	)
Net cash provided by (used in) financing activities		32,480			(78,047	)
Effect of exchange rate changes on cash		(33,777	)		(395	)
(Decrease) in cash and cash equivalents		(615	)		(10,053	)
Cash and cash equivalents at beginning of period		186,182			129,301
Cash and cash equivalents at end of period	$	185,567		$	119,248
Supplemental disclosures of cash flow information:
Interest paid – external	$	17,924		$	6,897
Interest paid – Wendy’s	$	16,960		$	43,986
Interest received – external	$	9,073		$	2,356
Interest received – Wendy’s		—		$	5,157
Income taxes paid	$	120,448		$	84,161
Non-cash investing and financing activities:
Capital lease obligations incurred	$	4,368		$	5,327
Distribution of Note Payable to Wendy’s	$	—		$	1,115,904

See accompanying Notes to the Condensed Consolidated Financial Statements.

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TIM HORTONS INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Canadian dollars in thousands, unless otherwise stated)

(Unaudited)

NOTE 1 MANAGEMENT’S STATEMENT AND BASIS OF PRESENTATION

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments (all of which are normal and recurring in nature) necessary to state fairly the financial position of Tim Hortons Inc. and its subsidiaries (the “Company”) as of October 1, 2006 and January 1, 2006, and the condensed results of operations and comprehensive income (see Note 5) for the quarters and year-to-date periods ended October 1, 2006 and October 2, 2005, and cash flows for the year-to-date periods ended October 1, 2006 and October 2, 2005. All of these financial statements are unaudited. These condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements which are contained in our registration statement on Form S-1 (Registration No. 333-13035) filed with the Securities and Exchange Commission (“SEC”) on December 1, 2005, as amended thereafter, and the Company’s periodic reports on Form 10-Q filed prior to the date hereof. The January 1, 2006 condensed consolidated balance sheet was derived from audited consolidated financial statements, contained in the Company’s Form S-1, but does not include all disclosures required by accounting principles generally accepted in the United States of America. On September 29, 2006, Wendy’s International Inc. (“Wendy’s”) disposed of its remaining 82.75% interest in the Company. As a result of the distribution, the Company’s shares are widely held.

The functional currency of Tim Hortons Inc. has historically been the U.S. dollar primarily because of its financial inter-relatedness with Wendy’s. Tim Hortons Inc. is essentially a holding company that holds investments and obligations that historically could have been carried on the books of Wendy’s, and the functional currency of Wendy’s is the U.S. dollar. The completion of the initial public offering (“IPO”) and the repayment of the note payable to Wendy’s resulted in a change in the functional currency from the U.S. dollar to the Canadian dollar as the majority of the Company’s cash flows are now in Canadian dollars, in accordance with SFAS No. 52 – Foreign Currency Translation. The functional currency of each of the operating subsidiaries is the local currency in which each subsidiary operates, which is either the Canadian or U.S. dollar. The majority of operations, restaurants and cash flows are based in Canada, and the Company is primarily managed in Canadian dollars.

NOTE 2 NET INCOME PER SHARE

Basic earnings per common share are computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding. Diluted computations are based on the treasury stock method and include assumed conversions of outstanding restricted stock, net of shares assumed to be repurchased from the proceeds, when dilutive.

The computations of basic and diluted earnings per share of common stock are shown below (in thousands, except per share data):

	Third Quarter Ended				Year-to-date Period Ended
	October 1, 2006		October 2, 2005		October 1, 2006		October 2, 2005
Income for computation of basic and diluted earnings per share of common stock	$	51,841	$	66,261	$	191,741	$	174,661
Weighted average shares outstanding for computation of basic earnings per common share		193,303		159,953		182,797		159,953
Dilutive restricted stock		183		—		275		—
Weighted average shares outstanding for computation of diluted earnings per share of common stock		193,486		159,953		183,072		159,953
Basic earnings per share of common stock	$	0.27	$	0.41	$	1.05	$	1.09
Diluted earnings per share of common stock	$	0.27	$	0.41	$	1.05	$	1.09

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For the year-to-date period ended October 1, 2006, 19,110 restricted stock units were excluded from the computation of diluted earnings per common stock because the grant date fair market value of the restricted stock unit was greater than the average market price of the common stock in the period and, therefore, they are anti-dilutive. There were no dilutive securities issued in 2005.

NOTE 3 EXPENSE ALLOCATIONS

The condensed consolidated statements of operations include expense allocations for certain functions historically provided by Wendy’s. These allocations include costs related to corporate functions such as executive oversight, risk management, information technology, accounting, legal, investor relations, human resources, tax, employee benefits, other services and equity compensation granted under Wendy’s plans. In 2005, the allocations were primarily based on specific identification and the relative percentage of the Company’s revenues and headcount to the respective total Wendy’s costs. For the year-to-date period ended October 1, 2006, expense allocations from Wendy’s were based on the amounts determined under the shared services agreement with Wendy’s entered into on March 29, 2006 at the completion of the IPO. The third quarter and year-to-date 2006 charges outlined in the shared services agreement were established on a consistent basis as those charged in 2005, with certain adjustments discussed below reflecting a reduced level of services received in the third quarter. All of these allocations are reflected in general and administrative expenses in the Company’s condensed consolidated statements of operations.

The expense allocations under the shared services agreement and charges related to restricted stock units granted to employees of the Company under the Wendy’s 2003 Stock Incentive Plan (“Wendy’s Plan”) are summarized in the table below:

(in millions)	Third Quarter ended October 1, 2006		Third Quarter ended October 2, 2005		Year-to-date ended October 1, 2006		Year-to-date ended October 2, 2005
Expense allocations under the shared services agreement	$	2.0	$	3.2	$	7.4	$	11.0
Wendy’s restricted stock unit expense for Company employees		2.7		0.8		6.1		1.4
	$	4.7	$	4.0	$	13.5	$	12.4

Consistent with the terms of the shared services agreement, the charges in the third quarter of 2006 were reduced to reflect the increasing independence of the Company, and therefore, the decreased level of services being provided by Wendy’s, primarily in the areas of executive oversight, investor relations, treasury and financial reporting.

The Company and Wendy’s considered these general corporate expense allocations, as adjusted pursuant to agreement by Wendy’s and the Company as described above, to be a reasonable reflection of the utilization of services provided. The allocations may not, however, reflect the expense the Company would have incurred as a stand-alone company.

NOTE 4 STOCK-BASED COMPENSATION

On November 18, 2005, the Company’s stockholder approved the 2006 Stock Incentive Plan (“2006 Plan”). The 2006 Plan is an omnibus plan, designed to allow for a broad range of equity based compensation awards in the form of stock options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalent rights, performance awards and share awards to eligible employees and directors of the Company or its subsidiaries. A total of 539,099 awards have been made under the 2006 Plan, in the form of restricted stock units, as of October 1, 2006, of which 19,110 were granted to external directors of the Company and 519,989 granted to officers and certain employees. A total of 193,805 of these awards were immediately vested and settled, net of withholding tax, in the Company’s shares (see below). No awards were made under this Plan in 2005. The number of remaining shares of common stock authorized under the Company’s 2006 Plan totals approximately 2.4 million.

Certain employees of the Company have participated in various Wendy’s plans which provided options and, beginning in 2005, restricted stock units that would settle in Wendy’s common stock. The following is a description of the impact on the Company related to Wendy’s plans as well as tables summarizing stock option and restricted stock unit activity for the Company’s employees.

9

Prior to January 2, 2006, Wendy’s and the Company used the intrinsic value method to account for stock-based employee compensation as defined in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”. Accordingly, because stock options granted prior to January 2, 2006 were granted at market value at the date of grant, and therefore had no intrinsic value at grant date, compensation expense related to stock options was recognized using the Black-Scholes method only when stock option awards were modified after the grant date. During the fourth quarter of 2005, Wendy’s accelerated the vesting of all outstanding options, excluding those held by the independent directors of Wendy’s. Wendy’s generally satisfies exercises of options through the issuance of authorized but previously unissued shares of Wendy’s stock. Prior to January 2, 2006, compensation expense related to restricted stock unit awards was measured based on the market value of Wendy’s common stock on the date of grant.

Wendy’s restricted stock units were granted to employees of the Company for the first time in May 2005. These restricted stock units were granted under the Wendy’s Plan and would have vested, for the Company’s Canadian employees, in accordance with the vesting schedule of the 2005 award agreements on May 1, 2006, May 1, 2007 and November 1, 2007, in one-third increments. These awards granted to Canadian employees were converted to the Company’s restricted stock units on May 1, 2006 (one-third) and August 15, 2006 (two-thirds) (see below) at an equivalent fair value, immediately vested, and then settled with 61,256 and 132,549 shares, respectively, totaling 193,805 shares, after provision for the payment of employee’s minimum statutory withholding tax requirements, of the Company’s stock. The 61,256 shares were purchased by an agent of the Company on behalf of the eligible employees on the open market on May 1, 2006 at an average purchase price of $30.543. The 132,549 shares were also purchased by an agent of the Company on behalf of the eligible employees on the open market on August 15, 2006 at an average purchase price of $27.3211. In accordance with SFAS 123R, no incremental compensation cost was recorded since there was no change in the fair value of the awards immediately before and after conversion. The Company’s U.S. employees’ awards under the Wendy’s Plan were settled by Wendy’s through the issuance of authorized but previously unissued shares of Wendy’s stock in May and October, 2006, as further discussed below.

Restricted stock unit grants made by Wendy’s to Canadian employees of the Company were to vest over a 30 month period. Restricted stock unit grants made by Wendy’s to U.S. employees of the Company were to vest in increments of 25% on each of the first four anniversaries of the grant date. The Wendy’s plans provided for immediate vesting of restricted stock units upon a disposition of a subsidiary of Wendy’s, which included the spin-off of the Company by Wendy’s. In June 2006, Wendy’s announced that its Board of Directors had confirmed their intent to complete the spin-off, and the spin-off was completed on September 29, 2006. Accordingly, the number of awards expected to vest was increased, and the expected service periods of the grants made to employees was shortened, so that all unvested awards became fully vested no later than September 29, 2006. This change in the estimated requisite service period and estimated forfeitures resulted in incremental compensation cost as reflected in the table below.

The following table summarizes the Company’s expense relating to restricted stock unit expense for the periods noted:

(in millions)	Third Quarter ended October 1, 2006		Third Quarter ended October 2, 2005		Year-to-date ended October 1, 2006		Year-to-date ended October 2, 2005
Wendy’s Restricted Stock Units
Standard vesting	$	0.8	$	0.8	$	2.6	$	1.4
Accelerated vesting		1.9		—		3.5		—
		2.7		0.8		6.1		1.4
THI Restricted Stock Units
Standard vesting		0.6		—		0.6		—
Expense for retirement eligible employees		2.6		—		2.6		—
		3.2		—		3.2		—
Total Restricted Stock Compensation Expense	$	5.9	$	0.8	$	9.3	$	1.4

On January 2, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123R “Share-Based Payment”, which requires share-based compensation cost to be recognized based on the grant date estimated fair value of each award, net of estimated cancellations, over the employee’s requisite service period, which is generally the vesting period of the equity grant. The Company elected to adopt SFAS No. 123R using the modified prospective method, which requires compensation expense to be recorded for all unvested share-based awards beginning in the first quarter of adoption. Accordingly, the prior periods presented in this Form 10-Q have not been restated to reflect the fair value method of

10

expensing stock options. Also, because the value used to measure compensation expense for restricted stock unit awards is the same for APB Opinion No. 25 and SFAS No. 123R, because Wendy’s restricted stock units were not granted prior to May 2005 and because all of Wendy’s stock option awards granted to employees of the Company were fully vested prior to January 2, 2006, the adoption of SFAS 123R did not have a material impact on the Company’s operating income, pretax income or net income. In accordance with SFAS No. 123R, the unearned compensation amount previously separately displayed under stockholders’ equity was reclassified during the first quarter of 2006 to capital in excess of stated value on the Company’s condensed consolidated balance sheets. In March 2005, the SEC issued Staff Accounting Bulletin (“SAB”) No. 107 regarding the SEC’s interpretation of SFAS No. 123R. The Company has applied the provisions of SAB No. 107 in its adoption of SFAS No. 123R.

Stock option awards made by Wendy’s generally have a term of 10 years from the grant date and become exercisable in instalments of 25 percent on each of the first four anniversaries of the grant date (see discussion below). In the fourth quarter of 2005, Wendy’s Compensation Committee approved the accelerated vesting of all outstanding stock options, except those held by the independent directors of Wendy’s. The decision to accelerate vesting of stock options was made primarily to reduce non-cash compensation expense that would have been recorded in future periods following the adoption of SFAS 123R.

The pro-forma disclosures for the quarter and year-to-date period ended October 2, 2005 below are provided as if the Company had adopted the cost recognition requirements under SFAS No. 123 “Accounting for Stock-Based Compensation”. Under SFAS No. 123, the fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model. This model requires the use of subjective assumptions that can materially affect fair value estimates, and therefore, this model does not necessarily provide a reliable single measure of the fair value of Wendy’s stock options. Had compensation expense been recognized for stock-based compensation plans in accordance with provisions of SFAS No. 123 in the third quarter and year-to-date periods of 2005, the Company would have recorded net income and earnings per share as follows:

	Third Quarter ended October 2, 2005			Year-to-date Period ended October 2, 2005
	(in thousands, except per share data)
Net income, as reported	$	66,261		$	174,661
Add: Stock compensation cost recorded under APB Opinion No. 25, net of tax		517			891
Deduct: Stock compensation cost calculated under SFAS No. 123, net of tax		(1,977	)		(5,712	)
Pro forma net income	$	64,801		$	169,840
Earnings per share:
Basic as reported	$	0.41		$	1.09
Basic pro forma	$	0.41		$	1.06

The above stock compensation cost calculated under SFAS No. 123, net of tax, is based on costs computed over the vesting period of the award. Upon adoption, SFAS No. 123R requires compensation cost for stock-based compensation awards to be recognized immediately for retirement eligible employees and over the period from the grant date to the date retirement eligibility is achieved, if that period is shorter than the normal vesting period. If the guidance on recognition of stock compensation expense for retirement eligible employees were applied to the periods reflected in the financial statements, the impact on the Company’s reported net income would have been a benefit of $0.7 million and $1.5 million for the quarter and year-to-date periods ended October 1, 2006, respectively, and would have been additional benefit of $0.4 million for the quarter ended October 2, 2005, and an additional expense of $1.6 million for the year-to-date period ended October 2, 2005. The impact on the Company’s pro-forma net income would have been an additional benefit of $1.1 million and $0.7 million for the quarter and year-to-date periods ended October 2, 2005, respectively.

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The impact of applying SFAS No. 123 in these pro-forma disclosures is not necessarily indicative of future results.

Restricted stock units

The following is a summary of unvested restricted stock unit activity for Company employees granted under the Wendy’s Plan for the year-to-date period ended October 1, 2006:

	Wendy’s Restricted Stock Units		Weighted Average Fair Value per Unit
	(in thousands)		(in U.S. dollars)
Balance at January 1, 2006	360		$	20.74
Granted	2			20.74
Vested and settled	(24	)		20.74
Cancelled	(319	)		20.74
Balance at October 1, 2006 (Vested, not settled)	19		$	20.74

The above stock option activity table has been adjusted to reflect the change in the value of Wendy’s stock as a result of the spin-off of the Company. The unit conversion ratio of 2.071251 was based on the value of the closing price of Wendy’s stock on the day of spin-off (September 29, 2006) (US$67.00) and the opening price of Wendy’s stock on October 2, 2006 (US$32.35).

As mentioned previously, the Wendy’s Plan provided for immediate vesting of restricted stock units upon disposition of a subsidiary of Wendy’s, which included the spin-off of the Company by Wendy’s. As a result, all of the remaining Wendy’s restricted stock units were vested at dates in the third quarter no later than September 29, 2006. On May 1, 2006, one-third of the then-outstanding Wendy’s restricted stock units held by Canadian Company employees were scheduled to vest. In lieu of receiving Wendy’s shares, substantially all of the Company’s Canadian employees elected to receive restricted stock units granted by the Company as replacement for the Wendy’s awards, effectively canceling the Wendy’s restricted stock units scheduled to vest on May 1, 2006. The Company’s Canadian employees received 2.2755 Company restricted stock units for every Wendy’s restricted stock unit held in connection with the May 1 conversion. This conversion was based upon the New York Stock Exchange closing price of both Wendy’s and the Company on April 28, 2006. On August 15, 2006, the Company’s Canadian employees received 2.4339 Company restricted stock units for every Wendy’s restricted stock unit held in connection with the conversion of the remaining two-thirds of the 2005 Wendy’s award. This conversion was based upon the New York Stock Exchange closing price of both Wendy’s and the Company’s on August 14, 2006. No additional value was provided to the Company’s Canadian employees as a result of these conversions. Upon the conversions, all Company restricted stock units issued for these conversions were immediately vested and net-settled in Company shares purchased on the open market, after provision for the payment of each employee’s minimum statutory withholding tax requirements.

With respect to the Company’s U.S. employees, the first quarter of the 2005 Wendy’s award was settled in Wendy’s shares in May, 2006, as mentioned previously. The balance outstanding of approximately 19,000 restricted stock units held by these employees were settled with authorized but previously unissued shares of Wendy’s stock in October 2006.

The Company’s Human Resource and Compensation Committee approved awards of 326,184 restricted stock units on August 1, 2006 to certain employees. The fair market value of each unit awarded as part of this grant (the mean of the high and low prices for the Company’s common shares traded on the Toronto Stock Exchange) on August 1, 2006 was $27.985 per unit. This grant will vest over a maximum 27-month period or a shorter period, in accordance with SFAS 123R, with respect to retirement eligible employees. The Company previously disclosed that, on August 1, 2006, the Human Resource and Compensation Committee had approved an aggregate award of 324,199 restricted stock units, which was an understatement of the actual total 2006 award amount by 1,985 units. This understatement was the result of administrative error and considered insignificant in amount.

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The following is a summary of unvested restricted stock unit activity for employees and outside directors granted under the Company’s 2006 Plan for the year-to-date period ended October 1, 2006:

	Restricted Stock Units			Weighted Average Fair Value per Unit
	(in thousands)			(in Canadian dollars)
Balance at January 1, 2006		—			—
Granted	$	346		$	28.13
Converted from Wendy’s restricted stock units	$	360		$	28.36
Vested	$	(360	)	$	28.36
Cancelled	$	—		$	—
Balance at October 1, 2006	$	346		$	28.13

As of October 1, 2006, total unrecognized compensation cost related to nonvested share-based compensation restricted stock units outstanding was $6.4 million and is expected to be recognized over a weighted-average period of 2.1 years. The Company expects substantially all of its restricted stock units to vest. A total of 246,000 restricted stock units vested in the third quarter of 2006 with a fair value of $6.7 million. No restricted stock units vested in the third quarter or year-to-date periods ending October 2, 2005.

Stock options

The use of stock options is currently not a component of the Company’s equity compensation structure. Prior to 2005, stock options were part of the Wendy’s compensation structure for the Company’s employees. The last grant of Wendy’s stock options was in 2004, and all employee stock options were vested as of January 1, 2006. No additional Wendy’s options were awarded as of October 1, 2006. A summary of the stock option fair value assumptions used in prior years is included in the Company’s 2005 consolidated financial statements in the registration statement on Form S-1 (Registration No. 333-130035) filed with the SEC on December 1, 2005, as amended thereafter.

The following is a summary of Wendy’s stock option activity for the Company’s employees for the year-to-date period ended October 1, 2006:

(Shares, in thousands)	Wendy’s Shares Under Option		Weighted Average Price Per Share		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
			(in U.S. dollars)		(years)	(in U.S. dollars)
Balance at January 1, 2006	2,515		$	17.05	7.2
Granted	—			—	—
Exercised	(2,468	)		17.15	—
Cancelled	(10	)		12.89	—
Outstanding at October 1, 2006	37		$	15.53	1.0	$	618

The above stock option activity table has been adjusted to reflect the change in the value of Wendy’s stock as a result of the spin-off of Tim Hortons. The unit conversion ratio of 2.071251 was based on the closing price of Wendy’s stock on the day of spin-off (September 29, 2006) (US$67.00) and the opening price of Wendy’s stock on October 2, 2006 (US$32.35).

All options outstanding at October 1, 2006 were exercisable. In accordance with the terms of the Wendy’s stock option plans, options granted to Company employees will expire on the earlier of one year after the spin-off of the Company’s remaining shares by Wendy’s or 10 years after the date of grant. As a result, the weighted average remaining contractual life has been shortened to reflect this. The intrinsic value of a stock option is the amount by which the market value of the underlying Wendy’s stock exceeds the exercise price of the option. For the quarters ended October 1, 2006 and October 2, 2005, the total intrinsic value of stock options exercised was $1.9 million and $9.0 million, respectively. For the year-to-date periods ended October 1, 2006 and October 2, 2005, the total intrinsic value of stock options exercised was $37.5 million and $14.0 million, respectively. The Company received no proceeds and recognized no tax benefits for stock options exercised in any period presented.

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NOTE 5 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

The components of other comprehensive income (loss) and total comprehensive loss are shown below:

	Third Quarter ended						Year-to-date Period ended
	October 1, 2006			October 2, 2005			October 1, 2006			October 2, 2005
Net income	$	51,841		$	66,261		$	191,741		$	174,661
Other comprehensive income (loss)
Translation adjustments, net of tax		(3,323	)		(26,966	)		(39,908	)		(22,814	)
Cash flow hedges:
Net change in fair value of derivatives, net of tax		(1,602	)		(5,338	)		(8,894	)		(4,588	)
Amounts realized in earnings during the year, net of tax		430			3,611			8,979			5,330
Total cash flow hedges		(1,172	)		(1,727	)		85			742
Total other comprehensive (loss) income		(4,495	)		(28,693	)		(39,823	)		(22,072	)
Total comprehensive income	$	47,346		$	37,568		$	151,918		$	152,589

Total other comprehensive income (loss) primarily consists of translation adjustments related to fluctuations in the Canadian dollar versus the U.S. dollar and activity related to the Company’s cash flow hedges. In the third quarter of 2006, in connection with the spin-off from Wendy’s (see Note 10), the Company reversed a tax benefit of $2.7 million relating to the loss arising from the net investment hedge recognized earlier in 2006. The net investment hedge loss is included in the translation adjustment component of other comprehensive income. The reversal of this tax benefit is also reflected in the translation adjustments for the year-to-date period ended October 1, 2006. The loss arising from the settlement of the $578 million net investment hedge resulted in a $7.3 million loss (net of taxes of $nil million) (which had a cumulative loss of $13.3 million, net of taxes of $3.7 million for this net investment hedge since inception) recorded in the translation adjustments component of other comprehensive income.

At the end of the fourth quarter 2005, the Canadian exchange rate was $1.1628 versus $1.1178 at October 1, 2006. At the end of the fourth quarter 2004, the Canadian exchange rate was $1.1995 versus $1.1624 at October 2, 2005.

NOTE 6 SEGMENT REPORTING

The Company operates in the food-service industry and has determined that its reportable segments are those that are based on the Company’s methods of internal reporting and management structure. The Company’s reportable segments are Canada and the U.S. There were no material amounts of revenues between reportable segments.

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The table below presents information about reportable segments:

	Third Quarter ended October 1, 2006			% of Total		Third Quarter ended October 2, 2005			% of Total		Year-to-date ended October 1, 2006			% of Total		Year-to-date ended October 2, 2005			% of Total
Revenues
Canada	$	379,892		91.9	%	$	348,967		90.4	%	$	1,092,822		91.6	%	$	978,026		90.7	%
U.S.		33,671		8.1	%		37,092		9.6	%		100,270		8.4	%		100,142		9.3	%
	$	413,563		100.0	%	$	386,059		100.0	%	$	1,193,092		100.0	%	$	1,078,168		100.0	%
Segment Operating Income (Loss)
Canada	$	101,338		99.6	%	$	96,880		99.5	%	$	297,582		99.6	%	$	279,300		100.7	%
U.S.		357		0.4	%		486		0.5	%		1,245		0.4	%		(2,110	)	(0.7	)%
Reportable Segment Operating Income	$	101,695		100.0	%	$	97,366		100.0	%	$	298,827		100.0	%	$	277,190		100.0	%
Corporate Charges (1)		(10,400	)				(1,498	)				(25,913	)				(17,869	)
Consolidated Operating Income	$	91,295				$	95,868				$	272,914				$	259,321
Interest, Net		(3,374	)				(2,122	)				(15,156	)				(5,893	)
Income Taxes		(36,080	)				(27,485	)				(66,017	)				(78,767	)
Net Income	$	51,841				$	66,261				$	191,741				$	174,661
Capital Expenditures
Canada	$	29,650		62.5	%	$	41,405		80.7	%	$	82,861		68.3	%	$	103,317		73.3	%
U.S.		17,754		37.5	%		9,876		19.3	%		38,455		31.7	%		37,571		26.7	%
	$	47,404		100.0	%	$	51,281		100.0	%	$	121,316		100.0	%	$	140,888		100.0	%

(1) Corporate charges include certain overhead costs that are not allocated to individual business units and the impact of certain foreign currency exchange gains and losses.

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Revenues consisted of the following:

	Third Quarter ended				Year-to-date ended
	October 1, 2006		October 2, 2005		October 1, 2006		October 2, 2005
Sales
Warehouse sales	$	226,363	$	208,090	$	647,329	$	580,528
Company-operated restaurant sales		18,477		16,968		51,439		49,231
Sales from restaurants consolidated under FIN46R		26,694		26,708		78,870		73,725
		271,534		251,766		777,638		703,484
Franchise revenues
Rents and royalties		127,912		115,730		370,279		333,026
Franchise fees		14,117		18,563		45,175		41,658
		142,029		134,293		415,454		374,684
Total revenues	$	413,563	$	386,059	$	1,193,092	$	1,078,168

Cost of sales related to Company-operated restaurant sales were $20.7 million and $56.9 million for the quarter and year-to-date periods ended October 1, 2006, respectively, and $22.5 million and $58.6 million for the quarter and year-to-date periods ended October 2, 2005.

Total assets of the Company increased $65.5 million from January 1, 2006 to October 1, 2006 with the Canadian segment increasing $14.2 million, the U.S. segment increasing $81.1 million, and the corporate assets decreasing $29.8 million. The changes in total assets among the segments are primarily related to the redistribution of excess proceeds from the initial public offering to the U.S. operating segment.

The following sets forth numbers of franchised locations for the third quarter and year-to-date periods:

	Third Quarter ended				Year-to-date Period ended
	October 1, 2006		October 2, 2005		October 1, 2006		October 2, 2005
Franchise Restaurant Progression
Franchise restaurants in operation – beginning of period	2,820		2,656		2,790		2,623
Franchises opened	27		48		80		93
Franchises closed	(8	)	(2	)	(24	)	(14	)
Net transfers within the system	1		3		(6	)	3
Franchise restaurants in operation – end of period	2,840		2,705		2,840		2,705
Company-operated restaurants	102		96		102		96
Total systemwide restaurants	2,942		2,801		2,942		2,801

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NOTE 7 INTANGIBLE ASSETS, NET

The table below presents amortizable intangible assets as of October 1, 2006 and January 1, 2006:

	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
October 1, 2006
Amortizable intangible assets:
Persona	$	6,455	$	(2,637	)	$	3,818
Other		2,784		(2,784	)		—
	$	9,239	$	(5,421	)	$	3,818
January 1, 2006
Amortizable intangible assets:
Persona	$	6,455	$	(2,234	)	$	4,221
Other		2,784		(2,784	)		—
	$	9,239	$	(5,018	)	$	4,221

Persona of $3.8 million and $4.2 million as at October 1, 2006 and January 1, 2006, respectively, net of accumulated amortization of $2.6 million and $2.2 million, respectively, represents the use of the name and likeness of Ronald V. Joyce, a former owner of the Company. The name and likeness are being amortized over a period of 12 years ending in 2013.

Total intangibles amortization expense was $0.1 and $0.3 million for the quarters ended October 1, 2006 and October 2, 2005, respectively. Total intangible asset amortization expenses were $0.4 million and $0.8 million for the year-to-date periods ended October 1, 2006 and October 2, 2005, respectively. The estimated annual intangibles amortization expense for 2006 through 2010 is approximately $0.5 million.

NOTE 8 TERM DEBT

On February 28, 2006, the Company entered into an unsecured five year senior bank facility with a syndicate of Canadian and U.S. financial institutions that comprises a $300.0 million Canadian term loan facility; a $200.0 million Canadian revolving credit facility (which includes $15.0 million in overdraft availability); and a US$100.0 million U.S. revolving credit facility (together referred to as the “senior bank facility”). The senior bank facility matures on February 28, 2011. The term loan facility bears interest at a variable rate per annum equal to Canadian prime rate or alternatively, one of Tim Hortons Inc.’s principal subsidiaries may elect to borrow by way of Bankers’ Acceptances (or loans equivalent thereto) plus a margin. The senior bank facility (as amended on April 24, 2006, effective February 28, 2006) contains various covenants which, among other things, require the maintenance of two financial ratios – a consolidated maximum total debt to earnings before interest expenses, taxes, depreciation and amortization (EBITDA) ratio and a minimum fixed charge coverage ratio. The Company was in compliance with these ratios as at October 1, 2006.

On April 24, 2006, effective February 28, 2006, Tim Hortons Inc. along with certain of its subsidiaries entered into an amendment of its senior bank facility with a syndicate of Canadian and U.S. financial institutions. The amendment corrected a drafting error in the original agreement by revising the timing of the application of the debt covenant thresholds to be consistent with the period during which Tim Hortons Inc. was permitted to repay certain intercompany debt. These corrected terms reflected the terms that had been agreed to by the parties prior to the effective date of the original agreement. No additional changes were made, and required lender approval was obtained for the amendment with no additional fees incurred other than drafting expenses for the amendment.

The Canadian and U.S. revolving credit facilities are both undrawn, except for approximately $3.5 million being used on the facilities to support standby letters of credit, and are available for general corporate purposes. The Canadian revolving credit facility replaced the previous $25.0 million revolving facility except for approximately $1.5 million remaining of the original $5.0 million being used to support standby letters of credit. These original letters of credit will remain in place until expiration. The Company incurs commitment fees based on the revolving credit facilities, whether used or unused. The fees vary according to the Company’s leverage ratio and, as at October 1, 2006 equaled 0.125% of the facility amount. Advances under the Canadian revolving credit facility bear interest at a variable rate per annum equal to the Canadian prime rate or alternatively, one of Tim Hortons Inc.’s principal subsidiaries may elect to borrow by way of Bankers’ Acceptances or LIBOR, plus a margin. Advances under the U.S. revolving credit facility bear interest at a rate per annum equal to the U.S. prime rate or LIBOR plus a margin.

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On February 28, 2006, the Company entered into an unsecured non-revolving $200.0 million bridge loan facility with two financial institutions which would have matured on April 28, 2007. The bridge loan facility interest rate was at Bankers’ Acceptances plus a margin. The bridge loan facility was repaid in full on May 3, 2006, and the Bridge Facility Credit Agreement was terminated at this time as a result of the voluntary prepayment.

In connection with the term loan facility, one of the principal subsidiaries of the Company entered into a $100.0 million dollar interest rate swap on March 1, 2006 with two financial institutions to help manage its exposure to interest rate volatility (see Note 14).

The senior bank facility contains certain covenants that will limit the ability of the Company to, among other things: incur additional indebtedness; create liens; merge with other entities; sell assets; make restricted payments; make certain investments, loans, advances, guarantees or acquisitions; change the nature of its business; enter into transactions with affiliates; and restrict dividends or enter into certain restrictive agreements.

In connection with the senior bank facility, the Company incurred a total of $1.4 million in financing costs, which were deferred and will be amortized (or expensed upon early repayment) over the terms of each facility to which the costs relate. In connection with the bridge loan facility, the Company incurred $0.3 million of deferred financing costs which were expensed on repayment, reducing the amount of the deferred financing costs remaining on the balance sheet.

NOTE 9 CAPITAL STOCK

On February 24, 2006, the Board of Directors approved a one to 228,504.252857143 stock split effective February 24, 2006. All share and per share amounts have been retroactively adjusted for all periods presented to reflect the stock split. The Board of Directors also approved an increase in the number of authorized shares from 1,000 to 1,000,000,000 and approved a designation of par value of US$0.001 to each share. Both of these changes were retroactively reflected for all periods presented.

On March 29, 2006, the Company completed its initial public offering of 33,350,000 shares of common stock at an offering price of $27.00 (US$23.162) per share of common stock. The gross proceeds of $903.8 million were offset by $61.6 million in underwriter and other third party costs with all such costs paid as of October 1, 2006. In addition, approximately $1.6 million of costs associated with the initial public offering were expensed in the year-to-date period ended October 1, 2006 all of which were incurred in the first quarter ended April 2, 2006. After completion of the initial public offering, the Company had 193,302,977 shares of common stock outstanding.

Pursuant to a rights agreement adopted by the Company’s Board of Directors on February 28, 2006, the Company issued one right (“Right”) for each outstanding share of common stock. Each Right is initially exercisable for one ten-thousandth of a share of the Company’s preferred stock, par value US$0.001 per share, but the Rights are not exercisable until 10 days after the public announcement that a person or group has acquired beneficial ownership of 15% or more of the Company’s common stock, or 10 days after a person or group begins a tender or exchange offer to acquire 15% or more of the Company’s common stock. If a person or group acquires 15% or more of the Company’s common stock, then each Right would entitle its holder, in lieu of receiving the Company’s preferred stock, to buy that number of shares of the Company’s common stock that, at the time of the 15% acquisition, had a market value of two times the exercise price of the Right. The exercise price of each Right is $150.00, subject to anti-dilution adjustments. If, after the Rights have been triggered, the Company is acquired in a merger or similar transaction, each Right would entitle its holder (other than the acquirer) to buy that number of shares of common stock of the acquiring company that, at the time of such transaction, would have a market value of two times the exercise price of the Right. The Rights have no effect on earnings per share until they become exercisable. If not redeemed, the Rights will expire on February 23, 2016.

NOTE 10 INCOME TAXES

The effective income tax rate for the quarter ended October 1, 2006 was 41.0%, compared to 29.3% for the comparative period ended October 2, 2005. The effective income tax rate for the year-to-date period ended October 1, 2006 was 25.6% compared to 31.1% for the comparative year-to-date period ended October 2, 2005.

The increase in the tax provision to 41 % in the quarter ended October 1, 2006 is due primarily to the following: (i) the reversal of previously reported one-time tax benefits through the recording of a valuation allowance of approximately $12 million on previously recognized foreign tax credits as a result of the spin-off from Wendy’s in the quarter ended October 1, 2006 and the decision by the Company not to proceed with certain tax planning strategies; and (ii) the accrual of approximately $2.2 million in deferred tax on unremitted earnings that the Company will now incur in subsequent periods upon repatriation of earnings, both of the foregoing were partially offset by a reserve release related to the resolution of Canadian and US tax audits and related book-to-tax adjustments of approximately $5.0 million.

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For the comparative quarter ending October 2, 2005, the Company’s tax rate was 29.3%, which reflected a benefit from favorable taxation of currency transactions.

For the year-to-date period ended October 1, 2006, the Company’s tax rate was 25.6% which was lower than the prior year as the Company realized a number of discrete tax benefits that it does not expect will recur in subsequent periods. The primary year-to-date tax benefits recorded include: (i) a reserve release related to the resolution of Canadian and US tax audits and related book-to-tax adjustments of approximately $12 million; and (ii) the reversal, net of current quarter accrual, of approximately $3.6 million in deferred tax relating to Canadian withholding taxes originally accrued for intercompany cross-border dividends that are no longer expected to be paid.

The determination of income tax expense takes into consideration amounts that may be needed to cover exposure for open tax years. The Canada Revenue Agency is currently conducting an examination of various Canadian subsidiaries of the Company for 2001 and subsequent taxation years. The Internal Revenue Service has completed a federal income tax examination of Wendy’s (the Company’s consolidated tax group through September 29, 2006) for the years 2001 through 2004 and is waiting for the Joint Committee of Taxation to approve the issuance of a refund to Wendy’s for those taxation years, and Wendy’s has already refunded amounts to the Company. The Internal Revenue Service is continuing its examination for the years 2005 and 2006. The Company does not currently expect any material impact on earnings or cash flow to result from the resolution of matters related to open tax years; however, actual settlements may differ from amounts accrued.

The allocation of taxes payable amounts for the tax return relating to the period ended September 29, 2006, described above, between the Company and Wendy’s is adjusted in accordance with the Company’s tax sharing agreement with Wendy’s. Based on representations from Wendy’s management as to its forecasted tax position for 2006, no material amount is expected to be owing by either Wendy’s or the Company to the other party for 2006 under the tax sharing agreement. However, Wendy’s representations were based on estimates and assumptions and its actual final tax position could be substantially different from these estimates and assumptions. If Wendy’s final tax position for 2006 were to substantially change from what it has represented to the Company, the two parties would need to agree on whether any adjustment to the third quarter allocation of taxes payable amounts is required under the tax sharing agreement. Where the two parties cannot agree to the extent of the allocation, pursuant to the tax sharing agreement, the amount owing will be determined through final arbitration and could be as high as 35% of Wendy’s domestic loss for 2006, if any. Any subsequent allocation made pursuant to the agreement due to the tax position of Wendy’s will be accounted for through additional paid-in capital, and any payment required to Wendy’s could have a material impact on cash flows in the quarter in which made.

NOTE 11 COMMITMENTS AND CONTINGENCIES

The Company has guaranteed certain lease and debt payments primarily for franchisees, amounting to $0.6 million. In the event of default by a franchise owner, the Company generally retains the right to acquire possession of the related restaurants. The Company is also the guarantor on $5.0 million in letters of credit with various parties; however, management does not expect any material loss to result from these instruments because it does not believe performance will be required. The length of the lease, loan and other arrangements guaranteed by the Company or for which the Company is contingently liable varies, but generally does not exceed nine years.

In addition to the above guarantees, the Company is party to many agreements executed in the ordinary course of business that provide for indemnification of third parties, under specified circumstances, such as lessors of real property leased by the Company, distributors, service providers for various types of services (including commercial banking, investment banking, tax, actuarial and other services), software licensors, marketing and advertising firms, securities underwriters and others. Generally, these agreements obligate the Company to indemnify the third parties only if certain events occur or claims are made, as these contingent events or claims are defined in each of these agreements. The Company believes that the resolution of any claims that might arise in the future, either individually or in the aggregate, would not materially affect the earnings or financial condition of the Company. The liability recorded related to the above indemnity agreements is not material.

NOTE 12 ADVERTISING FUND

The Company participates in two advertising funds established to collect and administer funds contributed for use in advertising and promotional programs designed to increase sales and enhance the reputation of the Company and its franchise owners. Separate advertising funds are administered for Canada and the U.S. In accordance with SFAS No. 45, “Accounting for Franchisee Fee Revenue”, the revenue, expenses and cash flows of the advertising funds are not included in the Company’s condensed consolidated statements of operations or cash flows because the contributions to these advertising

19

funds are designated for specific purposes, and the Company acts as an, in substance, agent with regard to these contributions. The assets held by these advertising funds are considered restricted. The current restricted assets, current restricted liabilities, and advertising fund debt are identified on the Company’s Condensed Consolidated Balance Sheets. The current portion of advertising fund debt is included in restricted liabilities. In addition, at October 1, 2006 and January 1, 2006, property and equipment, net includes $41.0 million and $39.5 million, respectively, of advertising fund fixed assets.

NOTE 13 RELATED PARTY

On July 17, 2006, the Company purchased four restaurant sites from Wendy’s Old Fashioned Hamburgers of New York, Inc., a wholly-owned subsidiary of Wendy’s, which were formerly Wendy’s restaurants, for US$1 million. Three of the sites are leasehold interests with building and improvements. One site consisted of land and building. The Company is in the process of remodeling these sites and plans to eventually sell them to franchisees.

In March 2006, the Company entered into various agreements with Wendy’s that defined the relationship in the interim period between the Company’s IPO and separation from Wendy’s as well as with respect to various post-separation matters. These agreements defined various matters related to the separation of Wendy’s and the Company generally, and, with respect to certain services provided under the shared services agreement, until the Company can provide the services themselves. These agreements include a master separation agreement, a shared services agreement, a tax sharing agreement and a registration rights agreement (see Note 3).

In September 2005, the Company distributed, by way of a non-cash dividend, a note to Wendy’s in the amount of US$960.0 million ($1.1 billion). The outstanding principal of the note had an annual interest rate of 3.0%. Both the outstanding principal and accrued interest were due within 30 days of a demand for payment by Wendy’s and could be prepaid by the Company at any time. On March 3, 2006, the Company repaid US$427.4 million principal on the US$960.0 million note plus accrued interest of US$12.7 million. On April 26, 2006 the Company repaid the remaining principal of US$532.6 million and accrued interest of US$2.0 million using proceeds from the Company’s initial public offering.

NOTE 14 DERIVATIVES

In 2005, the Company entered into forward currency contracts that matured in March 2006 to sell $500.0 million and buy US$427.4 million to hedge the repayment of cross-border intercompany notes being marked-to-market beginning in the third quarter of 2005. Previously, the translation of these intercompany notes was recorded in comprehensive income, rather than in the Condensed Consolidated Statements of Operations, in accordance with SFAS No. 52, “Foreign Currency Translation”. The fair value unrealized loss on these contracts as of January 1, 2006 was $2.3 million, net of taxes of $1.4 million. On the maturity date of March 3, 2006, the Company received US$427.4 million from the counterparties and disbursed to the counterparties $500.0 million, resulting in a net cash flow of US$13.1 million ($15.4 million) to the counterparties (representing the difference from the contract rate to spot rate on settlement). Per SFAS No. 95, “Statement of Cash Flows”, the net cash flow was reported in the net cash provided by operating activities line of the Condensed Consolidated Statements of Cash Flows for the quarter ended April 2, 2006 in our Form 10-Q for the first quarter, filed May 11, 2006. These forward currency contracts remained highly effective cash flow hedges and qualified for hedge accounting treatment through their maturity. As a result, during the first quarter of 2006, changes in the fair value of the effective portion of these foreign currency contracts offset changes in the cross-border intercompany notes, and a $0.9 million gain was recognized as the ineffective portion of the foreign currency contracts.

In 2005, the Company entered into forward currency contracts to sell $578.0 million Canadian dollars and buy US$490.5 million in order to hedge certain net investment positions in Canadian subsidiaries. Under SFAS No. 133, these forward currency contracts were designated as highly effective hedges. The fair value unrealized loss on these contracts was $5.8 million, net of taxes of $3.6 million as of January 1, 2006. On the maturity dates of April 10-13, 2006, the Company received US$490.5 million from the counterparties and disbursed to the counterparties $578.0 million, resulting in a net cash flow of US$14.9 million ($17.0 million) to the counterparties (representing the difference from the contract rate to spot rate on settlement). Per SFAS No. 95, “Statement of Cash Flows”, the net cash flow was reported in the net cash provided by operating activities line of the Condensed Consolidated Statements of Cash Flows for the year-to-date period ended October 1, 2006 as the cash flows do not meet the definition of an investing or financing activity. These forward currency contracts remained highly effective cash flow hedges and qualified for hedge accounting treatment through their maturity. The cumulative fair value realized loss on these contracts was $13.3 million, net of taxes of $3.7 million, on maturity in April 2006. As a result of the spin-off from Wendy’s (see Note 10), the tax benefit of $2.7 million related to the loss on the net investment hedge previously recognized, was reversed in the third quarter of 2006. Changes in the fair value of these foreign currency net investment hedges are included in the translation adjustments line of other comprehensive income (loss) (see Note 5). No amounts related to these net investment hedges impacted earnings.

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In connection with the term loan facility, one of the principal subsidiaries entered into a $100.0 million interest rate swap with two financial institutions on March 1, 2006 to help manage its exposure to interest rate volatility. By entering into the interest rate swap, the Company agreed to receive interest at a variable rate and pay interest at a fixed rate. The interest rate swap essentially fixes the interest rate on one-third of the $300.0 million term loan facility, but the rate remains subject to variation if the applicable margin under the credit facilities increases or decreases (see Note 8). As a result of a decrease in such applicable margin in the third quarter of 2006, the rate decreased to 5.05%. The swap matures on February 28, 2011. The interest rate swap is considered to be a highly effective cash flow hedge according to criteria specified in SFAS No. 133 – Accounting for Derivative Instruments and Hedging Activities. Tim Hortons Inc. and certain of its subsidiaries provided guarantees in connection with this transaction. The fair value unrealized loss on this contract as of October 1, 2006 was $0.7 million, net of taxes of $0.4 million.

NOTE 15 CLASSIFICATION CHANGES IN CASH FLOW STATEMENT

The Condensed Consolidated Statement of Cash Flows (unaudited) for the nine month period ended October 2, 2005 included in the Company’s preliminary registration statement on Form S-1 (Registration No. 333-13035) filed with the Securities and Exchange Commission (“SEC”) on December 1, 2005 reflected certain intercompany transactions with Wendy’s International, Inc. totaling $51.9 million as a cash inflow in the financing section, which should have been classified in the operating section of the Condensed Consolidated Statement of Cash Flows. The same Condensed Consolidated Statement of Cash Flows also understated capital expenditures by $9.0 million with the overstatement appearing in the operating cash flows. These changes in classification did not impact reported cash and cash equivalents, the balance sheet or the income statement (both unaudited) filed as part of the Form S-1 on December 1, 2005, and were corrected in the Company’s 2005 full year audited Consolidated Statement of Cash Flows (which were filed as part of Amendment No. 3 to the Form S-1 on February 27, 2006). The corrections for these changes in classification, which were caused by a clerical error in the summarization in the aforementioned items, are reflected in the Condensed Consolidated Statement of Cash Flows for the nine month period ended October 2, 2005 included in this Form 10-Q. Also, the nine-month 2005 capital expenditures segment disclosures have been corrected in this Form 10-Q to reflect an $11.0 million increase and a $2.0 million decrease in Canada and the United States, respectively, which resulted in the net $9.0 million increase in capital expenditures.

NOTE 16 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes”, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” An uncertain tax position will be recognized if it is determined that it is more likely than not to be sustained upon examination. The tax position is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The cumulative effect of applying the provisions of this Interpretation is to be reported as a separate adjustment to the opening balance of retained earnings in the year of adoption. This statement is effective for fiscal years beginning after December 15, 2006. The Company is currently in the process of evaluating the impact of adopting FIN 48.

In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurement” which addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles. FAS No. 157 provides a common definition of fair value to be used throughout generally accepted accounting principles. Under the standard, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the Company transacts. The standard clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. The standard establishes a fair value hierarchy that prioritizes the information used to develop the assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. SFAS No. 157 requires disclosures about the extent to which the Company measures assets and liabilities at fair value, the methods and assumptions used to measure fair value, and the effect of fair value measures on earnings. This standard is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company has not assessed the impact of adopting SFAS No. 157.

NOTE 17 SUBSEQUENT EVENTS

On October 27, 2006, the Company announced that a notice of intention to make a normal course issuer bid (NCIB) had been filed and received regulatory approval from the Toronto Stock Exchange (TSX) authorizing the repurchase by the Company of shares of its stock in an amount not expected to exceed $200 million, and in no event in excess of 5% of the Company’s outstanding common stock as of the date of filing of the NCIB. Tim Hortons began implementation of the repurchase program on November 1, 2006. As part of the repurchase program, the Company entered into a Rule 10b5-1

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repurchase plan with a broker in order to facilitate its repurchase activity. A Rule 10b5-1 repurchase plan allows the Company to purchase its shares at times when it ordinarily would not be in the market due to regulatory or company restrictions. In addition to the Rule 10b5-1 plan, the Company may also make repurchases at management’s discretion under its stock repurchase program from time to time, subject to market conditions, stock prices, its cash position, and compliance with regulatory requirements. The Company repurchases will be made on the TSX and/or the New York Stock Exchange, subject to compliance with applicable regulatory requirements.

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TIM HORTONS INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial conditions and results of operations of the Company should be read in conjunction with the 2005 Annual Consolidated Financial Statements included in our registration statement on Form S-1 (Registration No. 333-130035) filed with the SEC on December 1, 2005, as amended thereafter, and the Company’s periodic reports on Form 10-Q filed prior to the date hereof. All amounts are expressed in Canadian dollars unless otherwise noted. The following discussion includes forward-looking statements that are not historical facts but reflect our current expectation regarding future results. Actual results may differ materially from the results discussed in the forward-looking statements because of a number of risks and uncertainties, including the matters discussed below. Please refer to “Risk Factors” included in our registration statement on Form S-1, our Form 10-Q filed on August 11, 2006, and set forth in our Safe Harbor Statement attached hereto as Exhibit 99. Historical trends should not be taken as indicative of future operations.

Our financial results are driven largely by changes in systemwide sales, which include restaurant-level sales at both franchise and company-operated restaurants. As of October 1, 2006, 2,840 or 96.5% of our restaurants were franchised, representing 98.4% in Canada and 80% in the United States. The amount of systemwide sales affects our franchisee 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 restaurants. Average same-store sales, one of the key metrics we use to assess our performance, provides information on total retail sales at restaurants operating systemwide throughout the relevant period and provides a useful comparison between periods. We believe systemwide sales and average same-store sales provide meaningful information to investors concerning the size of our system, the overall health of the system and the strength of our brand. Information about systemwide sales and average same-store sales is included in this Form 10-Q report. Franchise restaurant sales generally are not included in our financial statements; however, franchise restaurant sales result in royalties and rental income, which are included in our franchise revenues.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain certain non-GAAP financial measures to assist readers in understanding the Company’s performance. Non-GAAP financial measures are measures that either exclude or include amounts that are not excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. Where non-GAAP financial measures are used, we have provided the most directly comparable measures calculated and presented in accordance with GAAP and a reconciliation to GAAP measures.

Overview

We franchise and operate Tim Hortons restaurants in Canada and the U.S. As the franchisor, we collect royalty income on our franchised restaurant sales. Also, our business model includes controlling the real estate for most of our franchise restaurants. As of October 1, 2006, we leased or owned the real estate for approximately 81% of our system restaurants, which generates a recurring stream of rental income. We distribute coffee and other drinks, non-perishable food, supplies, packaging and equipment to system restaurants in Canada through our five distribution centres. In the second quarter of 2006, we also began distributing frozen product from our Guelph warehouse to certain Tim Hortons restaurants in the Ontario region. In the U.S., we supply similar products to system restaurants through third-party distributors.

In the third quarter of 2006, our revenues increased $27.5 million, or 7.1%, over the third quarter of 2005 and increased $114.9 million or 10.7% in the year-to-date period ended October 1, 2006 over the comparable prior year-to-date period in 2005. These increases were the result of continued average same-store sales gains and growth in the number of systemwide restaurants, resulting in higher royalty, rental and distribution revenues. Despite strong same-store sales growth and a higher number of system restaurants over the third quarter of 2005, operating income decreased $4.6 million or 4.8% in the third quarter of 2006 compared to the third quarter of 2005. This decrease resulted from an $8.5 million increase in general and administrative expenses, driven primarily by compensation expense from restricted stock units and spin-related costs, including the expense of a directors and officers run-off insurance policy (see General and Administrative Expenses). In addition, in the third quarter of 2005, other income included approximately $6.3 million in non-operating foreign exchange gains primarily related to a mark-to-market gain on cross border intercompany notes ($5.1million). In the third quarter of 2006, we also had additional ramp-up costs related to our Guelph distribution facility, described below, which had the effect of reducing our operating income by approximately $3 million in the third quarter as compared to the same period in 2005.

In the third quarter of 2006, our net income decreased $14.4 million, or 21.8% compared to the third quarter of 2005 driven by the lower operating income, higher interest expense from our new third party debt and higher income taxes (see Income Taxes).

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For the year-to-date period ended October 1, 2006, our operating income increased $13.6 million or 5.2% and our net income increased $17.1 million or 9.8% over the comparable prior year-to-date period in 2005. The increase in net income was driven by systemwide sales growth driving higher sales and franchise revenues, and certain favourable tax benefits, partially offset by the effects of: (i) higher general and administrative expenses; (ii) lower other income; (iii) higher interest expense; and (iv) ramp-up costs associated with the Guelph distribution facility, as compared to the year-to-date period in 2005.

Earnings per share were $0.27 in the third quarter of 2006 compared to $0.41 per share in the third quarter of 2005. This decline was due to lower net income in the third quarter and higher weighted average number of shares outstanding. Our initial public offering (“IPO”) was completed in the first quarter of 2006, increasing our weighted average diluted share count by approximately 21%. Earnings per share for the year-to-date period ended October 1, 2006 were $1.05 compared to $1.09 in the same period in 2005. This decline was a result of the higher weighted average number of shares outstanding in 2006 discussed above, offset, in part, by higher net income.

In August, 2006, our Board of Directors approved a share repurchase program authorizing the Company to purchase up to $200 million, not to exceed 5% of our current outstanding shares of common stock, subject to regulatory approval. The program is expected to be in place until September 28, 2007, but may terminate earlier if either the $200 million maximum or the 5% of outstanding shares limit is reached. We may make such repurchases on either of the New York Stock Exchange (NYSE) and/or the Toronto Stock Exchange (TSX). As part of the stock repurchase program, we have entered into a Rule 10b5-1 repurchase plan with a broker in order to facilitate stock repurchase activity. The Rule 10b5-1 repurchase plan allows the Company to purchase shares at times when we may not otherwise be in the market due to regulatory or company restrictions. Purchases will be based upon the parameters of the Rule 10b5-1 plan. In addition to repurchases made pursuant to the Rule 10b5-1 plan, we may also make repurchases at management’s discretion under our stock repurchase program from time to time, subject to market conditions, stock prices, our cash position and compliance with regulatory requirements.

In October 2006, our Board of Directors approved our second quarterly dividend of $0.07 cents per share, payable on November 21, 2006, to stockholders of record as of November 7, 2006. The dividend will be paid in Canadian dollars to all registered stockholders with Canadian resident addresses. For all other stockholders, the dividend will be converted to U.S. dollars on November 14, 2006 at the daily noon rate established by the Bank of Canada and paid in U.S. dollars on November 21, 2006. The Company expects that future dividends will be paid in a similar manner. The dividend is based on the annual payout ratio described in the Company’s second quarter Form 10-Q filed with the SEC on August 11, 2006. We currently anticipate that the payout ratio will be recalculated on an annual basis after 2006 year-end results are available. However, the declaration and payment of future dividends remains subject to the discretion of our Board of Directors.

In February, 2006, we entered into a senior bank facility and a bridge loan facility borrowing $500.0 million, referred to herein as our “credit facilities”. The proceeds from the credit facilities and the IPO were used to repay borrowings to Wendy’s of US$960.0 million plus accrued interest in two payments in March and April 2006. One of the Company’s principal subsidiaries also repaid the bridge loan of $200.0 million in May 2006 and terminated this facility.

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Selected Operating and Financial Highlights

	Third Quarter ended October 1, 2006			Third Quarter ended October 2, 2005			Year-to-date ended October 1, 2006			Year-to-date ended October 2, 2005
Systemwide sales growth(1)		11.5	%		9.6	%		12.2	%		11.7	%
Average same-store sales growth
Canada(2)		5.9	%		3.6	%		6.8	%		5.0	%
U.S.(2)		9.2	%		4.7	%		9.1	%		7.0	%
Systemwide restaurants		2,942			2,801			2,942			2,801
Revenues (in thousands)	$	413,563		$	386,059		$	1,193,092		$	1,078,168
Operating income (in thousands)	$	91,295		$	95,868		$	272,914		$	259,321
Net income (in thousands)	$	51,841		$	66,261		$	191,741		$	174,661
Basic and diluted earnings per share	$	0.27		$	0.41		$	1.05		$	1.09
Weighted average number of shares of common stock outstanding - Diluted (in millions)		193.5			160.0			183.1			160.0

(1) Total 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.

(2) For Canadian restaurants, average same-store sales based on restaurants that have been opened for a minimum of one calendar year. For U.S. restaurants, a restaurant is included in our average same-store sales calculation beginning the 13th month after the restaurant’s opening.

Systemwide Sales Growth

Changes in our financial results are driven largely by changes in systemwide sales, which include restaurant-level sales at both franchise and company-operated restaurants, although approximately 96.5% of our system is franchised. Systemwide sales impact our franchisee 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 restaurants.

Average Same-Store Sales Growth

Average same-store sales, one of the key metrics we use to assess our performance, provides information on total retail sales at restaurants operating systemwide (i.e. includes both franchised and company-operated restaurants) throughout the relevant period, and provides a useful comparison between periods.

Our average same-store sales growth is attributable to several key factors, including new product introductions, improvements in restaurant speed of service and other operational efficiencies, more frequent customer visits, expansion into broader menu offerings and pricing. Restaurant-level price increases are primarily used to offset higher restaurant-level costs on key items such as coffee and labour.

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New Restaurant Development

Opening restaurants in new and existing markets in Canada and the U.S. has been a significant contributor to our growth. Below is a summary of our store openings and closures for the third quarters and year to date periods ended October 1, 2006 and October 2, 2005, respectively:

	Third Quarter ended October 1, 2006		Third Quarter ended October 2, 2005		Year-to-date ended October 1, 2006		Year-to-date ended October 2, 2005
Canada
Restaurants opened	21		40		65		73
Restaurants closed	(9	)	(2	)	(25	)	(18	)
Net change	12		38		40		55
U.S.
Restaurants opened	8		8		21		21
Restaurants closed	—		—		(4	)	—
Net change	8		8		17		21
Total Company
Restaurants opened	29		48		86		94
Restaurants closed	(9	)	(2	)	(29	)	(18	)
Net change	20		46		57		76

From the end of the third quarter of 2005 to the end of the third quarter of 2006, we opened 179 system restaurants including both franchised and company-operated restaurants, and we had 38 restaurant closures for a net increase of 141 restaurants. In 2006, we currently anticipate that we will close 35 to 40 restaurants, primarily in Canada. Restaurant closures typically result from an opportunity to acquire a better location which will permit us to upgrade size and layout or add a drive-thru.

In fiscal 2006, currently we expect to open 140 to 150 new restaurants in Canada and 40 to 50 new restaurants in the U.S., of which we currently expect approximately 100 of these restaurant openings to occur in the fourth quarter of 2006. Although we currently anticipate new restaurant development will continue in the range of 180 to 200 stores annually, future escalation of real estate and construction costs as well as labour availability (in some regions) may slow this growth and our mix between standard and non-standard restaurants may shift towards non-standard depending upon real estate availability and market needs, among other things.

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The following table shows our restaurant count as of the October 1, 2006, January 1, 2006 and October 2, 2005. Also included in the table is a breakdown of our company-operated and franchise restaurants.

Systemwide Restaurant Count

	As of October 1, 2006		As of January 1, 2006		As of October 2, 2005
Canada
Company-operated	41		33		31
Franchise	2,596		2,564		2,498
Total	2,637		2,597		2,529
% Franchised	98.4	%	98.7	%	98.8	%
U.S.
Company-operated	61		62		65
Franchise	244		226		207
Total	305		288		272
% Franchised	80.0	%	78.5	%	76.1	%
Total system
Company-operated	102		95		96
Franchise	2,840		2,790		2,705
Total	2,942		2,885		2,801
% Franchised	96.5	%	96.7	%	96.6	%

Our Relationship with Wendy’s

In March 2006, we entered into various agreements with Wendy’s that defined our relationship in the interim period between our IPO and our separation as well as with respect to various post-separation matters, or, in some cases, until we are able to provide the services ourselves. These agreements included a master separation agreement, a shared services agreement, a tax sharing agreement and a registration rights agreement. On September 29, 2006, Wendy’s distributed its remaining interest of 82.75% of our outstanding common stock to its shareholders.

We were a wholly-owned subsidiary of Wendy’s for many years, and as such, we and Wendy’s have historically shared many internal administrative resources. The shared services agreement was designed to help us and Wendy’s transition to being two separate public companies, each with its own administrative resources. Under the shared services agreement, Wendy’s provided us services relating to corporate functions such as executive oversight, risk management, information technology, accounting, legal, investor relations, human resources, tax, employee benefits and incentives and other services.

The expense allocations under the shared services agreement and charges related to restricted stock units granted to employees of the Company under the Wendy’s 2003 Stock Incentive Plan (“Wendy’s Plan”) are summarized in the table below:

(in millions)	Third Quarter ended October 1, 2006		Third Quarter ended October 2, 2005		Year-to-date ended October 1, 2006		Year-to-date ended October 2, 2005
Expense allocations under the shared services agreement	$	2.0	$	3.2	$	7.4	$	11.0
Wendy’s restricted stock unit expense for Company employees		2.7		0.8		6.1		1.4
	$	4.7	$	4.0	$	13.5	$	12.4

Consistent with the terms of the shared services agreement, the charges in the third quarter of 2006 were reduced to reflect the increasing independence of the Company, and therefore, the decreased level of services being provided by Wendy’s, primarily in the areas of executive oversight, investor relations, treasury and financial reporting.

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The Company and Wendy’s considered these general corporate expense allocations, as adjusted pursuant to agreement by Wendy’s and the Company as described above, to be a reasonable reflection of the utilization of services provided. The allocations may not, however, reflect the expense the Company would have incurred as a stand-alone public company.

The services under the shared services agreement, other than information technology services, were provided until the spin-off on September 29, 2006. Wendy’s is providing certain information technology services beyond the date of the spin-off, terminable thereafter on twelve months notice. We expect that we will use these information technology services provided by Wendy’s for the maximum time permitted (March, 2008) with an expected annual cost of approximately US$1.3 million. We also continue to have interdependencies with Wendy’s with respect to income taxes (see “Income Taxes”).

We do not expect our independence from Wendy’s to materially harm our relationships with our customers or suppliers or to otherwise cause significant changes in our results of operations and business trends when compared to prior years. During the transition period from IPO to spin, certain officers and directors of Wendy’s acted as our officers and directors. There continue to be directors on our Board who also serve as members of the Wendy’s Board of Directors.

In preparation for the spin-off, we have added most of the infrastructure necessary to be a stand-alone public company. We have added resources in the financial reporting, treasury, corporate governance and securities law areas. We will continue to add resources as required, particularly in the areas of taxation, legal, and information technology, among others. Some shared resources, such as certain information technology, as discussed above, have continued beyond the separation date.

On our behalf, Wendy’s previously provided certain guarantees to third parties for liabilities of the Company or our subsidiaries. As of October 1, 2006, Wendy’s received releases for all such guarantees provided by them, except for 2 insignificant letters of credit expiring by their terms on or before December 27, 2006.

Wendy’s received a favourable tax ruling from Canada Revenue Agency under section 86.1 of the Income Tax Act (Canada) in connection with the tax effect of the distribution of our shares to Wendy’s Canadian shareholders. Wendy’s also received a ruling from the Internal Revenue Service, for U.S. federal income tax purposes, that the distribution of our common stock would be tax-free to Wendy’s U.S. shareholders, except in respect of cash received in lieu of fractional share interests.

Operating Income

For the third quarter ended October 1, 2006, we recorded operating income of $91.3 million, a decrease of $4.6 million, or 4.8%, compared to the third quarter of 2005. Revenue growth was solid driven by both same-store sales and new unit expansion. However, general and administrative expenses were $8.5 million higher in the third quarter of 2006 than the third quarter of 2005 due primarily to higher restricted stock unit expenses, and spin-related costs, including a $2.3 million expense related to a run-off director and officer insurance policy (see General and Administrative Expenses). Income from equity investments was $1.6 million higher than the third quarter of 2005 primarily from our bakery joint venture and our TIMWEN Partnership (which leases Canadian Tim Hortons/Wendy’s combination restaurants). Other income declined $6.1 million in the third quarter of 2006 compared to the third quarter of 2005 as a result of approximately $6.3 million in foreign exchange gains recognized in the third quarter of 2005 primarily related to a mark-to-market gain on cross border intercompany notes ($5.1million). In the third quarter 2006, we also had costs related to our Guelph distribution facility, described below, which had the effect of reducing our operating income by approximately $3 million as compared to the same period in 2005.

Operating income was $272.9 million for the year-to-date period ended October 1, 2006, which was $13.6 million or 5.2% higher than the comparable period in 2005 due to strong same-store sales and new unit expansion and higher equity income of $3.4 million from our bakery joint venture and our TIMWEN Partnership. This was offset by higher general and administrative expenses of $13.7 million, ramp-up costs related to our Guelph distribution facility, and lower other income, described above. The ramp-up costs for our Guelph distribution facility impacted operating income by approximately $8 million on a year-to-date basis in 2006 versus 2005. We expect to service more restaurants with frozen product from this facility in the fourth quarter of 2006. The other income decrease of $6.8 million in the year-to-date period ended October 1, 2006 compared to the same period in the prior year was a result of the above-mentioned foreign exchange gains and a gain on sale of assets of $1.7 million in 2005 that did not recur.

As previously disclosed, in the first quarter of 2006, we opened a new distribution facility in Guelph, Ontario, which enables us to deliver frozen and refrigerated products and to expand our shelf-stable distribution operations. Once fully operational, this distribution centre will service approximately 85% of our Ontario stores for shelf-stable, frozen and some

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refrigerated products. In the second quarter of 2006, we began distributing frozen and refrigerated products in addition to our traditional shelf-stable product distribution. We have delayed our schedule for full implementation from this facility because training, recruiting, and the implementation of certain systems has been more challenging than we initially expected and we are focused on avoiding any potential disruption of supply to our franchisees. Our initial goal was to service approximately 65% of the Ontario stores by year-end 2006. The new target date is to service approximately 65% of our Ontario stores by early 2007, with full implementation by mid to late 2007. We will continue to incur higher distribution costs without the full benefit of new distribution revenues and our profit margins will continue to be adversely affected until frozen distribution from our Guelph facility is fully implemented. Margins on frozen products are lower than some of our other products but will be a positive contribution to our net income once we are fully operational (see above regarding impact on operating income for the third quarter and year to date period ended October 1, 2006). Distribution is a critical element of our business model as it allows us to control costs to our franchisees and service our stores efficiently and effectively while contributing to our profitability.

Segment Operating Income

Systemwide sales and average same-store sales growth are affected by the business and economic environments in Canada and the U.S. We manage and review financial results for Canadian and U.S. operations separately. We, therefore, have determined the reportable segments for our business to be Canada and the U.S.

Segment operating income increased $4.3 million, or 4.4% for the third quarter of 2006 as compared to the third quarter of 2005. Our Canadian segment operating income increased by $4.5 million, or 4.6% in the third quarter of 2006 compared to the third quarter of 2005. Canadian average same-store sales increased 5.9% over the third quarter of 2005, and we opened 21 new system restaurants in Canada. In the third quarter of 2006, we had additional ramp-up costs related to our Guelph distribution facility, described above, which has the effect of reducing our operating income by approximately $3 million. There was also incremental restricted stock compensation expense incurred in the third quarter of 2006 as well as other expenses discussed under General and Administrative Expenses.

The U.S. operating segment income was $0.4 million in the third quarter of 2006 compared to $0.5 million in the third quarter of 2005. U.S. average same-store sales increased 9.2% in the quarter compared to 2005, and we opened 8 new restaurants. The appreciation of the Canadian dollar relative to the U.S. dollar impacted the U.S. operating segment by approximately 6.8% in the third quarter of 2006. In addition, we have added administrative resources in the U.S., due to the separation from Wendy’s, which are at a higher cost than the amount we were charged under the shared services agreement with Wendy’s for these services.

Segment operating income increased $21.6 million, or 7.8% for the year-to-date period ended October 1, 2006 as compared to the year-to-date period ended October 2, 2005. Our Canadian segment operating income increased by $18.3 million, or 6.5% in the year-to-date period ended October 1, 2006 compared to the year-to-date period ended October 2, 2005. In Canada, our average same-store sales in the year-to-date period ended October 1, 2006 increased 6.8% over the year-to-date period ended October 2, 2005, and we opened 65 new system restaurants. We had costs related to our Guelph distribution facility, described above, which had the effect of reducing our operating income by approximately $8 million on year-to-date basis. Also included in the Canadian operating segment was a $1.7 million gain from the sale of assets in the second quarter of 2005 that did not recur in 2006. In addition, there was incremental restricted stock compensation expense incurred in the year-to-date period ended October 1, 2006 as compared to the same period in 2005 as well as other expenses discussed under General and Administrative Expenses. Pricing contributed 2%-3% of the same-store sales gains in the year-to-date period ended October 1, 2006.

The U.S. operating segment income was $1.2 million in the year-to-date period ended October 1, 2006 compared to a $2.1 million loss in the year-to-date period ended October 2, 2005. U.S. average same-store sales for the year-to-date period ended October 1, 2006 increased 9.1% compared to the similar period in 2005, and we opened 21 new restaurants in the 2006 year-to-date period. This improvement in U.S. operating segment income is primarily a result of higher sales volumes. Pricing also contributed to approximately 3%-4% of the U.S. same-store sales gains. Losses from Company-operated restaurants in the year-to date period of 2006 were essentially flat compared to the year-to date period of 2005.

Corporate charges were $8.9 million higher in the third quarter of 2006 compared to the third quarter of 2005 as a result of foreign exchange gains of approximately $5.1 million primarily related to the mark-to-market gain on cross border intercompany notes recognized in the third quarter of 2005, incremental resources added in 2006 in preparation to be a stand-alone public company, restricted stock unit expenses and other spin-related expenses (see General and Administrative Expenses). These cost increases were partially offset by lower shared services costs from Wendy’s. Corporate charges increased $8.0 million on a year-to-date basis in 2006 as compared to the same period in 2005, for the reasons discussed above.

29

The following tables show information about the operating income of our reportable segments:

Operating Income (Loss)

	Third Quarter										Change from Prior Year
	October 1, 2006			% of Revenues		October 2, 2005			% of Revenues		Dollars			Percentage
Canada	$	101,338		24.5	%	$	96,880		25.1	%	$	4,458		4.6	%
U.S.		357		0.1	%		486		0.1	%		(129	)	(26.5	)%
Total Segment operating income		101,695		24.6	%		97,366		25.2	%		4,329		4.4	%
Corporate(1)		(10,400	)	(2.5	)%		(1,498	)	(0.4	)%		(8,902	)	n/m
Total operating income	$	91,295		22.1	%	$	95,868		24.8	%	$	(4,573	)	(4.8	)%
	Year-to-date										Change from Prior Year
	October 1, 2006			% of Revenues		October 2, 2005			% of Revenues		Dollars			Percentage
Canada	$	297,582		24.9	%	$	279,300		25.9	%	$	18,282		6.5	%
U.S.		1,245		0.1	%		(2,110	)	(0.2	)%		3,355		n/m
Total Segment operating income		298,827		25.0	%		277,190		25.7	%		21,637		7.8	%
Corporate(1)		(25,913	)	(2.1	)%		(17,869	)	(1.7	)%		(8,044	)	45.0	%
Total operating income	$	272,914		22.9	%	$	259,321		24.0	%	$	13,593		5.2	%

(1) Corporate charges include certain overhead costs that are not allocated to individual business units and the impact of certain foreign currency exchange gains and losses.

n/m – not meaningful

Basis of Presentation

The functional currency of Tim Hortons Inc. has historically been the U.S. dollar primarily because of the Company’s financial inter-relatedness with Wendy’s. Tim Hortons Inc. is essentially a holding company that holds investments and obligations that historically could have been be carried on the books of Wendy’s, and the functional currency of Wendy’s is the U.S. dollar. The completion of the IPO and the repayment of the note payable to Wendy’s resulted in a change in the functional currency from the U.S. dollar to the Canadian dollar as the majority of the Company’s cash flows will now be in Canadian dollars, in accordance with SFAS No. 52 – “Foreign Currency Translation”. The functional currency of each of our operating subsidiaries is the local currency in which each subsidiary operates, which is either the Canadian or U.S. dollar. The majority of our operations, restaurants and cash flows are based in Canada, and we are primarily managed in Canadian dollars.

The discussion below should be read in conjunction with our historical interim condensed consolidated financial statements and the notes for a full understanding of our financial position and results of operations, as well as our annual consolidated financial statements, the notes thereto, and financial definitions included in our registration statement on Form S-1 (Registration No. 333-130035) as filed with the SEC on December 1, 2005, as amended thereafter, as well as the Company’s periodic reports on Form 10-Q filed prior to the date hereof.

30

Results of Operations

Below is a summary of comparative results of operations and a more detailed discussion of results for the third quarter of 2006 as compared to the third quarter of 2005.

	Third Quarter ended										Change from Prior Year
	October 1, 2006			% of Revenues		October 2, 2005			% of Revenues		$			%
Revenues
Sales	$	271,534		65.7	%	$	251,766		65.2	%	$	19,768		7.9	%
Franchise revenues:
Rents and royalties(1)		127,912		30.9	%		115,730		30.0	%		12,182		10.5	%
Franchise fees		14,117		3.4	%		18,563		4.8	%		(4,446	)	(24.0	)%
		142,029		34.3	%		134,293		34.8	%		7,736		5.8	%
Total revenues		413,563		100.0	%		386,059		100.0	%		27,504		7.1	%
Costs and expenses
Cost of sales		240,161		58.1	%		221,239		57.3	%		18,922		8.6	%
Operating expenses		45,532		11.0	%		40,204		10.4	%		5,328		13.3	%
Franchise fee costs		13,579		3.3	%		18,712		4.8	%		(5,133	)	(27.4	)%
General and administrative expenses		31,647		7.7	%		23,196		6.0	%		8,451		36.4	%
Equity (income)		(9,082	)	(2.2	)%		(7,482	)	(1.9	)%		(1,600	)	21.4	%
Other (income) expense, net		431		0.1	%		(5,678	)	(1.5	)%		6,109		n/m
Total costs and expenses, net		322,268		78.0	%		290,191		75.2	%		32,077		11.1	%
Operating income		91,295		22.0	%		95,868		24.8	%		(4,573	)	(4.8	)%
Interest (expense)		(5,707	)	(1.4	)%		(1,295	)	(0.3	)%		(4,412	)	n/m
Interest income		2,333		0.6	%		891		0.2	%		1,442		n/m
Affiliated interest (expense), net		—		0.0	%		(1,718	)	(0.4	)%		1,718		(100.0	)%
Income before income taxes		87,921		21.2	%		93,746		24.3	%		(5,825	)	(6.2	)%
Income taxes		36,080		8.7	%		27,485		7.1	%		8,595		31.3	%
Net income	$	51,841		12.5	%	$	66,261		17.2	%	$	(14,420	)	(21.8	)%

n/m – Not meaningful

⁽¹⁾ See Note ⁽¹⁾ in the following table below.

31

Below is a summary of comparative results of operations and a more detailed discussion of results for the year-to-date period ended October 1, 2006 and October 2, 2005.

	Year-to-date Period ended										Change from Prior Year
	October 1, 2006			% of Revenues		October 2, 2005			% of Revenues		$			%
Revenues
Sales	$	777,638		65.2	%	$	703,484		65.2	%	$	74,154		10.5	%
Franchise revenues:
Rents and royalties(1)		370,279		31.0	%		333,026		30.9	%		37,253		11.2	%
Franchise fees		45,175		3.8	%		41,658		3.9	%		3,517		8.4	%
		415,454		34.8	%		374,684		34.8	%		40,770		10.9	%
Total revenues		1,193,092		100.0	%		1,078,168		100.0	%		114,924		10.7	%
Costs and expenses
Cost of sales		683,351		57.3	%		613,245		56.9	%		70,106		11.4	%
Operating expenses		132,275		11.1	%		119,479		11.1	%		12,796		10.7	%
Franchise fee costs		44,507		3.7	%		43,206		4.0	%		1,301		3.0	%
General and administrative expenses		87,426		7.3	%		73,728		6.8	%		13,698		18.6	%
Equity (income)		(26,679	)	(2.2	)%		(23,281	)	(2.2	)%		(3,398	)	14.6	%
Other (income) expense, net		(702	)	(0.1	)%		(7,530	)	(0.7	)%		6,828		n/m
Total costs and expenses, net		920,178		77.1	%		818,847		75.9	%		101,331		12.4	%
Operating income		272,914		22.9	%		259,321		24.1	%		13,593		5.2	%
Interest (expense)		(16,475	)	(1.4	)%		(3,283	)	(0.3	)%		(13,192	)	n/m
Interest income		9,195		0.8	%		2,300		0.2	%		6,895		n/m
Affiliated interest (expense), net		(7,876	)	(0.7	)%		(4,910	)	(0.5	)%		(2,966	)	n/m
Income before income taxes		257,758		21.6	%		253,428		23.5	%		4,330		1.7	%
Income taxes		66,017		5.5	%		78,767		7.3	%		(12,750	)	(16.2	)%
Net income	$	191,741		16.1	%	$	174,661		16.2	%	$	17,080		9.8	%

n/m – Not meaningful

⁽¹⁾ Rents and royalties revenues consist of (a) royalties, which typically range from 3.0% to 4.5% of gross franchise restaurant sales and (b) rents, which typically range from 8.5% to 10.0% of gross franchise restaurant sales. Franchise restaurant sales are reported to us by our franchisees. Franchise restaurant sales are not included in our financial statements, other than approximately 86 franchisees on average in the year-to-date period ended October 1, 2006 and approximately 79 franchisees on average in the year-to-date period ended October 2, 2005, whose results of operations are consolidated with ours pursuant to FIN 46R. However, franchise restaurant sales result in royalties and rental income, which are included in our franchise revenues. The reported franchise restaurant sales were:

	Third Quarter ended				Year-to-date Period ended
	October 1, 2006		October 2, 2005		October 1, 2006		October 2, 2005
Franchise restaurant sales:
Canada (in thousands of Canadian dollars)	$	974,183	$	880,570	$	2,814,887	$	2,524,436
U.S. (in thousands of U.S. dollars)	$	62,219	$	50,226	$	179,276	$	145,161

32

Revenues

Sales

In the third quarter of 2006, sales were $271.5 million, an increase of $19.8 million, or 7.9%, over the third quarter of 2005. Warehouse sales increased $18.3 million, or 8.8%, driven by an estimated $8.1 million increase due to higher average same-store sales and approximately $6.4 million increase due to a higher number of franchise restaurants open. Revenues also increased as a result of the start of frozen distribution from our Guelph facility, partially offset by the effects of foreign exchange and lower coffee prices in the quarter.

Company-operated restaurant sales were $18.5 million and $17.0 million in the third quarter of 2006 and 2005, respectively. Appreciation of the Canadian dollar relative to the U.S. dollar decreased Company-operated restaurant sales by 1.3% as we have a higher proportion of Company-operated stores in the U.S.

The consolidation under FIN 46R of an average of 85 and 81 franchise restaurants during the third quarter of 2006 and 2005 resulted in sales of $26.7 million and $26.7 million, respectively.

Sales for the year-to-date period ended October 1, 2006 were $777.6 million, compared to $703.5 million for the year-to-date period ended October 2, 2005, an increase of 10.5%. Warehouse sales were $647.3 million in this period compared to $580.5 million in the comparable period of 2005, an increase of $66.8 million or 11.5% driven by an estimated $25.6 million increase due to higher average same-store sales, approximately $28.6 million increase due to the number of franchise restaurants opened, increases in revenue from the commencement of frozen distribution from our Guelph facility, and increases in coffee sales (as a result of rising prices with respect to the underlying cost of coffee on a year-to-date basis, which has, in part, been passed on to franchisees). The Company-operated restaurant sales increased by $2.2 million or 4.5% in the nine-month period ended October 1, 2006 compared to the same period in 2005 due to a higher number of Company-operated restaurants in 2006, offset somewhat by the timing of when the restaurants converted to Company-operated in the quarter. Foreign exchange impacted the Company-operated sales due to the weakening of the U.S. dollar over the last year and the fact that we have approximately 60% of our Company-operated restaurants in the U.S. Sales from restaurants consolidated under FIN 46R increased $5.1 million on a year-to-date basis versus the prior year. This growth was driven by a combination of store level sales growth and an increase in the number of stores consolidated. On average, 86 restaurants were consolidated under FIN 46R in the year-to-date period ended October 1, 2006 compared to an average of 79 stores in the year-to-date period in 2005.

U.S. sales are denominated in U.S. dollars and translated into Canadian dollars for reporting of our results. The strengthening of the Canadian dollar relative to the U.S. dollar during the third quarter of 2006 reduced the value of reported sales by approximately 0.6% compared to the value that would have been reported had there been no exchange rate movement. Changes in foreign exchange rates reduced the year-to-date sales by 0.7%.

Franchise Revenues

Rents and Royalties. Revenues from rents and royalties increased $12.2 million, or 10.5%, in the third quarter of 2006 over the third quarter of 2005. Our net growth in both rental income and royalty income is driven by an increase of approximately $7.8 million due to the positive average same-store sales growth and approximately $4.4 million improvement due to an increase in the number of franchised restaurants open. Stronger same-store sales growth was driven by our promotional calendar, new product offerings, continuous improvement in store-level operations and price increases. Price increases are typically used to offset higher costs at the restaurant level, typically for labour and food costs.

The rent and royalty component of franchise revenues has increased by $37.3 million or 11.2% in the year-to-date period ended October 1, 2006 over the comparable period in 2005. Our growth in both rental income and royalty income is driven by an increase of approximately $23.1 million due to positive average same-store sales growth over this period and $14.2 million from the addition of 135 franchise restaurants (over 2,705 franchise restaurants existing at the end of third quarter of 2005).

Franchise Fees. Franchise fees during the third quarter of 2006 decreased $4.4 million, or 24.0%, from the third quarter of 2005, mainly due to a lower number of unit sales in both Canada and the U.S. of $5.6 million, offsetting an increase of approximately $1.2 million in restaurant resales, replacements, and transfers, and the recognition of higher deferred franchise fees from our U.S. franchisees.

Franchise fee revenues for the year-to-date period ended October 1, 2006 increased $3.5 million or 8.4% compared to the same period in 2005, driven by higher resales and renovations in the period compared to the same period in 2005, despite a lower number of restaurants opened during the nine months ended October 1, 2006 compared to the same period in 2005.

33

U.S. franchise revenues are denominated in U.S. dollars and translated into Canadian dollars for reporting of our results. The strengthening of the Canadian dollar relative to the U.S. dollar between the third quarters of 2006 and 2005 and for the year-to-date period ended October 1, 2006, compared to the same period of 2005, reduced the value of reported franchise revenues by approximately 0.8% and 1.2%, respectively, over the value that would have been reported had there been no exchange rate movement.

Total Costs and Expenses

Cost of Sales

Cost of sales increased $18.9 million, or 8.6% compared to the third quarter of 2005. This increase was primarily driven by an increase in warehouse cost of sales of $21.9 million, or 12.3%, during the period, of which $7.1 million resulted from an increase in systemwide sales, and $5.6 million from an increase in the number of franchise restaurants open, and additional costs related to the commencement of frozen distribution from our Guelph facility (see “Operating Income” above), offset in part by positive impacts of foreign exchange and lower coffee prices in the quarter.

Cost of sales increased $70.1 million or 11.4% for the year-to-date period ended October 1, 2006 compared to the same period in 2005. Warehouse cost of sales for the year-to-date period ended October 1, 2006, were $566.5 million, an increase of 14% compared to the same period in 2005. The increase was driven by: approximately $22.2 million increase in same-store sales growth, $24.8 million due to the higher number of franchise restaurants opened, costs associated with the commencement of frozen distribution from our Guelph facility (see “Operating Income” above), and increases in the underlying cost of coffee on a year-to-date basis.

Company-operated restaurant cost of sales, which includes food, paper, labour and occupancy costs, varies with the average number and mix of company-operated restaurants. These costs declined from $22.5 million in the third quarter of 2005 to $20.7 million in the third quarter of 2006. The number of company-operated restaurants increased by 6 restaurants in the third quarter of 2006 as compared to the third quarter of 2005. The decline in cost of sales was primarily due to store mix and foreign exchange impact on U.S. company-operated restaurant costs. On a year-to-date basis, Company-operated restaurant cost of sales were $56.9 million and $58.6 million in 2006 and 2005, respectively.

The consolidation of 85 and 81 franchise restaurants, on average, under FIN 46R during the quarters ended October 1, 2006 and October 2, 2005, respectively, resulted in cost of sales of $19.7 million and $20.8 million, respectively. Cost of sales were impacted by store mix and foreign exchange, as mentioned above, and further described below. On a year-to-date basis in 2006, the consolidation of 86 and 79 franchise restaurants, on average, under FIN46R resulted in cost of sales of $60.0 million compared to $57.8 million in cost of sales for the year-to-date comparable period in 2005.

The strengthening of the Canadian dollar relative to the U.S. dollar during the third quarter of 2006 over the third quarter of 2005 reduced the value of reported cost of sales by approximately 0.7% and on a year-to-date basis by 0.8%.

Operating Expenses

Total operating expenses representing primarily rent expense, depreciation and other property costs increased by $5.3 million in the third quarter of 2006 as compared to the third quarter of 2005, representing an increase of 13.3%. Operating expenses of $132.3 million for the year-to-date period ended October 1, 2006 increased $12.8 million over the comparative period in 2005. These increases were driven by higher rent expense and other property costs as a result of the number of properties being leased and then subleased to franchisees. In addition, certain operating costs related to our distribution facilities increased year-over-year (see “Operating Income” above).

Franchise Fee Costs

Franchise fee costs decreased $5.1 million, or 27.4%, from the third quarter of 2005, mainly due to lower unit sales.

Franchise fee costs of $44.5 million in the year-to-date period ended October 1, 2006 increased $1.3 million from the year-to-date period ended October 2, 2005 as a result of new restaurant sales, and higher resales and renovations.

General and Administrative Expenses

General and administrative expenses increased $8.4 million from $23.2 million in the third quarter ended October 2, 2005 to $31.6 million in the third quarter of 2006. The increase is primarily attributable to $5.1 million increase in equity compensation. The increase was related to the accelerated vesting and settlement by the Company of the remaining portion of the Wendy’s 2005 restricted stock units to the Company’s Canadian employees coupled with the immediate expensing of that

34

portion of the Company’s August 1, 2006 restricted stock unit grant awarded to retirement eligible employees (see below). In addition, we incurred $2.3 million of costs related to a run-off director and officer insurance policy, representing a one-time payment resulting from the separation from Wendy’s. We incurred other spin-related costs in the third quarter of 2006, including legal fees and miscellaneous expenses, of less than $1 million. In the third quarter of 2005, we expensed approximately $1.4 million in IPO-related costs.

The Company’s Human Resource and Compensation Committee approved awards of 326,184 restricted stock units on August 1, 2006 to officers and certain employees. The fair market value (the mean of the high and low prices for the Company’s common shares traded on the Toronto Stock Exchange) on August 1, 2006 was $27.985 per share. This grant will vest over a maximum 27-month period or a shorter period in accordance with SFAS 123R with respect to retirement eligible employees. The Company previously disclosed that, on August 1, 2006, the Human Resource and Compensation Committee had approved an aggregate award of 324,199 restricted stock units, which was an understatement of the actual total 2006 award amount by 1,985 units. This understatement was the result of administrative error and was considered insignificant in amount. Compensation costs related to this grant were $3.1 million in the third quarter of 2006, which included $2.6 million for the immediate expensing of restricted stock units for retirement eligible employees. We expect costs associated with this grant to be approximately $0.8 million - $1.0 million in subsequent quarters, assuming all vesting assumptions remain constant. The expense in the quarter in which the grant is awarded is higher due to the immediate expensing of units awarded to retirement eligible employees, in accordance with SFAS No. 123R. We currently anticipate that restricted stock unit grants will be an ongoing part of our compensation plans, subject to the discretion of the Company’s Human Resource and Compensation Committee. The expense in the quarter that the grant is made will typically be significantly higher than the ongoing quarterly expense. We expect that restricted stock units grants will be made annually in the second quarter of each year, subject to the discretion of the Company’s Human Resource and Compensation Committee.

Wendy’s started issuing (on our behalf), and we started expensing restricted stock units in May 2005. Prior to that, stock options of Wendy’s were issued to our employees. The Wendy’s stock compensation plans provide for immediate vesting of restricted stock units upon a disposition of a subsidiary of Wendy’s, which included the spin-off of the Company by Wendy’s. In June 2006, Wendy’s announced that its Board of Directors had confirmed its intent to complete the spin-off and was targeting October 1, 2006 for completion of the transaction. Accordingly, in the second quarter of 2006, the number of awards expected to vest was increased, and the expected service periods of the grants made to employees were shortened to reflect full vesting prior to the spin-off on September 29, 2006. This change in estimated requisite service period and estimated forfeitures resulted in incremental compensation cost of $1.9 million in the third quarter and $3.5 million on a year-to-date basis in 2006.

In the third quarter of 2005, cost allocations from Wendy’s were primarily based on specific identification and the relative percentage of our revenues and headcount to the respective total Wendy’s costs. The shared service expense allocations totaled $2.0 million and $7.4 million on a pre-tax basis for the quarter and year-to-date periods ended October 1, 2006, respectively, and $3.2 million and $11.0 million for the quarter and year-to-date periods ended October 2, 2005, respectively. This does not include charges related to restricted stock units granted to employees of the Company under the Wendy’s 2003 Stock Incentive Plan which were separately discussed above. Consistent with the terms of the shared services agreement, the costs in the third quarter of 2006 were reduced to reflect the increasing independence of the Company, and the corresponding reduction of services being provided by Wendy’s. Costs were reduced primarily in the areas of executive oversight, investor relations, treasury and financial reporting. The reduction in shared service charges was offset by the addition of new resources and service costs that the Company incurred directly.

The Company and Wendy’s considered these general corporate expense allocations, as adjusted pursuant to the agreement by Wendy’s and the Company as described above, to be a reasonable reflection of the utilization of services provided. The allocations may not, however, reflect the expense the Company would have incurred as a stand-alone company.

As a result of the strengthening Canadian dollar, general and administrative expenses denominated in U.S. dollars were approximately $0.3 million lower in the third quarter of 2006 compared to the third quarter of 2005.

As a percentage of revenues, general and administrative expenses increased from 6.0% in the third quarter of 2005 to 7.7% in the third quarter of 2006.

General and administrative expenses were $87.4 million for the year-to-date period ended October 1, 2006, an 18.6% increase, or $13.7 million, higher than the year-to-date period ended October 2, 2005. This increase was driven by $7.9 million in compensation costs related to restricted stock units including $3.4 million due to the accelerated vesting, and $2.6 million related to the immediate expensing, of restricted stock units granted to retirement eligible employees, $2.3 million of costs related to a run-off director and officer insurance policy, discussed above, increased salary costs as we add resources in preparation of being a stand-alone public company and other spin-related costs, offset by lower shared services costs in the year-to-date period of 2006 compared to the year-to-date period of 2005 (see discussion above).

35

Equity Income

Equity income relates to income from equity investments in joint ventures and other investments over which we exercise significant influence. Our two most significant equity investments are our 50-50 joint venture with IAWS Group plc which provides our system with par-baked donuts, Timbits and some bread products and our TIMWEN Partnership which acts as the lessor to most of our Canadian Tim Hortons/Wendy’s combination restaurants. In the third quarter of 2006, equity income was $9.1 million, up $1.6 million from the third quarter of 2005, primarily as a result of stronger same-store sales growth and new restaurant expansion. For the year-to-date period ended October 1, 2006, equity income was $26.7 million as compared to $23.3 million for the year-to-date period ended October 2, 2005, a 14.6% increase, again driven primarily by systemwide sales growth.

Other Income and Expense, net

Other income and expense, net, includes amounts that are not directly derived from our primary businesses. This includes gains and losses on asset sales, expenses related to restaurant closures, other asset write-offs, foreign exchange gains and losses and minority interest. Other income, net of other expenses, decreased by $6.1 million from the third quarter of 2005 relating primarily to $6.3 million in foreign exchange gains in the third quarter of 2005, consisting largely of the one-time mark-to-market gain on cross border intercompany notes. Other income of $0.7 million for the year-to-date period ended October 1, 2006 was $6.8 million lower than the year-to-date period ended October 2, 2005, due to the 2005 foreign exchange gain noted above and the $1.7 million gain on an asset sale in 2005 that did not recur.

Interest Expense (Including Affiliated Interest Expense, Net)

Interest expense was $5.7 million in the third quarter of 2006 and $3.0 million in the third quarter of 2005, an increase of $2.7 million. External interest expense was $5.7 million in the third quarter of 2006 compared to $1.3 million in the third quarter of 2005. The increase was a result of the new third party borrowings entered into in the first quarter of 2006 (see also “Liquidity and Capital Resources – Credit Facilities”). We did not have any affiliated interest expense, net, in the third quarter of 2006 since we repaid all of our outstanding borrowings from Wendy’s in the second quarter of 2006. Affiliated interest expense, net, was $1.7 million in the third quarter of 2005.

Interest expense increased $16.2 million in the year-to-date period ended October 1, 2006 as compared to the year-to-date period ended October 2, 2005 driven primarily by higher external borrowings in 2006. Affiliated interest expense, net was $7.9 million for the year-to-date period ended October 1, 2006 compared to $4.9 million for the year-to-date period ended October 2, 2005. This was due to higher borrowings from Wendy’s in 2006, all of which were repaid in the second quarter of 2006.

Historically, affiliated interest expense, net, in the consolidated statements of operations reflected interest costs related to specific net borrowings by us from Wendy’s. Wendy’s did not allocate a portion of its external debt interest cost to us. As a result, interest expense recorded by us in 2005 does not reflect the expense we would have incurred as a stand-alone company.

Interest Income

Interest income was $2.3 million in the quarter ended October 1, 2006 and $0.9 million in the third quarter of 2005. Interest income was $9.2 million for the year-to-date period ended October 1, 2006 compared to $2.3 million for the year-to-date period ended October 2, 2005 primarily related to higher average cash balances on hand, including the remaining proceeds from the IPO in March 2006 and higher interest rates.

Income Taxes

The Company’s provision for income taxes includes provisions for U.S. and Canadian taxes. The Company’s U.S. entities will join in the filing of a consolidated U.S. tax return with Wendy’s and its other subsidiaries until September 29, 2006, the date of the spin-off. From September 29, 2006 to the end of the 2006 fiscal year, the Company’s U.S. entities will file a U.S. consolidated tax return separate from Wendy’s. The Company’s U.S. income tax provision and related deferred income tax amounts are determined as if the Company filed tax returns on a stand-alone basis and are adjusted in accordance with the tax sharing agreement with Wendy’s.

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The effective income tax rate for the quarter ended October 1, 2006 was 41.0%, compared to 29.3% for the comparative period ended October 2, 2005. The Company is expecting an effective tax rate for the fourth quarter of approximately 34%. The effective income tax rate for the year-to-date period ended October 1, 2006 was 25.6% compared to 31.1% for the comparative year-to-date period ended October 2, 2005.

The increase in the tax provision to 41% in the quarter ended October 1, 2006 is due primarily to the following: (i) the reversal of previously reported one-time tax benefits through the recording of a valuation allowance of approximately $12 million on previously recognized foreign tax credits as a result of the spin-off from Wendy’s in the quarter ended October 1, 2006 and the decision by the Company not to proceed with certain tax planning strategies; and (ii) the accrual of approximately $2.2 million in deferred tax on unremitted earnings that the Company will now incur in subsequent periods upon repatriation of earnings, both of the foregoing were partially offset by a reserve release related to the resolution of Canadian and US tax audits and related book-to-tax adjustments of approximately $5.0 million.

For the comparative quarter ended October 2, 2005, the Company’s tax rate was 29.3% which reflected a benefit attributed to favorable taxation of currency transactions.

For the year-to-date period ended October 1, 2006, the Company’s tax rate was 25.6% which was lower than the prior year as the Company realized a number of discrete tax benefits that it does not expect will recur in subsequent periods. The primary year-to date tax benefits recorded include: (i) a reserve release related to the resolution of Canadian and US tax audits and related book-to-tax adjustments of approximately $12 million; and (ii) the reversal, net of current quarter accrual, of approximately $3.6 million in deferred tax relating to Canadian withholding taxes originally accrued for intercompany cross-border dividends that are no longer expected to be paid.

The determination of income tax expense takes into consideration amounts that may be needed to cover exposure for open tax years. The Canada Revenue Agency is currently conducting an examination of various Canadian subsidiaries of the Company for 2001 and subsequent taxation years. The Internal Revenue Service has completed a federal income tax examination of Wendy’s (the Company’s consolidated tax group through September 29, 2006) for the years 2001 through 2004 and is waiting for the Joint Committee of Taxation to approve the issuance of a refund to Wendy’s for those taxation years, and Wendy’s has already refunded amounts to the Company. The Internal Revenue Service is continuing its examination for the years 2005 and 2006. The Company does not currently expect any material impact on earnings or cash flow to result from the resolution of matters related to open tax years; however, actual settlements may differ from amounts accrued.

The allocation of taxes payable amounts for the tax return relating to the period ended September 29, 2006, described above, between the Company and Wendy’s is adjusted in accordance with the Company’s tax sharing agreement with Wendy’s. Based on representations from Wendy’s management as to its forecasted tax position for 2006, no material amount is expected to be owing by either Wendy’s or the Company to the other party for 2006 under the tax sharing agreement. However, Wendy’s representations were based on estimates and assumptions and its actual final tax position could be substantially different from these estimates and assumptions. If Wendy’s final tax position for 2006 were to substantially change from what it has represented to the Company, the two parties would need to agree on whether any adjustment to the third quarter allocation of taxes payable amounts is required under the tax sharing agreement. Where the two parties cannot agree to the extent of the allocation, pursuant to the tax sharing agreement, the amount owing will be determined through final arbitration and could be as high as 35% of Wendy’s domestic loss for 2006, if any. Any subsequent allocation made pursuant to the agreement due to the tax position of Wendy’s will be accounted for through additional paid-in capital, and any payment required to Wendy’s could have a material impact on cash flows in the quarter in which made.

Comprehensive Income

In the third quarter of 2006, comprehensive income was $47.3 million compared to $37.6 million in the third quarter of 2005. The increase in comprehensive income was primarily driven by a $23.7 million improvement in foreign exchange losses. The translation expense for the third quarter of 2006 was driven primarily by the reversal of the tax benefit on the realized loss on net investment hedges of $2.7 million, and exchange rate fluctuations between periods. This loss on the net investment hedge is included in the translation adjustments component of other comprehensive income in the third quarter and year-to-date period of 2006. The loss related to cash flow hedges was $1.2 million in the third quarter of 2006 compared to $1.7 million in the third quarter of 2005. Net income decreased $14.4 million from the third quarter of 2005 to the third quarter of 2006.

Comprehensive income for the year-to-date period ended October 1, 2006 was $151.9 million compared to $152.6 million in the year-to-date period ended October 2, 2005. Net income in the 2006 year-to-date period was $17.1 million higher than the comparable period in 2005, offset by translation losses of $39.9 million in the year-to-date period of 2006,

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including translation losses from a net investment hedge of $7.3 million (net of taxes of $nil) compared to translation losses of $22.8 million for the comparable year-to-date period in 2005. Comprehensive income from cash flow hedges of $0.1 million in the year-to-date period of 2006 compared to $0.7 million in the year-to-date period of 2005.

Liquidity and Capital Resources

Overview

Our primary liquidity and capital requirements are for new store construction, renovations, and general corporate needs. Historically, our working capital needs have not been significant because of our focused management of accounts receivable and inventory. Operating cash flows have historically funded our capital expenditure requirements for new restaurant development, remodeling, maintenance, technology initiatives and other capital needs. We believe that we will generate adequate operating cash flows to fund both our capital expenditures and expected debt service, dividend, and share repurchase requirements in the long term.

In February 2006, the Company entered into an unsecured senior credit facility and a bridge loan facility (see Credit Facilities).

If additional funds are needed for strategic initiatives or other corporate purposes, we believe we could borrow additional funds while maintaining a strong capital structure. Our ability to incur additional indebtedness will be limited by covenants under our credit facilities, as described below under “Credit Facilities”. Any such borrowings may result in an increase in our borrowing costs. If such additional borrowings were significant, they could result in a weaker capital structure and it might be possible that we would borrow on less favourable terms.

Credit Facilities

As of January 1, 2006, we had a $25.0 million revolving credit facility that was guaranteed by Wendy’s and undrawn except for approximately $5.0 million that was committed to support standby letters of credit. This facility was cancelled on February 28, 2006 and replaced with new facilities except for the amount being used to support the standby letters of credit ($1.5 million) as of October 1, 2006 which will remain in place until the expiration of the respective letters of credit.

On February 28, 2006, the Company entered into an unsecured credit facility which may be drawn by us or one of our principal subsidiaries. Our 5-year senior bank facility (referred to herein as the “senior bank facility”) consists of a $300.0 million term loan facility, a $200.0 million Canadian revolving credit facility and a US$100.0 million U.S. revolving credit facility. We borrowed the entire $300.0 million principal amount of the term loan component of the senior bank facility as a single advance, and applied the net proceeds toward the US$960.0 million note payable by us to Wendy’s.

The $200.0 million Canadian revolving credit facility includes an overdraft facility of $15.0 million. The Canadian and U.S. facilities are undrawn as at October 1, 2006 except for approximately $3.5 million being used to support standby letters of credit. The revolving credit facility components of the senior bank facility may be borrowed and repaid on a revolving basis over the life of that facility until February 28, 2011. These borrowings may be made under different floating rate loan indices as selected by us or one of our principal subsidiaries and will include, where applicable, a margin determined by our “applicable leverage ratio,” as defined in the agreement governing the senior bank facility or, if applicable, the rating level of our long-term debt (if and when applicable). The senior bank facility will mature in 2011. To limit our exposure to interest rate variability we entered into an interest rate swap with two financial institutions in March, 2006 for $100.0 million of our $300.0 million term loan facility that converts a portion of the variable rate debt from floating rate to fixed rate. The interest rate swap essentially fixes the interest rate on one-third of the $300.0 million term loan facility, but the rate remains subject to variation if our applicable margin, described in our credit facilities, increases or decreases. As a result of a decrease in such applicable margin in the third quarter of 2006, the rate decreased to 5.05%. The swap matures on February 28, 2011.

In addition, the Company entered into an unsecured $200.0 million bridge loan facility (referred to herein as the “bridge loan facility”). We borrowed the entire $200.0 million principal amount of the bridge loan facility as a single advance, and applied the net proceeds toward the US$960.0 million note payable by us to Wendy’s. We repaid our bridge loan facility on May 3, 2006 and terminated the facility.

The credit facilities contain certain covenants that will limit the ability of us and certain of our subsidiaries to, among other things: incur additional indebtedness; create liens; merge with other entities; sell assets; make restricted payments; make certain investments, loans, advances, guarantees or acquisitions; change the nature of our business; enter into transactions with affiliates; and restrict dividends (see also Part II, Item 2) or enter into certain restrictive agreements. The credit facilities also require compliance with a maximum debt coverage ratio and a minimum fixed charge coverage ratio.

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The maximum debt coverage ratio must not exceed 3.50 in respect of the first fiscal quarter ending after February 28, 2006, and 2.50 thereafter and is computed as consolidated total debt divided by net income before interest expense, taxes, depreciation and amortization, and net of extraordinary non-cash losses and gains incurred outside the ordinary course of business (as amended on April 24, 2006 – see discussion below). Consolidated total debt (the numerator) primarily includes all liabilities for borrowed money, capital lease obligations, letters of credit (whether or not related to borrowed money), the net marked-to-market liability under swap agreements and guarantee liabilities. The Company was in compliance with these ratios as at October 1, 2006.

The minimum fixed charge coverage ratio must be no less than 2.25 in respect of the first fiscal quarter ending after February 28, 2006, and 2.75 thereafter. It is computed as net income before interest expense, taxes, depreciation and amortization, rent expense, and net of extraordinary non-cash losses and gains incurred outside the ordinary course of business, collectively as the numerator, divided by consolidated fixed charges (as amended on April 24, 2006 – see discussion below). Consolidated fixed charges includes interest and rent expense. The Company was in compliance with this covenant as at October 1, 2006.

The Company entered into an amendment of its senior bank facility on April 24, 2006, with an effective date of February 28, 2006. The amendment corrected a drafting error in the original agreement by revising the timing of the application of the debt covenant thresholds to be consistent with the period during which the Company was permitted to repay certain intercompany debt. These corrected terms reflect the terms that had been agreed to by both parties prior to the effective date of the original agreement. No additional changes were made and required lender approval was obtained for the amendment with no additional fees incurred other than drafting expenses for the amendment.

Events of default under the credit facilities include, among other things: a default in the payment of the obligations under the credit facilities; a breach of any representation, warranty or covenant by us or certain of our subsidiaries under the credit facilities; certain events of bankruptcy, insolvency or liquidation involving us or certain of our subsidiaries; any payment default or acceleration of indebtedness of us or certain of our subsidiaries if the total amount of such indebtedness unpaid or accelerated exceeds $25.0 million; and a change of control, excluding Wendy’s distribution of our shares to its shareholders.

We will use the borrowings under the revolving portions, if drawn, of the senior bank facility for general corporate purposes, including potential acquisitions.

In September 2005, we distributed, as a dividend on our common stock, a promissory note to Wendy’s in the principal amount of US$960.0 million ($1.1 billion). We issued the US$960.0 million note to Wendy’s in order to introduce additional leverage in our capital structure and to provide Wendy’s with a return on its investment in us prior to the IPO through a distribution of current and accumulated earnings and profits. The note was payable within 30 days of demand and bore an interest rate of 3.0% per annum. We paid Wendy’s approximately US$12.7 million of accrued interest, and repaid approximately US$427.4 million of principal, on March 3, 2006 with proceeds from the $300.0 million term loan component of our senior bank facility and our $200.0 million bridge loan facility plus available cash. On April 26, 2006, we repaid the remainder of the US$960.0 million note of US$532.6 million plus accrued interest of US$2.0 million using the proceeds from our IPO.

Comparative Cash Flows

Operating Activities. Net cash provided from operating activities was $120.1 million in the year-to-date period ended October 1, 2006 as compared to $229.1 million in cash provided from operations in the year-to-date period ended October 2, 2005, a decline of $109.0 million. Tax payments in connection with the resolution of Canadian tax audits and interest payments, excluding amounts paid to Wendy’s, were higher by $36.3 million and $11.0 million, respectively, compared to the year-to-date period ended October 2, 2005. In addition, in the year-to-date period ended October 1, 2006, the Company paid US$28.0 million ($32.4 million) to settle certain hedging arrangements entered into in the third and fourth quarters of 2005. Other factors contributing to the lower operating cash flows include $51.9 million lower receipts from amounts due from and to Wendy’s, as well as differences in working capital relating to payments of accounts payable, accrued expenses, and inventory. Inventory is seasonally higher and has also increased as a result of the addition of frozen distribution from our Guelph facility. Partially offsetting the above-noted operating cash flow decreases were: higher operating income of $13.6 million and lower interest payments to Wendy’s of $27.0 million in the year-to-date period ended October 1, 2006 compared to the same period in 2005. Depreciation and amortization expense for the year-to-date periods ended October 1, 2006 and October 2, 2005 was $53.0 million and $53.6 million, respectively.

Investing Activities. Net cash used in investing activities totaled $119.4 million in the year-to-date period ended October 1, 2006 compared to $160.7 million in the year-to-date period ended October 2, 2005. Capital expenditures in the year-to-date period ended October 1, 2006 were $121.3 million compared to $140.9 million in the comparable period in 2005 primarily as a result of the timing of new store development and the higher development expenditures in 2005 for our Guelph Distribution Centre. Other significant items impacting our investing cash flows in the year-to-date period in 2005 were net loans repaid to Wendy’s of $21.9 million.

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Capital expenditures are typically the largest ongoing component of our investing activities and include expenditures for new restaurants, improvements to existing restaurants, and technology initiatives, and other capital expenditures. A summary of capital expenditures year-to-date are as follows:

	Year-to-date ended
	October 1, 2006		October 2, 2005
	(in millions)
Capital expenditures
New restaurants	$	72.7	$	80.5
Store improvements		26.5		14.8
Guelph Distribution Centre		15.3		32.2
Other capital needs		6.8		13.4
Total capital expenditures	$	121.3	$	140.9

In the first quarter of 2006, we substantially completed and commenced operations of our new Guelph distribution and warehouse facility which better serves our distribution needs. Substantially all of the expected investment in the new facility of approximately $74 million had been made as at October 1, 2006. In the year-to-date period ended October 1, 2006, we opened 65 new restaurants in Canada and 21 in the U.S. compared with 73 in Canada and 21 in the U.S. in the year-to-date period ended October 2, 2005. We currently expect to open approximately 100 restaurants in the fourth quarter of 2006. In fiscal 2006 we currently expect to open 140 to 150 new restaurants in Canada and 40 to 50 new restaurants in the U.S. Although we currently anticipate new restaurant development will continue in the range of 180 to 200 stores annually, future escalation of real estate, construction costs and labour availability (in some regions) may slow this growth and our mix between standard and non-standard restaurants may shift towards non-standard depending upon real estate availability, and market needs, among other things. We currently expect fiscal 2006 capital expenditures to be between $185.0 million and $210.0 million for new restaurant development, remodeling, maintenance, technology initiatives and other capital needs. We currently anticipate future capital needs related to our normal business activities will be funded through ongoing operations.

Financing Activities. Financing activities provided cash of $32.5 million in the year-to-date period ended October 1, 2006 and used cash of $78.0 million in the comparable period of 2005. In the first quarter of 2006, we entered into new credit facilities providing $498.3 million net proceeds related to debt in the principal amount of $500.0 million and incurred $1.7 million in financing costs that have been deferred over the terms of the related facilities of which $0.3 million related to the bridge facility was written off upon repayment of this facility ($200.0 million) in the second quarter ended July 2, 2006. Also in the first quarter of 2006, we completed our IPO, issuing 33,350,000 shares of our common stock at an offering price of $27.00 (US$23.162) per share. The IPO generated cash proceeds of $903.8 million and share issuance costs paid in the year-to-date period of 2006 was $61.6 million. The net proceeds from the new credit facilities and from the IPO were used to repay the US$960.0 million note to Wendy’s plus accrued interest of US$14.6 million.

In the year-to-date period ended October 2, 2005, cash used in financing activities was $78.0 million mainly driven by repayment of borrowings to Wendy’s.

Certain of our U.S. employees participated in two Wendy’s-sponsored U.S. domestic defined benefit pension plans through September 29, 2006. The employees’ account balances may be rolled into a defined contribution pension in the fourth quarter of 2006 or left within the Wendy’s plan, at the employees’ option.

We had a negative foreign exchange impact on our U.S. cash held of $33.8 million in the year-to-date period ended October 1, 2006 which was primarily related to the IPO proceeds held in U.S. dollars prior to repaying the Wendy’s note and the bridge loan facility.

Off-Balance Sheet Arrangements

We do not have “off-balance sheet” arrangements as of October 1, 2006 and October 2, 2005 as that term is described by the SEC.

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Application of Critical Accounting Policy

On November 18, 2005, the Company’s stockholder approved the 2006 Stock Incentive Plan (“2006 Plan”). The 2006 Plan is an omnibus plan, designed to allow for a broad range of equity based compensation awards in the form of stock options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalent rights, performance awards and share awards to eligible employees and directors of the Company or its subsidiaries. A total of 539,099 awards have been made under the 2006 Plan, in the form of restricted stock units, as of October 1, 2006, of which 19,110 were granted to external directors of the Company and 519,989 granted to officers and certain employees. A total of 193,805 of these awards were immediately vested and settled, net of withholding tax, in the Company’s shares (see below). No awards were made under this Plan in 2005. The number of remaining shares of common stock authorized under the Company’s 2006 Plan totals approximately 2.4 million.

Certain employees of the Company have participated in various Wendy’s plans which provided options and, beginning in 2005, restricted stock units that would settle in Wendy’s common stock. The following is a description of the impact on the Company related to Wendy’s plans as well as tables summarizing stock option and restricted stock unit activity for the Company’s employees.

Prior to January 2, 2006, Wendy’s and the Company used the intrinsic value method to account for stock-based employee compensation as defined in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”. Accordingly, because stock options granted prior to January 2, 2006 were granted at market value at the date of grant, and therefore had no intrinsic value at grant date, compensation expense related to stock options was recognized using the Black-Scholes method only when stock option awards were modified after the grant date. During the fourth quarter of 2005, Wendy’s accelerated the vesting of all outstanding options, excluding those held by the independent directors of Wendy’s. Wendy’s generally satisfies exercises of options through the issuance of authorized but previously unissued shares of Wendy’s stock. Prior to January 2, 2006, compensation expense related to restricted stock unit awards was measured based on the market value of Wendy’s common stock on the date of grant.

Wendy’s restricted stock units were granted to employees of the Company for the first time in May 2005. These restricted stock units were granted under the Wendy’s Plan and would have vested, for the Company’s Canadian employees, in accordance with the vesting schedule of the 2005 award agreements on May 1, 2006, May 1, 2007 and November 1, 2007, in one-third increments. These awards granted to Canadian employees were converted to the Company’s restricted stock units on May 1, 2006 (one-third) and August 15, 2006 (two-thirds) (see below) at an equivalent fair value, immediately vested, and then settled with 61,256 and 132,549 shares, respectively, totaling 193,805 shares, after provision for the payment of employee’s minimum statutory withholding tax requirements, of the Company’s stock. The 61,256 shares were purchased by an agent of the Company on behalf of the eligible employees on the open market on May 1, 2006 at an average purchase price of $30.543. The 132,549 shares were also purchased by an agent of the Company on behalf of the eligible employees on the open market on August 15, 2006 at an average purchase price of $27.3211. In accordance with SFAS 123R, no incremental compensation cost was recorded since there was no change in the fair value of the awards immediately before and after conversion. The Company’s U.S. employees’ awards under the Wendy’s Plan were settled by Wendy’s through the issuance of authorized but previously unissued shares of Wendy’s stock in May and October, 2006.

On January 2, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123R “Share-Based Payment”, which requires share-based compensation cost to be recognized based on the grant date estimated fair value of each award, net of estimated cancellations, over the employee’s requisite service period, which is generally the vesting period of the equity grant. The Company elected to adopt SFAS No. 123R using the modified prospective method, which requires compensation expense to be recorded for all unvested share-based awards beginning in the first quarter of adoption. Accordingly, the prior periods presented in this Form 10-Q have not been restated to reflect the fair value method of expensing stock options. Also, because the value used to measure compensation expense for restricted stock unit awards is the same for APB Opinion No. 25 and SFAS No. 123R, because Wendy’s restricted stock units were not granted prior to May 2005 and because all of Wendy’s stock option awards granted to employees of the Company were fully vested prior to January 2, 2006, the adoption of SFAS 123R did not have a material impact on the Company’s operating income, pretax income or net income. In accordance with SFAS No. 123R, the unearned compensation amount previously separately displayed under stockholders’ equity was reclassified during the first quarter of 2006 to capital in excess of stated value on the Company’s condensed consolidated balance sheets. In March 2005, the SEC issued Staff Accounting Bulletin (“SAB”) No. 107 regarding the SEC’s interpretation of SFAS No. 123R. The Company has applied the provisions of SAB No. 107 in its adoption of SFAS No. 123R.

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The Company recorded $5.9 million ($3.8 million net of tax) and $9.3 million ($6.0 million net of tax) in stock compensation expense for restricted stock units for the third quarter and year-to-date periods ended October 1, 2006, respectively, representing both the amount allocated to the Company from Wendy’s based on a specific employee basis and the expense recorded for restricted stock units issued under the Company’s 2006 Plan. Compensation expense for restricted stock unit awards for the third quarter and year-to-date periods ended October 2, 2005 was $0.8 million ($0.5 million net of tax) and $1.4 million ($0.9 million net of tax), respectively. As of October 1, 2006, total unrecognized compensation cost related to nonvested share-based compensation was $6.4 million and is expected to be recognized over a weighted-average period of 2.1 years.

Market Risk

With the exception of the items discussed herein, our exposure to various market risks remain substantially the same as reported on January 1, 2006. Our disclosures about market risk are incorporated herein by reference from our registration statement on Form S-1 (Registration No. 333-130035) filed with the SEC on December 1, 2005 and subsequently amended.

Foreign Exchange Risk

In connection with the completion of our IPO, certain intercompany notes were expected to be repaid and, accordingly, were marked-to-market in fiscal 2005 and resulted in a foreign exchange gain of $3.2 million, net of taxes of $1.9 million. Previously, the translation of these intercompany notes was recorded as a component of comprehensive income, rather than in income, in accordance with SFAS No. 52 — “Foreign Currency Translation”. To manage this additional exposure, we entered into forward currency contracts to sell $500.0 million and buy US$427.4 million. Under SFAS No. 133, these forward currency contracts were designated as highly effective cash flow hedges. In accordance with SFAS No. 133, we defer unrealized gains and losses arising from these contracts until the impact of the related transactions occur. The fair value unrealized losses on these contracts as of January 1, 2006 were $2.3 million, net of taxes of $1.4 million. On the maturity date of March 3, 2006, we received US$427.4 million from the counterparties and disbursed to the counterparties $500.0 million Canadian, resulting in a net cash flow of US$13.1 million ($15.4 million) to the counterparties (representing the difference from contract rate to spot rate on settlement). Per SFAS No. 95, “Statement of Cash Flows”, the net cash flow is reported in the net cash provided by operating activities line of the Consolidated Statements of Cash Flows for year-to-date period ended October 1, 2006. These forward currency contracts remained highly effective cash flow hedges and qualified for hedge accounting treatment through their maturity. As a result, during the first quarter of 2006, changes in the fair value of the effective portion of these foreign currency contracts offset changes in the cross-border intercompany notes and a $0.9 million gain was recognized in the first quarter of 2006 as the ineffective portion of the foreign currency contracts.

In the fourth quarter of 2005, we entered into forward currency contracts to sell $578.0 million and buy US$490.5 million in order to hedge certain net investment positions in Canadian subsidiaries. Under SFAS No. 133, these forward currency contracts were designated as highly effective hedges. The fair value unrealized loss on these contracts was $5.8 million, net of taxes of $3.6 million, as of January 1, 2006. On the maturity dates of April 10-13, 2006, the Company received US$490.5 million from the counterparties and disbursed to the counterparties $578.0 million, resulting in a net cash flow of US$14.9 million ($17.0 million) to the counterparties (representing the difference from the contract rate to spot rate on settlement). Per SFAS No. 95, “Statement of Cash Flows”, the net cash flow is reported in the net cash provided by operating activities line of the Condensed Consolidated Statements of Cash Flows for the year-to-date period ended October 1, 2006 as the cash flows do not meet the definition of an investing or financing activity. These forward currency contracts remained highly effective cash flow hedges and qualified for hedge accounting treatment through their maturity. The fair value realized loss on these contracts was $13.3 million, net of taxes of $3.7 million, on maturity in April 2006. Changes in the fair value of these foreign currency net investment hedges are included in the translation adjustments line of other comprehensive income (loss) (see Note 5). No amounts related to these net investment hedges impacted earnings.

Interest Rate Risk

Prior to the first quarter of 2006, we have had insignificant external borrowings. We are exposed to interest rate risk affecting our net borrowing costs because our existing borrowings of $300.0 million bear a floating rate of interest. We will seek to manage our exposure to interest rate risk by managing the mix of fixed and floating rate instruments and reviewing capital markets and business conditions. Accordingly, we entered into an interest rate swap with two financial institutions for $100.0 million of our $300.0 million term loan facility that converts a portion of the variable rate debt from floating rate to fixed rate. The interest rate swap essentially fixes the interest rate on one-third of the $300.0 million term loan facility, but the rate remains subject to variation if our applicable margin, described in our credit facilities, increases or decreases. As a result of a decrease in such applicable margin in the third quarter of 2006, the rate essentially fixed by the swap decreased to 5.05%. The swap matures on February 28, 2011. The interest rate swap is considered to be a highly effective cash flow hedge

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according to criteria specified in SFAS No. 133 – Accounting for Derivative Instruments and Hedges Activities. The fair value unrealized loss on this contract as of October 1, 2006 was $0.7 million, net of taxes of $0.4 million. Each one-eighth point change in interest rates would result in a $0.3 million change in interest expense on an annualized basis, after repayment of the bridge loan facility on May 3, 2006. We presently have no intention to enter into speculative swaps or other speculative financial contracts.

Recently Issued Accounting Pronouncements

In July 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes”, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” An uncertain tax position will be recognized if it is determined that it is more likely than not to be sustained upon examination. The tax position is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The cumulative effect of applying the provisions of this Interpretation is to be reported as a separate adjustment to the opening balance of retained earnings in the year of adoption. This statement is effective for fiscal years beginning after December 15, 2006. The Company is currently in the process of evaluating the impact of adopting FIN 48.

In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurement” which addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles. FAS No. 157 provides a common definition of fair value to be used throughout generally accepted accounting principles. Under the standard, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the Company transacts. The standard clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. The standard establishes a fair value hierarchy that prioritized the information used to develop the assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. SFAS No. 157 requires disclosures about the extent to which the Company measures assets and liabilities at fair value, the methods and assumptions used to measure fair value, and the effect of fair value measures on earnings. This standard is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company has not assessed the impact of adopting SFAS No. 157.

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SAFE HARBOR STATEMENT

Certain information contained in this Form 10-Q, particularly information regarding future economic performance and finances, plans and objectives of management, is forward looking. In some cases, information regarding certain important factors that could cause actual results to differ materially from any such forward-looking statement appears together with such statement. In addition, the following factors, in addition to other possible factors not listed, could affect the Company’s actual results and cause such results to differ materially from those expressed in forward-looking statements. These factors include: competition within the quick-service restaurant industry, which remains extremely intense, particularly with respect to price, service, location, personnel, qualified franchisees, and type and quality of food; changes in economic and political conditions, consumer preferences and perceptions (including food safety, health and dietary preferences and perceptions), and other conditions; harsh weather and other calamities; food costs; labour cost and availability; benefit costs; legal claims; disruptions in supply chain or changes in the price, availability and shipping costs (including changes in international commodity markets, especially for coffee); risk inherent to international development (including currency fluctuations); the continued ability of the Company and its franchisees to obtain suitable locations and financing for new restaurant development; governmental initiatives such as minimum wage rates, taxes and possible franchise legislation; changes in applicable accounting rules; increased competition experienced by the Company’s manufacturing and distribution operations; possibility of termination of the Maidstone Bakeries joint venture; risk associated with certain ongoing transactions and contractual agreements with Wendy’s International, Inc.; risk associated with the Company’s investigation of and/or completion of acquisitions, mergers, joint ventures or other targeted growth opportunities; risk associated with the Company’s significant debt obligations; and other factors set forth in Exhibit 99 attached hereto.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information is incorporated by reference from the section titled “Market Risk” on page [38] of this Form 10-Q.

ITEM 4. CONTROLS AND PROCEDURES

(a) The Company, under the supervision, and with the participation, of its management, including its Chief Executive Officer and Chief Financial Officer, performed an evaluation of the Company’s disclosure controls and procedures, as contemplated by Securities Exchange Act Rule 13a-15. Disclosure controls and procedures include those designed to ensure that information required to be disclosed is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding disclosure. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded, as of the end of the period covered by this report, that such disclosure controls and procedures were effective.

(b) During the third fiscal quarter and continuing into the fourth quarter of 2006, in preparation for and as a result of the Company’s separation from Wendy’s, the Company has either implemented independent systems and/or processes for, including in some cases general computer controls related to these systems, the following: (i) U.S. accounts payable; (ii) U.S. head office, U.S. corporate store and Maidstone Coffee payroll and all benefits; (iii) U.S. corporate store sales and inventory; (iv) U.S. financial reporting; (v) U.S. fixed asset management and reporting; (vi) U.S. rents and royalties calculations; (vii) U.S. treasury function; (viii) U.S. tax provision calculation, reporting and payment; (ix) securities, corporate governance and ethics and compliance; (x) capital transactions, including restricted stock unit administration, dividends, share repurchases etc.; (xi) investor relations; and (xii) internal audit. Except for the preceding changes, there was no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 1A. RISK FACTORS

The Company has disclosed, under the heading “Risk Factors” in our registration statement on Form S-1 (Registration No. 333-130035), originally filed with the SEC on December 1, 2005 and subsequently amended, the risk factors which could materially affect our business, financial condition or future results. In addition, the Company disclosed additional risk factors that it considers to be material to supplement the risk factors set forth in the S-1 in the Company’s second quarter Form 10-Q filed with the SEC on August 11, 2006. You should carefully consider the “Risk Factors” set forth in the S-1, the additional risk factors described in the second quarter Form 10-Q, and the other information set forth elsewhere in this Form 10-Q. You should be aware that these risk factors and other information may not describe every risk facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(b) The Company incurred and paid an additional net amount of approximately US$0.2 million in offering costs and expenses associated with its March 2006 IPO in the third quarter of 2006 to bring the total amount of other fees and expenses associated with the Company’s March 2006 IPO to US$7.7 million. The Company had previously reported in its Form 10-Q for the first quarter, filed with the SEC on May 12, 2006, that the actual underwriting, discounts, commissions and fees related to the IPO were $54.2 million (US$46.2 million) with other fees and expenses of $8.7 million (US$7.5 million), and in its Form 10-Q for the second quarter, filed with the SEC on August 11, 2006, that other fees and expenses associated with the IPO totaled US$7.6 million.

The Company further disclosed in its second quarter Form 10-Q its uses of the net proceeds generated from the IPO in the second quarter and beyond. Namely, the Company disclosed that, during the third quarter 2006, the remaining proceeds were combined with cash generated from operations of the Company, and these proceeds, plus available cash and cash generated from operations of certain U.S. subsidiaries of Tim Hortons Inc., were utilized, and are planned to be utilized in the balance of the fiscal year: (i) for dividends, including intercompany dividends; (ii) to fund capital expenditures and operations for U.S. subsidiaries; and (iii) for other general corporate purposes of these U.S. subsidiaries.

(c)                                                                      Issuer Purchases of Equity Securities

	(a) Period Total number of shares (or units) purchased		(b) Average price paid per share (or unit)		(c) Total number of shares (or units) purchased as part of publicly announced plans or programs	(d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
Month # 1 (July 3-August 2)	0			N/A	0	0
Month # 2 (August 3-September 2)	132,549	(1)	$	27.321 per share	0	0
Month # 3 (September 3-October 1)	0			N/A	0	0
Total	132,549		$	27.321 per share	0	0

⁽¹⁾ As reported on the Company’s Form 10-Q for the second quarter, substantially all of the employees of the Company and/or its subsidiaries that held restricted stock units of Wendy’s International, Inc. as a result of the 2005 Wendy’s grant to Canadian employees of the Company, rejected the vesting of those units that was to occur on May 1, 2006 (the first one-third of the 2005 grant) under the terms of the Wendy’s 2003 Stock Incentive Plan and received instead an award of restricted stock units under the Company’s 2006 Stock Incentive Plan that immediately vested and net-settled in 61,256 shares of stock of the Company. On August 15, 2006, all of these Canadian employees also rejected the remaining two-thirds of the 2005 Wendy’s grant that would have vested upon the Company’s separation from Wendy’s on September 29, 2006 and received instead restricted stock units of the Company. These restricted stock units immediately vested, and the Company satisfied its obligation to settle these awards by purchasing, on August 15, 2006, through a Normal Course Issuer Bid on the Toronto Stock Exchange (an open-market transaction), on behalf of the employees entitled to receive such shares, 132,549 shares of stock of the Company. The shares purchased were not redeemed, retired, or allocated to treasury stock held by the Company. Rather, the shares were purchased on behalf of, and credited directly to the account of, the employees entitled to such shares.

Dividend Restrictions with Respect to Part II, Item 2 Matters

The terms of the senior credit facilities contain limitations on the payment of dividends by the Company. The Company may not make any dividend distribution unless, at the time of, and after giving effect to the aggregate dividend payment, the Company is in compliance with the financial covenants contained in the senior credit facilities, and there is no default outstanding under the senior credit facilities.

ITEM 6. EXHIBITS

(a) Index to Exhibits on Page 47.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TIM HORTONS INC. (Registrant)
Date: November 14, 2006	/s/ Cynthia J. Devine
	Cynthia J. Devine
	Executive Vice President and Chief Financial Officer

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TIM HORTONS INC. AND SUBSIDIARIES

INDEX TO EXHIBITS

Exhibit Number	Description	Page No.
3(ii)	Amended and Restated Bylaws of Tim Hortons Inc.	48
10(i)	Director Indemnification Agreement Between Tim Hortons Inc. and each of its Existing Directors, Effective September 29, 2006	Incorporated herein by reference from Exhibit 10.8 of the Registration Statement filed by the Company on December 1, 2005, as amended thereafter (“S-1”)
10(ii)	Officer Indemnification Agreement between Tim Hortons Inc. and each of its executive officers (and other officers and employees, as authorized by the Board of Directors), effective September 29, 2006	Incorporated herein by reference from Exhibit 10.7 of the Form S-1
10(iii)	The TDL Group Corp. Amended and Restated Supplementary Retirement Plan, as amended from the Supplemental Retirement Plan assumed by a Canadian subsidiary of the Company, The TDL Group Corp., from Wendy’s International, Inc., on September 29, 2006.	Incorporated herein by reference from Exhibit 99.1 (incorrectly labeled and filed as Exhibit 99.2) of the Form 8-K filed by the Issuer with the SEC on October 27, 2006; and, incorporated herein by reference from Exhibit 10 of the Form 8-K filed by the Issuer with the SEC on October 5, 2006
10(iv)	Amended Governance Guidelines of Tim Hortons Inc.	64
31(a)	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer	68
31(b)	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer	69
32(a)	Section 1350 Certification of Chief Executive Officer	70
32(b)	Section 1350 Certification of Chief Financial Officer	71
99	Safe Harbor Under the Private Securities Litigation Reform Act of 1995	72-74

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EX-3.(II)

Exhibit 3(ii)

AMENDED AND RESTATED

BY-LAWS

OF

TIM HORTONS INC.,

a Delaware corporation

(the “Corporation”)

(Adopted As of February 23, 2006)

(Revised August 31, 2006)

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AMENDED AND RESTATED

BY-LAWS

OF

TIM HORTONS INC.

ARTICLE I

OFFICES

Section 1.1 Registered Office. The registered office of the Corporation within the State of Delaware shall be located at either (a) the principal place of business of the Corporation in the State of Delaware or (b) the office of the corporation or individual acting as the Corporation’s registered agent in Delaware.

Section 1.2 Additional Offices. The Corporation may, in addition to its registered office in the State of Delaware, have such other offices and places of business, both within and outside the State of Delaware, as the Board of Directors of the Corporation (the “Board”) may from time to time determine or as the business and affairs of the Corporation may require.

ARTICLE II

STOCKHOLDERS MEETINGS

Section 2.1 Annual Meetings. An annual meeting of stockholders shall be held at such place and time and on such date as shall be determined by the Board and stated in the notice of the meeting, provided that the Board may in its sole discretion determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication pursuant to Section 9.5(a). At each annual meeting, the stockholders shall elect directors of the Corporation and may transact any other business as may properly be brought before the meeting.

Section 2.2 Special Meetings. Except as otherwise required by applicable law or provided in the Corporation’s Amended and Restated Certificate of Incorporation, as the same may be amended or restated from time to time (the “Certificate of Incorporation”), special meetings of stockholders, for any purpose or purposes, may be called only by the Chairman of the Board, the Chief Executive Officer, the President or the Board pursuant to a resolution adopted by a majority of the Whole Board (as defined below). In addition, until such date on which Wendy’s International, Inc., an Ohio corporation (“Wendy’s”) and its subsidiaries (excluding the Corporation and its subsidiaries) cease to beneficially own shares representing a majority of the total voting power of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (the “Trigger Date”), the Corporation will call a special meeting of stockholders promptly upon request by Wendy’s if such entity is a stockholder of the Corporation. Special meetings of stockholders shall be held at such place and time and on such date as shall be determined by the Board and stated in the Corporation’s notice of the meeting, provided that the Board may in its sole discretion determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication pursuant to Section 9.5(a). “Whole Board” shall mean the total number of directors the Corporation would have if there were no vacancies.

Section 2.3 Notices. Notice of each stockholders meeting stating the place, if any, date, and time of the meeting, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, shall be given in the manner permitted by Section 9.3 to each stockholder entitled to vote thereat by the Corporation not less than 10 nor more than 60 days before the date of the meeting. If said notice is for a stockholders meeting other than an annual meeting, it shall in addition state the purpose or purposes for which the meeting is called, and the business transacted at such meeting shall be limited to the matters so stated in the Corporation’s notice of meeting (or any supplement thereto). Any meeting of stockholders as to which notice has been given may be postponed, and any special meeting of stockholders as to which notice has been given may be cancelled, by the Board upon public announcement (as defined in Section 2.7(c)) given before the date previously scheduled for such meeting.

Section 2.4 Quorum. Except as otherwise provided by applicable law, the Certificate of Incorporation or these By-Laws, the presence, in person or by proxy, at a stockholders meeting of the holders of shares of outstanding capital stock of the Corporation representing a majority of the voting power of all outstanding shares of capital stock of the Corporation entitled to vote at such meeting shall constitute a quorum for the transaction of business at such meeting, except that when specified business is to be voted on by a class or series of stock voting as a class, the holders of shares representing

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a majority of the voting power of the outstanding shares of such class or series shall constitute a quorum of such class or series for the transaction of such business. If a quorum shall not be present or represented by proxy at any meeting of the stockholders, the holders of a majority of the voting shares represented at the meeting, whether or not a quorum is present, the Chairman of the Board, the Chief Executive Officer, the President or the officer of the Corporation acting as the chairman of the meeting may adjourn the meeting from time to time in the manner provided in Section 2.6 until a quorum shall attend. The stockholders present at a duly convened meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the voting power of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation or any such other corporation to vote shares held by it in a fiduciary capacity.

Section 2.5 Voting of Shares.

(a) Voting Lists. The Secretary shall prepare, or shall cause the officer or agent who has charge of the stock ledger of the Corporation to prepare, at least 10 days before every meeting of stockholders, a complete list of the stockholders of record entitled to vote thereat arranged in alphabetical order and showing the address and the number of shares registered in the name of each stockholder. Nothing contained in this Section 2.5(a) shall require the Corporation to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least 10 days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the Corporation’s principal office. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If a meeting of stockholders is to be held solely by means of remote communication as permitted by Section 9.5(a), the list shall be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of meeting. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list required by this Section 2.5(a) or to vote in person or by proxy at any meeting of stockholders.

(b) Manner of Voting. At any stockholders meeting, every stockholder entitled to vote may vote in person or by proxy. If authorized by the Board, the voting by stockholders or proxyholders at any meeting conducted by remote communication may be effected by a ballot submitted by electronic transmission (as defined in Section 9.3), provided that any such electronic transmission must either set forth or be submitted with information from which the Corporation can determine that the electronic transmission was authorized by the stockholder or proxyholder. The Board, in its discretion, or the chairman of the meeting of stockholders, in such person’s discretion, may require that any votes cast at such meeting shall be cast by written ballot.

(c) Proxies. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after 11 months from its date, unless the proxy provides for a longer period. Proxies need not be filed with the Secretary of the Corporation until the meeting is called to order, but shall be filed with the Secretary before being voted. Without limiting the manner in which a stockholder may authorize another person or persons to act for such stockholder as proxy, either of the following shall constitute a valid means by which a stockholder may grant such authority.

(i) A stockholder may execute a writing authorizing another person or persons to act for such stockholder as proxy. Execution may be accomplished by the stockholder or such stockholder’s authorized officer, director, employee or agent signing such writing or causing such person’s signature to be affixed to such writing by any reasonable means, including, but not limited to, by facsimile signature.

(ii) A stockholder may authorize another person or persons to act for such stockholder as proxy by transmitting or authorizing the transmission of an electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder.

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Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission authorizing another person or persons to act as proxy for a stockholder may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used; provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.

(d) Required Vote. Subject to the rights of the holders of one or more series of preferred stock of the Corporation (“Preferred Stock”), voting separately by class or series, to elect directors pursuant to the terms of one or more series of Preferred Stock, the election of directors shall be determined by a plurality of the votes cast by the stockholders present in person or represented by proxy at the meeting and entitled to vote thereon. All other matters shall be determined by the vote of a majority of the votes cast by the stockholders present in person or represented by proxy at the meeting and entitled to vote thereon, unless the matter is one upon which, by applicable law, the Certificate of Incorporation, these By-Laws or applicable stock exchange rules, a different vote is required, in which case such provision shall govern and control the decision of such matter.

(e) Inspectors of Election. The Board may appoint one or more persons as inspectors of election, who may be employees of the Corporation or otherwise serve the Corporation in other capacities, to act at any meeting of stockholders or any adjournment thereof and to make a written report thereof. The Board may appoint one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspectors of election or alternates are appointed by the Board, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall ascertain and report the number of outstanding shares and the voting power of each, determine the number of shares present in person or represented by proxy at the meeting and the validity of proxies and ballots, count all votes and ballots and report the results, determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. No person who is a candidate for an office at an election may serve as an inspector at such election. Each report of an inspector shall be in writing and signed by the inspector or by a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors.

Section 2.6 Adjournments. Any meeting of stockholders, annual or special, may be adjourned by the chairman of the meeting, from time to time, whether or not there is a quorum, to reconvene at the same or some other place. Notice need not be given of any such adjourned meeting if the date, time, place, if any, thereof, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting the stockholders, or the holders of any class or series of stock entitled to vote separately as a class, as the case may be, may transact any business that might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

Section 2.7 Advance Notice for Business.

(a) Annual Meetings of Stockholders. No business may be transacted at an annual meeting of stockholders, other than business that is either (i) specified in the Corporation’s notice of meeting (or any supplement thereto) given by or at the direction of the Board, (ii) otherwise properly brought before the annual meeting by or at the direction of the Board or (iii) otherwise properly brought before the annual meeting by any stockholder of the Corporation (x) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.7(a) and on the record date for the determination of stockholders entitled to vote at such annual meeting and (y) who complies with the notice procedures set forth in this Section 2.7(a). Notwithstanding anything in this Section 2.7(a) to the contrary, only persons nominated for election as a director at an annual meeting pursuant to Section 3.2 will be considered for election at such meeting.

(i) In addition to any other applicable requirements, for business (other than nominations) to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation and such business must otherwise be a proper matter for stockholder action. Subject to Section 2.7(a)(iii), to be timely, a stockholder’s notice to the Secretary with respect to such business must be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the 120th day nor earlier than the opening of business on the 150th day before the anniversary of the date that the Corporation’s proxy statement was released to stockholders in connection with the immediately preceding annual meeting of stockholders; provided, however, that for any annual meeting that is called

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for a date that is not within 45 days before or after such anniversary date, notice by the stockholder to be timely must be so received not earlier than the opening of business on the 150th day before the meeting and not later than the later of (x) the close of business on the 120th day before the meeting or (y) the close of business on the 10th day following the day on which public announcement of the date of the annual meeting is first made by the Corporation; and provided, further, that for the 2007 annual meeting, notice by the stockholder to be timely must be so received not earlier than the opening of business on October 13, 2006 and not later than the close of business on November 12, 2006. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder’s notice as described in this Section 2.7(a).

(ii) To be in proper written form, a stockholder’s notice to the Secretary regarding any business (other than nominations) must set forth as to each such matter such stockholder proposes to bring before the annual meeting (A) a brief description of the business desired to be brought before the annual meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event such business includes a proposal to amend these By-Laws, the language of the proposed amendment) and the reasons for conducting such business at the annual meeting, (B) the name and record address of such stockholder and the name and address of the beneficial owner, if any, on whose behalf the proposal is made, (C) the class or series and number of shares of capital stock of the Corporation that are owned beneficially and of record by such stockholder and by the beneficial owner, if any, on whose behalf the proposal is made, (D) a description of all arrangements or understandings between such stockholder and the beneficial owner, if any, on whose behalf the proposal is made and any other person or persons (including their names) in connection with the proposal of such business by such stockholder, (E) any material interest of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made in such business and (F) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.

(iii) The foregoing notice requirements of this Section 2.7(a) shall be deemed satisfied by a stockholder as to any proposal (other than nominations) if the stockholder has notified the Corporation of such stockholder’s intention to present such proposal at an annual meeting in compliance with Rule 14a-8 (or any successor thereof) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and such stockholder has complied with the requirements of such Rule for inclusion of such proposal in a proxy statement prepared by the Corporation to solicit proxies for such annual meeting. No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 2.7(a), provided, however, that once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 2.7(a) shall be deemed to preclude discussion by any stockholder of any such business. If the Board or the chairman of the annual meeting determines that any stockholder proposal was not made in accordance with the provisions of this Section 2.7(a) or that the information provided in a stockholder’s notice does not satisfy the information requirements of this Section 2.7(a), such proposal shall not be presented for action at the annual meeting. Notwithstanding the foregoing provisions of this Section 2.7(a), if the stockholder (or a qualified representative of the stockholder) does not appear at the annual meeting of stockholders of the Corporation to present the proposed business, such proposed business shall not be transacted, notwithstanding that proxies in respect of such matter may have been received by the Corporation.

(iv) In addition to the provisions of this Section 2.7(a), a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth herein. Nothing in this Section 2.7(a) shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.

(b) Special Meetings of Stockholders. At a special meeting of stockholders, only such business shall be conducted as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting. Nominations of persons for election to the Board may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation’s notice of meeting only pursuant to Section 3.2.

(c) Public Announcement. For purposes of these By-Laws, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act.

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(d) Wendy’s. Until the Trigger Date, notwithstanding anything to the contrary contained in these By-Laws, nominations of persons for election to the Board or the proposal of business to be considered by the stockholders by Wendy’s shall not be subject to the notice requirements and procedures of Section 2.3, this Section 2.7 and Section 3.2.

Section 2.8 Conduct of Meetings. The chairman of each annual and special meeting of stockholders shall be the Chairman of the Board or, in the absence (or inability or refusal to act) of the Chairman of the Board, the Chief Executive Officer (if he or she shall be a director) or, in the absence (or inability or refusal to act of the Chief Executive Officer or if the Chief Executive Officer is not a director, the President (if he or she shall be a director) or, in the absence (or inability or refusal to act) of the President or if the President is not a director, such other person as shall be appointed by the Board. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the chairman of the meeting. The Board may adopt such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with these By-Laws or such rules and regulations as adopted by the Board, the chairman of any meeting of stockholders shall have the right and authority to convene and to adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board or prescribed by the chairman of the meeting, may include, without limitation, the following: (a) the establishment of an agenda or order of business for the meeting; (b) rules and procedures for maintaining order at the meeting and the safety of those present; (c) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (d) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (e) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. The secretary of each annual and special meeting of stockholders shall be the Secretary or, in the absence (or inability or refusal to act) of the Secretary, an Assistant Secretary so appointed to act by the chairman of the meeting. In the absence (or inability or refusal to act) of the Secretary and all Assistant Secretaries, the chairman of the meeting may appoint any person to act as secretary of the meeting.

Section 2.9 Consent in Lieu of Meeting. Until the Trigger Date, any action required or permitted to be taken by stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation to its registered office in the state of Delaware, the Corporation’s principal place of business, or the Secretary of the Corporation; provided, however, that from and after the Trigger Date, except as otherwise expressly provided by the terms of any series of Preferred Stock permitting the holders of such series of Preferred Stock to act by written consent, any action required or permitted to be taken by stockholders of the Corporation must be effected at a duly called annual or special meeting of the stockholders and may not be effected by written consent in lieu of a meeting.

ARTICLE III

DIRECTORS

Section 3.1 Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws required to be exercised or done by the stockholders. Directors need not be stockholders or residents of the State of Delaware.

Section 3.2 Advance Notice for Nomination of Directors.

(a) Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided by the terms of one or more series of Preferred Stock regarding the rights of holders of one or more series of Preferred Stock to elect directors. Nominations of persons for election to the Board at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors as set forth in the Corporation’s notice of such special meeting, may be made (i) by or at the direction of the Board or (ii) by any stockholder of the Corporation (x) who is a stockholder of record on the date of the giving of the notice provided for in this Section 3.2 and on the record date for the determination of stockholders entitled to vote at such meeting and (y) who complies with the notice procedures set forth in this Section 3.2.

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(b) In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder’s notice to the Secretary must be received by the Secretary at the principal executive offices of the Corporation (i) in the case of an annual meeting, not later than the close of business on the 120th day nor earlier than the opening of business on the 150th day before the anniversary of the date that the Corporation’s proxy statement was released to stockholders in connection with the immediately preceding annual meeting of stockholders; provided, however, that for any annual meeting that is called for a date that is not within 45 days before or after such anniversary date, notice by the stockholder to be timely must be so received not earlier than the opening of business on the 150th day before the meeting and not later than the later of (x) the close of business on the 120th day before the meeting or (y) the close of business on the 10th day following the day on which public announcement of the date of the annual meeting was first made by the Corporation; and provided, further, that for the 2007 annual meeting, notice by the stockholder to be timely must be so received not earlier than the opening of business on October 13, 2006 and not later than the close of business on November 12, 2006; and (ii) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the 10th day following the day on which public announcement of the date of the special meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting or special meeting commence a new time period for the giving of a stockholder’s notice as described in this Section 3.2.

(c) Notwithstanding anything in paragraph (b) above to the contrary, if the number of directors to be elected to the Board at an annual meeting is greater than the number of directors whose terms expire on the date of the annual meeting and there is no public announcement by the Corporation naming all of the nominees for the additional directors to be elected or specifying the size of the increased Board before the close of business on the 90th day prior to the anniversary date of the immediately preceding annual meeting of stockholders, a stockholder’s notice required by this Section 3.2 shall also be considered timely, but only regarding nominees for the additional directorships created by such increase that are to be filled by election at such annual meeting, if it shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the date on which such public announcement was first made by the Corporation.

(d) To be in proper written form, a stockholder’s notice to the Secretary must set forth: (i) as to each person whom the stockholder proposes to nominate for election as a director (A) the name, age, business address and residence address of the person, (B) the principal occupation or employment of the person, (C) the class or series and number of shares of capital stock of the Corporation that are owned beneficially or of record by the person and (D) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder; and (ii) as to the stockholder giving the notice (A) the name and record address of such stockholder and the name and address of the beneficial owner, if any, on whose behalf the nomination is made, (B) the class or series and number of shares of capital stock of the Corporation that are owned beneficially and of record by such stockholder and the beneficial owner, if any, on whose behalf the nomination is made, (C) a description of all arrangements or understandings relating to the nomination to be made by such stockholder among such stockholder, the beneficial owner, if any, on whose behalf the nomination is made, each proposed nominee and any other person or persons (including their names), (D) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (E) any other information relating to such stockholder and the beneficial owner, if any, on whose behalf the nomination is made that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.

(e) Except as otherwise provided by the terms of one or more series of Preferred Stock regarding the rights of one or more series of Preferred Stock to nominate and elect directors, no person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 3.2. If the Board or the chairman of the meeting of stockholders determines that any nomination was not made in accordance with the provisions of this Section 3.2, then such nomination shall not be considered at the meeting in question. Notwithstanding the foregoing provisions of this Section 3.2, if the stockholder (or a qualified representative of the stockholder) does not appear at the meeting of stockholders of the Corporation to present the nomination, such nomination shall be disregarded, notwithstanding that proxies in respect of such nomination may have been received by the Corporation.

(f) In addition to the provisions of this Section 3.2, a stockholder shall also comply with all of the applicable requirements of the Exchange Act and the rules and regulations thereunder regarding the matters set forth herein. Nothing in this Section 3.2 shall be deemed to affect any rights of the holders of Preferred Stock to elect directors pursuant to the Certificate of Incorporation.

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Section 3.3 Compensation. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, the Board shall have the authority to fix the compensation of directors. The directors may be reimbursed their expenses, if any, of attendance at each meeting of the Board and may be paid either a fixed sum for attendance at each meeting of the Board or other compensation as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of committees of the Board may be allowed like compensation and reimbursement of expenses for service on the committee.

ARTICLE IV

BOARD MEETINGS

Section 4.1 Annual Meetings. The Board shall meet at least annually and may meet more frequently as needed.

Section 4.2 Regular Meetings. Regularly scheduled, periodic meetings of the Board may be held without notice at such times, dates and places as shall from time to time be determined by the Board.

Section 4.3 Special Meetings. Special meetings of the Board (a) may be called by the Chairman of the Board, the Chief Executive Officer, the President, or any three directors, or the sole director, as the case may be, and shall be held at such time, date and place as may be determined by the person calling the meeting or, if called upon the request of such directors or the sole director, as specified in such written request. Notice of each special meeting of the Board shall be given, as provided in Section 9.3, to each director (x) not later than the day before the meeting if such notice is oral notice given personally or by telephone or written notice given by hand delivery or by means of a form of electronic transmission and delivery; (y) at least two days before the meeting if such notice is sent by a nationally recognized overnight delivery service; and (z) at least five days before the meeting if such notice is sent through the United States mail. If the Secretary shall fail or refuse to give such notice, then the notice may be given by the officer who called the meeting or the directors who requested the meeting. Any and all business that may be transacted at a regular meeting of the Board may be transacted at a special meeting. Except as may be otherwise expressly provided by applicable law, the Certificate of Incorporation, or these By-Laws, neither the business to be transacted at, nor the purpose of, any special meeting need be specified in the notice or waiver of notice of such meeting. A special meeting may be held at any time without notice if all of the directors are present or if those not present waive notice of the meeting in accordance with Section 9.4.

Section 4.4 Quorum; Required Vote. A majority of the Whole Board shall constitute a quorum for the transaction of business at any meeting of the Board, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board, except as may be otherwise specifically provided by applicable law, the Certificate of Incorporation or these By-Laws. If a quorum shall not be present at any meeting, a majority of the directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.

Section 4.5 Consent In Lieu of Meeting. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board or any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions (or paper reproductions thereof) are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

Section 4.6 Organization. The chairman of each meeting of the board shall be the Chairman of the Board or, in the absence (or inability or refusal to act) of the Chairman of the Board, the Chief Executive Officer (if he or she shall be a director) or, in the absence (or inability or refusal to act) of the Chief Executive Officer or if the Chief Executive Officer is not a director, the President (if he or she shall be a director) or in the absence (or inability or refusal to act) of the President or if the President is not a director, a chairman elected from the directors present. The Secretary shall act as secretary of all meeting of the Board. In the absence (or inability or refusal to act) of the Secretary, and Assistant Secretary shall perform the duties of the Secretary at such meeting. In the absence (or inability or refusal to act) of the Secretary and all Assistant Secretaries, the chairman of the meeting may appoint any person to act as secretary of the meeting.

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ARTICLE V

COMMITTEES OF DIRECTORS

Section 5.1 Establishment. The Board may designate one or more committees, each committee to consist of one or more of the directors. Each committee shall keep regular minutes of its meetings and report the same to the Board when required. The Board shall have the power at any time to fill vacancies in, change the membership of, or dissolve any such committee.

Section 5.2 Available Powers. Any committee established pursuant to Section 5.1 hereof, to the extent permitted by applicable law and by resolution of the Board, shall have and may exercise all of the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it.

Section 5.3 Alternate Members. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee.

Section 5.4 Procedures. Unless the Board otherwise provides, the time, date, place, if any, and notice of meetings of a committee shall be determined by such committee. At meetings of a committee, a majority of the number of members of the committee (but not including any alternate member, unless such alternate member has replaced any absent or disqualified member at the time of, or in connection with, such meeting) shall constitute a quorum for the transaction of business. The act of a majority of the members present at any meeting at which a quorum is present shall be the act of the committee, except as otherwise specifically provided by applicable law, the Certificate of Incorporation, these By-Laws or the Board. If a quorum is not present at a meeting of a committee, the members present may adjourn the meeting from time to time, without notice other than an announcement at the meeting, until a quorum is present. Unless the Board otherwise provides and except as provided in these By-Laws, each committee designated by the Board may make, alter, amend and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board is authorized to conduct its business pursuant to Article III and Article IV of these By-Laws.

ARTICLE VI

OFFICERS

Section 6.1 Officers. The officers of the Corporation elected by the Board shall be a Chairman of the Board, a Chief Executive Officer, a President, a Chief Financial Officer, a Treasurer, a Secretary and such other officers (including without limitation a Chief Financial Officer, Vice Presidents, Assistant Secretaries and Assistant Treasurers) as the Board from time to time may determine. Officers elected by the Board shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article VI. Such officers shall also have such powers and duties as from time to time may be conferred by the Board. The Chairman of the Board or President may also appoint such other officers (including without limitation one or more Vice Presidents and Controllers) as may be necessary or desirable for the conduct of the business of the Corporation. Such other officers shall have such powers and duties and shall hold their offices for such terms as may be provided in these By-Laws or as may be prescribed by the Board or, if such officer has been appointed by the Chairman of the Board or President, as may be prescribed by the appointing officer.

Section 6.2 Duties of Officers. All officers of the Corporation, as between themselves and the Corporation, shall, respectively, have such duties as are determined by the directors.

Section 6.3 Term of Office. The officers of the Corporation shall hold office at the pleasure of the directors. Any officer of the Corporation may be removed, either with or without cause, at any time, by the affirmative vote of a majority of all of the directors then in office; such removal, however, shall be without prejudice to any contract rights of the person so removed.

Section 6.4 Multiple Officeholders; Stockholder and Director Officers. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these By-Laws otherwise provide. Officers need not be stockholders or residents of the State of Delaware.

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ARTICLE VII

SHARES

Section 7.1 Uncertificated Shares. The shares of the Corporation shall be uncertificated, provided that the Corporation shall be permitted to issue such nominal number of certificates to securities depositories and further provided that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be represented by certificates. The Corporation shall not have power to issue a certificate representing shares in bearer form.

Section 7.2 Multiple Classes of Stock. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the Corporation shall (a) cause the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences or rights to be set forth in full or summarized on the face or back of any certificate that the Corporation issues to represent shares of such class or series of stock or (b) in the case of uncertificated shares, within a reasonable time after the issuance or transfer of such shares, send to the registered owner thereof a written notice containing the information required to be set forth on certificates as specified in clause (a) above; provided, however, that, except as otherwise provided by applicable law, in lieu of the foregoing requirements, there may be set forth on the face or back of such certificate or, in the case of uncertificated shares, on such written notice a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences or rights.

Section 7.3 Signatures. Each certificate representing capital stock of the Corporation shall be signed by or in the name of the Corporation by (a) the Chairman of the Board, the Chief Executive Officer, the President or a Vice President and (b) the Chief Financial Officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar on the date of issue.

Section 7.4 Consideration and Payment for Shares. (a) Subject to applicable law and the Certificate of Incorporation, shares of stock may be issued for such consideration, having in the case of shares with par value a value not less than the par value thereof, and to such persons, as determined from time to time by the Board. The consideration may consist of any tangible or intangible property or benefit to the Corporation including cash, promissory notes, services performed, contracts for services to be performed or other securities.

(b) Subject to applicable law and the Certificate of Incorporation, shares may not be issued until the full amount of the consideration has been paid, unless upon the face or back of each certificate issued to represent any partly paid shares of capital stock or upon the books and records of the Corporation in the case of partly paid uncertificated shares, there shall have been set forth the total amount of the consideration to be paid therefor and the amount paid thereon up to and including the time said certificate representing certificated shares or said uncertificated shares are issued.

Section 7.5 Lost, Destroyed or Wrongfully Taken Certificates. (a) If an owner of a certificate representing shares claims that such certificate has been lost, destroyed or wrongfully taken, the Corporation shall issue a new certificate representing such shares or such shares in uncertificated form if the owner: (i) requests such a new certificate before the Corporation has notice that the certificate representing such shares has been acquired by a protected purchaser; (ii) if requested by the Corporation, delivers to the Corporation a bond sufficient to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, wrongful taking or destruction of such certificate or the issuance of such new certificate or uncertificated shares; and (iii) satisfies other reasonable requirements imposed by the Corporation.

(b) If a certificate representing shares has been lost, apparently destroyed or wrongfully taken, and the owner fails to notify the Corporation of that fact within a reasonable time after the owner has notice of such loss, apparent destruction or wrongful taking and the Corporation registers a transfer of such shares before receiving notification, the owner shall be precluded from asserting against the Corporation any claim for registering such transfer or a claim to a new certificate representing such shares or such shares in uncertificated form.

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Section 7.6 Transfer of Stock. (a) If a certificate representing shares of the Corporation is presented to the Corporation with an indorsement requesting the registration of transfer of such shares or an instruction is presented to the Corporation requesting the registration of transfer of uncertificated shares, the Corporation shall register the transfer as requested if:

(i) in the case of certificated shares, the certificate representing such shares has been surrendered;

(ii)(A) with respect to certificated shares, the indorsement is made by the person specified by the certificate as entitled to such shares; (B) with respect to uncertificated shares, an instruction is made by the registered owner of such uncertificated shares; or (C) with respect to certificated shares or uncertificated shares, the indorsement or instruction is made by any other appropriate person or by an agent who has actual authority to act on behalf of the appropriate person;

(iii) the Corporation has received a guarantee of signature of the person signing such indorsement or instruction or such other reasonable assurance that the indorsement or instruction is genuine and authorized as the Corporation may request;

(iv) the transfer does not violate any restriction on transfer imposed by the Corporation that is enforceable in accordance with Section 7.8; and

(v) such other conditions for such transfer as shall be provided for under applicable law have been satisfied.

(b) Whenever any transfer of shares shall be made for collateral security and not absolutely, the Corporation shall so record such fact in the entry of transfer if, when the certificate for such shares is presented to the Corporation for transfer or, if such shares are uncertificated, when the instruction for registration of transfer thereof is presented to the Corporation, both the transferor and transferee request the Corporation to do so.

Section 7.7 Registered Stockholders. Before due presentment for registration of transfer of a certificate representing shares of the Corporation or of an instruction requesting registration of transfer of uncertificated shares, the Corporation may treat the registered owner as the person exclusively entitled to inspect for any proper purpose the stock ledger and the other books and records of the Corporation, vote such shares, receive dividends or notifications with respect to such shares and otherwise exercise all the rights and powers of the owner of such shares, except that a person who is the beneficial owner of such shares (if held in a voting trust or by a nominee on behalf of such person) may, upon providing documentary evidence of beneficial ownership of such shares and satisfying such other conditions as are provided under applicable law, may also so inspect the books and records of the Corporation.

Section 7.8 Effect of Corporation’s Restriction on Transfer. (a) A written restriction on the transfer or registration of transfer of shares of the Corporation or on the amount of shares of the Corporation that may be owned by any person or group of persons, if permitted by the Delaware General Corporation Law (the “DGCL”) and noted conspicuously on the certificate representing such shares or, in the case of uncertificated shares, contained in a notice sent by the Corporation to the registered owner of such shares within a reasonable time after the issuance or transfer of such shares, may be enforced against the holder of such shares or any successor or transferee of the holder including an executor, administrator, trustee, guardian or other fiduciary entrusted with like responsibility for the person or estate of the holder.

(b) A restriction imposed by the Corporation on the transfer or the registration of shares of the Corporation or on the amount of shares of the Corporation that may be owned by any person or group of persons, even if otherwise lawful, is ineffective against a person without actual knowledge of such restriction unless: (i) the shares are certificated and such restriction is noted conspicuously on the certificate; or (ii) the shares are uncertificated and such restriction was contained in a notice sent by the Corporation to the registered owner of such shares within a reasonable time after the issuance or transfer of such shares.

Section 7.9 Regulations. The Board shall have power and authority to make such additional rules and regulations, subject to any applicable requirement of law, as the Board may deem necessary and appropriate with respect to the issue, transfer or registration of transfer of shares of stock or certificates representing shares. The Board may appoint one or more transfer agents or registrars and may require for the validity thereof that certificates representing shares bear the signature of any transfer agent or registrar so appointed.

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ARTICLE VIII

INDEMNIFICATION

Section 8.1 Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter a “Covered Person”), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent, or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized or permitted by applicable law, as the same exists or may hereafter be amended, against all expense, liability and loss (including, without limitation, attorneys’ fees, judgments, fines, ERISA excise taxes and penalties and amounts paid in settlement) reasonably incurred or suffered by such Covered Person in connection with such proceeding; provided, however, that, except as provided in Section 8.3 with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify a Covered Person in connection with a proceeding (or part thereof) initiated by such Covered Person only if such proceeding (or part thereof) was authorized by the Board.

Section 8.2 Right to Advancement of Expenses. In addition to the right to indemnification conferred in Section 8.1, a Covered Person also shall have the right to be paid by the Corporation the expenses (including, without limitation, attorneys’ fees) incurred in defending, testifying, or otherwise participating in any such proceeding in advance of its final disposition (hereinafter an “advancement of expenses”); provided, however, that, if the DGCL requires, an advancement of expenses incurred by a Covered Person in his or her capacity as a director or officer of the Corporation (and not in any other capacity in which service was or is rendered by such Covered Person, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an “undertaking”), by or on behalf of such Covered Person, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a “final adjudication”) that such Covered Person is not entitled to be indemnified for such expenses under this Article VIII or otherwise.

Section 8.3 Right of Indemnitee to Bring Suit. If a claim under Section 8.1 or Section 8.2 is not paid in full by the Corporation within 60 days after a written claim therefor has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the Covered Person may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Covered Person shall also be entitled to be paid the expense of prosecuting or defending such suit. (a) In any suit brought by the Covered Person to enforce a right to indemnification hereunder (but not in a suit brought by a Covered Person to enforce a right to an advancement of expenses) it shall be a defense that, and (b) in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the Covered Person has not met any applicable standard for indemnification set forth in the DGCL. Neither the failure of the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the Covered Person is proper in the circumstances because the Covered Person has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including a determination by its directors who are not parties to such action, a committee of such directors, independent legal counsel, or its stockholders) that the Covered Person has not met such applicable standard of conduct, shall create a presumption that the Covered Person has not met the applicable standard of conduct or, in the case of such a suit brought by the Covered Person, shall be a defense to such suit. In any suit brought by the Covered Person to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the Covered Person is not entitled to be indemnified, or to such advancement of expenses, under this Article VIII or otherwise shall be on the Corporation.

Section 8.4 Non-Exclusivity of Rights. The rights provided to Covered Persons pursuant to this Article VIII shall not be exclusive of any other right that any Covered Person may have or hereafter acquire under applicable law, the Certificate of Incorporation, these By-Laws, an agreement, a vote of stockholders or disinterested directors, or otherwise.

Section 8.5 Insurance. The Corporation may maintain insurance, at its expense, to protect itself and/or any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.

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Section 8.6 Indemnification of Other Persons. This Article VIII shall not limit the right of the Corporation to the extent and in the manner authorized or permitted by law to indemnify and to advance expenses to persons other than Covered Persons. Without limiting the foregoing, the Corporation may, to the extent authorized from time to time by the Board, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation and to any other person who is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, to the fullest extent of the provisions of this Article VIII with respect to the indemnification and advancement of expenses of Covered Persons under this Article VIII.

Section 8.7 Amendments. Any repeal or amendment of this Article VIII by the Board or the stockholders of the Corporation or by changes in applicable law, or the adoption of any other provision of these By-Laws inconsistent with this Article VIII, will, to the extent permitted by applicable law, be prospective only (except to the extent such amendment or change in applicable law permits the Corporation to provide broader indemnification rights to Covered Persons on a retroactive basis than permitted prior thereto), and will not in any way diminish or adversely affect any right or protection existing hereunder in respect of any act or omission occurring prior to such repeal or amendment or adoption of such inconsistent provision.

Section 8.8 Certain Definitions. For purposes of this Article VIII, (a) references to “other enterprise” shall include any employee benefit plan; (b) references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; (c) references to “serving at the request of the Corporation” shall include any service that imposes duties on, or involves services by, a person with respect to any employee benefit plan, its participants, or beneficiaries; and (d) a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interest of the Corporation” for purposes of Section 145 of the DGCL.

Section 8.9 Contract Rights. The rights provided to Covered Persons pursuant to this Article VIII shall be contract rights and such rights shall continue as to a Covered Person who has ceased to be a director, officer, agent or employee and shall inure to the benefit of the Covered Person’s heirs, executors and administrators.

Section 8.10 Severability. If any provision or provisions of this Article VIII shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Article VIII shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Article VIII (including, without limitation, each such portion of this Article VIII containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

ARTICLE IX

MISCELLANEOUS

Section 9.1 Place of Meetings. If the place of any meeting of stockholders, the Board or committee of the Board for which notice is required under these By-Laws is not designated in the notice of such meeting, such meeting shall be held at the U.S. principal business office of the Corporation; provided, however, if the Board has, in its sole discretion, determined that a meeting shall not be held at any place, but instead shall be held by means of remote communication pursuant to Section 9.5 hereof, then such meeting shall not be held at any place.

Section 9.2 Fixing Record Dates. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the business day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.

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(b) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.

Section 9.3 Means of Giving Notice.

(a) Notice to Directors. Whenever under applicable law, the Certificate of Incorporation or these By-Laws notice is required to be given to any director, such notice shall be given either (i) in writing and sent by hand delivery, through the United States mail, or by a nationally recognized overnight delivery service for next day delivery, (ii) by means of facsimile telecommunication or other form of electronic transmission, or (iii) by oral notice given personally or by telephone. A notice to a director will be deemed given as follows: (i) if given by hand delivery, orally, or by telephone, when actually received by the director; (ii) if sent through the United States mail, when deposited in the United States mail, with postage and fees thereon prepaid, addressed to the director at the director’s address appearing on the records of the Corporation; (iii) if sent for next day delivery by a nationally recognized overnight delivery service, when deposited with such service, with fees thereon prepaid, addressed to the director at the director’s address appearing on the records of the Corporation; (iv) if sent by facsimile telecommunication, when sent to the facsimile transmission number for such director appearing on the records of the Corporation; (v) if sent by electronic mail, when sent to the electronic mail address for such director appearing on the records of the Corporation; or (vi) if sent by any other form of electronic transmission, when sent to the address, location or number (as applicable) for such director appearing on the records of the Corporation.

(b) Notice to Stockholders. Whenever under applicable law, the Certificate of Incorporation or these By-Laws notice is required to be given to any stockholder, such notice may be given (i) in writing and sent either by hand delivery, through the United States mail, or by a nationally recognized overnight delivery service for next day delivery, or (ii) by means of a form of electronic transmission consented to by the stockholder, to the extent permitted by, and subject to the conditions set forth in Section 232 of the DGCL. A notice to a stockholder shall be deemed given as follows: (i) if given by hand delivery, when actually received by the stockholder; (ii) if sent through the United States mail, when deposited in the United States mail, with postage and fees thereon prepaid, addressed to the stockholder at the stockholder’s address appearing on the stock ledger of the Corporation; (iii) if sent for next day delivery by a nationally recognized overnight delivery service, when deposited with such service, with fees thereon prepaid, addressed to the stockholder at the stockholder’s address appearing on the stock ledger of the Corporation; and (iv) if given by a form of electronic transmission consented to by the stockholder to whom the notice is given and otherwise meeting the requirements set forth above, (A) if by facsimile transmission, when directed to a number at which the stockholder has consented to receive notice, (B) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice, (C) if by a posting on an electronic network together with separate notice to the stockholder of such specified posting, upon the later of (1) such posting and (2) the giving of such separate notice, and (D) if by any other form of electronic transmission, when directed to the stockholder. A stockholder may revoke such stockholder’s consent to receiving notice by means of electronic communication by giving written notice of such revocation to the Corporation. Any such consent shall be deemed revoked if (1) the Corporation is unable to deliver by electronic transmission two consecutive notices given by the Corporation in accordance with such consent and (2) such inability becomes known to the Secretary or an Assistant Secretary or to the Corporation’s transfer agent, or other person responsible for the giving of notice; provided, however, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.

(c) Electronic Transmission. “Electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process, including but not limited to transmission by telex, facsimile telecommunication, electronic mail, telegram and cablegram.

(d) Notice to Stockholders Sharing Same Address. Without limiting the manner by which notice otherwise may be given effectively by the Corporation to stockholders, any notice to stockholders given by the Corporation under any provision of the DGCL, the Certificate of Incorporation or these Bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. A stockholder may revoke such stockholder’s consent by delivering written notice of such revocation to the Corporation. Any stockholder who fails to object in writing to the Corporation within 60 days of having been given written notice by the Corporation of its intention to send such a single written notice shall be deemed to have consented to receiving such single written notice.

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(e) Exceptions to Notice Requirements. Whenever notice is required to be given, under the DGCL, the Certificate of Incorporation or these Bylaws, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting that shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. If the action taken by the Corporation is such as to require the filing of a certificate with the Secretary of State of Delaware, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.

Whenever notice is required to be given by the Corporation, under any provision of the DGCL, the Certificate of Incorporation or these Bylaws, to any stockholder to whom (1) notice of two consecutive annual meetings of stockholders and all notices of stockholder meetings or of the taking of action by written consent of stockholders without a meeting to such stockholder during the period between such two consecutive annual meetings, or (2) all, and at least two payments (if sent by first-class mail) of dividends or interest on securities during a 12-month period, have been mailed addressed to such stockholder at such stockholder’s address as shown on the records of the Corporation and have been returned undeliverable, the giving of such notice to such stockholder shall not be required. Any action or meeting that shall be taken or held without notice to such stockholder shall have the same force and effect as if such notice had been duly given. If any such stockholder shall deliver to the Corporation a written notice setting forth such stockholder’s then current address, the requirement that notice be given to such stockholder shall be reinstated. If the action taken by the Corporation is such as to require the filing of a certificate with the Secretary of State of Delaware, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to Section 230(b) of the DGCL. The exception in subsection (1) of the first sentence of this paragraph to the requirement that notice be given shall not be applicable to any notice returned as undeliverable if the notice was given by electronic transmission.

Section 9.4 Waiver of Notice. Whenever any notice is required to be given under applicable law, the Certificate of Incorporation, or these By-Laws, a written waiver of such notice, signed before or after the date of such meeting by the person or persons entitled to the notice, or a waiver by electronic transmission by the person entitled to the notice, shall be deemed equivalent to such required notice. All such waivers shall be kept with the books of the Corporation. Attendance at a meeting shall constitute a waiver of notice of such meeting, except where a person attends for the express purpose of objecting to the transaction of any business on the ground that the meeting was not lawfully called or convened.

Section 9.5 Meeting Attendance via Remote Communication Equipment.

(a) Stockholder Meetings. If authorized by the Board in its sole discretion, and subject to such guidelines and procedures as the Board may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communication:

(i) participate in a meeting of stockholders; and

(ii) be deemed present in person and vote at a meeting of stockholders, whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (A) the Corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (B) the Corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (C) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such votes or other action shall be maintained by the Corporation.

(b) Board Meetings. Unless otherwise restricted by applicable law, the Certificate of Incorporation, or these By-Laws, members of the Board or any committee thereof may participate in a meeting of the Board or any committee thereof by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other. Such participation in a meeting shall constitute presence in person at the meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting was not lawfully called or convened.

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Section 9.6 Dividends. The Board may from time to time declare, and the Corporation may pay, dividends (payable in cash, property or shares of the Corporation’s capital stock) on the Corporation’s outstanding shares of capital stock, subject to applicable law and the Certificate of Incorporation.

Section 9.7 Reserves. The Board may set apart out of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve.

Section 9.8 Fiscal Year. The fiscal year of the Corporation shall be fixed by the Board. Until changed by the Board, the fiscal year of the Corporation shall end on the Sunday closest to December 31 of each year.

Section 9.9 Seal. The seal of the Corporation shall be in such form as shall from time to time be adopted by the Board. The seal may be used by causing it or a facsimile thereof to be impressed, affixed or otherwise reproduced.

Section 9.10 Books and Records. The books and records of the Corporation may be kept within or outside the State of Delaware at such place or places as may from time to time be designated by the Board.

Section 9.11 Resignation. Any director, committee member or officer may resign by giving notice thereof in writing or by electronic transmission to the Chairman of the Board, the Chief Executive Officer, the President or the Secretary. The resignation shall take effect at the time specified therein, or at the time of receipt of such notice if no time is specified or the specified time is earlier than the time of such receipt. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 9.12 Surety Bonds. Such officers, employees and agents of the Corporation (if any) as the Chairman of the Board, the President or the Board may direct, from time to time, shall be bonded for the faithful performance of their duties and for the restoration to the Corporation, in case of their death, resignation, retirement, disqualification or removal from office, of all books, papers, vouchers, money and other property of whatever kind in their possession or under their control belonging to the Corporation, in such amounts and by such surety companies as the Chairman of the Board, the Chief Executive Officer, the President or the Board may determine. The premiums on such bonds shall be paid by the Corporation and the bonds so furnished shall be in the custody of the Secretary.

Section 9.13 Securities of Other Corporations. Powers of attorney, proxies, waivers of notice of meeting, consents in writing and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chairman of the Board, the Chief Executive Officer, President or any Vice President. Any such officer, may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities, or to consent in writing, in the name of the Corporation as such holder, to any action by such corporation, and at any such meeting or with respect to any such consent shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed. The Board may from time to time confer like powers upon any other person or persons.

Section 9.14 Amendments. In furtherance and not in limitation of the powers conferred upon it by law, the Board shall have the power to adopt, amend, alter or repeal the By-Laws. The affirmative vote of a majority of the Whole Board shall be required to adopt, amend, alter or repeal the By-Laws. The By-Laws also may be adopted, amended, altered or repealed by the holders of a majority of the voting power of all then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting as a single class; provided, however, that in addition to any vote of the holders of any class or series of capital stock of the Corporation required by law or by this Certificate of Incorporation (including any Preferred Stock Designation), from and after the Trigger Date, unless two-thirds of the Whole Board shall recommend approval, the affirmative vote of the holders of at least 75% of the voting power of all then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required for the stockholders to adopt, amend, alter or repeal the By-Laws.

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EX-10.(IV)

Exhibit 10(iv)

TIM HORTONS INC.

Board of Directors

Governance Guidelines

Adopted February 2006

(Revised July 2006)

The Board of Directors (the “Board”), as elected by the shareholders and, except for matters reserved to the shareholders by law or by the Corporation’s internal legislation, as the ultimate decision-making body of the Corporation, has adopted unanimously its Principles of Governance – Philosophy, Role and Mission. In order to give effect to those Principles, the Board also has adopted unanimously these Governance Guidelines (“Guidelines”) concerning its structure, membership, performance, operations, and management oversight. These Guidelines are general expressions of intent rather than a code of regulations; they are intended to be flexible and enabling rather than rigid and limiting. These Guidelines have been prepared with consideration and effect given to the Sarbanes-Oxley Act of 2002, the Securities and Exchange Commission’s regulations promulgated thereunder, the listing standards of the New York Stock Exchange and the Toronto Stock Exchange, the regulations of the Ontario Securities Commission and include certain other “best practices” provisions that reflect the dynamic and evolving process related to corporate governance matters.

The basic responsibility of each Director is to exercise his or her business judgment in a manner he or she reasonably believes to be in the best interests of the Corporation and its shareholders. Directors are entitled to rely on the honesty and integrity of the Corporation’s executives and its outside advisors and auditors to the fullest extent permitted by law.

BOARD STRUCTURE

Within the limitations set by shareholder vote and legislation, the number of directors should allow for the inclusion of qualified candidates and for the requirements of Board committee staffing. As a general objective, subject to exceptions recommended by the Directors, it is the Board’s goal that a substantial majority of its members be independent Directors, that is, those who meet the definition of “independent” director under the listing standards of the New York Stock Exchange, as affirmatively determined by the Board in its business judgment, and have no employee status or business conflict with the Corporation or who meet applicable definitions of law, regulation, rule, charter or other corporate legislation, the Principles or these Guidelines (collectively, “Requirement[s]”) for Board or particular committee service.

The Chief Executive Officer of the Corporation, if not also Chair of the Board, is expected to be a Director. The Board selects the Corporation’s Chief Executive Officer and the Chair of the Board in a manner that it determines to be in the best interests of the Corporation and its shareholders. The Board does not have a policy as to whether the role of the Chief Executive Officer and the Chair of the Board should be separate, and if they are separate, whether the Chair of the Board should be selected from the non-management Directors or be an employee of the Corporation. No senior manager other than Chief Executive Officer is expected or entitled to be a Director solely by virtue of his or her present or past position as senior manager.

Absent exceptional circumstances persuasive to the Board, persons to be elected to the Board should be 75 years or younger at the time of their election or re-election. A non-management Director whose position or responsibility at the time of election changes is expected to tender his or her resignation for consideration by the Nominating and Corporate Governance Committee; a management Director who leaves the Corporation is expected to resign from the Board.

The committees of the Board at present include the Audit Committee, comprised entirely of independent Directors, the Human Resource and Compensation Committee, the Nominating and Corporate Governance Committee, the Executive Committee, the Finance Committee and such other committees as the Board may create and maintain from time to time. Each committee is charged to meet the responsibilities set forth in the Requirements and otherwise as determined by the Board. The Board has approved written charters for the Audit, Human Resource and Compensation, and Nominating and Corporate Governance Committees, and certain key responsibilities of those committees are summarized below:

• Audit Committee. At least one member of the Audit Committee must meet the definition of an “audit committee financial expert” as that term is defined in the rules and regulations of the Securities and Exchange Commission. The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the work of the Corporation’s independent auditor. The Audit Committee provides assistance to the Board in fulfilling its oversight responsibility relating to (a) the integrity of the Corporation’s financial statements, (b) the Corporation’s compliance with legal and regulatory requirements, (c) the independent auditor’s qualifications and independence, (d) the performance of the Corporation’s internal audit function.

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• Human Resource and Compensation Committee. The Human Resource and Compensation Committee has responsibility to review and approve corporate goals and objectives relevant to Chief Executive Officer compensation, evaluate the Chief Executive Officer’s performance in light of those goals and objectives and, either as a committee or together with the other independent Directors (as directed by the Board), determine and approve the Chief Executive Officer’s compensation package. The Human Resource and Compensation Committee also makes recommendations to the Board with respect to the compensation of non-CEO executive officers and with respect to incentive-compensation plans and equity-based plans.

• Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee is responsible for identifying individuals qualified to become Board members, consistent with the criteria in these Guidelines, as they may be amended, and to recommend to the Board individuals to be nominated, including a review of any shareholder nominations, as Directors at the Annual Shareholders’ Meeting. The Nominating and Corporate Governance Committee also reviews and reports to the Board on matters of corporate governance and reviews these Guidelines and recommends revisions as appropriate.

Committee membership assignments are determined by the Board, on recommendation of the Nominating and Corporate Governance Committee, taking account of Corporation needs, individual attributes, service rotation, and other relevant factors. The composition of Director membership on the Human Resource and Compensation Committee and Nominating and Corporate Governance Committee shall be determined in accordance with the Requirements, which allow “controlled companies” to transition to fully-independent Director membership on these Committees within one year after the “controlled company” ceases to be controlled. Notwithstanding the latitude afforded by these transition rules, the Human Resource and Compensation Committee and Nominating and Corporate Governance Committee shall be, at all times, comprised of a majority of independent Directors, and, pursuant to the Requirements, within one year after the Corporation ceases to be controlled, each Director serving on the Human Resource and Compensation Committee and Nominating and Corporate Governance Committee shall be an independent Director.

DIRECTOR SELECTION, ORIENTATION AND EVALUATION

Director selection and nomination for reelection are a responsibility of the Board, acting on recommendation of the Nominating and Corporate Governance Committee, and giving attention to the following qualifications:

• High personal and professional ethics, integrity, practical wisdom and mature judgment;

• Board training and experience in business, government, education or technology;

• Expertise that is useful to the Corporation and complementary to the background and experience of other Board members;

• Willingness to devote the required amount of time to carrying out the duties and responsibilities of Board membership;

• Commitment to serve on the Board over a period of several years to develop knowledge about the Corporation and its operations;

• Willingness to represent the best interests of all shareholders and objectively appraise management’s performance; and

• Board diversity, and other relevant factors as the Board may determine.

Selection of candidates is on the bases of, first, Corporation needs, and, second, identification of persons responsive to those needs. Directors may consider, giving such weight as they deem appropriate, ancillary attributes such as energy, terms served, change in employment status, and other directorships.

Upon the recommendation and under the supervision of the Nominating and Corporate Governance Committee, the Board establishes and maintains programs for initial and periodic orientation of each director in the obligations of directors generally and the business of the Corporation specifically, including operations, finance, franchise development and relations, real estate development and management, compliance and auditing, corporate business ethics, and corporate organization.

The Directors expect that each of them will attend meetings of the Board and assigned committees and participate actively in the work of the Board. Except in compelling circumstances, any Director who during two consecutive full calendar years attended fewer than 75% of the total of (a) all Board meetings held during the period for which he or she has been a Director (including regularly scheduled, special and telephonic meetings) and (b) all meetings held by all committees on which he or she served (during the periods that he or she served) shall be asked to tender his or her resignation from the Board forthwith, and such Director will not be nominated for re-election at the expiration of his or her then current term. The Directors are invited and expected to attend the Annual Shareholders’ Meeting.

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The Directors expect that each of them will own stock in the Corporation, with each director’s holdings valued at least two and one-half times his or her annual compensation received from the Corporation and in any event appropriate to his or her circumstances.

As an alternative to term limits, not less than six months prior to the date on which the Corporation’s nominations to the shareholders for the election and reelection of Directors are due, the Nominating and Corporate Governance Committee will review the performance of each person potentially standing for election or reelection and make appropriate recommendations to the Board concerning that person’s candidacy.

Not less than annually, the Nominating and Corporate Governance Committee will prepare a report to the Board concerning director orientation and evaluation.

BOARD OPERATIONS

Non-management Director compensation, both form(s) and amount(s), are determined by the Board, taking into account general and specific demands of Board and committee service, Corporation performance, comparisons with other firms of similar size and complexity, competitive factors, and other factors which it deems relevant. A management director receives no additional compensation for his or her service as a Director. The Human Resource and Compensation Committee and the Nominating and Corporate Governance Committee will report to the Board not less than annually on Board compensation matters.

The non-management Directors schedule regular executive sessions attendant to each Board meeting. The independent Directors evaluate Chief Executive Officer performance and, with the recommendation of the Human Resource and Compensation Committee, the performance goals and other criteria on which the Chief Executive Officer and other senior management are compensated at least once each year.

If the Chief Executive Officer serves as Chair of the Board, the Chair of the Nominating and Corporate Governance Committee shall serve as lead Director, and in that capacity preside at executive sessions of the independent Directors (except where the principal matters to be considered are within the scope of authority of one of the other chairs); coordinate with the Chief Executive Officer in planning director orientation scheduling and agenda matters generally; and be available to serve as a communication channel between the Board and the Chief Executive Officer. Where the Chair of the Board is an independent Director, he or she shall also serve as chair of the Nominating and Corporate Governance Committee. In recognizing the roles of Chair of the Board and lead Director, the Board emphasizes that it is not intending to limit individual Board member responsibility or access and communication to management or to limit management access to individual Board member advice and counsel.

Each committee meets, as determined by its chair with the concurrence of the Board, in sufficient times and durations to satisfy the Requirements and its responsibilities. Each of the committees comprised entirely of independent Directors schedules regular executive sessions attendant to each Board meeting. Where the Chair of the Board is an independent Director and is not serving as an appointed member of any committee of the Board, he or she shall be an ex officio member of each such committee and be afforded the opportunity to participate in meetings of such committees, although he or she shall not be entitled to committee attendance fees or to vote with respect to any matter decided by a committee to which he or she is not an appointed member.

The Board, acting on its own initiative or on the recommendation of one or more of its committees or the officers of the Corporation, may engage experts or consultants where it deems the engagement to be necessary or appropriate to the fulfillment of its responsibilities.

Except as otherwise specified in the Requirements, it is the policy of the Corporation that all major decisions be considered by the Board acting as a whole and references herein to the Board generally are to its actions in that capacity. Except where a Requirement dictates to the contrary or as delegated to a committee in a written charter approved by the Board, all decisions of any committee are subject to control and direction of the Board.

Subject to the Requirements and the approval of the Board and each committee chair in matters within the purview of his or her committee, the Chair and Chief Executive Officer set the agendas for meetings of the Board. The committee chairs, with the assistance of management, set the agendas for meetings of their committees. With the recommendation of the Chief Executive Officer, presentations on matters considered by the Board are made by managers responsible for the operations or matters under consideration.

The Board, after consulting with counsel, determines whether conflicts of interest exist on a case-by-case basis, with the objective, among others, that the Directors voting on an issue are not conflicted with respect to that issue. The Directors

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expect that each of them will disclose actual or potential conflicts to further these objectives. In addition, not less than annually each Director affirms the existence or absence of actual or potential conflicts and that affirmation is reported to the Nominating and Corporate Governance Committee.

MANAGEMENT OVERSIGHT

The Board considers its functions to include taking an active role in strategic and business planning, reviewing management’s performance against plans, and aligning compensation schemes to match Corporate performance, as well as advising and counseling senior management. In fulfilling these functions, Directors expect to communicate primarily with senior management but have direct access to all officers and employees of the Corporation.

Not less than annually, the Chief Executive Officer reports to the Board (excluding, to the extent appropriate, any affected officer of the Corporation who is a director) on strategic plans and planning processes, long term and emergency senior management succession plans, performance of senior management, relations with mission critical trading partners, business ethics, compliance with laws, and other matters as the Board may direct. The Corporation’s succession planning also includes policies regarding Chief Executive Officer selection and performance evaluations, as well as policies regarding Chief Executive Officer succession planning in the event of an emergency or retirement of the Chief Executive Officer.

The Chief Executive Officer reports to the Board not less than quarterly on operations, earnings and profits, material and significant events, progress toward meeting periodic performance or other goals, material transactions not in ordinary course of business, and other matters as the Board may direct.

In advance of scheduled meetings of the Board and its committees, senior management selects and organizes material related to agenda items to allow the Directors to be prepared for discussion of those items.

The Directors and senior management communicate between scheduled meetings upon the occurrence of events considered by either to be significant or noteworthy.

It is the general policy of the Corporation that management speaks for the Corporation. Communications with shareholders, potential investors, customers, communities, trading partners, creditors, governments, and the public concerning Corporate events and affairs are the responsibility of the Chief Executive Officer and his or her designees, giving due regard to the general oversight of the Board, the requirements of law, and the interests of the Corporation. The policy is not preclusive of director communications with shareholders, but it is suggested that management be consulted and participate in any such communications.

GENERAL

The Board approves the Corporation’s Standards of Business Practices applicable to employees and officers of the Corporation. The Audit Committee monitors that its provisions are being met. The Board also approves the Code of Business Conduct applicable to Directors of the Corporation. A waiver, if any, of any provision of the Standards of Business Practices for an executive officer, or of any provision of the Code of Business Conduct for a Director, will be approved and disclosed in compliance with the listing standards of the New York Stock Exchange or other Requirements.

Each of the Directors is committed to the principle that the effectiveness of the Board is dependent upon open, full, and free discussion of issues in an atmosphere of mutual respect and collegiality.

These Guidelines are intended to be consistent with and are subject to applicable requirements of law and regulation, exchange rules, and formal actions of the shareholders and Directors of the Corporation.

It is the responsibility of the Chief Executive Officer to educate management of the Corporation on the role of the Board, the Principles of Governance and these Guidelines.

These Guidelines are reviewed, and as appropriate revised, by the Board from time to time.

These Guidelines are, and any amendments thereto will be, displayed on the Corporation’s website and a printed copy will be made available to any shareholder of the Corporation who requests such.

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EX-31.(A)

Exhibit 31(a)

CERTIFICATIONS

I, Paul D. House, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tim Hortons Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2006

/s/ Paul D. House
Name:	Paul D. House
Title:	Chief Executive Officer

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EX-31.(B)

Exhibit 31(b)

CERTIFICATIONS

I, Cynthia J. Devine, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tim Hortons Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date November 14, 2006

/s/ Cynthia J. Devine
Name:	Cynthia J. Devine
Title:	Chief Financial Officer

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EX-32.(A)

Exhibit 32(a)

Certification of CEO Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

This certification is provided pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and accompanies the quarterly report on Form 10-Q (the “Form 10-Q”) for the quarter ended October 1, 2006 of Tim Hortons Inc. (the “Issuer”).

I, Paul D. House, the Chief Executive Officer of Issuer certify that, to the best of my knowledge:

(i) the Form 10-Q fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and

(ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

Dated: November 14, 2006

/s/ Paul D. House
Name:	Paul D. House

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EX-32.(B)

Exhibit 32(b)

Certification of CFO Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

This certification is provided pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and accompanies the quarterly report on Form 10-Q (the “Form 10-Q”) for the quarter ended October 1, 2006 of Tim Hortons Inc. (the “Issuer”).

I, Cynthia J. Devine, the Chief Financial Officer of Issuer certify that, to the best of my knowledge:

(i) the Form 10-Q fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and

(ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

Dated: November 14, 2006

/s/ Cynthia J. Devine
Name:	Cynthia J. Devine

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EX-99

Exhibit 99

TIM HORTONS INC. AND SUBSIDIARIES

Safe Harbor Under the Private Securities Litigation Reform Act of 1995

The Private Securities Litigation Reform Act of 1995 (the “Act”) provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information, so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statement. Tim Hortons Inc. (the “Company”) desires to take advantage of the “safe harbor” provisions of the Act.

Certain information in this Form 10-Q, particularly information regarding future economic performance and finances, and plans, expectations, and objectives of management, is forward-looking. The following factors, in addition to other factors set forth in the Company’s final Prospectus filed with the Securities and Exchange Commission (“SEC”) on March 24, 2006 and in other press releases, communications, or filings made with the SEC or the Ontario Securities Commission, and other possible factors not previously identified, could affect the Company’s actual results and cause such results to differ materially from those expressed in forward-looking statements:

Competition. The quick-service restaurant industry is intensely competitive with respect to price, service, location, personnel, qualified franchisees, and type and quality of food. The Company and its franchisees compete with international, regional and local organizations, primarily through the quality, variety, and value perception of food products offered. The number and location of units, quality and speed of service, attractiveness of facilities, effectiveness of advertising/marketing and operational programs, and new product development by the Company and its competitors are also important factors. Certain of the Company’s competitors have substantially larger marketing budgets.

Economic, Market and Other Conditions. The quick-service restaurant industry is affected by changes in international, national, regional, and local economic and political conditions, consumer preferences and perceptions (including food safety, health, or dietary preferences and perceptions), spending patterns, consumer confidence, demographic trends, seasonality, weather events and other calamities, traffic patterns, the type, number and location of competing restaurants, enhanced governmental regulation (including nutritional and franchise regulations), changes in capital market conditions that affect valuations of restaurant companies in general or the Company’s goodwill in particular, litigation relating to food quality, handling, or nutritional content, and the effects of war or terrorist activities and any governmental responses thereto. Factors such as inflation, food costs, the cost and/or availability of a qualified workforce and other labour issues, benefit costs, legal claims, disruptions to supply chain or changes in the price, availability, and shipping costs of supplies, and utility and other operating costs also affect restaurant operations and expenses. The ability of the Company and its franchisees to finance new restaurant development, improvements, and additions to existing restaurants, and the acquisition of restaurants from, and sale of restaurants to franchisees, are affected by economic conditions, including interest rates and other government policies impacting land and construction costs and the cost and availability of borrowed funds.

Factors Affecting Growth. There can be no assurance that the Company or its franchisees will be able to achieve new restaurant growth objectives in Canada or the U.S. The opening and ongoing financial success of the Company’s and its franchisees’ restaurants depends on various factors, including many of the factors set forth in this cautionary statement, as well as sales levels at existing restaurants, factors affecting construction costs generally, and the generation of sufficient cash flow by the Company to pay ongoing construction costs. In addition, the U.S. markets in which the Company seeks to expand may have competitive conditions (including higher construction, occupancy, or operating costs), consumer tastes, or discretionary spending patterns that differ from the Company’s existing markets, and there may be a lack of brand awareness in such markets. There can be no assurance that the Company will be able to successfully adapt its brand, development efforts, and restaurants to these differing market conditions.

Manufacturing and Distribution Operations. The occurrence of any of the following factors is likely to result in increased operating costs and depressed profitability of the Company’s distribution operations and may also damage the Company’s relationship with franchisees: higher transportation costs, shortages or changes in the cost or availability of qualified workforce and other labour issues, equipment failures, disruptions in supply chain, price fluctuations, climate conditions, industry demand, changes in international commodity markets (especially for coffee, which is highly volatile in terms of price and supply), and the adoption of additional environmental or health and safety laws and regulations. The Company’s manufacturing and distribution operations in the U.S. are also subject to competition from other qualified distributors, which could reduce the price the Company receives for supplies sold to U.S. franchisees.

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Joint Venture to Manufacture and Distribute Par-Baked Products for Tim Hortons Restaurants. The profitability of the Maidstone Bakeries joint venture, which manufactures and distributes par-baked products for the Company’s and its franchisees’ restaurants, could be affected by a number of factors, including many of the factors set forth in this cautionary statement. Additionally, there can be no assurance that both the Company and its joint venture partner will continue with the joint venture. If the joint venture terminates, it may be necessary, under certain circumstances, for the Company to build its own par-baking facility or find alternate products or production methods.

Importance of Locations. The success of Company and franchised restaurants is dependent in substantial part on location. There can be no assurance that current locations will continue to be attractive, as demographic patterns change. It is possible the neighborhood or economic conditions where restaurants are located could decline in the future, thus resulting in potentially reduced sales in those locations.

Government Regulation. The Company and its franchisees are subject to various federal, state, provincial, and local (“governmental”) laws affecting its and its franchisees’ businesses. The development and operation of restaurants depend to a significant extent on the selection, acquisition, and development of suitable sites, which are subject to zoning, land use (includes drive thrus), environmental, traffic, franchise, design and operational requirements, and other regulations. Additional governmental laws and regulation affecting the Company and its franchisees include: licensing; health, food preparation, sanitation and safety; labour (including applicable minimum wage requirements, overtime, working and safety conditions, and citizenship requirements); tax; employee benefits; accounting; and anti-discrimination. Changes in these laws and regulations, or the implementation of additional regulatory requirements, particularly increases in applicable minimum wages, taxes, or franchise requirements, may adversely affect financial results.

Foreign Exchange Fluctuations. The majority of the Company’s business is conducted in Canada. If the U.S. dollar falls in value relative to the Canadian dollar, then U.S. operations would be less profitable because of the increase in U.S. operating costs resulting from the purchase of supplies from Canadian sources, and U.S. operations will contribute less to the Company’s consolidated results. Exchange rate fluctuations may also cause the price of goods to increase or decrease for the Company and its franchisees. In addition, fluctuations in the values of Canadian and U.S. dollars can affect the value of our common stock and any dividends we pay.

The Company’s Relationship with Wendy’s. As long as Wendy’s has voting control of the Company, Wendy’s will have the ability to control all matters affecting the Company, including the composition of its board of directors and the resolution of conflicts of interest that may arise between Wendy’s and the Company in a number of areas. The separation agreements with Wendy’s may severely limit the Company’s ability to affect future financings, acquisitions, dispositions, the issuance of additional securities and certain debt instruments, and to take certain other actions.

Mergers, Acquisitions and Other Strategic Transactions. The Company intends to evaluate potential mergers, acquisitions, joint venture investments, alliances, vertical integration opportunities and divestitures. These transactions involve various inherent risks, including accurately assessing the value, future growth potential, strengths, weaknesses, contingent and other liabilities and potential profitability of acquisition candidates; the potential loss of key personnel of an acquired business; the Company’s ability to achieve projected economic and operating synergies; difficulties successfully integrating, operating, maintaining and managing newly-acquired operations or employees; difficulties maintaining uniform standards, controls, procedures and policies; the possibility the Company could incur impairment charges if an acquired business performs below expectations; unanticipated changes in business and economic conditions affecting an acquired business; and diversion of management’s attention from the demands of the existing business. In addition, there can be no assurance that the Company will be able to complete desirable transactions, for reasons including a failure to secure financing, as a result of the Company’s arrangements with Wendy’s, or restrictive covenants in debt instruments or other agreements with third parties, including the Maidstone Bakeries joint venture arrangements.

Debt Obligations. The Company’s significant debt obligations could have adverse consequences, including increasing the Company’s vulnerability to adverse economic, regulatory, and industry conditions, limiting the Company’s ability to compete and its flexibility in planning for, or reacting to, changes in its business and the industry; limiting the Company’s ability to borrow additional funds, and requiring the Company to dedicate significant cash flow from operations to payments on debt (and there can be no assurance that the Company’s cash flow will be sufficient to service its debt), thereby reducing funds available for working capital, capital expenditures, acquisitions, and other purposes. In addition, the Company’s credit facilities include restrictive covenants that limit its flexibility to respond to future events and take advantage of contemplated strategic initiatives.

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Other Factors Affecting the Company. The following factors could also cause actual results to differ from expectations: an inability to retain executive officers and other key personnel or attract additional qualified management personnel to meet business needs; an inability to adequately protect the Company’s intellectual property and trade secrets from infringement actions or unauthorized use by others; operational or financial shortcomings of franchised restaurants and franchisees; liabilities and losses associated with owning and leasing significant amounts of real estate; new and significant legal, accounting, and other expenses to comply with public-company corporate governance and financial reporting requirements; failure to implement or ineffective maintenance of securities compliance, internal control processes, or corporate governance; implementation of new or changes in interpretation of U.S. GAAP policies or practices; and, potential unfavorable variance between estimated and actual liabilities and volatility of actuarially-determined losses and loss estimates.

Readers are cautioned not to place undue reliance on forward-looking statements contained in this news release, which speak only as of the date thereof. 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 them incorrect or misleading.

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