10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 29, 2008

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, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x	Accelerated filer  ¨
Non-accelerated filer  ¨	Smaller reporting company  ¨
(Do not check if a smaller reporting company)

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 August 5, 2008
Common shares, US$0.001 par value per share	183,125,133 shares

Exhibit Index on page 41.

TIM HORTONS INC. AND SUBSIDIARIES

INDEX

	Pages
PART I: Financial Information
Item 1. Financial Statements (Unaudited):	3
Condensed Consolidated Statement of Operations for the quarters and year-to-date periods ended June 29, 2008 and July 1, 2007	3
Condensed Consolidated Balance Sheet as of June 29, 2008 and December 30, 2007	5
Condensed Consolidated Statement of Cash Flows for the year-to-date periods ended June 29, 2008 and July 1, 2007	6
Consolidated Statement of Stockholders’ Equity for the year-to-date period ended June 29, 2008 and year ended December 30, 2007	7
Notes to the Condensed Consolidated Financial Statements	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3. Quantitative and Qualitative Disclosures About Market Risk	36
Item 4. Controls and Procedures	36
PART II: Other Information	36
Item 1. Legal Proceedings	36
Item 1A. Risk Factors	37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 4. Submission of Matters to a Vote of Security Holders	39
Item 6. Exhibits	39
Signature	40
Index to Exhibits	41

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TIM HORTONS INC. AND SUBSIDIARIES

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

(in thousands of Canadian dollars, except share and per share data)

	Second quarter ended
	June 29, 2008			July 1, 2007
Revenues
Sales	$	335,873		$	307,994
Franchise revenues
Rents and royalties		153,546			140,114
Franchise fees		21,273			17,149
		174,819			157,263
Total revenues		510,692			465,257
Costs and expenses
Cost of sales		293,101			269,847
Operating expenses		54,622			50,088
Franchise fee costs		19,908			17,074
General and administrative expense		36,124			30,810
Equity (income)		(10,001	)		(9,235	)
Other (income) expense, net		(187	)		333
Total costs and expenses, net		393,567			358,917
Operating income		117,125			106,340
Interest (expense)		(5,969	)		(6,143	)
Interest income		1,073			1,324
Income before income taxes		112,229			101,521
Income taxes (note 2)		37,255			34,282
Net income	$	74,974		$	67,239
Basic and diluted earnings per share of common stock (note 3)	$	0.41		$	0.36
Weighted average number of shares of common stock outstanding — Basic (in thousands) (note 3)		183,983			189,017
Weighted average number of shares of common stock outstanding — Diluted (in thousands) (note 3)		184,258			189,253
Dividend per share of common stock	$	0.09		$	0.07

See accompanying Notes to the Condensed Consolidated Financial Statements.

3

TIM HORTONS INC. AND SUBSIDIARIES

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

(Canadian dollars in thousands, except share and per share data)

	Year-to-date period ended
	June 29, 2008			July 1, 2007
Revenues
Sales	$	642,379		$	586,344
Franchise revenues
Rents and royalties		289,426			267,354
Franchise fees		39,204			36,167
		328,630			303,521
Total revenues		971,009			889,865
Costs and expenses
Cost of sales		565,384			517,251
Operating expenses		104,631			97,264
Franchise fee costs		38,188			33,477
General and administrative expense		67,010			59,560
Equity (income)		(17,363	)		(19,012	)
Other (income) expense, net		(470	)		780
Total costs and expenses, net		757,380			689,320
Operating income		213,629			200,545
Interest (expense)		(12,320	)		(11,764	)
Interest income		3,063			3,320
Income before income taxes		204,372			192,101
Income taxes (note 2)		67,578			65,601
Net income	$	136,794		$	126,500
Basic and diluted earnings per share of common stock (note 3)	$	0.74		$	0.67
Weighted average number of shares of common stock outstanding — Basic (in thousands) (note 3)		184,749			189,732
Weighted average number of shares of common stock outstanding — Diluted (in thousands) (note 3)		185,003			189,981
Dividend per share of common stock	$	0.18		$	0.14

See accompanying Notes to the Condensed Consolidated Financial Statements.

4

TIM HORTONS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

(in thousands of Canadian dollars)

	As at
	June 29, 2008			December 30, 2007
ASSETS
Current assets
Cash and cash equivalents	$	72,164		$	157,602
Restricted cash		18,739			37,790
Accounts receivable, net		122,743			104,889
Notes receivable, net		15,494			10,824
Deferred income taxes		11,626			11,176
Inventories and other, net (note 4)		58,570			60,281
Advertising fund restricted assets (note 5)		20,533			20,256
Total current assets		319,869			402,818
Property and equipment, net		1,226,783			1,203,259
Notes receivable, net		13,002			17,415
Deferred income taxes		23,329			23,501
Intangible assets, net		2,876			3,145
Equity investments		133,816			137,177
Other assets		12,610			9,816
Total assets	$	1,732,285		$	1,797,131
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable (note 6)	$	108,826		$	133,412
Accrued liabilities
Salaries and wages		12,252			17,975
Taxes		18,176			34,522
Other (note 6)		62,680			95,777
Advertising fund restricted liabilities (note 5)		39,930			39,475
Current portion of long-term obligations		6,420			6,137
Total current liabilities		248,284			327,298
Long-term liabilities
Term debt		329,291			327,956
Advertising fund restricted debt (note 5)		10,088			14,351
Capital leases		54,108			52,524
Deferred income taxes		15,306			16,295
Other long-term liabilities		61,119			56,624
Total long-term liabilities		469,912			467,750
Commitments and contingencies (note 7)
Stockholders’ equity
Common stock (U.S. $0.001 par value per share): Authorized: 1,000,000,000 shares; Issued: 193,302,977 shares		289			289
Capital in excess of par value		929,259			931,084
Treasury stock, at cost: 9,680,324 and 6,750,052 shares, respectively (note 8)		(334,929	)		(235,155	)
Common stock held in trust, at cost: 443,628 and 421,344 shares, respectively (note 9)		(15,218	)		(14,628	)
Retained earnings		562,475			458,958
Accumulated other comprehensive loss		(127,787	)		(138,465	)
Total stockholders’ equity		1,014,089			1,002,083
Total liabilities and stockholders’ equity	$	1,732,285		$	1,797,131

See accompanying Notes to the Condensed Consolidated Financial Statements.

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TIM HORTONS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

(in thousands of Canadian dollars)

	Year-to-date period ended
	June 29, 2008			July 1, 2007
Net cash provided from operating activities	$	121,286		$	118,785
Cash flows (used in) provided from investing activities
Capital expenditures		(66,074	)		(70,359	)
Principal payments on notes receivable		1,075			4,114
Other investing activities		(4,274	)		(1,211	)
Net cash used in investing activities		(69,273	)		(67,456	)
Cash flows (used in) provided from financing activities
Purchase of treasury stock		(100,294	)		(90,025	)
Purchase of common stock held in trust		(3,842	)		(7,233	)
Dividend payments		(33,277	)		(26,587	)
Purchase of common stock for settlement of restricted stock units		(226	)		(110	)
Proceeds from issuance of debt, net of issuance costs		1,514			2,448
Principal payments on other long-term debt obligations		(2,611	)		(2,541	)
Net cash used in financing activities		(138,736	)		(124,048	)
Effect of exchange rate changes on cash		1,285			(4,754	)
Decrease in cash and cash equivalents		(85,438	)		(77,473	)
Cash and cash equivalents at beginning of period		157,602			176,083
Cash and cash equivalents at end of period	$	72,164		$	98,610
Supplemental disclosures of cash flow information:
Interest paid	$	11,617		$	15,485
Income taxes paid	$	81,557		$	73,835
Non-cash investing and financing activities:
Capital lease obligations incurred	$	6,821		$	5,992

See accompanying Notes to the Condensed Consolidated Financial Statements.

6

TIM HORTONS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

(in thousands of Canadian dollars)

	Year-to-date period ended June 29, 2008			Year ended December 30, 2007
Common stock
Balance at beginning and end of period	$	289		$	289
Common stock in excess of par value
Balance at beginning of period	$	931,084		$	918,043
Stock-based compensation		(1,825	)		3,925
Tax sharing payment from Wendy’s		—			9,116
Balance at end of period	$	929,259		$	931,084
Treasury stock
Balance at beginning of period	$	(235,155	)	$	(64,971	)
Purchased during the period (note 8)		(100,294	)		(170,604	)
Reissued during the period (note 9)		520			420
Balance at end of period	$	(334,929	)	$	(235,155	)
Common stock held in trust
Balance at beginning of period	$	(14,628	)	$	(9,171	)
Purchased during the period (note 9)		(3,842	)		(7,202	)
Disbursed from Trust during the period (note 9)		3,252			1,745
Balance at end of period	$	(15,218	)	$	(14,628	)
Retained earnings
Balance at beginning of period	$	458,958		$	248,980
Opening adjustment – adoption of FIN 48		—			(6,708	)
Adjusted opening retained earnings		458,958			242,272
Net income		136,794			269,551
Dividends		(33,277	)		(52,865	)
Balance at end of period	$	562,475		$	458,958
Accumulated other comprehensive income (loss)
Balance at beginning of period		(138,465	)		(74,766	)
Other comprehensive income (loss) (note 10)		10,678			(63,699	)
Balance at end of period		(127,787	)		(138,465	)
	$	1,014,089		$	1,002,083

See accompanying Notes to the Condensed Consolidated Financial Statements.

7

TIM HORTONS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY –

NUMBER OF SHARES OF COMMON STOCK

(Unaudited)

(in thousands of shares of common stock)

	Year-to-date period ended June 29, 2008		Year ended December 30, 2007
Common stock
Balance at beginning and end of period	193,303		193,303
Treasury stock
Balance at beginning of period	(6,750	)	(1,930	)
Purchased during the period (note 8)	(2,945	)	(4,832	)
Reissued during the period (note 9)	15		12
Balance at end of period	(9,680	)	(6,750	)
Common stock held in trust
Balance at beginning of period	(421	)	(266	)
Purchased during the period (note 9)	(116	)	(207	)
Disbursed from Trust during the period (note 9)	93		52
Balance at end of period	(444	)	(421	)
Common stock issued and outstanding	183,179		186,132

See accompanying Notes to the Condensed Consolidated Financial Statements.

8

TIM HORTONS INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(in thousands of Canadian dollars, except share and per share data)

NOTE 1 MANAGEMENT STATEMENT AND BASIS OF PRESENTATION

Tim Hortons Inc. (together with its subsidiaries, collectively referred to herein as the “Company”) is a Delaware corporation and, prior to March 29, 2006, was a wholly-owned subsidiary of Wendy’s International, Inc. (together with its subsidiaries, collectively referred to herein as “Wendy’s”).

The Company’s principal business is the development and franchising of quick-service restaurants that serve coffee and other hot and cold beverages, baked goods, sandwiches and soups and other food products. In addition, the Company has vertically-integrated manufacturing, warehouse and distribution operations which supply a significant portion of the system restaurants with paper and equipment, as well as food products, including shelf-stable, and in some locations, refrigerated and frozen food products. The Company also controls the real estate underlying a substantial majority of the system restaurants, which generates another source of revenue. As of June 29, 2008, the Company and its franchisees operated 2,851 restaurants in Canada (99.3% franchised) and 406 restaurants in the United States (“U.S.”) (91.9% franchised) under the name “Tim Hortons.” There are 213 primarily self-serve licensed locations in the Republic of Ireland and the United Kingdom as of June 29, 2008 (December 30, 2007 – 143).

The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). 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 Company’s financial position as of June 29, 2008 and December 30, 2007, and the condensed results of operations, comprehensive income (see Note 10) and cash flows for the quarters and year-to-date periods ended June 29, 2008 and July 1, 2007. All of these financial statements are unaudited. These Condensed Consolidated Financial Statements should be read in conjunction with the 2007 Consolidated Financial Statements which are contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 26, 2008. The December 30, 2007 Condensed Consolidated Balance Sheet included herein was derived from the same audited 2007 Consolidated Financial Statements, but does not include all disclosures required by U.S. GAAP for annual reporting.

The functional currency of Tim Hortons Inc. is the Canadian dollar, as the majority of the Company’s cash flows are in Canadian dollars. The functional currency of each of the Company’s subsidiaries and legal entities is the local currency in which each subsidiary operates, which is the Canadian dollar, the U.S. dollar or the Euro. The majority of the Company’s operations, restaurants and cash flows are based in Canada, and the Company is primarily managed in Canadian dollars. As a result, the Company has selected the Canadian dollar as its reporting currency.

Restricted cash

Amounts presented as restricted cash on the Company’s Condensed Consolidated Balance Sheet relate to the Company’s TimCard^® cash card program. The cash card program was established in late 2007. The balances as of June 29, 2008 and December 30, 2007 represent the amount of cash loaded on the cards by customers, less redemptions. The balances are restricted, and cannot be used for any purpose other than to settle obligations under the cash card program. Since the inception of the cash card program, the interest on the restricted cash has been contributed by the Company to its advertising funds to help offset costs associated with this program. Obligations under the cash card program are included in Accrued Liabilities, Other and are disclosed in Note 6.

Restricted cash increases or decreases are reflected in cash from operations on the Condensed Consolidated Statement of Cash Flows since the funds will be used to fulfill current obligations to customers recorded in Accrued Liabilities, Other on the Condensed Consolidated Balance Sheet. Changes in the customer obligations are included in cash from operations as the offset to changes in restricted cash.

Accounting for fair value measurements

Effective December 31, 2007, the Company adopted SFAS No. 157 – Fair Value Measurements (“SFAS 157”). In February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. FAS 157-2 – Effective Date of FASB Statement No. 157, which provides a one year deferral of the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company has adopted the provisions of SFAS 157 with respect to its financial assets and liabilities only (see note 13).

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TIM HORTONS INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited) – (Continued)

(in thousands of Canadian dollars, except share and per share data)

Effective December 31, 2007, the Company also adopted SFAS No. 159 – The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for specified financial assets and liabilities on a contract-by-contract basis with changes in value reported in earnings. The Company did not elect to report any assets or liabilities at fair value under this standard.

NOTE 2 INCOME TAXES

The effective rate was 33.2% and 33.8 % for the second quarters ended June 29, 2008 and July 1, 2007, respectively. The variance between periods is primarily explained by the reduction in Canadian federal statutory rates in 2008, partially offset by a shift in the geographical mix of the Company’s income.

The effective rate was 33.1% and 34.2% for the year-to-date periods ended June 29, 2008 and July 1, 2007, respectively. The variance between periods is primarily explained by the reduction in Canadian federal statutory tax rates in 2008, partially offset by a shift in the geographical mix of the Company’s income.

NOTE 3 NET INCOME PER SHARE OF COMMON STOCK

Basic earnings per share of common stock are computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding. Diluted computations are based on the treasury stock method and include assumed issuances of shares relating to outstanding restricted stock units and stock options with tandem stock appreciation rights (“SARs”), as prescribed in SFAS No. 128 – Earnings Per Share, as the sum of: (i) the amount, if any, the employee must pay upon exercise; (ii) the amount of compensation cost attributed to future services and not yet recognized; and (iii) the amount of tax benefits (both current and deferred), if any, that would be credited to additional paid-in capital assuming exercise of the options, net of shares assumed to be repurchased from the assumed proceeds, when dilutive. During the second quarter and year-to-date period ended June 29, 2008, stock options were anti-dilutive and, therefore, excluded from the calculation of earnings per share of common stock.

The computations of basic and diluted earnings per share of common stock are shown below:

	Second quarter ended				Year-to-date period ended
	June 29, 2008		July 1, 2007		June 29, 2008		July 1, 2007
Net income for computation of basic and diluted earnings per share of common stock	$	74,974	$	67,239	$	136,794	$	126,500
Weighted average shares outstanding for computation of basic earnings per share of common stock (in thousands)		183,983		189,017		184,749		189,732
Dilutive restricted stock units (in thousands)		275		236		254		249
Weighted average shares outstanding for computation of diluted earnings per share of common stock (in thousands)		184,258		189,253		185,003		189,981
Basic earnings per share of common stock	$	0.41	$	0.36	$	0.74	$	0.67
Diluted earnings per share of common stock	$	0.41	$	0.36	$	0.74	$	0.67

NOTE 4 INVENTORIES AND OTHER, NET

Inventories and other include the following as of June 29, 2008 and December 30, 2007:

	June 29, 2008			December 30, 2007
Inventories – finished goods	$	43,907		$	48,872
Inventory obsolescence provision		(648	)		(1,228	)
Inventories, net		43,259			47,644
Prepaids and other		15,311			12,637
Total inventories and other, net	$	58,570		$	60,281

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TIM HORTONS INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited) – (Continued)

(in thousands of Canadian dollars, except share and per share data)

NOTE 5 RESTRICTED ASSETS AND LIABILITIES – ADVERTISING FUND

The Company participates in two advertising funds established to collect and administer funds 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 funds are designated for specific purposes, and the Company acts as, in substance, an agent with regard to these contributions. The assets held by these advertising funds are considered restricted. The restricted current assets, restricted current liabilities and advertising fund restricted collateralized long-term debt are included in the Company’s Condensed Consolidated Balance Sheet. In addition, at June 29, 2008 and December 30, 2007, Property and equipment, net, included $29.5 million and $33.6 million, respectively, of advertising fund property and equipment.

NOTE 6 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES – OTHER

Included within Accounts Payable are construction holdbacks and construction accruals of $25.8 million and $24.6 million as at June 29, 2008 and December 30, 2007, respectively.

Included within Accrued Liabilities, Other are the following obligations as at June 29, 2008 and December 30, 2007:

	June 29, 2008		December 30, 2007
Gift certificate obligations	$	13,382	$	25,147
Cash card obligations		20,089		37,784
Other accrued liabilities		29,209		32,846
	$	62,680	$	95,777

Other accrued liabilities include accrued rent expense, deposits, and various equipment and other accruals.

NOTE 7 COMMITMENTS AND CONTINGENCIES

The Company has guaranteed certain lease and debt payments, primarily related to franchisees, amounting to $0.7 million as at both June 29, 2008 and December 30, 2007. 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 $9.7 million as at June 29, 2008 and $8.1 million as at December 30, 2007 in letters of credit and surety bonds with various parties; however, management does not expect any material loss to result from these guarantees because management 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 seven years.

The Company has entered into purchase arrangements with some of its suppliers having terms which generally do not exceed one year. The range of prices and volume of purchases under the agreements may vary according to the Company’s demand for the products and fluctuations in market rates. These agreements help the Company secure pricing and product availability. The Company does not believe these agreements expose the Company to significant risk.

Third parties may seek to hold the Company responsible for retained liabilities of Wendy’s. Under the separation agreements dictating the terms of the Company’s separation from Wendys, Wendy’s has agreed to indemnify the Company for claims and losses relating to these retained liabilities. However, if those liabilities are significant, and Wendy’s is not able to fully pay or will not make payment, and the Company is ultimately held liable for these claims and losses, there can be no assurance that the Company will be able to recover the full amount of its losses from Wendy’s.

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TIM HORTONS INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited) – (Continued)

(in thousands of Canadian dollars, except share and per share data)

In addition to the guarantees described above, the Company is party to many agreements executed in the ordinary course of business that provide for indemnification of third parties under specified circumstances, including agreements with 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 in connection with these arrangements, either individually or in the aggregate, would not materially affect the earnings or financial condition of the Company.

On June 12, 2008, a claim was filed against the Company and certain of its affiliates in the Ontario Superior Court of Justice (“Court”) by two of its franchisees, Fairview Donut Inc. and Brule Foods Ltd., alleging, generally, that the Company’s Always Fresh baking system and expansion of lunch offerings has led to lower franchisee profitability. The claim, which seeks class action certification on behalf of Canadian franchisees, asserts damages of approximately $1.95 billion. The Company believes the claim is frivolous and completely without merit, and the Company intends to vigorously defend the action. However, there can be no assurance that the outcome of the claim will be favourable to the Company or that it will not have a material adverse impact on the Company’s financial position or liquidity in the event that the determinations by the Court and/or appellate court are not in accordance with the Company’s evaluation of this claim.

In addition, the Company and its subsidiaries are parties to various other legal actions and complaints arising in the ordinary course of business. Reserves related to the resolution of legal proceedings are included in Accounts Payable on the Condensed Consolidated Balance Sheet. It is the opinion of the Company that the ultimate resolution of such matters will not materially affect the Company’s financial condition or earnings.

NOTE 8 CAPITAL STOCK

In October 2007, the Company’s Board of Directors approved a stock repurchase program authorizing the Company to purchase up to $200 million of common stock, not to exceed 9,354,264 of the Company’s outstanding shares (“share repurchase limit”). The Company authorized the commencement of the program only after receipt of all regulatory approvals, which were subsequently received. The program is expected to be in place until October 30, 2008, but may terminate earlier if the $200 million maximum or share repurchase limit is reached, or, at the discretion of the Board of Directors, subject to the Company’s compliance with regulatory requirements. The Company may make such repurchases on the New York Stock Exchange (“NYSE”) and/or the Toronto Stock Exchange (“TSX”). For a significant portion of the repurchase program, the Company entered into a Rule 10b5-1 repurchase plan, which allows the Company to purchase its stock through a broker at times when the Company may not otherwise do so due to regulatory or Company restrictions. Purchases are based on the parameters of the Rule 10b5-1 plan. At present, the Company also intends to make repurchases at management’s discretion under this program from time-to-time, subject to market conditions, share price, cash position, and compliance with regulatory requirements.

In the year-to-date period ended June 29, 2008, the Company purchased 2.9 million shares of its common stock for a total cost of $100.3 million under this repurchase program. The total accumulated purchases under this program as at June 29, 2008 are $135.9 million.

In the year-to-date period ended July 1, 2007, the Company purchased 2.6 million shares of its common stock for a total cost of $90.0 million under the Company’s first repurchase program, which was completed in September 2007.

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TIM HORTONS INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited) – (Continued)

(in thousands of Canadian dollars, except share and per share data)

NOTE 9 STOCK-BASED COMPENSATION

Total stock-based compensation expense included in General and administrative expense on the Condensed Consolidated Statement of Operations is detailed as follows:

	Second quarter ended				Year-to-date period ended
	June 29, 2008		July 1, 2007		June 29, 2008		July 1, 2007
Restricted stock units	$	3,456	$	3,844	$	4,993	$	4,839
Stock option and tandem SARs		384		—		384		—
Deferred share units		65		238		179		290
Total stock-based compensation expense	$	3,905	$	4,082	$	5,556	$	5,129

In addition, a loss of $0.4 million was expensed relating to the total return swap (see note 12), more than offsetting the benefit from the fair value adjustment, discussed below, related to the stock options and tandem SARs.

Details of stock-based compensation grants and settlements during 2008 year-to-date are set forth below.

Restricted Stock Units

The Company’s Human Resource and Compensation Committee (“HRCC”) approved awards of 232,496 restricted stock units (“RSUs”) with dividend equivalent rights, which were granted on May 15, 2008. The fair market value of each RSU awarded as part of this grant (the mean of the high and low prices for the Company’s shares of common stock traded on the TSX) on May 15, 2008 was $33.02. This grant is scheduled to vest over a 30-month period. In accordance with SFAS No. 123R – Share-Based Payment (revised 2004) (“SFAS 123R”), RSUs granted to retirement-eligible employees are expensed immediately.

In the second quarter ended June 29, 2008, the Company funded its employee benefit plan trust, which, in turn, purchased approximately 0.1 million shares of common stock for approximately $3.8 million (0.2 million shares for $7.2 million in 2007). For accounting purposes, the cost of the purchase of shares held in trust has been accounted for as a reduction in outstanding shares of common stock, and the trust has been consolidated in accordance with FASB Interpretation No. 46R – Consolidation of Variable Interest Entities – an interpretation of ARB 51 (revised December 2003) (“FIN 46R”), since the Company is the primary beneficiary, as that term is defined by FIN 46R. The trust is used to fix the Company’s cash requirements in connection with the settlement, after vesting, of outstanding RSUs by delivery of share of common stock held in the trust to most of the Canadian officers and employees that participate in the 2006 Stock Incentive Plan, as amended and restated most recently in May 2008 (the “2006 Plan”).

In the second quarter of 2008, approximately 210,000 (118,000 in Q2 2007) RSUs vested as part of the normal vesting schedule for previously-granted awards (or otherwise). The Company’s settlement obligations, after provision for the payment of employees’ minimum statutory withholding tax requirements, were satisfied by the disbursement of approximately 93,000 (52,000 in Q2 2007) shares held in the employee benefit plan trust, approximately 15,000 (12,000 in Q2 2007) shares issued from treasury, and the purchase of approximately 7,000 (3,000 on May 8, 2007) shares by an agent of the Company on behalf of the respective eligible employee on the open market on May 15, 2008, at an average purchase price of $33.34 ($34.89 in Q2 2007).

Stock options and tandem stock appreciation rights

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, SARs, dividend equivalent rights, performance awards and share awards to eligible employees and directors of the Company or its subsidiaries.

Stock options – In accordance with SFAS 123R, the Company uses the Black-Scholes-Merton option pricing model which requires the use of highly subjective assumptions. These assumptions include: estimating the length of time employees will retain their stock options before exercising them (the “expected term”); the expected volatility of the Company’s common stock price over the expected term; and, the number of options that will ultimately not complete their vesting requirements (“forfeitures”). Changes in subjective assumptions, as well as changes in the share price from period to period, can materially affect the estimate of fair value of stock-based compensation and, consequently, the related amount of compensation expense recognized in the Condensed Consolidated Statement of Operations (see below).

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TIM HORTONS INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited) – (Continued)

(in thousands of Canadian dollars, except share and per share data)

Stock appreciation rights – SARs may be granted alone or in conjunction with a stock option. A SAR related to a stock option terminates upon the expiration, forfeiture or exercise of the related stock option, and is exercisable only to the extent that the related stock option is exercisable. Similarly, a stock option expires upon the expiration, forfeiture or exercise of the related SAR.

Stock options with tandem SARs enable the employee to exercise the stock option to receive shares of common stock or to exercise the SAR and receive a cash payment equal to the difference between the market price of the share on the exercise date and the exercise price of the stock option. The awards are accounted for using the liability method, which results in a revaluation of the liability to fair value each period, and are expensed over the vesting period. Stock options with tandem SARs granted to retirement-eligible employees are expensed immediately.

The Company’s HRCC approved awards of 167,411 stock options with tandem SARs, which were granted on May 15, 2008 (nil in 2007) at a fair value grant day price of $33.02, to its named executive officers. The fair value of these awards was determined, in accordance with SFAS 123R, at the grant date by applying the Black-Scholes-Merton option-pricing model using the following assumptions:

Grant date/remeasurement date	May 15, 2008
Expected volatility	20% - 21%
Risk-free interest rate	3.0% - 3.1%
Expected life	3 – 5 years
Expected dividend yield	1.1%

The awards were revalued to fair value at June 29, 2008 using the share price, which was $29.03 at the end of the second quarter of 2008. No other significant changes were made in the assumptions.

NOTE 10 CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

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

	Second quarter ended						Year-to-date period ended
	June 29, 2008			July 1, 2007			June 29, 2008			July 1, 2007
Net income	$	74,974		$	67,239		$	136,794		$	126,500
Other comprehensive income (loss)
Translation adjustments		(4,776	)		(29,414	)		10,322			(32,748	)
Cash flow hedges:
Net change in fair value of derivatives		414			(2,502	)		(1,023	)		(2,940	)
Amounts realized in earnings during the quarter		(99	)		50			1,379			(747	)
Total cash flow hedges		315			(2,452	)		356			(3,687	)
Total other comprehensive (loss) income		(4,461	)		(31,866	)		10,678			(36,435	)
Total comprehensive income	$	70,513		$	35,373		$	147,472		$	90,065

Income tax (expense)/recovery components netted in the above table are detailed as follows:

	Second quarter ended						Year-to-date period ended
	June 29, 2008			July 1, 2007			June 29, 2008			July 1, 2007
Cash flow hedges:
Net change in fair value of derivatives	$	(405	)	$	(789	)	$	706		$	(873	)
Amounts realized in earnings during the quarter	$	(47	)	$	(7	)	$	(47	)	$	(15	)

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TIM HORTONS INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited) – (Continued)

(in thousands of Canadian dollars, except share and per share data)

NOTE 11 SEGMENT REPORTING

The Company franchises, and to a lesser extent, operates Tim Hortons restaurants that are part of the quick-service restaurant 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 the geographic locations of Canada and the U.S. As set forth in the table below, there are no amounts of revenues shown between reportable segments.

The table below presents information about reportable segments:

	Second quarter ended										Year-to-date period ended
	June 29, 2008			% of Total		July 1, 2007			% of Total		June 29, 2008			% of Total		July 1, 2007			% of Total
Revenues
Canada	$	470,094		92.1	%	$	425,531		91.5	%	$	896,582		92.3	%	$	813,743		91.4	%
U.S.		40,598		7.9	%		39,726		8.5	%		74,427		7.7	%		76,122		8.6	%
	$	510,692		100.0	%	$	465,257		100.0	%	$	971,009		100.0	%	$	889,865		100.0	%
Segment Operating Income (Loss)
Canada	$	130,433		100.1	%	$	115,969		99.9	%	$	236,968		101.3	%	$	222,653		101.8	%
U.S.		(190	)	(0.1	)%		79		0.1	%		(3,069	)	(1.3	)%		(4,039	)	(1.8	)%
Reported Segment Operating Income		130,243		100.0	%		116,048		100.0	%		233,899		100.0	%		218,614		100.0	%
Corporate Charges(1)		(13,118	)				(9,708	)				(20,270	)				(18,069	)
Consolidated Operating Income		117,125					106,340					213,629					200,545
Interest, net		(4,896	)				(4,819	)				(9,257	)				(8,444	)
Income Taxes		(37,255	)				(34,282	)				(67,578	)				(65,601	)
Net Income	$	74,974				$	67,239				$	136,794				$	126,500
Capital Expenditures
Canada	$	25,023		74.6	%	$	22,058		69.3	%	$	48,391		73.2	%	$	47,662		67.7	%
U.S.		8,540		25.4	%		9,776		30.7	%		17,683		26.8	%		22,697		32.3	%
	$	33,563		100.0	%	$	31,834		100.0	%	$	66,074		100.0	%	$	70,359		100.0	%

⁽¹⁾ Corporate charges include certain overhead costs that are not allocated to individual business segments, the impact of certain foreign currency exchange gains and losses, and a nominal amount of income from international operations. Corporate charges also include a $3.1 million restructuring charge in the second quarter and year-to-date period ended June 29, 2008 (see note 14).

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TIM HORTONS INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited) – (Continued)

(in thousands of Canadian dollars, except share and per share data)

Revenues consisted of the following:

	Second quarter ended				Year-to-date period ended
	June 29, 2008		July 1, 2007		June 29, 2008		July 1, 2007
Sales
Warehouse sales	$	288,089	$	261,458	$	552,794	$	496,793
Company-operated restaurant sales		11,143		15,235		22,741		30,942
Sales from restaurants consolidated under FIN 46R		36,641		31,301		66,844		58,609
	$	335,873	$	307,994	$	642,379	$	586,344
Franchise revenues
Rents and royalties	$	153,546	$	140,114	$	289,426	$	267,354
Franchise fees		21,273		17,149		39,204		36,167
		174,819		157,263		328,630		303,521
Total revenues	$	510,692	$	465,257	$	971,009	$	889,865

Cost of sales related to Company-operated restaurants were $12.3 million and $17.0 million for the second quarters ended June 29, 2008 and July 1, 2007, respectively, and $26.1 million and $35.4 million for the year-to-date periods ended June 29, 2008 and July 1, 2007, respectively.

The following table outlines the Company’s franchised locations and system activity for the second quarters and year-to-date periods ended June 29, 2008 and July 1, 2007:

	Second quarter ended				Year-to-date period ended
	June 29, 2008		July 1, 2007		June 29, 2008		July 1, 2007
Franchise Restaurant Progression
Franchise restaurants in operation – beginning of period	3,174		2,974		3,149		2,952
Franchises opened	30		17		55		37
Franchises closed	(11	)	(3	)	(17	)	(6	)
Net transfers within the system	10		14		16		19
Franchise restaurants in operation – end of period	3,203		3,002		3,203		3,002
Company-operated restaurants, net	54		76		54		76
Total systemwide restaurants	3,257		3,078		3,257		3,078

Excluded from the above franchise restaurant progression table are 213 primarily self-serve licensed locations in the Republic of Ireland and the United Kingdom as of June 29, 2008.

NOTE 12 FINANCIAL INSTRUMENTS - TOTAL RETURN SWAP

During the second quarter of 2008, the Company entered into a total return swap (“TRS”) to help manage the variability in cash flows and, to a lessor extent, earnings associated with stock-based compensation awards that will settle in cash, namely the tandem SARs that are associated with stock options (see note 9). A TRS is a contract that involves the exchange of payments between the Company and a financial institution. The payments are based on changes in the value of a reference asset, which in this case is the Company’s common stock, and related dividends, and a variable interest rate specified in the contract. The number of underlying shares of the Company’s stock covered under this contract is 107,000. The TRS did not qualify as an accounting hedge under SFAS No. 133 – Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”); however, it is fair valued each period in accordance with SFAS 133 and, accordingly, gains and loss on the fair value adjustment of the TRS are included in general and administrative expense. The revaluation resulted in loss of approximately $0.4 million during the second quarter of 2008. The TRS has a seven-year term but the contract allows for partial settlements over the term, without penalty.

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TIM HORTONS INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited) – (Continued)

(in thousands of Canadian dollars, except share and per share data)

NOTE 13 FAIR VALUE MEASUREMENTS

SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs. The first two levels are considered observable and the last unobservable. These are used to measure fair value as follows:

• Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

• Level 2 – Inputs, other than Level 1 inputs, that are observable for the assets or liabilities, either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

In accordance with SFAS 157, the following table represents the Company’s fair value hierarchy for its financial assets and/or liabilities measured at fair value on a recurring basis as of June 29, 2008:

	Fair value measurements as of June 29, 2008
	Level 1		Level 2		Level 3		Total
Derivative Assets: Forward currency contracts	$	—	$	601	$	—	$	601
Derivative Liabilities: Interest rate swaps	$	—	$	2,815	$	—	$	2,815
Derivative Liabilities: Total return swap (note 12)	$	—	$	418	$	—	$	418

The Company values derivatives using valuations that are calibrated to the initial trade prices. Subsequent valuations are based on observable inputs to the valuation model, including exchange rates, interest rates, credit spreads, volatilities, and the Company’s share price.

NOTE 14 RESTRUCTURING COSTS

During the second quarter of 2008, changes were made to our management structure to both strengthen and streamline executive oversight of key business operations. As a result, certain employees have left or will be leaving the organization under various retirement and other arrangements. A restructuring charge of $3.1 million was recorded in general and administrative expense in the second quarter of 2008 relating to these retirement and other arrangements.

NOTE 15 RECENT ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued SFAS No. 141R–Business Combinations (“SFAS 141R”). This Statement replaces FASB SFAS No. 141. SFAS 141R establishes principles and requirements for how an acquirer of a business recognizes and measures, in its financial statements, the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. SFAS 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 141R on the Company’s Consolidated Financial Statements.

On February 12, 2008, the FASB issued FASB Staff Position No. FAS 157-2 – Effective Date of FASB Statement No. 157 (“SFAS 157-2”), which amends SFAS 157 by delaying its effective date by one year for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Therefore, beginning on December 31, 2007, this standard applies prospectively to new fair value measurements of financial instruments and recurring fair value measurements of non-financial assets and non-financial liabilities. On December 29, 2008, the standard will also apply to all other fair value measurements (see note 13). The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 157-2 on the Company’s Consolidated Financial Statements.

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TIM HORTONS INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited) – (Continued)

(in thousands of Canadian dollars, except share and per share data)

In December 2007, the FASB issued SFAS No. 160 – Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51. This Statement amends Accounting Research Bulletin No. 51 – Consolidated Financial Statements (“ARB 51”) to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. In addition to the amendments to ARB 51, this Statement amends FASB Statement No. 128 – Earnings per Share, with the result that earnings-per-share data will continue to be calculated the same way as it was calculated before this Statement was issued. This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company is currently evaluating the impact of adoption of this pronouncement on its Consolidated Financial Statements.

In March 2008, the FASB issued SFAS No. 161 – Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). This new standard enhances disclosure requirements for derivative instruments in order to provide users of financial statements with an enhanced understanding of (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is to be applied prospectively for the first annual reporting period beginning on or after November 15, 2008, with early application encouraged. The Company is currently evaluating the impact of adoption of this pronouncement on its Consolidated Financial Statements.

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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 our financial condition and results of operations should be read in conjunction with the 2007 Consolidated Financial Statements and accompanying notes included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 26, 2008. We prepare our financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). 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 Annual Report on Form 10-K and the risk factors set forth in our Safe Harbor statement attached hereto as Exhibit 99, as well as our other descriptions of risks set forth herein, for a further description of risks and uncertainties affecting our business and financial results. Historical trends should not be taken as indicative of future operations and financial results.

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 June 29, 2008, 3,203 or 98.3% of our restaurants were franchised, representing 99.3% in Canada and 91.9% in the U.S. The amount of systemwide sales affects our franchisee royalties and rental income, as well as our distribution sales. We believe systemwide sales and average same-store sales provide meaningful information to investors concerning the size and health of our system, the overall health and financial performance of our brand and franchisee base, and ultimately, our financial performance on a consolidated and segmented basis. 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. Franchise restaurant sales generally are not included in our Consolidated Financial Statements (except for restaurants consolidated in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. (“FIN”) 46R – Consolidation of Variable Interest Entities – an interpretation of ARB No. 51 (revised December 2003) (“FIN 46R”); however, franchise restaurant sales result in royalties and rental income, which are included in our franchise revenues, and also impact distribution 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 our 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 U.S. GAAP. Where non-GAAP financial measures are used, we have provided the most directly comparable measures calculated and presented in accordance with U.S. GAAP and a reconciliation to U.S. GAAP measures.

References herein to “Tim Hortons,” the “Company,” “we,” “our,” or “us” refer to Tim Hortons Inc. and its subsidiaries, unless specifically noted otherwise.

Executive Overview

We franchise, and to a lesser extent, operate Tim Hortons restaurants in Canada and the U.S. As the franchisor, we collect royalty income on our franchised restaurant sales. Our business model also includes controlling the real estate for most of our franchised restaurants. As of June 29, 2008, we leased or owned the real estate for approximately 82% of our system restaurants, which generates a recurring stream of rental income. Real estate that is not controlled by us is generally for non-standard restaurants, including, for example, kiosks in offices, hospitals, colleges, and airports, as well as some self-serve kiosks located in gas and convenience locations. We distribute coffee and other beverages, non-perishable food, supplies, packaging and equipment to system restaurants in Canada through our five distribution centres. In the third quarter of 2007, we completed the roll-out of distribution of frozen and refrigerated products from our Guelph facility, which now services approximately 85% of our Ontario restaurants. In the U.S., we supply similar products to system restaurants through third-party distributors. In addition to our Canadian and U.S. franchising business, we have 213 licensed locations in the Republic of Ireland and the United Kingdom, which are primarily self-serve kiosks operating under the name “Tim Hortons.”

Systemwide sales grew by 9.8% in the second quarter of 2008 and 8.6% on a year-to-date basis in 2008, as a result of new restaurant expansion in both Canada and the U.S. and continued same-store sales growth. Systemwide sales include restaurant-level sales at both franchised and Company-operated restaurants.

In the second quarter of 2008, Canadian same-store sales growth was 5.7% (6.6% in Q2 2007). Pricing impacted the second quarter 2008 Canadian growth rates by approximately 4.4% and the shift of Easter from April 2007 to March 2008 had a positive impact of approximately 0.5% in Canada. On a year-to-date basis, Canadian same-store sales growth was 4.6% (6.5% in 2007 year-to-date) of which pricing accounted for approximately 3.5% of the increase. Included in the second quarter and year-to-date pricing impact is approximately 1.6% from pricing that was taken in July 2007 in certain Canadian markets (Ontario, Atlantic Canada and

19

Manitoba). The benefit of this July 2007 pricing will no longer be a contributing factor to our same-store sales growth in the second half of 2008. As a result of pricing implemented this year, there will be approximately 3.2% pricing impact in the third and fourth quarters of 2008 in Canada versus the comparable period in 2007. Our first quarter Canadian same-store sales growth was impacted by the significant snowfall in key markets and the introduction of new statutory holidays in Ontario and Manitoba in 2008, all of which resulted in a reduction of customer visits.

Our U.S. same-store sales growth was 3.1% in the second quarter of 2008 (3.8% in Q2 2007) and on a year-to-date basis was 2.1% (3.9% in 2007). Pricing impacted U.S. same-store sales growth in the second quarter of 2008 by approximately 2.5% and by 1.2% on a year-to-date basis. The shift of Easter from April 2007 to March 2008 had a positive impact on second quarter same-store sales in the U.S. of less than 0.4%. As a result of pricing implemented this year, there will be approximately 3% pricing impact in the third and fourth quarters of 2008 in the U.S. versus the comparable period in 2007. Our 2008 year-to-date same-store growth rates were impacted earlier in the year by the significant snowfall in many of our U.S. markets, compounded by economic weakness and higher consumer cost pressures, including high gasoline prices.

The U.S. economy has continued to show signs of a slowdown and the Canadian economy has also experienced some weakness. Historically, we have proven to be fairly resilient in challenging economic circumstances due in part to our quality product offering at a reasonable price, but the state of the macro-economic environment and resulting sales climate continues to be challenging. We are actively monitoring the situation and focusing on delivering quality products at prices that provide value to our customers. We are not immune to recessionary impacts and we expect, overall, to see more volatility quarter-to-quarter in the quick-service restaurant sector and continued challenges in the macro-economic environment. This challenging environment may result in reductions in customer visits. On a year-to-date basis, same-store sales growth rates for both Canada and the U.S. are within the same-store sales growth targets established in February 2008 of 4%-6% in Canada and 2%-4% in the U.S.

In the second quarter of 2008, our revenues increased $45.4 million, or 9.8%, over the second quarter of 2007 and increased $81.1 million, or 9.1%, in the year-to date period ended June 29, 2008 over the prior year-to-date period ended July 1, 2007. These increases were primarily a result of growth in the number of systemwide restaurants and continued average same-store sales gains, which resulted in higher royalty, rental and distribution revenues. In addition, distribution revenues were higher relating to implementation of three-channel distribution (dry, frozen and refrigerated) in Ontario. The transition of the Guelph facility to three-channel delivery was fully completed in the third quarter of 2007. Franchise fee revenues were also higher due to a higher number of new restaurant units sold during the quarter.

Operating income increased $10.8 million, or 10.1%, in the second quarter of 2008 compared to the second quarter of 2007 primarily as a result of higher revenues, as discussed above, higher equity income and higher other income, partially offset by higher general and administrative expense. Included in general and administrative expense was $3.1 million of restructuring charges recorded in the second quarter of 2008 in connection with the streamlining of the management team (see below). Adjusted operating income growth for the second quarter of 2008, excluding the restructuring charges, was 13.0% (see “Selected Operating and Financial Highlights” for a reconciliation to the closest U.S. GAAP measure).

Operating income increased $13.1 million, or 6.5%, in the year-to-date period ended June 29, 2008 over the comparable year-to-date period in 2007. This increase was primarily due to the higher revenues, as discussed above, partially offset by higher general and administrative expense, lower equity income, and lower franchise fee income. In the year-to-date period of 2007, equity income included a non-cash tax benefit of approximately $1 million recognized by our bakery joint venture. This tax benefit did not recur in 2008. In addition, franchise fee costs were higher in 2008 as a result of a higher number of new units sold, and higher renovation and other support costs. General and administrative expense was $7.5 million higher in 2008 on a year-to-date basis compared to the year-to-date period in 2007 of which $3.1 million related to restructuring charges. Adjusted operating income growth, excluding the $3.1 million restructuring charges, was 8.0% for the year-to-date period ended June 29, 2008, as compared to the year-to-date period ended July 1, 2007 (see “Selected Operating and Financial Highlights” for a reconciliation to the closest U.S. GAAP measure).

Our operating income performance during the first half of 2008 was below our annual targeted growth rate of 10%; however, it is consistent with our expectations as we had anticipated a challenging first half of the year. We are on track to achieve our 10% operating income growth target, excluding restructuring charges (see below). Several factors underlie our ability to meet our operating income and other previously established targets, including our year-to-date performance; our menu, promotional and operational initiatives; and pricing, including the increases put into the market earlier this year. Offsetting factors include continued macro-economic weakness, pressures on consumers and related competitive activity in the sector to drive traffic, along with our ability to complete real estate projects within our planned timeframe.

Net income increased $7.7 million, or 11.5%, during the second quarter of 2008 as compared to the second quarter of 2007. The increase in net income was the result of the higher operating income and a lower effective tax rate. Diluted earnings per share increased to $0.41 in the second quarter of 2008 from $0.36 in the second quarter of 2007. The diluted weighted average number of shares outstanding in the second quarter of 2008 was 184.3 million, which was 2.6% lower than the diluted weighted average share count in the second quarter of 2007, due to the Company’s share repurchase program.

On a year-to-date basis, 2008 net income increased $10.3 million, or 8.1%, as compared to the year-to-date period ended July 1, 2007. The increase in year-to-date net income was the result of the higher operating income and a lower effective tax rate, partially offset by higher net interest expense. Diluted earnings per share increased to $0.74 in the year-to-date period ended June 29, 2008 as

20

compared to $0.67 in the year-to-date period ended July 1, 2007. The diluted weighted average number of shares outstanding was 185.0 million or 2.6% lower than the diluted weighted average share count in the year-to-date period of 2007, due to the Company’s share repurchase program.

On April 30, 2008, we announced changes to our executive management structure to both strengthen and streamline executive oversight of key business operations. In addition, certain employees have left or will be leaving the organization under various retirement and other arrangements. A restructuring charge of $3.1 million was recorded in the second quarter of 2008 in general and administrative expense relating to these retirement and other arrangements. The restructuring is expected to result in future annualized savings of approximately $1 million. Our 2008 operating income target of 10% growth did not anticipate this one-time charge.

As part of our vertical integration strategy, our Board of Directors has approved the construction of a new coffee roasting facility, which will be located in southern Ontario. The Company will invest approximately $30 million in this facility, primarily in 2009. Consistent with our vertical integration investment strategy, the new roasting facility will provide system benefits important to our Franchisees and the Company. When fully operational, this facility, coupled with our existing coffee roasting operation in Rochester, New York, will provide about three-quarters of our system needs. Equally important, our green coffee blending capability will help us protect the quality, integrity and supply of our proprietary coffee blend from tree to cup, at a very competitive rate for our franchisees and provide for a reasonable return on our investment. We continue to selectively invest in growth opportunities in our business and believe our financial position is a key enabler of our future growth.

In the second quarter of 2008, we repurchased 1.5 million shares of our common stock at an average cost of $33.14 per share for a total cost of $48.9 million. On a year-to-date basis, we have repurchased 2.9 million shares of common stock, for a total cost of $100.3 million.

Our Board of Directors approved a 28.6% increase in the quarterly dividend to $0.09 per share in February 2008. We declared and paid our March and May 2008 dividends at this new rate. Our Board of Directors declared a quarterly dividend payable on September 2, 2008 to shareholders of record as of August 18, 2008, also at the $0.09 rate per share. Our current dividend policy is to pay a total of 20-25% of prior year, normalized annual net earnings in dividends each year. The payment of future dividends remains subject to the discretion of our Board of Directors.

Selected Operating and Financial Highlights

	Second quarter ended						Year-to-date period ended
	June 29, 2008			July 1, 2007			June 29, 2008			July 1, 2007
Systemwide sales growth(1)		9.8	%		10.9	%		8.6	%		10.6	%
Average same-store sales growth(2)
Canada		5.7	%		6.6	%		4.6	%		6.5	%
U.S.		3.1	%		3.8	%		2.1	%		3.9	%
Systemwide restaurants		3,257			3,078			3,257			3,078
Revenues (in millions)	$	510.7		$	465.3		$	971.0		$	889.9
Operating income (in millions)	$	117.1		$	106.3		$	213.6		$	200.5
Adjusted operating income (in millions)(3)	$	120.2		$	106.3		$	216.7		$	200.5
Net income (in millions)	$	75.0		$	67.2		$	136.8		$	126.5
Basic and diluted earnings per share	$	0.41		$	0.36		$	0.74		$	0.67
Weighted average number of shares of common stock outstanding – Diluted (in millions)		184.3			189.3			185.0			190.0

⁽¹⁾ Total systemwide sales growth and U.S. average same-store 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 quarter for the period covered. Systemwide sales growth excludes sales from our Republic of Ireland and United Kingdom licensed locations.

⁽²⁾ Historically, in our U.S. business, a restaurant was included in our average same-store sales calculation beginning the 13^th month after the restaurant’s opening. Commencing in the first quarter of 2008, we began calculating our Canadian average same-store sales growth on this basis as well. This change aligns same-store calculation methodologies between Canada and the U.S., and with current industry practices. This adjustment did not have a significant impact on reported Canadian same-store sales for the second quarter and year-to-date period ended June 29, 2008. The comparative second quarter and year-to-date period ended July 1, 2007 Canadian same-store sales growth rates, set forth above, have been recalculated using the 2008 methodology.

⁽³⁾ Adjusted operating income is a non-GAAP measure. The presentation of this non-GAAP measure is made with operating income, the most directly comparable U.S. GAAP measure. Management believes that pro-forma adjusted operating income information is important for comparison purposes to prior periods and for purposes of evaluating management’s operating

21

income target for 2008, which excludes restructuring charges. The Company evaluates its business performance and trends excluding amounts related to the restructuring. Therefore, this measure provides a more consistent view of management’s perspectives on performance than the closest equivalent U.S. GAAP measure.

	Second quarter ended				Change from prior year
	June 29, 2008		July 1, 2007		$		%
	(in millions, except where noted)
Reported operating income	$	117.1	$	106.3	$	10.8	10.1%
Restructuring charge		3.1		—		3.1	n/m
Adjusted operating income	$	120.2	$	106.3	$	13.9	13.0%
	Year-to-date period ended				Change from prior year
	June 29, 2008		July 1, 2007		$		%
	(in millions, except where noted)
Reported operating income	$	213.6	$	200.5	$	13.1	6.5%
Restructuring charge		3.1		—		3.1	n/m
Adjusted operating income	$	216.7	$	200.5	$	16.2	8.0%

n/m The comparison is not meaningful.

Systemwide Sales Growth

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 98.3% of our system is franchised. The amount of systemwide sales impacts 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. Systemwide sales growth excludes sales from our Republic of Ireland and United Kingdom licensed locations.

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, labour, supplies, and other utility costs.

Product innovation continues to be one of our focused strategies to drive same-store sales growth, including innovation at breakfast as well as other day parts. In the second quarter of 2008, our promotional program included: Slow Roast Beef sandwich, Homestyle Hash Browns, Chocolate Brownie Iced Capp Supreme, Whole Grain Raspberry Muffins, Green Tea, Strawberry Blossom Donuts, Maple-themed products and, in the U.S. only, French Vanilla Iced Coffee.

As mentioned above, Canadian and U.S. average same-store sales growth are calculated on a consistent basis, with restaurants being included beginning in the 13^th month following the restaurant’s opening. This change is also consistent with current industry practices. We have adjusted our historical quarterly average same-store sales growth data for 2006 and 2007 and on an annual basis for the prior 10 years to align with the new methodology, which is presented along with the original (as reported) growth data in our first quarter 2008 Form 10-Q, filed with the SEC on May 7, 2008.

Our historical average same-store sales trends are not necessarily indicative of future results.

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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 store openings and closures for the second quarter and year-to-date periods ended June 29, 2008 and July 1, 2007, respectively:

	Second quarter ended				Year-to-date period ended
	June 29, 2008		July 1, 2007		June 29, 2008		July 1, 2007
Canada
Restaurants opened	23		12		45		28
Restaurants closed	(11	)	(3	)	(17	)	(6	)
Net change	12		9		28		22
U.S.
Restaurants opened	8		6		11		11
Restaurants closed	(1	)	(1	)	(3	)	(2	)
Net change	7		5		8		9
Total Company
Restaurants opened	31		18		56		39
Restaurants closed	(12	)	(4	)	(20	)	(8	)
Net change	19		14		36		31

From the end of the second quarter of 2007 to the end of the second quarter of 2008, we opened 215 system restaurants, including both franchised and Company-operated restaurants, and we had 36 restaurant closures for a net increase of 179 restaurants. Typically, 20 to 40 system restaurants are closed annually, 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. We have also closed, and may continue to close restaurants for which the restaurant location has performed below our expectations for an extended period of time, or we believe that sales from the restaurant can be absorbed by surrounding restaurants.

Systemwide Restaurant Count

The following table shows our restaurant count as of June 29, 2008, December 30, 2007 and July 1, 2007:

	As of June 29, 2008		As of December 30, 2007		As of July 1, 2007
Canada
Company-operated	21		30		26
Franchised	2,830		2,793		2,707
Total	2,851		2,823		2,733
% Franchised	99.3	%	98.9	%	99.0	%
U.S.
Company-operated	33		42		50
Franchised	373		356		295
Total	406		398		345
% Franchised	91.9	%	89.4	%	85.5	%
Total system
Company-operated	54		72		76
Franchised	3,203		3,149		3,002
Total	3,257		3,221		3,078
% Franchised	98.3	%	97.8	%	97.5	%

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Segment Operating Income (Loss)

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 from Canadian and U.S. operations separately. We, therefore, have determined the reportable segments for our business to be the geographic locations of Canada and the U.S. Each segment includes all manufacturing and distribution operations that are located in their respective geographic locations.

The following tables contain information about the operating income (loss) of our reportable segments:

	Second quarter ended										Change from prior year
	June 29, 2008			% of Revenues		July 1, 2007			% of Revenues		$			Percentage
	(in thousands, except where noted)
Operating Income (Loss)
Canada	$	130,433		25.5	%	$	115,969		24.9	%	$	14,464		12.5	%
U.S.		(190	)	n/m			79		n/m			(269	)	n/m
Total Segment operating income		130,243		25.5	%		116,048		24.9	%		14,195		12.2	%
Corporate(1)		(13,118	)	(2.6	)%		(9,708	)	(2.0	)%		(3,410	)	35.1	%
Total operating income	$	117,125		22.9	%	$	106,340		22.9	%	$	10,785		10.1	%

	Year-to-date period ended										Change from prior year
	June 29, 2008			% of Revenues		July 1, 2007			% of Revenues		$			Percentage
	(in thousands, except where noted)
Operating Income (Loss)
Canada	$	236,968		24.4	%	$	222,653		25.0	%	$	14,315		6.4	%
U.S.		(3,069	)	(0.3	)%		(4,039	)	(0.5	)%		970		24.0	%
Total Segment operating income		233,899		24.1	%		218,614		24.5	%		15,285		7.0	%
Corporate(1)		(20,270	)	(2.1	)%		(18,069	)	(2.0	)%		(2,201	)	12.2	%
Total operating income	$	213,629		22.0	%	$	200,545		22.5	%	$	13,084		6.5	%

n/m The comparison is not meaningful.

⁽¹⁾ Corporate charges include certain overhead costs that are not allocated to individual business segments, the impact of certain foreign currency exchange gains and losses, and a nominal amount of operating income from International operations (discussed below).

Segment operating income increased $14.2 million, or 12.2%, in the second quarter of 2008 compared to the second quarter of 2007. This increase related to higher operating income from our Canadian segment, offset, in part, by slightly lower operating income from our U.S. segment. On a year-to-date basis, 2008 segment operating income was $15.3 million, an increase of 7.0% compared to the year-to-date period in 2007 driven by higher operating income in both the Canadian and U.S. segments.

In the second quarter of 2008, our Canadian segment operating income was $130.4 million, an increase of 12.5% over the second quarter of 2007. This increase was driven by a higher number of Canadian systemwide restaurants, which contributes to higher income from distribution, as well as higher rents and royalties. Operating income also benefited from the completion of the roll-out of three-channel distribution from our Guelph facility in late 2007. Franchise fee income was also higher due to higher restaurant unit sales in the second quarter of 2008. In the second quarter of 2008, we opened 23 restaurants in Canada and closed 11 compared to opening 12 restaurants and closing three in the second quarter of 2007. Equity income was also higher in the second quarter of 2008. These increases were offset in part by higher general and administrative expense. Canadian average same-store sales growth was 5.7% in the second quarter of 2008. Pricing accounted for approximately 4.4% of this growth.

        Our Canadian segment operating income increased $14.3 million, or 6.4%, from $222.7 million in the year-to-date period ended July 1, 2007 to $237.0 million in the year-to-date period ended June 29, 2008. Canadian segment operating income and margins benefited from revenue growth from our distribution business, including better leveraging of our cost structure and operational efficiency gains, and higher systemwide sales, which drove increased rents and royalties revenues. Operating income gains were, in part, offset by lower equity income; lower franchise fee income, due to lower resales and higher equipment and support costs; and, higher general and administrative expense, consistent with the growth in our business. Canadian average same-store sales growth was 4.6% in the year-to-date period ended June 29, 2008. Pricing accounted for approximately 3.5% of this growth. We had price increases in certain Canadian markets, including slightly less than 4% in Ontario in early April 2008, and slightly less than 2% in Quebec in early

24

May 2008. The estimated positive impact of these price increases is included in our 2008 same-store sales targets. Price increases are market driven, generally as a result of rising restaurant-level costs, particularly labour costs and changes in commodity costs. We typically expect price increases in one or more markets throughout a given year; however, there can be no assurance that price increases will result in an equivalent level of sales growth, which depends upon customer response to the new pricing. Significant snowfall and new statutory holidays in Ontario and Manitoba reduced customer visits on those days and negatively impacted our first quarter 2008 same-store sales growth. In the year-to-date period ended June 29, 2008, we opened 45 restaurants in Canada and closed 17, compared to opening 28 restaurants and closing six in the year-to-date period ended July 1, 2007.

The U.S. operating segment loss was $0.2 million in the second quarter of 2008 compared to operating income of $0.1 million in the second quarter of 2007. The U.S. operating segment loss was $3.1 million in the year-to-date period ended June 29, 2008 compared to operating segment loss of $4.0 million in the year-to-date period ended July 1, 2007. The U.S. operating results were primarily impacted in both the quarterly and year-to-date periods by increased relief given to our franchisees, offset by reduced losses from Company-operated stores. The higher relief was mainly due to a greater number of new restaurant openings late in 2007 and from the transition of Company-operated restaurants to franchised restaurants. The year-to-date period ended June 29, 2008 also reflected lower franchise fee income compared to the year-to-date period ended July 1, 2007, primarily as a result of the timing of revenue recognition for our U.S. franchise sales. U.S. average same-store sales growth was 3.1% in the second quarter of 2008. Pricing accounted for approximately 2.5% of this increase. On a year-to-date basis, same-store sales growth was 2.1%, of which pricing represented approximately 1.2% of this increase. In late April 2008, we had price increases in certain U.S. markets of approximately 3%, varying by region. The estimated positive impact of these price increases is included in our 2008 same-store sales targets. We typically expect price increases in one or more regions during the course of the year. There can be no assurance that price increases will result in an equivalent level of sales growth, which depends upon customer response to the new pricing and potentially other macro-economic challenges. During the second quarter of 2008, we opened eight new restaurants and closed one, as compared to opening six new restaurants and closing one in the second quarter of 2007. On a year-to-date basis, we have opened 11 new restaurants and closed three, as compared to opening 11 restaurants in the comparable period of 2007 and closing two restaurants. In response to some of the economic challenges, we may, from time to time, adjust certain factors in our restaurant development strategy, including such items as size or type of restaurant or timing of openings, and we will maintain a disciplined approach to new restaurant development.

We continue to make progress in the development and growth in most of our U.S. markets and have traditionally expanded into adjacent markets once our core markets are established. In 2008, we will advance this strategy by continuing to develop our presence in Lansing, Michigan, and the Company plans to open several restaurants in Syracuse, New York during the second half of 2008. Notwithstanding this growth, we anticipate that U.S. segment operating income will continue to show volatility, quarter-to-quarter and year-to-year, as we continue our growth and expansion into new and existing markets. As we enter new markets, average unit sales volumes for our franchisees may be lower than sales levels in our more established markets. In addition, based on past experience, as we add new restaurants in these developing markets, average unit sales growth for existing restaurants may be affected for a period of time until awareness of the brand improves and the market adjusts to the added convenience that new locations provide. In certain situations, we provide relief of rents and royalties, and in some cases, relief for other operating costs, for a period of time to support these franchisees. Such relief offsets our rent and royalty revenues. In developing markets when we transition a restaurant from a Company-operated restaurant to either a full franchised restaurant or a restaurant governed by an operator agreement, we also generally provide relief to the franchisee for an initial period. We are generally able to identify franchisees for new restaurants, but in certain developing markets, it may be more challenging; however, it has not historically been a major impediment to our growth. In 2008, we do not believe that the U.S. segment will be a significant contributor to our consolidated operating income.

Corporate charges were $13.1 million in the second quarter of 2008 compared to $9.7 million in the second quarter of 2007, an increase of $3.4 million. The increase in corporate charges is primarily attributable to the $3.1 million restructuring charge recorded in the second quarter of 2008. On a year-to-date basis, corporate charges were $20.3 million compared to $18.1 million in the 2007 year-to-date period, an increase of $2.2 million. Offsetting the impact to corporate charges of the $3.1 million restructuring charge on a year-to-date basis were lower printing and mailing costs due to our adoption of the SEC’s new “Notice and Access” model for the provision of proxy materials to shareholders through posting at a dedicated website where shareholders can view the information and vote on-line, as opposed to required printing and mailing of all materials to all of our shareholders. In addition, we had certain foreign exchange gains in the year-to-date period ended June 29, 2008 versus foreign exchange losses in the comparable period of 2007.

Included in corporate charges is a nominal amount of operating income from our international operations in the Republic of Ireland and the United Kingdom for the second quarter and year-to-date periods of 2008. This income is included in corporate charges because this venture was being managed corporately during the quarter. As of June 29, 2008, we had 213 licensed locations in the Republic of Ireland and the United Kingdom, which are excluded from our restaurant counts. These licensed locations primarily operate using our self-serve kiosk model. At this time, this business contributes nominal amounts to distribution sales and royalties revenues as well as to consolidated operating income. In April 2008, we announced changes to our executive management structure, including the dedication of one of the most senior members of our executive team to continue emphasis on the successful development of our U.S. business and to undertake a focused evaluation and potential growth of international opportunities.

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Overall, our total segment operating margins from our reportable segments were 25.5% and 24.9% for the quarters ended June 29, 2008 and July 1, 2007, respectively. On a year-to-date basis, our total segment operating margins from our reportable segments were 24.1% and 24.5% for 2008 and 2007, respectively.

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 from Wendy’s on September 29, 2006, as well as with respect to various post-separation matters. Our only continuing contractual relationship with Wendy’s is the tax sharing agreement governing certain tax matters between us and Wendy’s (see “Income Taxes”).

Results of Operations

Below is a summary of operations and a more detailed discussion of results for the second quarter and year-to-date periods of 2008 compared to the same periods of 2007.

	Second quarter ended										Change from prior year
	June 29, 2008			% of Revenues		July 1, 2007			% of Revenues		$			%
	(in thousands, except where noted)
Revenues
Sales	$	335,873		65.8	%	$	307,994		66.2	%	$	27,879		9.1	%
Franchise revenues:
Rents and royalties(1)		153,546		30.1	%		140,114		30.1	%		13,432		9.6	%
Franchise fees		21,273		4.2	%		17,149		3.7	%		4,124		24.0	%
		174,819		34.2	%		157,263		33.8	%		17,556		11.2	%
Total revenues		510,692		100.0	%		465,257		100.0	%		45,435		9.8	%
Costs and expenses
Cost of sales		293,101		57.4	%		269,847		58.0	%		23,254		8.6	%
Operating expenses		54,622		10.7	%		50,088		10.8	%		4,534		9.1	%
Franchise fee costs		19,908		3.9	%		17,074		3.7	%		2,834		16.6	%
General and administrative expense		36,124		7.1	%		30,810		6.6	%		5,314		17.2	%
Equity (income)		(10,001	)	(2.0	)%		(9,235	)	(2.0	)%		(766	)	8.3	%
Other (income) expense, net		(187	)	n/m			333		0.1	%		(520	)	n/m
Total costs and expenses, net		393,567		77.1	%		358,917		77.1	%		34,650		9.7	%
Operating income		117,125		22.9	%		106,340		22.9	%		10,785		10.1	%
Interest (expense)		(5,969	)	(1.2	)%		(6,143	)	(1.3	)%		174		(2.8	)%
Interest income		1,073		0.2	%		1,324		0.3	%		(251	)	(19.0	)%
Income before income taxes		112,229		22.0	%		101,521		21.8	%		10,708		10.5	%
Income taxes		37,255		7.3	%		34,282		7.4	%		2,973		8.7	%
Net income	$	74,974		14.7	%	$	67,239		14.5	%	$	7,735		11.5	%

n/m The comparison is not meaningful.

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

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	Year-to-date period ended										Change from prior year
	June 29, 2008			% of Revenues		July 1, 2007			% of Revenues		$			%
	(in thousands, except where noted)
Revenues
Sales	$	642,379		66.2	%	$	586,344		65.9	%	$	56,035		9.6	%
Franchise revenues:
Rents and royalties(1)		289,426		29.8	%		267,354		30.0	%		22,072		8.3	%
Franchise fees		39,204		4.0	%		36,167		4.1	%		3,037		8.4	%
		328,630		33.8	%		303,521		34.1	%		25,109		8.3	%
Total revenues		971,009		100.0	%		889,865		100.0	%		81,144		9.1	%
Costs and expenses
Cost of sales		565,384		58.2	%		517,251		58.1	%		48,133		9.3	%
Operating expenses		104,631		10.8	%		97,264		10.9	%		7,367		7.6	%
Franchise fee costs		38,188		3.9	%		33,477		3.8	%		4,711		14.1	%
General and administrative expense		67,010		6.9	%		59,560		6.7	%		7,450		12.5	%
Equity income		(17,363	)	(1.8	)%		(19,012	)	(2.1	)%		1,649		(8.7	)%
Other (income) expense, net		(470	)	n/m			780		0.1	%		(1,250	)	n/m
Total costs and expenses, net		757,380		78.0	%		689,320		77.5	%		68,060		9.9	%
Operating income		213,629		22.0	%		200,545		22.5	%		13,084		6.5	%
Interest (expense)		(12,320	)	(1.3	)%		(11,764	)	(1.3	)%		(556	)	4.7	%
Interest income		3,063		0.3	%		3,320		0.4	%		(257	)	(7.7	)%
Income before income taxes		204,372		21.0	%		192,101		21.6	%		12,271		6.4	%
Income taxes		67,578		7.0	%		65,601		7.4	%		1,977		3.0	%
Net income	$	136,794		14.1	%	$	126,500		14.2	%	$	10,294		8.1	%

n/m – The comparison is not meaningful.

⁽¹⁾ Rents and royalties revenues consist of (i) royalties, which typically range from 3.0% to 4.5% of gross franchise restaurant sales and (ii) rents, which consist of base and percentage rent in Canada and percentage rent only in the U.S., and 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 Condensed Consolidated Financial Statements, other than approximately 121 and 101 restaurants on average in the second quarters of 2008 and 2007, respectively, and 118 and 98 franchises on average in the year-to-date periods of 2008 and 2007, respectively, whose results of operations are consolidated with ours pursuant to FIN 46R. Franchise restaurant sales do, however, result in royalties and rental income, which are included in our franchise revenues. The reported franchise restaurant sales (including those consolidated pursuant to FIN 46R) were:

	Second quarter ended				Year-to-date period ended
	June 29, 2008		July 1, 2007		June 29, 2008		July 1, 2007
Franchise restaurant sales:
Canada (in thousands of Canadian dollars)	$	1,165,221	$	1,061,308	$	2,197,573	$	2,026,184
U.S. (in thousands of U.S. dollars)	$	86,495	$	74,464	$	165,152	$	142,276

Revenues

Sales

Sales during the second quarter of 2008 grew 9.1% to $335.9 million from the second quarter of 2007 sales of $308.0 million. Growth was driven primarily by warehouse sales, which increased $26.6 million, or 10.2%. The remaining increase in sales related to higher sales from FIN 46R restaurants, partially offset by lower sales from Company-operated restaurants, as discussed below. Warehouse sales were driven higher in the second quarter of 2008 by incremental sales of frozen and refrigerated products and by an overall increase in systemwide sales. The distribution of frozen and refrigerated products increased sales by approximately $11.4 million year-over-year as the second quarter of 2007 did not reflect the full roll-out of frozen and refrigerated products from the Guelph distribution centre. Systemwide sales growth, which includes the effect of a higher number of restaurants in the system coupled with same-store sales growth from existing restaurants, contributed approximately $6.8 million of the overall increase in warehouse sales. The remainder of the sales growth is attributable to a combination of changes in product mix and pricing. Warehouse sales represented 56.4% of total revenues during the second quarter of 2008, slightly higher than the mix of 56.2% of total revenues in the second quarter of 2007.

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Sales for the year-to-date periods ended June 29, 2008 and July 1, 2007 were $642.4 million and $586.3 million, respectively, an increase of $56.0 million, or 9.6%, year-over-year. The entire increase was a result of higher warehouse sales. Increases in sales from restaurants consolidated under FIN 46R offset declines in revenues from Company-operated restaurants due to fewer corporate stores. Incremental sales from frozen and refrigerated products contributed approximately $29.9 million of the increase in warehouse sales. Growth in systemwide sales contributed approximately $17.6 million, while pricing and product mix accounted for the remaining $8.5 million.

Company-operated restaurant sales were $11.1 million in the second quarter of 2008 or $4.1 million lower than sales in the second quarter of 2007. We operated on average 59 Company-operated restaurants during the second quarter of 2008 as compared to 82 in the second quarter of 2007. For the year-to-date periods ended June 29, 2008 and July 1, 2007, sales were $22.7 million and $30.9 million, representing an average of 64 and 86 Company-operated restaurants, respectively.

Sales due to the consolidation of 121 and 101 restaurants on average during the second quarter of 2008 and 2007 under FIN 46R were $36.6 million and $31.3 million, respectively. For the year-to-date periods ended June 29, 2008 and July 1, 2007, sales were $66.8 million and $58.6 million, representing an average of 118 and 98 FIN 46R franchise restaurants, respectively.

Sales from our U.S. segment 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 reduced the value of reported sales by approximately 1.1% compared to the value that would have been reported had there been no exchange rate movement during the second quarter of 2008. The foreign exchange impact to sales was approximately 1.7% for the 2008 year-to-date period.

Franchise Revenues

Rents and Royalties. Revenues from rents and royalties were $153.5 million in the second quarter of 2008, an increase of $13.4 million, or 9.6%, versus the comparable period of 2007. This increase was consistent with the second quarter 2008 systemwide sales growth, partially offset by higher relief provided to certain of our U.S. franchisees. As we continue to grow and expand into new markets, our franchisees may experience losses and, in certain situations, we may provide financial relief for a period of time to help offset these losses. Our net growth in rents and royalty revenues was primarily driven by $8.0 million related to positive average same-store sales growth and approximately $5.6 million related to the net addition of 179 new restaurants in the system year-over-year.

Rents and royalties increased 8.3% to $289.4 million for the year-to-date period ended June 29, 2008 as compared to $267.4 million in the year-to-date period ended July 1, 2007. This increase is consistent with systemwide sales growth rate of 8.6%. Same-store sales growth contributed approximately $12.0 million to the increase and a higher number of restaurants open contributed approximately $10.6 million to the year-over-year increase.

Franchise Fees. Franchise fees include the sales revenue from initial equipment packages, as well as fees to cover costs and expenses related to establishing a franchisee’s business. Franchise fee revenues for the second quarter and first half of 2008 were $21.3 million and $39.2 million, respectively, as compared to $17.1 million and $36.2 million in the second quarter and first half of 2007, respectively. The increase in franchise fees between quarter and year-to-date periods is primarily attributable to a higher number of units sold, and a shift in mix towards standard restaurant openings, whereas non-traditional openings were a higher proportion of 2007 revenues. In addition, we had higher revenues from renovations and replacement restaurants. This impact was offset, in part, by lower deferred revenues recognized in 2008 from our U.S. franchise incentive program. We opened 31 and 56 new restaurants in the second quarter and first half of 2008, respectively, as compared to 18 and 39 new restaurants in the second quarter and first half of 2007.

In the U.S., we have a franchise incentive program whereby revenue from the sale of equipment is deferred until the franchise restaurant has exceeded and maintained certain sales volume levels and other recognition criteria. This incentive program impacts the timing of revenue recognition of these proceeds.

Franchise revenues from our U.S. segment 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 reduced the value of reported rents and royalties and franchise fee revenues by approximately 0.5% and 0.8%, respectively, for the second quarter. On a year-to-date basis, foreign exchange reduced the value of reported rents and royalties and franchise fee revenues by approximately 0.7% and 1.2%, respectively, compared to the value that would have been reported had there been no exchange rate movement.

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Total Costs and Expenses

Cost of Sales

Cost of sales increased $23.3 million, or 8.6%, compared to the second quarter of 2007. This increase was primarily driven by an increase in warehouse cost of sales of $21.8 million, or 9.5%, during the period. The distribution of frozen and refrigerated products increased warehouse cost of sales by $10.7 million in the second quarter of 2008. The increase in the number of franchise restaurants open and higher average same-store sales contributed $5.9 million of the quarter-over-quarter increase. The remaining increase in warehouse cost of sales was primarily related to changes in product mix and costs. Higher costs of sales from restaurants consolidated under FIN 46R were largely offset by lower costs of sales at Company-operated restaurants (see below).

Cost of sales for the first half of 2008 increased $48.1 million, or 9.3%, to $565.4 million from first half of 2007 cost of sales of $517.3 million. An increase in warehouse cost of sales of $47.2 million comprised the majority of the increase. The distribution of frozen and refrigerated products contributed $26.9 million of the increase in warehouse cost of sales. New demand from additional restaurants opened in the period and growth in demand from existing restaurants resulted in $15.6 million of additional cost of sales with the remainder being the impact of product mix and higher product costs.

Distribution cost of sales represented 63.5% of our total costs and expenses, net, in the second quarters of 2008 and 2007 and 63.7% and 63.2% for the first half of 2008 and 2007, respectively. This continued shift in business mix is primarily attributable to the distribution of frozen and some refrigerated products from our Guelph distribution facility. The full transition to three-channel delivery was completed in the third quarter of 2007, after which warehouse sales for frozen and refrigerated distribution, as a percentage of revenues, stabilized. Our distribution business will continue to be subject to changes related to the underlying costs of key commodities, such as coffee and sugar. These cost changes can impact warehouse revenues, costs and margins, and can create volatility quarter-over-quarter and year-over-year. Increases and decreases in commodity costs are largely passed through to franchisees, resulting in higher or lower revenues and higher or lower costs of sales from our distribution business. These changes may impact margins as most of these products are typically priced based on a fixed-dollar mark-up. See “Commodity Risks” below.

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. Costs were $12.3 million and $26.1 million for the second quarter and year-to-date periods ended June 29, 2008, as compared to $17.0 million and $35.4 million for the second quarter and year-to-date periods ended July 1, 2007. The average number of Company-operated restaurants in the second quarter of 2008 decreased to 59 restaurants, as compared to 82 restaurants in the second quarter of 2007. The average number of Company-operated restaurants for the year-to-date period ended June 29, 2008 decreased by 22 to 64 restaurants from the year-to-date period ended July 1, 2007. We continue to focus on transitioning these restaurants to franchise or operator agreements. These transitioned restaurants may then result in us initially having to consolidate them in accordance with FIN 46R (see below).

The consolidation of 121 and 101 restaurants, on average, under FIN 46R during the quarters ended June 29, 2008 and July 1, 2007, respectively, resulted in cost of sales of $30.9 million and $24.8 million, respectively. For the year-to-date periods ended June 29, 2008 and July 1, 2007, the consolidation of 118 and 98 franchise restaurants, on average, under FIN 46R resulted in cost of sales of $56.4 million and $46.3 million, respectively.

The strengthening of the Canadian dollar relative to the U.S. dollar reduced the value of reported cost of sales during the second quarter of 2008 by approximately 1.2% and by approximately 1.9% year-to-date in 2008.

Operating Expenses

Total operating expenses, representing primarily rent expense and property costs, increased by $4.5 million, or 9.1%, in the second quarter of 2008 as compared to the second quarter of 2007 and increased $7.4 million, or 7.6%, in the first half of 2008 as compared to the first half of 2007, consistent with the increase in rents and royalties revenues in the same periods. Our Canadian operations contributed to the majority of this increase in both periods as our U.S. operating expenses, although higher, were partially offset by the weakening of the U.S. dollar (see below).

Rent expense and other property and support costs, increased during the period as a result of 130 additional properties being leased and then subleased to franchisees since July 1, 2007. Rent expense also increased due to higher percentage rent costs on certain properties resulting from increased restaurant sales. In addition, depreciation expense was also higher as the total number of properties owned or leased by us in Canada and the U.S. and then subleased to franchisees increased by 152 properties from July 1, 2007 to June 29, 2008.

Operating expenses from our U.S. segment are denominated in U.S. dollars and translated into Canadian dollars for reporting of our consolidated results. The strengthening of the Canadian dollar relative to the U.S. dollar reduced the overall value of operating expenses by approximately 1.0% compared to the value that would have been reported had there been no exchange rate movement in the second quarter of 2008 and by approximately 1.5% for year-to-date 2008.

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Franchise Fee Costs

Franchise fee costs include costs of equipment sold to franchisees as part of the commencement of their restaurant business, as well as training and other costs necessary to ensure a successful restaurant opening.

Franchise fee costs increased $2.8 million, or 16.6%, from the second quarter of 2008, mainly due to a higher number of units sold compared to last year and a higher number of renovations and replacements. For the year-to-date period ended June 29, 2008, franchise fee costs were $38.2 million compared to $33.5 million in the year-to-date period ended July 1, 2007. This year-over-year increase was primarily related to a higher number of units sold and an increase in equipment costs relating to restaurants sold and resales and replacements. Support costs and expenses associated with establishing a franchisee’s business were also higher in the second quarter and first half of 2008 compared to the corresponding periods of 2007.

Franchise fee costs from our U.S. segment are denominated in U.S. dollars and translated into Canadian dollars for reporting our consolidated results. The strengthening of the Canadian dollar relative to the U.S. dollar reduced the value of franchise fee costs by approximately 0.8% compared to the value that would have been reported had there been no exchange rate movement in the second quarter of 2008 and by approximately 1.3% for the year-to-date period in 2008.

General and Administrative Expense

General and administrative expense is comprised of expenses associated with corporate and administrative functions that support current operations and provide the infrastructure to support future growth.

General and administrative expense was $36.1 million in the second quarter of 2008 and $67.0 million for the first half of 2008 compared to $30.8 million in the second quarter of 2007 and $59.6 million for the first half of 2007. Included in general and administrative expense for the second quarter and first half of 2008 was a restructuring charge of $3.1 million reflecting the previously mentioned management organizational changes. The remaining increase of $2.2 million in the second quarter of 2008 and $4.3 million for the first half of 2008 related primarily to higher salary and benefits, and recruiting and training costs due to additional employees required to support the growth of the business. Excluding the $3.1 million restructuring charge, general and administrative expense as a percentage of revenues, decreased from 6.6% in the second quarter of 2007 to 6.5% in the second quarter of 2008 and from 6.7% in the first half of 2007 to 6.6% in the first half of 2008.

Our U.S. segment general and administrative expense is denominated in U.S. dollars and translated into Canadian dollars for reporting our consolidated results. The strengthening of the Canadian dollar relative to the U.S. dollar reduced the value of general and administrative expense by approximately 1.3% compared to the value that would have been reported had there been no exchange rate movement in the second quarter of 2008 and by approximately 1.9% for the year-to-date period in 2008.

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™, bread products and, most recently, pastries, and our TIMWEN Partnership, which leases Canadian Tim Hortons/Wendy’s combination restaurants.

In the second quarter of 2008, equity income was $10.0 million, an increase of $0.8 million, or 8.3%, from the second quarter of 2007. On a year-to date basis in 2008, equity income was $17.4 million, which is $1.6 million lower than the comparable 2007 year-to-date period. This year-to-date decrease is primarily a result of a non-cash tax benefit of approximately $1.0 million recognized by our bakery joint venture in the first quarter of 2007 as well as lower operating income at our bakery joint venture as a result of commissioning costs for a new pastry line that was put into operation during the first quarter of 2008. As anticipated, the 2007 tax benefit did not recur in 2008. The new pastry line began servicing system restaurants in a phased approach during the second quarter of 2008. Our equity income does not necessarily grow at the same rate as our systemwide sales as it is not representative of all of the components of our business.

Other Income and Expense, net

Other income and expense, net, includes amounts that are not directly derived from our primary businesses. This includes expenses related to restaurant closures, other asset write-offs, foreign exchange gains and losses and minority interest.

Other income, net in the second quarter of 2008 was $0.2 million and other expense, net in the second quarter of 2007 was $0.3 million. Other income, net was $0.5 million in the year-to-date period ended June 29, 2008 and other expense, net was $0.8 million in the year-to-date period ended July 1, 2007. The changes year-over-year were primarily a result of foreign exchange.

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Interest Expense

Total interest expense, including interest on our credit facilities was $6.0 million in the second quarter of 2008 and $6.1 million in the second quarter of 2007. The slight decrease was a result of lower effective interest rates on our external debt, partially offset by higher interest on additional capital leases.

For the year-to-date period ended June 29, 2008, total interest expense was $12.3 million compared to $11.8 million in the year-to-date period ended July 1, 2007. The increase was primarily a result of higher interest on additional capital leases.

Interest Income

Interest income was $1.1 million in the second quarter of 2008 and $1.3 million in the second quarter of 2007. Interest income was $3.1 million for the year-to-date period ended June 29, 2008 compared to interest income of $3.3 million earned in the year-to-date period ended July 1, 2007. Lower overall rates on investments and lower overall non-restricted balances were partially offset by interest earned on restricted cash relating to our TimCard^®. Interest earned on restricted cash of $0.1 million in the second quarter of 2008 ($0.3 million year-to-date 2008) was contributed back to our advertising and promotion fund. The contribution is recorded in general and administrative expense.

Income Taxes

The effective tax rates were 33.2% and 33.8% for the second quarters ended June 29, 2008 and July 1, 2007, respectively. The effective rates were 33.1% and 34.2% for the year-to-date periods ended June 29, 2008 and July 1, 2007, respectively. The effective tax rate variances between all periods presented is primarily due to the reduction in Canadian federal statutory tax rates in 2008, partially offset by a shift in the geographical mix of our earned income.

We are party to a tax sharing agreement with Wendy’s, as subsequently amended, which sets forth the principles and responsibilities of Wendy’s and us regarding the allocation of taxes, audits and other tax matters relating to periods when we were part of the same U.S. federal consolidated or state and local combined tax filing group. The agreement is applicable for all taxation periods up to September 29, 2006. Commencing September 30, 2006, we became a standalone public company and, as a result, we file all U.S. tax returns independently from Wendy’s from that date forward. Either we or Wendy’s may be required to reimburse the other party for the use of tax attributes while we filed U.S. consolidated or state and local combined returns, as a result of audits or similar proceedings giving rise to “adjustments” to previously filed returns, in accordance with the terms of the agreement. As several years remain open to review and adjustment by taxation authorities, payments may be made by one party to the other for the use of the other party’s tax attributes. No payments have been made by either party to the other under this agreement during the year-to-date period ended June 29, 2008.

Comprehensive Income

In the second quarter of 2008, comprehensive income was $70.5 million compared to $35.4 million in the second quarter of 2007. Net income increased $7.7 million from the second quarter of 2007 to the second quarter of 2008, as discussed above. The other significant component of comprehensive income was a translation adjustment loss of $4.8 million in the second quarter of 2008 compared to a translation loss of $29.4 million in the second quarter of 2007. Translation adjustment income (loss) arises from the translation of our U.S. net assets into our reporting currency, Canadian dollars, at the period end rates. Other comprehensive income in the second quarter of 2007 was comprised of net income of $67.2 million, translation adjustment loss of $29.4 million and a loss related to cash flow hedges, net of taxes, of $2.5 million.

For the year-to-date periods ended June 29, 2008 and July 1, 2007, comprehensive income was $147.5 million and $90.1 million, respectively. Components of comprehensive income for the year-to-date period ended June 29, 2008 included a translation gain of $10.3 million, and gains from cash flow hedges, net of tax of $0.4 million. Components of comprehensive income for the period ended July 1, 2007 included a translation loss of $32.7 million and losses from cash flow hedges, net of tax of $3.7 million.

The 2008 exchange rates were C$1.0106, C$1.0215, and C$0.9805 for US$1.00 on June 29, 2008, March 30, 2008 and December 30, 2007, respectively. The 2007 exchange rates were on C$1.0654, C$1.1546, and C$1.1654 for US$1.00 on July 1, 2007, April 1, 2007 and December 31, 2006, respectively.

Liquidity and Capital Resources

Overview

Our primary source of liquidity has historically been, and continues to be, cash generated from Canadian operations which has self-funded our operations, growth in new restaurants, capital expenditures, dividends, share repurchases, acquisitions and investments during the last five years. Our U.S. operations have historically been a net user of cash given its stage of growth, and we expect this trend to continue for the balance of 2008. Our Canadian and U.S. revolving credit facilities provide additional sources of liquidity, if needed.

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Our primary liquidity and capital requirements are for new store construction, renovations of existing restaurants, expansion of our business through vertical integration and general corporate needs. In addition, we utilize cash to fund our dividends and share repurchase programs. Historically, our annual working capital needs have not been significant because of our focused management of accounts receivable and inventory. In each of the last five fiscal years, operating cash flows have fully funded our capital expenditure requirements for new restaurant development, remodelling, technology initiatives and other capital needs. As we stated in February 2008, our targets are to open 120 to 140 new restaurants in Canada and 90 to 110 new restaurants in the U.S., potentially including self-serve kiosks. The cost and availability of real estate and construction costs, including the cost and availability of labour required for construction of our restaurants in certain areas where we seek to develop restaurants, such as Alberta and other areas of Western Canada, and in some areas of the U.S., have historically been, and may continue to be, limiting factors to our growth in these regions. We anticipate that these conditions are likely to persist through 2008 in selective regions of Canada and the U.S. In the year-to-date period ended June 29, 2008, we generated $121.3 million of cash from operations, as compared to cash generated from operations of $118.8 million in the year-to-date period ended July 1, 2007, for a net increase of $2.5 million (see “Comparative Cash Flows” below). We believe that we will continue to generate adequate operating cash flows to fund both our capital expenditures and expected debt service requirements over the next twelve months.

If additional funds are needed for strategic initiatives or other corporate purposes, we believe that the strength of our balance sheet would allow us to borrow additional funds while maintaining a strong capital structure. Our ability to incur additional indebtedness will be limited by our financial and other covenants under our existing credit facilities. Any such borrowings may result in an increase in our borrowing costs. If such additional borrowings are significant, our capital structure could be weakened, and it is possible that we would not be able to borrow on terms which are favourable to us. Additionally, our ability to issue additional equity is constrained for some time because our issuance of additional shares is a factor that could be considered relevant to a determination related to the Wendy’s spin-off transaction under Section 355 of the Internal Revenue Code and, under the tax sharing agreement, we would be required to indemnify Wendy’s against the taxes payable if our issuance of shares resulted in a gain being recognized.

When evaluating our leverage position, we look at metrics that consider the impact of long-term operating and capital leases as well as other long-term debt obligations. We believe this provides a more meaningful measure of our leverage position given our significant investments in real estate. At June 29, 2008, we had approximately $383.4 million in term debt and capital leases, included in long-term obligations, on our balance sheet. We continue to believe that the strength of our balance sheet provides us with opportunity and flexibility for future growth while still enabling us to return excess cash to our stockholders through a combination of our share repurchase program and dividends.

In the second quarter of 2008, we continued to repurchase shares under our previously announced stock repurchase program, which authorized the Company to purchase up to $200 million of common stock, not to exceed 5% of outstanding shares of common stock at the time of the approval in October 2007. In the year-to date period ended June 29, 2008, we spent $100.3 million to repurchase approximately 2.9 million shares under this program. As at June 29, 2008, we have purchased an aggregate of approximately 3.9 million shares for a total cost of $135.9 million of the $200 million repurchase program.

Comparative Cash Flows

Operating Activities. Net cash generated from operating activities was $121.3 million in the year-to-date period ended June 29, 2008 as compared to $118.8 million generated from operating activities in the year-to-date period ended July 1, 2007. Operating cash flows increased by $2.5 million in the year-to date period ended June 29, 2008, driven primarily from the timing of working capital movements, increased earnings and higher depreciation and amortization expense. Depreciation and amortization expense for the second quarter of 2008 was $22.3 million as compared to $21.3 million in the second quarter of 2007, and on a year-to-date basis, it was $44.1 million in 2008 and $41.0 million in 2007.

Investing Activities. Net cash used in investing activities was $69.3 million and $67.5 million for the year-to-date periods ended June 29, 2008 and July 1, 2007, respectively. Capital expenditures were $66.1 million and $70.4 million in the year-to-date periods ended June 29, 2008 and July 1, 2007, respectively. Capital expenditures are typically the largest ongoing component of our investing activities and include expenditures for new restaurants, improvements to existing restaurants and other corporate capital needs. Capital expenditures during these periods are summarized as follows:

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	Year-to-date period ended
	June 29, 2008		July 1, 2007
	(in millions)
Capital expenditures
New restaurants	$	42.2	$	40.6
Store replacements and renovations		16.9		18.2
Other capital needs		7.0		11.6
Total capital expenditures	$	66.1	$	70.4

In the year-to-date period ended June 29, 2008, we opened 45 new restaurants in Canada and 11 in the U.S. compared with 28 in Canada and 11 in the U.S. in the year-to-date period of 2007. We continue to expect future capital needs related to our normal business activities to be funded through ongoing operations, including the capital expenditures for the coffee roasting facility discussed earlier. Expenditures for other capital needs include amounts for software implementations, other equipment purchases required for ongoing business needs and, in 2007, included the conversion of our Oakville warehouse to office space. Capital expenditures for new restaurants by operating segment were as follows:

	Year-to-date period ended
	June 29, 2008		July 1, 2007
	(in millions)
Capital expenditures – new restaurants
Canada	$	29.9	$	21.2
U.S.		12.3		19.4
Total	$	42.2	$	40.6

Financing Activities. Financing activities used cash of $138.7 million in the year-to-date period ended June 29, 2008 and used cash of $124.0 million in the year-to-date period ended July 1, 2007. On a year-to-date basis in 2008, we repurchased $100.3 million of shares of our common stock and paid $33.3 million in dividends to our stockholders. In the year-to-date period ended July 1, 2007, we repurchased $90.0 million of shares of our common stock and paid $26.6 million in dividends to our stockholders.

Off-Balance Sheet Arrangements

We do not have “off-balance sheet” arrangements as of June 29, 2008 and July 1, 2007 as that term is described by the SEC.

Basis of Presentation

The functional currency of Tim Hortons Inc. is the Canadian dollar as the majority of the Company’s cash flows are in Canadian dollars. The functional currency of each of our operating subsidiaries and legal entities is the local currency in which each subsidiary operates, which is the Canadian or U.S. dollar or the Euro. The majority of our operations, restaurants and cash flows are based in Canada, and we are primarily managed in Canadian dollars. As a result, we have selected the Canadian dollar as our reporting currency.

Application of Critical Accounting Policies

The Condensed Consolidated Financial Statements and accompanying notes included in this report have been prepared in accordance with accounting principles generally accepted in the United States with certain amounts based on management’s best estimates and judgments. To determine appropriate carrying values of assets and liabilities that are not readily available from other sources, management uses assumptions based on historical results and other factors that they believe are reasonable. Actual results could differ from those estimates. Also, materially different amounts may result under materially different conditions or from using materially different assumptions. However, management currently believes that any materially different amounts resulting from materially different conditions or material changes in facts or circumstances are unlikely.

Other than the adoption of SFAS 157, as noted below, there have been no significant changes in critical accounting policies or management estimates since the year ended December 30, 2007. A comprehensive discussion of our critical accounting policies and management estimates is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 30, 2007, filed with the SEC on February 26, 2008, which is incorporated herein by reference.

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Effective December 31, 2007, we adopted SFAS No. 157 – Fair Value Measurements (“SFAS 157”). In February 2008, the FASB issued FASB Staff Position No. FAS 157-2 – Effective Date of FASB Statement No. 157, which provides a one year deferral of the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, we have adopted the provisions of SFAS 157 with respect to our financial assets and liabilities only. SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. We are currently evaluating the potential impact, if any, of the adoption of SFAS 141R on our Consolidated Financial Statements.

Effective December 31, 2007, we also adopted SFAS No. 159 – The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for specified financial assets and liabilities on a contract-by-contract basis with changes in value reported in earnings. We did not elect to report any assets or liabilities at fair value under this standard.

Recently Issued Accounting Standards

In December 2007, the FASB issued SFAS No. 141R – Business Combinations (“SFAS 141R”). This Statement replaces FASB SFAS No. 141. SFAS 141R establishes principles and requirements for how an acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We are currently evaluating the potential impact, if any, of the adoption of SFAS 141R on our Consolidated Financial Statements.

On February 12, 2008, the FASB issued FASB Staff Position No. FAS 157-2 – Effective Date of FASB Statement No. 157 (“SFAS 157-2”), which amends SFAS 157 by delaying its effective date by one year for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Therefore, beginning on December 31, 2007, this standard applies prospectively to new fair value measurements of financial instruments and recurring fair value measurements of non-financial assets and non-financial liabilities. On December 29, 2008, the standard will also apply to all other fair value measurements. We are currently evaluating the potential impact of the adoption of SFAS 157-2 on our Consolidated Financial Statements.

In December 2007, the FASB issued SFAS No. 160 – Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51. This Statement amends Accounting Research Bulletin No. 51 – Consolidated Financial Statements (“ARB 51”) to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the Consolidated Financial Statements. In addition to the amendments to ARB 51, this Statement amends FASB Statement No. 128 – Earnings per Share, with the result that earnings-per-share data will continue to be calculated the same as it was calculated before this Statement was issued. This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. We are currently evaluating the impact of adoption of this pronouncement on our Consolidated Financial Statements.

In March 2008, the FASB issued SFAS No. 161 – Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). This new standard enhances disclosure requirements for derivative instruments in order to provide users of financial statements with an enhanced understanding of (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under Financial Accounting Standards No. 133 – Accounting for Derivative Instruments and Hedging Activities and its related interpretations, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is to be applied prospectively for the first annual reporting period beginning on or after November 15, 2008, with early application encouraged. We are currently evaluating the impact of this pronouncement on our Consolidated Financial Statements.

Quantitative and Qualitative Disclosures about Market Risk

Market Risk

Our exposure to various market risks remains substantially the same as reported as of December 30, 2007, as supplemented hereinbelow with respect to “Commodity Risk.” As such, our disclosures about market risk are incorporated herein by reference from our 2007 Annual Report on Form 10-K filed with the SEC on February 26, 2008 under “Item 7A. Quantitative and Qualitative Disclosure About Market Risk” on pages 75 through 77.

Foreign Exchange Risk

        Our exposure to various foreign exchange risks remains substantially the same as reported as of December 30, 2007. As such, our disclosures about foreign exchange risk are incorporated herein by reference from our 2007 Annual Report on Form 10-K filed with the SEC on February 26, 2008 under “Item 7A. Quantitative and Qualitative Disclosure About Market Risk – Foreign Exchange Risk” on pages 75 and 76.

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Commodity Risk

Our exposure to various commodity risks remains substantially the same as reported as of December 30, 2007. As such, our disclosures about commodity risk are incorporated herein by reference from our 2007 Annual Report on Form 10-K filed with the SEC on February 26, 2008 under “Item 7A. Quantitative and Qualitative Disclosure About Market Risk – Commodity Risk” on page 76.

In addition, we currently have purchase contracts in place for the remainder of 2008 covering key commodities such as coffee, wheat, sugar, and cooking oils. As we have stated previously, we may be subject to higher commodity prices depending upon prevailing market conditions at the time we make purchases beyond our current commitments.

Interest Rate Risk

Our exposure to various interest rate risks remains substantially the same as reported as of December 30, 2007. As such, our disclosures about interest rate risk are incorporated herein by reference from our 2007 Annual Report on Form 10-K filed with the SEC on February 26, 2008 under “Item 7A. Quantitative and Qualitative Disclosure About Market Risk – Interest Rate Risk” on pages 76 and 77.

Inflation

Our exposure to various inflationary risks remains substantially the same as reported as of December 30, 2007. As such, our disclosures about inflationary risks are incorporated herein by reference from our 2007 Annual Report on Form 10-K filed with the SEC on February 26, 2008 under “Item 7A. Quantitative and Qualitative Disclosure About Market Risk – Inflation” on page 77.

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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, and those set forth in the Company’s most recent Form 10-K, filed February 26, 2008, 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, real estate sites and type and quality of food; changes in international, national, regional and local economic and political conditions; consumer preferences and perceptions (including food safety, health and dietary preferences and perceptions); spending patterns, consumer confidence; demographic trends; seasonality, weather events and other calamities; the type, number and location of competing restaurants; enhanced or changes in existing governmental regulation (including nutritional and franchise regulations); changes in capital market conditions that affect valuations of restaurant companies in general or the value of Company’s stock in particular; litigation relating to food quality, handling or nutritional content or other legal claims; the effects of war or terrorist activities and any governmental responses thereto; higher energy and/or fuel costs; food costs; the cost and/or availability of a qualified work force and other labour issues; benefit costs; legal and regulatory compliance; new or additional sales tax on the Company’s products; disruptions in supply chain or changes in the price, availability and shipping costs of supplies (including changes in international commodity markets, especially for coffee); utility and other operating costs; the ability of the Company and/or its franchisees to finance new restaurant development, improvements and additions to existing restaurants, and acquire and sell restaurants; the maintenance of our brand reputation and the Company’s relationship with its franchisees; any substantial or sustained decline in the Company’s Canadian business; 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; risks associated with foreign exchange fluctuations; risks associated with the Company’s investigation of and/or completion of acquisitions, mergers, joint ventures or other targeted growth opportunities; and risks associated with a variety of factors or events that could negatively affect our brand and/or reputation; and, other factors set forth in Exhibit 99 attached hereto. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date made. Except as required by federal or provincial securities laws, the Company undertakes no obligation to publicly announce any revisions to the forward-looking statements contained in this Form 10-Q, or to update them to reflect events or circumstances occurring after the date of filing of this Form 10-Q, or to reflect the occurrence of unanticipated events, even if new information, future events or other circumstances have made the forward-looking statements incorrect or misleading.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information is incorporated by reference from the section titled “Market Risk” on page 34 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) In the second quarter of 2008, we completed the migration of our Canadian fixed asset repository to our enterprise resource planning system. Except for this change, no change was made in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On June 16, 2008, we filed a report on Form 8-K describing a claim that was filed against us and certain of our affiliates on June 12, 2008 in the Ontario Superior Court of Justice (“Court”) by two of our franchisees, Fairview Donut Inc. and Brule Foods Ltd., alleging, generally, that our Always Fresh baking system and expansion of lunch offerings has led to lower franchisee profitability. The claim, which seeks class action certification on behalf of Canadian franchisees, asserts damages of approximately $1.95 billion. We believe the claim is frivolous and completely without merit. We intend to vigorously defend the action; however, there can be no assurance that the outcome of the claim will be favourable to us or that it will not have a material adverse impact on our financial

36

position or liquidity in the event that the determinations by the Court and/or appellate court are not in accordance with our evaluation of this claim.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed under the heading “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on February 26, 2008, as well as information in our other public filings, press releases, and in our Safe Harbor statement. Any of these “risk factors” could materially affect our business, financial condition or future results. The risks described in the Annual Report on Form 10-K, and the additional information provided in this Form 10-Q and elsewhere, as described above, 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

ISSUER PURCHASES OF EQUITY SECURITIES

Period	(a) Total Number of Shares Purchased (1)		(b) Average Price Paid per Share (Cdn.) (2)		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (Cdn.) (3) (4)
Monthly Period #4 (March 31, 2008 — May 4, 2008)	357,155		$	34.89	357,155	$	100,601,147
Monthly Period #5 (May 5, 2008 — June 1, 2008)	872,679	(5)	$	32.94	749,930	$	75,933,133
Monthly Period #6 (June 2, 2008 — June 29, 2008)	368,219		$	31.93	368,219	$	64,180,619
Total	1,598,053		$	33.14	1,475,304	$	64,180,619

⁽¹⁾ Based on settlement date.

⁽²⁾ Inclusive of commissions paid to the broker to repurchase the shares.

⁽³⁾ Exclusive of commissions paid to the broker to repurchase the shares.

⁽⁴⁾ In October 2007, our Board of Directors approved, and we publicly announced, a stock repurchase program authorizing us to purchase up to $200 million of common stock, not to exceed 9,354,264, or 5%, of our outstanding shares as at the time of regulatory approval, prior to October 30, 2008, the termination date of the program. We may make such repurchases on the NYSE and/or the TSX. For a significant portion of the repurchase program, we entered into a Rule 10b5-1 repurchase plan, which allows us to purchase our stock at times when we may not otherwise do so due to regulatory or our restrictions. Purchases are based on the parameters of the Rule 10b5-1 plan. At present, we also intend to make repurchases at management’s discretion under this program from time-to-time, subject to market conditions, share price, cash position, and compliance with regulatory requirements. No repurchase plan or program established by us expired or was terminated by us during the second quarter of 2008. Numbers reflected in this column and in column (c) do not include purchases described in footnote 5 below, which are not considered to be part of our publicly announced share repurchase program.

⁽⁵⁾ In May 2008, Computershare Trust Company of Canada (the “Trustee”), on behalf of The TDL RSU Plan Trust (the “Trust”), purchased 115,947 shares on the TSX through a broker, the same broker utilized for our publicly announced share repurchase program, as a means of fixing the cash flow requirements in connection with the settlement of restricted stock units awarded to most of our eligible Canadian employees under our 2006 Stock Incentive Plan, as amended and most recently restated in May 2008 (the “Plan”), upon settlement. As such, the shares acquired by the Trust remain outstanding, and the Trust will retain and hold these shares until directed by The TDL Group Corp. (“TDL”), a Canadian subsidiary of ours, to distribute shares to most Canadian employees in settlement of vested restricted stock units. Shares held by the Trust will not count toward determining whether a quorum exists nor are they entitled to voting rights. Dividends paid on the shares owned by the Trust will be paid to the Trust in cash, and, at the direction of TDL, the Trustee may acquire additional shares of our stock with such cash in order to obtain additional shares to settle dividend equivalent rights that accrue in respect of the outstanding and unvested restricted stock units. In creating the Trust, it was contemplated that the Trust would be used to acquire additional shares in the future to fix cash flow requirements that may arise in connection with restricted stock unit grants to certain Canadian employees made in the future under the Plan. In addition, on May 15, 2008, an agent of ours, also using the same broker utilized for our publicly announced share repurchase program, purchased 6,802 shares on the open market, to settle, after provision for payment of the employees’ minimum statutory withholding tax requirements, our RSU settlement obligation to certain employees.

Dividend Restrictions with Respect to Part II, Item 2 Matters

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

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Our disclosure regarding the submission of matters to a vote of security holders at the Annual Meeting of Stockholders of Tim Hortons Inc. held on May 2, 2008 is incorporated herein by reference from “Part II. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS” on pages 32 and 33 of our Quarterly Report on Form 10-Q filed with the SEC on May 7, 2008.

ITEM 6. EXHIBITS

(a) Index to Exhibits on Page 41.

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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: August 7, 2008	/s/ Cynthia J. Devine
	Cynthia J. Devine
	Chief Financial Officer and Principal Accounting Officer

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TIM HORTONS INC. AND SUBSIDIARIES

INDEX TO EXHIBITS

Exhibit Number	Description
10(a)	Form of Canadian Director Deferred Stock Unit Plan Award Agreement, as amended
10(b)	2008 Restricted Stock Unit Award Agreement (with related Dividend Equivalent Rights) for Donald B. Schroeder
10(c)	Form of Restricted Stock Unit Award Agreement (with related Dividend Equivalent Rights) for Named Executive Officers, other than Donald B. Schroeder (2008 Award)
10(d)	Form of Restricted Stock Unit Award Agreement (with related Dividend Equivalent Rights) for Employees (Canadian, U.S. and Other), other than the Named Executive Officers (2008 Award)
10(e)	Form of Nonqualified Stock Option Award Agreement (with related Stock Appreciation Rights) for Named Executive Officers (2008 Award)
10(f)	Information regarding Quantitative and Qualitative Disclosures About Market Risk on pages 75 to 77 of Tim Hortons Inc.’s 2007 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2008 (file no. 001-32843)
10(g)	Information regarding the Submission of Matters to a Vote of Security Holders on pages 32 and 33 of Tim Hortons Inc.’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 7, 2008 (file no. 001-32843)
31(a)	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31(b)	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32(a)	Section 1350 Certification of Chief Executive Officer
32(b)	Section 1350 Certification of Chief Financial Officer
99	Safe Harbor Under the Private Securities Litigation Reform Act of 1995

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EX-10.(A)

Form of Canadian Director Deferred Stock Unit Plan	Exhibit 10(a)
Award Agreement, as amended

DEFERRED STOCK UNIT AWARD AGREEMENT

(with related Dividend Equivalent Rights)

(Canadian Directors)

Tim Hortons Inc.

[Date]

THIS AGREEMENT, made effective as of the      day of                     , 20     (the “Effective Date”), is between Tim Hortons Inc., a Delaware corporation (the “Company”), and                                          (the “Grantee”) (collectively, the “Parties”).

WHEREAS, the Company has adopted the Tim Hortons Inc. Non-Employee Director Deferred Stock Unit Plan, as amended from time to time (the “Plan”), in order to provide an additional incentive to non-employee directors of the Company; and

WHEREAS, pursuant to Section 4 of the Plan, the Company may grant, from time-to-time, to the Grantee Elective DSUs, Formula DSUs, Voluntary Formula DSUs and Discretionary DSUs (all as defined in the Plan and collectively referred to herein as “DSUs” or, individually, a “DSU”) with related Dividend Equivalent Rights; and

WHEREAS, each grant of DSUs shall be evidenced by this Agreement, which (together with the Plan), describes all the terms and conditions of the respective DSU grant.

NOW, THEREFORE, the Parties agree as follows:

1 Awards.

1.1 The Company hereby grants to the Grantee awards (the “Awards”) of the number of Formula DSUs, Voluntary Formula DSUs, Elective DSUs, and Discretionary DSUs as set out on Schedule A hereto with an equal number of related Dividend Equivalent Rights on the date(s) of grant (each a “Grant Date”) set forth on Schedule A. Grants of DSUs are subject to certain administrative determinations to be made by the Human Resource and Compensation Committee of the Company (the “Committee”) from time-to-time, which are described on Schedule A and which, unless otherwise specified on Schedule A, shall apply in respect of all existing and future Awards; provided that no such administrative determination will impair the rights of the Grantee without the consent of the Grantee, except as may be permitted pursuant to Sections 5 and 11 of this Agreement. Each DSU shall have the value of one share of Company’s common stock, par value U.S.$0.001 per share and any other securities into which such share is changed or for which such share is exchanged (“Share”). Distributions and payments for DSUs and Dividend Equivalent Rights shall be made in accordance with the terms of Section 5 and 6 hereof, respectively. The DSUs and related Dividend Equivalent Rights granted pursuant to the Awards shall be subject to the execution and return of this Agreement by the Grantee. On a quarterly basis, the Company will deliver to the Grantee an updated Schedule A setting out the total number of DSUs that have been granted to the Grantee under the Plan and pursuant to this Agreement from the Effective Date to the date of such Schedule. Grantee shall be deemed

to have (i) accepted and agreed to the terms and conditions of the Awards and administrative determinations described on the Schedule and (ii) confirmed their agreement and acknowledgment that the terms of this Agreement continue to comply in full force and effect to all such future Awards, unless Grantee notifies the Company within 15 business days after receipt of the respective quarterly Schedule A.

1.2 Each Dividend Equivalent Right represents the right to receive an amount in respect of all of the cash dividends or other distributions that are or would be payable with respect to the number of DSUs held by the Grantee if the DSUs were Shares. The cash value attributable to Dividend Equivalent Rights shall be deferred and converted into additional DSUs based on the Fair Market Value of a Share on the date such dividend is paid. “Fair Market Value” or “FMV” on any date shall be equal to the mean of the high and low prices at which Shares are traded on the Toronto Stock Exchange on such date or the mean of the high and low prices at which the Shares are traded on the New York Stock Exchange, as designated by the Committee on or prior to such date and set out on Schedule A hereto. Any additional DSUs granted pursuant to this Section shall be subject to the same terms and conditions applicable to the DSU to which the Dividend Equivalent Right relates, including, without limitation, the restrictions on transfer, forfeiture, vesting and payment provisions contained in Sections 2 through 5, inclusive, of this Agreement. In the event that a DSU is forfeited pursuant to Section 5 hereof, the related Dividend Equivalent Right shall also be forfeited.

1.3 This Agreement shall be construed in accordance and consistent with, and subject to, the provisions of the Plan (the provisions of which are hereby incorporated by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan.

2 Restrictions on Transfer.

The DSUs and Dividend Equivalent Rights granted pursuant to this Agreement may not be sold, transferred or otherwise disposed of and may not be pledged or otherwise hypothecated.

3 Vesting.

All DSUs and accompanying Dividend Equivalents Rights granted hereunder shall vest upon the Grantee’s separation from service. “Separation from service” shall occur on the earliest date on which both the following conditions have been met: (i) the Grantee has ceased to be employed by the Company or any of its Subsidiaries for any reason whatsoever and (ii) the Grantee is not a member of the Board of Directors of the Company or any of its Subsidiaries.

4 Effect of Change of Shares Subject to the Plan

In the event of a Change in Capitalization (as defined in the Tim Hortons Inc. 2006 Stock Incentive Plan (the “2006 Stock Plan”)), the Committee shall conclusively determine the appropriate adjustments, if any, to the Grantee’s outstanding DSUs. If adjustments are to be made, they shall be made in the same manner as adjustments are made to awards that are outstanding under the

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2006 Stock Plan. Adjusted DSUs shall remain subject to the same conditions that were applicable to the DSUs prior to the adjustments, provided that, notwithstanding the foregoing, any adjustments to a DSU shall be on the basis that the amounts payable under such DSU shall continue to depend on the FMV of the Shares of the Company, or a corporation related thereto, at a time within the period beginning one year before the Grantee’s separation from service and ending at the time of receipt of payment.

5 Distributions.

All DSUs granted to the Grantee under the Agreement shall be paid out, in a lump sum, as soon as administratively possible following separation from service (and in any event no later than December 31 of the year following the year in which the Grantee’s separation from service occurs), unless the Grantee has filed an election no later than December 31 of the year before the year in which a particular grant is made, to have such payment made at the end of the first calendar year commencing after the Grantee’s separation from service. Notwithstanding the foregoing, all Formula DSUs (not including Voluntary Formula DSUs or Elective DSUs) and, unless otherwise set out on Schedule A hereto with respect to a specific Award, Discretionary DSUs, shall be forfeited if the Grantee is removed from service due to the commission of an act of fraud or intentional misrepresentation or an act of embezzlement, misappropriation or conversion of assets or opportunities of the Company or any of its Subsidiaries. In the event that the Grantee is resident in Canada for purposes of the Income Tax Act (Canada) (the “ITA”) at the time the DSUs are awarded to the Grantee pursuant to this Agreement (the “Effective Time”) or is expected to be subject to tax under the ITA in accordance with any relevant Canadian income tax convention in respect of his or her remuneration as a director of the Company at the Effective Time, and in the event that there are any inconsistencies between any provision governing or action in respect of the DSUs awarded hereunder and any provision of Regulation 6801(d) under the ITA, the applicable provision of Regulation 6801(d) under the ITA shall supersede the provision or action in respect of these DSUs.

6 Payment.

All DSUs shall be paid in cash based on the Fair Market Value of a Share on the date of the Grantee’s separation from service in accordance with the administrative determinations made by the Committee from time-to-time regarding the payments of DSUs upon settlement, which shall be noted on Schedule A from time-to-time, as applicable. Notwithstanding the foregoing, the Company shall be entitled to withhold and/or deduct any and all amounts required to be withheld from any payment hereunder on account of taxes or other governmental charges.

7 Execution of the Awards.

The grant of the DSUs and Dividend Equivalent Rights to the Grantee pursuant to the Awards shall be conditional upon the Grantee’s execution and return of this Agreement to the Company or its designee (including by electronic means, if so provided) no later than                     , 20     .

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8 No Right to Continued Service.

Nothing in this Agreement or the Plan shall confer upon the Grantee any right to continuance of service as a Board member or otherwise as an employee of the Company or any of its Subsidiaries.

9 Residency of Grantee.

The Grantee represents and warrants to the Company that the Grantee is a resident of Canada for Canadian and U.S. income tax purposes and the Grantee hereby agrees to notify the Company within 15 business days of any change in the Grantee’s residency for such purposes.

10 Grantee Bound by the Plan.

The Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. In the event of any conflict between the terms of the Plan and the terms of this Agreement, the terms of the Plan will govern.

In the event of a separation of service as a result of the death or disability of the Grantee, the payment in respect of the DSUs held by the Grantee shall be made to the Grantee’s estate or legal representatives, as applicable.

11 Modification of Agreement.

This Agreement may be modified, amended, suspended or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the Parties hereto; provided, however, that (a) Grantee shall be deemed to have accepted, without signature required, the terms and conditions of this Agreement applicable to future grants, unless notice of objection is made, as described in Section 1 hereof, and (b) nothing herein shall restrict the Committee’s right to amend this Agreement without the Grantee’s consent and without additional consideration to the Grantee to the extent necessary to avoid penalties arising under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), or to comply with the requirements of Regulation 6801(d) under the ITA, even if those amendments reduce, restrict or eliminate rights granted under this Agreement before those amendments are adopted.

12 Notice.

All notices and other communications hereunder shall be in writing. Any notice, request, demand, claim or other communication hereunder shall be deemed duly given if (and then three business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below:

If to the Company:

Tim Hortons Inc.

c/o The TDL Group Corp.

874 Sinclair Road

Oakville, Ontario L6K 2Y1

Attn: Associate General Counsel

Fax: (905) 845-1458

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If to Grantee:

Name:

Address:

Tel:

Fax:

Email:

Either party may send any notice or other communication hereunder to the intended recipient at the address, facsimile number or electronic mail address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail or electronic mail), but no such notice, request, demand, claim or other communication will be deemed to have been duly given unless and until it actually is received by the intended recipient. Either party may change the address, facsimile number or electronic mail address to which notices and other communications hereunder are to be delivered by giving the other parties notice in the manner herein set forth.

13 Severability.

Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.

14 Governing Law.

The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof and, to the extent applicable, the Code and the ITA.

15 Successors in Interest.

This Agreement shall inure to the benefit of and be binding upon any successor to the Company. This Agreement shall inure to the benefit of the Grantee’s legal representatives. All obligations imposed upon the Grantee and all rights granted to the Company under this Agreement shall be binding upon the Grantee’s heirs, executors, administrators and successors.

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16 Resolution of Disputes.

Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Grantee, the Grantee’s heirs, executors, administrators and successors, and the Company and its Subsidiaries for all purposes.

17 Entire Agreement.

This Agreement and the terms and conditions of the Plan, including the provisions of the 2006 Stock Plan to the extent specifically referred to herein or directly applicable to the terms hereof, constitute the entire understanding between the Grantee and the Company and supersede all other agreements, whether written or oral, with respect to the Awards.

18 Headings.

The headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

19 Counterparts.

This Agreement may be executed simultaneously in two or more counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same agreement.

TIM HORTONS INC.

By:

Name:

Title:

GRANTEE

By:

Print Name:

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SCHEDULE A

Grant Date	Cash Value (Cdn.$) on Grant Date	# and Type of DSUs*	Director Residency
Total of DSUs as of                     , 20

* Specify Formula DSUs, Voluntary Formula DSUs, Elective DSUs or Discretionary DSUs.

Notice Regarding Administrative Decisions made by the Committee

• The number of DSUs to be awarded will be based on the FMV of the Company’s common shares on the Toronto Stock Exchange price (instead of the New York Stock Exchange).

• The number of DSUs to be awarded (dollar amount divided by FMV) will be based on the FMV on the first day of the next trading window after the quarterly Board meeting during which directors could trade. In other words, even though the cash being deferred would have otherwise been payable at the quarterly Board meetings, the DSU grant will only occur on the first day of the next trading window after the Company’s quarterly earnings release is made public. In addition, no interest or other compensation will accrue as a result of the delay between the date of the Board meeting and the actual grant date (i.e., first day of the next succeeding trading window during which directors could trade).

• Consistent with Section 6 of the Agreement and the FMV determination in bullet #1 above, DSUs are payable and will be settled in Canadian dollars. For U.S. directors, the Canadian dollars will be translated into U.S. dollars as of the date of separation of service, unless the director provides notice to the Company that he/she would like to receive Canadian dollars; provided, however, that additional deferrals under the U.S. Non-Employee Director Deferred Compensation Plan can be made only in U.S. dollars.

EX-10.(B)

2008 Restricted Stock Unit Award Agreement (with related Dividend Equivalent Rights) for Donald B. Schroeder Exhibit 10(b)

RESTRICTED STOCK UNIT AWARD AGREEMENT

(with related Dividend Equivalent Rights)

Tim Hortons Inc.

Grant Year: 2008

May 15, 2008

THIS AGREEMENT, made effective as of the 15^th day of May, 2008 (the “Date of Grant”), is among Tim Hortons Inc., a Delaware corporation (the “Company”), The TDL Group Corp., a Nova Scotia unlimited liability company (the “Employer”) and Donald Schroeder (the “Grantee”) (collectively, the “Parties”).

WHEREAS, the Company has adopted the Tim Hortons Inc. 2006 Stock Incentive Plan, as amended from time to time (the “Plan”), in order to provide additional incentive to certain employees and directors of the Company and its Subsidiaries; and

WHEREAS, pursuant to Section 4.2 of the Plan, the Committee (as defined below) has determined to grant to the Grantee on the Date of Grant an Award of Stock Units with related Dividend Equivalent Rights as provided herein to encourage the Grantee’s efforts toward the continuing success of the Company and its Subsidiaries; and

WHEREAS, the Award is evidenced by this Agreement, which (together with the Plan), describes all the terms and conditions of the Award.

NOW, THEREFORE, the Parties agree as follows:

1. Award.

1.1 The Company hereby grants to the Grantee in respect of employment services provided by the Grantee to the Employer in 2008 an award (the “Award”) of                      Restricted Stock Units with an equal number of related Dividend Equivalent Rights. The Restricted Stock Units and related Dividend Equivalent Rights granted pursuant to the Award shall be subject to the execution and return of this Agreement by the Grantee (or the Grantee’s estate, if applicable) to the Company as provided in Section 8 hereof. Subject to Section 6 hereof, each Restricted Stock Unit represents the right to receive, at the absolute discretion of the Company, (i) one (1) Share from the Company, (ii) cash delivered to a broker to acquire one (1) share on the Grantee’s behalf, or (iii) one (1) Share delivered by the Trustee (as defined in Section 7), in any case at the time and in the manner set forth in Section 7 hereof.

1.2 Each Dividend Equivalent Right represents the right to receive the equivalent of all of the cash dividends that would be payable with respect to the Share represented by the Restricted Stock Unit to which the Dividend Equivalent Right relates. With respect to each Dividend Equivalent Right, any amount related to cash dividends shall be converted into additional Restricted Stock

Units based on the Fair Market Value of a Share on the date such dividend is made. Any additional Restricted Stock Units granted pursuant to this Section shall be subject to the same terms and conditions applicable to the Restricted Stock Unit to which the Dividend Equivalent Right relates, including, without limitation, the restrictions on transfer, forfeiture, vesting and payment provisions contained in Sections 2 through 8, inclusive, of this Agreement. In the event that a Restricted Stock Unit is forfeited pursuant to Section 6 hereof, the related Dividend Equivalent Right shall also be forfeited. Fractional Restricted Stock Units may be generated upon the automatic settlement of Dividend Equivalent Rights into additional Restricted Stock Units and upon the vesting of a portion of a Restricted Stock Unit award (see Section 3). These fractional Restricted Stock Units continue to accrue additional Dividend Equivalent Rights and accumulate until the fractional interest is of sufficient value to acquire an additional Restricted Stock Unit as a result of the settlement of future Dividend Equivalent Rights, subject to adjustment upon the vesting of a portion of the underlying Restricted Stock Unit award (see Section 3). The Human Resource and Compensation Committee (“Committee”) shall determine appropriate administration for the tracking and settlement of Dividend Equivalent Rights, including with respect to fractional interests, and the Committee’s determination in this regard shall be final and binding upon all Parties.

1.3 This Agreement shall be construed in accordance and consistent with, and is subject to, the provisions of the Plan (the provisions of which are hereby incorporated by reference), as well as any and all determinations, policies, instructions, interpretations, rules, etc. of the Committee in connection with the Plan. Except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan.

2. Restrictions on Transfer.

The Restricted Stock Units and Dividend Equivalent Rights granted pursuant to this Agreement may not be sold, transferred or otherwise disposed of and may not be pledged or otherwise hypothecated.

3. Vesting.

Except as otherwise provided in this Agreement, the Restricted Stock Units granted hereunder shall vest in their entirety on November 15, 2010. Fractional Restricted Stock Units may be generated and/or adjusted upon the vesting of the Restricted Stock Units awarded under this Agreement. See Section 7 regarding settlement of fractional Restricted Stock Units.

4. Effect of Certain Terminations of Employment.

4.1 Death or Disability. If Grantee’s employment terminates as a result of Grantee’s death or becoming Disabled, or if the Grantee is terminated without Cause in connection with the sale or disposition of a Subsidiary, in each case if such termination occurs on or after the Date of Grant, all Restricted Stock Units which have not become vested in accordance with Section 3 or 5 hereof shall vest as of the date of such termination.

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4.2 Retirement. Notwithstanding anything set forth herein or in the Plan to the contrary, if Grantee’s employment terminates as a result of the Grantee’s Retirement, and if such termination occurs before November 15, 2010, the unvested Restricted Stock Units granted hereunder shall be forfeited.

4.3 Definitions. As used in this Agreement, (a) “Retirement” shall mean termination of employment after attaining age 60 with at least 10 years of service (as defined in the Company’s qualified retirement plans) other than by death, Disability or for Cause and (b) the word “terminate” or “termination” in connection with the Grantee’s employment shall mean the Grantee’s “separation from service,” within the meaning of Section 409A of the Code and Treasury Regulation Section 1.409A-1(h).

4.4 Trading Policies and Transfer of Shares. For a period of six (6) months following a termination of employment, whether under Section 4, 5, or 6 of this Agreement, Grantee shall continue to be subject to the Company’s insider trading and window trading policies and must follow all pre-clearance procedures, and all other requirements, included in those policies. In the case of Retirement, a termination due to Disability, or death, Grantee or Grantee’s estate or legal representative, as the case may be, shall take all reasonable steps to transfer all Shares received under this Agreement (and all other Shares that have vested and are maintained in the Plan Administrator’s system in a brokerage account for the benefit of Grantee) from the Company’s Plan Administration system within five (5) years following the Grantee’s termination of employment. For terminations arising for any reason other than death, Disability, or Retirement, Grantee shall transfer all Shares received under this Agreement (and all other Shares that have vested and are maintained in the Plan Administrator’s system in a brokerage account for the benefit of Grantee) from the Company’s Plan Administration system within one year following the Grantee’s termination of employment.

5. Effect of Change in Control.

In the event of a Change in Control, which also constitutes a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of its assets, in each case within the meaning of Section 409A of the Code and Treasury Regulation Section 1.409A-3(i)(5), at any time on or after the Date of Grant, all Restricted Stock Units which have not become vested in accordance with Section 3 or 4 hereof shall vest immediately.

6. Forfeiture of Award.

Except as otherwise provided in this Agreement, any and all Restricted Stock Units which have not become vested in accordance with Section 3, 4 or 5 hereof shall be forfeited upon:

(a) the termination of the Grantee’s employment with the Company or any Subsidiary for any reason other than those set forth in Section 4 hereof prior to such vesting; or

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(b) the commission by the Grantee of an Act of Misconduct prior to such vesting.

For purposes of this Agreement, an “Act of Misconduct” shall mean the occurrence of one or more of the following events: (x) the Grantee uses for profit or discloses to unauthorized persons, confidential information or trade secrets of the Company or any of its Subsidiaries, (y) the Grantee breaches any contract with or violates any fiduciary obligation to the Company or any of its Subsidiaries, or (z) the Grantee engages in unlawful trading in the securities of the Company or any of its Subsidiaries or of another company based on information gained as a result of the Grantee’s employment with, or status as a director to, the Company or any of its Subsidiaries.

7. Satisfaction of Award.

In order to satisfy Restricted Stock Units after vesting pursuant to this Agreement, the Company shall, at its election either (i) issue treasury Shares to the Grantee (or, if applicable, the Grantee’s estate); (ii) deliver cash to a broker designated by the Company who, as agent for the Grantee, shall purchase the appropriate number of Shares on the open market; (iii) contribute cash to a trust fund (the “Trust”) to be used by the trustee thereof (the “Trustee”) to purchase Shares for the purpose of satisfying the Grantee’s entitlements under this Agreement, which Shares shall be held by the Trustee, and the Trustee, upon direction, shall deliver such Shares to the Grantee; or, (iv) any combination of the above.

The aggregate number of Shares issued by the Company, purchased by a broker for the Grantee or delivered by the Trustee to a Grantee at any particular time pursuant to this Section 7 shall correspond to the number of Restricted Stock Units that become vested on the vesting date, with one (1) Restricted Stock Unit corresponding to one (1) common Share, subject to any withholding as may be required under Section 10 of this Agreement, notwithstanding any delay between a vesting date and the settlement date. Fractional Shares may be issued or delivered upon settlement of vested Restricted Stock Units. All parties understand, acknowledge and agree that fractional Shares cannot be traded in the public markets, and therefore, any fractional Share issued or delivered to Grantee upon settlement of a vested Restricted Stock Unit, after taking into account the reduction to the number of Shares as required under Section 10 of this Agreement, if applicable, will ultimately be settled in cash when the Grantee sells Shares through the Plan Administrator or transfers Shares out of the Plan Administrator’s system. The Committee shall determine appropriate administration for the settling of vested Restricted Stock Units, including with respect to fractional interests, and the Committee’s determination in this regard shall be final and binding upon all Parties. As used herein, “Plan Administrator” shall mean the party engaged by the Company to administratively track awards and accompanying Dividend Equivalent Rights granted under the Plan, as well as handle the process of vesting and settlement of such awards.

The Company will satisfy its obligations in this Section 7 on each vesting date or as soon as administratively practicable but no later than the later of (a) December 31 of the year in which such vesting date occurs, or (b) sixty (60) days after such vesting date. Notwithstanding the foregoing, with respect to Restricted Stock Units that become vested pursuant to Section 4 as a result of the Grantee’s Retirement or upon becoming Disabled, if the Grantee is a “specified employee” within the meaning of Section 409A of the Code as of such vesting date, the Company shall satisfy its obligations in this Section 7 by the later of (i) the date otherwise required by this Section 7 and (ii) the first business day of the calendar month following the date which is six (6) months after the Grantee’s employment terminates.

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Any of the Company’s obligations in this Section 7 may be satisfied by the Company or the Employer.

8. Execution of the Award.

The grant of the Restricted Stock Units and Dividend Equivalent Rights to the Grantee pursuant to the Award shall be conditional upon the Grantee’s execution and return of this Agreement to the Company or its designee (including by electronic means, if so provided) no later than                     , 20     (the “Grantee Return Date”); provided that if the Grantee’s Restricted Stock Units that would otherwise vest pursuant to Section 4 or 5 before the Grantee Return Date, this requirement shall be deemed to have been satisfied immediately before such vesting.

9. No Right to Continued Employment.

Nothing in this Agreement or the Plan shall interfere with or limit in any way the right of the Company or its Subsidiaries to terminate the Grantee’s employment, nor confer upon the Grantee any right to continuance of employment by the Company or any of its Subsidiaries or continuance of service as a Board member.

10. Withholding of Taxes.

Upon (i) the delivery to the Grantee (or the Grantee’s estate, if applicable) of treasury Shares, (ii) the delivery of cash to a broker to purchase and deliver Shares, or (iii) the delivery by the Trustee of Shares pursuant to the Trust Agreement, in each case pursuant to Sections 1 and 7 hereof, the Company, the Employer or the Trust, as the case may be, shall be entitled to withhold from such Shares or cash, as the case may be, an amount of Shares or cash having an aggregate equivalent value equal to the applicable income taxes and other amounts as may be required by law or, if it so determines, relevant governmental administrative practice, to be withheld by the Company, the Employer or the Trust, as the case may be, with respect to the delivery of such Shares or cash and shall be entitled to make other appropriate arrangements in connection with the required withholding obligations. Fractional Shares may be issued or delivered and/or adjusted upon the withholding of taxes in accordance with this Section 10, and the settlement of the Restricted Stock Units into Shares will be adjusted by the amount of the withholding, including by the fractional Shares generated and/or adjusted upon the withholding transaction. Any fractional Shares will ultimately be paid or settled in cash in accordance with Section 7 of this Agreement. Additional fractional Shares may continue to accrue and be added to existing fractional Shares upon future vesting and settlement of Restricted Stock Units (in accordance with the terms of this Agreement) if vested Shares remain in the Plan Administrator’s system.

11. Grantee Bound by the Plan.

The Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof.

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12. Modification of Agreement.

This Agreement may be modified, amended, suspended or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the Parties hereto.

13. Severability.

Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.

14. Governing Law.

The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof.

15. Successors in Interest and Assigns.

The Company and the Employer may assign any of their respective rights and obligations under this Agreement without the consent of the Grantee. This Agreement shall inure to the benefit of and be binding upon any successors and assigns of the Company and the Employer. This Agreement shall inure to the benefit of the Grantee’s legal representatives. All obligations imposed upon the Grantee and all rights granted to the Company and the Employer under this Agreement shall be binding upon the Grantee’s heirs, executors, administrators and successors.

16. Language

The Parties hereto acknowledge that they have requested that this Agreement and all documents ancillary thereto, including all the documentation provided to the Grantee in respect of the Award, be drafted in the English language only. Les Parties aux présentes reconnaissent qu’elles ont exigé que la présente convention et tous les documents y afférents, y compris toute la documentation transmise au bénéficiaire relativement à l’octroi des droits prévu aux présentes,soient rédigés en langue anglaise seulement.

17. Resolution of Disputes.

Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Grantee, the Grantee’s heirs, executors, administrators and successors, and the Company and its Subsidiaries for all purposes.

18. Entire Agreement.

This Agreement and the terms and conditions of the Plan constitute the entire understanding between the Grantee and the Company and its Subsidiaries, and supersede all other agreements, whether written or oral, with respect to the Award.

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19. Headings.

The headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

20. Counterparts.

This Agreement may be executed simultaneously in two or more counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same agreement.

21. Compliance with Section 409A.

This Agreement is intended to satisfy the requirements of Section 409A of the Code and is intended not to be a “salary deferral arrangement” (a “SDA”) within the meaning of the Income Tax Act (Canada) (“Canadian Tax Act”), and shall be interpreted and administered consistent with such intent. To the extent that the interpretation and administration of this Agreement in accordance with Section 409A of the Code would cause any of the arrangements contemplated herein to be a SDA, then for any Grantee who is subject to the Canadian Tax Act and not subject to Section 409A of the Code, the Agreement shall be interpreted and administered with respect to such Grantee so that the arrangements are not SDAs. For Grantees subject to both Section 409A of the Code and the Canadian Tax Act, the terms of this Award shall be interpreted, construed, and given effect to achieve compliance with both Section 409A of the Code and the Canadian Tax Act, to the extent practicable. If compliance with both Section 409A of the Code and the Canadian Tax Act is not practicable in connection with the Award covered by this Agreement, the terms of this Award and this Agreement remain subject to amendment at the sole discretion of the Committee to reach a resolution of the conflict as it shall determine in its sole discretion.

<EXECUTION PAGE FOLLOWS>

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TIM HORTONS INC.
by
Name:
Title:
THE TDL GROUP CORP.
by
Name:
Title:
GRANTEE
by
	Donald B. Schroeder

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EX-10.(C)

Form of Restricted Stock Unit Award Agreement (with

related Dividend Equivalent Rights) for Named

Executive Officers, other than Donald B. Schroeder (2008 Award)

Exhibit 10(c)

RESTRICTED STOCK UNIT AWARD AGREEMENT

(with related Dividend Equivalent Rights)

Tim Hortons Inc.

Grant Year: 20    

[Date]

THIS AGREEMENT, made effective as of the      day of             , 20     (the “Date of Grant”), is among Tim Hortons Inc., a Delaware corporation (the “Company”), The TDL Group Corp., a Nova Scotia unlimited liability company (the “Employer”) and                      (the “Grantee”) (collectively, the “Parties”).

WHEREAS, the Company has adopted the Tim Hortons Inc. 2006 Stock Incentive Plan, as amended from time to time (the “Plan”), in order to provide additional incentive to certain employees and directors of the Company and its Subsidiaries; and

WHEREAS, pursuant to Section 4.2 of the Plan, the Committee (as defined below) has determined to grant to the Grantee on the Date of Grant an Award of Stock Units with related Dividend Equivalent Rights as provided herein to encourage the Grantee’s efforts toward the continuing success of the Company and its Subsidiaries; and

WHEREAS, the Award is evidenced by this Agreement, which (together with the Plan), describes all the terms and conditions of the Award.

NOW, THEREFORE, the Parties agree as follows:

1. Award.

1.1 The Company hereby grants to the Grantee in respect of employment services provided by the Grantee to the Employer in 20     an award (the “Award”) of                      Restricted Stock Units with an equal number of related Dividend Equivalent Rights. The Restricted Stock Units and related Dividend Equivalent Rights granted pursuant to the Award shall be subject to the execution and return of this Agreement by the Grantee (or the Grantee’s estate, if applicable) to the Company as provided in Section 8 hereof. Subject to Section 6 hereof, each Restricted Stock Unit represents the right to receive, at the absolute discretion of the Company, (i) one (1) Share from the Company, (ii) cash delivered to a broker to acquire one (1) share on the Grantee’s behalf, or (iii) one (1) Share delivered by the Trustee (as defined in Section 7), in any case at the time and in the manner set forth in Section 7 hereof.

1.2 Each Dividend Equivalent Right represents the right to receive the equivalent of all of the cash dividends that would be payable with respect to the Share represented by the Restricted Stock Unit to which the Dividend Equivalent Right relates. With respect to each Dividend Equivalent Right, any amount related to cash dividends shall be converted into additional Restricted Stock

Units based on the Fair Market Value of a Share on the date such dividend is made. Any additional Restricted Stock Units granted pursuant to this Section shall be subject to the same terms and conditions applicable to the Restricted Stock Unit to which the Dividend Equivalent Right relates, including, without limitation, the restrictions on transfer, forfeiture, vesting and payment provisions contained in Sections 2 through 8, inclusive, of this Agreement. In the event that a Restricted Stock Unit is forfeited pursuant to Section 6 hereof, the related Dividend Equivalent Right shall also be forfeited. Fractional Restricted Stock Units may be generated upon the automatic settlement of Dividend Equivalent Rights into additional Restricted Stock Units and upon the vesting of a portion of a Restricted Stock Unit award (see Section 3). These fractional Restricted Stock Units continue to accrue additional Dividend Equivalent Rights and accumulate until the fractional interest is of sufficient value to acquire an additional Restricted Stock Unit as a result of the settlement of future Dividend Equivalent Rights, subject to adjustment upon the vesting of a portion of the underlying Restricted Stock Unit award (see Section 3). The Human Resource and Compensation Committee (“Committee”) shall determine appropriate administration for the tracking and settlement of Dividend Equivalent Rights, including with respect to fractional interests, and the Committee’s determination in this regard shall be final and binding upon all Parties.

1.3 This Agreement shall be construed in accordance and consistent with, and is subject to, the provisions of the Plan (the provisions of which are hereby incorporated by reference), as well as any and all determinations, policies, instructions, interpretations, rules, etc. of the Committee in connection with the Plan. Except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan.

2. Restrictions on Transfer.

The Restricted Stock Units and Dividend Equivalent Rights granted pursuant to this Agreement may not be sold, transferred or otherwise disposed of and may not be pledged or otherwise hypothecated.

3. Vesting.

Except as otherwise provided in this Agreement, the Restricted Stock Units granted hereunder shall vest in their entirety on                     , 20    . Fractional Restricted Stock Units may be generated and/or adjusted upon the vesting of the Restricted Stock Units awarded under this Agreement. See Section 7 regarding settlement of fractional Restricted Stock Units.

4. Effect of Certain Terminations of Employment.

4.1 Death or Disability. If Grantee’s employment terminates as a result of Grantee’s death or becoming Disabled, or if the Grantee is terminated without Cause in connection with the sale or disposition of a Subsidiary, in each case if such termination occurs on or after the Date of Grant, all Restricted Stock Units which have not become vested in accordance with Section 3 or 5 hereof shall vest as of the date of such termination.

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4.2 Retirement. If Grantee’s employment terminates as a result of the Grantee’s Retirement, and if such termination occurs on or after the Date of Grant, any unvested Restricted Stock Units will remain outstanding and will continue to vest in accordance with the vesting schedule described in Section 3 of this Agreement.

4.3 Definitions. As used in this Agreement, (a) “Retirement” shall mean termination of employment after attaining age 60 with at least 10 years of service (as defined in the Company’s qualified retirement plans) other than by death, Disability or for Cause and (b) the word “terminate” or “termination” in connection with the Grantee’s employment shall mean the Grantee’s “separation from service,” within the meaning of Section 409A of the Code and Treasury Regulation Section 1.409A-1(h).

4.4 Trading Policies and Transfer of Shares. For a period of six (6) months following a termination of employment, whether under Section 4, 5, or 6 of this Agreement, Grantee shall continue to be subject to the Company’s insider trading and window trading policies and must follow all pre-clearance procedures, and all other requirements, included in those policies. In the case of Retirement, a termination due to Disability, or death, Grantee or Grantee’s estate or legal representative, as the case may be, shall take all reasonable steps to transfer all Shares received under this Agreement (and all other Shares that have vested and are maintained in the Plan Administrator’s system in a brokerage account for the benefit of Grantee) from the Company’s Plan Administration system within five (5) years following the Grantee’s termination of employment. For terminations arising for any reason other than death, Disability, or Retirement, Grantee shall transfer all Shares received under this Agreement (and all other Shares that have vested and are maintained in the Plan Administrator’s system in a brokerage account for the benefit of Grantee) from the Company’s Plan Administration system within one year following the Grantee’s termination of employment.

5. Effect of Change in Control.

In the event of a Change in Control, which also constitutes a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of its assets, in each case within the meaning of Section 409A of the Code and Treasury Regulation Section 1.409A-3(i)(5), at any time on or after the Date of Grant, all Restricted Stock Units which have not become vested in accordance with Section 3 or 4 hereof shall vest immediately.

6. Forfeiture of Award.

Except as otherwise provided in this Agreement, any and all Restricted Stock Units which have not become vested in accordance with Section 3, 4 or 5 hereof shall be forfeited upon:

(a) the termination of the Grantee’s employment with the Company or any Subsidiary for any reason other than those set forth in Section 4 hereof prior to such vesting; or

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(b) the commission by the Grantee of an Act of Misconduct prior to such vesting.

For purposes of this Agreement, an “Act of Misconduct” shall mean the occurrence of one or more of the following events: (x) the Grantee uses for profit or discloses to unauthorized persons, confidential information or trade secrets of the Company or any of its Subsidiaries, (y) the Grantee breaches any contract with or violates any fiduciary obligation to the Company or any of its Subsidiaries, or (z) the Grantee engages in unlawful trading in the securities of the Company or any of its Subsidiaries or of another company based on information gained as a result of the Grantee’s employment with, or status as a director to, the Company or any of its Subsidiaries.

7. Satisfaction of Award.

In order to satisfy Restricted Stock Units after vesting pursuant to this Agreement, the Company shall, at its election either (i) issue treasury Shares to the Grantee (or, if applicable, the Grantee’s estate); (ii) deliver cash to a broker designated by the Company who, as agent for the Grantee, shall purchase the appropriate number of Shares on the open market; (iii) contribute cash to a trust fund (the “Trust”) to be used by the trustee thereof (the “Trustee”) to purchase Shares for the purpose of satisfying the Grantee’s entitlements under this Agreement, which Shares shall be held by the Trustee, and the Trustee, upon direction, shall deliver such Shares to the Grantee; or, (iv) any combination of the above.

The aggregate number of Shares issued by the Company, purchased by a broker for the Grantee or delivered by the Trustee to a Grantee at any particular time pursuant to this Section 7 shall correspond to the number of Restricted Stock Units that become vested on the vesting date, with one (1) Restricted Stock Unit corresponding to one (1) common Share, subject to any withholding as may be required under Section 10 of this Agreement, notwithstanding any delay between a vesting date and the settlement date. Fractional Shares may be issued or delivered upon settlement of vested Restricted Stock Units. All parties understand, acknowledge and agree that fractional Shares cannot be traded in the public markets, and therefore, any fractional Share issued or delivered to Grantee upon settlement of a vested Restricted Stock Unit, after taking into account the reduction to the number of Shares as required under Section 10 of this Agreement, if applicable, will ultimately be settled in cash when the Grantee sells Shares through the Plan Administrator or transfers Shares out of the Plan Administrator’s system. The Committee shall determine appropriate administration for the settling of vested Restricted Stock Units, including with respect to fractional interests, and the Committee’s determination in this regard shall be final and binding upon all Parties. As used herein, “Plan Administrator” shall mean the party engaged by the Company to administratively track awards and accompanying Dividend Equivalent Rights granted under the Plan, as well as handle the process of vesting and settlement of such awards.

The Company will satisfy its obligations in this Section 7 on each vesting date or as soon as administratively practicable but no later than the later of (a) December 31 of the year in which such vesting date occurs, or (b) sixty (60) days after such vesting date. Notwithstanding the foregoing, with respect to Restricted Stock Units that become vested pursuant to Section 4 as a result of the Grantee’s Retirement or upon becoming Disabled, if the Grantee is a “specified employee” within the meaning of Section 409A of the Code as of such vesting date, the Company shall satisfy its obligations in this Section 7 by the later of (i) the date otherwise required by this Section 7 and (ii) the first business day of the calendar month following the date which is six (6) months after the Grantee’s employment terminates.

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Any of the Company’s obligations in this Section 7 may be satisfied by the Company or the Employer.

8. Execution of the Award.

The grant of the Restricted Stock Units and Dividend Equivalent Rights to the Grantee pursuant to the Award shall be conditional upon the Grantee’s execution and return of this Agreement to the Company or its designee (including by electronic means, if so provided) no later than                     , 20     (the “Grantee Return Date”); provided that if the Grantee’s Restricted Stock Units that would otherwise vest pursuant to Section 4 or 5 before the Grantee Return Date, this requirement shall be deemed to have been satisfied immediately before such vesting.

9. No Right to Continued Employment.

Nothing in this Agreement or the Plan shall interfere with or limit in any way the right of the Company or its Subsidiaries to terminate the Grantee’s employment, nor confer upon the Grantee any right to continuance of employment by the Company or any of its Subsidiaries or continuance of service as a Board member.

10. Withholding of Taxes.

Upon (i) the delivery to the Grantee (or the Grantee’s estate, if applicable) of treasury Shares, (ii) the delivery of cash to a broker to purchase and deliver Shares, or (iii) the delivery by the Trustee of Shares pursuant to the Trust Agreement, in each case pursuant to Sections 1 and 7 hereof, the Company, the Employer or the Trust, as the case may be, shall be entitled to withhold from such Shares or cash, as the case may be, an amount of Shares or cash having an aggregate equivalent value equal to the applicable income taxes and other amounts as may be required by law or, if it so determines, relevant governmental administrative practice, to be withheld by the Company, the Employer or the Trust, as the case may be, with respect to the delivery of such Shares or cash and shall be entitled to make other appropriate arrangements in connection with the required withholding obligations. Fractional Shares may be issued or delivered and/or adjusted upon the withholding of taxes in accordance with this Section 10, and the settlement of the Restricted Stock Units into Shares will be adjusted by the amount of the withholding, including by the fractional Shares generated and/or adjusted upon the withholding transaction. Any fractional Shares will ultimately be paid or settled in cash in accordance with Section 7 of this Agreement. Additional fractional Shares may continue to accrue and be added to existing fractional Shares upon future vesting and settlement of Restricted Stock Units (in accordance with the terms of this Agreement) if vested Shares remain in the Plan Administrator’s system.

11. Grantee Bound by the Plan.

The Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof.

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12. Modification of Agreement.

This Agreement may be modified, amended, suspended or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the Parties hereto.

13. Severability.

Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.

14. Governing Law.

The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof.

15. Successors in Interest and Assigns.

The Company and the Employer may assign any of their respective rights and obligations under this Agreement without the consent of the Grantee. This Agreement shall inure to the benefit of and be binding upon any successors and assigns of the Company and the Employer. This Agreement shall inure to the benefit of the Grantee’s legal representatives. All obligations imposed upon the Grantee and all rights granted to the Company and the Employer under this Agreement shall be binding upon the Grantee’s heirs, executors, administrators and successors.

16. Language

The Parties hereto acknowledge that they have requested that this Agreement and all documents ancillary thereto, including all the documentation provided to the Grantee in respect of the Award, be drafted in the English language only. Les Parties aux présentes reconnaissent qu’elles ont exigé que la présente convention et tous les documents y afférents, y compris toute la documentation transmise au bénéficiaire relativement à l’octroi des droits prévu aux présentes, soient rédigés en langue anglaise seulement.

17. Resolution of Disputes.

Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Grantee, the Grantee’s heirs, executors, administrators and successors, and the Company and its Subsidiaries for all purposes.

18. Entire Agreement.

This Agreement and the terms and conditions of the Plan constitute the entire understanding between the Grantee and the Company and its Subsidiaries, and supersede all other agreements, whether written or oral, with respect to the Award.

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19. Headings.

The headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

20. Counterparts.

This Agreement may be executed simultaneously in two or more counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same agreement.

21. Compliance with Section 409A.

This Agreement is intended to satisfy the requirements of Section 409A of the Code and is intended not to be a “salary deferral arrangement” (a “SDA”) within the meaning of the Income Tax Act (Canada) (“Canadian Tax Act”), and shall be interpreted and administered consistent with such intent. To the extent that the interpretation and administration of this Agreement in accordance with Section 409A of the Code would cause any of the arrangements contemplated herein to be a SDA, then for any Grantee who is subject to the Canadian Tax Act and not subject to Section 409A of the Code, the Agreement shall be interpreted and administered with respect to such Grantee so that the arrangements are not SDAs. For Grantees subject to both Section 409A of the Code and the Canadian Tax Act, the terms of this Award shall be interpreted, construed, and given effect to achieve compliance with both Section 409A of the Code and the Canadian Tax Act, to the extent practicable. If compliance with both Section 409A of the Code and the Canadian Tax Act is not practicable in connection with the Award covered by this Agreement, the terms of this Award and this Agreement remain subject to amendment at the sole discretion of the Committee to reach a resolution of the conflict as it shall determine in its sole discretion.

<EXECUTION PAGE FOLLOWS>

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TIM HORTONS INC.
by
Name:
Title:
THE TDL GROUP CORP.
by
Name:
Title:
GRANTEE
by
	[Name]

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EX-10.(D)

Form of Restricted Stock Unit Award Agreement (with related Dividend Equivalent Rights) for Employees (Canadian, U.S. and Other), other than the Named Executive Officers (2008 Award) Exhibit 10(d)

RESTRICTED STOCK UNIT AWARD AGREEMENT

(with related Dividend Equivalent Rights)

Tim Hortons Inc.

Grant Year: 20    

[Date]

THIS AGREEMENT, made effective as of the      day of                  , 20     (the “Date of Grant”), is among Tim Hortons Inc., a Delaware corporation (the “Company”),                          (the “Employer”) and                      (the “Grantee”) (collectively, the “Parties”).

WHEREAS, the Company has adopted the Tim Hortons Inc. 2006 Stock Incentive Plan, as amended from time to time (the “Plan”), in order to provide additional incentive to certain employees and directors of the Company and its Subsidiaries; and

WHEREAS, pursuant to Section 4.2 of the Plan, the Committee (as defined below) has determined to grant to the Grantee on the Date of Grant an Award of Stock Units with related Dividend Equivalent Rights as provided herein to encourage the Grantee’s efforts toward the continuing success of the Company and its Subsidiaries; and

WHEREAS, the Award is evidenced by this Agreement, which (together with the Plan), describes all the terms and conditions of the Award.

NOW, THEREFORE, the Parties agree as follows:

1. Award.

1.1 The Company hereby grants to the Grantee in respect of employment services provided by the Grantee to the Employer in 2008 an award (the “Award”) of              Restricted Stock Units with an equal number of related Dividend Equivalent Rights. The Restricted Stock Units and related Dividend Equivalent Rights granted pursuant to the Award shall be subject to the execution and return of this Agreement by the Grantee (or the Grantee’s estate, if applicable) to the Company as provided in Section 8 hereof. Subject to Section 6 hereof, each Restricted Stock Unit represents the right to receive, at the absolute discretion of the Company, (i) one (1) Share from the Company, (ii) cash delivered to a broker to acquire one (1) share on the Grantee’s behalf, or (iii) one (1) Share delivered by the Trustee (as defined in Section 7), in any case at the time and in the manner set forth in Section 7 hereof.

1.2 Each Dividend Equivalent Right represents the right to receive the equivalent of all of the cash dividends that would be payable with respect to the Share represented by the Restricted Stock Unit to which the Dividend Equivalent Right relates. With respect to each Dividend Equivalent Right, any amount related to cash dividends shall be converted into additional Restricted Stock

Units based on the Fair Market Value of a Share on the date such dividend is made. Any additional Restricted Stock Units granted pursuant to this Section shall be subject to the same terms and conditions applicable to the Restricted Stock Unit to which the Dividend Equivalent Right relates, including, without limitation, the restrictions on transfer, forfeiture, vesting and payment provisions contained in Sections 2 through 8, inclusive, of this Agreement. In the event that a Restricted Stock Unit is forfeited pursuant to Section 6 hereof, the related Dividend Equivalent Right shall also be forfeited. Fractional Restricted Stock Units may be generated upon the automatic settlement of Dividend Equivalent Rights into additional Restricted Stock Units and upon the vesting of a portion of a Restricted Stock Unit award (see Section 3). These fractional Restricted Stock Units continue to accrue additional Dividend Equivalent Rights and accumulate until the fractional interest is of sufficient value to acquire an additional Restricted Stock Unit as a result of the settlement of future Dividend Equivalent Rights, subject to adjustment upon the vesting of a portion of the underlying Restricted Stock Unit award (see Section 3). The Human Resource and Compensation Committee (“Committee”) shall determine appropriate administration for the tracking and settlement of Dividend Equivalent Rights, including with respect to fractional interests, and the Committee’s determination in this regard shall be final and binding upon all Parties.

1.3 This Agreement shall be construed in accordance and consistent with, and is subject to, the provisions of the Plan (the provisions of which are hereby incorporated by reference), as well as any and all determinations, policies, instructions, interpretations, rules, etc. of the Committee in connection with the Plan. Except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan.

2. Restrictions on Transfer.

The Restricted Stock Units and Dividend Equivalent Rights granted pursuant to this Agreement may not be sold, transferred or otherwise disposed of and may not be pledged or otherwise hypothecated.

3. Vesting.

Except as otherwise provided in this Agreement, one-third (1/3) of the number of Restricted Stock Units granted hereunder shall vest on each of                     , 20     ,                         , 20     and                     , 20    . Fractional Restricted Stock Units may be generated and/or adjusted upon the vesting of one-third of the Restricted Stock Units awarded under this Agreement. See Section 7 regarding settlement of fractional Restricted Stock Units.

4. Effect of Certain Terminations of Employment.

4.1 Death or Disability. If Grantee’s employment terminates as a result of Grantee’s death or becoming Disabled, or if the Grantee is terminated without Cause in connection with the sale or disposition of a Subsidiary, in each case if such termination occurs on or after the Date of Grant, all Restricted Stock Units which have not become vested in accordance with Section 3 or 5 hereof shall vest as of the date of such termination.

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4.2 Retirement. If Grantee’s employment terminates as a result of the Grantee’s Retirement, and if such termination occurs on or after the Date of Grant, any unvested Restricted Stock Units will remain outstanding and will continue to vest in accordance with the vesting schedule described in Section 3 of this Agreement.

4.3 Definitions. As used in this Agreement, (a) “Retirement” shall mean termination of employment after attaining age 60 with at least 10 years of service (as defined in the Company’s qualified retirement plans) other than by death, Disability or for Cause and (b) the word “terminate” or “termination” in connection with the Grantee’s employment shall mean the Grantee’s “separation from service,” within the meaning of Section 409A of the Code and Treasury Regulation Section 1.409A-1(h).

4.4 Trading Policies and Transfer of Shares. For a period of six (6) months following a termination of employment, whether under Section 4, 5, or 6 of this Agreement, Grantee shall continue to be subject to the Company’s insider trading and window trading policies and must follow all pre-clearance procedures, and all other requirements, included in those policies. In the case of Retirement, a termination due to Disability, or death, Grantee or Grantee’s estate or legal representative, as the case may be, shall take all reasonable steps to transfer all Shares received under this Agreement (and all other Shares that have vested and are maintained in the Plan Administrator’s system in a brokerage account for the benefit of Grantee) from the Company’s Plan Administration system within five (5) years following the Grantee’s termination of employment. For terminations arising for any reason other than death, Disability, or Retirement, Grantee shall transfer all Shares received under this Agreement (and all other Shares that have vested and are maintained in the Plan Administrator’s system in a brokerage account for the benefit of Grantee) from the Company’s Plan Administration system within one year following the Grantee’s termination of employment.

5. Effect of Change in Control.

In the event of a Change in Control, which also constitutes a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of its assets, in each case within the meaning of Section 409A of the Code and Treasury Regulation Section 1.409A-3(i)(5), at any time on or after the Date of Grant, all Restricted Stock Units which have not become vested in accordance with Section 3 or 4 hereof shall vest immediately.

6. Forfeiture of Award.

Except as otherwise provided in this Agreement, any and all Restricted Stock Units which have not become vested in accordance with Section 3, 4 or 5 hereof shall be forfeited upon:

(a) the termination of the Grantee’s employment with the Company or any Subsidiary for any reason other than those set forth in Section 4 hereof prior to such vesting; or

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(b) the commission by the Grantee of an Act of Misconduct prior to such vesting.

For purposes of this Agreement, an “Act of Misconduct” shall mean the occurrence of one or more of the following events: (x) the Grantee uses for profit or discloses to unauthorized persons, confidential information or trade secrets of the Company or any of its Subsidiaries, (y) the Grantee breaches any contract with or violates any fiduciary obligation to the Company or any of its Subsidiaries, or (z) the Grantee engages in unlawful trading in the securities of the Company or any of its Subsidiaries or of another company based on information gained as a result of the Grantee’s employment with, or status as a director to, the Company or any of its Subsidiaries.

7. Satisfaction of Award.

In order to satisfy Restricted Stock Units after vesting pursuant to this Agreement, the Company shall, at its election either (i) issue treasury Shares to the Grantee (or, if applicable, the Grantee’s estate); (ii) deliver cash to a broker designated by the Company who, as agent for the Grantee, shall purchase the appropriate number of Shares on the open market; (iii) contribute cash to a trust fund (the “Trust”) to be used by the trustee thereof (the “Trustee”) to purchase Shares for the purpose of satisfying the Grantee’s entitlements under this Agreement, which Shares shall be held by the Trustee, and the Trustee, upon direction, shall deliver such Shares to the Grantee; or, (iv) any combination of the above.

The aggregate number of Shares issued by the Company, purchased by a broker for the Grantee or delivered by the Trustee to a Grantee at any particular time pursuant to this Section 7 shall correspond to the number of Restricted Stock Units that become vested on the vesting date, with one (1) Restricted Stock Unit corresponding to one (1) common Share, subject to any withholding as may be required under Section 10 of this Agreement, notwithstanding any delay between a vesting date and the settlement date. Fractional Shares may be issued or delivered upon settlement of vested Restricted Stock Units. All parties understand, acknowledge and agree that fractional Shares cannot be traded in the public markets, and therefore, any fractional Share issued or delivered to Grantee upon settlement of a vested Restricted Stock Unit, after taking into account the reduction to the number of Shares as required under Section 10 of this Agreement, if applicable, will ultimately be settled in cash when the Grantee sells Shares through the Plan Administrator or transfers Shares out of the Plan Administrator’s system. The Committee shall determine appropriate administration for the settling of vested Restricted Stock Units, including with respect to fractional interests, and the Committee’s determination in this regard shall be final and binding upon all Parties. As used herein, “Plan Administrator” shall mean the party engaged by the Company to administratively track awards and accompanying Dividend Equivalent Rights granted under the Plan, as well as handle the process of vesting and settlement of such awards.

The Company will satisfy its obligations in this Section 7 on each vesting date or as soon as administratively practicable but no later than the later of (a) December 31 of the year in which such vesting date occurs, or (b) sixty (60) days after such vesting date. Notwithstanding the foregoing, with respect to Restricted Stock Units that become vested pursuant to Section 4 as a result of the Grantee’s Retirement or upon becoming Disabled, if the Grantee is a “specified employee” within the meaning of Section 409A of the Code as of such vesting date, the Company shall satisfy its obligations in this Section 7 by the later of (i) the date otherwise required by this Section 7 and (ii) the first business day of the calendar month following the date which is six (6) months after the Grantee’s employment terminates.

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Any of the Company’s obligations in this Section 7 may be satisfied by the Company or the Employer.

8. Execution of the Award.

The grant of the Restricted Stock Units and Dividend Equivalent Rights to the Grantee pursuant to the Award shall be conditional upon the Grantee’s execution and return of this Agreement to the Company or its designee (including by electronic means, if so provided) no later than                     , 20     (the “Grantee Return Date”); provided that if the Grantee’s Restricted Stock Units that would otherwise vest pursuant to Section 4 or 5 before the Grantee Return Date, this requirement shall be deemed to have been satisfied immediately before such vesting.

9. No Right to Continued Employment.

Nothing in this Agreement or the Plan shall interfere with or limit in any way the right of the Company or its Subsidiaries to terminate the Grantee’s employment, nor confer upon the Grantee any right to continuance of employment by the Company or any of its Subsidiaries or continuance of service as a Board member.

10. Withholding of Taxes.

Upon (i) the delivery to the Grantee (or the Grantee’s estate, if applicable) of treasury Shares, (ii) the delivery of cash to a broker to purchase and deliver Shares, or (iii) the delivery by the Trustee of Shares pursuant to the Trust Agreement, in each case pursuant to Sections 1 and 7 hereof, the Company, the Employer or the Trust, as the case may be, shall be entitled to withhold from such Shares or cash, as the case may be, an amount of Shares or cash having an aggregate equivalent value equal to the applicable income taxes and other amounts as may be required by law or, if it so determines, relevant governmental administrative practice, to be withheld by the Company, the Employer or the Trust, as the case may be, with respect to the delivery of such Shares or cash and shall be entitled to make other appropriate arrangements in connection with the required withholding obligations. Fractional Shares may be issued or delivered and/or adjusted upon the withholding of taxes in accordance with this Section 10, and the settlement of the Restricted Stock Units into Shares will be adjusted by the amount of the withholding, including by the fractional Shares generated and/or adjusted upon the withholding transaction. Any fractional Shares will ultimately be paid or settled in cash in accordance with Section 7 of this Agreement. Additional fractional Shares may continue to accrue and be added to existing fractional Shares upon future vesting and settlement of Restricted Stock Units (in accordance with the terms of this Agreement) if vested Shares remain in the Plan Administrator’s system.

11. Grantee Bound by the Plan.

The Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof.

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12. Modification of Agreement.

This Agreement may be modified, amended, suspended or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the Parties hereto.

13. Severability.

Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.

14. Governing Law.

The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof.

15. Successors in Interest and Assigns.

The Company and the Employer may assign any of their respective rights and obligations under this Agreement without the consent of the Grantee. This Agreement shall inure to the benefit of and be binding upon any successors and assigns of the Company and the Employer. This Agreement shall inure to the benefit of the Grantee’s legal representatives. All obligations imposed upon the Grantee and all rights granted to the Company and the Employer under this Agreement shall be binding upon the Grantee’s heirs, executors, administrators and successors.

16. Language

The Parties hereto acknowledge that they have requested that this Agreement and all documents ancillary thereto, including all the documentation provided to the Grantee in respect of the Award, be drafted in the English language only. Les Parties aux présentes reconnaissent qu’elles ont exigé que la présente convention et tous les documents y afférents, y compris toute la documentation transmise au bénéficiaire relativement à l’octroi des droits prévu aux présentes,soient rédigés en langue anglaise seulement.

17. Resolution of Disputes.

Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Grantee, the Grantee’s heirs, executors, administrators and successors, and the Company and its Subsidiaries for all purposes.

18. Entire Agreement.

This Agreement and the terms and conditions of the Plan constitute the entire understanding between the Grantee and the Company and its Subsidiaries, and supersede all other agreements, whether written or oral, with respect to the Award.

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19. Headings.

The headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

20. Counterparts.

This Agreement may be executed simultaneously in two or more counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same agreement.

21. Compliance with Section 409A.

This Agreement is intended to satisfy the requirements of Section 409A of the Code and is intended not to be a “salary deferral arrangement” (a “SDA”) within the meaning of the Income Tax Act (Canada) (“Canadian Tax Act”), and shall be interpreted and administered consistent with such intent. To the extent that the interpretation and administration of this Agreement in accordance with Section 409A of the Code would cause any of the arrangements contemplated herein to be a SDA, then for any Grantee who is subject to the Canadian Tax Act and not subject to Section 409A of the Code, the Agreement shall be interpreted and administered with respect to such Grantee so that the arrangements are not SDAs. For Grantees subject to both Section 409A of the Code and the Canadian Tax Act, the terms of this Award shall be interpreted, construed, and given effect to achieve compliance with both Section 409A of the Code and the Canadian Tax Act, to the extent practicable. If compliance with both Section 409A of the Code and the Canadian Tax Act is not practicable in connection with the Award covered by this Agreement, the terms of this Award and this Agreement remain subject to amendment at the sole discretion of the Committee to reach a resolution of the conflict as it shall determine in its sole discretion.

<EXECUTION PAGE FOLLOWS>

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TIM HORTONS INC.
by
Name:
Title:
[EMPLOYER]
by
Name:
Title:
GRANTEE
by
	[Name]

- 8 -

EX-10.(E)

Form of Nonqualified Stock Option Award Agreement (with related Stock Appreciation Rights) for Named Executive Officers (2008 Award) Exhibit 10(e)

TIM HORTONS INC.

2006 STOCK INCENTIVE PLAN

NONQUALIFIED STOCK OPTION AWARD AGREEMENT

(with related Stock Appreciation Right)

Grant Year: 20    

THIS AGREEMENT, made effective as of the      day of                 , 20     (the “Date of Grant”), is among Tim Hortons Inc., a Delaware corporation (the “Company”),                     , a                      (the “Employer”) and                      (the “Grantee”) (collectively, the “Parties”).

WHEREAS, the Company has adopted the Tim Hortons Inc. 2006 Stock Incentive Plan, as amended from time to time (the “Plan”), in order to provide additional incentive to certain employees and directors of the Company and its Subsidiaries;

WHEREAS, pursuant to Sections 6 and 7 of the Plan, the Committee has determined to grant to the Grantee on the Date of Grant an Option and a related Stock Appreciation Right (a “SAR”), each as provided herein, to encourage the Grantee’s efforts toward the continuing success of the Company and its Subsidiaries;

WHEREAS, a SAR means a right to surrender to the Company, in whole or in part, the unexercised Option to purchase Shares and to receive from the Company a cash amount equal to the product of: (i) the excess of the Fair Market Value of a Share on the date of exercise of the SAR over the Option Price (as defined below); multiplied by (ii) the number of Shares as to which the SAR is being exercised; and

WHEREAS, the Award is evidenced by this Agreement, which (together with the Plan) describes all the terms and conditions of the Award.

NOW, THEREFORE, the Parties agree as follows:

1. Grant of Award. The Company hereby grants to the Grantee, on the Date of Grant, a Nonqualified Stock Option (the “Option”) with a related Stock Appreciation Right (the “SAR”) to purchase                      Shares (the “Award”) at an exercise price of $             per Share (the “Option Price”), subject to the terms and conditions of this Agreement and the Plan. The Option is not intended to be treated as an option that complies with Section 422 of the Code.

2. Vesting; Term of Award. Except as otherwise provided in this Agreement, the Award shall vest as follows:

(a) One-third (1/3) of the total Shares covered by the Award shall vest on                     , 20    , subject to rounding down the Award to the nearest whole Share as of the vesting date;

(b) One-third (1/3) of the total Shares covered by the Award shall vest on                     , 20    , subject to rounding down the Award to the nearest whole Share as of the vesting date; and

(c) One-third (1/3) of the total Shares covered by the Award shall vest on                     , 20    , subject to rounding down the Award to the nearest whole Share as of the vesting date.

The Award shall expire seven (7) years after the Date of Grant (the “Expiration Date”), whether or not the Award (or any portion thereof) has been exercised, unless sooner terminated as provided in Section 4 of this Agreement. Notwithstanding anything to the contrary contained in this Agreement, if the Award expires outside of a Trading Window, then the expiration of the term of the Award shall be the later of (i) the date the Award would have expired by its original terms (including the terms set forth in Section 4 of this Agreement) or (ii) the end of the tenth trading day of the immediately succeeding Trading Window during which the Company would allow the Grantee to trade in its securities; provided, however, that in no event shall the Award expire beyond the tenth anniversary of the Date of Grant.

3. Exercise of Award. Subject to the limitations set forth in this Agreement and in the Plan, the vested portion of the Award may be exercised in whole or in part by providing to the Company or its designee at its principal office written notice of exercise; provided that the Award may be exercised with respect to whole Shares only. Such notice shall specify (i) whether the Grantee intends to exercise the Option or the SAR and (ii) the number of Shares with respect to which the Award is to be exercised.

(a) Exercise of SAR. If the Grantee desires to receive cash, as opposed to Shares, upon exercise of all or a portion of the vested amount of the Award, the Grantee will exercise the SAR. Upon the exercise of the SAR, the Grantee shall be entitled to receive a cash amount from the Company equal to the product of: (i) the excess of the Fair Market Value of a Share on the date of exercise of the SAR over the Option Price; multiplied by (ii) the number of Shares as to which the SAR is being exercised.

(b) Exercise of Option. If the Grantee desires to receive Shares, as opposed to cash, upon exercise of all or a portion of the vested amount of the Award, the Grantee will exercise the Option. If the Option is exercised, payment of the Option Price for the number of Shares specified in the notice of exercise shall accompany the written notice of exercise. The payment of the Option Price may be made, as determined by the Committee in its sole discretion as of the time of exercise, as follows: (i) in cash, certified check or bank draft; (ii) by transferring Shares having a Fair Market Value equal to the aggregate Option Price for the Shares being purchased and satisfying such other requirements as may be imposed by the Committee, provided that such Shares have been held by the Grantee for at least six months (or such other period as established from time to time by the Committee); (iii) partly in cash and partly in Shares; (iv) by surrender of Shares that the Grantee would have otherwise been entitled to receive upon payment of the Option Price and exercise of the Option, equivalent in value to the aggregate Option Price for the number of Shares specified in the

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notice of exercise; or (v) through a cashless exercise, including through a registered broker-dealer. The Committee shall determine the means and manner by which Shares to be delivered upon exercise of the Option shall be settled and/or satisfied, in its sole and absolute discretion.

(c) Tandem Nature of Award. Upon the exercise of the SAR, the Option shall be canceled (i.e., surrendered to the Company) to the extent of the number of Shares as to which the SAR is exercised. Upon the exercise of the Option, the SAR shall be canceled to the extent of the number of Shares as to which the Option is exercised or surrendered.

4. Termination of Employment.

(a) Death or Disability. Upon termination of the Grantee’s employment with the Company and its Subsidiaries as a result of the Grantee’s death or the Grantee becoming Disabled, the Award shall become immediately exercisable as of the date of such termination of employment, and the Grantee (or, to the extent applicable, the Grantee’s legal guardian, legal representative or estate) shall have the right to exercise the Award for a period of four (4) years after the date of such termination or, if earlier, until the Expiration Date.

(b) Retirement. Upon termination of the Grantee’s employment with the Company and its Subsidiaries by reason of the Grantee’s Retirement (as defined below), for a period of four (4) years following the date of such Retirement (but in no event beyond the Expiration Date), the Award shall remain outstanding and (i) to the extent not then fully vested, shall continue to vest in accordance with the vesting schedule set forth in Section 2 of this Agreement, and (ii) the Grantee shall have the right to exercise the vested portion of the Award. For purposes of this Agreement, “Retirement” shall mean termination of employment after attaining age sixty (60) with at least ten (10) years of service (as defined in the Company’s qualified retirement plans) other than by death, Disability or for Cause.

(c) Termination in Connection with Certain Dispositions. In the event the Grantee’s employment with the Company and its Subsidiaries is terminated without Cause in connection with a sale or other disposition of a Subsidiary, the Award shall remain outstanding and (i) to the extent not then fully vested, will continue to vest in accordance with the vesting schedule set forth in Section 2 of this Agreement, and (ii) the Grantee will have the right to exercise the vested portion of the Award for a period of one (1) year following the date of such termination or, if earlier, until the Expiration Date.

(d) Termination for Cause. Upon the termination of the Grantee’s employment with the Company and its Subsidiaries for Cause, the portion of the Award that has not been exercised shall be forfeited (whether or not then vested and exercisable) on the date of such termination.

(e) Termination for Any Other Reason. Upon the termination of the Grantee’s employment with the Company and its Subsidiaries for any reason not described in Section 4(a), 4(b), 4(c), or 4(d) of this Agreement, the Award shall (i) to the extent not vested and exercisable as of the date of such termination of employment, terminate on the date of such termination of employment,

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and (ii) to the extent vested and exercisable as of the date of such termination of employment, remain exercisable for a period of ninety (90) days following the date of such termination of employment or, in the event of the Grantee’s death during such ninety (90) day period, remain exercisable by the Grantee’s estate until the end of one (1) year period following the date of such termination of employment; provided, however, that, in either case, the Award shall not remain exercisable beyond the Expiration Date.

5. Effect of Change in Control. In the event of a Change in Control, the Award shall become immediately and fully exercisable.

6. Execution of Agreement. The grant of the Award to the Grantee shall be conditional upon the Grantee’s execution and return of this Agreement to the Company or its designee (including by electronic means, if so provided) no later than                     , 20     (the “Grantee Return Date”); provided that if the Award would otherwise vest pursuant to Section 4 of this Agreement before the Grantee Return Date, this requirement shall be deemed to have been satisfied immediately before such vesting.

7. Non-Transferability of Award. Except to the extent that, pursuant to this Agreement or the Plan, the Grantee’s legal representative or estate is permitted to exercise the Award, the Award is exercisable during the Grantee’s lifetime only by the Grantee. The Award shall not be transferable except by will or the laws of descent and distribution.

8. No Right to Continued Employment. Nothing in this Agreement or the Plan shall interfere with or limit in any way the right of the Company or its Subsidiaries to terminate the Grantee’s employment, nor confer upon the Grantee any right to continuance of employment by the Company or any of its Subsidiaries or continuance of service to the Company or any of its Subsidiaries.

9. Withholding of Taxes. Upon the exercise of the Award, the Company, the Employer, or a trust established by the Company or the Employer to deliver Shares under an Award (“Trust”), as applicable, shall require payment of or other provision for, as determined by the Company, an amount equal to the federal, state, provincial and local income taxes and other amounts required by law to be withheld or determined to be necessary or appropriate to be withheld by the Company, Employer or Trust, as applicable, in connection with such exercise. In its sole discretion, the Company, Employer or Trust, as applicable, may require or permit payment of or provision for such withholding taxes through one or more of the following methods: (a) in cash, certified check or bank draft; (b) by withholding such amount from other amounts due to the Grantee; (c) by withholding a portion of the Shares then issuable or deliverable to the Grantee having an aggregate Fair Market Value equal to such withholding taxes and, at the Company’s election, either (I) canceling the equivalent portion of the underlying Award or the Shares to be delivered and the Company, Employer, or Trust paying the withholding taxes on behalf of the Grantee in cash, or (II) selling such Shares on the Grantee’s behalf; (d) by withholding such amount from the cash then issuable in connection with the Award; or (e) by the Grantee transferring Shares having a Fair Market Value equal to such withholding taxes to the Company, Employer or Trust, as applicable, provided that such Shares have been held by the Grantee for at least six months (or such other period as established from time to time by the Committee).

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10. Grantee Bound by Plan; Award Subject to Terms of Plan. The Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. This Agreement shall be construed in accordance and consistent with, and is subject to, the provisions of the Plan (the provisions of which are hereby incorporated by reference), as well as any and all determinations, policies, instructions, interpretations and rules of the Committee in connection with the Plan. Except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan.

11. Modification of Agreement. The Board or Committee may make amendments or changes to this Award, subject to the terms and conditions of Section 22 of the Plan.

12. Severability. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.

13. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof.

14. Successors in Interest and Assigns. The Company and the Employer may assign any of their respective rights and obligations under this Agreement without the consent of the Grantee. This Agreement shall inure to the benefit of and be binding upon any successors and assigns of the Company and the Employer. This Agreement shall inure to the benefit of the Grantee’s legal representatives. All obligations imposed upon the Grantee and all rights granted to the Company and the Employer under this Agreement shall be binding upon the Grantee’s heirs, executors, administrators and successors.

15. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Grantee, the Grantee’s heirs, executors, administrators and successors, and the Company and its Subsidiaries for all purposes.

16. Entire Agreement. This Agreement and the terms and conditions of the Plan constitute the entire understanding between the Grantee and the Company and its Subsidiaries, and supersede all other agreements, whether written or oral, with respect to the Award.

17. Headings. The headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

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18. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same agreement.

19. Language. The Parties hereto acknowledge that they have requested that this Agreement and all documents ancillary thereto, including all the documentation provided to the Grantee in respect of the Award, be drafted in the English language only. Les Parties aux présentes reconnaissent qu’elles ont exigé que la présente convention et tous les documents y afférents, y compris toute la documentation transmise au bénéficiaire relativement à l’octroi des droits prévu aux présentes,soient rédigés en langue anglaise seulement.

<EXECUTION PAGE FOLLOWS>

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TIM HORTONS INC. (“Company”)

By:

Name:

Title:

(“Employer”)

By:

Name:

Title:

GRANTEE

[Name]

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EX-10.(F)

Exhibit 10(f)

Information regarding Quantitative and Qualified Disclosures About Market Risk on pages 75 to 77 of Tim Hortons Inc.’s 2007 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2008 (file no. 001-32843)

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

We are exposed to financial market risks associated with foreign exchange rates, commodity prices, interest rates and inflation. In accordance with our policies, we manage our exposure to various market-based risks.

Foreign Exchange Risk

Our exposure to foreign exchange risk is primarily related to fluctuations between the Canadian dollar and the U.S. dollar. Our primary foreign exchange exposure to our cash flows results from purchases by Canadian operations in U.S. dollars and payments from Canadian operations to U.S. operations. Net cash flows between the Canadian and U.S. dollar currencies were in excess of $140 million for fiscal 2007. In addition, we are exposed to foreign exchange fluctuations when we translate our U.S. operating results into Canadian dollars for reporting purposes. While these fluctuations are not significant to the consolidated operating results, the fluctuations in exchange rates do impact our U.S. segment operating results, and can affect the comparability between quarters and year-to-year. Also, from time to time, we hold U.S. dollars and other U.S. dollar net positions in Canadian dollar functional currency entities, to support our business needs and as a result of our cross-border structure. The holding of U.S. dollar net positions in these entities can cause foreign exchange gains and losses which are included in Other (income) expense, net, and can, therefore, affect our earnings.

We seek to manage significant cash flows and net income exposures related to exchange rate changes between these two currencies. We may use derivative products to reduce the risk of a significant impact on our cash flows or net income. Forward currency contracts are entered into to reduce some of the risk related to purchases paid for by the Canadian operations in U.S. dollars, such as coffee, including certain intercompany purchases. In addition, historically, we hedged Wendy’s investment in its Canadian subsidiaries. We do not hedge foreign currency exposure in a manner that would entirely eliminate the effect of changes in foreign currency exchange rates on net income and cash flows. We have a policy forbidding speculating in foreign currency. By their nature, derivative financial instruments involve risk including the credit risk of non-performance by counterparties, and our maximum potential loss may exceed the amount recognized in our balance sheet. To minimize this risk, except in certain circumstances, we limit the notional amount per counterparty to a maximum of $100.0 million.

Forward currency contracts to sell Canadian dollars and buy US$35.6 million and US$28.1 million were outstanding as of December 30, 2007 and December 31, 2006, respectively, primarily to hedge coffee purchases from third parties, including intercompany purchases. The fair value unrealized loss on these forward contracts was $1.2 million as of December 30, 2007 and as of December 31, 2006, there was an unrealized gain of $1.6 million.

In 2005, we 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 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, we 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 ($14.9 million) to the counterparties (representing the difference from the contract rate to spot rate on settlement). These forward currency contracts remained highly effective cash flow hedges and qualified for hedge accounting treatment through their maturity. As a result, 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 2006.

In 2005, we 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 – Accounting for Derivative Instruments and Hedging Activities 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 in April, 2006, we 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). 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. Changes in the fair value of these foreign currency net investment hedges are included in the translation adjustments line of other comprehensive income (loss). No amounts related to these net investment hedges impacted earnings.

At the current level of annual operating income generated from our U.S. operations and current U.S. dollar cash flow exposures, if the U.S. currency rate changes by 10% the entire year, the annual impact on our net income and annual cash flows would not be material.

Commodity Risk

We purchase certain products such as coffee, wheat, oil and sugar in the normal course of business, the prices of which are affected by commodity prices. Therefore, we are exposed to some price volatility related to weather and more importantly, various other market conditions outside of our control. However, we do employ various purchasing and pricing contract techniques in an effort to minimize volatility. Generally these techniques include setting fixed prices for periods of up to one year with suppliers, setting in advance the price for products to be delivered in the future and unit pricing based on an average of commodity prices over the corresponding period of time. We purchase a significant amount of green coffee and typically have purchase commitments fixing the price for a minimum of six months, and typically hedge against the risk of foreign exchange at the same time. We do not generally make use of financial instruments to hedge commodity prices, partly because of these contract pricing techniques. As we make purchases beyond our current commitments, we may be subject to higher commodity prices depending upon prevailing market conditions. While price volatility can occur, which would impact profit margins, we have some ability to increase selling prices to offset a rise in commodity prices, subject to consumer acceptance.

Interest Rate Risk

Prior to February 2006, we had insignificant external borrowings. We are exposed to interest rate risk because our term debt of $300.0 million bears a floating rate of interest, which is partially offset by cash that is primarily invested in floating rate instruments. We seek to manage our net exposure to interest rate risk and our net borrowing costs by managing the mix of fixed and floating rate instruments based on capital markets and business conditions. We will not enter into speculative swaps or other speculative financial contracts.

In February 2006, we entered into an interest rate swap for $100.0 million of our $300.0 million term loan facility to convert a portion of the variable rate debt from floating rate to fixed rate. In the second quarter of 2007, we entered into an additional $30.0 million interest rate swap, resulting in a total of $130.0 million in interest rate swaps outstanding in connection with our term loan. The swaps convert a portion of the variable rate debt from floating rate to fixed rate. The interest rate swaps essentially fix the interest rate on $130.0 million of the $300.0 million term loan at 5.16% and mature on February 28, 2011. The weighted average interest rate on the term debt, including the swapped portion, was 5.17% for fiscal 2007 (2006: 5.01%). The interest rate swaps are considered to be highly effective cash flow hedges according to criteria specified in SFAS No. 133 – Accounting for Derivative Instruments and Hedging Activities. The fair value unrealized loss on these contracts as of December 30, 2007 was $0.5 million, net of taxes of $0.3 million. If interest rates change by 100 basis points, the impact on our annual net income which would be reduced due to our variable rate investments, would not be material.

Inflation

Consolidated Financial Statements determined on an historical cost basis may not accurately reflect all the effects of changing prices on an enterprise. Several factors tend to reduce the impact of inflation for our business: inventories approximate current market prices, property holdings at fixed costs are substantial, there is some ability to adjust prices, and liabilities are repaid with dollars of reduced purchasing power. However, if several of the various costs in our business experience inflation at the same time, such as commodity price increases beyond our ability to control, and labour costs, we may not be able to adjust prices to sufficiently offset the effect of the various cost increases without negatively impacting consumer demand.

EX-10.(G)

Exhibit 10(g)

Information regarding Submission of Matters to a Vote of Security Holders on pages 32 and 33 of Tim Hortons Inc.’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 7, 2008 (file no. 001-32843)

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Annual Meeting of Stockholders of Tim Hortons Inc. was held on May 2, 2008 (the “Annual Meeting”). Proxies for the Annual Meeting were solicited pursuant to our proxy statement under Regulation 14(a) of the Securities Exchange Act of 1934, as amended, filed with the SEC on March 20, 2008 (the “Proxy Statement”). The following matters were submitted to a vote of our security holders, which were acted upon by proxy or in person at the Annual Meeting. Pursuant to “notice and access” rules recently adopted by the SEC, we provided access to our Proxy Statement over the Internet and sent a Notice of Internet Availability of Proxy Materials (“Notice”) to our stockholders of record and beneficial owners. Instructions regarding accessing the Proxy Statement over the Internet or requesting a printed copy of the Proxy Statement were included in the Notice.

Election of Directors

The first matter before the shareholders was the election of four directors of Tim Hortons Inc., each with a three-year term (expiring in 2011). There was no solicitation in opposition to the four nominees recommended by our Board of Directors and described in the Proxy Statement. The following table sets forth the name of each director elected at the meeting and the number of votes for, or withheld from, each nominee:

Name of Director	For	Withheld
M. Shan Atkins	126,651,513	4,007,646
Moya M. Greene	128,867,612	1,791,547
The Honourable Frank Iacobucci	118,531,069	12,128,090
Wayne C. Sales	127,430,762	3,228,397

Each of the nominees recommended by our Board of Directors was elected.

The following directors did not stand for re-election at the Annual Meeting because their terms extended beyond the date of the Annual Meeting. The year in which each director’s term expires is indicated in parentheses following the director’s name: Donald B. Schroeder (2009), David H. Lees (2009), Paul D. House (2009), Michael J. Endres (2010), John A. Lederer (2010) and Craig S. Miller (2010).

Ratification of Appointment of Independent Registered Public Accounting Firm

The second matter was the ratification of the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the year ending December 28, 2008. The following table sets forth the number of votes cast for, against, and abstentions for this matter:

	For	Against	Abstain
Ratification of PricewaterhouseCoopers LLP	127,751,195	2,828,584	79,380

The matter, having received the affirmative vote of greater than a majority of the votes cast at the Annual Meeting, was adopted and approved.

EX-31.(A)

Exhibit 31(a)

CERTIFICATIONS

I, Donald B. Schroeder, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) 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

d) 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: August 7, 2008

/s/ Donald B. Schroeder
Name:	Donald B. Schroeder
Title:	Chief Executive Officer

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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) 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

d) 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: August 7, 2008

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

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 June 29, 2008 of Tim Hortons Inc. (the “Issuer”).

I, Donald B. Schroeder, 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: August 7, 2008

/s/ Donald B. Schroeder
Name:	Donald B. Schroeder

* This certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the Company specifically incorporates this certification therein by reference.

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 June 29, 2008 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: August 7, 2008

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

* This certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the Company specifically incorporates this certification therein by reference.

EX-99

Exhibit 99

TIM HORTONS INC.

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 disclosed in the statement. Tim Hortons Inc. (the “Company”) desires to take advantage of the “safe harbor” provisions of the Act.

Certain information provided or stated, including statements regarding future financial performance and the expectations and objectives of management, is forward-looking. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “seeks” or words of similar meaning, or future or conditional verbs, such as “will,” “should,” “could” or “may.” The following factors, in addition to other factors set forth in our Form 10-K filed on February 26, 2008 with the U.S. Securities and Exchange Commission (“SEC”) and the Canadian securities regulators, and in other press releases, communications, or filings made with the SEC or the Canadian securities regulators, and other possible factors we have not identified, could affect our actual results and cause such results to differ materially from those anticipated in forward-looking statements.

Competition. The quick-service-restaurant industry is intensely competitive with respect to price, service, location, personnel, qualified franchisees, real estate sites 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, price and new product development by the Company and its competitors are also important factors. Certain of the Company’s competitors, most notably in the U.S., 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 value of the Company’s stock 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, higher energy and/or fuel costs, food costs, the cost and/or availability of a qualified workforce and other labour issues, benefit costs, legal claims, legal and regulatory compliance, new or additional sales tax on the Company’s products, disruptions in its 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 and impact same-store sales and growth opportunities. The ability of the Company and its franchisees to finance new restaurant development, improvements and additions to existing restaurants, acquire and sell restaurants, and pursue other strategic initiatives (such as acquisitions and joint ventures), 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. In addition, unforeseen catastrophic or widespread events affecting the health and/or welfare of large numbers of people in the markets in which the Company’s restaurants are located and/or which otherwise cause a catastrophic loss or interruption in the Company’s ability to conduct its business, would affect its ability to maintain and/or increase sales and build new restaurants.

The Importance of Canadian Segment Performance and Brand Reputation. The Company’s financial performance is highly dependent upon its Canadian operating segment, which accounted for approximately 92% of its consolidated revenues, and all of its profit, in 2007. Any substantial or sustained decline in the Company’s Canadian business would materially and adversely affect its financial performance. The Company’s success is also dependent on its ability to maintain and enhance the value of its brand, its customers’ connection to its brand, and a positive relationship with its franchisees. Brand value can be severely damaged, even by isolated incidents, including those beyond the Company’s control such as actions taken or not taken by its franchisees relating to health or safety, litigation and claims, security breaches or other fraudulent activities associated with its electronic payment systems, and incidents occurring at or affecting its strategic business partners, affiliates, or corporate social responsibility programs.

Factors Affecting Growth. There can be no assurance that the Company will be able to achieve new restaurant growth objectives or same-store sales growth in Canada or the U.S. The Company’s success depends on various factors, including many of the factors set forth in this cautionary statement, as well as sales levels at existing restaurants and factors affecting construction costs generally. 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 may differ from its existing markets, and its brand is largely unknown in many U.S. 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. In addition, early in the development of new markets, the opening of new restaurants may have a negative effect on the same-store sales of existing restaurants in the market. In some of the Company’s U.S. markets, the Company has not yet achieved the level of penetration needed in order to drive brand recognition, convenience, increased leverage to marketing dollars, and other benefits the Company believes penetration yields. When the Company franchise locations in certain U.S. markets, this can result in increased franchisee relief and support costs, which lowers its earnings. The Company may also continue to selectively close restaurants in the U.S. that are not achieving acceptable levels of profitability or change its growth strategies over time, where appropriate.

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 its relationship with franchisees: higher transportation costs; shortages or changes in the cost or availability of qualified workforce and other labour issues; equipment failures; disruptions (including shortages or interruptions) in its supply chain; price fluctuations; climate conditions; inflation; decreased consumer discretionary spending and other changes in general economic and political conditions driving down demand; physical, environmental or technological disruptions in the Company or its suppliers’ manufacturing and/or warehouse facilities or equipment; changes in international commodity markets (especially for coffee, which is highly volatile in price and supply, palm oil and wheat); 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 can charge for supplies sold to U.S. franchisees. Additionally, there can be no assurance that the Company and its joint venture partner will continue with the Maidstone Bakeries 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.

Government Regulation. The Company and its franchisees are subject to various federal, state, provincial, and local (“governmental”) laws and regulations. The development and operation of restaurants depend to a significant extent on the selection, acquisition, and development of suitable sites, which are subject to laws and regulations regarding zoning, land use, environmental matters (including drive thrus), traffic, franchise, design and other matters. Additional governmental laws and regulations affecting the Company and its franchisees include: business licensing; franchise laws and regulations; health, food preparation, sanitation and safety; labour (including applicable minimum wage requirements, overtime, working and safety conditions, family leave and other employment matters, and citizenship requirements); nutritional disclosure and advertising; 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 the Company’s financial results.

Foreign Exchange Fluctuations. The Company’s Canadian restaurants are vulnerable to increases in the value of the U.S. dollar as certain commodities, such as coffee, are priced in U.S. dollars in international markets. Conversely, the Company’s U.S. restaurants are impacted when the U.S. dollar falls in value relative to the Canadian dollar, as 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. Increases in these costs could make it harder to expand into the U.S. and increase relief and support costs to U.S. franchisees, affecting the Company’s earnings. In addition, fluctuations in the values of Canadian and U.S. dollars can affect the value of the Company’s common stock and any dividends the Company pays.

Mergers, Acquisitions and Other Strategic Transactions. The Company intends to evaluate potential mergers, acquisitions, joint venture investments, alliances, vertical integration opportunities and divestitures, which are subject to many of the same risks that also affect new store development. In addition, these transactions involve various other 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; ramp-up costs, whether anticipated or not; 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 limitations of the IRS ruling under Section 355 in connection with the Company’s separation from Wendy’s, or restrictive covenants in debt instruments or other agreements with third parties, including the Maidstone Bakeries joint venture arrangements.

Privacy Protection. If the Company fails to comply with new and/or increasingly demanding laws and regulations regarding the protection of customer, employee and/or business data, or if the Company experiences a significant breach of customer, employee or company data, the Company’s reputation could be damaged and result in lost sales, fines, lawsuits and diversion of management attention. The introduction of credit payment systems and the Company’s reloadable cash card makes us more susceptible to a risk of loss in connection with these issues, particularly with respect to an external security breach of customer information that the Company, or third parties under arrangement(s) with it, control.

Other Factors. The following factors could also cause the Company’s actual results to differ from its 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 (including in certain international markets that have uncertain or inconsistent laws and/or application with respect to intellectual property and contract rights); operational or financial shortcomings of franchised restaurants and franchisees; liabilities and losses associated with owning and leasing significant amounts of real estate; failures of or inadequacies in computer systems at restaurants, the distribution facilities, the Company’s manufacturing facilities, the Maidstone Bakeries facility, or at the Company’s office locations, including those that support, secure, track and/or record electronic payment transactions; the transition to an integrated financial system, which could present risks of maintaining and designing internal controls and SOX 404 compliance; litigation matters, including obesity litigation; health and safety risks or conditions of the Company’s restaurants associated with design, construction, site location and development and/or certain equipment utilized in operations; employee claims for employment or labour matters, including wage and hour claims; falsified claims; 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, which speak only as of the date hereof. Except as required by federal or provincial securities laws, the Company undertakes no obligation to publicly release any revisions to the forward-looking statements contained in this release, or to update them to reflect events or circumstances occurring after the date of this release, or to reflect the occurrence of unanticipated events.