Tim Hortons Inc. Announces 2008 Fourth Quarter and Year End Results - Solid performance in core Canadian business; operating income lower due to previously announced restaurant closures and related asset impairment charge



    
    (All amounts in Canadian dollars)


                        Financial & Sales Highlights
                        ----------------------------

    -------------------------------------------------------------------------
                                            %    2008 Full  2007 Full   %
                        Q4 2008  Q4 2007  Change   Year       Year    Change
    -------------------------------------------------------------------------
    Revenues            $ 563.7  $ 515.4    9.4%  $2,043.7  $1,895.9    7.8%
    Operating income    $ 107.9  $ 116.2  (7.2)%  $  443.6  $  425.1    4.3%
    Adjusted Operating
     Income(1)          $ 129.1  $ 116.2   11.1%  $  467.4  $  425.1    9.9%
    Effective Tax Rate    32.8%    32.6%             32.8%     34.0%
    Net Income          $  69.1  $  75.7  (8.6)%  $  284.7  $  269.6    5.6%
    Diluted Earnings
     Per Share (EPS)    $  0.38  $  0.40  (5.9)%  $   1.55  $   1.43    8.6%
    Fully Diluted Shares  181.4    187.0  (2.9)%     183.5     188.8  (2.8)%
    -------------------------------------------------------------------------
    (1) Adjusted operating income is a non-GAAP measure. For information
        regarding this measure and a reconciliation to U.S. GAAP, please
        refer to "Disclosure of Non-GAAP Financial Measure" and Table 1 in
        this release.

        ($ in millions, except EPS. Fully diluted shares in millions. All
        numbers rounded.)



    -------------------------------------------------------------------------
    Same-Store Sales(2)          Q4 2008     Q4 2007     2008        2007
                                                       Full Year   Full Year
    -------------------------------------------------------------------------
    Canada                          4.4%        3.8%        4.4%        6.1%
    U.S.                          (0.1)%        4.2%        0.8%        4.1%
    -------------------------------------------------------------------------
    (2) Includes sales at Franchised and Company-owned locations.

        As of December 28, 2008, 99.5% of the Company's restaurants in Canada
        and 96.3% of the U.S. restaurants were franchised.


    Highlights
    ----------
    -   Fourth quarter systemwide sales(3) increased 8.2% on a constant
        currency basis
    -   Fourth quarter EPS of $0.38 includes negative impact of approximately
        $0.08 per share for restaurant closure costs (11 units) and a related
        asset impairment charge
    -   161 new units opened in fourth quarter, 266 for full year
    -   Board approves 11.1% increase in quarterly dividend to $0.10 per
        share
    -   $200 million share repurchase program planned to commence in
        March 2009
    -   2009 outlook and targets established
    

    OAKVILLE, ON, Feb. 20 /CNW/ - Tim Hortons Inc. (NYSE:   THI, TSX: THI)
today announced its results for the fourth quarter and fiscal year ended
December 28, 2008.
    "Sales growth in our core Canadian business was quite strong in the
fourth quarter considering the challenging economic circumstances. At the same
time, we took decisive steps to improve profitability in our developing U.S.
business by closing a number of underperforming restaurants in southern New
England, as announced late last year. For the full year, we had consolidated
operating income growth of close to 10% excluding non-comparable items and we
are pleased with this overall performance. We continue to focus on executing
our growth agenda," said Don Schroeder, president and CEO.

    Consolidated Results

    In the fourth quarter systemwide sales(3) grew 8.2% on a constant
currency basis and 9.5% including the impact of currency. Same-store sales
increased 4.4% in Canada and were down 0.1% in the U.S. for the same period.
Total revenues were up 9.4% to $563.7 million in the fourth quarter, compared
to $515.4 million in the same period of 2007.
    Same-store sales were driven by an active promotional program that
included Chili and Garlic Toast and the return of Chicken Fajita wraps in
Quebec. Candy Cane Donuts and Candy Cane hot chocolate were promoted in
December, when we were also promoting our holiday merchandise program which
included branded Tim Hortons china mugs, ceramic/steel coffee scoops,
TimCards(R)and chocolate bark (Candy Cane and Milk Chocolate Almond). We also
introduced combo programs in Canada and the U.S during the fourth quarter. In
Canada, we offered Pumpkin Spice Donuts and Muffins with Tea. We also bundled
Creamy Field Mushroom Soup with Ham and Swiss sandwiches. In the U.S., our
combo programs included Pumpkin Spice Donuts with medium Coffee at an
attractive price point and we also promoted Turkey Bacon Club sandwiches with
Hearty Potato Bacon soup.
    Sales growth in the fourth quarter of 11.0%, primarily consisting of
warehouse sales, reflects strong systemwide sales during the fourth quarter
and the impact of currency translation, partially offset by fewer
Company-operated restaurants. New products managed through our supply chain
also contributed to sales growth. Rents and royalties increased 10.2% for the
same period, consistent with systemwide sales growth. Franchise fees decreased
8.5% year-over-year, primarily due to the timing of revenue recognition from
our franchise incentive program, a higher mix of non-standard units in the
fourth quarter versus full-serve restaurants compared to the previous year,
and fewer replacements and renovations. These factors were partially offset by
higher resales of restaurants to franchisees.
    Fourth quarter cost of sales were up 9.8%, mainly driven by sales growth.
Operating expenses rose by 11.7% in the fourth quarter. The largest components
of the operating expense increase were the higher number of units opened in
2008, percentage rent increases on variable rent contracts, and the impact of
foreign exchange on U.S. currency translation. Franchise fee costs were down
11.2%, consistent with lower franchise fee revenues described previously.
    Operating income for the fourth quarter was $107.9 million, a decline of
7.2% from $116.2 million in the same period last year. The benefit of strong
systemwide sales growth and higher warehouse sales partially offset the impact
of restaurant closure costs and a related asset impairment charge. Excluding
these costs, adjusted operating income(1) growth for the quarter was solid, up
11.1% year-over year. A total of 11 underperforming restaurants were closed in
southern New England, 10 of which were Company-operated locations. In
conjunction with its decision to close certain underperforming restaurants,
the Company undertook an asset impairment review in the affected markets. As a
result of these activities, $7.6 million in restaurant closure costs and a
related market impairment charge of $13.7 million were recorded in the fourth
quarter, for a total of $21.3 million.
    Operating income was also affected by a 16.3% increase in fourth quarter
general and administrative costs compared to the same period last year. These
increased costs reflect significantly higher professional fees, the timing of
franchisee meetings and related travel costs compared to last year, and the
impact of foreign exchange translation from our U.S. segment. Higher
professional fees in the quarter were due mainly to a feasibility assessment
undertaken relating to the Company's corporate structure (see Corporate
Developments for further information).
    Equity income increased during the quarter to $10.5 million compared to
$9.6 million last year, an increase of 9.4%. Equity income benefited from an
asset sale in one of our joint ventures in the fourth quarter and sales growth
helped drive higher income contributions from the Company's two largest joint
ventures.
    Net interest expense was $5.0 million in the fourth quarter compared to
$4.0 million in the same period last year. The increase is the result of lower
interest income and higher interest expense on capital leases offset partially
by lower interest costs on external debt.
    Fourth quarter net income was $69.1 million, decreasing 8.6% from $75.7
million last year. The decrease in net income was the result of $15.4 million
in after tax costs associated with previously announced restaurant closures,
and the related asset impairment charge. The effective tax rate for the fourth
quarter of 2008 was 32.8%, slightly higher than 32.6% in the prior year
comparable period.
    Diluted earnings per share (EPS) were $0.38, down 5.9% compared to $0.40
in the fourth quarter of 2007, and includes a $0.08 impact from the asset
impairment and related closure costs.
    For the fiscal year ended December 28, 2008, total revenues were
approximately $2.0 billion, increasing 7.8% from the approximately $1.9
billion recorded in 2007. Operating income for 2008 was $443.6 million, up
4.3% compared to $425.1 million last year. Excluding the asset impairment and
related closure costs, and a previous management restructuring charge of $3.1
million ($2.5 million net of savings), adjusted operating income for the full
year increased 9.9% to $467.4 million. The effective tax rate was 32.8% in
2008 compared to 34.0% in 2007, slightly below the targeted rate of 33% to
35%. Net income for the full year increased by 5.6% to $284.7 million,
compared to $269.6 million in 2007. Net income includes a $17.1 million
after-tax impact from the asset impairment and related closure costs described
previously and the management restructuring charge announced in the second
quarter. Diluted earnings per share were $1.55 in 2008 compared to $1.43 in
2007.

    Segmented Performance Commentary

    
    Canada
    -------
    
    Canadian same-store sales in the fourth quarter rose 4.4%, of which
approximately 3.1% was due to pricing. A strong menu promotional program,
advertising and focus on holiday merchandise contributed to the sales
performance in a challenging economic climate.
    The Canadian segment experienced slightly higher margins due to higher
sales and distribution efficiencies, partially offset by higher general and
administrative costs, during the quarter. Operating income in the Canadian
segment was $137.1 million, an increase of 8.7% compared to $126.2 million in
the fourth quarter of 2007. A total of 55 restaurants were opened in Canada
during the quarter.
    For the full year, Canadian same-store sales growth also rose 4.4%, of
which pricing contributed about 3.4%. Operating income in 2008 was $507.0
million, an increase of 8.4% compared to $467.9 million in 2007. A total of
130 restaurants were opened in Canada during 2008.

    
    United States
    --------------
    
    Same-store sales in the fourth quarter in the U.S. segment had a slight
decline of 0.1%. A rapid deterioration of the macro-economic climate and
consumer confidence in the U.S. contributed to another challenging quarter in
terms of the sales environment for our U.S. business, where the Tim Hortons
brand is not as developed. Proactive changes in menu promotional activities
made during the quarter, including offering product combos and bundles with
attractive price points, helped offset the impact of a challenging
environment. We experienced a decline in transactions in the fourth quarter in
the U.S. segment as pricing increases did not fully translate into sales
growth. Previous pricing contributed approximately 3.2% to fourth quarter
sales.
    The U.S. segment had an operating loss of $21.3 million in the fourth
quarter, which was driven entirely by the $21.3 million in asset impairment
and related closure costs. Currency translation raised U.S. segment revenues
and costs by approximately 15% respectively during the quarter compared to the
same period in 2007. A total of 106 locations were opened in the U.S. during
the quarter.
    For the full year, same-store sales increased 0.8% in the U.S. business.
Pricing accounted for approximately 2.2% of same-store sales. The U.S. segment
had an operating loss of $26.5 million in 2008, which includes the $21.3
million asset impairment and related restaurant closure charges. Management is
targeting 2009 break-even operating income performance on a full-year basis in
its U.S. segment (see 2009 Outlook and Targets).
    A total of 136 locations were opened in the U.S. for the full year. Of
this full-year total, 87 were non-standard units, including 73 self-serve
locations. We entered into an agreement with Tops Friendly Markets that
resulted in approximately 80 predominantly self-serve and some full-serve
units being opened in New York and Pennsylvania. The Company intends to
complement its ongoing standard restaurant expansion with increased
penetration of non-standard units and strategic alliances. In December of 2008
we held grand opening celebrations in Detroit, Michigan for the Company's
500th restaurant in the U.S., a significant milestone in our ongoing brand
growth and development. The Company also recently announced a co-branding test
with Cold Stone Creamery which will see up to 50 locations from each chain
transition to offer branded products of the other company.
    Internationally, in Ireland and the U.K., there are now 293 licensed
locations primarily under the Tim Hortons brand, in the convenience store
channel.

    Corporate Developments

    
    Corporate Structure
    --------------------
    
    The Company commenced a review in the fourth quarter, with the support of
external advisors, to assess various opportunities related to our corporate
structure. This review is focused on tax and operational efficiencies and also
addresses changes to the Canada-U.S. tax treaty ratified in December of 2008
which, if not addressed, could negatively affect our effective tax rate.
    This review was undertaken as a result of the expiry of time constraints
under U.S. tax rules and the tax sharing agreement we entered into at the time
of our IPO that limited our ability to engage in certain acquisitions,
reorganizations and other transactions that could have affected the tax-free
nature of the spin-off from Wendy's. Now that the time constraints have
expired, we believe that opportunities may exist for us to achieve significant
financial and other benefits from reorganizing our corporate structure,
including potentially converting our parent company from a U.S. to a Canadian
corporation. Tim Hortons has its roots and heritage in Canada. Based on the
evaluations that we have conducted thus far, and which are ongoing, we believe
that such an event would be in the best interests of our shareholders, driving
long-term value by bringing our effective tax rates closer to Canadian
statutory rates. We would also expect to incur certain charges for discrete
items, the majority of which would be non-cash, and transactional costs in the
year of implementation. If we were to implement such a transaction in 2009,
the impact of the charges and costs would result in our 2009 targeted tax rate
exceeding the identified range (see 2009 Outlook and Targets) and,
potentially, could cause our targeted operating income to fall below the
expected range. There can be no assurance that we will be able to complete a
reorganization of our Company or any other transaction for that matter or that
the expected benefits will ultimately be realized, given the various
assessments, conditions, and approvals that remain outstanding in connection
with the initiatives described above.

    
    Board of Directors Appointment
    -------------------------------
    
    The Board has appointed Catherine L. Williams as a director of the
Company effective March 1, 2009. Ms. Williams has been a Managing Director of
Options Capital Limited, a private investment company, since 2007. From 2003
to 2007, Ms. Williams was Chief Financial Officer for Shell Canada Limited, a
subsidiary of Royal Dutch Shell. From 1984 to 2003, Ms. Williams held various
positions with Shell Canada Limited, Shell Europe Oil Products, Shell Canada
Oil Products and Shell International. Prior to 1984, Ms. Williams was a
financial analyst for Nova Corporation and held various positions with the
Bank of Canada prior to joining the Shell companies. Ms. Williams currently
serves as a director for Enbridge Inc. where she is a member of the Audit,
Financial and Risk Committee and the Corporate Social Responsibility
Committee. She is also the Chair of the Board of Governors of Mount Royal
College, and she serves on the Advisory board for the Dean of the Business
School at Queen's University. In 2008, she served as a member of the Federal
Government Advisory Panel on Canada's System of International Taxation. She is
a graduate of the University of Western Ontario and Queen's University.

    
    $200 million Share Repurchase Program
    --------------------------------------
    
    The Company plans to implement its previously announced 12-month share
repurchase program, starting in March 2009. The share repurchase program
reflects the Company's focus of creating value for shareholders, and our
strong cash flow and financial position. The new program is subject to receipt
of final regulatory approval, and represents a planned allocation of up to
$200 million, or a maximum of 5% of the Company's outstanding shares. For
details on the new program, please refer to the news release issued today in
conjunction with this earnings release. Shares purchased under the program
will be at management's discretion, in compliance with regulatory
requirements, given prevailing market conditions and cost considerations,
unlike the previous program which included a 10b5-1 program. If a subsequent
decision is made to proceed with changes to the Company's corporate structure,
timing of share repurchases could be affected, including potentially deferring
future purchases subsequent to the first quarter until after a transaction is
implemented.

    
    Dividend declared, and 11.1% increase to quarterly dividend approved to
    -----------------------------------------------------------------------
    $0.10 per share
    ----------------
    
    The Board of Directors has approved an increase in the quarterly dividend
to $0.10 per share and the first payment of a dividend at the new rate is
payable on March 17th, 2009 to shareholders of record as of March 3rd, 2009.
The Company's current dividend policy is to pay a total of 20-25% of prior
year, normalized annual net earnings in dividends each year, returning value
to shareholders based on the Company's earnings growth.
    Dividends are paid in Canadian dollars to all shareholders with Canadian
resident addresses whose shares are registered with Computershare (the
Company's transfer agent). For all other shareholders, including all
shareholders who hold their shares indirectly (i.e., through their broker) and
regardless of country of residence, the dividend will be converted to U.S.
dollars on March 10th, 2009 at the daily noon rate established by the Bank of
Canada and paid in U.S. dollars on March 17th, 2009.

    2009 Outlook & Targets

    "In 2009 we plan to maximize opportunities presented in the current
economic conditions to expand our Canadian restaurant footprint in successful
growth markets while we take a prudent approach to U.S. development given the
significant economic challenges. We are focusing our efforts on more
established U.S. markets and complementing our approach with strategic
opportunities to create additional brand penetration and scale with reduced
capital requirements. We have created a menu and marketing program responsive
to the economic realities of our customers and we continue to be relatively
well positioned overall due to our price and value brand position," said Don
Schroeder, president and CEO.

    
    The Company has established the following 2009 performance targets(*):
    -   Operating income growth of 11% to 13% (targeted rate of growth is 6%
        to 8% excluding the impact of the asset impairment and related
        closure costs in 2008)
           -  Includes approximately 1% positive impact of 53rd week in 2009
           -  Break-even operating income performance in U.S. segment on a
              full-year basis
    -   2009 same-store sales growth of 3% to 5% in Canada and 0% to 2% in
        the U.S.
    -   150 to 180 restaurant openings:
           -  120 to 140 restaurants in Canadian segment
           -  30 to 40 full-serve restaurants in the U.S. segment,
              complemented by non-standard locations and sites from strategic
              alliances
    -   Capital expenditures between $180 million to $200 million
    -   Effective tax rate of 32% to 34%.

    (*) Note: If implemented in 2009, a new corporate structure could have a
        significant negative impact on the 2009 effective tax rate due to
        discrete items, the majority of which are expected to be non-cash,
        and our operating income growth could be affected by transaction
        costs. However, our effective tax rate would be positively impacted
        in 2010 and beyond as our effective tax rate approaches Canadian
        statutory rates. Implications of changes to the tax treaty between
        Canada and the United States could negatively impact our effective
        tax rate for 2010 and future years if not addressed through
        reorganization or other means.
    

    These financial targets are for 2009 only. These targets are
forward-looking and are based on our expectations and outlook and shall be
effective only as of the date the targets were originally issued. Except as
required by applicable securities laws, we do not intend to update our annual
financial targets. These targets and our performance generally are subject to
various risks and uncertainties ("risk factors") which may impact future
performance and our achievement of these targets. Refer to our safe harbor
statement, which incorporates by reference our "risk factors," set forth at
the end of this release, and our Annual Report on Form 10-K for 2007 and for
2008 (to be issued on February 26, 2009).

    Disclosure on Non-GAAP Financial Measure

    Adjusted operating income is a non-GAAP measure. 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 earnings performance
compared to target for 2008, which excludes the asset impairment and related
closure costs described above and a previously disclosed management
restructuring charge, net of savings. The Company evaluates its business
performance and trends excluding amounts related to such items. Therefore,
this measure provides a more consistent view of management's perspectives on
underlying performance and is more relevant for comparison purposes between
periods than the closest equivalent U.S. GAAP measure.

    
    Table 1  Pro forma: Adjusted operating income to U.S. GAAP reconciliation
    -------------------------------------------------------------------------
                                                                        %
          Quarter Ended                      Q4 2008     Q4 2007      Change
    -------------------------------------------------------------------------
    Reported Operating Income              $   107.9   $   116.2      (7.2)%
    Add: Asset impairment and
     related closure costs                      21.3           -         N/M
                                           ----------  ----------  ----------
    Adjusted Operating Income              $   129.1   $   116.2       11.1%

                                           Full Year   Full Year        %
            Year Ended                       2008        2007         Change
    -------------------------------------------------------------------------
    Reported Operating Income              $   443.6   $   425.1        4.3%
    Add: Asset impairment and
     related closure costs                      21.3   $       -         N/M
    Add: Management restructuring
     costs, net of savings(4)                    2.5   $       -         N/M
                                           ----------  ----------  ----------
    Adjusted Operating Income              $   467.4   $   425.1        9.9%
    -------------------------------------------------------------------------
    (4) Originally disclosed as $3.1 million, which did not include savings
        of $0.6 million realized in fiscal 2008.

        ($ in millions, all numbers rounded.)  N/M - Not Meaningful


    Tim Hortons to host conference call at 10:30 a.m. today, February 20th,
    2009
    

    Tim Hortons will host a conference call to discuss its fourth quarter and
year-end results beginning at 10:30 a.m. Eastern Standard Time (EST) on
Friday, February 20th, 2009. Investors and the public may listen to the
conference call by calling (416) 641-6712 or 1 (800) 354-6885 (no access code
required), or through simultaneous webcast by visiting the investor relations
website at www.timhortons-invest.com, and clicking on the "Events and
Presentations" tab. A slide presentation will be available to coincide with
the conference call on this site. A replay of the call will be available for
one year and can be accessed by calling (416) 626-4100 or 1-800-558-5253.  The
reservation number for the replay of the call is 21412008.

    Safe Harbor Statement

    Certain information in this news release, particularly information
regarding our 2009 performance targets as well as other information regarding
future economic performance, finances, and plans, expectations and objectives
of management, is forward-looking as contemplated under the Private Securities
Litigation Reform Act of 1995. Various factors including those described as
"risk factors" in the Company's 2007 Annual Report on Form 10-K, filed
February 26, 2008, and in our 2008 Annual Report on Form 10-K to be filed
February 26, 2009, and those risk factors set forth in our Safe Harbor
Statement, as well as other possible factors not listed or described in the
foregoing, could affect the Company's actual results and cause such results to
differ materially from those expressed in forward-looking statements. As such,
readers are cautioned not to place undue reliance on forward-looking
statements contained in this news release, which speak only as of the date
hereof. Except as required by federal or provincial securities laws, the
Company undertakes no obligation to publicly release any revisions to the
forward-looking statements contained in this release, or to update them to
reflect events or circumstances occurring after the date of this release, or
to reflect the occurrence of unanticipated events, even if new information,
future events or other circumstances have made the forward-looking statements
incorrect or misleading. Please review the Company's Safe Harbor Statement at
timhortons.com/en/about/safeharbor.html.

    
    (3) Total systemwide sales growth includes restaurant level sales at both
        Company and Franchise restaurants. Approximately 99% of our system is
        franchised as at December 28, 2008. Systemwide sales growth is
        determined using a constant exchange rate, where noted, to exclude
        the effects of foreign currency translation. U.S. dollar sales are
        converted to Canadian dollar amounts using the average exchange rate
        of the base year for the period covered. For the fourth quarter of
        2008, systemwide sales growth was up 8.2% compared to the fourth
        quarter of 2007, or 9.5% without holding currency constant.
        Systemwide sales are important to understanding our business
        performance as they  impact our franchise royalties and rental
        income, as well as our distribution income. Changes in systemwide
        sales are driven by changes in average same store-sales and changes
        in the number of systemwide restaurants.
    

    Tim Hortons Inc. Overview

    Tim Hortons is the fourth largest publicly-traded quick service
restaurant chain in North America based on market capitalization, and the
largest in Canada. Tim Hortons appeals to a broad range of consumer tastes,
with a menu that includes coffee and donuts, premium coffees, flavored
cappuccinos, specialty teas, home-style soups, fresh sandwiches and fresh
baked goods. As of December 28, 2008, Tim Hortons had 3,437 systemwide
restaurants, including 2,917 in Canada and 520 in the United States. More
information about the Company is available at www.timhortons.com.



    
                      TIM HORTONS INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS
     (In thousands of Canadian dollars, except share and per share data)

                                 (Unaudited)

                                Fourth Quarter Ended
                                December    December
                                28, 2008    30, 2007    $ Change    % Change
                               ----------  ----------  ----------  ----------
    REVENUES
    Sales                       $372,055    $335,210     $36,845       11.0%
    Franchise revenues
      Rents and royalties        157,230     142,638      14,592       10.2%
      Franchise fees              34,404      37,596      (3,192)      (8.5%)
                               ----------  ----------  ----------  ----------
                                 191,634     180,234      11,400        6.3%
                               ----------  ----------  ----------  ----------
    TOTAL REVENUES               563,689     515,444      48,245        9.4%
                               ----------  ----------  ----------  ----------

    COSTS AND EXPENSES
    Cost of sales                322,558     293,829      28,729        9.8%
    Operating expenses            58,378      52,272       6,106       11.7%
    Franchise fee costs           29,458      33,168      (3,710)     (11.2%)
    General & administrative
     expenses                     33,850      29,098       4,752       16.3%
    Equity (income)              (10,490)     (9,587)       (903)       9.4%
    Asset impairment and
     related closure costs        21,266           -      21,266         N/M
    Other expense (income), net      804         437         367         N/M
                               ----------  ----------  ----------  ----------
    TOTAL COSTS & EXPENSES, NET  455,824     399,217      56,607       14.2%
                               ----------  ----------  ----------  ----------

    OPERATING INCOME             107,865     116,227      (8,362)      (7.2%)

    Interest (expense)            (5,950)     (6,236)        286       (4.6%)
    Interest income                  906       2,268      (1,362)     (60.1%)
                               ----------  ----------  ----------  ----------

    INCOME BEFORE INCOME TAXES   102,821     112,259      (9,438)      (8.4%)

    INCOME TAXES                  33,694      36,589      (2,895)      (7.9%)
                               ----------  ----------  ----------  ----------

    NET INCOME                   $69,127     $75,670     ($6,543)      (8.6%)
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------
    Basic earnings per share
     of common stock               $0.38       $0.41      ($0.02)      (5.9%)
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------
    Diluted earnings per share
     of common stock               $0.38       $0.40      ($0.02)      (5.9%)
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------
    Basic shares of common
     stock (in thousands)        181,261     186,712      (5,451)      (2.9%)
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------
    Diluted shares of common
     stock (in thousands)        181,443     186,956      (5,514)      (2.9%)
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------
    Dividend per share of
     common stock                  $0.09       $0.07       $0.02
                               ----------  ----------  ----------
                               ----------  ----------  ----------
    N/M - not meaningful
    (all numbers rounded)



                      TIM HORTONS INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS
     (In thousands of Canadian dollars, except share and per share data)

                                 (Unaudited)

                                     Year Ended
                                December    December
                                28, 2008    30, 2007    $ Change    % Change
                               ----------  ----------  ----------  ----------

    REVENUES
    Sales                     $1,348,015  $1,248,574     $99,441        8.0%
    Franchise revenues
      Rents and royalties        601,870     553,441      48,429        8.8%
      Franchise fees              93,808      93,835         (27)      (0.0%)
                               ----------  ----------  ----------  ----------
                                 695,678     647,276      48,402        7.5%
                               ----------  ----------  ----------  ----------
    TOTAL REVENUES             2,043,693   1,895,850     147,843        7.8%
                               ----------  ----------  ----------  ----------
    COSTS AND EXPENSES
    Cost of sales              1,180,998   1,099,248      81,750        7.4%
    Operating expenses           216,605     201,153      15,452        7.7%
    Franchise fee costs           87,486      87,077         409        0.5%
    General & administrative
     expenses                    130,846     119,416      11,430        9.6%
    Equity (income)              (37,282)    (38,460)      1,178       (3.1%)
    Asset impairment and
     related closure costs        21,266           -      21,266         N/M
    Other expense (income),
     net                             208       2,307      (2,099)        N/M
                               ----------  ----------  ----------  ----------
    TOTAL COSTS & EXPENSES,
     NET                       1,600,127   1,470,741     129,386        8.8%
                               ----------  ----------  ----------  ----------

    OPERATING INCOME             443,566     425,109      18,457        4.3%

    Interest (expense)           (24,558)    (24,118)       (440)       1.8%
    Interest income                4,926       7,411      (2,485)     (33.5%)
                               ----------  ----------  ----------  ----------

    INCOME BEFORE INCOME TAXES   423,934     408,402      15,532        3.8%

    INCOME TAXES                 139,256     138,851         405        0.3%
                               ----------  ----------  ----------  ----------

    NET INCOME                  $284,678    $269,551     $15,127        5.6%
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------
    Basic earnings per share
     of common stock               $1.55       $1.43       $0.12        8.6%
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------
    Diluted earnings per share
     of common stock               $1.55       $1.43       $0.12        8.6%
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------
    Basic shares of common
     stock (in thousands)        183,298     188,465      (5,167)      (2.7%)
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------
    Diluted shares of common
     stock (in thousands)        183,492     188,759      (5,267)      (2.8%)
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------
    Dividend per share of
     common stock                  $0.36       $0.28       $0.08
                               ----------  ----------  ----------
                               ----------  ----------  ----------
    N/M - not meaningful
    (all numbers rounded)



                      TIM HORTONS INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEET
                     (In thousands of Canadian dollars)


                                                  December 28,   December 30,
                                                     2008           2007
                                                 -------------  -------------
                                                         (Unaudited)

    ASSETS

    Current assets
      Cash and cash equivalents                      $101,636       $157,602
      Restricted cash and cash equivalents             62,329         37,790
      Accounts receivable, net                        159,505        104,889
      Notes receivable, net                            22,615         10,824
      Deferred income taxes                            19,760         11,176
      Inventories and other, net                       71,505         60,281
      Advertising fund restricted assets               27,684         20,256
                                                 -------------  -------------
    Total current assets                              465,034        402,818

    Property and equipment, net                     1,332,852      1,203,259

    Notes receivable, net                              17,645         17,415

    Deferred income taxes                              29,285         23,501

    Intangible assets, net                              2,606          3,145

    Equity investments                                132,364        137,177

    Other assets                                       12,841          9,816
                                                 -------------  -------------
    Total assets                                   $1,992,627     $1,797,131
                                                 -------------  -------------
                                                 -------------  -------------



                      TIM HORTONS INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEET
                     (In thousands of Canadian dollars)

                                                  December 28,   December 30,
                                                     2008           2007
                                                 -------------  -------------
                                                         (Unaudited)

    LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities
      Accounts payable                               $157,210       $133,412
      Accrued liabilities:
        Salaries and wages                             18,492         17,975
        Taxes                                          25,605         34,522
        Other                                         110,518         95,777
      Advertising fund restricted liabilities          47,544         39,475
      Current portion of long-term obligations          6,691          6,137
                                                 -------------  -------------
    Total current liabilities                         366,060        327,298
                                                 -------------  -------------

    Long-term liabilities
      Term debt                                       332,506        327,956
      Advertising fund restricted debt                  6,929         14,351
      Capital leases                                   59,052         52,524
      Deferred income taxes                            13,604         16,295
      Other long-term liabilities                      74,072         56,624
                                                 -------------  -------------
    Total long-term liabilities                       486,163        467,750
                                                 -------------  -------------

    Stockholders' equity
      Common stock, (US$0.001 par value per share)
        Authorized: 1,000,000,000 shares
        Issued: 193,302,977 shares                        289            289
      Capital in excess of par value                  929,102        931,084
      Treasury stock, at cost: 11,754,201 and
       6,750,052 shares, respectively                (399,314)      (235,155)
      Common stock held in trust, at cost:
       358,186 and 421,344 shares, respectively       (12,287)       (14,628)
      Retained earnings                               677,550        458,958
      Accumulated other comprehensive loss            (54,936)      (138,465)
                                                 -------------  -------------
    Total stockholders' equity                      1,140,404      1,002,083
                                                 -------------  -------------
    Total liabilities and stockholders' equity     $1,992,627     $1,797,131
                                                 -------------  -------------
                                                 -------------  -------------



                      TIM HORTONS INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                     (In thousands of Canadian dollars)


                                                          Year Ended
                                                  December 28,   December 30,
                                                     2008           2007
                                                 -------------  -------------
                                                         (Unaudited)

    CASH FLOWS PROVIDED FROM (USED IN)
     OPERATING ACTIVITIES
    Net income                                       $284,678       $269,551
    Adjustments to reconcile net income to net
     cash provided by operating activities
      Depreciation and amortization                    91,278         83,595
      Asset impairment and related closure costs       21,266              -
      Stock-based compensation expense                  9,630          8,560
      Equity income, net of cash dividends              4,519          1,448
      Deferred income taxes                           (13,714)        (7,097)
      Changes in operating assets and liabilities
        Restricted cash and cash equivalents          (23,820)       (37,790)
        Accounts and notes receivable                 (51,235)         3,171
        Inventories and other                          (3,708)        (8,323)
        Accounts payable and accrued liabilities       22,723         58,461
        Amounts receivable from (payable to)
         Wendy's                                            -            406
      Other, net                                       14,398         21,994

                                                 -------------  -------------
          Net cash provided from operating
           activities                                $356,015       $393,976
                                                 -------------  -------------

    CASH FLOWS (USED IN) PROVIDED FROM
     INVESTING ACTIVITIES
    Capital expenditures                             (174,247)      (175,541)
    Purchase of restricted investments                (11,881)             -
    Proceeds from sale of restricted investments       12,000              -
    Principal payments on notes receivable              3,939          6,791
    Investments in joint ventures and
     other investments                                    823            596
    Other investing activities                        (14,241)       (11,697)

                                                 -------------  -------------
          Net cash used in investing activities      (183,607)      (179,851)
                                                 -------------  -------------

    CASH FLOWS (USED IN) PROVIDED FROM
     FINANCING ACTIVITIES
    Purchase of treasury stock                       (165,258)      (170,604)
    Dividend payments                                 (66,086)       (52,865)
    Purchase of common stock held in trust             (3,842)        (7,202)
    Purchase of common stock for settlement
     of stock-based compensation                         (226)          (110)
    Proceeds from issuance of debt, net
     of issuance costs                                  3,796          2,588
    Tax sharing payment from Wendy's                        -          9,116
    Principal payments on other long-term
     debt obligations                                  (7,376)        (4,060)

                                                 -------------  -------------
          Net cash used in financing activities      (238,992)      (223,137)
                                                 -------------  -------------

    Effect of exchange rate changes on cash            10,618         (9,469)
                                                 -------------  -------------

    Decrease in cash and cash equivalents             (55,966)       (18,481)

    Cash and cash equivalents at beginning
     of year                                          157,602        176,083

                                                 -------------  -------------
    Cash and cash equivalents at end of year         $101,636       $157,602
                                                 -------------  -------------
                                                 -------------  -------------



                      TIM HORTONS INC. AND SUBSIDIARIES
                              SEGMENT REPORTING
                     (In thousands of Canadian dollars)

                                      (Unaudited)

                                            Fourth Quarter Ended
                                December       %        December       %
                                28, 2008    of Total    30, 2007    of Total
                              ----------- ----------- ----------- -----------
    REVENUES
    Canada                      $510,787       90.6%    $474,221       92.0%
    U.S.                          52,902        9.4%      41,223        8.0%
                              ----------- ----------- ----------- -----------
    Total Revenues              $563,689      100.0%    $515,444      100.0%
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    SEGMENT OPERATING INCOME
     (LOSS)
    Canada                      $137,146      118.4%    $126,165      100.4%
    U.S.(*)                      (21,300)    (18.4)%        (477)     (0.4)%
                              ----------- ----------- ----------- -----------
    Reportable Segment
     Operating Income            115,846      100.0%     125,688      100.0%
                                          -----------             -----------
                                          -----------             -----------
    Corporate Charges             (7,981)                 (9,461)
                              -----------             -----------
    Consolidated Operating
     Income                      107,865                 116,227

    Interest, net                 (5,044)                 (3,968)
    Income taxes                 (33,694)                (36,589)
                              -----------             -----------
    Net Income                   $69,127                 $75,670
                              -----------             -----------
                              -----------             -----------

                                                 Year Ended
                                December       %        December       %
                                28, 2008    of Total    30, 2007    of Total
                              ----------- ----------- ----------- -----------
    REVENUES
    Canada                    $1,879,799       92.0%  $1,741,372       91.9%
    U.S.                         163,894        8.0%     154,478        8.1%
                              ----------- ----------- ----------- -----------
    Total Revenues            $2,043,693      100.0%  $1,895,850      100.0%
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    SEGMENT OPERATING
     INCOME (LOSS)
    Canada                      $507,006      105.5%    $467,884      101.0%
    U.S.(*)                      (26,488)     (5.5)%      (4,804)     (1.0)%
                              ----------- ----------- ----------- -----------
    Reportable Segment
     Operating Income            480,518      100.0%     463,080      100.0%
                                          -----------             -----------
                                          -----------             -----------
    Corporate Charges            (36,952)                (37,971)
                              -----------             -----------
    Consolidated Operating
     Income                      443,566                 425,109

    Interest, net                (19,632)                (16,707)
    Income taxes                (139,256)               (138,851)
                              -----------             -----------
    Net Income                  $284,678                $269,551
                              -----------             -----------
                              -----------             -----------

    (*) Fourth quarter and full year 2008 U.S. segment operating income
        includes $21,266 of asset impairment and related restaurant closure
        costs.


                                Fourth Quarter Ended
                                December    December
                                28, 2008    30, 2007    $ Change    % Change
                              ----------- ----------- ----------- -----------

    Sales is comprised of:
    Warehouse sales             $331,770    $290,298     $41,472       14.3%
    Company-operated
     restaurant sales              6,717      12,478      (5,761)    (46.2)%
    Sales from restaurants
     consolidated under FIN 46R   33,568      32,434       1,134        3.5%
                              ----------- ----------- ----------- -----------
                                $372,055    $335,210     $36,845       11.0%
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

                                     Year Ended
                                December    December
                                28, 2008    30, 2007    $ Change    % Change
                              ----------- ----------- ----------- -----------

    Sales is comprised of:
    Warehouse sales           $1,173,738  $1,067,106    $106,632       10.0%
    Company-operated
     restaurant sales             38,327      56,161     (17,834)    (31.8)%
    Sales from restaurants
     consolidated under
     FIN 46R                     135,950     125,307      10,643        8.5%
                              ----------- ----------- ----------- -----------
                              $1,348,015  $1,248,574     $99,441        8.0%
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------



                      TIM HORTONS INC. AND SUBSIDIARIES
                         SYSTEMWIDE RESTAURANT COUNT

                                                Increase/           Increase/
                                               (Decrease)          (Decrease)
                             As of      As of     From     As of      From
                            December  September   Prior   December    Prior
                            28, 2008  28, 2008   Quarter  30, 2007    Year
                           --------------------------------------------------
    Tim Hortons
    -----------

      Canada
        Company-operated          15        13         2        30       (15)
        Franchised             2,902     2,857        45     2,793       109
                           --------------------------------------------------
                               2,917     2,870        47     2,823        94

    % Franchised               99.5%     99.5%               98.9%

      U.S.
        Company-operated          19        30       (11)       42       (23)
        Franchised               501       394       107       356       145
                           --------------------------------------------------
                                 520       424        96       398       122

    % Franchised               96.3%     92.9%               89.4%

      Total Tim Hortons
        Company-operated          34        43        (9)       72       (38)
        Franchised             3,403     3,251       152     3,149       254
                           --------------------------------------------------
                               3,437     3,294       143     3,221       216
                           --------------------------------------------------
                           --------------------------------------------------

    % Franchised               99.0%     98.7%               97.8%



                             TIM HORTONS INC. AND SUBSIDIARIES
                             Income Statement Definitions


    Sales                    Primarily includes sales of products, supplies
                             and restaurant equipment (except for initial
                             equipment packages sold to franchisees as part
                             of the establishment of their restaurant's
                             business - see "Franchise Fees") that are
                             shipped directly from our warehouses or by third
                             party distributors to the restaurants, which we
                             include in warehouse or distribution sales.
                             Sales include canned coffee sales through the
                             grocery channel. Sales also include sales from
                             Company-operated restaurants and sales from
                             restaurants that are consolidated in accordance
                             with FIN 46R.

    Rents and Royalties      Includes franchisee royalties and rental
                             revenues.

    Franchise Fees           Includes the sales revenue from initial
                             equipment packages, as well as fees for various
                             costs and expenses related to establishing a
                             franchisee's business.

    Cost of Sales            Includes costs associated with our distribution
                             business, including cost of goods, direct labour
                             and depreciation, as well as the cost of goods
                             delivered by third-party distributors to the
                             restaurants, and for canned coffee sold through
                             grocery stores. Cost of sales also includes
                             food, paper and labour costs for
                             Company-operated restaurants and restaurants
                             that are consolidated in accordance with
                             FIN 46R.

    Operating Expenses       Includes rent expense related to properties
                             leased to franchisees and other property-related
                             costs (including depreciation).

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

    General and              Includes costs that cannot be directly related
     Administrative          to generating revenue, including expenses
                             associated with our corporate and administrative
                             functions, allocation of expenses related to
                             corporate functions, depreciation of office
                             equipment, the majority of our information
                             technology systems, and head office real estate.

    Equity Income            Includes income from equity investments in joint
                             ventures and other minority investments over
                             which we exercise significant influence. Equity
                             income from these investments is considered to
                             be an integrated part of our business operations
                             and is, therefore, included in operating income.
                             Income amounts are shown as reductions to total
                             costs and expenses.

    Asset Impairment and     Represents non-cash charges relating to the
     related closure costs   impairment of long-lived assets. It also
                             includes costs related to restaurant closures
                             made outside of the normal course of operations.

    Other Expense            Includes expenses (income) that are not directly
     (Income), Net           derived from the Company's primary businesses.
                             Items include currency adjustments, gains and
                             losses on asset sales, minority interest related
                             to the consolidation of restaurants pursuant to
                             FIN 46R, and other asset write-offs.

    Comprehensive Income     Represents the change in our net assets during
                             the reporting period from transactions and other
                             events and circumstances from non-owner sources.
                             It includes net income and other comprehensive
                             income such as foreign currency translation
                             adjustments and the impact of cash flow hedges.
    





For further information:

For further information: Investors: Scott Bonikowsky, (905) 339-6186 or
investor_relations@timhortons.com; Media: Diane Slopek-Weber, (905) 339-6229
or slopek-weber_diane@timhortons.com


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