Tim Hortons Inc. Announces 2008 Second Quarter Results



    
    (All amounts in Canadian dollars)

    Strengthened performance leads to operating income increase of 10.1%
    to $117.1 million; earnings per share up 14.5% to $0.41

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

    -------------------------------------------------------------------------
                                           June 29,      July 1,
    Second Quarter Ended                      2008         2007     % Change
    -------------------------------------------------------------------------
    Revenues                            $    510.7   $    465.3         9.8%
    Operating Income                    $    117.1   $    106.3        10.1%
    Adjusted Operating Income(1)        $    120.2   $    106.3        13.0%
    Effective Tax Rate                       33.2%        33.8%
    Net Income                          $     75.0   $     67.2        11.5%
    Diluted Earnings Per Share          $     0.41   $     0.36        14.5%
    Fully Diluted Shares                     184.3        189.3       (2.6)%
    -------------------------------------------------------------------------
    ($ in millions except EPS. Fully diluted shares in millions. All numbers
    rounded.)
    (1) Adjusted operating income is a non-GAAP measure. For information
    regarding this measure and a reconciliation to U.S. GAAP operating
    income, please refer to "Disclosure on Non-GAAP Financial Measure" and
    Table 1 in this release.


    -------------------------------------------------------------------------
    Same-Store Sales                       Q2 2008                   Q2 2007
    -------------------------------------------------------------------------
    Canada                                    5.7%                      6.6%
    United States                             3.1%                      3.8%
    -------------------------------------------------------------------------

    Same-store sales calculation methodology includes restaurants beginning
    the 13th month after opening.

    As of June 29, 2008, 99.3% of system restaurants in Canada and 91.9% of
    U.S. restaurants were franchised.


    Highlights
    ----------
    -   Second quarter systemwide sales(2) increased 9.8%
    -   Operating income increased to $117.1 million, up 10.1%
    -   Adjusted operating income(1), excluding restructuring charge, up
        13.0%
    -   31 restaurants opened
    -   Board declares quarterly dividend of $0.09 per share
    -   1.5 million shares purchased as part of the share repurchase program
    

    OAKVILLE, ON, Aug. 7 /CNW/ - Tim Hortons Inc. (NYSE:  THI, TSX: THI) today
announced strong operating results for the second quarter ended June 29, 2008.
    Systemwide sales(2), which include sales from Company-operated and
Franchise restaurants, grew 9.8% in the second quarter compared to the same
period last year. Canadian same-store sales increased 5.7% and U.S. same-store
sales increased 3.1%. Total revenues were $510.7 million, rising 9.8% compared
to $465.3 million in the same period last year. Net income was $75.0 million,
an increase of 11.5% compared to $67.2 million in the second quarter last
year. Earnings per diluted share were $0.41, an increase of 14.5% compared to
$0.36 in the second quarter of 2007.
    "The strength of our model and customer offering resulted in strong sales
and earnings growth in a challenging environment. We were pleased with our
store owners' ability to meet the needs of our customers and reinforce our
differentiated positioning as a destination for people looking for quality
products at a reasonable price. We continue to be on track to meet our
operating income growth target of 10% excluding the impact of the $3.1 million
restructuring charge," said Don Schroeder, president and CEO.
    Schroeder added: "Our brand and consumer loyalty and value-oriented menu
offering positions us well within the sector, particularly during more
difficult economic times. The state of the macro environment and resulting
sales climate continues to be challenging, and we will be diligent and
actively monitor the situation."

    Consolidated Performance

    The Company opened 31 restaurants during the quarter, compared to 18 in
the second quarter of 2007.
    An active promotional program during the quarter included Whole Grain
Raspberry Muffins and Green Tea, the Chocolate Brownie Iced Capp Supreme,
Homestyle Hash Browns, Strawberry Blossom Donuts and French Vanilla Iced
Coffee (US only). The Company also introduced and promoted a Slow Roast Beef
sandwich, along with Maple-themed products, including the Maple Crunch donut,
Maple Pecan danish and Maple shortbread cookie. During the quarter Tim Hortons
also held its annual Camp Day, and through leadership of the store owners,
more than 3,000 restaurants in North America participated. Camp Day raised
approximately $9 million which will be used to provide an opportunity for
thousands of economically disadvantaged children to attend the Tim Horton
Children's Foundation Camps in Canada and the United States.
    Total revenues were $510.7 million in the second quarter, up 9.8%
compared to $465.3 million in the same period of 2007. Sales, the largest
component of revenues, consisting primarily of distribution sales, grew by
9.1% to $335.9 million compared to $308.0 million during the same period last
year.
    The transition from Company-operated restaurants to the owner-operator
model continued in the second quarter, with the number of Company-operated
restaurants reduced by 22 year-over-year. The impact of the fewer number of
Company-operated restaurants was more than offset by a higher number of
restaurants consolidated under FIN 46R.
    In the second quarter, revenues from rents and royalties grew 9.6% to
$153.5 million compared to $140.1 million in the comparable period of 2007,
consistent with systemwide sales growth. Franchise fees increased 24.0% to
$21.3 million compared to $17.1 million in the same quarter of last year due
to a higher number of units sold, and a shift in mix towards standard
restaurant openings versus the comparable period of 2007. This impact was
offset in part by lower deferred revenues recognized in 2008 from our U.S.
franchise incentive program.
    Franchise fee costs rose 16.6% in the second quarter compared to last
year. Higher franchise fee costs were due primarily to a larger number of
units sold compared to last year and a higher number of renovations and
replacements. Increased franchise support costs and expenses associated with
establishing franchisees' businesses also led to higher overall franchise fee
costs.
    Cost of sales was 8.6% in the second quarter compared to the same period
last year, reflecting the effect of completion of refrigerated and frozen
product delivery from the Guelph distribution center and increased systemwide
sales growth. Increased cost of sales was also due to an increase in the
number of restaurants consolidated under FIN 46R, largely offset by the fewer
number of Company-operated restaurants. Operating expenses grew 9.1% in the
quarter compared to the second quarter of 2007, primarily due to the increased
number of restaurant openings and higher variable rent on existing properties.
    General and administrative costs for the quarter were $36.1 million, up
17.2% versus the prior year comparable costs of $30.8 million. The
year-over-year increase includes a previously announced restructuring charge.
Excluding the $3.1 million charge, general and administrative costs were up
7.3% as a result of continued growth of the business. Equity income was $10.0
million, an increase of 8.3% over the comparable period of $9.2 million in the
second quarter of 2007.
    Second quarter operating income was $117.1 million, up 10.1% compared to
$106.3 million for the same period in 2007. Excluding the restructuring charge
announced previously, adjusted operating income was $120.2 million, an
increase of 13.0% (see "Disclosure on Non-GAAP Financial Measure" below).
Systemwide sales growth was the largest contributing factor to higher
operating income, supported by higher franchise fee income and equity income,
along with increased contributions from distribution.
    Net interest expense was slightly higher in the second quarter,
increasing to $4.9 million compared to $4.8 million in the second quarter of
2007.
    Second quarter net income increased 11.5% to $75.0 million compared to
$67.2 million in the same quarter of 2007. The effective tax rate during the
quarter was 33.2% compared to 33.8% in the comparable period of 2007.
    Diluted earnings per share (EPS) rose 14.5% to $0.41 compared to $0.36
last year in the second quarter. EPS growth was due primarily to higher net
income and lower weighted average shares outstanding in the quarter, which
decreased 2.6% to 184.3 million shares due to the Company's share repurchase
program.

    Disclosure on Non-GAAP Financial Measure

    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 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.

    
    Table 1 Pro forma: Adjusted operating income to U.S. GAAP reconciliation
    -------------------------------------------------------------------------
                                           June 29,      July 1,
    Second Quarter Ended                      2008         2007     % Change
    -------------------------------------------------------------------------
    Reported Operating Income           $    117.1   $    106.3        10.1%
    Add: Restructuring Charge                  3.1            -          N/M
                                        -----------  -----------
    Adjusted Operating Income           $    120.2   $    106.3        13.0%
    -------------------------------------------------------------------------
    ($ in millions)
    

    Segmented Performance

    Same-store sales in the second quarter for the Canadian segment were up
5.7%. Pricing contributed approximately 4.4% to same-store sales in Canada
during the quarter. The Canadian segment lapped significant same-store sales
growth of 6.6% in the comparable period of 2007.
    Segment margins in Canada were up due primarily to better leverage of
top-line growth including the benefit of completed roll-out of refrigerated
and frozen distribution from the Guelph distribution center, and from
increased franchise fee income. Operating income increased 12.5% in the
Canadian business to $130.4 million compared to $116.0 million last year in
the same quarter. A total of 23 restaurants were opened in Canada during the
second quarter, bringing the total to 45 restaurants on a year-to-date basis.
    In the U.S. segment, same-store sales increased 3.1% during the quarter,
of which approximately 2.5% was attributable to pricing. The U.S. business had
a loss of $0.2 million in the second quarter. Higher systemwide sales
benefited rents and royalties, offset by higher franchisee relief. U.S.
segment margins were also impacted by the timing of gains from the sale of
restaurants and higher support costs, which offset the positive impact of a
slightly higher number of openings year-over-year. A total of 8 restaurants
were opened in the U.S. this quarter, and 11 year-to-date. As part of its
planned 2008 expansion plan, the Company intends to open several new
restaurants in the community of Syracuse, New York during the third and fourth
quarter, expanding its presence in central New York.
    The shift of timing of the Easter holidays in the quarter compared to
last year had an estimated positive impact of approximately 0.5% on same-store
sales in Canada and less than 0.4% in the U.S.
    Internationally, the number of Tim Hortons sites in Ireland and the UK
has expanded to 213 licensed locations, comprised primarily of self-serve
kiosks, demonstrating the continued success of the platform. While not a
material contributor to earnings or revenue at this time, the international
business is part of a developing international strategy and potential platform
for future growth.

    $200 million Share Repurchase Program Activities

    The Company spent $48.9 million to repurchase a total of approximately
1.5 million shares as part of its 2007-2008 share repurchase program to return
value to shareholders.

    Capital Expenditures

    The Company invested $33.6 million in capital expenditures in the second
quarter, and $66.1 million year-to-date, primarily on its restaurant expansion
program and renovations. As part of its vertical integration strategy, the
Company has also 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, and when fully
operational the facility will bring total internal coffee production to
approximately three-quarters of the system's needs.
    "Protecting the quality, integrity and supply of our proprietary coffee
blend from tree to cup is essential to our long-term success. Consistent with
our vertical integration investment strategy, the new coffee roasting facility
will provide significant system benefits important to the collective success
of our store owners and the Company. It will also help ensure we continue to
consistently serve great tasting coffee to our customers every day," said
Cynthia Devine, Chief Financial Officer.

    Board Declares Dividend Payment of $0.09 Per Share

    The Board of Directors has declared a quarterly dividend of $0.09 per
share payable on September 2nd, 2008 to shareholders of record as of
August 18th, 2008. The Company's current dividend policy is to pay a total of
20-25% of prior year, normalized annual net earnings in dividends each year.
    Dividends are paid in Canadian dollars to all shareholders with Canadian
resident addresses whose shares are registered with Computershare (the
Company's transfer agent). For all other shareholders, including all
shareholders who hold their shares indirectly (i.e., through their broker) and
regardless of country of residence, the dividend will be converted to U.S.
dollars on August 25th, 2008 at the daily noon rate established by the Bank of
Canada and paid in U.S. dollars on September 2nd, 2008.

    Tim Hortons to Host Conference Call at 2:30 p.m. on Thursday, August 7th,
    2008

    Tim Hortons will host a conference call to discuss its second quarter
results beginning at 2:30 p.m. Eastern Daylight Time (EDT) on Thursday,
August 7th, 2008. Investors and the public may listen to the conference call
by calling 416-641-6712 or 1-800-354-6885 (no access code required), or
through simultaneous webcast by visiting the investor relations section at
www.timhortons.com, and clicking on the "Events and Presentations" tab. A
slide presentation will be available to coincide with the conference call on
this site. The conference call will be available for replay on the web-site
for a period of one-year.

    Safe Harbor Statement
    ---------------------

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

    (2) Total systemwide sales growth includes restaurant level sales at both
    Company and Franchise restaurants. Approximately 98.3% of our system is
    franchised as at June 29, 2008. Systemwide sales growth is determined
    using a constant exchange rate to exclude the effects of foreign currency
    translation. U.S. dollar sales are converted to Canadian dollar amounts
    using the average exchange rate of the base year for the period covered.
    For the second quarter of 2008, systemwide sales growth was up 9.8%
    compared to the second quarter of 2007. Systemwide sales impact our
    franchise royalties and rental income, as well as our distribution sales.
    Changes in systemwide sales are driven by changes in average same-store
    sales and changes in the number of systemwide restaurants. Management
    believes systemwide sales data is useful and important in assessing the
    overall health and financial performance of the brand and the Company's
    Franchisee base, and ultimately, the financial performance of the Company
    on a consolidated and segmented basis.

    Tim Hortons Inc. Overview

    Tim Hortons is the fourth largest publicly-traded quick service
restaurant chain in North America based on market capitalization, and the
largest in Canada. Tim Hortons appeals to a broad range of consumer tastes,
with a menu that includes premium coffee and donuts, flavored cappuccinos,
specialty teas, home-style soups, fresh sandwiches and fresh baked goods. As
of June 29, 2008, Tim Hortons had 3,257 systemwide restaurants, including
2,851 in Canada and 406 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)

                                   Second Quarter Ended
                                    June 29,    July 1,
                                       2008       2007   $ Change   % Change
                                   ---------  ---------  ---------  ---------
    REVENUES
    Sales                          $335,873   $307,994   $27,879        9.1%

    Franchise revenues
      Rents and royalties           153,546    140,114    13,432        9.6%
      Franchise fees                 21,273     17,149     4,124       24.0%
                                   ---------  ---------  ---------  ---------
                                    174,819    157,263    17,556       11.2%
                                   ---------  ---------  ---------  ---------
    TOTAL REVENUES                  510,692    465,257    45,435        9.8%
                                   ---------  ---------  ---------  ---------

    COSTS AND EXPENSES
    Cost of sales                   293,101    269,847    23,254        8.6%
    Operating expenses               54,622     50,088     4,534        9.1%
    Franchise fee costs              19,908     17,074     2,834       16.6%
    General & administrative
     expenses                        36,124     30,810     5,314       17.2%
    Equity (income)                 (10,001)    (9,235)     (766)       8.3%
    Other (income) expense, net        (187)       333      (520)        N/M
                                   ---------  ---------  ---------  ---------
    TOTAL COSTS & EXPENSES, NET     393,567    358,917    34,650        9.7%
                                   ---------  ---------  ---------  ---------

    OPERATING INCOME                117,125    106,340    10,785       10.1%

    Interest (expense)               (5,969)    (6,143)      174       (2.8%)
    Interest income                   1,073      1,324      (251)     (19.0%)
                                   ---------  ---------  ---------  ---------

    INCOME BEFORE INCOME TAXES      112,229    101,521    10,708       10.5%

    INCOME TAXES                     37,255     34,282     2,973        8.7%
                                   ---------  ---------  ---------  ---------

    NET INCOME                      $74,974    $67,239    $7,735       11.5%
                                   ---------  ---------  ---------  ---------
                                   ---------  ---------  ---------  ---------
    Basic earnings per share of
     common stock                     $0.41      $0.36     $0.05       14.6%
                                   ---------  ---------  ---------  ---------
                                   ---------  ---------  ---------  ---------
    Diluted earnings per share
     of common stock                  $0.41      $0.36     $0.05       14.5%
                                   ---------  ---------  ---------  ---------
                                   ---------  ---------  ---------  ---------
    Basic shares of common stock
     (in thousands)                 183,983    189,017    (5,034)      (2.7%)
                                   ---------  ---------  ---------  ---------
                                   ---------  ---------  ---------  ---------
    Diluted shares of common stock
     (in thousands)                 184,258    189,253    (4,995)      (2.6%)
                                   ---------  ---------  ---------  ---------
                                   ---------  ---------  ---------  ---------
    Dividend per share of common
     stock                            $0.09      $0.07     $0.02
                                   ---------  ---------  ---------
                                   ---------  ---------  ---------
    N/M - not meaningful
    (all numbers rounded)



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

                                 (Unaudited)

                                    Year-to-Date Ended
                                    June 29,    July 1,
                                       2008       2007   $ Change   % Change
                                   ---------  ---------  ---------  ---------
    REVENUES
    Sales                          $642,379   $586,344    $56,035       9.6%
    Franchise revenues
      Rents and royalties           289,426    267,354     22,072       8.3%
      Franchise fees                 39,204     36,167      3,037       8.4%
                                   ---------  ---------  ---------  ---------
                                    328,630    303,521     25,109       8.3%
                                   ---------  ---------  ---------  ---------
    TOTAL REVENUES                  971,009    889,865     81,144       9.1%
                                   ---------  ---------  ---------  ---------

    COSTS AND EXPENSES
    Cost of sales                   565,384    517,251     48,133       9.3%
    Operating expenses              104,631     97,264      7,367       7.6%
    Franchise fee costs              38,188     33,477      4,711      14.1%
    General & administrative
     expenses                        67,010     59,560      7,450      12.5%
    Equity (income)                 (17,363)   (19,012)     1,649      (8.7%)
    Other (income) expense, net        (470)       780     (1,250)       N/M
                                   ---------  ---------  ---------  ---------
    TOTAL COSTS & EXPENSES, NET     757,380    689,320     68,060       9.9%
                                   ---------  ---------  ---------  ---------

    OPERATING INCOME                213,629    200,545     13,084       6.5%

    Interest (expense)              (12,320)   (11,764)      (556)      4.7%
    Interest income                   3,063      3,320       (257)     (7.7%)
                                   ---------  ---------  ---------  ---------

    INCOME BEFORE INCOME TAXES      204,372    192,101     12,271       6.4%

    INCOME TAXES                     67,578     65,601      1,977       3.0%
                                   ---------  ---------  ---------  ---------

    NET INCOME                     $136,794   $126,500    $10,294       8.1%
                                   ---------  ---------  ---------  ---------
                                   ---------  ---------  ---------  ---------
    Basic earnings per share of
     common stock                     $0.74      $0.67      $0.07      11.1%
                                   ---------  ---------  ---------  ---------
                                   ---------  ---------  ---------  ---------
    Diluted earnings per share
     of common stock                  $0.74      $0.67     $00.07      11.0%
                                   ---------  ---------  ---------  ---------
                                   ---------  ---------  ---------  ---------
    Basic shares of common stock
     (in thousands)                 184,749    189,732     (4,983)     (2.6%)
                                   ---------  ---------  ---------  ---------
                                   ---------  ---------  ---------  ---------
    Diluted shares of common
     stock (in thousands)           185,003    189,981     (4,978)     (2.6%)
                                   ---------  ---------  ---------  ---------
                                   ---------  ---------  ---------  ---------
    Dividend per share of common
     stock                            $0.18      $0.14      $0.04
                                   ---------  ---------  ---------
                                   ---------  ---------  ---------

    N/M - not meaningful



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

                                                        June 29, December 30,
                                                           2008         2007
                                                    ------------ ------------
                                                           (Unaudited)
    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                         58,570       60,281
      Advertising fund restricted assets                 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
                                                    ------------ ------------
                                                    ------------ ------------



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

                                                        June 29, December 30,
                                                           2008         2007
                                                    ------------ ------------
                                                           (Unaudited)
    LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities
      Accounts payable                                 $108,826     $133,412
      Accrued liabilities:
        Salaries and wages                               12,252       17,975
        Taxes                                            18,176       34,522
        Other                                            62,680       95,777
      Advertising fund restricted liabilities            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                   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
                                                    ------------ ------------

    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                    929,259      931,084
      Treasury stock, at cost: 9,680,324 and
       6,750,052 shares, respectively                  (334,929)    (235,155)
      Common stock held in trust, at cost: 443,628
       and 421,344 shares, respectively                 (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
                                                    ------------ ------------
                                                    ------------ ------------



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

                                                          (Unaudited)

                                                       Year-to-date Ended
                                                        June 29,      July 1,
                                                           2008         2007
                                                    ------------ ------------

    NET CASH FLOWS 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)
    Dividend payments                                   (33,277)     (26,587)
    Purchase of common stock held in trust               (3,842)      (7,233)
    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
                                                    ------------ ------------
                                                    ------------ ------------
    Other data:
    Depreciation and amortization                       $44,137      $41,025
                                                    ------------ ------------
                                                    ------------ ------------



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

                                   (Unaudited)

                                              Second Quarter Ended
                                    June 29,      % of     July 1,      % of
                                       2008      Total       2007      Total
                                   ---------  ---------  ---------  ---------

    REVENUES
    Canada                         $470,094      92.1%   $425,531      91.5%
    U.S.                             40,598       7.9%     39,726       8.5%
                                   ---------  ---------  ---------  ---------
    Total Revenues                 $510,692     100.0%   $465,257     100.0%
                                   ---------  ---------  ---------  ---------
                                   ---------  ---------  ---------  ---------

    SEGMENT OPERATING INCOME (LOSS)
    Canada                         $130,433     100.1%   $115,969      99.9%
    U.S.                               (190)    (0.1)%         79       0.1%
                                   ---------  ---------  ---------  ---------
    Reportable Segment Operating
     Income                         130,243     100.0%    116,048     100.0%
                                              ---------             ---------
                                              ---------             ---------
    Corporate Charges               (13,118)               (9,708)
                                   ---------             ---------
    Consolidated Operating Income   117,125               106,340

    Interest, net                    (4,896)               (4,819)
    Income taxes                    (37,255)              (34,282)
                                   ---------             ---------
    Net Income                      $74,974               $67,239
                                   ---------             ---------
                                   ---------             ---------


                                               Year-to-date Ended
                                    June 29,      % of     July 1,      % of
                                       2008      Total       2007      Total
                                   ---------  ---------  ---------  ---------

    REVENUES
    Canada                         $896,582      92.3%   $813,743      91.4%
    U.S.                             74,427       7.7%     76,122       8.6%
                                   ---------  ---------  ---------  ---------
    Total Revenues                 $971,009     100.0%   $889,865     100.0%
                                   ---------  ---------  ---------  ---------
                                   ---------  ---------  ---------  ---------

    SEGMENT OPERATING INCOME (LOSS)
    Canada                         $236,968     101.3%   $222,653     101.8%
    U.S.                             (3,069)    (1.3)%     (4,039)    (1.8)%
                                   ---------  ---------  ---------  ---------
    Reportable Segment Operating
     Income                         233,899     100.0%    218,614     100.0%
                                              ---------             ---------
                                              ---------             ---------
    Corporate Charges               (20,270)              (18,069)
                                   ---------             ---------
    Consolidated Operating Income   213,629               200,545

    Interest, net                    (9,257)               (8,444)
    Income taxes                    (67,578)              (65,601)
                                   ---------             ---------
    Net Income                     $136,794              $126,500
                                   ---------             ---------
                                   ---------             ---------


                                  Second Quarter Ended
                                    June 29,    July 1,
                                       2008       2007   $ Change   % Change
                                   ---------  ---------  ---------  ---------

    Sales is comprised of:
    Warehouse sales                $288,089   $261,458   $26,631       10.2%
    Company-operated restaurant
     sales                           11,143     15,235    (4,092)    (26.9)%
    Sales from restaurants
     consolidated under FIN 46R      36,641     31,301     5,340       17.1%
                                   ---------  ---------  ---------  ---------
                                   $335,873   $307,994   $27,879        9.1%
                                   ---------  ---------  ---------  ---------
                                   ---------  ---------  ---------  ---------


                                    Year-to-date Ended
                                    June 29,    July 1,
                                       2008       2007   $ Change   % Change
                                   ---------  ---------  ---------  ---------

    Sales is comprised of:
    Warehouse sales                $552,794   $496,793    $56,001      11.3%
    Company-operated restaurant
     sales                           22,741     30,942     (8,201)   (26.5)%
    Sales from restaurants
     consolidated under FIN 46R      66,844     58,609      8,235      14.1%
                                   ---------  ---------  ---------  ---------
                                   $642,379   $586,344    $56,035       9.6%
                                   ---------  ---------  ---------  ---------
                                   ---------  ---------  ---------  ---------



                      TIM HORTONS INC. AND SUBSIDIARIES
                         SYSTEMWIDE RESTAURANT COUNT

                                              Increase/             Increase/
                                             (Decrease)            (Decrease)
                           As of      As of       From      As of       From
                         June 29,  December      Prior     July 1,     Prior
                            2008   30, 2007    Quarter       2007       Year
                    ---------------------------------------------------------
    Tim Hortons
    -----------

    Canada
      Company-operated        21         30         (9)        26         (5)
      Franchise            2,830      2,793         37      2,707        123
                    ---------------------------------------------------------
                           2,851      2,823         28      2,733        118

    % Franchised           99.3%      98.9%                 99.0%

    U.S.
      Company-operated        33         42         (9)        50        (17)
      Franchise              373        356         17        295         78
                    ---------------------------------------------------------
                             406        398          8        345         61

    % Franchised           91.9%      89.4%                 85.5%

    Total Tim Hortons
      Company-operated        54         72        (18)        76        (22)
      Franchise            3,203      3,149         54      3,002        201
                    ---------------------------------------------------------
                           3,257      3,221         36      3,078        179
                    ---------------------------------------------------------
                    ---------------------------------------------------------

    % Franchised           98.3%      97.8%                 97.5%



                      TIM HORTONS INC. AND SUBSIDIARIES
                      Income Statement Definitions


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

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

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

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

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

    General and
     Administrative    Includes costs that cannot be directly related 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.

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

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





For further information:

For further information: INVESTORS: Scott Bonikowsky: (905) 339-6186 or
investor_relations@timhortons.com; MEDIA: Rachel Douglas: (905) 339-6277 or
douglas_rachel@timhortons.com


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