Tim Hortons Inc. Announces 2010 Second Quarter Results:

Higher same-store sales growth fueled strong consolidated earnings

(Unaudited. All amounts in Canadian dollars and presented in accordance

with U.S. GAAP)

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

    -------------------------------------------------------------------------
                                             Q2 2010     Q2 2009    % Change
    -------------------------------------------------------------------------
    Total Revenues                          $  639.9    $  605.5        5.7%
    Operating income                        $  149.9    $  129.0       16.1%
    Effective Tax Rate                         29.5%       32.8%
    Net Income attributable to THI          $   94.1    $   77.8       21.0%
    Diluted Earnings Per Share (EPS)        $   0.54    $   0.43       25.2%
    Fully Diluted Shares                       174.9       180.9      (3.3)%
    -------------------------------------------------------------------------
    ($ in millions, except EPS. Fully diluted shares in millions. All numbers
    rounded.)

    Results for 2010, and retroactively for 2009, incorporate adoption of new
    accounting standard SFAS No. 167 - Amendments to FASB No. 46(R), now
    codified within ASC 810 - Consolidations. This standard relates to
    consolidation of certain variable interest entities. Please refer to the
    Company's Form 10-Q for additional information.


    -------------------------------------------------------------------------
    Same-Store Sales(1)                      Q2 2010      Q2 YTD     Q2 2009
    -------------------------------------------------------------------------
    Canada                                      6.4%        5.8%        1.7%
    U.S.                                        3.1%        3.1%        3.3%
    -------------------------------------------------------------------------
    (1) Includes sales at Franchised and Company-operated locations. As of
        July 4th, 2010, 99.5% of our restaurants in both Canada and in the
        U.S. were franchised.

    Quarterly Highlights
    --------------------
    -   Significant sales growth in Canada and strong performance in the U.S.
           -  Systemwide sales(2) grew 9.2% on a constant currency basis
           -  6.4% increase in same-store sales in Canada
           -  3.1% increase in same-store sales in the U.S.
    -   Strong consolidated operating income gain of 16.1% with solid
        contributions from both Canadian and U.S. segments
    -   EPS growth of 25.2% in second quarter
    

OAKVILLE, ON, Aug. 12 /CNW/ - Tim Hortons Inc. (TSX: THI, NYSE: THI) today announced its results for the second quarter ended July 4th, 2010.

"Our quarterly same-store sales performance in Canada was the best in several quarters, and the strength of our same-store sales growth in the U.S. was gratifying given continued economic challenges in that market," said Don Schroeder, president and CEO. "We continue to make excellent progress on our growth initiatives and we believe our business is well positioned to continue to drive shareholder value," added Schroeder.

Consolidated Results

All percentage increases and decreases represent year-over-year changes for the second quarter of 2010 compared to the second quarter of 2009, unless otherwise noted.

Systemwide sales(2) increased 9.2% on a constant currency basis. During the quarter total revenues were $639.9 million, an increase of 5.7% compared to $605.5 million last year.

Strong systemwide sales growth was the primary driver of total revenue improvement. This growth was partially offset by lower revenues from consolidated variable interest entities and fewer Company-operated restaurants.

During the second quarter operating income was $149.9 million, a 16.1% increase compared to $129.0 million last year. Strong systemwide sales growth drove higher rents, royalties and distribution income. Costs continued to be well managed during the quarter, resulting in improved operating margin. Both equity income and franchise fees were not a significant factor affecting operating income growth in the quarter. The comparable period of 2009 included $2.7 million in costs relating to the public company reorganization.

Net income attributable to Tim Hortons, which excludes the impact of noncontrolling interests, was $94.1 million, an increase of 21.0% compared to $77.8 million in the second quarter of last year. Higher operating income, and a lower year-over-year tax rate primarily due to lower Canadian statutory rates resulting from our public company reorganization, contributed to our strong net income performance. Discrete items further reduced the effective tax rate during the second quarter by approximately 1.1%. The effective tax rate in the quarter was 29.5% compared to 32.8% in the same period last year. Net income in the second quarter was impacted by higher interest expense of $1.8 million primarily related to a partial settlement of an interest rate swap related to the portion of our term debt that was prepaid and the write-off of associated deferred financing costs.

Second quarter diluted earnings per share (EPS) was $0.54, climbing 25.2% compared to $0.43 per share last year. Our EPS growth rate benefited by 4.2% from fewer outstanding shares due to our share repurchase programs.

    
    Note: The Company has retroactively adopted new accounting standard SFAS
    No. 167 which has impacted prior year reported results, and 2010 actual
    results, for most revenue and cost line items. The new standard pertains
    to the consolidation of variable interest entities ("VIEs"). Under the
    accounting standard, if the Company is determined to be the primary
    beneficiary of a VIE, we are required to consolidate the VIE assets,
    liabilities, results of operations and cash flows.
    

Segmented Performance Commentary

Both operating segments increased their year-over-year earnings performance, contributing to strong consolidated performance.

    
    Canada
    ------
    

Same-store sales in the Canadian segment increased 6.4% compared to the second quarter of 2009, the strongest quarterly year-over-year growth performance since the third quarter of 2007. Successful menu initiatives and promotions, and operational initiatives such as our hospitality strategy, helped contribute to transaction growth during the quarter. Average cheque was positively impacted this quarter by previous pricing in the system, which we expect to have a more moderate impact in the second half of the year as pricing is lapped.

A total of 15 new restaurants were opened in Canada in the second quarter. Also, at the end of the quarter, we had 63 restaurants in Canada co-branded as Cold Stone Creamery(C) locations which contributed slightly to same-store sales growth in the segment. We have decided to broaden our initial 2010 plan for up to 60 co-branded locations in Canada by an additional 20 to 25 restaurants.

Canadian segment operating income was $149.7 million, increasing 13.1% compared to $132.3 million last year. The significant increase in same-store sales and ongoing restaurant development drove most of the year-over-year increase, benefiting rents, royalties and distribution income. Income also benefited from manufacturing income related to our new coffee roasting facility which began operations in the fourth quarter of 2009. These factors were partially offset by moderately higher general and administrative expenses.

    
    United States
    -------------
    

Same-store sales in the U.S. segment grew by 3.1% in the second quarter. Transaction growth was driven by continued menu innovation, value promotions and to a lesser extent Cold Stone Creamery(C) co-branded locations. Average cheque benefited from additional pricing in the system, offset significantly by promotional activity and value pricing. These initiatives were designed to drive transactions in order to help address continuing economic weakness and ongoing competitive activity in our core U.S. markets. Late in the quarter we also lapped several of the high volume Cold Stone Creamery openings from 2009, which will likely impact year-over-year growth rates to some extent for second half of the year.

A total of 21 Tim Hortons locations opened in the second quarter, including 15 self-serve kiosks. In addition, at the end of the second quarter there were 70 co-branded Tim Hortons and Cold Stone Creamery locations, with 67 of those sites being Tim Hortons restaurants.

The U.S. segment continued its quarterly profitability improvement trend, with a 14% year-over-year increase to $3.6 million compared to $3.1 million last year. The U.S. segment benefited from continued systemwide sales growth which drove higher distribution contributions, and from higher rents and royalties. Fewer Company-operated restaurants than the comparable period was also a significant factor in the U.S. segment operating income performance. Currency translation negatively impacted U.S. segment revenues by 11.9% and operating income by approximately 10.5%.

Corporate Developments

    
    Sale of 50% interest in Maidstone Bakeries
    ------------------------------------------
    

In a separate announcement issued this morning we have disclosed that, further to a previously announced receipt of a buy/sell notice from our joint venture partner Aryzta AG, we have decided to sell our 50% interest in Maidstone Bakeries to Aryzta for gross proceeds of CAD$475 million. The all-cash transaction is subject to receipt of regulatory approvals, and is expected to close before year-end 2010. Our arrangement with Aryzta includes supply chain sourcing and pricing commitments for Timbits(TM) and donuts that extend until early 2016, and it has supply rights for these products until late 2017 at our option.

The Company maintains flexibility to secure alternative means of supply after the agreement expires, if necessary, and plans to evaluate possible options for the use of net proceeds from a transaction including potential avenues to return value to shareholders. Final decisions regarding the use of proceeds will be announced at the appropriate time. Additional information on this transaction can be found in the separate announcement issued today.

    
    Private placement of $200 million Senior Notes completed
    --------------------------------------------------------
    

During the second quarter of 2010 we successfully completed a private placement transaction in Canada of $200 million principal amount of senior unsecured 4.20% notes. The debt offering was significantly oversubscribed, indicating strong market support for the Company. The net proceeds of this offering were used primarily to refinance a portion of our outstanding term loan and for general corporate purposes.

    
    Board declares dividend payment of $0.13 per common share
    ---------------------------------------------------------
    

The Board of Directors has declared a quarterly dividend of $0.13 per common share, consistent with our previously announced change in dividend rate and targeted payout range of 30% to 35% of normalized prior-year earnings. The dividend is payable on September 8th, 2010 to shareholders of record as of August 23rd, 2010. Dividends are declared and paid in Canadian dollars to all shareholders with Canadian resident addresses. For U.S. shareholders, dividends paid will be converted to U.S. dollars based on prevailing exchange rates at the time of conversion by Tim Hortons for registered shareholders and by Clearing and Depository Services Inc. for beneficial shareholders.

Tim Hortons conference call today at 2:30 p.m. (EDT) Thursday, August 12th, 2010

Tim Hortons will host a conference call today to discuss the second quarter results, scheduled to begin at 2:30 p.m. (EDT). The dial-in number is (416) 641-6712 or (800) 354-6885. No access code is required. A simultaneous web cast of the call, including presentation material, will be available at www.timhortons-invest.com. A replay of the call will be available until August 19th, 2010 and can be accessed at (416) 626-4100 or (800) 558-5253. The call replay reservation number is 21476996. The call and presentation material will also be archived for a period of one-year in the Events and Presentations section.

Safe Harbor Statement

Certain information in this news release, particularly information regarding future economic performance, finances, and plans, expectations and objectives of management, including as they relate to the Company's progress on growth initiatives and ability to drive shareholder value, the intention to close a transaction for the sale of the Company's 50% interest in a joint venture bakery, the evaluation of possible options for the use of the net proceeds from that sale transaction and related supply chain matters, constitutes forward-looking information within the meaning of Canadian securities laws and forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We refer to all of these as forward-looking statements. Various factors including competition in the quick service segment of the food service industry, general economic conditions and others described as "risk factors" in the Company's 2009 Annual Report on Form 10-K filed March 4th, 2010 and the Quarterly Report on Form 10-Q filed August 12th, 2010 with the U.S. Securities and Exchange Commission and Canadian Securities Administrators, could affect the Company's actual results and cause such results to differ materially from those expressed in 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. Forward-looking statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to, assumptions about: the absence of a material increase in competition within the quick service restaurant segment of the food service industry; the absence of an adverse event or condition that damages our strong brand position and reputation; continuing positive working relationships with the majority of the Company's franchisees; there being no significant change in the Company's ability to comply with current or future regulatory requirements; the absence of any material adverse effects arising as a result of litigation; and general worldwide economic conditions.

We are presenting this information for the purpose of informing you of management's current expectations regarding these matters, and this information may not be appropriate for any other purpose. We assume no obligation to update or alter any forward-looking statements after they are made, whether as a result of new information, future events, or otherwise, except as required by applicable law. Please review the Company's Safe Harbor Statement at www.timhortons.com/en/about/safeharbor.html.

    
    (2) Total systemwide sales growth includes restaurant level sales at both
        Company and Franchise restaurants. Approximately 99.5% of our
        consolidated system is franchised as at July 4th, 2010. 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 second quarter of 2010, systemwide sales growth on a constant
        currency basis was up 9.2% compared to the second quarter of 2009.
        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 restaurant chain in North America based on market capitalization, and the largest in Canada. Operating in the quick service segment of the restaurant industry, Tim Hortons appeals to a broad range of consumer tastes, with a menu that includes premium coffee, flavored cappuccinos, specialty teas, home-style soups, fresh sandwiches, wraps, hot breakfast sandwiches and fresh baked goods, including our trademark donuts. As of July 4th, 2010, Tim Hortons had 3,627 systemwide restaurants, including 3,040 in Canada and 587 in the United States. More information about the Company is available at www.timhortons.com.

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

                                 (Unaudited)

                                Second quarter ended
                                 July 4,    June 28,
                                  2010        2009      $ Change    % Change
                              ----------- ----------- ----------- -----------
                                            (Note 1)
    REVENUES
    Sales                       $444,344    $425,348     $18,996        4.5%
    Franchise revenues:
      Rents and royalties        175,879     160,824      15,055        9.4%
      Franchise fees              19,639      19,287         352        1.8%
                              ----------- ----------- ----------- -----------
                                 195,518     180,111      15,407        8.6%
                              ----------- ----------- ----------- -----------
    TOTAL REVENUES               639,862     605,459      34,403        5.7%
                              ----------- ----------- ----------- -----------

    COSTS AND EXPENSES
    Cost of sales                375,347     365,711       9,636        2.6%
    Operating expenses            61,560      58,909       2,651        4.5%
    Franchise fee costs           20,379      19,615         764        3.9%
    General and
     administrative expenses      36,745      35,694       1,051        2.9%
    Equity (income)               (3,760)     (3,367)       (393)      11.7%
    Other (income), net             (260)       (152)       (108)        N/M
                              ----------- ----------- ----------- -----------
    TOTAL COSTS AND EXPENSES,
     NET                         490,011     476,410      13,601        2.9%
                              ----------- ----------- ----------- -----------

    OPERATING INCOME             149,851     129,049      20,802       16.1%

    Interest (expense)            (6,878)     (5,058)     (1,820)      36.0%
    Interest income                  113         120          (7)      (5.8%)
                              ----------- ----------- ----------- -----------

    INCOME BEFORE INCOME TAXES   143,086     124,111      18,975       15.3%

    INCOME TAXES                  42,161      40,648       1,513        3.7%
                              ----------- ----------- ----------- -----------

    Net Income                   100,925      83,463      17,462       20.9%
    Net income attributable to
     noncontrolling interests      6,804       5,703       1,101       19.3%
                              ----------- ----------- ----------- -----------
    NET INCOME ATTRIBUTABLE TO
     TIM HORTONS INC.            $94,121     $77,760     $16,361       21.0%
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Basic earnings per common
     share attributable to
     Tim Hortons Inc.              $0.54       $0.43       $0.11       25.3%
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Diluted earnings per
     common share attributable
     to Tim Hortons Inc.           $0.54       $0.43       $0.11       25.2%
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Weighted average number of
     common shares outstanding -
     Basic (in thousands)        174,586     180,731      (6,145)      (3.4%)
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Weighted average number of
     common shares outstanding -
     Diluted (in thousands)      174,873     180,923      (6,050)      (3.3%)
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    Dividend per common share      $0.13       $0.10       $0.03
                              ----------- ----------- -----------
                              ----------- ----------- -----------
    N/M - not meaningful
    (all numbers rounded)


    Note 1 - For comparative purposes, prior year figures have been presented
             on a consistent basis to reflect the Company's adoption of
             SFAS No. 167



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

                                     (Unaudited)

                                    Year-to-date
                                    period ended
                                 July 4,    June 28,
                                  2010        2009      $ Change    % Change
                              ----------- ----------- ----------- -----------
                                            (Note 1)
    REVENUES
    Sales                       $850,292    $816,464     $33,828        4.1%
    Franchise revenues:
      Rents and royalties        335,839     304,988      30,851       10.1%
      Franchise fees              36,343      39,714      (3,371)      (8.5%)
                              ----------- ----------- ----------- -----------
                                 372,182     344,702      27,480        8.0%
                              ----------- ----------- ----------- -----------
    TOTAL REVENUES             1,222,474   1,161,166      61,308        5.3%
                              ----------- ----------- ----------- -----------

    COSTS AND EXPENSES
    Cost of sales                722,394     703,584      18,810        2.7%
    Operating expenses           120,285     115,502       4,783        4.1%
    Franchise fee costs           38,205      39,393      (1,188)      (3.0%)
    General and
     administrative expenses      71,417      69,170       2,247        3.2%
    Equity (income)               (7,017)     (6,432)       (585)       9.1%
    Other (income), net             (397)       (316)        (81)      25.6%
                              ----------- ----------- ----------- -----------
    TOTAL COSTS AND EXPENSES,
     NET                         944,887     920,901      23,986        2.6%
                              ----------- ----------- ----------- -----------

    OPERATING INCOME             277,587     240,265      37,322       15.5%

    Interest (expense)           (12,325)    (10,515)     (1,810)      17.2%
    Interest income                  460         784        (324)     (41.3%)
                              ----------- ----------- ----------- -----------

    INCOME BEFORE INCOME TAXES   265,722     230,534      35,188       15.3%

    INCOME TAXES                  80,224      75,689       4,535        6.0%
                              ----------- ----------- ----------- -----------

    Net Income                   185,498     154,845      30,653       19.8%
    Net income attributable to
     noncontrolling interests     12,488      10,646       1,842       17.3%
                              ----------- ----------- ----------- -----------
    NET INCOME ATTRIBUTABLE TO
     TIM HORTONS INC.           $173,010    $144,199     $28,811       20.0%
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Basic earnings per common
     share attributable to
     Tim Hortons Inc.              $0.99       $0.80       $0.19       23.9%
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Diluted earnings per
     common share attributable
     to Tim Hortons Inc.           $0.99       $0.80       $0.19       23.8%
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Weighted average number of
     common shares outstanding -
     Basic (in thousands)        175,318     180,975      (5,657)      (3.1%)
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Weighted average number of
     common shares outstanding -
     Diluted (in thousands)      175,571     181,140      (5,570)      (3.1%)
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    Dividend per common share      $0.26       $0.20       $0.06
                              ----------- ----------- -----------
                              ----------- ----------- -----------

    N/M - not meaningful
    (all numbers rounded)

    Note 1 - For comparative purposes, prior year figures have been presented
             on a consistent basis to reflect the Company's adoption of
             SFAS No. 167



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

                                                            As at
                                                -----------------------------
                                                    July 4,       January 3,
                                                     2010           2010
                                                -------------- --------------
                                                                  (Note 1)
                                                         (Unaudited)
    ASSETS

    Current assets
      Cash and cash equivalents                      $157,495       $121,653
      Restricted cash and cash equivalents             49,958         60,629
      Restricted investments                            4,997         20,186
      Accounts receivable, net                        160,105        179,942
      Notes receivable, net                            19,204         20,823
      Deferred income taxes                             2,064          3,475
      Inventories and other, net                      109,592         80,490
      Advertising fund restricted assets               25,661         26,681
                                                -------------- --------------
    Total current assets                              529,076        513,879

    Property and equipment, net                     1,489,517      1,494,032

    Notes receivable, net                               2,641          3,475

    Deferred income taxes                              10,771          8,919

    Intangible assets, net                              7,444          8,405

    Equity investments                                 46,594         45,875

    Other assets                                       25,876         19,706
                                                -------------- --------------
    Total assets                                   $2,111,919     $2,094,291
                                                -------------- --------------
                                                -------------- --------------

    Note 1 - For comparative purposes, prior year figures have been presented
             on a consistent basis to reflect the Company's adoption of
             SFAS No. 167



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

                                                            As at
                                                -----------------------------
                                                    July 4,       January 3,
                                                     2010           2010
                                                -------------- --------------
                                                                  (Note 1)
                                                         (Unaudited)

    LIABILITIES AND EQUITY

    Current liabilities
      Accounts payable                               $128,214       $135,248
      Accrued liabilities:
        Salaries and wages                             15,092         23,268
        Taxes                                          25,239         27,586
        Other                                         109,862        111,401
      Deferred income taxes                               117            376
      Advertising fund restricted liabilities          40,850         43,944
      Current portion of long-term obligations        109,128          7,821
                                                -------------- --------------
    Total current liabilities                         428,502        349,644
                                                -------------- --------------
    Long-term obligations
      Long-term debt                                  237,100        336,302
      Advertising fund restricted debt                    344            415
      Capital leases                                   68,314         67,156
      Deferred income taxes                            12,545         10,159
      Other long-term liabilities                      73,114         74,929
                                                -------------- --------------
    Total long-term obligations                       391,417        488,961
                                                -------------- --------------
    Equity
      Equity of Tim Hortons Inc.
      Common shares
          Authorized: unlimited shares
          Issued: 174,348,514 and 177,318,614
           shares, respectively                       494,512        502,872
        Common stock held in trust, at cost:
         330,405 and 278,500 shares,
         respectively                                 (11,337)        (9,437)
        Contributed surplus                             1,937              -
        Retained earnings                             834,184        796,235
        Accumulated other comprehensive loss         (115,405)      (120,061)
                                                -------------- --------------
      Total equity of Tim Hortons Inc.              1,203,891      1,169,609
      Noncontrolling interests                         88,109         86,077
                                                -------------- --------------
    Total equity                                    1,292,000      1,255,686
                                                -------------- --------------
    Total liabilities and equity                   $2,111,919     $2,094,291
                                                -------------- --------------
                                                -------------- --------------

    Note 1 - For comparative purposes, prior year figures have been presented
             on a consistent basis to reflect the Company's adoption of
             SFAS No. 167



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

                                                  Year-to-date period ended
                                                 July 4, 2010  June 28, 2009
                                                -------------- --------------
                                                                  (Note 1)
                                                         (Unaudited)

    CASH FLOWS PROVIDED FROM (USED IN)
     OPERATING ACTIVITIES
    Net income                                       $185,498       $154,845
    Adjustments to reconcile net income to
     net cash provided by operating activities
      Depreciation and amortization                    57,874         54,972
      Stock-based compensation expense                  5,447          4,073
      Equity income, net of cash dividends               (696)         2,513
      Deferred income taxes                             1,493          3,714
    Changes in operating assets and
     liabilities
      Restricted cash and cash equivalents             10,697         25,316
      Accounts and notes receivable                    19,835         19,659
      Inventories and other                           (27,206)         3,978
      Accounts payable and accrued liabilities        (15,899)       (74,610)
    Settlement of cash flow hedges                     (4,791)             -
    Other, net                                          2,817            315

                                                -------------- --------------
    Net cash provided from operating activities       235,069        194,775
                                                -------------- --------------

    CASH FLOWS (USED IN) PROVIDED FROM
     INVESTING ACTIVITIES
    Capital expenditures                              (48,494)       (69,324)
    Proceeds from sale of restricted investments       15,240              -
    Principal payments received on notes
     receivable                                         1,644            733
    Other investing activities                         (7,418)       (11,841)

                                                -------------- --------------
    Net cash used in investing activities             (39,028)       (80,432)
                                                -------------- --------------

    CASH FLOWS (USED IN) PROVIDED FROM
     FINANCING ACTIVITIES
    Purchase of common shares/treasury stock          (98,018)       (16,701)
    Purchase of common shares held in trust            (3,252)          (713)
    Purchase of common shares for settlement
     of restricted stock units                           (377)          (232)
    Dividend payments to common shareholders          (45,413)       (36,253)
    Distributions and other to noncontrolling
     interests                                        (10,456)       (14,147)
    Proceeds from issuance of debt, net of
     issuance costs                                   200,359          1,150
    Principal payments on other long-term
     debt obligations                                (203,218)        (2,551)

                                                -------------- --------------
    Net cash used in financing activities            (160,375)       (69,447)
                                                -------------- --------------

    Effect of exchange rate changes on cash               176         (1,552)
                                                -------------- --------------

    Increase in cash and cash equivalents              35,842         43,344

    Cash and cash equivalents at beginning of
     period                                           121,653        124,717

                                                -------------- --------------
    Cash and cash equivalents at end of period       $157,495       $168,061
                                                -------------- --------------
                                                -------------- --------------

    Note 1 - For comparative purposes, prior year figures have been presented
             on a consistent basis to reflect the Company's adoption of
             SFAS No. 167



                      TIM HORTONS INC. AND SUBSIDIARIES
                              SEGMENT REPORTING
                     (In thousands of Canadian dollars)
                               (Note 1 and 2)

                                 (Unaudited)

                                           Second Quarter ended
                              -----------------------------------------------
                                July 4,                 June 28,
                                 2010     % of Total      2009    % of Total
                              ----------- ----------- ----------- -----------
    REVENUES
    Canada                      $538,228       84.1%    $468,822       77.4%
    U.S.                          30,135        4.7%      38,717        6.4%
                              ----------- ----------- ----------- -----------
    Total reportable segments    568,363       88.8%     507,539       83.8%
    Variable interest entities    71,499       11.2%      97,920       16.2%
                              ----------- ----------- ----------- -----------
    Total                       $639,862      100.0%    $605,459      100.0%
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    SEGMENT OPERATING INCOME
     (LOSS)
    Canada                      $149,730       97.7%    $132,347       97.7%
    U.S.                           3,580        2.3%       3,141        2.3%
                              ----------- ----------- ----------- -----------
    Reportable Segment
     Operating Income            153,310      100.0%     135,488      100.0%
                                          -----------             -----------
                                          -----------             -----------
    Variable interest entities     7,743                   6,279
    Corporate Charges            (11,202)                (12,718)
                              -----------             -----------
    Consolidated Operating
     Income                      149,851                 129,049
    Interest expense, net         (6,765)                 (4,938)
    Income taxes                 (42,161)                (40,648)
                              -----------             -----------
    Net Income                   100,925                  83,463
    Net Income attributable
     to noncontrolling
     interests                     6,804                   5,703
                              -----------             -----------
    Net Income attributable
     to Tim Hortons Inc.         $94,121                 $77,760
                              -----------             -----------
                              -----------             -----------

                                         Year-to-date period ended
                              -----------------------------------------------
                                July 4,                 June 28,
                                 2010     % of Total      2009    % of Total
                              ----------- ----------- ----------- -----------
    REVENUES
    Canada                    $1,006,893       82.4%    $897,427       77.3%
    U.S.                          57,848        4.7%      73,044        6.3%
                              ----------- ----------- ----------- -----------
    Total reportable segments  1,064,741       87.1%     970,471       83.6%
    Variable interest
     entities                    157,733       12.9%     190,695       16.4%
                              ----------- ----------- ----------- -----------
    Total                     $1,222,474      100.0%  $1,161,166      100.0%
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    SEGMENT OPERATING
     INCOME (LOSS)
    Canada                      $282,116       98.8%    $248,169       99.0%
    U.S.                           3,334        1.2%       2,577        1.0%
                              ----------- ----------- ----------- -----------
    Reportable Segment
     Operating Income            285,450      100.0%     250,746      100.0%
                                          -----------             -----------
                                          -----------             -----------
    Variable interest entities    14,223                  12,553
    Corporate Charges            (22,086)                (23,034)
                              -----------             -----------
    Consolidated Operating
     Income                      277,587                 240,265
    Interest expense, net        (11,865)                 (9,731)
    Income taxes                 (80,224)                (75,689)
                              -----------             -----------
    Net Income                   185,498                 154,845
    Net Income attributable
     to noncontrolling
     interests                    12,488                  10,646
                              -----------             -----------
    Net Income attributable
     to Tim Hortons Inc.        $173,010                $144,199
                              -----------             -----------
                              -----------             -----------

                               Second Quarter ended
                              -----------------------
                                July 4,     June 28,
                                 2010        2009       $ Change    % Change
                              ----------- ----------- ----------- -----------

    Sales is comprised of:
    Distribution sales          $367,390    $320,823     $46,567       14.5%
    Company-operated
     restaurant sales              5,455       6,605      (1,150)    (17.4)%
    Sales from variable
     interest entities            71,499      97,920     (26,421)    (27.0)%
                              ----------- ----------- ----------- -----------
                                $444,344    $425,348     $18,996        4.5%
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

                                    Year-to-date
                                    period ended
                              -----------------------
                                July 4,     June 28,
                                 2010        2009       $ Change    % Change
                              ----------- ----------- ----------- -----------

    Sales is comprised of:
    Distribution sales          $682,114    $613,028     $69,086       11.3%
    Company-operated
     restaurant sales             10,445      12,741      (2,296)    (18.0)%
    Sales from variable
     interest entities           157,733     190,695     (32,962)    (17.3)%
                              ----------- ----------- ----------- -----------
                                $850,292    $816,464     $33,828        4.1%
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    Note 1 - For comparative purposes, prior year figures have been presented
             on a consistent basis to reflect the Company's adoption of
             SFAS No. 167

    Note 2 - While the adoption of SFAS No. 167 resulted in the consolidation
             of its 50-50 bakery joint venture, the Company's chief decision
             maker continues to view and evaluate the performance of the
             Canadian segment with this 50-50 bakery joint venture accounted
             for on an equity accounting basis, which reflects 50% of its
             operating income (consistent with views and evaluations prior to
             the adoption of the Standard). As a result, the net revenues,
             and the remaining 50% of operating income of this joint venture
             have been included in Variable interest entities along with
             revenues and operating income from our non-owned consolidated
             restaurants.



                      TIM HORTONS INC. AND SUBSIDIARIES
                         SYSTEMWIDE RESTAURANT COUNT

                                               Increase/            Increase/
                           As of     As of    (Decrease)   As of   (Decrease)
                          July 4,  January 3,    From     June 28,    From
                           2010      2010      Year End    2009    Prior Year
                         ----------------------------------------------------
    Tim Hortons
    -----------

      Canada
        Company-operated      14         13          1         15         (1)
        Franchised         3,026      3,002         24      2,924        102
                         ----------------------------------------------------
      Total                3,040      3,015         25      2,939        101

    % Franchised           99.5%      99.6%                 99.5%

      U.S.
        Company-operated       3          5         (2)         5         (2)
        Franchised           584        558         26        531         53
                         ----------------------------------------------------
      Total                  587        563         24        536         51

    % Franchised           99.5%      99.1%                 99.1%

    Total Tim Hortons
        Company-operated      17         18         (1)        20         (3)
        Franchised         3,610      3,560         50      3,455        155
                         ----------------------------------------------------
      Total                3,627      3,578         49      3,475        152
                         ----------------------------------------------------
                         ----------------------------------------------------

    % Franchised           99.5%      99.5%                 99.4%



                          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 distribution
                          sales. Sales include canned coffee sales through
                          the grocery channel. Sales also include sales from
                          Company-operated restaurants and sales from certain
                          non-owned restaurants that are consolidated in
                          accordance with ASC 810 (formerly FIN 46R) as well
                          as sales from our bakery joint venture which we are
                          required to consolidate.

    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 certain non-owned restaurants that
                          are consolidated in accordance with ASC 810
                          (formerly FIN 46R) as well as cost of sales from
                          our bakery joint venture.

    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 to
     Administrative       generating revenue, including expenses associated
                          with our corporate and administrative functions,
                          and 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, excluding joint
                          ventures that we are required to consolidate.
                          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), net   Includes expenses (income) that are not directly
                          derived from the Company's primary businesses.
                          Items include foreign currency adjustments, gains
                          and losses on asset sales, and other asset
                          write-offs.

    Noncontrolling        Relates to the consolidation of our bakery joint
     interests            venture and certain non-owned restaurants that the
                          Company is required to consolidate under ASC 810
                          (formerly SFAS No. 167 and FIN 46R).

    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.
    

SOURCE Tim Hortons

For further information: For further information: Investors: Scott Bonikowsky, (905) 339-6186 or investor_relations@timhortons.com; Media: Alexandra Cygal, (905) 339-5960 or cygal_alexandra@timhortons.com


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