S-1 1 y15067sv1.htm FORM S-1 S-1
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As filed with the Securities and Exchange Commission on December 1, 2005
Registration No. 333-                  
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
 
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
 
Tim Hortons Inc.
(Exact Name of Registrant as Specified in its Charter)
         
Delaware   5812   51-0370507
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)
 
874 Sinclair Road
Oakville, Ontario L6K 2Y1
Canada (905) 845-6511
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)
 
The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801 (302) 658-7581
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
 
Copies To:
         
Leon M. McCorkle, Jr.
Executive Vice President,
General Counsel and Secretary
Wendy’s International, Inc.
P.O. Box 256
4288 West Dublin-Granville Road
Dublin, Ohio 43017-0256
(614) 764-3100
  J. Steven Patterson
Akin Gump Strauss Hauer & Feld LLP
Robert S. Strauss Building
1333 New Hampshire Avenue, N.W.
Washington, D.C. 20036-1564
(202) 887-4000
(202) 887-4288
  Robert E. Buckholz, Jr.
Sullivan & Cromwell LLP
125 Broad Street
New York, New York 10004-2498
(212) 558-4000
(212) 558-3588
     Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
     If the securities being registered on this form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o
     If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o
     If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o
     If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o
     If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box.    o
 
CALCULATION OF REGISTRATION FEE
               
               
               
      Proposed Maximum     Amount Of  
Title Of Each Class Of Securities To Be Registered     Aggregate Offering Price(1)     Registration Fee  
               
Common shares, no stated value per share     $600,000,000     $64,200  
               
               
(1)  Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o). The proposed maximum aggregate offering price includes amounts attributable to shares that the underwriters may purchase to cover over-allotments, if any.
 
     The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 
 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated December 1, 2005.
                            Common Shares
(TIM HORTONS LOGO)
Tim Hortons Inc.
Common Shares
 
       This is an initial public offering of common shares of Tim Hortons Inc. All of the common shares are being sold by the company.
       Prior to this offering, there has been no public market for the common shares. It is currently estimated that the initial public offering price per share will be between US$                    and US$                    . Tim Hortons Inc. intends to apply to list the common shares on the New York Stock Exchange and the Toronto Stock Exchange under the symbol “THI.”
       See “Risk Factors” on page 10 to read about factors you should consider before buying common shares.
 
       Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
 
                 
    Per Share   Total
         
Initial public offering price
  US$       US$    
Underwriting discount
  US$       US$    
Proceeds, before expenses, to Tim Hortons Inc. 
  US$       US$    
       To the extent the underwriters sell more than                     common shares, the underwriters have the option to purchase up to an additional                     common shares from Tim Hortons Inc. at the initial public offering price less the underwriting discount.
 
       The underwriters expect to deliver the shares against payment in New York, New York on                     , 2006.
Goldman, Sachs & Co. RBC Capital Markets
 
Prospectus dated                     , 2006.


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       Tim Hortons Inc., a wholly-owned subsidiary of Wendy’s International, Inc., owns and operates the quick service restaurant chain known as “Tim Hortons.” Unless the context otherwise requires, any references in this prospectus to “we,” “our,” “us” and the “Company” refer to Tim Hortons Inc. and its consolidated subsidiaries as in effect on the closing date of this offering, but not to any of the franchisees that operate Tim Hortons restaurants. Any references in this prospectus to “Wendy’s” refer to Wendy’s International, Inc. and its consolidated subsidiaries, other than us. Unless otherwise specified, references to “dollars” or “$” in this prospectus are to Canadian dollars.
       We believe systemwide sales, which consists of aggregate sales by all franchised and company-operated restaurants, and average same-store sales provide meaningful information to investors concerning the size of our system, the overall health of the system and the strength of our brand. Information about systemwide and average same-store sales is included in this prospectus. Franchisee operations generally are not included in our financial statements; however, franchisee sales result in royalties and rental income that are included in our franchise revenues.
EXCHANGE RATE DATA
       We report our results in Canadian dollars. The following table sets forth, for the periods indicated, the high, low, average and period-end noon buying rates in New York for cable transfers payable in foreign currencies, as certified for customs purposes by the Federal Reserve Bank of New York, in Canadian dollars per U.S. dollar. No representation is made that the U.S. dollar amounts have been, could have been or could be converted into Canadian dollars at the noon buying rate on such dates or any other dates.
                                 
    Noon Buying Rate
     
Year Ended December 31   Period End   Average(1)   High   Low
                 
2000
  $ 1.4995     $ 1.4855     $ 1.5600     $ 1.4350  
2001
    1.5925       1.5488       1.6023       1.4933  
2002
    1.5800       1.5704       1.6128       1.5108  
2003
    1.2923       1.4008       1.5750       1.2923  
2004
    1.2034       1.3017       1.3970       1.1775  
2005
                               
 
(1)  Determined by averaging the rates on the last business day of each month during the respective period.
       On November 30, 2005, the noon buying rate in New York for cable transfers payable in foreign currencies, as certified for customs purposes by the Federal Reserve Bank of New York, was Cdn$1.1670 = US$1.00.

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PROSPECTUS SUMMARY
       This summary highlights information contained in this prospectus. Because it is a summary, it does not contain all of the information you should consider before investing in our common shares. You should carefully read the entire prospectus. In particular, you should read the section entitled “Risk Factors” and our historical consolidated financial statements and the notes thereto included elsewhere in this prospectus.
Our Company
       We are the largest quick service restaurant (QSR) chain in Canada based on systemwide sales and number of restaurants open. According to the Canadian Restaurant and Foodservices Association (CRFA) and Statistics Canada, in 2004 our system represented 22.6% of the $14.0 billion QSR segment of the Canadian foodservice industry based on sales dollars, almost 25.0% larger than our nearest competitor.
       Since our founding in 1964, we have been committed to a close relationship with our franchisees, which has helped build Tim Hortons® into one of the most widely recognized consumer brands in Canada. We believe we have achieved outstanding customer loyalty by offering superior food quality, variety and consistency in a convenient and friendly environment. According to a tracking study we conducted in 2003, approximately 46.0% of our Canadian customers visit our restaurants four or more times per week. Our menu spans a broad range of categories that appeal to customers throughout the day, such as premium blend coffee, flavoured cappuccinos, specialty and steeped teas, home-style soups, fresh sandwiches and freshly baked goods including donuts, bagels, muffins, cookies, croissants and pastries.
       Since the end of 1995, our systemwide sales and revenues have grown at compound annual growth rates (CAGRs) of 18.5% and 17.1%, respectively. This growth has been a result of expanding the number of system restaurants by a 9.6% CAGR and increasing average annual same-store sales by 7.0% and 10.0% in Canada and the U.S., respectively. We have produced average same-store sales increases for 13 and 14 consecutive years in Canada and the U.S., respectively, with average annual same-store sales increases of 7.1% and 7.7%, respectively, over those periods. Since the end of 1995, we have increased our total operating income at a 20.5% CAGR.
       As of October 2, 2005, we had a system of 2,801 restaurants in Canada and the U.S. Our 2,529 restaurants across Canada include 660 smaller restaurants in non-standard locations such as gas station convenience stores, universities, hospitals and office buildings. In the U.S., we have a regional presence primarily in the Northeast and Midwest with 272 restaurants in 10 states, concentrated in three major markets. As of October 2, 2005, franchisees operated 2,498, or 98.8%, of the restaurants in Canada and 207, or 76.1%, of the restaurants in the U.S.
       We have a diversified base of revenue and operating income generated from franchisee royalties and fees, rental income, warehouse sales and company-operated stores. In fiscal 2004, we had total revenues of $1.3 billion, operating income of $319.3 million, and net income of $205.1 million. In the nine months ended October 2, 2005, we had total revenues of $1.1 billion, operating income of $259.3 million and net income of $174.7 million. Average same-store sales increases for fiscal 2004 were 7.4% in Canada and 9.8% in the U.S., and in the nine months ended October 2, 2005, were 5.0% in Canada and 7.0% in the U.S.
Our Competitive Strengths
       Iconic brand status in Canada. Tim Hortons was recognized as the best managed brand in Canada, according to annual surveys published by Canadian Business magazine in 2004 and 2005. In addition, in an internal 2005 national study, when consumers were asked which fast service chain,


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convenience store or gas station they stop at to have a coffee, snack or meal most often, Tim Hortons was named 37% of the time, nearly three times higher than the nearest competitor. We believe our brand strength is a result of our ongoing systemwide commitment to operational excellence, product quality, continuous innovation, superior customer service, exceptional value, community involvement and successful relationships with our franchisees. We were also named one of Canada’s most admired corporate cultures in 2005 by Canadian Business magazine.
       Leading market positions in Canada. According to the 2005 NPD foodservice industry report, our system represented 74.0% of the coffee and baked goods sector of the Canadian QSR segment, based on the number of customers served over the 12 months ended August 31, 2005. In addition, we have the leading market position in the Canadian QSR segment, based on systemwide sales, and a very strong presence in every province. We believe our presence in key markets and our ability to leverage our scale in advertising will help us maintain and extend our market leadership position.
       Systemwide focus on operational excellence. We are an operations-driven organization. We invest substantial resources in developing programs, processes, technology and field support for our system of franchised and company-operated restaurants. We focus on continuous improvement in operations so we can consistently serve high-quality food while providing exceptional customer courtesy, order accuracy and speed of service, thereby enhancing our customers’ overall experience.
       Energized and committed franchisee base. Our over 1,000 franchisees in North America are critical to our success, delivering exceptional hands-on customer service every day. Our franchisees are strongly committed to our system growth, having collectively invested over $75.0 million of their capital in infrastructure support during 2002 and 2003 for our proprietary “Always Fresh” baking system. The average Tim Hortons franchisee in Canada has been part of our system for almost nine years and owns three restaurants.
       Integrated and scalable business model. We have invested substantial resources and capital in developing an integrated and scalable business model. Our vertically integrated manufacturing and distribution platforms enable us to realize economies of scale and offer customers innovative products. Our Always Fresh system enables us to bake and serve fresh and consistent products throughout the day, as well as to open restaurants in a variety of formats, sizes and locations. We control the site selection, design and construction of our restaurants, which enables us to increase penetration in existing and new markets by improving customer convenience. We control the real estate for approximately 80.0% of our system restaurants, which generates a recurring stream of rental income.
       Proven, experienced management team with track record of exceptional growth. Our executive management team has an average tenure with us of more than 12 years. Together with our dedicated team of employees, they have significantly contributed to our strong financial performance. Between 1995 and 2004, we increased our average sales per standard Canadian restaurant from $878,000 to $1.7 million. Our financial performance is a result of our focus on restaurant operations, coordination among employees and franchisees and the performance of our vertically integrated manufacturing and distribution platforms.
Our Business Strategy
       Drive sales growth at existing restaurants through continued innovation. Our consistent systemwide sales growth reflects our strong and increasing brand awareness, emphasis on customer service and continuous product and process innovation. We strive to meet our customers’ needs throughout the day and expect to continue to improve restaurant efficiency levels and invest in technology to improve customer service.

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       Sustain the health and viability of our franchisee base. We have developed a large, highly committed and diversified franchisee base, which is a critical component of our systemwide success. We will continue to strengthen and grow our franchise system by extending the Tim Hortons brand and continuing to offer superior product development, operations oversight and franchisee support.
       Increase penetration of the Canadian market. We will continue to leverage our brand strength to further penetrate the Canadian market using our franchise business model. Although we have the leading market position in the Canadian QSR segment, based on systemwide sales, and a very strong presence in every province, there are numerous growth opportunities in the Western provinces, Quebec and select high-traffic metropolitan areas. Our “we fit anywhere” strategy of non-standard formats gives us the flexibility to add restaurants in high-traffic consumer locations without over-saturating any individual market. Our long-term goal is to have between 3,500 and 4,000 system restaurants open in Canada.
       Pursue long-term profitable expansion in the United States. We have become a strong regional player in the U.S., with restaurants in 10 states, primarily in the Northeast and Midwest regions. Tim Hortons restaurants in the U.S. experienced an average annual same-store sales growth of 9.8% from 1999 through 2004, even as we expanded our U.S. system during that period from 108 to 251 restaurants. We will continue our efforts to profitably expand our system’s U.S. presence by further penetrating existing markets, entering adjacent markets and selectively pursuing other strategic initiatives. Our goal is to have 500 system restaurants open in the U.S. by the end of 2008.
Our Relationship with Wendy’s®
       We are currently a wholly-owned subsidiary of Wendy’s. Upon completion of this offering, Wendy’s will own approximately      % of our outstanding common shares, or approximately      % if the underwriters exercise their over-allotment option in full. Wendy’s will have the ability to direct the election of members of our board of directors and to determine the outcome of other matters submitted to a vote of our shareholders.
       Wendy’s has advised us that its current intent is to continue to hold all of our common shares owned by it following this offering. However, Wendy’s is not subject to any contractual obligation to maintain its share ownership, except that Wendy’s has agreed not to sell or otherwise dispose of any of our common shares for a period of 180 days after the date of this prospectus without the prior written consent of the representatives of the underwriters. Wendy’s may, however, without consent of the representatives of the underwriters and subject to the determination of its board of directors, determine to spin-off to its shareholders all of our common shares that it owns.
       Immediately prior to the closing of this offering, we will enter into agreements with Wendy’s related to the separation of our business operations from Wendy’s. These agreements will govern various interim and ongoing relationships between Wendy’s and us. For more information regarding these agreements, see “Our Relationship With Wendy’s” and our historical consolidated financial statements and the notes thereto included elsewhere in this prospectus.
       Wendy’s is one of the world’s largest restaurant operating and franchising companies with over 9,800 total restaurants and quality brands, including Wendy’s, Tim Hortons, Baja Fresh® Mexican Grill and investments in Cafe Express and Pasta Pomodoro®.
Company Information
       As of the date of the initial filing of the registration statement, of which this prospectus is a part, Tim Hortons Inc. is a Delaware corporation. Before the completion of this offering, we intend to merge into a newly-formed Ohio corporation named Tim Hortons Inc. We are, and from that merger

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until the completion of this offering, will be, a wholly-owned subsidiary of Wendy’s. Although the merger has not been completed as of the date of this initial filing of the registration statement of which this prospectus is a part, we have made certain disclosures in this prospectus as if the merger had been completed and we were an Ohio corporation. Our principal executive offices are located at 874 Sinclair Road, Oakville, Ontario, Canada L6K 2Y1. Our telephone number is (905) 845-6511. Our website address is www.timhortons.com. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider information on our website as part of this prospectus.

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The Offering
Common shares offered by us                      shares
 
Underwriters’ option to purchase additional common shares                      shares
 
Common shares to be held by Wendy’s immediately after this offering                      shares
 
Common shares outstanding immediately after this offering                      shares
 
Use of proceeds We estimate that the net proceeds from this offering of common shares, after deducting estimated underwriting discounts and commissions and estimated offering expenses, will be approximately $                     million ($                     million if the underwriters exercise their over-allotment option in full). We will use those net proceeds, together with proceeds from a term loan agreement that we will enter into prior to the closing of this offering, to repay debt owed to Wendy’s. See “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and Capital Resources— Loan Agreements.”
 
Dividend policy We intend to declare and pay dividends in Canadian dollars on our common shares; however, the declaration and payment of future dividends is discretionary, and the amount, if any, will be dependent upon our results of operations, financial condition, contractual restrictions and other factors deemed relevant by our board of directors. See “Dividend Policy.”
 
NYSE and TSX listings We intend to apply to list our common shares on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX) under the symbol “THI.”
       Unless we specifically state otherwise, all information in this prospectus regarding our common shares:
  •  gives effect to the transactions described under “Our Relationship With Wendy’s”;
 
  •  gives effect to a      for      stock split that we intend to effect immediately prior to the closing of this offering;
 
  •  assumes no exercise by the underwriters of their over-allotment option to purchase                     additional common shares; and
 
  •  excludes common shares reserved for issuance under equity incentive plans.
Risk Factors
       Investing in our common shares involves substantial risk. You should carefully consider all of the information set forth in this prospectus and, in particular, you should evaluate the specific factors set forth under “Risk Factors” in deciding whether to invest in our common shares.

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
       The following table presents our summary historical consolidated financial and other data and should be read in conjunction with information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Selected Historical Consolidated Financial and Other Data,” “Unaudited Pro Forma Consolidated Financial Information” and our historical consolidated financial statements and notes thereto included elsewhere in this prospectus. Our historical consolidated financial information may not be indicative of our future performance and does not necessarily reflect what our financial position and results of operations would have been had we operated as a separate, stand-alone entity during the periods covered.
       Our summary historical consolidated financial data as of December 28, 2003 and January 2, 2005 and for fiscal years 2002 (year ended December 29, 2002), 2003 (year ended December 28, 2003) and 2004 (year ended January 2, 2005) have been derived from our audited historical consolidated financial statements included elsewhere in this prospectus.
       Our summary historical consolidated financial data as of October 2, 2005 and for the nine months ended September 26, 2004 and October 2, 2005 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus and include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of our financial position and results of operations as of the dates and for the periods indicated. Results for the nine months ended October 2, 2005 are not necessarily indicative of the results that may be expected for the entire year.
       The summary unaudited pro forma consolidated financial information as of October 2, 2005 and for the fiscal year 2004 and the nine months ended October 2, 2005 were derived from our “Unaudited Pro Forma Consolidated Financial Information” included elsewhere in this prospectus, and gives effect, in the manner described under “Unaudited Pro Forma Consolidated Financial Information,” to (i) the non-cash settlement of intercompany notes and trade balances between us and Wendy’s, (ii) the entering into of a new term loan agreement; (iii) the completion of this offering, and (iv) the application of the proceeds of the new term loan and the offering to repay indebtedness owed to Wendy’s as described under “Use of Proceeds,” all of which are collectively referred to as the “Adjustments.” Our unaudited pro forma balance sheet as of October 2, 2005 gives pro forma effect to the Adjustments as if they had occurred on such date. Our unaudited pro forma statements of operations for fiscal year 2004 and the nine months ended October 2, 2005 give pro forma effect to the Adjustments as if they had occurred on December 29, 2003 as described under “Unaudited Pro Forma Consolidated Financial Information.”
       The unaudited pro forma financial data as of October 2, 2005 and for fiscal year 2004 and for the nine months ended October 2, 2005 is presented for informational purposes only, and does not purport to represent what our results of operations would actually have been if the transactions had occurred on the dates indicated, nor does it purport to project our results of operations or financial condition that we may achieve in the future.

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    Fiscal Years(1)   Nine Months Ended
         
            Pro Forma
        Pro Forma   September 26,   October 2,   October 2,
    2002   2003   2004   2004   2004   2005   2005
                             
    (in thousands, except number of shares)
Consolidated Statements of Operations Data
                                                       
Revenues
                                                       
 
Sales
  $ 656,833     $ 727,508     $ 845,231             $ 602,978     $ 703,484          
 
Franchise revenues(2)
    402,738       444,272       493,035               350,081       374,684          
                                           
Total revenues
    1,059,571       1,171,780       1,338,266               953,059       1,078,168          
Total costs and expenses
    826,258       892,883       1,018,961               720,821       818,847          
                                           
Operating income (EBIT)
    233,313       278,897       319,305               232,238       259,321          
Interest expense, net
    2,554       4,924       4,109               3,365       983          
Affiliated interest expense, net
    17,786       11,110       9,410               7,536       4,910          
                                           
Income before income taxes
    212,973       262,863       305,786               221,337       253,428          
Income taxes
    80,161       106,601       100,735               70,505       78,767          
                                           
Net income
  $ 132,812     $ 156,262     $ 205,051             $ 150,832     $ 174,661          
                                           
Basic earnings per common share
  $ 190     $ 223     $ 293             $ 215     $ 250          
Average common shares
    700       700       700               700       700          
Consolidated Balance Sheets Data — at end of period indicated
                                                       
 
Cash and cash equivalents
          $ 86,151     $ 129,301                     $ 119,248          
 
Total assets(3)
          $ 1,547,023     $ 1,756,869                     $ 1,716,296          
 
Long-term debt(4)
          $ 367,674     $ 246,841                     $ 188,024          
 
Total liabilities(4)
          $ 704,245     $ 735,180                     $ 1,656,152          
 
Total shareholder’s equity
          $ 842,778     $ 1,021,689                     $ 60,144          
                                             
    Fiscal Years(1)   Nine Months Ended
         
        September 26,   October 2,
    2002   2003   2004   2004   2005
                     
    (in thousands, except number of restaurants
    and where noted)
Other Financial Data
                                       
 
EBITDA(5)
  $ 282,422     $ 337,698     $ 388,313     $ 280,098     $ 312,922  
 
Capital expenditures
  $ 111,788     $ 131,865     $ 197,810     $ 126,343     $ 131,866  
Other Operating Data
                                       
 
Total systemwide sales growth(6)(7)
    16.3 %     12.6 %     16.6 %     15.0 %     11.7 %
 
Systemwide restaurant unit growth(6)
    8.6 %     7.6 %     7.7 %     7.9 %     6.4 %
 
Canada average same-store sales growth(6) (8)
    7.2 %     4.8 %     7.4 %     7.7 %     5.0 %
 
U.S. average same-store sales growth(6) (8)
    9.9 %     4.5 %     9.8 %     10.1 %     7.0 %
 
Restaurants open at end of period — Canada
                                       
   
Company-operated
    31       32       31       28       31  
   
Franchise
    2,157       2,311       2,439       2,371       2,498  
 
Restaurants open at end of period — U.S.
                                       
   
Company-operated
    40       25       67       66       65  
   
Franchise
    120       159       184       167       207  
                               
 
Total
    2,348       2,527       2,721       2,632       2,801  
                               
 
Average sales per standard restaurant:
                                       
 
Canada (in thousands of Canadian dollars) (6)
  $ 1,555     $ 1,625     $ 1,730                  
 
U.S. (in thousands of U.S. dollars)(6)
  $ 874     $ 894     $ 897                  

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(1)  Fiscal 2004 consisted of 53 weeks. Fiscal 2003 and 2002 each consisted of 52 weeks.
 
(2)  Franchise revenues consist of (a) royalties, which typically range from 3.0% to 4.5% of gross franchise restaurant sales, (b) rents, which typically range from 8.5% to 10.0% of gross franchise restaurant sales, and (c) fees, which are typically charged at the inception of the franchise relationship. Franchise restaurant sales are reported to us by our franchisees. Franchise restaurant sales are not included in our financial statements, other than approximately 80 franchisees whose results of operations are consolidated with ours pursuant to FIN 46R, as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Results of Operations— Financial Definitions— Sales.” However, franchise restaurant sales result in royalties and rental income, which are included in our franchise revenues. The reported franchise restaurant sales were:
                           
    Fiscal Years(1)
     
    2002   2003   2004
             
    (in thousands)
Franchise restaurant sales:
                       
 
Canada (in thousands of Canadian dollars)
  $ 2,412,625     $ 2,713,248     $ 3,137,898  
 
U.S. (in thousands of U.S. dollars)
  $ 93,603     $ 123,272     $ 163,712  
(3)  Total assets include notes and accounts receivable from Wendy’s, which will be distributed by us to Wendy’s in the fourth quarter of 2005. Notes and amounts receivable from Wendy’s were:
                         
    At End of Fiscal    
    Year Indicated   As of
        October 2,
    2003   2004   2005
             
    (in thousands)
Notes receivable from Wendy’s included in current assets
  $ 59,210     $ 173,747     $ 189,111  
Notes receivable from Wendy’s included in long-term assets
  $ 128,000     $ 128,000     $  
Accounts receivable from Wendy’s included in current assets
  $ 138,580     $ 52,192     $ 34,069  
(4)  Long-term debt includes long-term debt, capital leases and notes payable to Wendy’s. Notes payable to Wendy’s are also included in current liabilities. As of October 2, 2005, we had outstanding a note payable to Wendy’s in the principal amount of US$960.0 million. Other than that note, notes payable to Wendy’s will be contributed as equity to us in the fourth quarter of 2005. Notes payable to Wendy’s totalled the following amounts:
                         
    At End of Fiscal    
    Year Indicated   As of
        October 2,
    2003   2004   2005
             
    (in thousands)
Notes payable to Wendy’s included in current liabilities
  $ 84,167     $ 185,725     $ 1,186,293  
Notes payable to Wendy’s included in long-term debt
  $ 304,488     $ 181,090     $ 100,283  
(5)  EBITDA is defined as net income before interest, taxes, depreciation and amortization and is used by management as a performance measure for benchmarking against our peers and our competitors. We believe EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry. EBITDA is not a recognized term under GAAP, should not be viewed in isolation and does not purport to be an alternative to net income as an indicator of operating performance or cash flows from operating activities as a measure of liquidity. There are material limitations associated with making the adjustments to calculate EBITDA and using this non-GAAP financial measure as

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compared to the most directly comparable GAAP financial measure. For instance, EBITDA does not include:
  •  interest expense, and because we have borrowed money to finance our operations, interest expense is a necessary element of our costs and ability to generate revenue;
 
  •  depreciation and amortization expense, and because we use capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate revenue; and
 
  •  tax expense, and because the payment of taxes is part of our operations, tax expense is a necessary element of our costs and ability to operate.
Additionally, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as capital expenditures, contractual commitments, interest payments, tax payments and debt service requirements. Because not all companies use identical calculations, this presentation of EBITDA may not be comparable to other similarly titled measures of other companies.
      The following table is a reconciliation of our net income to EBITDA:
                                         
    Fiscal Years(1)   Nine Months Ended
         
        September 26,   October 2,
    2002   2003   2004   2004   2005
                     
    (in thousands)
Net income
  $ 132,812     $ 156,262     $ 205,051     $ 150,832     $ 174,661  
Interest expense, net
    20,340       16,034       13,519       10,901       5,893  
Income tax expense
    80,161       106,601       100,735       70,505       78,767  
                               
Operating income (EBIT)
  $ 233,313     $ 278,897     $ 319,305     $ 232,238     $ 259,321  
Depreciation and amortization
    49,109       58,801       69,008       47,860       53,601  
                               
EBITDA
  $ 282,422     $ 337,698     $ 388,313     $ 280,098     $ 312,922  
                               
(6)  Includes both franchised and company-operated restaurants. Franchise restaurant sales are not included in our financial statements, other than approximately 80 franchisees whose results of operations are consolidated with ours pursuant to FIN 46R. However, franchise restaurant sales result in royalties and rental income, which are included in our franchise revenues.
 
(7)  Total systemwide sales growth is determined using a constant exchange rate to exclude the effects of foreign currency translation. U.S. dollar sales are converted to Canadian dollar amounts using the average exchange rate of the base year for the period covered.
 
(8)  For Canadian restaurants, average same-store sales are based on restaurants that have been open for a minimum of one calendar year. For U.S. restaurants, a restaurant is included in our average same-store sales calculation beginning in the 13th month after the restaurant’s opening.

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RISK FACTORS
       Investing in our common shares involves a high degree of risk. You should consider carefully the following factors and the other information in this prospectus before deciding to purchase any of our common shares. If any of the following risks actually occurs, our business, financial condition, results of operation and cash flow could suffer materially and adversely. In that case, the trading price of our common shares could decline, and you might lose all or part of your investment.
Risks Relating to Our Business and Industry
The QSR segment is highly competitive, and that competition could adversely affect our operating results.
       The QSR segment of the foodservice industry is intensely competitive regarding price, service, location, personnel and type and quality of food. Tim Hortons restaurants compete with international, regional and local organizations primarily through the quality, variety and value perception of food products offered. Other key competitive factors include the number and location of restaurants, quality and speed of service, attractiveness of facilities, effectiveness of advertising and marketing programs, and new product development by us and our competitors. We anticipate intense competition will continue to focus on pricing. Some of our competitors have substantially larger marketing budgets, which may provide them with a competitive advantage. In addition, our system competes within the food service market and the QSR segment not only for customers but also for management and hourly employees, suitable real estate sites and qualified franchisees. If we are unable to maintain our competitive position, we could experience downward pressure on prices, lower demand for our products, reduced margins, the inability to take advantage of new business opportunities and the loss of market share.
We are subject to changes in economic, market and other conditions.
       The QSR segment is affected by:
  •  changes in international, national, regional and local economic conditions;
 
  •  consumer preferences and spending patterns;
 
  •  demographic trends;
 
  •  the impact of inclement weather, natural disasters and other calamities;
 
  •  traffic patterns;
 
  •  the type, number and location of competing restaurants; and
 
  •  the effects of war or terrorist activities and any governmental responses thereto.
       Factors such as inflation, food costs, labour and benefit costs, legal claims and the availability of management and hourly employees also affect restaurant operations and administrative expenses. Our system’s ability to finance new restaurant development and improvements and additions to existing restaurants, and our acquisition of restaurants from, or sale of restaurants to, franchisees, are affected by economic conditions, including interest rates and other government policies impacting land and construction costs and the cost and availability of borrowed funds.
Events reported in the media, such as incidents involving food-borne illnesses or food tampering, whether or not accurate, can cause damage to our brand and swiftly affect our sales and profitability.
       Reports, whether true or not, of food-borne illnesses (such as e-coli, avian flu, bovine spongiform encephalopathy, hepatitis A, trichinosis or salmonella) and injuries caused by food tampering have in the past severely injured the reputations of participants in the QSR segment and

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could in the future affect us as well. Anything that damages our reputation or brand could immediately and severely hurt systemwide sales and, accordingly, our revenues. If our customers become ill from food-borne illnesses, we could also be forced to temporarily close some restaurants. In addition, instances of food-borne illnesses or food tampering, even those occurring solely at the restaurants of our competitors, could, by resulting in negative publicity about the restaurant industry, adversely affect system sales on a local, regional or systemwide basis. A decrease in customer traffic as a result of these health concerns or negative publicity, or as a result of a temporary closure of any of our restaurants, could materially harm our business.
Failure to retain our existing senior management team or our inability to attract and retain new qualified personnel could hurt our business and inhibit our ability to operate and grow successfully.
       Our success will continue to depend to a significant extent on our leadership team (specifically, our chief executive officer and president) and other key management personnel. We may not be able to retain our executive officers and key personnel or attract additional qualified management personnel. Our success also will continue to depend on our ability to attract and retain qualified franchisees and other personnel to operate our restaurants and distribution centres.
Failure to successfully implement our growth strategy could harm our business.
       We plan to increase the number of Tim Hortons restaurants, but we may not be able to achieve our growth objectives and our new restaurants may not be profitable. The opening and success of restaurants depends on various factors, including:
  •  competition from other QSRs in current and future markets;
 
  •  our degree of saturation in existing markets;
 
  •  the identification and availability of suitable and economically viable locations;
 
  •  sales levels at existing restaurants;
 
  •  the negotiation of acceptable lease or purchase terms for new locations;
 
  •  permitting and regulatory compliance;
 
  •  the ability to meet construction schedules;
 
  •  the availability of qualified franchisees and their financial and other development capabilities (including their ability to obtain acceptable financing);
 
  •  our ability to hire and train qualified management personnel; and
 
  •  general economic and business conditions.
       If we are unable to open as many new restaurants as we hope or otherwise to successfully implement our growth strategy, our revenue growth and profitability may be adversely affected.
We may not effectively expand our presence in the U.S., where our brand is not as well known and where competitive conditions and markets may differ from those to which we are accustomed.
       We plan to continue expanding in the U.S., including into areas where customers are unfamiliar with our brand. We will need to build brand awareness in those markets through greater investments in advertising and promotional activity than in comparable Canadian markets and those activities may not promote our brand as effectively as intended, if at all.
       Many of the U.S. markets into which we intend to expand will have competitive conditions, consumer tastes and discretionary spending patterns that differ from our existing markets. We may

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need to adapt our brand and our restaurants to those markets. Those markets may have lower average unit sales, and may have higher construction, occupancy or operating costs than existing Tim Hortons restaurants. Sales and profits at restaurants opened in new markets may take longer to reach expected levels or may never do so.
       In addition, if Tim Hortons restaurants are less profitable in U.S. markets, we could have difficulty finding qualified U.S. franchisees willing to participate in our expansion. This could limit our ability to expand or could dilute the quality of our franchisees, either of which would likely hurt our revenue growth and operating results. We also currently provide financing support to new U.S. franchisees; if U.S. restaurants are not successful, we may have to expand our financing support programs or extend financing on more generous terms, either of which could adversely affect our net income.
Our distribution operations are subject to pressures outside of our control that could adversely affect the results of our manufacturing and distribution operations.
       We sell coffee and other drinks, non-perishable food, supplies, packaging and equipment to system restaurants from five warehouses located across Canada, primarily using our fleet of trucks and trailers. Transportation costs, including fuel costs and costs incurred as a result of inclement weather, may affect our distribution operations. Historically, fuel costs have been subject to wide price fluctuations based on geopolitical issues and variations in supply and demand. Also, inclement weather such as snow storms or ice storms could adversely impact our ability to transport ingredients and supplies. These factors are out of our control. If fuel costs rise, or stay at their current elevated levels, the operating costs of our distribution operations would increase and likely depress our profitability. In the event of a fuel supply shortage or significant weather development, higher transportation costs or the curtailment of scheduled service could result, either of which could injure our relationship with our franchisees and reduce our profitability.
       In addition, because our U.S. franchisees are not required to purchase their ingredients and supplies from us, our manufacturing and distribution operations may be subject to competition. The presence of other suppliers who meet our quality standards and specifications could cause downward pressure on the prices and amounts we receive for ingredients and supplies sold to our U.S. franchisees, which would adversely affect the results of our manufacturing and distribution operations.
Termination of our Maidstone Bakeries joint venture could adversely affect our business.
       The Maidstone Bakeries facility, which supplies all of our donuts and Timbits® (bite-sized donuts) and a significant portion of our other bread products to system restaurants, is owned by a 50-50 joint venture between us and a subsidiary of IAWS Group plc (IAWS). The agreements governing the joint venture contemplate various procedures relating to the termination of the joint venture, including a compulsory buy/sell procedure. After March 6, 2006, either party may initiate the compulsory buy/sell procedure. In addition, certain of the technology used at the Maidstone Bakeries facility is owned by a third party, Irish Bakery Inventions Limited (IBIL), and is licensed to the joint venture. This license extends until no later than April 2012.
      Under certain circumstances, upon the termination of these agreements, we and our franchisees could be forced to purchase par-baked products manufactured by the facility at higher costs, or we would need to incur significant capital costs to build our own par-baked manufacturing facility using our independent rights to the technology, or find alternative products and/or production methods. Even if we were to build our own par-baked goods manufacturing facility, we would not be able to produce bread and/or bread products formerly purchased from the joint venture to the extent they were prepared from recipes licensed to the joint venture by IAWS and we were not able to license them directly from IAWS on favourable terms, or at all. Further, IAWS could under certain circumstances have the right to build its own par-baked goods manufacturing facility using its

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independent rights to the par-baking technology, and manufacture and sell par-baked donuts to our competitors, provided it did not use our recipes. Any of the foregoing events could injure our brand, cause us to lose revenues and/or increase our costs. See “Business—Our Manufacturing and Distribution Platforms.”
Shortages or interruptions in the supply or delivery of perishable food products could adversely affect our operating results.
       We and our franchisees are dependent on frequent deliveries of perishable food products that meet our specifications. Shortages or interruptions in the supply of perishable food products caused by unanticipated demand, problems in production or distribution, disease or food-borne illnesses, inclement weather or other conditions could adversely affect the availability, quality and cost of ingredients, which would likely adversely affect our business.
       Donuts and other par-baked products sold systemwide are manufactured at the Maidstone Bakeries facility in Ontario, Canada using proprietary processes. Due to the proprietary nature of the manufacturing process, alternative suppliers for our donuts and Timbits are not readily available. As a result, if the facility’s operations were to be significantly and negatively impacted by an unexpected event, system restaurants might not be able to provide donuts and other par-baked products to their customers for a period of time, which could injure our relationships with our franchisees as well as our customers’ perception of us and our brand. This would likely adversely affect our growth strategy and results of operations.
We will require a significant amount of cash, the availability of which depends on many factors beyond our control.
       We intend to continue to grow the number of Tim Hortons restaurants in Canada and the U.S. To support that expansion, we will require a significant amount of cash. We will also need cash to service our debt obligations and to fund potential capital expenditures. Whether the cash we require is available, and the cost associated with borrowing or otherwise raising any cash not generated by operations, depends on many factors beyond our control, including general economic, financial, competitive, legislative, regulatory and other factors.
       We cannot assure you our business will generate sufficient cash flow or that future borrowings or other sources of cash will be available to us in an amount sufficient to enable us to continue our growth, make dividend payments, pay our debt or fund capital expenditures or our other liquidity needs. If our future cash flow from operations and other capital resources are insufficient to pay our obligations as they mature or to fund our other needs, we may be forced to reduce or delay our growth, business activities and capital expenditures, sell assets, obtain additional equity or debt capital or restructure or refinance all or a portion of our debt, on or before maturity. We cannot assure you that we will be able to refinance any of our debt, on a timely basis or on satisfactory terms, if at all. In addition, the terms of our existing debt and other future debt may limit our ability to pursue any of these alternatives. If we are unable to pay or refinance any of our debt on a timely basis or on satisfactory terms, or to effect any other action relating to our debt on satisfactory terms or at all, our business may be harmed.
Current restaurant locations may become unattractive, and attractive new locations may not be available for a reasonable price, if at all.
       The success of any restaurant depends in substantial part on its location. There can be no assurance that current locations will continue to be attractive as demographic patterns change. Neighbourhood or economic conditions where restaurants are located could decline in the future, thus resulting in potentially reduced sales in those locations. In addition, rising real estate prices, particularly in the Western provinces of Canada and the Northeastern region of the U.S., may

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restrict our ability to purchase or lease new desirable locations. If we cannot obtain desirable locations at reasonable prices our ability to effect our growth strategy will be adversely affected.
Changing health or dietary preferences may cause consumers to avoid products offered by our system in favour of alternative foods.
       A significant portion of our systemwide sales is derived from products, including donuts, muffins, cookies, croissants and pastries, which contain high levels of fat and sugar and may be considered harmful to the health of consumers. The foodservice industry is affected by consumer preferences and perceptions. If prevailing health or dietary preferences and perceptions cause consumers to avoid these products offered by our system in favour of alternative or healthier foods, demand for our products may be reduced and our business could be harmed. For example, there has recently been a trend towards low-carbohydrate diets which may have caused or may in the future cause some of our consumers to consider reducing consumption of our baked products. There has also been increased focus on the health risks posed by trans-fatty acids, which many of our products contain.
       Moreover, because our system sales are primarily dependent on coffee and baked goods, if consumer demand for those products decreases as a result of changing health or dietary preferences and perceptions, our business would suffer more than if we had a more diversified menu, as do many other QSRs.
We are subject to governmental regulation, and our failure to comply with existing or future regulations could adversely affect our business and results of operations.
       We and our franchisees are subject to various federal, state, provincial and local laws affecting our and their businesses. The successful development and operation of restaurants depend to a significant extent on the selection and acquisition of suitable sites, which are subject to zoning, land use (including the placement of drive-thru windows), environmental (including litter), traffic and other regulations. Restaurant operations are also subject to licensing and regulation by state, provincial and local departments relating to health, food preparation, sanitation and safety standards, federal, provincial and state labour laws (including applicable minimum wage requirements, overtime, working and safety conditions and citizenship requirements), federal, provincial and state laws prohibiting discrimination and other laws regulating the design and operation of facilities, such as the Americans with Disabilities Act of 1990 and similar Canadian provincial legislation. Changes in these laws and regulations may adversely affect our financial results.
       In recent years, there has been an increased legislative, regulatory and consumer focus on nutrition and advertising practices in the food industry, particularly among QSRs. As a result, we may become subject to regulatory initiatives in the area of nutrition disclosure or advertising, such as requirements to provide information about the nutritional content of our food, which could increase our expenses. For example, trans-fatty acid legislation has recently been enacted in Canada, which will introduce new nutritional labeling requirements in Canada and may negatively impact our customers’ perceptions of our products.
       We own or lease a large number of retail properties and operate a trucking fleet and distribution system, and these operations involve environmental risks. We are subject to federal, state, provincial and local environmental, health and safety laws and regulations concerning the discharge, storage, handling, release and disposal of hazardous or toxic substances. These environmental laws provide for significant fines, penalties and liabilities, sometimes without regard to whether the owner, operator or occupant of the property knew of, or was responsible for, the release or presence of the hazardous or toxic substances. Third parties may also make claims against owners, operators or occupants of properties for personal injuries and property damage associated with releases of, or actual or alleged exposure to, such substances. We cannot predict what environmental laws will be enacted in the future, how existing or future environmental laws will be

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administered or interpreted, or the amount of future expenditures that we may need to make to comply with, or to satisfy claims relating to, environmental laws. A number of our restaurant sites were formerly gas stations, are on locations where gas stations currently operate or are adjacent to gas stations, or were used for other commercial activities that can create environmental impacts. We may also acquire or lease these types of sites in the future. We have not conducted a comprehensive environmental review of all of our properties or operations. We may not have identified all of the potential environmental liabilities at our owned and leased properties, and any such liabilities identified in the future could have a material adverse effect on our operations or results of operations. See “Business— Environmental, Health and Safety.”
       The operation of our franchise system is also subject to franchise laws and regulations enacted by a number of provinces and states and rules promulgated by the U.S. Federal Trade Commission. Any future legislation regulating our franchise relationships may negatively affect our operations, particularly our relationship with our franchisees. Failure to comply with new or existing franchise laws and regulations in any jurisdiction or to obtain required government approvals could result in a ban or temporary suspension on future franchise sales. Changes in applicable accounting rules imposed by governmental regulators or private governing bodies could also affect our results of operations.
We are affected by commodity market fluctuations, particularly with respect to high-quality coffee beans, which could reduce our profitability or sales.
       We purchase large quantities of food and supplies, which can be subject to significant price fluctuations due to seasonal shifts, climate conditions, industry demand, changes in international commodity markets and other factors. The market for high-quality coffee beans is particularly volatile, both in terms of price changes and available supply. Our internal polling data shows that coffee represented over half of systemwide restaurant sales in Canada, and over 25% of systemwide restaurant sales in the U.S., during fiscal 2004. Any increase in the price, or reduction in the availability, of high-quality coffee beans could hurt both our and our franchisees’ businesses.
       We sell coffee and other drinks, non-perishable food, frozen food, supplies, packaging and equipment, and our joint venture with IAWS provides par-baked donuts, Timbits and other bread products, to all system restaurants. Neither we nor the joint venture typically have written contracts or long-term arrangements with coffee, sugar or other raw material suppliers. Accordingly, the prices we and the joint venture pay for those items may fluctuate significantly. If the price of any of those items increases, then, to the extent we pass on that increase, the operating costs of system restaurants would increase. If system restaurant prices rise because of those increased costs it may cause our customers to visit our restaurants less frequently, or to purchase fewer items during any visit. That, in turn, could reduce profits at our company-operated restaurants and reduce gross sales at our franchise restaurants, which would reduce the rental income and royalties payable to us. If, on the other hand, we do not pass on cost increases to the system, that would reduce the profitability of our manufacturing and distribution operations.
We face risks associated with litigation from customers, franchisees, employees and others in the ordinary course of business.
       Claims of illness or injury relating to food quality or food handling are common in the food service industry. In addition, class action lawsuits have been filed, and may continue to be filed, against various QSRs alleging, among other things, that QSRs have failed to disclose the health risks associated with high-fat foods and that QSRs’ marketing practices have encouraged obesity. In addition to decreasing our sales and profitability and diverting our management resources, adverse publicity or a substantial judgment against us could negatively impact our brand reputation, hindering our ability to attract and retain qualified franchisees and grow our business.

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       Further, we may be subject to employee, franchisee and other claims in the future based on, among other things, discrimination, harassment, wrongful termination and wage, rest break and meal break issues, including those relating to overtime compensation. These types of claims, as well as other types of lawsuits to which we are subject from time to time, can distract our management’s attention from our business operations. We have been subject to these types of claims in the past, and if one or more of these claims were to be successful or if there is a significant increase in the number of these claims, our business, financial condition and results of operations could be adversely affected.
Fluctuations in the value of the Canadian and U.S. dollars can affect the value of our common shares and any dividends we pay, as well as our revenues and earnings.
       The majority of our operations and our principal executive office are in Canada. Accordingly, although our financial statements are presented in accordance with United States generally accepted accounting principles, or GAAP, we report, and will report, our results in Canadian dollars. If you are a U.S. shareholder, the value of your investment in us will fluctuate as the U.S. dollar rises and falls against the Canadian dollar. Also, if we pay dividends in the future, we will pay those dividends in Canadian dollars. Accordingly, if the U.S. dollar rises in value relative to the Canadian dollar, the U.S. dollar value of the dividend payments received by U.S. common shareholders would be less than they would have been if exchange rates were stable.
       If the U.S. dollar falls in value relative to the Canadian dollar, then our U.S. operations would be less profitable to us for two reasons. First, U.S. system operating costs would increase because those restaurants purchase certain of their supplies from Canadian sources. Second, any profits reported by our U.S. segment would contribute less to our consolidated Canadian dollar earnings because of the weaker U.S. dollar.
       Exchange rate fluctuations may also cause the price of goods to increase or decrease for us and our franchisees. For example, a decrease in the value of the Canadian dollar compared to the U.S. dollar would proportionately increase the cost of coffee beans, which are traded in U.S. dollars, for our Canadian restaurants. During 2003 and 2004 the Canadian dollar/ U.S. dollar exchange rate varied from a high of 1.5750 Canadian dollars per U.S. dollar to a low of 1.1775 Canadian dollars per U.S. dollar.
We may not be able to adequately protect our intellectual property, which could harm the value of our brand and branded products and adversely affect our business.
       The success of our business depends on our continued ability to use our existing trademarks, service marks and other components of our brand in order to increase brand awareness and further develop our branded products in both the U.S. and Canadian markets. We may not be able to adequately protect our trademarks, and our use of these trademarks may result in liability for trademark infringement, trademark dilution or unfair competition. All of the steps we have taken to protect our intellectual property in the U.S. and in Canada may not be adequate.
       In addition, we rely on our proprietary product delivery platform and par-baking technology to support our franchisees’ business and our growth strategies. We have not filed applications for or obtained patents for our par-baking technology, and patents have not been obtained for most of the par-baking technology used by our joint venture with IAWS. If a competitor obtains a patent for, co-opts or more successfully implements our or the joint venture’s proprietary techniques or technologies, our operations and growth could be harmed, and we may be forced to defend one or more patent-infringement claims or assertions.
       We and/or the joint venture may from time to time be required to institute litigation to enforce our trademarks or other intellectual property rights, or to protect our trade secrets or proprietary techniques and technologies. Such litigation could result in substantial costs and diversion of

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resources and could negatively affect our sales, profitability and prospects regardless of whether we and/or the joint venture are able to successfully enforce our rights.
Our earnings and business growth strategy depends in large part on the success of our franchisees, and we may be harmed by actions taken by our franchisees that are outside of our control.
       A substantial portion of our earnings comes from royalties and other amounts paid by our franchisees, who operated 96.6% of the total number of Tim Hortons restaurants as of October 2, 2005. Our franchisees are independent contractors, and their employees are not our employees. We provide training and support to, and monitor the operations of, our franchisees, but the quality of their restaurant operations may be diminished by any number of factors beyond our control. Consequently, our franchisees may not successfully operate stores in a manner consistent with our standards and requirements and may not hire and train qualified managers and other restaurant personnel. Any operational shortcoming of a franchise restaurant is likely to be attributed by consumers to our entire system, thus damaging our brand reputation and potentially affecting our revenues and profitability. Furthermore, if a significant number of our franchisees were to become insolvent or otherwise were unwilling or unable to pay us for food and supplies purchased or royalties, rent or other fees, our business and results of operations would be harmed.
We are subject to all of the risks associated with owning and leasing real estate.
       As of October 2, 2005, we owned the land and building, or leased the land and/or the building, for 2,267 system restaurants. Accordingly, we are subject to all of the risks generally associated with owning and leasing real estate, including changes in the investment climate for real estate, demographic trends and supply or demand for the use of the restaurants, which may result from competition from similar restaurants in the area, as well as liability for environmental contamination as further discussed above under “—We are subject to governmental regulation, and our failure to comply with existing or future regulations could adversely affect our business and results of operations.”
       We lease land generally for initial terms of 10 to 20 years. Many leases provide that the landlord may increase the rent over the term of the lease. Most leases require us to pay all of the cost of insurance, taxes, maintenance and utilities. We generally cannot cancel these leases. If an existing or future store is not profitable, and we decide to close it, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term. In addition, as each of our leases expires, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close stores in desirable locations.
We will have significant debt obligations, which could adversely affect our business and limit our ability to plan for or respond to changes in our business.
       After the completion of this offering and the repayment of our outstanding amounts owed to Wendy’s, our total indebtedness for borrowed money will be approximately $500.0 million, including indebtedness under our new term loan agreement. We may also incur additional indebtedness in the future, including pursuant to our two new revolving credit facilities, which will have available $200.0 million and US$100.0 million, respectively. Our significant indebtedness could have adverse consequences, including:
  •  increasing our vulnerability to adverse economic, regulatory and industry conditions;
 
  •  limiting our ability to compete and our flexibility in planning for, or reacting to, changes in our business and the industry;
 
  •  limiting our ability to borrow additional funds; and

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  •  requiring us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for working capital, capital expenditures, acquisitions and other purposes.
       If our cash flow and capital resources are insufficient to service our debt obligations, we may be forced to sell assets, seek additional equity or debt capital or restructure our debt. However, these measures might be unsuccessful or inadequate in permitting us to meet scheduled debt service obligations. We may be unable to restructure or refinance our obligations and obtain additional equity financing or sell assets on satisfactory terms or at all. As a result, an inability to meet our debt obligations could cause us to default on those obligations. A default under any debt instrument could, in turn, result in defaults under other debt instruments. Any such defaults could have a material adverse effect on our business, financial condition and results of operations.
Our loan agreements could restrict our ability to finance operations and capital needs, make acquisitions or engage in other business activities.
       We will enter into a term loan agreement and two revolving credit facilities prior to the completion of this offering. Those agreements will include restrictive covenants that, among other things, may restrict our ability to:
  •  incur additional debt;
 
  •  pay dividends;
 
  •  make certain acquisitions and investments;
 
  •  repurchase our equity;
 
  •  create liens;
 
  •  enter into transactions with affiliates;
 
  •  enter into sale-leaseback transactions;
 
  •  dispose of all or substantially all of our assets; and
 
  •  merge or consolidate with another entity.
       These restrictions could limit our financial flexibility, prohibit or limit any contemplated strategic initiatives, or limit our ability to grow and increase our revenues or respond to competitive changes. In addition, events beyond our control could cause us to breach these restrictive covenants. If we fail to comply with the terms and covenants in any of the loan agreements, that could lead to a default, which would entitle the lenders to accelerate the indebtedness and declare all amounts owed due and payable. A default under any loan agreement could, in turn, result in defaults under the other loan agreements and other debt instruments. Any such defaults could materially impair our financial condition and liquidity.
We intend to evaluate acquisitions, joint ventures and other strategic initiatives that may complement or expand our business. We may not be able to obtain or complete such transactions, and those that we do complete could have a negative effect on our operations.
       Our future success may depend on opportunities to buy or obtain rights to other businesses or technologies that could complement, enhance or expand our current business or products or that might otherwise offer us growth opportunities. In particular, we intend to evaluate potential mergers, acquisitions, joint venture investments, strategic initiatives, alliances, vertical integration opportunities and divestitures. These transactions and arrangements involve various inherent risks, including:
  •  accurately assessing the value, future growth potential, strengths, weaknesses, contingent and other liabilities and potential profitability of acquisition candidates;

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  •  the potential loss of key personnel of an acquired business;
 
  •  our ability to achieve projected economic and operating synergies;
 
  •  difficulties successfully integrating, operating, maintaining and managing newly acquired operations or employees;
 
  •  difficulties maintaining uniform standards, controls, procedures and policies;
 
  •  unanticipated changes in business and economic conditions affecting an acquired business; and
 
  •  the diversion of our management’s attention from our existing business to integrate the operations and personnel of the acquired or combined business or implement the strategic initiative.
       For example, in May 2004 we acquired 42 restaurants in New England. We have limited consumer brand awareness in this market and face significant competition from at least one competitor with a much larger presence in this market, and we continue to operate these restaurants as company-operated restaurants.
       In addition, we may not be able to complete desirable transactions, for reasons including a failure to secure financing, as a result of our separation agreements or as a result of restrictive covenants in our debt instruments or other agreements with third parties. See “Our Relationship with Wendy’s—Agreements Between Wendy’s and Us” for a description of the restrictions arising under the separation agreements. For example, our joint venture agreement with IAWS obligates us to offer IAWS the opportunity to participate on an equal basis in automated baking ventures that we acquire or undertake in North America, to the extent those ventures manufacture specified categories of par-baked frozen products. Also, our loan agreements will impose certain restrictions on our ability to operate our business. See “—Our loan agreements could restrict our ability to finance operations and capital needs, make acquisitions or engage in other business activities.”
We will incur increased costs as a result of being a public company.
       Prior to this offering, as a subsidiary of a publicly-held company, we were not directly responsible for the corporate governance and financial reporting practices, policies and disclosure required of a publicly-traded company. As a public company, we will incur significant legal, accounting and other expenses that we did not directly incur in the past. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules implemented by the SEC, Canadian securities regulatory authorities and the NYSE® require or may require changes in corporate governance practices of public companies. We expect these new rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly.
Our annual and quarterly financial results may fluctuate depending on various factors, many of which are beyond our control, and if we fail to meet the expectations of securities analysts or investors, our share price may decline significantly.
       Our sales and operating results can vary from quarter to quarter and year to year depending on various factors, many of which are beyond our control. These factors include:
  •  variations in the timing and volume of our sales and our franchisees’ sales;
 
  •  sales promotions by us and our competitors;
 
  •  changes in average same-store sales and customer visits;
 
  •  variations in the price, availability and shipping costs of our supplies;
 
  •  seasonal effects on demand for our products;

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  •  unexpected slowdowns in our new store development efforts;
 
  •  changes in competitive and economic conditions generally;
 
  •  changes in the cost or availability of our ingredients or labour;
 
  •  weather and acts of God;
 
  •  changes in the number of franchise agreement renewals; and
 
  •  foreign currency exposure.
       Certain of the foregoing events may directly and immediately decrease demand for our products. If customer demand decreases rapidly, our results of operations would also decline precipitously.
Our historical financial results may not be representative of our results as a separate, stand-alone company.
       The historical financial information included in this prospectus has been derived from the consolidated financial statements of Wendy’s and does not necessarily reflect what our financial position, results of operations, cash flows, costs or expenses would have been had we been a separate, stand-alone company during the periods presented, or that we may achieve in the future. Although Wendy’s did account for us as a business segment, Wendy’s did not account for us, and we were not operated, as a separate, stand-alone company for the historical periods presented. The historical costs and expenses reflected in our financial statements include an allocation for certain corporate functions historically provided by Wendy’s, including general corporate expenses, employee benefits and incentives and interest expense. These allocations were based on what we and Wendy’s considered to be reasonable reflections of the historical utilization levels of these services required in support of our business. Our pro forma adjustments reflect changes that may occur in our funding and operations as a result of this offering. For additional information, see “Selected Historical Consolidated Financial and Other Data,” “Unaudited Pro Forma Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the notes thereto included elsewhere in this prospectus.
Our ability to operate our business effectively may suffer if we do not, quickly and cost-effectively, establish our own securities compliance and financial reporting functions in order to operate as a stand-alone public company, and the transitional services Wendy’s has agreed to provide us may not be sufficient for our needs.
       Historically, we have relied on Wendy’s to provide services relating to compliance with securities laws and other public reporting matters, including Sarbanes-Oxley compliance. Initially after this offering we will continue to use some of Wendy’s systems in these areas; however, if a spin-off by Wendy’s of our common shares to its shareholders occurs, we will need to handle these matters internally. We will enter into a shared services agreement with Wendy’s pursuant to which Wendy’s will provide these services to us for a defined period of time. See “Our Relationship with Wendy’s—Agreements Between Wendy’s and Us—Shared Services Agreement.” These services may not be sufficient to meet our needs, and after that agreement expires we may not be able to replace these services at all or obtain these services at prices and on terms as favourable as we currently have. Similar agreements with third parties may have been more or less favourable to us. Any failure or significant downtime in our own public reporting systems or in such systems of Wendy’s during the transitional period could impact our results and/or hinder our ability to comply with securities laws and, therefore, hurt our operating results and/or the market price of our common shares.

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Risks Related to Our Relationship with Wendy’s
Following this offering, we will continue to be dependent on Wendy’s to provide us with many key services for our business.
       Since December 1995, we have been operated as a wholly-owned subsidiary of Wendy’s, and many key services required by us for the operation of our business are currently provided by Wendy’s and its subsidiaries, including services related to internal controls and external financial reporting. Prior to the completion of this offering, we will enter into agreements with Wendy’s related to the separation of our business operations from Wendy’s, including a shared services agreement. Under the terms of the shared services agreement, which will be signed at the completion of this offering, Wendy’s will provide us with many key services, including services relating to internal controls and external financial reporting. We expect some of these services to be provided for longer or shorter periods than the initial term. We believe it is necessary for Wendy’s to provide these services for us under the shared services agreement to facilitate the efficient operation of our business as we transition to becoming a public company. We will, as a result, initially be dependent on Wendy’s for shared services following this offering. See “Our Relationship with Wendy’s—Agreements Between Wendy’s and Us—Shared Services Agreement.”
       Once the transition periods specified in the shared services agreement have expired and are not renewed, or if Wendy’s does not or is unable to perform its obligations under the shared services agreement, we will be required to provide these services ourselves or to obtain substitute arrangements with third parties. We may be unable to provide these services because of financial or other constraints or be unable to implement substitute arrangements on a timely basis on terms that are favourable to us, or at all.
       Following the completion of this offering, we will no longer have access to the borrowing capacity, cash flow and assets, and some services, provided by Wendy’s and its subsidiaries that were available while we were wholly-owned by Wendy’s.
As long as Wendy’s controls our company, your ability to influence the outcome of matters requiring shareholder approval will be limited.
       After the completion of this offering, Wendy’s will own      % of our outstanding common shares, or      % if the underwriters exercise their over-allotment option in full. As long as Wendy’s has voting control of our company, Wendy’s will have the ability to take many shareholder actions irrespective of the vote of any other shareholder. As a result, Wendy’s will have the ability to influence or control all matters affecting us, including:
  •  the composition of our board of directors and, through our board of directors, decision-making with respect to our business direction and policies, including the appointment and removal of our officers;
 
  •  any determinations with respect to acquisitions of businesses, mergers or other business combinations;
 
  •  our acquisition or disposition of assets;
 
  •  our capital structure;
 
  •  our payment or non-payment of dividends; and
 
  •  determinations with respect to our tax returns.
       This voting control may discourage transactions involving a change of control of our company, including transactions in which you as a holder of our common shares might otherwise receive a premium for your shares over the then-current market price. Furthermore, Wendy’s generally has the right at any time to spin-off our common shares that it owns or to sell a controlling interest in us to a

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third party after the expiration of the 180 day lockup period, without your approval and without providing for a purchase of your shares. See “Shares Eligible for Future Sales.”
We may have potential business conflicts of interest with Wendy’s regarding our past and ongoing relationships, and because of Wendy’s controlling ownership in us, the resolution of these conflicts may not be favourable to us.
       Conflicts of interest may arise between Wendy’s and us in a number of areas relating to our past and ongoing relationships, including:
  •  labour, tax, employee benefit, indemnification and other matters arising under the separation agreements;
 
  •  intellectual property matters;
 
  •  employee recruiting and retention;
 
  •  competition for franchisees or restaurant locations;
 
  •  sales or distributions by Wendy’s of all or any portion of its ownership interest in us, which could be to one of our competitors;
 
  •  business combinations involving us; and
 
  •  business opportunities that may be attractive to both Wendy’s and us.
       We may not be able to resolve any potential conflicts, and, even if we do so, the resolution may be less favourable to us than if we were dealing with an unaffiliated party.
We may compete directly with Wendy’s, which could adversely affect our results of operations.
       Wendy’s is primarily engaged in the business of operating, developing and franchising a system of distinctive QSRs, with restaurants in the United States, Canada and other international markets. Wendy’s is not restricted in any manner from competing with us. After this offering, Wendy’s may expand, through development of new QSRs, products or businesses, acquisitions or otherwise, its operations that compete with us.
Wendy’s will not be required to offer corporate opportunities to us, and our articles of incorporation will permit some of our directors to offer some corporate opportunities to Wendy’s before us.
       Our articles of incorporation will provide that Wendy’s is under no obligation to communicate or offer any corporate opportunity to us. In addition, Wendy’s will have the right to engage in similar activities as us, do business with our suppliers and customers and, except as limited by the master separation agreement, employ or otherwise engage any of our officers or employees. Our articles of incorporation also outline how corporate opportunities are to be assigned in the event that any person who is a director of both Wendy’s and us learns of any corporate opportunities. As a result, Wendy’s may gain the benefit of corporate opportunities that are presented to our directors.
Our separation agreements with Wendy’s require us to assume the past, present and future liabilities related to our business and may be less favourable to us than if they had been negotiated with unaffiliated third parties.
       We will negotiate our separation agreements with Wendy’s while we are a wholly-owned subsidiary of Wendy’s and will enter into these agreements immediately prior to the completion of this offering. Had these agreements been negotiated with unaffiliated third parties, they might have been more favourable to us. Pursuant to these agreements, we have agreed to indemnify Wendy’s for, among other matters, all past, present and future liabilities related to our business, and we have

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assumed these liabilities under the separation agreements. Such liabilities include unknown liabilities that could be significant. The allocation of assets and liabilities between Wendy’s and us may not reflect the allocation that would have been reached between two unaffiliated parties. See “Our Relationship with Wendy’s—Agreements Between Wendy’s and Us” for a description of these obligations.
Our business and your investment in our common shares may be adversely affected if Wendy’s does not spin-off our shares.
       Wendy’s may spin-off our common shares that it owns; however, Wendy’s has the sole right to decide when, and whether, it will effect such a spin-off. Unless and until such a spin-off occurs, we will face the risks discussed in this prospectus relating to Wendy’s, including its control of us and potential conflicts of interest between Wendy’s and us. In addition, if a spin-off does not occur, the liquidity of the market for our common shares may be constrained for as long as Wendy’s continues to hold a significant position in our common shares. A lack of liquidity in the market for our common shares may adversely affect our share price.
The separation agreements may limit our ability to obtain additional financing or make acquisitions and may require us to pay significant tax liabilities.
       We may engage, or desire to engage, in future financings or acquisitions. However, because the separation agreements are designed to preserve the tax-free status of a potential spin-off, those agreements may severely limit our ability to effect future financings or acquisitions. For the spin-off to be tax-free to Wendy’s and its shareholders, among other things, Wendy’s must own at least 80% of all of our voting power (and at least 80% of the shares of any class of non-voting shares) at the time of the spin-off. Therefore, we will be limited in our ability to issue voting securities, non-voting shares or convertible debt without Wendy’s prior consent, and Wendy’s may be unwilling to give that consent so long as it intends to complete the spin-off. We have also agreed to certain additional restrictions that are intended to preserve the tax-free status of the spin-off. See “Our Relationship with Wendy’s—Agreements Between Wendy’s and Us—Tax Sharing Agreement” for a description of these restrictions.
       In addition, we have agreed with Wendy’s that we will not (without Wendy’s prior written consent) take any of the following actions prior to the distribution:
  •  acquire any businesses or assets with an aggregate value of more than $           million for all such acquisitions;
 
  •  dispose of any assets with an aggregate value of more than $           million for all such dispositions; and
 
  •  acquire any equity or debt securities of any other person with an aggregate value of more than $           million for all such acquisitions.
       The separation agreements also provide that for so long as Wendy’s owns at least 50% of all of our voting power, we will not (without the prior written consent of Wendy’s) take any actions that could reasonably result in Wendy’s being in breach or in default under any contract or agreement.
       Finally, we are required to indemnify Wendy’s against certain tax-related liabilities incurred by Wendy’s relating to a potential spin-off to the extent caused by us. These liabilities include the substantial tax-related liability (calculated without regard to any net operating loss or other tax attribute of Wendy’s) that would result if the spin-off failed to qualify as a tax-free transaction.
       See “Our Relationship with Wendy’s—Agreements Between Wendy’s and Us” for a description of the separation agreements.

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Third parties may seek to hold us responsible for liabilities of Wendy’s that we did not assume in our agreements.
       Third parties may seek to hold us responsible for retained liabilities of Wendy’s. Under the separation agreements, Wendy’s has agreed to indemnify us for claims and losses relating to these retained liabilities. However, if those liabilities are significant and we are ultimately held liable for them, we cannot assure you that we will be able to recover the full amount of our losses from Wendy’s.
Our directors and executive officers who own Wendy’s common shares or options to acquire Wendy’s common shares or who hold positions with Wendy’s may have potential conflicts of interest.
       Ownership of Wendy’s common shares, options to acquire Wendy’s common shares and other equity securities of Wendy’s by certain of our directors and officers after this offering and the presence of Wendy’s directors or officers on our board of directors could create, or appear to create, potential conflicts of interest when those directors and officers are faced with decisions that could have different implications for Wendy’s than they do for us. See “Management” for a description of the extent of the relationship between our directors and officers and Wendy’s.
Our prior and continuing relationship with Wendy’s exposes us to risks attributable to businesses of Wendy’s.
       Wendy’s is obligated to indemnify us for losses that a party may seek to impose upon us or our affiliates for liabilities relating to the Wendy’s business that are incurred through a breach of the separation agreements or any ancillary agreement by Wendy’s or its non-Tim Hortons affiliates, if losses are attributable to Wendy’s in connection with this offering or are not expressly assumed by us under the separation agreements. Immediately following this offering, any claims made against us that are properly attributable to Wendy’s in accordance with these arrangements would require us to exercise our rights under the separation agreements to obtain payment from Wendy’s. We are exposed to the risk that, in these circumstances, Wendy’s cannot, or will not, make the required payment.
Risks Related to this Offering
There currently exists no market for our common shares. An active trading market may not develop for our common shares, and the price of our common shares may be subject to factors beyond our control. If our share price fluctuates after this offering, you could lose all or a significant part of your investment.
       Prior to this offering, no public market existed for our common shares. An active and liquid market for the common shares may not develop following the completion of this offering, or, if developed, may not be maintained. If an active public market does not develop or is not maintained, you may have difficulty selling your common shares. The initial public offering price of our common shares was determined by negotiations between us, Wendy’s and the underwriters for this offering and may not be indicative of the price at which the common shares will trade following the completion of this offering.
       The market price of our common shares may also be influenced by many other factors, some of which are beyond our control, including, among other things:
  •  actual or anticipated variations in average same-store sales or quarterly operating results;
 
  •  changes in financial estimates or opinions by research analysts;
 
  •  actual or anticipated changes in the Canadian and U.S. economies or the food service industry;

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  •  terrorist acts or wars;
 
  •  weather and acts of God;
 
  •  changes in the market volatility of other QSRs;
 
  •  announcements by us or our competitors of significant acquisitions, strategic partnerships, divestitures, joint ventures or other strategic initiatives; and
 
  •  actual or anticipated sales or distributions of common shares by Wendy’s, as well as by our officers and directors, whether in the market, in subsequent public offerings or in a spin-off.
       As a result of this volatility, you may not be able to resell your common shares at or above the initial public offering price. In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies like us. These broad market and industry factors may materially reduce the market price of the common shares, regardless of our operating performance.
Investors purchasing common shares in this offering will incur substantial and immediate dilution.
       The initial public offering price of our common shares is substantially higher than the net tangible book value per outstanding common share. Purchasers of our common shares in this offering will incur immediate and substantial dilution of $           per common share in the net tangible book value of our common shares from an assumed initial public offering price of $           per common share. If the underwriters exercise their option to purchase additional shares in full, there will be dilution of $           per common share in the net tangible book value of our common shares. This means that if we were to be liquidated immediately after this offering, there might be no assets available for distribution to you after satisfaction of all our obligations to creditors. For further description of the effects of dilution in the net tangible book value of our common shares, see “Dilution.”
Our share price may decline because of the ability of Wendy’s and others to sell our common shares.
       Sales of substantial amounts of our common shares after this offering, or the possibility of those sales, could adversely affect the market price of our common shares and impede our ability to raise capital through the issuance of equity securities. See “Shares Eligible for Future Sale” for a discussion of possible future sales of our common shares.
       After this offering, Wendy’s will own      % of our outstanding common shares (      % if the underwriters exercise their over-allotment option in full). Wendy’s has no contractual obligation to retain any of our common shares, except for a limited period, described under “Underwriting,” during which it will not sell any of our common shares without the underwriters’ consent until 180 days after the date of this prospectus. Subject to applicable securities laws, after the expiration of this 180-day lock-up period or before, with consent of the representatives of the underwriters to this offering, Wendy’s may sell any and all of our common shares that it beneficially owns and may distribute any or all of these shares to its shareholders. Moreover, this 180-day lock-up period does not apply to the spin-off (if it occurs) by Wendy’s of its remaining ownership interest in us to its common shareholders, who would not be subject to any resale restrictions. The registration rights agreement we will enter into with Wendy’s grants Wendy’s the right to require us to register our common shares it holds in specified circumstances. See “Our Relationship With Wendy’s— Agreements Between Wendy’s and Us— Registration Rights Agreement.” In addition, after the expiration of this 180-day lock-up period, we could issue and sell additional common shares, subject to Wendy’s consent. Any sale by Wendy’s or us of our common shares in the public market, or the perception that sales could occur (for example, as a result of the spin-off), could adversely affect prevailing market prices for our common shares.

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       In connection with this offering, we intend to file a registration statement on Form S-8 to register common shares that are or will be reserved for issuance under our stock incentive plan. Significant sales of our common shares pursuant to our stock incentive plan could also adversely affect the prevailing market price for our common shares.
We will be a “controlled company” within the meaning of the New York Stock Exchange rules, and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.
       After the completion of this offering, Wendy’s will own more than 50% of the total voting power of our common shares and we will be a “controlled company” under the NYSE corporate governance standards. As a controlled company, we intend to utilize certain exemptions under the NYSE standards that free us from the obligation to comply with certain NYSE corporate governance requirements, including the requirements:
  •  that a majority of the board of directors consists of independent directors;
 
  •  that we have a nominating and governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;
 
  •  that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and
 
  •  for an annual performance evaluation of the nominating and governance committee and compensation committee.
       We intend to use these exemptions and, as a result, you will not have the same protection afforded to shareholders of companies that are subject to all of the NYSE corporate governance requirements.
We will not have complete control over our tax decisions and could be liable for income taxes owed by Wendy’s.
       For so long as Wendy’s continues to own at least 80% of the total voting power and value of our common shares, we and certain of our U.S. subsidiaries will be included in Wendy’s consolidated group for U.S. federal income tax purposes. In addition, we or one or more of our subsidiaries may be included in the combined, consolidated or unitary tax returns of Wendy’s or one or more of its subsidiaries for U.S. state or local income tax purposes. Under the tax sharing agreement, we will pay to or receive from Wendy’s the amount of U.S. federal, state and local income taxes that we would be required to pay to or entitled to receive from the relevant taxing authorities if we and our subsidiaries filed combined, consolidated or unitary tax returns and were not included in the consolidated, combined or unitary tax returns of Wendy’s or its subsidiaries. In addition, by virtue of its controlling ownership and the tax sharing agreement, Wendy’s will effectively control all of our U.S. and Canadian tax decisions. The tax sharing agreement provides that Wendy’s will have sole authority to respond to and conduct all tax proceedings (including tax audits) relating to us, to file all income tax returns on our behalf and to determine the amount of our liability to (or entitlement to payment from) Wendy’s under the tax sharing agreement. This arrangement may result in conflicts of interest between Wendy’s and us. For example, under the tax sharing agreement, Wendy’s will be able to choose to contest, compromise or settle any adjustment or deficiency proposed by the relevant taxing authority in a manner that may be beneficial to Wendy’s and detrimental to us. See “Our Relationship With Wendy’s—Agreements Between Wendy’s and Us—Tax Sharing Agreement.”
       Moreover, notwithstanding the tax sharing agreement, U.S. federal law provides that each member of a consolidated group is liable for the group’s entire tax obligation. Thus, to the extent Wendy’s or other members of the group fail to make any U.S. federal income tax payments required

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by law, we would be liable for the shortfall. Similar principles may apply for foreign, state and local income tax purposes where we file combined, consolidated or unitary returns with Wendy’s or its subsidiaries for federal, foreign, state and local income tax purposes.
Our articles of incorporation, code of regulations and Ohio state law contain provisions that may have the effect of delaying or preventing a change in control of us.
       Our articles of incorporation authorize our board of directors to issue up to            preferred shares and to determine the powers, preferences, privileges, rights, including voting rights, qualifications, limitations and restrictions on those shares, without any further vote or action by the shareholders. The rights of the holders of our common shares will be subject to, and may be adversely affected by, the rights of the holders of any preferred shares that may be issued in the future. The issuance of preferred shares could have the effect of delaying, deterring or preventing a change in control and could adversely affect the voting power or economic value of your shares.
       In addition, provisions of our articles of incorporation, code of regulations and Ohio law, together or separately, could discourage potential acquisition proposals, delay or prevent a change in control and limit the price that certain investors might be willing to pay in the future for our common shares. Among other things, these provisions establish a staggered board, require a supermajority vote to remove directors, and establish certain advance notice procedures for nomination of candidates for election as directors and for shareholder proposals to be considered at shareholders’ meetings. For a further description of these provisions of our articles of incorporation, code of regulations and Ohio law, see “Description of Capital Stock— Anti-Takeover Effects of Certain Provisions of our Articles of Incorporation, Our Code of Regulations and Ohio Law.”
If, after this offering, we are unable to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, or our internal controls over financial reporting are not effective, the reliability of our financial statements may be questioned and our share price may suffer.
       Section 404 of the Sarbanes-Oxley Act requires any company subject to the reporting requirements of the U.S. securities laws to perform a comprehensive evaluation of its and its subsidiaries’ internal controls over financial reporting. To comply with this statute and comparable requirements of Canadian securities laws, we will be required to document and test our internal control procedures, our management will be required to assess and issue a report concerning our internal controls over financial reporting and our independent auditors will be required to issue an opinion on management’s assessment and the effectiveness of those matters. Our compliance with Section 404 of the Sarbanes-Oxley Act and comparable requirements of Canadian securities laws will first be reported on in connection with the filing of our annual report on Form 10-K for the fiscal year ending December 30, 2007. The rules governing the standards that must be met for management to assess our internal controls over financial reporting are new and complex and require significant documentation, testing and possible remediation to meet the detailed standards under the rules. During the course of its testing, our management may identify material weaknesses or significant deficiencies which may not be remedied in time to meet the deadline imposed by the SEC rules implementing Section 404 and comparable requirements of Canadian securities regulations. If our management cannot favourably assess the effectiveness of our internal controls over financial reporting or our auditors identify material weaknesses in our internal controls, investor confidence in our financial results may weaken, and our share price may suffer.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
       Certain information contained in this prospectus, particularly information regarding future economic performance and finances, plans and objectives of management, is forward-looking. In some cases, information regarding certain important factors that could cause actual results to differ materially from any such forward-looking statement appears together with such statement. In addition, the following factors, in addition to the other factors described under “Risk Factors” and other possible factors not listed, could affect our actual results and cause such results to differ materially from those expressed in forward-looking statements. These factors include:
  •  competition within the QSR segment, which remains extremely intense, with many competitors pursuing heavy price discounting;
 
  •  changes in economic conditions;
 
  •  changes in consumer perceptions of dietary health and food safety;
 
  •  harsh weather, particularly in the first and fourth quarters;
 
  •  changes in consumer tastes;
 
  •  labour and benefit costs;
 
  •  legal claims;
 
  •  our ability to maintain good relationships with our franchisees;
 
  •  our ability to retain or replace our key members of management;
 
  •  our continued ability, and the ability of our franchisees, to obtain suitable locations and financing for new restaurant development;
 
  •  governmental initiatives such as minimum wage rates, taxes and possible franchise legislation; and
 
  •  changes in applicable accounting rules.
       Many of the factors that will determine our future performance are beyond our ability to control or predict. You are cautioned not to put undue reliance on any forward-looking statements. Except as required by applicable securities laws, we do not have any intention or obligation to update forward-looking statements after we distribute this prospectus, even if new information, future events or other circumstances have made them incorrect or misleading.

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USE OF PROCEEDS
       We estimate that our net proceeds from the sale of approximately            common shares in this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses, will be approximately $           million ($           million if the underwriters exercise their over-allotment option in full), assuming the shares are offered at $           per common share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. We intend to use the net proceeds from this offering, together with estimated borrowings of $500.0 million under a new term loan agreement we will enter into prior to this offering, to pay the US$960.0 million of indebtedness, together with accrued interest, owed to Wendy’s under a US$960.0 million promissory note. For a description of the promissory note and the new term loan agreement, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Loan Agreements.”
DIVIDEND POLICY
       We did not pay any cash dividends on our common shares in 2003 or 2004. In September 2005 we distributed, as a dividend on our common shares, a promissory note to Wendy’s in the principal amount of US$960.0 million. The note is payable within 30 days of demand and bears an interest rate of 3.0% per annum.
       We currently intend to declare and pay dividends on our common shares. However, we cannot assure you sufficient cash will be available to pay such dividends. In addition, our new loan agreements may impose restrictions on our ability to pay dividends, and thus our ability to pay dividends on our common shares will depend upon, among other things, our level of indebtedness at the time of the proposed dividend and whether we are in default under any of our debt instruments. Our future dividend policy will also depend on the requirements of any future financing agreements to which we may be a party and other factors considered relevant by our board of directors. Further, any future declaration and payment of dividends is discretionary and our board of directors may at any time modify or revoke our dividend policy on our common shares. Until we are spun-off by Wendy’s, if ever, our board of directors will be elected by, and our company controlled by, Wendy’s, our controlling shareholder. After the completion of this offering, any dividends we pay will be declared and paid in Canadian dollars.
       For information regarding restrictions on our payment of dividends, see “Risks Relating to Our Business and Industry—Our loan agreements could restrict our ability to finance operations and capital needs, make acquisitions or engage in other business activities,” “Our Relationship with Wendy’s—Wendy’s as our Controlling Shareholder” and “Risks Related to Our Relationship with Wendy’s—As long as Wendy’s controls our company, your ability to influence the outcome of matters requiring shareholder approval will be limited.”

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CAPITALIZATION
       The following table sets forth our cash and cash equivalents and our consolidated capitalization as of October 2, 2005 on an actual basis and on an as adjusted basis.
       The as adjusted financial information as of October 2, 2005 gives effect to (1) the non-cash settlement of notes and trade balances between Wendy’s and us in the fourth quarter of 2005, other than our note payable to Wendy’s in the principal amount of US$960.0 million, (2) our incurrence of $500.0 million of indebtedness under our new term loan agreement in            2006, (3) the completion of this offering and (4) the application of the estimated net proceeds to be received from this offering, based on an assumed initial public offering price of $           per common share (the midpoint of the range shown on the cover page of this prospectus) and the $500.0 million of indebtedness under the term loan agreement, to repay US$960.0 million in principal amount of indebtedness, together with accrued interest, to Wendy’s.
       You should read this table together with “Use of Proceeds,” “Selected Historical Consolidated Financial and Other Data,” “Unaudited Pro Forma Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Capital Stock,” and our consolidated financial statements and the notes thereto included elsewhere in this prospectus.
                   
    As of October 2, 2005
     
    Actual   As Adjusted
         
    (in thousands)
Cash and cash equivalents
  $ 119,248     $    
             
Debt
               
Term debt(1)(2)
  $ 20,231     $    
Notes payable to Wendy’s(1)
    1,286,576          
Capital leases(1)
    53,628          
             
 
Total debt
  $ 1,360,435     $    
             
Shareholder’s equity:
               
Common stock, no stated value per share
  $ 134,363     $    
Retained earnings
             
Unearned compensation — restricted stock
    (6,503 )        
Accumulated other comprehensive expense
    (67,716 )        
             
 
Total shareholder’s equity
  $ 60,144     $    
             
Total capitalization
  $ 1,420,579     $    
             
 
(1)  Includes current portion.
 
(2)  Excludes advertising fund debt of $22.2 million. See Note 10 to our unaudited historical condensed consolidated financial statements included elsewhere in this prospectus.

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DILUTION
       If you invest in our common shares, your ownership interest will be diluted to the extent of the difference between the initial public offering price per common share and the net tangible book value per common share upon the completion of this offering.
       Our net tangible book value as of October 2, 2005 was approximately $25.3 million, or $36,153 per common share. The net tangible book value per common share represents the amount of our total tangible assets (total assets less intangible assets) less total liabilities, divided by the total number of outstanding common shares. After giving effect to the sale of common shares offered by us in this offering at an assumed initial public offering price of $           per common share, which is the midpoint of the range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and offering expenses payable by us, our net tangible book value, as adjusted, as of October 2, 2005, would have equaled approximately $           million, or $           per common share. This represents an immediate decrease in net tangible book value of $           per common share to Wendy’s, as our sole shareholder prior to this offering, and an immediate dilution in net tangible book value of $           per common share to new investors purchasing shares in this offering. If the initial public offering price is higher or lower, the dilution to new investors will be greater or less, respectively. The following table illustrates this dilution per common share.
           
Assumed initial public offering price per common share
  $    
 
Net tangible book value per common share as of October 2, 2005
  $    
 
Increase in net tangible book value per common share attributable to this offering
       
       
Pro forma, as adjusted net tangible book value per common share after this offering
  $    
       
Dilution per common share to new investors
  $    
       
       The following table summarizes, as of October 2, 2005, the total number of common shares on an aggregate basis purchased from us, the total consideration paid and the average price per common share paid. The calculations with respect to common shares purchased by new investors in this offering reflect an assumed initial public offering price of $           per common share, which is the midpoint of the range set forth in the cover of this prospectus, and do not reflect the estimated underwriting discount and offering expenses.
                                         
    Common Shares        
    Purchased   Total Consideration   Average
            Price Per
    Number   Percent   Amount   Percent   Share
                     
    (in thousands)       (in thousands)        
Wendy’s
              %   $   (1)       %   $    
New investors
                                       
                               
Total
            100.00 %             100.00 %   $    
                               
 
(1)  Represents the aggregate of (a) consideration paid by Wendy’s in 1995 for all of the ownership interest in our predecessor entity and (b) equity advances made by Wendy’s to our predecessor entity or its subsidiaries since the date of the merger of us and Wendy’s.

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
       The following table presents our selected historical consolidated financial and other data and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements and notes thereto included elsewhere in this prospectus. Our historical consolidated financial information may not be indicative of our future performance and does not necessarily reflect what our financial position and results of operations would have been had we operated as a separate, stand-alone entity during the periods covered.
       Our selected historical consolidated financial data as of December 28, 2003 and January 2, 2005 and for fiscal years 2002 (year ended December 29, 2002), 2003 (year ended December 28, 2003) and 2004 (year ended January 2, 2005) have been derived from our audited historical consolidated financial statements included elsewhere in this prospectus.
       Our selected historical consolidated financial data as of fiscal year end 2000 (December 31, 2000), fiscal year end 2001 (December 30, 2001) and fiscal year end 2002 (December 29, 2002) and for fiscal years 2001 (year ended December 30, 2001) and 2000 (year ended December 31, 2000) have been derived from our unaudited consolidated financial information, not included in this prospectus.
       Our selected historical consolidated financial data as of October 2, 2005 and for the nine months ended September 26, 2004 and October 2, 2005 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus and include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of our financial position and results of operations as of the date and for the periods indicated. Results for the nine months ended October 2, 2005 are not necessarily indicative of the results that may be expected for the entire year.
                                                             
    Fiscal Years(1)   Nine Months Ended
         
        September 26,   October 2,
    2000   2001   2002   2003   2004   2004   2005
                             
    (in thousands, except number of restaurants and where noted)
Consolidated Statements of Operations Data
                                                       
 
Revenues
                                                       
   
Sales
  $ 521,016     $ 593,712     $ 656,833     $ 727,508     $ 845,231     $ 602,978     $ 703,484  
   
Franchise revenues(2)
    290,935       332,351       402,738       444,272       493,035       350,081       374,684  
                                           
 
Total revenues
    811,951       926,063       1,059,571       1,171,780       1,338,266       953,059       1,078,168  
 
Total costs and expenses
    653,801       744,738       826,258       892,883       1,018,961       720,821       818,847  
                                           
 
Operating income (EBIT)
    158,150       181,325       233,313       278,897       319,305       232,238       259,321  
 
Interest (income) expense, net
    (2,599 )     827       2,554       4,924       4,109       3,365       983  
 
Affiliated interest expense, net
    4,923       5,208       17,786       11,110       9,410       7,536       4,910  
                                           
 
Income before income taxes
    155,826       175,290       212,973       262,863       305,786       221,337       253,428  
 
Income taxes
    61,931       43,119       80,161       106,601       100,735       70,505       78,767  
                                           
 
Net Income
  $ 93,895     $ 132,171     $ 132,812     $ 156,262     $ 205,051     $ 150,832     $ 174,661  
                                           
 
Basic earnings per common share
  $ 134     $ 189     $ 190     $ 223     $ 293     $ 215     $ 250  
 
Average common shares
    700       700       700       700       700       700       700  
Consolidated Balance Sheets Data — at end of period indicated
                                                       
 
Cash and cash equivalents
  $ 104,015     $ 79,789     $ 89,338     $ 86,151     $ 129,301             $ 119,248  
 
Total assets(3)
  $ 1,003,424     $ 1,246,440     $ 1,661,399     $ 1,547,023     $ 1,756,869             $ 1,716,296  
 
Long-term debt(4)
  $ 141,224     $ 552,558     $ 401,270     $ 367,674     $ 246,841             $ 188,024  
 
Total liabilities(4)
  $ 401,093     $ 901,496     $ 739,442     $ 704,245     $ 735,180             $ 1,656,152  
 
Total shareholder’s equity
  $ 602,331     $ 344,944     $ 921,957     $ 842,778     $ 1,021,689             $ 60,144  
Other Financial Data
                                                       
 
EBITDA(5)
  $ 190,719     $ 219,903     $ 282,422     $ 337,698     $ 388,313     $ 280,098     $ 312,922  
 
Capital expenditures
  $ 102,403     $ 129,685     $ 111,788     $ 131,865     $ 197,810     $ 126,343     $ 131,866  

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    Fiscal Years(1)   Nine Months Ended
         
        September 26,   October 2,
    2000   2001   2002   2003   2004   2004   2005
                             
    (in thousands, except number of restaurants and where noted)
Other Operating Data
                                                       
Total systemwide sales growth(6)(7)
    19.2 %     18.0 %     16.3 %     12.6 %     16.6 %     15.0 %     11.7 %
Systemwide restaurant unit growth(6)
    9.0 %     9.2 %     8.6 %     7.6 %     7.7 %     7.9 %     6.4 %
Canada average same-store sales growth (6)(8)
    9.1 %     7.8 %     7.2 %     4.8 %     7.4 %     7.7 %     5.0 %
U.S. average same-store sales growth (6)(8)
    12.7 %     7.7 %     9.9 %     4.5 %     9.8 %     10.1 %     7.0 %
 
Restaurants open at end of
period — Canada
                                                       
   
Company-operated
    47       40       31       32       31       28       31  
   
Franchise
    1,813       1,983       2,157       2,311       2,439       2,371       2,498  
 
Restaurants open at end of
period — U.S.
                                                       
   
Company-operated
    59       57       40       25       67       66       65  
   
Franchise
    61       83       120       159       184       167       207  
                                           
 
Total
    1,980       2,163       2,348       2,527       2,721       2,632       2,801  
 
Average sales per standard restaurant:
                                                       
   
Canada (in thousands of Canadian dollars)(6)
  $ 1,354     $ 1,458     $ 1,555     $ 1,625     $ 1,730                  
     
U.S. (in thousands of U.S. dollars) (6)
  $ 747     $ 809     $ 874     $ 894     $ 897                  
 
(1)  Fiscal 2004 consisted of 53 weeks. Fiscal 2000, 2001, 2002 and 2003 each consisted of 52 weeks.
 
(2)  Franchise revenues consist of (a) royalties, which typically range from 3.0% to 4.5% of gross franchise restaurant sales, (b) rents, which typically range from 8.5% to 10.0% of gross franchise restaurant sales, and (c) fees, which are typically charged at the inception of the franchise relationship. Franchise restaurant sales are reported to us by our franchisees. Franchise restaurant sales are not included in our financial statements, other than approximately 80 franchisees whose results of operations are consolidated with ours pursuant to FIN 46R, as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Financial Definitions—Sales.” However, franchise restaurant sales result in royalties and rental income, which are included in our franchise revenues. The reported franchise restaurant sales were:
                                                           
    Fiscal Years(1)   Nine Months Ended
         
        September 26,   October 2,
    2000   2001   2002   2003   2004   2004   2005
                             
Franchise restaurant sales:
                                                       
 
Canada (in thousands of Canadian dollars)
  $ 1,785,555     $ 2,072,706     $ 2,412,625     $ 2,713,248     $ 3,137,898     $ 2,278,383     $ 2,524,436  
 
U.S. (in thousands of U.S. dollars)
  $ 39,431     $ 61,322     $ 93,603     $ 123,272     $ 163,712     $ 116,079     $ 145,161  
(3)  Total assets include notes and accounts receivable from Wendy’s, which will be distributed by us to Wendy’s in the fourth quarter of 2005. Notes and amounts receivable from Wendy’s were:
                                                 
    At End of Fiscal Year Indicated    
        As of
        October 2,
    2000   2001   2002   2003   2004   2005
                         
    (in thousands)
Notes receivable from Wendy’s included in current assets
  $ 44,964     $ 120,178     $ 361,148     $ 59,210     $ 173,747     $ 189,111  
                                     
Notes receivable from Wendy’s included in long-term assets
  $ 128,000     $ 128,000     $ 128,000     $ 128,000     $ 128,000        
Accounts receivable from (payable to) Wendy’s included in current assets (liabilities)
  $ 3,951     $ (56,836 )   $ 297,720     $ 138,580     $ 52,192     $ 34,069  
                                     
(4)  Long-term debt includes long-term debt, capital leases and notes payable to Wendy’s. Notes payable to Wendy’s are also included in current liabilities. As of October 2, 2005, we had outstanding a note payable to Wendy’s in the principal

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amount of US$960.0 million. Other than that note, notes payable to Wendy’s will be contributed as equity to us in the fourth quarter of 2005. Notes payable to Wendy’s totalled the following amounts:

                                                 
    At End of Fiscal Year Indicated    
        As of
        October 2,
    2000   2001   2002   2003   2004   2005
                         
    (in thousands)
Notes payable to Wendy’s included in current liabilities
  $ 104,634     $ 131,987     $ 144,778     $ 84,167     $ 185,725     $ 1,186,293  
Notes payable to Wendy’s included in long-term debt
  $ 108,468     $ 505,793     $ 343,954     $ 304,488     $ 181,090     $ 100,283  
(5)  EBITDA is defined as net income before interest, taxes, depreciation and amortization and is used by management as a performance measure for benchmarking against our peers and our competitors. We believe EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry. EBITDA is not a recognized term under GAAP, should not be viewed in isolation and does not purport to be an alternative to net income as an indicator of operating performance or cash flows from operating activities as a measure of liquidity. There are material limitations associated with making the adjustments to calculate EBITDA and using this non-GAAP financial measure as compared to the most directly comparable GAAP financial measure. For instance, EBITDA does not include:
    •  interest expense, and because we have borrowed money to finance our operations, interest expense is a necessary element of our costs and ability to generate revenue;
 
    •  depreciation and amortization expense, and because we use capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate revenue; and
 
    •  tax expense, and because the payment of taxes is part of our operations, tax expense is a necessary element of our costs and ability to operate.
Additionally, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as capital expenditures, contractual commitments, interest payments, tax payments and debt service requirements. Because not all companies use identical calculations, this presentation of EBITDA may not be comparable to other similarly titled measures of other companies.
         The following table is a reconciliation of our net income to EBITDA:
                                                         
    Fiscal Years(1)   Nine Months Ended
         
        September 26,   October 2,
    2000   2001   2002   2003   2004   2004   2005
                             
    (in thousands)
Net income
  $ 93,895     $ 132,171     $ 132,812     $ 156,262     $ 205,051     $ 150,832     $ 174,661  
Interest expense, net
    2,324       6,035       20,340       16,034       13,519       10,901       5,893  
Income tax expense
    61,931       43,119       80,161       106,601       100,735       70,505       78,767  
                                           
Operating income (EBIT)
  $ 158,150     $ 181,325     $ 233,313     $ 278,897     $ 319,305     $ 232,238     $ 259,321  
Depreciation and amortization
    32,569       38,578       49,109       58,801       69,008       47,860       53,601  
                                           
EBITDA
  $ 190,719     $ 219,903     $ 282,422     $ 337,698     $ 388,313     $ 280,098     $ 312,922  
                                           
(6)  Includes both franchised and company-operated restaurants. Franchise restaurant sales are not included in our financial statements, other than approximately 80 franchisees whose results of operations are consolidated with ours pursuant to FIN 46R. However, franchise restaurant sales result in royalties and rental income, which are included in our revenues.
 
(7)  Total systemwide sales growth is determined using a constant exchange rate to exclude the effects of foreign currency translation. U.S. dollar sales are converted to Canadian dollar amounts using the average exchange rate of the base year for the period covered.
 
(8)  For Canadian restaurants, average same-store sales are based on restaurants that have been opened for a minimum of one calendar year. For U.S. restaurants, a restaurant is included in our average same-store sales calculation beginning the 13th month after the restaurant’s opening.

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
       The unaudited pro forma consolidated statement of operations for the fiscal year ended January 2, 2005 presented below was derived from our audited consolidated financial statements and the notes thereto included elsewhere in this prospectus. The unaudited pro forma consolidated statement of operations for the nine months ended October 2, 2005 and the unaudited pro forma consolidated balance sheet as of October 2, 2005 presented below were derived from our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this prospectus.
       Our unaudited pro forma consolidated statements of operations present our results from operations for the fiscal year ended January 2, 2005 and the nine months ended October 2, 2005 as if the following events occurred on December 29, 2003:
  •  intercompany notes and trade balances between us and Wendy’s in the net amount of $          , including accrued interest, were settled;
 
  •  we entered into the new term loan agreement and incurred $500.0 million of indebtedness thereunder;
 
  •  this offering had been completed at an assumed initial public offering price of $           per common share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus; and
 
  •  the outstanding principal balance, including accrued interest, of the US$960.0 million intercompany note issued by us to Wendy’s was repaid with all of the net proceeds of this offering and the indebtedness incurred under the term loan agreement.
       Our unaudited pro forma consolidated balance sheet has been prepared based on the assumption that the aforementioned events occurred on October 2, 2005.
       The unaudited pro forma consolidated statements of operations information for the fiscal year ended January 2, 2005 and for the fiscal nine months ended October 2, 2005 include all normal recurring adjustments that we believe are necessary for a fair statement of the results for such periods.
       Our historical financial information has been prepared on a consolidated basis using the historical results of operations and bases of the assets and liabilities of the business, and gives effect to allocations of expenses from Wendy’s.
       The unaudited pro forma consolidated financial information has been prepared based on available information and assumptions that we believe are reasonable and is intended for informational purposes only; it is not necessarily indicative of what the financial position or results of operations actually would have been had the aforementioned events occurred at the dates indicated, and it does not purport to project our future financial position or results of operations.

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Unaudited Pro Forma Consolidated Statement of Operations
                                 
    Nine Months Ended October 2, 2005
     
        Adjustments   Separation/    
    Historical   Debt Incurrence   Offering   Pro Forma
                 
    (In thousands, except number of shares)
Revenues
                               
Sales
  $ 703,484                          
Franchise revenues
    374,684                          
                         
Total revenues
    1,078,168                          
                         
Cost of sales
    613,245                          
Operating expenses
    162,685                          
General and administrative expenses
    73,728                          
Equity income
    (23,281 )                        
Other (income) expense
    (7,530 )                        
                         
Total costs and expenses, net
    818,847                          
                         
Operating income
    259,321                          
                         
Interest expense(1)
    (3,283 )                        
Interest income
    2,300                          
Affiliated interest expense, net
    (4,910 )                        
                         
Income before income taxes
    253,428                          
Income taxes(2)(3)
    78,767                          
                         
Net income
  $ 174,661                          
                         
Basic earnings per common share(4)
  $ 250                          
Weighted average number of common shares outstanding
    700                          

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Unaudited Pro Forma Consolidated Statement of Operations
                                 
    Fiscal Year Ended January 2, 2005
     
        Adjustments    
             
            Separation/    
    Historical   Debt Incurrence   Offering   Pro Forma
                 
    (In thousands, except number of shares)
Revenues
                               
Sales
  $ 845,231                          
Franchise revenues
    493,035                          
                         
Total revenues
    1,338,266                          
                         
Cost of sales
    741,198                          
Operating expenses
    223,451                          
General and administrative expenses
    85,744                          
Equity income
    (32,548 )                        
Other (income) expense
    1,116                          
                         
Total costs and expenses, net
    1,018,961                          
                         
Operating income
    319,305                          
                         
Interest expense(1)
    (6,911 )                        
Interest income
    2,802                          
Affiliated interest expense, net
    (9,410 )                        
                         
Income before income taxes
    305,786                          
Income taxes(2)(3)
    100,735                          
                         
Net income
  $ 205,051                          
                         
Basic earnings per common share(4)
  $ 293                          
Weighted average number of common shares outstanding
    700                          

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Unaudited Pro Forma Consolidated Balance Sheet
                                   
    As of October 2, 2005
     
        Adjustments(1)    
             
        Debt   Separation/    
    Historical   Issuance   Offering   Pro Forma
                 
    (In thousands)
Assets
                               
 
Current assets
                               
 
Cash and cash equivalents
  $ 119,248                          
 
Accounts receivable, net
    85,397                          
 
Notes receivable, net
    8,912                          
 
Deferred income taxes
    2,137                          
 
Inventories and other
    34,673                          
 
Amounts receivable from Wendy’s(2)
    34,069                          
 
Notes receivable from Wendy’s(2)
    189,111                          
 
Advertising fund restricted assets
    19,274                          
                         
Total current assets
    492,821                          
 
Property and equipment, net
    1,009,197                          
 
Notes receivable, net
    15,491                          
 
Goodwill
    29,877                          
 
Deferred income taxes
    9,013                          
 
Intangible assets, net
    4,960                          
 
Equity investments
    142,291                          
 
Other assets
    12,646                          
                         
Total assets
  $ 1,716,296                          
                         
 
Liabilities and shareholder’s equity
                               
 
Current liabilities
                               
 
Accounts payable
  $ 78,920                          
 
Accrued expenses
                               
 
Salaries and wages
    10,865                          
 
Taxes
    62,787                          
 
Other
    39,058                          
 
Deferred income taxes
    538                          
 
Advertising fund restricted liabilities
    30,979                          
 
Notes payable to Wendy’s(2)(5)
    1,186,293                          
 
Current portion of long-term obligations
    5,334                          
                         
Total current liabilities
    1,414,774                          
 
Long-term obligations
                               
 
Term debt(3)
    19,890                          
 
Notes payable to Wendy’s(2)
    100,283                          
 
Advertising fund restricted debt
    19,216                          
 
Capital leases
    48,635                          
                         
Total long-term obligations
    188,024                          
                         
 
Deferred income taxes
    22,155                          
 
Other long-term liabilities
    31,199                          
 
Shareholder’s equity
                               
 
Common stock(2)(4)
    134,363                          
 
Retained earnings
                             
 
Accumulated other comprehensive income (Expense):
                               
 
Cumulative translation adjustments and other
    (67,716 )                        
 
Unearned compensation—restricted stock
    (6,503 )                        
                         
Total shareholder’s equity
    60,144                          
                         
Total liabilities and shareholder’s equity
  $ 1,716,296                          
                         

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Notes to Unaudited Pro Forma Consolidated Financial Information
Statement of Operations
       (1) This adjustment gives effect to the interest expense incurred in the respective periods in relation to indebtedness under the new term loan agreement. The loan agreement interest rate is based upon an assumed interest rate of   %, which is the mid-point of our estimated range of interest rates on this debt. A 1/8% change to the assumed interest rate would change our annual interest expense by $              .
       (2) This adjustment represents the estimated tax expense related to the estimated interest expense adjustment discussed in Note (1) above at our statutory rate of 35.0% for the fiscal year ended January 2, 2005 and 34.0% for the fiscal nine months ended October 2, 2005.
       (3) An estimated effective tax rate of        % has been applied to the pro forma adjustments, which is higher than the effective tax rate that has historically been applied to our results. The increase in effective tax rate is primarily attributable to the changed capital structure following our separation from Wendy’s and the $500.0 million in principal amount of long-term debt that we will incur under the term loan agreement prior to the completion of this offering. The $500.0 million debt will be used, together with the net proceeds from this offering, to repay indebtedness owed to Wendy’s. The estimated effective tax rate differs from the statutory tax rate of        % that applies in the U.S.
       (4) Basic income per common share is calculated by dividing net income by the weighted average number of common shares outstanding. The historic basic income per common share is based on 700 shares outstanding and the pro forma basic income per common share is based on         shares outstanding. Unaudited pro forma basic income per common share has been calculated in accordance with the SEC rules of initial public offerings, which require that the denominator in the weighted average share calculation should only include the number of common shares whose proceeds are being reflected as pro forma adjustments in the consolidated statements of operations. Therefore, pro forma weighted average common shares for purposes of the unaudited pro forma based income per common share calculation have been adjusted to reflect the sale of                        common shares by us in this offering.
Balance Sheet
       (1) Set forth below are estimated sources and uses of funds reflected in the pro forma balance sheet.
                     
Sources       Uses    
             
Proceeds from this offering
  $       Repayment of indebtedness to Wendy’s   $    
Borrowings under a new term loan agreement
    500.0     Transaction costs        
                 
Total sources
  $       Total uses   $    
                 
       The offering is expected to raise proceeds of $      million (net of estimated fees and expenses).
We intend to use the net proceeds from this offering, together with estimated borrowings of $500.0 million under a new term loan agreement we will enter into prior to the completion of this offering, to repay indebtedness owed to Wendy’s.
       (2) This adjustment gives effect to the non-cash settlement of notes and trade balances between us and Wendy’s in the net amount of $              .
       (3) Represents the net impact of the incurrence of $               of long-term debt under our new term loan agreement on               , 2006.

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       (4) This adjustment represents the net proceeds from this offering of approximately $            , assuming an initial public offering price of $               per common share, the midpoint range set forth on the cover page of this prospectus and estimated fees and expenses of $       .
       (5) On September 27, 2005, we distributed an intercompany note to Wendy’s in the original principal amount of US$960.0 million as a dividend on our common shares. This adjustment gives effect to the repayment of that note using the net proceeds from the long-term debt referred to in Note (3) above and the offering.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
       You should read the following discussion in conjunction with “Selected Historical Consolidated Financial and Other Data,” “Unaudited Pro Forma Consolidated Financial Information” and our historical consolidated financial statements and notes thereto included elsewhere in the prospectus. The following discussion includes forward-looking statements that are not historical facts but reflect our current expectation regarding future results. Actual results may differ materially from the results discussed in the forward-looking statements because of a number of risks and uncertainties, including the matters discussed below and elsewhere in this prospectus, particularly under the heading “Risk Factors.” Historical trends should not be taken as indicative of future operations.
       We believe systemwide sales and average same-store sales provide meaningful information to investors concerning the size of our system, the overall health of the system and the strength of our brand. Information about systemwide sales and average same-store sales is included in this prospectus. Franchise restaurant sales generally are not included in our financial statements; however, franchise restaurant sales result in royalties and rental income, which are included in our franchise revenues.
Overview
       We franchise and operate Tim Hortons restaurants in both Canada and the U.S. Our business model includes controlling the real estate for most of our franchise restaurants. We also distribute coffee and other drinks, non-perishable food, supplies, packaging and equipment to system restaurants in Canada through our five distribution centres. In the U.S. we supply similar products to system restaurants through third-party distributors. Our system, which consists of franchised and company-operated restaurants, represented 22.6% of the $14.0 billion Canadian QSR segment at year end 2004 based on systemwide restaurant sales dollars.
       In each of fiscal 2003 and 2004, we delivered record annual revenues and net income. Our fiscal 2004 revenues and net income of approximately $1.3 billion and $205.1 million, respectively, represented a $166.5 million, or 14.2%, increase in revenues and $48.8 million, or 31.2%, increase in net income from fiscal 2003. In fiscal 2003 revenues were up $112.2 million, or 10.6%, to approximately $1.2 billion while net income rose $23.5 million, or 17.7%, to $156.3 million. The increased net income in fiscal 2004 and 2003 was driven by improved income from operations, and fiscal 2004 also included a reduction in interest and tax expenses when compared to fiscal 2003. Segment operating income (operating income attributable to our reportable segments, which consist of Canada and the U.S.) increased $51.0 million in fiscal 2004 over 2003, which was an increase of 17.4%, while fiscal 2003 segment operating income increased 15.5% over fiscal 2002, from $253.2 million to $292.5 million. Overall, the improvements in segment operating income have been driven by average same-store sales growth and opening new restaurants in Canada. Our fiscal 2004 results also benefited from one additional operating week (the 53rd week) in the fiscal year. The additional week occurs periodically because our fiscal year ends on the Sunday nearest to December 31.
       For the first nine months of 2005 (which ended October 2, 2005) our revenues and net income were up $125.1 million and $23.8 million, or 13.1% and 15.8%, respectively, over the first nine months of 2004 (which ended on September 26, 2004), primarily as a result of continued average same-store sales gains and continued growth in the number of systemwide restaurants, resulting in higher royalty, rental and distribution income. Also, during the first nine months of 2005 we had a $5.1 million one-time mark-to-market gain on cross-border intercompany notes. This gain was partially offset by an increase in corporate general and administrative expenses due primarily to costs associated with this offering and expenses related to restricted stock units that were granted and expensed for the first time in 2005.

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Selected Operating and Financial Highlights
                                           
    Fiscal Years   Nine Months Ended
         
        September 26,   October 2,
    2002   2003   2004   2004   2005
                     
    (in thousands, except where noted)
Systemwide sales growth
    16.3%       12.6%       16.6%       15.0%       11.7%  
Average same-store sales growth
                                       
 
Canada
    7.2%       4.8%       7.4%       7.7%       5.0%  
 
U.S.
    9.9%       4.5%       9.8%       10.1%       7.0%  
Systemwide restaurants
    2,348       2,527       2,721       2,632       2,801  
Revenues
  $ 1,059,571     $ 1,171,780     $ 1,338,266     $ 953,059     $ 1,078,168  
Operating income
  $ 233,313     $ 278,897     $ 319,305     $ 232,238     $ 259,321  
Net income
  $ 132,812     $ 156,262     $ 205,051     $ 150,832     $ 174,661  
Systemwide Sales Growth
       Our financial results are driven largely by changes in systemwide sales, which include restaurant-level sales at both franchised and company-operated restaurants. The amount of systemwide sales impacts our franchisee royalties and rental income, as well as our distribution sales. Changes in systemwide sales are driven by changes in average same-store sales and changes in the number of restaurants.
Average Same-Store Sales Growth
       Average same-store sales, one of the key metrics we use to assess our performance, provides information on total retail sales at restaurants operating systemwide throughout the relevant period and provide a useful comparison between periods. In fiscal 2004, Canadian average same-store sales increased 7.4% over fiscal 2003, which was our 13th consecutive annual increase in Canada. In the U.S., average same-store sales (measured in local currency) increased 9.8% in fiscal 2004 over 2003, which represented our 14th consecutive annual increase.
       Our average same-store sales growth is attributable to several key factors, including new product introductions, improvements in restaurant speed of service and other operational efficiencies, more frequent customer visits, expansion into broader menu offerings and, on a less frequent basis, pricing. Restaurant-level price increases are primarily used to offset higher restaurant-level costs on key items such as coffee and labour.

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       The following table sets forth average same-store sales increases for the first nine months of 2005 and for fiscal 2002, 2003 and 2004 on a comparable 52-week basis. Franchise restaurant sales are not included in our financial statements (other than approximately 80 franchisees whose results of operations are consolidated with ours pursuant to Financial Accounting Standards Board (FASB) Interpretation No. 46 (FIN 46R), Consolidation of Variable Interest Entities—an interpretation of ARB 51 (revised December 2003), but franchise restaurant sales result in royalties and rental income, which are included in our consolidated financial statements as franchise revenues.
                                           
    Historical Average Same-Store Sales Increase(1)
     
    1st Quarter   2nd Quarter   3rd Quarter   4th Quarter   Year
                     
Canada
                                       
 
2002
    7.9%       9.4%       5.8%       5.7%       7.2%  
 
2003
    3.9%       4.0%       5.5%       5.7%       4.8%  
 
2004
    6.6%       7.8%       8.4%       6.6%       7.4%  
 
2005
    5.8%       5.6%       3.6%               5.0% (2)
U.S.
                                       
 
2002
    10.0%       13.8%       8.9%       7.2%       9.9%  
 
2003
    0.4%       3.3%       6.8%       7.2%       4.5%  
 
2004
    10.3%       10.2%       9.8%       9.1%       9.8%  
 
2005
    7.7%       9.1%       4.7%               7.0% (2)
 
(1)  For Canadian restaurants, average same-store sales are based on restaurants that have been open for a minimum of one calendar year. For U.S. restaurants, a restaurant is included in our average same-store calculation beginning in the 13th month following the restaurant’s opening.
 
(2)  Represents average same-store sales growth for the first nine months of 2005.
New Restaurant Development
       Opening restaurants in new and existing markets in Canada and the U.S. has been a significant contributor to our growth. From the end of 1995, when we merged with Wendy’s, to January 2, 2005, we increased the total number of Tim Hortons restaurants from 1,197 to 2,721 restaurants, representing an average annual growth rate of over 9.6%. Approximately 85.0% of this growth has come from our expansion in Canada, with the largest increases in Ontario and Western Canada. Our U.S. growth of 234 restaurants from 1995 to 2004 has come from three major markets, namely Michigan, New York and Ohio. During 2004, we also acquired 42 restaurants in New England.
       From the end of fiscal 2001 to the end of fiscal 2004, we opened 558 system restaurants, net of restaurant closures. Typically, 20 to 30 system restaurants are closed annually, primarily in Canada. Restaurant closures typically result from an opportunity to improve a location, upgrade size and layout or add a drive-thru. During the first nine months of 2005 we opened 94 restaurants (73 in Canada and 21 in the U.S.) and closed 14 restaurants (all in Canada).
       Our system includes over 2,800 restaurants across Canada and the U.S. At October 2, 2005, 2,705, or 96.6%, were franchised (98.8% in Canada and 76.1% in the U.S.).

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       The following table shows our restaurant count as of September 26, 2004, October 2, 2005 and as of the end of fiscal 2002, 2003 and 2004. Also included in the table is a breakdown of our company-operated and franchised restaurants.
Systemwide Restaurant Count
                                         
    Fiscal Year End   Nine Months Ended
         
        September 26,   October 2,
    2002   2003   2004   2004   2005
                     
Canada
                                       
Company-operated
    31       32       31       28       31  
Franchise
    2,157       2,311       2,439       2,371       2,498  
                               
Total
    2,188       2,343       2,470       2,399       2,529  
                               
U.S.
                                       
Company-operated
    40       25       67       66       65  
Franchise
    120       159       184       167       207  
                               
Total
    160       184       251       233       272  
                               
Total system
                                       
Company-operated
    71       57       98       94       96  
Franchise
    2,277       2,470       2,623       2,538       2,705  
                               
Total
    2,348       2,527       2,721       2,632       2,801  
                               
Operating Income
       We reported record operating income (income before income taxes and interest) in each of fiscal 2004 and 2003. These results were primarily due to increases in average same-store sales, opening of new restaurants, and operational improvements due to the systemwide rollout of par-baked products sold through our manufacturing joint venture. The launch of our Always Fresh baking system in 2002 involved a conversion to the use of par-baked products in our restaurants. Par-baking enables us to offer customers fresher, more consistent products all day, and enables significant operating efficiencies at the restaurant level. The conversion to our Always Fresh baking system began during the third quarter of 2002 and was completed during the first quarter of 2004.
       For the first nine months of 2005, we recorded higher operating income than in any previous comparable period, with an increase of 11.7% over the comparable period in 2004 as a result of continued average same-store sales gains and continued growth in the number of systemwide restaurants. We also had a $5.1 million one-time mark-to-market gain on cross-border intercompany notes during the first nine months of 2005. This gain was partially offset by an increase in corporate general and administrative expenses due primarily to costs associated with this offering and expenses related to restricted stock units of Wendy’s that were granted and expensed for the first time in 2005.
Segment Operating Income
       Systemwide sales and average same-store sales growth are affected by the business and economic environments in Canada and the U.S. We manage and review financial results from Canadian and U.S. operations separately. We therefore have determined the reportable segments for our business to be Canada and the U.S.
       Segment operating income increased by 11.4% for the first nine months of 2005 over the same period in 2004, by 17.4% in fiscal 2004 over 2003 and by 15.5% in fiscal 2003 over 2002. The improvements primarily related to increases in average same-store sales, development of new

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restaurants and improvements in equity income. Equity income increases from fiscal 2002 to 2004 related to improvements in results at our joint venture with IAWS and our joint venture with Wendy’s Restaurants of Canada in certain combination restaurants. See “—Equity Income.” Overall, our total segment operating income from our reportable segments as a percent of total revenues was 26.1% and 25.7% in the first nine months of 2004 and 2005, respectively, and 23.9%, 25.0% and 25.7% for fiscal 2002, 2003 and 2004, respectively.
       For the first nine months of 2005 compared to the corresponding period in 2004, segment operating income increased $28.3 million, primarily driven by our Canadian segment, which increased operating income by 12.4%. Canadian average same-store sales increased 5.0% over the prior period and we opened 73 new system restaurants in that period.
       In fiscal 2004, total segment operating income increased $51.0 million over fiscal 2003, principally through our Canadian segment, which increased operating income by 17.8%. Canadian average same-store sales increased by 7.4% and we opened 155 new system restaurants in fiscal 2004. U.S. average same-store sales increased by 9.8% in fiscal 2004 over 2003. However, U.S. segment operating loss increased as a result of a decrease in company-operated store earnings, which was attributable to the performance of the 42 restaurants acquired in New England in the second quarter of 2004.
       In fiscal 2003, total segment operating income increased $39.3 million over fiscal 2002. Our Canadian segment accounted for most of the increase, with operating income increasing by 14.3%, as Canadian average same-store sales increased 4.8% and 185 new restaurants were opened. U.S. segment operating losses were reduced by $2.8 million in fiscal 2003 over 2002 due to average same-store sales increases of 4.5% and refranchising of a number of company-operated restaurants.
       In fiscal 2003, corporate unallocated charges included $6.1 million in foreign exchange gains resulting from cross-border interest payments. Foreign currency hedges against future interest payments were established in mid-2003 and extended into 2004 to mitigate currency effects on these payments. In addition, the frequency of intercompany payments has been increased to minimize the exposure.
       The following tables show information about the operating income of our reportable segments:
Operating Income
                                                   
    First Nine Months 2005 Compared to First Nine Months 2004
     
        2005 Change
        % of       % of    
    2005   Revenues   2004   Revenues   Dollars   Percentage
                         
    (in thousands, except where noted)
 
Canada
  $ 279,300       25.9 %   $ 248,478       26.1 %   $ 30,822       12.4 %
 
U.S. 
    (2,110 )     (0.2 %)     415       0.0 %     (2,525 )     n/m  
                                     
 
Segment operating income
    277,190       25.7 %     248,893       26.1 %     28,297       11.4 %
 
Corporate(1)
    (17,869 )     (1.7 %)     (16,655 )     (1.7 %)     (1,214 )     (7.3 %)
                                     
Total operating income
  $ 259,321       24.1 %   $ 232,238       24.4 %   $ 27,083       11.7 %
                                     

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    Fiscal 2004 Compared to 2003
     
        2004 Change
        % of       % of    
    2004   Revenues   2003   Revenues   Dollars   Percentage
                         
    (in thousands, except where noted)
 
Canada
  $ 344,476       25.7 %   $ 292,526       25.0 %   $ 51,950       17.8 %
 
U.S. 
    (981 )     (0.1 %)     (27 )     0.0 %     (954 )     n/m  
                                     
 
Segment operating income
    343,495       25.7 %     292,499       25.0 %     50,996       17.4 %
 
Corporate(1)
    (24,190 )     (1.8 %)     (13,602 )     (1.2 %)     (10,588 )     (77.8 %)
                                     
Total operating income
  $ 319,305       23.9 %   $ 278,897       23.8 %   $ 40,408       14.5 %
                                     
                                                   
    Fiscal 2003 Compared to 2002
     
        2003 Change
        % of       % of    
    2003   Revenues   2002   Revenues   Dollars   Percentage
                         
    (in thousands, except where noted)
 
Canada
  $ 292,526       25.0 %   $ 256,027       24.2 %   $ 36,499       14.3 %
 
U.S. 
    (27 )     0.0 %     (2,827 )     (0.3 %)     2,800       99.0 %
                                     
 
Segment operating income
    292,499       25.0 %     253,200       23.9 %     39,299       15.5 %
 
Corporate(1)
    (13,602 )     (1.2 %)     (19,887 )     (1.9 %)     6,285       31.6 %
                                     
Total operating income
  $ 278,897       23.8 %   $ 233,313       22.0 %   $ 45,584       19.5 %
                                     
 
(1)  Corporate charges include certain overhead costs that are not allocated to individual business units and the impact of certain foreign currency exchange gains and losses.
n/m — The comparison is not meaningful.
Basis of Presentation
       Our consolidated financial statements have been derived from the consolidated financial statements and accounting records of Wendy’s, principally from statements and records representing the Tim Hortons business segment. Our consolidated statements of operations also include expense allocations for certain corporate functions historically provided to us by Wendy’s, including general corporate expenses related to corporate functions such as executive oversight, risk management, information technology, accounting, legal, investor relations, human resources, tax, other services and employee benefits and incentives, including stock-based compensation arrangements. The allocations are primarily based on specific identification and the relative percentage of our revenues and headcount to the respective total Wendy’s costs. These allocations are reflected in general and administrative expenses in our consolidated statements of operations and totalled $12.7 million, $12.9 million and $13.3 million on a pre-tax basis for fiscal 2002, 2003 and 2004, respectively. We and Wendy’s consider these allocations to be a reasonable reflection of the utilization of services provided. The allocations may not, however, reflect the expense we would have incurred as a stand-alone company.
       Affiliated interest expense, net in the consolidated statements of operations reflects interest costs related to specific net borrowings by us, in the form of promissory notes, from Wendy’s. No amount is included in affiliated interest expense, net for other amounts owed to Wendy’s by us which were not in the form of a promissory note and for which no interest rate was specified. Also, Wendy’s has not allocated a portion of its external debt interest cost to us. As a result, interest

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expense recorded by us does not reflect the expense we would have incurred as a stand-alone company.
       Our functional currency is the U.S. dollar, primarily because of our historical financial inter-relatedness with Wendy’s. The majority of our operations, restaurants and cash flows, however, are based in Canada, and we are primarily managed in Canadian dollars. As a result, our reporting currency is the Canadian dollar. Our historical consolidated financial statements and notes thereto are prepared in conformity with accounting principles generally accepted in the U.S.
       The discussion below should be read in conjunction with our historical consolidated financial statements and the notes thereto for a full understanding of our financial position and results of operations.
Financial Definitions
Sales
       Primarily includes sales of products, supplies and restaurant equipment (except for initial equipment packages sold to franchisees) 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, beginning in 2004, sales of approximately 80 franchise restaurants that are consolidated in accordance with FIN 46R.
Franchise Revenues
       Consists primarily of franchisee royalties and fees, as well as rental income. Franchisee fees include charges for various costs and expenses related to establishing a franchisee’s business and include initial equipment packages.
Cost of Sales
       Includes costs associated with our distribution warehouses, 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 sales sold through grocery stores.
       Also includes food, paper and labour costs for company-operated restaurants and, beginning in 2004, approximately 80 franchise restaurants that are consolidated in accordance with FIN 46R.
Operating Expenses
       Includes rent expense related to properties leased to franchisees, other property-related costs (including depreciation) and costs of equipment sold to franchisees as part of the initiation of their restaurant’s business, as well as training and other costs necessary to ensure a successful restaurant opening and costs to operate and maintain the distribution warehouses and our coffee roaster (excluding cost of sales). Also included are insurance, maintenance and support costs for personnel directly related to restaurant operations.
General and Administrative Expenses
       Includes costs that cannot be directly related to generating revenue, including expenses associated with our corporate and administrative functions and allocation of expenses related to corporate functions and services historically provided to us by Wendy’s and depreciation of office equipment, information technology systems and head office real estate.

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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 our primary businesses. Expenses include restaurant closures 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.

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Results of Operations
Nine Months Ended October 2, 2005 Compared to Nine Months Ended September 26, 2004
       Below is a summary of comparative results of operations and a more detailed discussion of results for the first nine months of each of fiscal 2005 and 2004.
Results of Operations
                                                   
    Nine Months Ended   2005 Change
         
    October 2,   % of   September   % of    
    2005   Revenues   26, 2004   Revenues   $   %
                         
    (in thousands, except where noted)
Revenues
                                               
 
Sales
  $ 703,484       65.2 %   $ 602,978       63.3 %   $ 100,506       16.7 %
 
Franchise revenues
    374,684       34.8 %     350,081       36.7 %     24,603       7.0 %
                                     
Total revenues
    1,078,168       100.0 %     953,059       100.0 %     125,109       13.1 %
                                     
Costs and expenses
                                               
 
Cost of sales
    613,245       56.9 %     527,818       55.4 %     85,427       16.2 %
 
Operating expenses
    162,685       15.1 %     154,501       16.2 %     8,184       5.3 %
 
General and administrative expenses
    73,728       6.8 %     61,893       6.5 %     11,835       19.1 %
 
Equity income
    (23,281 )     (2.2 %)     (23,089 )     (2.4 %)     (192 )     0.8 %
 
Other (income) expense
    (7,530 )     (0.7 %)     (302 )     0.0 %     (7,228 )     n/m  
                                     
Total costs and expenses, net
    818,847       75.9 %     720,821       75.6 %     98,026       13.6 %
                                     
Operating income
    259,321       24.1 %     232,238       24.4 %     27,083       11.7 %
                                     
Interest expense
    (3,283 )     (0.3 %)     (5,015 )     (0.5 %)     1,732       (34.5 %)
Interest income
    2,300       0.2 %     1,650       0.2 %     650       39.4 %
Affiliated interest expense, net
    (4,910 )     (0.5 %)     (7,536 )     (0.8 %)     2,626       (34.8 %)
                                     
Income before income taxes
    253,428       23.5 %     221,337       23.2 %     32,091       14.5 %
Income taxes
    78,767       7.3 %     70,505       7.4 %     8,262       11.7 %
                                     
Net income
  $ 174,661       16.2 %   $ 150,832       15.8 %   $ 23,829       15.8 %
                                     
 
n/m — The comparison is not meaningful.
Revenues
Sales
       In the first nine months of 2005 sales increased $100.5 million, or 16.7%, over the comparable period in 2004. Warehouse sales increased $69.2 million, or 13.7%, driven by an increase in the number of franchise restaurants open and increases in average same-store sales. The remaining increase in warehouse sales was primarily related to an increase in the value of coffee sales as a result of a rise in the underlying cost of green (unroasted) coffee.
       Company-operated restaurant sales were $92.7 million and $123.0 million in the first nine months of 2004 and 2005, respectively. The increase in company-operated restaurant sales of

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$30.3 million is primarily attributable to our adoption of FIN 46R on April 1, 2004, which resulted in the consolidation of 79 franchise restaurants for the first nine months of 2004 and 83 franchise restaurants for the first nine months of 2005. Accordingly, we recorded additional sales of $47.1 million and $73.7 million during the first nine months of 2004 and 2005, respectively, an increase of $26.6 million. $6.4 million of the remaining increase in company-operated restaurant sales is due primarily to an increase in the number of company-operated restaurants in the U.S. resulting from our acquisition of 42 restaurants in New England in the second quarter of 2004.
       U.S. sales are denominated in U.S. dollars and translated into Canadian dollars for reporting our results. The strengthening of the Canadian dollar relative to the U.S. dollar during the first nine months of 2004 and 2005 reduced the value of reported sales by approximately 0.9% compared to the value that would have been reported had there been no exchange rate movement.
Franchise Revenues
       Franchise revenues increased $24.6 million, or 7.0%, in the first nine months of 2005 over the comparable period in 2004. Rental income from restaurants leased to franchisees increased by $23.4 million to $247.7 million. Royalty income increased $8.0 million, or 10.4%. Although the consolidation of 79 restaurants on average during the first nine months of 2005 in accordance with FIN 46R reduced our rent and royalty income by $5.2 million for that period, our net growth in both rental income and royalty income reflects an increase in the number of franchise restaurants open and the positive average same-store sales growth over this time period.
       Total franchise fees during the first nine months of 2005 decreased $6.9 million, or 14.2%, from the comparable period in 2004, mainly due to a decrease in the number of restaurants sold and a shift in emphasis from standard to non-standard restaurants. Non-standard restaurants include kiosks and locations in gas stations, hospitals, universities and office buildings and typically have lower franchise fees.
       U.S. franchise revenues are denominated in U.S. dollars and translated into Canadian dollars for reporting of our results. The strengthening of the Canadian dollar relative to the U.S. dollar between the first three quarters of 2004 and 2005 reduced the value of reported franchise revenues by approximately 0.6% compared to the value that would have been reported had there been no exchange rate movement.
Total Costs and Expenses
Cost of Sales
       Cost of sales increased $85.4 million, or 16.2%, in the first nine months of 2005 compared to the comparable period in 2004. This increase was primarily driven by an increase in warehouse cost of sales of $58.2 million, or 13.2%, during the period which resulted from an increase in warehouse sales. In addition, warehouse cost of sales were also impacted by an increase in the cost of green coffee, which increased warehouse sales and cost of sales.
       Warehouse cost of sales expressed as a percentage of warehouse sales was 87.1% for the first nine months of 2005 and 87.6% for the first nine months of 2004. These percentages reflect changing product mix and margins during the reporting period.
       Company-operated restaurant cost of sales, which includes food, paper, labour and occupancy costs, vary with the average number and mix of company-operated restaurants. These costs increased by $28.2 million, or 32.0%, from $88.2 million in the first nine months of 2004 to $116.4 million in the equivalent period in 2005. Of this increase, $20.1 million relates to the effect of our adoption of FIN 46R on April 1, 2004, which resulted in the consolidation of 83 franchise restaurants. The remaining increase primarily relates to the impact of consolidating for the entire first nine months of 2005 the 42 U.S. company-operated restaurants that were acquired in the second quarter of 2004.

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       The strengthening of the Canadian dollar relative to the U.S. dollar during the first nine months of 2005 over the comparable period in 2004 reduced the value of reported cost of sales by approximately 1.1%.
Operating Expenses
       Total operating expenses for the first nine months of 2005 increased by $8.2 million as compared to the corresponding period in 2004, representing an increase of 5.3%.
       The largest component of operating expenses is rent expense and property costs, which increased by $11.0 million, or 10.6%, during the period. Our Canadian operations contributed the majority of the increase with an increase of $9.2 million in rent expense and other property costs during the period, largely due to the increase in the number of properties being leased and then subleased to franchisees. At October 2, 2005 there were 1,969 properties owned or leased by us in Canada and then subleased to franchisees, compared to 1,861 such properties in 2004. In addition, rent expense also increased due to higher percentage rent payments stemming from strong same-store sales growth.
       Our U.S. operating expenses are denominated in U.S. dollars and translated to Canadian dollars for reporting of our consolidated results. The strengthening of the Canadian dollar relative to the U.S. dollar between the first nine months of each of 2004 and 2005 reduced the value of reported operating expenses by approximately 1.0% compared to the value that would have been reported had there been no exchange rate movement.
General and Administrative Expenses
       General and administrative expenses increased from $61.9 million for the first nine months of 2004 to $73.7 million for the first nine months of 2005. As a percentage of revenues, general and administrative expenses increased from 6.5% to 6.8%. This increase is primarily attributable to higher carve-out costs relating to corporate functions such as executive oversight, costs associated with this offering and charges for Wendy’s stock-based compensation, which were granted and expensed for the first time in 2005. In addition, general and administrative costs (excluding carve-out) increased primarily due to growth in our business.
Equity Income
       Equity income relates to income from equity investments in joint ventures and other minority investments over which we exercise significant influence. For the first nine months of 2005, equity income was $23.3 million, up $0.2 million from the comparable period in 2004.
Other Income and Expense
       For the first nine months of 2005, other income of $7.5 million related to a $5.1 million one-time mark-to-market gain on cross-border intercompany notes in addition to a gain on sale of vacant land.
Interest Expense (Including Affiliated Interest Expense)
       Interest expense was $8.2 million for the first nine months of 2005 and $12.6 million for the comparable period in 2004. The decrease of $4.4 million is primarily due to higher capitalized interest relating to our new distribution centre in Guelph, Ontario and lower affiliated interest expense of which approximately $2.0 million relates to a net decrease in average indebtedness and approximately $0.6 million relates to a change in foreign exchange rates.
Interest Income
       Interest income was $2.3 million for the first nine months of 2005 and $1.7 million for the first nine months of 2004, primarily relating to changes in average cash balances.

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Income Taxes
       The effective income tax rate for the first nine months of 2005 was 31.1% compared to 31.9% for the comparable period in 2004. The change is primarily attributable to the favourable taxation of currency transactions and Canadian rate reductions, which were partially offset by non-deductible costs related to this offering.
Comprehensive Income
       For the first nine months of 2005 comprehensive income increased $11.2 million over the comparable period in 2004. This change relates to a net income increase of $23.8 million and a decrease due to the impact from translation and other adjustments of $12.6 million. There was slight strengthening in the Canadian dollar for the first nine months in 2005 and for the same period in 2004.
Recent Developments
       We expect to record during the fourth quarter of fiscal 2005 between US$15.0 and US$20.0 million in pre-tax charges for the impairment of certain fixed assets associated with Tim Hortons restaurants in New England that were acquired in 2004. We also expect to record a non-cash impairment charge of approximately US$25.0 million pre-tax for the writedown of goodwill as part of our annual review for impairment of goodwill for Tim Hortons U.S. This goodwill arose as a result of the New England acquisition in fiscal 2004. We perform our annual review for impairment of goodwill in the fourth quarter of the fiscal year. To determine the range of the estimated goodwill charges, we estimated the fair market value of the business based on historical performance, discounted cash flow projections and comparative market data.

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Fiscal 2002 to Fiscal 2004
       Below is a summary of comparative results of operations and a more detailed discussion of results for the fiscal 2002 to 2004.
Results of Operations
                                                   
    Fiscal 2004 Compared to 2003   2004 Change
         
        % of       % of    
    2004   Revenues   2003   Revenues   $   %
                         
    (in thousands, except where noted)
Revenues
                                               
 
Sales
  $ 845,231       63.2 %   $ 727,508       62.1 %   $ 117,723       16.2 %
 
Franchise revenues
    493,035       36.8 %     444,272       37.9 %     48,763       11.0 %
                                     
Total revenues
    1,338,266       100.0 %     1,171,780       100.0 %     166,486       14.2 %
                                     
Costs and expenses
                                               
 
Cost of sales
    741,198       55.4 %     636,311       54.3 %     104,887       16.5 %
 
Operating expenses
    223,451       16.7 %     202,314       17.3 %     21,137       10.4 %
 
General and administrative expenses
    85,744       6.4 %     80,394       6.9 %     5,350       6.7 %
 
Equity income
    (32,548 )     (2.4 %)     (23,057 )     (2.0 %)     (9,491 )     41.2 %
 
Other (income) expense
    1,116       0.1 %     (3,079 )     (0.3 %)     4,195       n/m  
                                     
Total costs and expenses, net
    1,018,961       76.1 %     892,883       76.2 %     126,078       14.1 %
                                     
Operating income
    319,305       23.9 %     278,897       23.8 %     40,408       14.5 %
                                     
Interest expense
    (6,911 )     (0.5 %)     (7,022 )     (0.6 %)     111       (1.6 %)
Interest income
    2,802       0.2 %     2,098       0.2 %     704       33.6 %
Affiliated interest expense, net
    (9,410 )     (0.7 %)     (11,110 )     (0.9 %)     1,700       (15.3 %)
                                     
Income before income taxes
    305,786       22.8 %     262,863       22.4 %     42,923       16.3 %
Income taxes
    100,735       7.5 %     106,601       9.1 %     (5,866 )     (5.5 %)
                                     
Net income
  $ 205,051       15.3 %   $ 156,262       13.3 %   $ 48,789       31.2 %
                                     

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    Fiscal 2003 Compared to 2002   2003 Change
         
        % of       % of    
    2003   Revenues   2002   Revenues   $   %
                         
    (in thousands, except where noted)
Revenues
                                               
 
Sales
  $ 727,508       62.1 %   $ 656,833       62.0 %   $ 70,675       10.8 %
 
Franchise revenues
    444,272       37.9 %     402,738       38.0 %     41,534       10.3 %
                                     
Total revenues
    1,171,780       100.0 %     1,059,571       100.0 %     112,209       10.6 %
                                     
Costs and expenses
                                               
 
Cost of sales
    636,311       54.3 %     575,337       54.3 %     60,974       10.6 %
 
Operating expenses
    202,314       17.3 %     191,749       18.1 %     10,565       5.5 %
 
General and administrative expenses
    80,394       6.9 %     71,851       6.8 %     8,543       11.9 %
 
Equity income
    (23,057 )     (2.0 %)     (5,056 )     (0.5 %)     (18,001 )     n/m  
 
Other (income) expense
    (3,079 )     (0.3 %)     (7,623 )     (0.7 %)     4,544       (59.6 %)
                                     
Total costs and expenses, net
    892,883       76.2 %     826,258       78.0 %     66,625       8.1 %
                                     
Operating income
    278,897       23.8 %     233,313       22.0 %     45,584       19.5 %
                                     
Interest expense
    (7,022 )     (0.6 %)     (5,425 )     (0.5 %)     (1,597 )     29.4 %
Interest income
    2,098       0.2 %     2,871       0.3 %     (773 )     (26.9 %)
Affiliated interest expense, net
    (11,110 )     (0.9 %)     (17,786 )     (1.7 %)     6,676       (37.5 %)
                                     
Income before income taxes
    262,863       22.4 %     212,973       20.1 %     49,890       23.4 %
Income taxes
    106,601       9.1 %     80,161       7.6 %     26,440       33.0 %
                                     
Net income
  $ 156,262       13.3 %   $ 132,812       12.5 %   $ 23,450       17.7 %
                                     
 
n/m — The comparison is not meaningful.
Revenues
Sales
       Sales grew $117.7 million, or 16.2%, in fiscal 2004 over 2003, and $70.7 million, or 10.8%, in fiscal 2003 over 2002. Warehouse sales increased $38.0 million, or 5.7%, in fiscal 2004 over 2003 and $94.5 million, or 16.5%, in fiscal 2003 over 2002. In general, our warehouse sales growth is driven by increased demand for products due to increases in the number of restaurants and growth in our average same-store sales. In 2004, the impact of the increase in systemwide sales was partially offset by the conversion to Always Fresh bakery products.
       The Always Fresh system conversion began during the third quarter of 2002 and was completed during the first quarter of 2004. Sales of dry ingredient mixes, which were previously distributed through our warehouses to system restaurants, declined as a result of the conversion to par-baked donut manufacturing. In part, this was offset by new sales of some frozen products delivered by third party distributors to the restaurants. In 2002 and 2003 during the conversion, sales of Always Fresh system equipment to franchisees increased sales, which also helped offset the declines in dry ingredient mix sales. The net impact of the Always Fresh system conversion resulted in a decline in warehouse sales of 2.7% in fiscal 2004 over 2003 and an increase in fiscal 2003 over 2002 of 10.5%.

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       Company-operated restaurant sales vary with the number of company-operated restaurants in the system. In Canada, the average number of company-operated restaurants has been approximately 31 from 2002 to 2004 and as a result sales have been fairly constant over this time.
       In the U.S., our average number of company-operated restaurants has varied over the past three years. From fiscal 2003 to 2004 company-operated restaurant revenues increased $16.4 million before the impact of the weakening of the U.S. dollar. The majority of this increase related to the acquisition of the 42 restaurants in New England, which we have operated since the acquisition in the second quarter of 2004. In fiscal 2003, U.S. company-operated restaurant sales decreased $17.1 million, or 37.6% (before the impact of currency), reflecting our franchising of company-operated restaurants in the U.S. during this period.
       In fiscal 2004, sales were also impacted by the consolidation of approximately 80 franchise restaurants in accordance with FIN 46R, which was adopted in the second quarter of 2004. The net impact on sales was an increase of approximately $59.7 million in fiscal 2004 over 2003. Although the impact of FIN 46R resulted in the increase or elimination of certain amounts for financial reporting, there was no net operating income impact to our financial statements.
       Sales from our U.S. operations are denominated in U.S. dollars and translated into Canadian dollars for reporting our results. In both 2004 and 2003, the strengthening of the Canadian dollar relative to the U.S. dollar reduced sales value by 0.8% and 1.0%, respectively.
       Sales included a 53rd week in 2004, compared to 52 weeks in each of 2003 and 2002.
Franchise Revenues
       Franchise revenues increased $48.8 million, or 11.0%, in fiscal 2004 over 2003, and increased $41.5 million, or 10.3%, in fiscal 2003 over 2002. Rental income from restaurants leased to franchisees increased by $34.4 million, or 14.3%, in fiscal 2003 over 2002 and by $33.1 million, or 12.1%, in fiscal 2004 over 2003. Royalty income increased by $11.3 million, or 13.8%, in fiscal 2003 over 2002 and by $13.2 million, or 14.2%, in fiscal 2004 over 2003. Although the consolidation of 77 restaurants on average during fiscal 2004 in accordance with FIN 46R reduced our rent and royalty income by $13.6 million for that period, our net growth in both rental income and royalty income reflects an increase in the number of franchise restaurants open and the positive average same-store sales growth in both Canada and the U.S. over fiscal 2002 to 2004. At the end of fiscal 2004, total restaurants leased to franchisees were 1,920 compared to 1,809 at the end of fiscal 2003 and 1,679 at the end of fiscal 2002.
       Total franchise fees increased $2.4 million, or 3.2%, in fiscal 2004 over 2003 reflecting higher average fees from franchises sold due to higher restaurant equipment costs, which offset a decrease in the number of restaurants sold.
       Revenues from our U.S. operations are denominated in U.S. dollars and translated into Canadian dollars for reporting our results. In both fiscal 2004 and 2003 the strengthening of the Canadian dollar relative to the U.S. dollar reduced total franchise revenues by 0.6%.
       Revenues include a 53rd week in 2004 compared to 52 weeks in each of fiscal 2003 and 2002.
Total Costs and Expenses
Cost of Sales
       Cost of sales increased $104.9 million, or 16.5%, in fiscal 2004 over 2003 and $61.0 million, or 10.6%, in fiscal 2003 over 2002. Warehouse cost of sales increased $40.5 million, or 7.0%, in fiscal 2004 compared to $85.5 million, or 17.4%, in fiscal 2003. The increases in fiscal 2004 and 2003 are primarily the result of additional sales to franchisees, due to the increased number of restaurants serviced, higher average sales per restaurant and an additional week of operations in fiscal 2004.

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The increase in systemwide sales translated to an increase in warehouse cost of sales, including coffee, other drinks, cups and lids and various other products.
       The conversion of restaurants to our Always Fresh baking system impacted warehouse cost of sales year over year. The Always Fresh system conversion began during the third quarter of 2002 and was completed during the first quarter of 2004. Cost of sales of dry ingredient mixes declined during the conversion period but in fiscal 2003 was offset by cost of sales for Always Fresh system equipment sold to franchisees. In both fiscal 2004 and 2003 the decline in cost of sales of dry ingredient mixes was partially offset by the cost of sales of frozen products shipped by third party distributors to restaurants. The net impact of the Always Fresh system conversion resulted in a decline in warehouse cost of sales of 1.7% in fiscal 2004 over 2003, but an increase in fiscal 2003 over 2002 of 14.5%.
       The financial impact of adopting FIN 46R in fiscal 2004 was to reduce warehouse cost of sales by $8.9 million for costs already reflected in company-operated restaurant cost of sales.
       Excluding the impact of restaurants required to be consolidated under FIN 46R, warehouse cost of sales expressed as a percentage of warehouse sales was 87.5% for fiscal 2004, 86.5% for fiscal 2003 and 85.8% for fiscal 2002. These percentages reflect a changing product mix during the reporting periods.
       Cost of sales also includes food, paper, labour and occupancy cost for company-operated restaurants and varies with the average number and mix of company-operated restaurants. Company-operated restaurant cost of sales decreased by $22.3 million, or 25.9%, from fiscal 2002 to 2003 and increased by $65.1 million, or 101.8%, from fiscal 2003 to 2004. The differences in company-operated restaurant cost of sales between fiscal years primarily reflects the number and mix of company-operated restaurants we operate in the U.S., with an average of 54 company-operated restaurants in fiscal 2004 compared to 30 in fiscal 2003 and 45 in fiscal 2002. The average number of company-operated restaurants in fiscal 2004 includes the impact of the 2004 acquisition of 42 restaurants in New England. $55.5 million of the increase in company-operated restaurant cost of sales in fiscal 2004 is due to the consolidation of additional restaurants under FIN 46R.
       The strengthening of the Canadian dollar relative to the U.S. dollar reduced the value of reported cost of sales by approximately 0.9% between fiscal 2003 and 2004 and 1.1% between fiscal 2002 and 2003.
Operating Expenses
       Operating expenses increased $21.1 million, or 10.4%, in fiscal 2004 over 2003 and $10.6 million, or 5.5%, in fiscal 2003 over 2002. Rent expense and property costs increased in fiscal 2004 and 2003 by $17.7 million and $11.2 million, respectively, over the prior period due to the growth in the number of properties being leased and then subleased to franchisees. The increases were also a result of higher percentage rent on certain properties resulting from the positive average same-store sales growth, and the inclusion of the 53rd week in 2004. The change was primarily related to our Canadian operations. There were 1,920 restaurants owned or leased by us in Canada and then subleased to franchisees at the end of fiscal 2004 versus 1,809 at the end of fiscal 2003 and 1,679 at the end of fiscal 2002.
       Franchise sales expenses decreased by $2.2 million, or 3.1%, from fiscal 2002 to 2003 and increased by $2.3 million, or 3.3%, from fiscal 2003 to 2004. Of the $2.2 million decrease in franchise sales expense in fiscal 2003, $1.4 million is due to the impact of foreign exchange.
       The increase in franchise sales expense from fiscal 2003 to 2004 is primarily due to the higher average equipment cost, resulting from the size and type of restaurant being sold, on all types of franchise sales, particularly traditional restaurants and resales. The higher average cost is consistent with the higher average franchise fees in fiscal 2004. This increase is offset by $0.8 million due to the negative impact of foreign exchange.

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       The strengthening of the Canadian dollar relative to the U.S. dollar reduced the value of reported operating expenses by approximately 0.8% between fiscal 2003 and 2004 and 1.3% between fiscal 2002 and 2003.
General and Administrative Expenses
       General and administrative expenses are comprised of expenses associated with corporate and administrative functions that support current operations and provide the infrastructure to support future growth. This expense category also includes expense allocations from Wendy’s.
       From fiscal 2003 to 2004, general and administrative expenses increased by approximately $5.4 million or 6.7%. As a percentage of revenue, this cost category decreased slightly from approximately 6.9% in fiscal 2003 to 6.4% in fiscal 2004. This change is partly because we recognized higher performance-based bonuses related to the successful completion of the Always Fresh system conversion in 2003, and also reflects the fact that revenues grew at a higher rate than general and administrative costs.
       From fiscal 2002 to 2003, general and administrative expenses increased from approximately $71.9 million to $80.4 million, an increase of approximately 11.9%. As a percentage of revenue, this cost category remained relatively consistent, representing 6.8% in fiscal 2002 and 6.9% in fiscal 2003. This increase in fiscal 2003 reflects the higher performance-based bonuses related to the successful completion of the Always Fresh conversion.
Equity Income
       Equity income relates to income from equity investments in joint ventures and other minority investments over which we exercise significant influence. In fiscal 2003 and 2004 equity income increased by $18.0 million and $9.5 million, respectively, over the prior period due to improvements in both of our two main equity investments.
       Our most significant equity investment is our 50-50 joint venture with IAWS. This joint venture commissioned the construction of the Maidstone Bakeries facility, which was substantially completed in 2002, and following the completion of our conversion to the Always Fresh baking system during the first quarter of 2004 this facility has been providing par-baked donuts, Timbits and bread products. The income earned from this investment represents the majority of the improvement in equity income from fiscal 2002 to 2004. Future income growth from the existing product lines will be primarily based on systemwide sales growth.
       A second significant equity investment is our 50-50 partnership with Wendy’s Restaurants of Canada, which relates to the operation of combination restaurants throughout Canada. The income generated from this investment has remained at a relatively constant percentage of our total revenues during fiscal 2002, 2003 and 2004.
Other Income and Expense
       Other income and expense includes amounts that are not directly derived from our primary businesses. This includes expenses related to restaurant closures, other asset write-offs, foreign exchange gains and losses and minority interest. Our adoption in fiscal 2004 of FIN 46R resulted in the consolidation of certain franchise restaurants and the recognition of approximately $1.4 million in minority interest expense related to these restaurants. This expense was largely offset by favourable currency adjustments resulting in an unrealized foreign exchange gain of approximately $1.4 million associated with the translation of U.S. denominated intercompany debt with Wendy’s.
       Our fiscal 2003 other income of approximately $3.1 million included foreign exchange gains of approximately $3.8 million, less a loss on disposal of fixed assets of approximately $1.5 million relating to the sale of certain real estate properties.

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       In fiscal 2002, the largest portion of other income related to a gain on the disposal of our cup manufacturing business of approximately $5.0 million.
Interest Expense (Including Affiliated Interest Expense)
       Interest expense was $16.3 million in fiscal 2004, $18.1 million in fiscal 2003 and $23.2 million in fiscal 2002. The change year over year primarily relates to a decrease in affiliated interest expense of $1.7 million in fiscal 2004 and $6.7 million in fiscal 2003. Of these decreases, approximately $0.8 million in fiscal 2004 and $4.6 million in fiscal 2003 relate to lower average indebtedness during the applicable year and approximately $0.9 million in fiscal 2004 and $2.1 million in fiscal 2003 relate to changes in foreign exchange rates.
Interest Income
       Interest income was $2.8 million in fiscal 2004, $2.1 million in fiscal 2003 and $2.9 million in fiscal 2002. Changes primarily relate to changes in average cash balances throughout the years.
Income Taxes
       Our effective income tax rate for fiscal 2004 was 32.9%, compared to 40.6% for fiscal 2003 and 37.6% for fiscal 2002. The rate was lower in 2004 as a result of the reduction in Canadian tax rates and a non-recurring increase in the valuation allowance for deferred taxes associated with foreign tax credits that occurred in fiscal 2003. The rate was higher in fiscal 2003 compared to fiscal 2002 primarily due to the aforementioned change to the valuation allowance.
Comprehensive Income
       Comprehensive income increased $47.9 million and decreased $2.1 million in 2004 and 2003, respectively. Net income increased $48.8 million and $23.5 million in 2004 and 2003, respectively. Due almost entirely to unfavourable translation adjustments, the impact from translation and other adjustments decreased comprehensive income by $0.9 million and $25.6 million in 2004 and 2003, respectively. There was strengthening in the Canadian dollar in fiscal 2004 and an even more significant improvement in the Canadian dollar in fiscal 2003 versus 2002.
Liquidity and Capital Resources
Overview
       Our primary source of liquidity has historically been cash provided by our Canadian operating activities, which has been used to fund continued growth in restaurants, other capital expenditures, acquisitions and investments. We have also historically received significant financing from Wendy’s. Historically, our Canadian operations have managed their own cash on a centralized basis and independent of Wendy’s. Our U.S. operations’ cash was managed by Wendy’s. U.S. cash receipts were transferred to Wendy’s on a regular basis and Wendy’s provided funds to cover the disbursements. To the extent receipts were less than disbursements, the U.S. operations obtained borrowings from Wendy’s. Wendy’s has informed us that they intend that notes and trade balances outstanding as of October 2, 2005, between Wendy’s and us, other than the US$960.0 million of indebtedness, which will be repaid by us with the net proceeds from this offering and the term loan agreement, will be distributed by us to Wendy’s or contributed as equity to us in the fourth quarter of 2005, forming a continuing part of our equity.
       Our primary liquidity and capital requirements are for new store construction and general corporate needs. Historically, our working capital needs have not been significant because of our focused management of accounts receivable and inventory. We believe we will have sufficient cash flows from operations to fund our working capital requirements.

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       If additional funds are needed for strategic initiatives or other corporate purposes, we believe we could borrow additional funds while maintaining a strong capital structure. Our ability to issue additional equity is constrained because our issuance of additional shares may cause the spin-off to be taxable, and under the tax sharing agreement we would be required to indemnify Wendy’s against the tax.
       We are committed to a strong capital structure and financial profile. In connection with our separation from Wendy’s, we and Wendy’s determined the amount of debt that we would incur after considering our ability to service the debt, our leasing arrangements, our ability to finance current and future growth initiatives and the capital structure of comparable companies.
       Total borrowings, as well as cash and cash equivalents, as presented in our historical consolidated financial statements are not representative of the debt or cash and cash equivalents that we will have following our separation from Wendy’s. Historically, Wendy’s has centrally managed its capital structure in order to optimize its costs of funding and financial flexibility at the corporate level. Consequently, the debt being carried in our historical financial statements does not necessarily reflect our debt capacity and financing requirements. See “Unaudited Pro Forma Consolidated Financial Information.”
Loan Agreements
       As of October 2, 2005, we have a $25.0 million revolving credit facility which is guaranteed by Wendy’s and undrawn. Prior to the completion of this offering we expect to enter into a term loan agreement, under which we will incur new long-term indebtedness of approximately $500.0 million in aggregate principal amount. We also intend to enter into two revolving credit facilities: a $200.0 million revolving credit facility in Canada and a US$100.0 million revolving credit facility in the U.S. The terms of these new borrowing arrangements have not yet been finalized.
       In September 2005 we distributed, as a dividend on our common shares, a promissory note to Wendy’s in the principal amount of US$960.0 million. The note is payable within 30 days of demand and bears an interest rate of 3.0% per annum. We intend to use the net proceeds from this offering and the term loan agreement to repay our obligations under this note. We have hedged most of the U.S. dollar foreign currency risk to align with the expected repayment.
Comparative Cash Flows
       Operating Activities. Net cash provided from operating activities was $277.5 million for the first nine months of 2004 as compared to $168.2 million for the first nine months of 2005. Net cash provided from operating activities was $146.9 million in fiscal 2002, compared to $147.2 million in fiscal 2003 and $400.6 million in fiscal 2004. Operating cash flows for the first nine months of 2005 declined $109.3 million due primarily to timing differences in working capital relating to payments of accounts payable and accrued expenses and lower net cash inflows relating to amounts due from and to Wendy’s. In addition, interest and tax payments for the first nine months of 2005 were higher than in the comparative prior year period. Partially offsetting these operating cash flow declines, net income, net of amortization and depreciation expense, was higher for the first nine months of 2005 compared to the first nine months of 2004.
       Net operating cash flows in fiscal 2003 were $0.3 million higher than fiscal 2002 and $253.4 million lower than fiscal 2004. Cash flows in fiscal 2003 compared to fiscal 2002 benefited from higher net income, net of amortization and depreciation expense, which was substantially offset by higher interest and tax payments due to timing. Compared to fiscal 2003, fiscal 2004 cash flows benefited from higher net income, net of amortization and depreciation expense, increases in accounts payable and accrued expenses relating primarily to the timing of vendor payments and also benefited from lower interest payments. In addition, in fiscal 2004 we received more than $120.0 million in additional amounts from Wendy’s. See “— Financing Activities” below for a description of the cash flows between us and Wendy’s.

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       Investing Activities. Net cash used in investing activities for the first nine months of 2004 was $255.4 million as compared to $151.7 million for the first nine months of 2005. Net cash used in investing activities was $597.3 million in 2002, $108.0 million in 2003 and $357.0 million in 2004. Capital expenditures is typically the largest ongoing component of our investing activities and includes expenditures for new restaurants, improvements to existing restaurants and other capital expenditures. A summary of capital expenditures for fiscal 2002, 2003 and 2004 and for the first nine months of 2004 and 2005 is as follows:
                                         
    Fiscal Years   First Nine Months
         
Capital expenditures   2002   2003   2004   2004   2005
                     
    (in millions)
New restaurants
  $ 82.7     $ 89.1     $ 132.5     $ 65.8     $ 52.6  
Store improvements
    6.5       29.9       25.7       20.8       30.0  
Other capital needs
    22.6       12.9       39.6       39.7       49.3  
                               
Total capital expenditures
  $ 111.8     $ 131.9     $ 197.8     $ 126.3     $ 131.9  
                               
       In fiscal 2004, new restaurant capital expenditures were $68.9 million in Canada and $63.6 million in the U.S., both of which increased over the prior year. We expect fiscal 2005 capital expenditures to be in the range of $225.0 million to $250.0 million for new restaurant development, remodeling, maintenance, technology initiatives and other capital needs. Capital spending in fiscal 2005 is expected to be higher than the last several years due primarily to our new distribution and warehousing facility to be completed in 2006 to better serve our distribution needs. The expected investment in the new facility is in excess of $70.0 million, of which approximately 25.0% was spent in fiscal 2004. It is currently estimated that approximately 70.0% will be spent in 2005 and 5.0% in 2006. We anticipate fiscal 2006 systemwide new restaurant growth will be similar to 2005 in the range of 180 to 200.
       Other significant items impacting our investing cash flows in the nine month comparative periods included net short term loans made to Wendy’s of $103.9 million for the first nine months of 2004 compared to $21.9 million in the first nine months of 2005, the $60.9 million acquisition of 42 restaurants in New England in 2004 compared to no restaurant acquisitions made in 2005 and the 2004 maturity of short term investments of $31.9 million compared to no similar investments or maturities in 2005.
       The $489.3 million difference between fiscal 2002 and 2003 investing activity is primarily related to a $544.8 million change in our investing cash flows with Wendy’s. (See also “Financing Activities” below for a description of the cash flows between us and Wendy’s.) Also, in fiscal 2002 we received proceeds of $31.5 million from the sale of our cup business and made investments primarily in our joint venture with IAWS totaling $33.5 million, compared to $9.0 million invested in fiscal 2003. The $249.0 million increase in investing cash used in fiscal 2004 compared to 2003 was primarily driven by a $197.6 million net increase in cash outflows for loans made to Wendy’s. Other significant differences included short-term investments of $31.9 million made in fiscal 2003 which matured in 2004 and $60.9 million used for the 2004 acquisition of 42 restaurants in New England. As in prior years, we may invest in new business opportunities and expand our joint venture with IAWS. We will also evaluate other opportunities as they arise.
       Financing Activities. Financing activities provided cash of $18.6 million for the first nine months of 2004 and used cash of $26.2 million for the first nine months of 2005. Financing activities provided cash of $460.3 million, used cash of $39.4 million and provided cash of $0.5 million in 2002, 2003 and 2004, respectively. The primary differences impacting the comparability of financing activities between years are net cash flows related to debt between us and Wendy’s.
       Since 1995 we have been a wholly-owned subsidiary of Wendy’s. Accordingly, we did not seek significant external financing as we received funding in various forms from Wendy’s. Wendy’s primarily uses a worldwide centralized approach to cash management and the financing of

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operations. Types of transactions between us and Wendy’s include (1) transfers of cash from our U.S. operations to Wendy’s bank account on a regular basis, (2) net cash borrowings from Wendy’s used to fund operations, capital expenditures, acquisitions and for other purposes, (3) payment of related party dividends and interest to Wendy’s on a regular basis and (4) allocations of corporate expenses.
Contractual Obligations
       Our significant contractual obligations and commitments as of January 2, 2005 are shown in the following table. Purchase obligations primarily include commitments for advertising expenditures and purchases for certain food-related ingredients. These contractual obligations for long-term debt reflect our historical debt level, which is not representative of the debt repayments that will actually be due under our capital structure at the completion of this offering.
                                         
    Payments Due by Period
     
    Less than       After    
Contractual Obligations   1 Year   1-3 Years   3-5 Years   5 Years   Total
                     
    (in thousands)
Long-term debt, including current maturities
  $ 283     $ 465     $ 721     $ 16,876     $ 18,345  
Capital leases
    9,097       16,857       12,751       49,813       88,518  
Operating leases
    52,406       94,452       86,006       326,023       558,887  
Purchase obligations
    155,055       7,464       389       200       163,108  
                               
Total contractual obligations
  $ 216,841     $ 119,238     $ 99,867     $ 392,912     $ 828,858  
                               
         
    As of
Other Commercial Commitments   January 2, 2005
     
    (in thousands)
Franchisee lease and loan guarantees
  $ 1,461  
Letters of credit
    4,959  
       
Total other commercial commitments
  $ 6,420  
       
       As of January 2, 2005, we have guaranteed certain leases and debt payments of franchisees amounting to $1.5 million. In the event of default by a franchisee, we generally retain the right to acquire possession of the related restaurants. We are also the guarantor on $5.0 million in letters of credit with various parties; however, we do not expect any material loss to result from these instruments because we do not believe performance will be required. Effective January 1, 2003, we adopted FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” In accordance with FIN 45 and based on available information, we have accrued for certain guarantees and indemnities as of October 2, 2005 and January 2, 2005 in amounts which, in total, are not material.
       Certain of our U.S. employees participate in two Wendy’s-sponsored U.S. domestic defined benefit pension plans. Wendy’s manages those plans on a consolidated basis and makes contributions to those plans in amounts sufficient, on an actuarial basis, to fund, at a minimum, its portion of the plans’ normal cost on a current basis, and to fund its portion of the actuarial liability for past service costs in accordance with Department of Treasury Regulations. Obligations to persons who are participants as of the date of this prospectus will remain the responsibility of Wendy’s. See “Agreements Between Wendy’s and Us.” We do not intend to adopt a new U.S. defined benefit pension plan. Based on a headcount allocation approach, our pro rata expense related to the Wendy’s plans was not significant.

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       At January 2, 2005, our reserves for doubtful receivables and possible losses on notes receivable totalled $3.1 million. These reserves are included in accounts receivable. As of October 2, 2005, the reserve for doubtful receivables and possible losses on notes receivable declined to $1.7 million as our Canadian operations improved processes related to collections for franchisee and other accounts.
       In addition, as of October 2, 2005 we were obligated to Wendy’s on a promissory note in the principal amount of US$960.0 million. The note is payable within 30 days of demand and bears an interest rate of 3.0% per annum. We intend to use the net proceeds from this offering and the term loan agreement to repay our obligations under this note. We have hedged most of the U.S. dollar foreign currency risk to align with the expected repayment.
Off-Balance Sheet Arrangements
       We do not have “off-balance sheet” arrangements as of October 2, 2005 and January 2, 2005 as that term is described by the SEC.
Quantitative and Qualitative Disclosures about Market Risk
Inflation
       Financial statements determined on a historical cost basis may not accurately reflect all the effects of changing prices on an enterprise. Several factors tend to reduce the impact of inflation for our business. Inventories approximate current market prices, there is some ability to adjust prices and liabilities are repaid with dollars of reduced purchasing power.
Foreign Exchange Risk
       Our exposure to foreign exchange risk is primarily related to fluctuations in the Canadian dollar relative to the U.S. dollar. The impact of foreign exchange rates on our income statement has predominantly been related to our U.S. operations. In addition to the foreign currency exposure from ongoing operations, we have identified exposure to Canadian dollar exchange rates related to certain intercompany cross-border notes. In connection with the completion of this offering, these intercompany notes are now expected to be repaid and, accordingly, were marked-to-market in 2005. Previously, the translation of these intercompany notes was recorded as a component of comprehensive income, rather than in income, in accordance with FAS 52, Foreign Currency Translation. To manage this additional exposure, we entered into forward currency contracts to sell $500.0 million and buy US$427.4 million. Under Statement of Financial Accounting Standards (SFAS) No. 133, these forward currency contracts are designated as highly effective cash flow hedges. In accordance with SFAS No. 133, we defer unrealized gains and losses arising from these contracts until the impact of the related transactions occur. The fair value unrealized losses on these contracts as of October 2, 2005 was $5.0 million. During the first nine months of 2005, $5.1 million was recorded as a net transaction gain related to the intercompany notes prior to entering into the forward currency contracts.
       Also, in the fourth quarter of 2005 we entered into forward currency contracts to sell $578.0 million and buy US$490.5 million in order to hedge certain net investment positions in Canadian subsidiaries. Under SFAS No. 133, these forward currency contracts are designated as highly effective hedges and changes in the fair value of these instruments will be immediately recognized in other comprehensive income, to offset the change in the value of the net investment being hedged.
       The ongoing operational exposure to U.S. dollar exchange rates on our cash flows primarily includes purchases paid for by Canadian operations in U.S. dollars and payments from our Canadian operations to our U.S. operations and to Wendy’s. Net cash flows between the Canadian and U.S. dollar currencies were in excess of $100.0 million for the first nine months of 2005 and for fiscal

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2004. Forward currency contracts to sell Canadian dollars and buy US$34.9 million and US$38.8 million were outstanding as of October 2, 2005 and January 2, 2005, respectively, to hedge purchases from third parties and intercompany payments. The contracts outstanding at October 2, 2005 and January 2, 2005 mature at various dates through April 2006 and June 2005. The fair value unrealized losses on these forward contracts was $6.6 million as of October 2, 2005 and $6.0 million as of January 2, 2005.
       Wendy’s has historically managed certain of our hedging arrangements. After the completion of this offering, we will manage all hedging arrangements. We intend to manage our cash flows and balance sheet exposure to changes in the value of foreign currencies. We may use derivative products to reduce the risk of a significant negative impact on our U.S. dollar cash flows or income. We do not hedge foreign currency exposure in a manner that would entirely eliminate the effect of changes in foreign currency exchange rates on net income and cash flows. We have a policy forbidding trading or speculating in foreign currency. By their nature, derivative financial instruments involve risk including the credit risk of non-performance by counterparties, and our maximum potential loss may exceed the amount recognized in our balance sheet. To minimize this risk, we limit the notional amount per counterparty to a maximum of $100.0 million except in special circumstances for which board approval is obtained.
       Changes in the fair value of the cash flow hedges and net investment hedges due to changes in U.S. and Canadian dollar exchange rates are offset by the underlying transaction with little or no impact to our net income.
       At the current level of annual operating income generated from our U.S. operations, if the U.S. currency rate changes by $0.05, or 4.0%, compared to the average 2005 year-to-date exchange rate, for an entire year, the annual impact on our net income would be immaterial.
Interest Rate Risk
       Historically, we have had insignificant external borrowings. We will become exposed to interest rate risk impacting our net borrowing costs if our new long-term borrowings of $500.0 million bear a floating rate of interest. We will seek to manage our exposure to interest rate risk and to lower our net borrowing costs by managing the mix of fixed and floating rate instruments based on capital markets and business conditions. We will not enter into speculative swaps or other speculative financial contracts.
Commodity Risk
       We purchase certain products in the normal course of business, the prices of which are affected by commodity prices. Therefore, we are exposed to some price volatility related to weather and various other market conditions outside of our control. However, we do employ various purchasing and pricing contract techniques in an effort to minimize volatility. Generally these techniques include setting fixed prices with suppliers, setting in advance the price for products, such as green coffee, to be delivered in the future and unit pricing based on an average of commodity prices over the corresponding period of time. We do not generally make use of financial instruments to hedge commodity prices, partly because of these contract pricing techniques. While price volatility can occur, which would impact profit margins, we have the ability to increase selling prices to offset a rise in commodity prices.
Concentration of Credit Risk
       We have cash in various Canadian bank accounts above amounts guaranteed by the Canada Deposit Insurance Corporation (CDIC). The amount in Canadian banks above CDIC limits was approximately $114.6 million and $129.5 million as of October 2, 2005 and January 2, 2005, respectively. We utilize only high-grade banks in Canada for accounts that might exceed CDIC limits. We also have cash balances in various U.S. bank accounts above the Federal Deposit Insurance

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Corporation (FDIC) guarantee limits. We subscribe to a bank rating system and only utilize high-grade banks for accounts that might exceed these limits. The amount in U.S. banks above FDIC limits was approximately $1.9 million as of October 2, 2005 and was not material as of January 2, 2005.
The Application of Critical Accounting Policies
       We describe our significant accounting policies, including our critical accounting policies, in Note 1 of our audited historical consolidated financial statements. Critical accounting policies are those that we believe are both significant and may require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires us to make assumptions and estimates that can have a material impact on the results of our operations. The earnings reporting process is covered by our system of internal controls, and generally does not require significant estimates and judgments. However, estimates and judgments are inherent in the calculations of royalty and other franchise-related revenue collections, legal obligations, income taxes, various other commitments and contingencies, valuations used when assessing potential impairment of goodwill, other intangibles and other long lived assets and the estimation of the useful lives of fixed assets and other long-lived assets. While we apply our judgment based on historical experience, current economic and industry conditions and various assumptions believed to be reasonable under the circumstances, actual results could vary from these assumptions. Materially different amounts may be reported using different assumptions.
Revenue Recognition
       Revenue at company-operated restaurants is recognized as customers pay for products at the time of sale. We operate warehouses in Canada to distribute coffee and other dry goods to an extensive franchise system. Revenues from these sales are recorded when the product is delivered to the franchisee.
       Franchise revenues consist of royalties, rents and various franchisee fees. Royalties and rent revenues are recognized in the month earned at estimated realizable amounts, and fee revenues are recognized when the related services have been performed and when the related franchise restaurant is opened.
       We provide for estimated losses for revenues that are not likely to be collected. Although we generally enjoy a good relationship with our franchisees, and collection rates are currently high, if average sales or the financial health of our franchisees were to deteriorate, we might have to increase reserves against collection of franchise revenues.
Income Taxes
       We have accounted for, and currently account for, income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. We record both Canadian and U.S. income tax liabilities utilizing known obligations and estimates of potential obligations. A deferred tax asset or liability is recognized whenever there are future tax effects from existing temporary differences and operating loss and tax credit carryforwards. When considered necessary, we record a valuation allowance to reduce deferred tax assets to the balance that is more likely than not to be realized. Management must make estimates and judgments on future taxable income, considering feasible tax planning strategies and taking into account existing facts and circumstances, to determine the proper valuation allowance. When we determine that deferred tax assets could be realized in greater or lesser amounts than recorded, the asset balance and income statement reflect the change in the period such determination is made. Due to changes in facts and circumstances and the estimates and judgments that are involved in determining the proper valuation allowance, differences between actual future events and prior estimates and judgments could result in adjustments to this valuation

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allowance. We use an estimate of our annual effective tax rate at each interim period based on the facts and circumstances available at that time while the actual effective tax rate is calculated at year-end. As a subsidiary of Wendy’s, we are not a separate taxable entity for U.S. federal and certain state income tax purposes. Consequently, Wendy’s includes our results of operations in its combined U.S. federal and state income tax returns. Our U.S. tax provision is computed on a separate return basis.
Property and Equipment, and Leasehold Improvements
       Depreciation and amortization are recognized using the straight-line method in amounts adequate to amortize costs over the following estimated useful lives: buildings, up to 40 years; restaurant equipment, up to 15 years; other equipment, up to 10 years; and leasehold improvements and property under capital leases, the lesser of the useful life of the asset or the lease term, as that term is defined in SFAS No. 13, “Accounting for Leases,” as amended. We estimate useful lives on buildings and equipment based on historical data and industry trends. We capitalize certain internally developed software costs which are amortized over a period of up to 10 years. We monitor our capitalization and amortization policies to ensure they remain appropriate. Intangibles separate from goodwill are amortized on a straight-line basis over periods of up to 30 years. Lives may be related to legal or contractual lives or must be estimated by management based on specific circumstances.
Impairment of Long-Lived Assets
       Long-lived assets are grouped into operating markets and tested for impairment whenever an event occurs that indicates that impairment may exist. We test for impairment using the cash flows of the operating markets. A significant deterioration in the cash flows of an operating market or other circumstances may trigger impairment testing. If impairment is indicated, the fair value of the fixed assets is estimated using the discounted cash flows of the market or third party appraisals. The interest rate used in preparing discounted cash flows is management’s estimate of the weighted average cost of capital.
Goodwill
       Goodwill resulted primarily from our acquisition of 42 restaurants in New England in 2004. Goodwill is not subject to amortization. We test goodwill for impairment annually in the fourth quarter (or in interim periods if events or changes in circumstances indicate that its carrying amount may not be recoverable) by comparing the fair value of each reporting unit, as measured by discounted cash flows and market multiples based on earnings, to the carrying value, to determine if there is an indication that a potential impairment may exist. Our reporting units are Canada and the U.S. Each constitutes a business and has discrete financial information available that is regularly reviewed by management. One of the most significant assumptions is the projection of future sales. We review our assumptions each time goodwill is tested for impairment and make appropriate adjustments, if any, based on facts and circumstances available at that time. We tested for goodwill impairment as of year-end 2004, and no impairment was indicated.
Reserves Contingencies for Litigation and Other Matters
       In the normal course of business, we must make continuing estimates of potential future legal obligations and liabilities, which requires the use of management’s judgment on the outcome of various issues. Management may also use outside legal advice to assist in the estimating process. However, the ultimate outcome of various legal issues could be different than management estimates, and adjustments to income could be required.

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Variable Interest Entities
       We adopted FIN 46R in 2004. We enter into flexible lease arrangements with certain franchisees who are not required to invest a significant amount of equity. Because the legal entity within which such a franchise operates is considered to not be adequately capitalized, that entity is considered a variable interest entity (VIE). Based on our review of the financial statements received from these franchisees, our mathematical projections indicate we are the primary beneficiary of these VIEs and, accordingly, we have consolidated approximately 80 franchise restaurants as of 2004, or approximately 3.0% of our total franchise restaurants. The related minority interest is not considered material and is classified in other income, net on the statement of income and other long-term liabilities on the balance sheet.
       We have no equity interest in any of our franchisees and have no “off-balance sheet” exposures relative to any of our franchisees. None of our assets serves as collateral for the consolidated franchisees, and creditors of these franchisees have no recourse to us. The only exposure to us related to these VIEs relates to the collection of amounts due to us, which are collected weekly and which were recorded net of uncollectible amounts in our financial statements prior to the adoption of FIN 46R. The agreements governing the lease arrangements can be cancelled by either the franchisee or us with 30 days notice, further reducing our potential exposure.
       Franchisee VIEs for which we are determined to be the primary beneficiary have no impact on our reported net income. The impact of consolidating these VIEs to our balance sheet is also not significant. There is a small percentage of franchise restaurants considered to be VIEs in which we hold a significant variable interest, but for which we are not the primary beneficiary. Our maximum exposure to loss as a result of its involvement with this small percentage of franchise restaurants is also not material.
Recently Issued Accounting Standards
       In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment,” which requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award using an option-pricing model. The cost of the awards, including the related tax effects, will be recognized in income. This statement eliminates the alternative to use the intrinsic value method for valuing stock based compensation, which typically resulted in recognition of no compensation cost. This statement was to become effective for interim or annual periods beginning after June 15, 2005, with early adoption encouraged. On April 15, 2005, the SEC issued Release No. 33-8568, which amended the date for compliance with SFAS No. 123R to the first interim or annual period of the first fiscal year beginning after June 15, 2005, with early adoption permitted. On October 27, 2005, Wendy’s announced that its compensation committee, after discussion with its board of directors, approved accelerated vesting of all outstanding stock options, except those held by the independent directors of Wendy’s. The decision to accelerate vesting of stock options was made primarily to reduce non-cash compensation expense that would have been recorded in future periods following adoption of SFAS No. 123R. and is expected to have a positive effect on employee morale and retention. The Wendy’s compensation committee imposed a holding period that will require all executive officers to refrain from selling net shares acquired upon any exercise of these accelerated options, until the date on which the exercise would have been permitted under the option’s original vesting terms or, if earlier, the executive officer’s death, disability or termination of employment. Under SFAS No. 123R, the classification of cash flows between operating and financing activities will be affected due to a change in treatment for tax benefits realized. As a result of the acceleration of vesting on the majority of Wendy’s outstanding stock options, we do not expect the adoption of SFAS No. 123R to have a significant impact on our financial statements.
       SFAS No. 123R requires recognition of compensation cost under a non-substantive vesting period approach, which requires recognition of compensation expense when an employee is eligible

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to retire. We have historically recognized this cost under the nominal vesting approach, generally over the normal vesting period of the award. When we adopt SFAS No. 123R in the first quarter of 2006, we will change to the non-substantive approach.
       In June 2005, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 05-06, “Determining the Amortization Period for Leasehold Improvements.” The consensus requires that the amortization period for leasehold improvements acquired in a business combination or acquired subsequent to lease inception should be based on the lesser of the useful life of the leasehold improvements or the period of the lease including all renewal periods that are reasonably assured of exercise at the time of the acquisition. The consensus is to be applied prospectively to leasehold improvements acquired subsequent to June 29, 2005. This consensus is consistent with our accounting policy and thus had no impact upon adoption.
       In October 2005, the FASB issued FSP FAS 123(R)-2, “Practical Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123(R),” which provides clarification of the concept of mutual understanding between employer and employee with respect to the grant date of a share-based payment award. This FSP provides that a mutual understanding of the key terms and conditions of an award shall be presumed to exist at the date the award is approved by management if the recipient does not have the ability to negotiate the key terms and conditions of the award and those key terms and conditions will be communicated to the individual recipient within a relatively short time period from the date of approval. This guidance shall be applied upon initial adoption of SFAS No. 123R. We do not expect adoption to have a significant impact on our financial statements.
       In October 2005, the FASB issued FSP FAS 13-1, “Accounting for Rental Costs Incurred during a Construction Period,” which addresses the accounting for rental costs associated with operating leases that are incurred during a construction period. This FSP requires that rental costs associated with ground or building operating leases that are incurred during a construction period be recognized as rental expense and included in income from continuing operations. The guidance in this FSP shall be applied to the first reporting period beginning after December 15, 2005, with early adoption permitted. We are currently evaluating the impact of adopting FSP FAS 13-1, but do not expect it to have a significant impact on our financial statements.

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BUSINESS
Overview
       We are the largest QSR chain in Canada based on systemwide sales and number of restaurants open, with a menu spanning a broad range of categories that appeal to customers throughout the day, such as premium blend coffee, flavoured cappuccinos, specialty and steeped teas, home-style soups, fresh sandwiches and freshly baked goods. According to the CRFA and Statistics Canada, in 2004 our system represented 22.6% of the $14.0 billion QSR segment of the Canadian foodservice industry based on sales dollars, almost 25.0% larger than McDonald’s, our nearest competitor. According to a tracking study we conducted in 2003, approximately 46.0% of our Canadian customers visit our restaurants four or more times per week. We believe we have achieved this outstanding customer loyalty by offering a varied menu of products with superior quality and consistency in a convenient and friendly environment at an exceptional value and by being very involved in the communities we serve. The appeal of our menu and our commitment to convenience also allow most of our restaurants to operate 24 hours each day with no two-hour period accounting for more than 20.0% of our average daily sales.
       Our restaurants operate under a variety of formats. A standard Tim Hortons restaurant is a free-standing building ranging in size from 1,400 to 3,090 square feet with a convenient drive-thru window and featuring innovative merchandising techniques designed to capture our customers’ senses and generate incremental sales. As of October 2, 2005, we had a system of 2,801 restaurants in Canada and the U.S. Our 2,529 restaurants across Canada include 660 non-standard, smaller restaurants in locations such as universities, hospitals and office buildings. We have a significant and long-standing strategic partnership with Exxon-Mobil’s Canadian subsidiary, with more than 325 kiosks located within their Esso® convenience stores in Canada. In the U.S., we have a regional presence in the Northeast and Midwest with 272 restaurants in 10 states, concentrated in three major markets. As of October 2, 2005, franchisees operated 2,705, or 98.8%, of the restaurants in Canada and 207, or 76.1%, of the restaurants in the U.S.
       We have developed what we believe to be a superior business model characterized by financial stability and scalability, operational excellence and flexibility. Our diverse revenue and operating income base is generated from franchisee royalties and fees, rental income, warehouse sales and company-operated stores, limiting our exposure to commodity price fluctuations. Franchisee royalties are typically paid weekly based on a percentage of gross sales. We have a rigorous restaurant site selection and development process and differentiate ourselves from most restaurant companies by controlling the real estate of most of our franchise restaurants. Our vertically-integrated manufacturing and distribution capabilities include a joint venture bakery and a coffee roasting plant. These operations improve product quality, variety and consistency, expand our product offering capabilities, ensure availability and timely delivery of products and provide economies of scale and labour efficiencies. We have distributed dry goods and other items to our franchisees for over 30 years and have generated consistent income from our product distribution and warehouse operations.
       Since our founding in 1964, we have been committed to a strategy of earning the trust of our customers through product quality and price value. This focus has built Tim Hortons into one of the most widely-recognized consumer brands in Canada, delivering consistent revenue growth and increasing profits. Since the end of 1995, our systemwide sales have grown at an 18.5% CAGR and our revenues have grown at a 17.1% CAGR. This growth is a result of expanding the number of restaurants annually by a 9.6% CAGR and increasing average annual same-store sales by 7.0% and 10.0% in Canada and the U.S., respectively, over that period. In fiscal 2004, we had total revenues of $1.3 billion, operating income of $319.3 million and net income of $205.1 million, representing increases from fiscal 2003 of 14.2%, 14.5% and 31.2%, respectively. In the nine months ended October 2, 2005, we had total revenues of $1.1 billion, operating income of $259.3 million and net income of $174.7 million, representing increases from the first nine months of fiscal 2004 of 13.1%, 11.7% and 15.8%, respectively.

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Our History
       In May 1964, Tim Horton, a National Hockey League All-Star defenseman, opened his first coffee and donut shop on Ottawa Street in Hamilton, Ontario. In 1967, Ron Joyce, then the operator of three Tim Hortons restaurants, became partners with Tim Horton and together they opened 37 new restaurants over the next seven years. After Tim Horton’s death in 1974, Mr. Joyce continued to expand the chain, becoming its sole owner in 1975. In the early 1990s, Tim Hortons and Wendy’s entered into a partnership to develop real estate and combination restaurants containing Wendy’s and Tim Hortons under the same roof. In 1995, Wendy’s purchased Mr. Joyce’s ownership of the Tim Hortons system.
       Initially a coffee and donut chain, Tim Hortons restaurant offerings have evolved to meet changing consumer tastes. We have added sandwiches, soups, specialty coffees and additional baked goods to our staple coffee and donut offerings, and our restaurant formats have adapted to meet our customers’ growing demand for convenience and comfort. In 1996, the addition of bagels to the Tim Hortons menu began a key shift in our focus to the use of par-baked products— products that are baked almost to completion at a baking facility, flash-frozen and shipped to system restaurants, where the baking process is completed using proprietary ovens. In 2002, our joint venture with IAWS commissioned the construction of the Maidstone Bakeries facility, which manufactures par-baked donuts, Timbits and other bread products for system restaurants. This facility allows Tim Hortons restaurants to provide our signature Always Fresh products.
Our Industry
       We compete in the QSR segment in Canada and the U.S. Our industry in both countries is large, growing and characterized by change due to shifting demographic, economic and consumer taste trends. Over the past decade, rising household income and an increase in desire for convenience have led to growth in total expenditures for food-away-from-home and the proportion of total food expenditures allocated to spending on food-away-from-home. The growth in real disposable income combined with the increased time commitments of dual income families is expected to continue.
       Foodservice sales in Canada grew by 2.6% in 2004 to $46.8 billion and are expected to surpass $50.0 billion in 2006, according to the CRFA. The QSR segment represents 30.0% of the total Canadian foodservice industry and its sales are projected to grow 4.1% in 2006. From 2000 to 2005, the Canadian QSR segment grew at a 4.1% CAGR.
       In the U.S., the QSR segment is the largest segment of the restaurant industry. According to the 2005 Technomic Information Service Top-500 Chain Restaurant Report, sales at QSRs in the U.S. were approximately US$159.6 billion in 2004, up 7.5% over 2003, and are projected to increase at a 5.4% CAGR between 2004 and 2009.
Our Competitive Strengths
       Iconic brand status in Canada. Tim Hortons was recognized as the best managed brand in Canada, according to annual surveys published by Canadian Business magazine in 2004 and 2005. In addition, in an internal 2005 national study conducted for us by Segmentation Marketing Limited, when consumers were asked which fast service chain, convenience store or gas station they stop at to have a coffee, snack or meal most often, Tim Hortons was named 37.0% of the time, nearly three times higher than the nearest competitor. We believe our leading position in terms of market share, number of system restaurants open and systemwide sales volume demonstrates our unparalleled level of consumer acceptance. We believe the strength of our brand and culture is a result of our ongoing systemwide commitment to product quality, continuous innovation, superior customer service, exceptional value and successful relationships with our franchisees. Our brand has been further strengthened over the past 30 years by our close involvement and participation in the communities we serve, including our association with The Tim Horton Children’s Foundation, a non-

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profit charitable organization that provides a fun-filled camp environment for children from economically disadvantaged homes. We were also named one of Canada’s most admired corporate cultures for 2005 by Canadian Business magazine. We will continue to leverage our brand name as we execute our growth strategy in Canada and the U.S.
       Leading market positions in Canada. According to the 2005 NPD foodservice industry report, our system represented 74.0% of the coffee and baked goods sector of the Canadian QSR segment, based on the number of customers served over the 12 months ended August 31, 2005. In addition, we have the leading market position in the Canadian QSR segment, based on systemwide sales, and a very strong presence in every province. We believe our presence in key markets and our ability to leverage our scale in advertising will help us maintain and extend our market leadership position.
       Systemwide focus on operational excellence. We are an operations-driven organization. We invest substantial resources in developing programs, processes, technology and field support for our system of franchised and company-operated restaurants. We focus on continuous improvement in operations so we can consistently serve high quality food while providing exceptional customer courtesy, order accuracy and speed of service, thereby enhancing our customers’ overall experience.
       Energized and committed franchisee base. Since our founding, we have been committed to working closely with our franchisees. Our over 1,000 franchisees in North America are critical to our success, delivering exceptional hands-on customer service every day. Our franchisees are strongly committed to our system growth, having collectively invested over $75.0 million of their capital in infrastructure support during 2002 and 2003 for our proprietary Always Fresh baking system. The average Tim Hortons franchisee in Canada has been a franchisee for almost nine years and owns three restaurants. Our unique franchise model, whereby we typically acquire rights to control and develop restaurant real estate, provides us access to a broader franchisee base and encourages consistent execution of our growth and profitability strategy. We actively manage and share information with our franchisees through an advisory board, operations and business committees, regional and national in-person meetings and annual surveys.
       Integrated and scalable business model. We have invested substantial resources and capital in developing an integrated and scalable business model. Our vertically integrated manufacturing and distribution platforms enable us to realize economies of scale and offer customers innovative products. Our Always Fresh system enables us to bake and serve fresh and consistent products throughout the day, as well as to open restaurants in a variety of formats, sizes and locations. We control the site selection, design and construction of our restaurants, which enables us to increase penetration in existing and new markets by improving customer convenience. We control the real estate for approximately 80.0% of our system restaurants, which generates a recurring stream of rental income.
       Proven, experienced management team with track record of exceptional growth. Our executive management team has an average tenure with us of more than 12 years. Together with our dedicated team of employees, they have significantly contributed to our strong financial performance. Between 1995 and 2004, we increased our average sales per standard Canadian restaurant from $878,000 to $1.7 million. Our financial performance is a result of our focus on restaurant operations, coordination among employees and franchisees and the performance of our vertically integrated manufacturing and distribution platforms. We believe the strength and stability of our senior management team will continue to be a competitive advantage as we execute our growth strategies.
Our Business Strategy
       Our goal is to increase our revenues and profitability through a combination of increased same-store sales, new restaurant growth and continuous improvement in our operations with new products,

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processes and technologies. We intend to achieve this goal through the continued execution of our business strategy, which includes the following key elements:
       Drive sales growth at existing restaurants through continued innovation. We have achieved average annual systemwide sales growth of 18.5% since the end of 1995. This reflects our strong and increasing brand awareness, emphasis on customer service and continuous product and process innovation. We strive to foster a culture of innovation among our employees and franchisees, challenging the organization to constantly monitor and respond to the changing tastes and needs of consumers. We believe we have a unique assortment of fresh signature products that meet our customers’ needs across all parts of the day. We plan to expand our menu to offer more quality items under our beverage, soup, sandwich and baked goods categories to drive sales throughout the day and attract new customers. In addition, we intend to continue to use effective national, regional and local advertising and promotions, as well as our involvement in our communities, to increase our brand awareness with consumers. We also intend to continue improving restaurant efficiency levels and expanding each restaurant’s capacity for customer transactions to drive incremental sales, while investing in technology to improve customer service.
       Sustain the health and viability of our franchisee base. We have developed a large, diversified, and, we believe, highly committed franchisee base, which is a critical component of our systemwide success. We intend to continue strengthening our franchise system by building the Tim Hortons brand, attracting and retaining experienced and motivated franchisees whose interests are aligned with ours, providing new and innovative menu offerings, providing real estate and operational support and being involved in our franchisee communities. We believe these measures will enhance the overall strength of our system and provide both us and our franchisees with attractive returns, allowing both of us to reinvest in the business.
       Increase penetration of the Canadian market. We will continue leveraging our brand strength to further penetrate the Canadian market using our franchise business model. Although we have a leading market position in the Canadian QSR segment, based on systemwide sales, and a very strong presence in every province, there are numerous growth opportunities in the Western provinces, Quebec and select high-traffic metropolitan areas. Our “we fit anywhere” strategy of non-standard formats gives us the flexibility to add restaurants in high-traffic consumer locations without over-saturating any individual market. Further, our rigorous restaurant location and franchisee selection processes are integral to the successful execution of our growth strategy. Our long-term goal is to have between 3,500 and 4,000 system restaurants open in Canada.
       Pursue long-term profitable expansion in the United States. We have become a strong regional player in the U.S., with locations in 10 states, primarily in the Northeast and Midwest regions. Tim Hortons restaurants in the U.S. have experienced an average annual same-store sales growth of 9.8% from 1999 to 2004, even as we have expanded our U.S. system during that period from 108 to 251 restaurants. We intend to continue our efforts to profitably expand our system’s U.S. presence by further penetrating existing markets, entering adjacent markets and selectively pursuing other strategic initiatives. Our goal is to have 500 system restaurants open in the U.S. by the end of 2008.
Our Menu
       Our menu spans a broad range of categories designed to appeal to customers throughout the day, such as premium blend coffee, flavoured cappuccinos, specialty and steeped teas, home-style soups, fresh sandwiches and freshly baked goods, including donuts, bagels, muffins, cookies, croissants and pastries.

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       While the largest portion of systemwide sales are generated in the morning daypart, we generate sales throughout the day. According to NPD’s May 2005 report:
  •  we lead the breakfast/a.m. snack category in the QSR segment with a 60.7% share of eater occasions, while McDonald’s is second with a 10.3% share;
 
  •  we rank second in Canada in the lunch category in the QSR segment with a 12% share of eater occasions, compared to 23.5% for McDonald’s; and
 
  •  we lead the p.m. snack category (which excludes dinner) in the QSR segment with a 44.7% share of eater occasions, with McDonald’s second at 11.6%.
       The following chart shows the percent of revenues generated by product category during the first nine months of 2005 in Canada and the U.S.:
                 
Product   Canada   U.S.
         
Coffee
    47 %     31 %
Baked goods
    23 %     29 %
Soup and sandwiches
    11 %     16 %
Hot beverages
    11 %     10 %
Cold beverages
    7 %     13 %
Miscellaneous hardware and gifts
    1 %     1 %
       Coffee. 46.0% of our Canadian customers visit our restaurants an average of four or more times per week. We believe our high quality coffee, made only from 100% Arabica beans, is a major reason for the high volume of return visits. Our commitment to the quality of our coffee is evidenced by strict guidelines that, as part of our Always Fresh strategy, Tim Hortons coffee must be sold within 20 minutes of being brewed. We also provide a coffee-specific training course for franchisees and operations field personnel, and maintain a “coffee lab” in our national research and development centre to monitor coffee quality. In addition, in 2001 we purchased our Maidstone Coffee roasting facility in Rochester, New York. This facility now supplies one-third of the Tim Hortons system, with the balance provided by third-party roasters.
       Baked goods. Tim Hortons restaurants sell a wide variety of donuts, as well as Timbits (bite-sized donuts), danishes, cookies, muffins and more. Every month we market a new donut variety as our “product of the month,” such as “melt-in-your-mouth” toffee glazed, caramel cappuccino, triple berry and pumpkin spiced glazed donuts. These limited-time products help drive repeat visits by our customers.
       We introduced bagels as a menu item in 1996. Today, according to NPD’s August 2005 report, we sell four of every five bagels sold in the QSR segment in Canada. Introducing bagels showed us the quality and taste that a par-baked product could provide and provided an opportunity for further innovation; to maintain speed of service for bagels, we developed higher-speed “turbo toasters” that allow us to toast a bagel in under 20 seconds.
       Soups and sandwiches. We originally introduced soup and sandwiches as lunch products in the late 1980s and early 1990s, and launched our branded line called “Tim’s Own”® soups and sandwiches in 1998. According to NPD’s August 2005 report, 45.9% of all soup occasions in the Canadian QSR segment occur at our system restaurants. Our nearest competitor has a 3.0% share.
       Hot and cold beverages. In addition to coffee, other hot beverages we sell include flavoured cappuccinos, specialty and steeped teas, hot chocolate, “Café Mocha” (hot chocolate, coffee and whipped cream) and “Hot Smoothees” (flavoured caffeine-free hot drinks). Our cold drink offerings range from juices to sodas and iced cappuccinos.

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Restaurant Operations Support
       The ability of our system to consistently deliver on our customer promise—delivering high quality food and excellent service at a compelling value—has been and will continue to be critical to our success. Because our franchisees operate the vast majority of our restaurants, we have invested substantial resources in developing programs, processes, technologies and field support personnel to support our franchisees. Our franchisees are committed to maintaining the highest caliber of operations and customer satisfaction, and together we continuously look for improvement in all facets of the operations, with high levels of focus on speed of service, consistency of product quality, overall restaurant appeal and dining experience.
       We are an operations-driven business, as evidenced by the substantial investments we have made in our proprietary Always Fresh baking system, our innovative store designs, our restaurant equipment packages and the ongoing training and development of our people. Our field management is in regular contact with our franchisees, frequently visiting the restaurants and providing support and consultation on all facets of the business, including:
  •  ongoing new product research and process innovation;
 
  •  identifying and evaluating restaurant sites and managing the real estate development, financing, design and construction process with our franchisees;
 
  •  providing initial training to new franchisees and ongoing training for existing franchisees; and
 
  •  analyzing, sharing and instituting best practices across the system in all areas of operations and recognizing top performers.
       In 1993 we instituted the Always Fresh appraisal program to measure restaurant compliance with our high standards. The appraisal, which focuses on product quality, freshness and availability, speed of service and hospitality, restaurant cleanliness, product merchandising and housekeeping, is designed to promote a consistent customer experience across the system. We award cash prizes to the top three restaurants in each of 16 regions and designate as “Platinum Award Restaurants” those restaurants that score at least 92.0% on the appraisal.
Product and Process Innovation
       New product development is critical to our long-term success and is a significant factor behind our average same-store sales growth. As we have expanded from a coffee and donut chain to a provider of breakfast, lunch and snack products, we have maintained our focus on high quality products. Product innovation begins with an intensive research and development process that analyzes each potential new menu item, including small market tests to gauge consumer taste preferences, and concludes with an analysis of the economics of food cost and margin and final price point.
       In 2002, our joint venture with IAWS commissioned the construction of the Maidstone Bakeries facility, which manufactures par-baked donuts, Timbits (bite-sized donuts) and selected breads, following our traditional recipes. Those products are then flash frozen and shipped to system restaurants, each of which contains an Always Fresh oven with our proprietary technology. The restaurant completes the baking process with this oven, allowing the product to be served warm to the customer within a few minutes of baking.
       The Always Fresh baking system allows our restaurants to prepare and serve products more often and in smaller batches, which allows customers to purchase fresh baked goods throughout the day and night. It also provides products of more consistent quality from restaurant to restaurant. In addition, this system provides operational efficiencies: food waste is reduced because product volumes can be managed more closely, and the limited space required for the Always Fresh oven permits even our non-standard kiosk locations to provide fresh baked goods. Our franchisees

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collectively invested over $75.0 million of their capital in infrastructure support during 2002 and 2003 for our Always Fresh baking system.
Our Real Estate Operations
       Overseeing and directing all aspects of real estate for system restaurants is a critical core competency for us. Before we approve a location for development, we review that location’s demographics, site access, visibility, traffic counts, mix of residential/retail/commercial surroundings, competitive activity and proposed rental structure. We also assess the performance of nearby Tim Hortons locations, project the location’s ability to meet financial return targets and consider whether an existing or new franchisee should operate the location. Once a specific location is approved for development, it usually takes 10 to 12 months until construction of the restaurant is completed.
       The following chart shows our real estate operations as of October 2, 2005.
                         
    Canada   U.S.   Total
             
Owned restaurant properties
    451       158       609  
Leased restaurant properties
    1,549       109       1,658  
Restaurant properties owned or leased from third parties by franchisees
    529       5       534  
       We lease land generally for initial terms of 10 to 20 years, sometimes with an option for us to purchase the real estate. Leases covering approximately 30.0% of our total leased properties at October 2, 2005, primarily non-standard locations, require us to pay all or a component of the rent as a percentage (ranging from 2.0% to 13.0%) of annual sales.
Restaurant Designs, Atmosphere and Layout
       The décor, layout and overall feel of Tim Hortons restaurants have evolved to meet changing customer needs and tastes, as well as to respond to operational growth and innovation. While we have a standard—and highly recognizable—stand-alone restaurant design, we vary our design to fit into unique situations. Ultimately, we control the design and building of our restaurants to cater to the market and the neighbourhood in which they are located.
Choosing and Training our Franchisees
       Finding exceptional franchisee candidates is critical to our system’s successful growth and development. Accordingly, we value our comprehensive franchise screening and recruitment process, which employs multi-level interviews with our senior operations management and requires candidates to work two to three different shifts in an existing franchisee’s restaurant.
       Each new franchisee participates in a mandatory eight-week intensive training program to learn all aspects of operating a Tim Hortons restaurant in accordance with our standards. We also provide ongoing training and education to franchisees and their staff.

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Quality Control and Food Safety
       Our quality control procedures are rigorous and include several systemwide programs designed to maintain an excellent, safe and consistent environment for our customers and employees. Our district managers implement the following quality control programs in every Tim Hortons restaurant:
         
    Program    
Quality Control Programs   Frequency   Areas of Focus
         
Always Fresh Appraisal
  Nine times
annually
  Product quality, freshness, availability, speed of service, hospitality, merchandising and cleanliness
Always Fresh Back of the House
  Six times
annually
  Restaurant condition, appearance, cleanliness and procedural compliance
Security Audit
  Annual   Physical security, interior/exterior lighting, cash handling protocols and surveillance and security systems
Always Fair Evaluation
  Annual   Employee incentive programs and performance management, documentation, compliance with regulated employee standards
Hospitality Evaluation
  Ongoing   Customer service via anonymous feedback over the Internet or toll-free telephone line
       Because our brand is so closely linked to the public’s perception of our food quality and safety, we require all of our franchisees, as well as their managers and our operations personnel, to complete the ServSafe® food safety training program. ServSafe is the most widely accepted food safety program among local, provincial, state and federal health departments in Canada and the U.S. Each participant must complete this program with a passing grade and be re-certified every five years. We also conduct site visits and unscheduled food safety audits, and require that all restaurant staff complete a multi-level food safety training module as part of their mandatory training. Each element of this training program has been assessed by different levels of government in different jurisdictions for content and accuracy.
Our Locations
       At October 2, 2005, our system was comprised of 2,801 restaurants in a variety of standard and non-standard formats.
       Standard. Our standard restaurant measures between 1,400 to 3,090 square feet, with a dining room, a counter for placing orders and, in 71.0% of our standard restaurants, drive-thru service. Standard restaurants comprised 78.0% of our system as of October 2, 2005. Typically, we construct single or double drive-thru restaurants if seating is not required or property size is an issue. We have “combination stores,” which offer Tim Hortons and Wendy’s products at one location. Our combination stores have a common area dining room and separate counters. Today we have 168 combination stores in Canada and 42 in the U.S.
       Non-Standard. We design our non-standard restaurants to fit anywhere. They are kiosks located in office towers, hospitals, colleges, airports, gas station convenience stores and on smaller pieces of property. These units can average from 150 square feet to 900 square feet. These non-standard restaurants allow us to further penetrate regions where significant numbers of our standard restaurants already exist.

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       The following table illustrates our system restaurant locations as of October 2, 2005 and the market penetration by restaurant type.
                 
        Non-
Location by Province/Territory   Standard   standard
         
Alberta
    141       53  
British Columbia
    141       62  
Manitoba
    36       14  
New Brunswick
    99       22  
Newfoundland
    45       9  
Nova Scotia
    144       35  
Northwest Territories
    1       0  
Ontario
    988       392  
Prince Edward Island
    11       6  
Quebec
    237       57  
Saskatchewan
    24       10  
Yukon
    2       0  
             
Total
    1,869       660  
             
                 
        Non-
Location by State   Standard   standard
         
Connecticut
    13       0  
Kentucky
    2       0  
Massachusetts
    3       0  
Maine
    10       2  
Michigan
    71       2  
New York
    62       6  
Ohio
    65       1  
Pennsylvania
    3       0  
Rhode Island
    22       7  
West Virginia
    3       0  
             
Total
    254       18  
             
Our Franchisees
       As of October 2, 2005, over 1,000 franchisees operated 2,498 Tim Hortons restaurants in Canada and 207 restaurants in 10 U.S. states. In Canada, our average franchisee operates three restaurants and has been a franchisee in our system for almost nine years. In the U.S., the average franchisee operates two restaurants and has been a franchisee for about four years.
       Our long-term goal is to have franchisees own most Tim Hortons restaurants and to maintain a small number of company-operated restaurants for franchisee training and new product testing. As of October 2, 2005, franchisees owned 98.8% of our Canadian restaurants, and we expect to follow the same approach over the long term in the U.S. As of October 2, 2005, franchisees owned 76.1% of our U.S. restaurants.
       Our franchisees operate under several types of license agreements, with a typical term for a standard restaurant of 10 years plus aggregate renewal period(s) of approximately 10 years.

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       In Canada, franchisees generally are required to pay us: (i) between 3.0% and 4.5% of weekly gross sales of the restaurant as a royalty; plus, if the franchisee leases land and/or buildings from us (ii) a monthly rental equal to (a) a minimum monthly rental payment or (b) a percentage (usually 10%) of monthly gross sales, whichever is greater.
       In the U.S., franchisees generally are required to pay us: (i) 4.5% of weekly gross sales of the restaurant as a royalty; plus (ii) if the franchisee leases land and/or buildings from us, a monthly rental equal to a percentage (usually 8.5%) of monthly gross sales.
       Generally, we retain the right to reacquire a franchisee’s interest in a restaurant, at a pre-agreed price formula based on a depreciated value, if the franchisee receives an offer to purchase the franchisee’s interest during the first five years of the license agreement. After that period, we retain a right of first refusal regarding any proposed transfer of the franchisee’s interest, together with the right to consent to any proposed new franchisee.
       Under the license agreement, each franchisee is required to make contributions to an advertising fund based on a percentage of restaurant gross sales.
       To keep system restaurants up-to-date both aesthetically and operationally, our license agreements require a full scale renovation of each system restaurant at least every 10 years. Each franchisee invests a majority of the capital required for these renovations.
       In Canada, and generally in the U.S., we do not grant an exclusive or protected area or territory to the franchisee. The license is a “location” license only, and we reserve the right to grant additional licenses for Tim Hortons restaurants at any location.
       We may terminate the license agreement if, among other things, the franchisee: does not pay fees or royalties owing when due; breaches obligations relating to health, hygiene or safety standards that are not adequately remedied; becomes bankrupt; fails to maintain adequate insurance; understates gross sales; transfers any rights or obligations contrary to the license agreement; or commits or permits the commission of any criminal offense or violation of the franchisee’s obligations that may have an adverse effect on our system or the Tim Hortons trademarks or goodwill.
       In certain circumstances, we will enter into arrangements, typically called operator agreements, in which the operator acquires the right to operate a Tim Hortons restaurant, but we continue to be the owner of the equipment, signage and trade fixtures. Such arrangements usually require the operator to pay 20.0% of weekly gross sales to us. If the restaurant is a single drive-thru or double drive-thru, the operator is required to pay 21.5% of weekly gross sales. Additionally, the operator will be responsible for paying all trade debts, wages and salary expenses, maintenance and repair costs, all real property and business taxes levied against the restaurant and any other expenses incurred in connection with the operation of the restaurant. In any such arrangement, the operator does not own or have any rights to the equipment, signage and trade fixtures provided by us to operate the restaurant, and we or the operator each have the option of terminating the agreement upon 30 days notice. For purposes of this prospectus, references to franchisees include these operators, and references to license agreements include these operator agreements.
      We have developed a franchise incentive program for some of our U.S. franchisees, which provides short-term financing for both the initial franchise fee and the purchase of certain restaurant equipment, furniture, trades fixtures, and interior signs. The purchase of those assets is deferred for a period of 130 weeks from the date of opening, and the franchisee has the right to finance the initial franchise fee over a period of 104 weeks from the opening. During the initial 130-week period, the royalty payments are typically reduced from 4.5% to 2.5% and rent is typically reduced from 8.5% to 8.0%. After the 130 week initial period, the royalty rate and rental rate return to the standard amount referred to above for U.S. restaurants. In addition, payment for the equipment package is due and owing at that time. Recognition of franchise fee revenue from this program is deferred until

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the restaurants achieve certain sales volume levels. This program is limited in scope, and its parameters will continue to evolve.
Marketing Our Brand Image
       Our marketing is designed to create and extend our brand image as “your neighbourhood Tims” that offers “quality products at reasonable prices.” We use radio, television and outdoor advertising and event sponsorship, as well as our highly visible community caring programs, to reinforce this brand image to our customers. Our customer base is diverse, with an equal mix of male and female customers and customers from all socio-economic levels.
National Marketing Program
       Franchisees fund substantially all of our national marketing programs by making contributions to the Canadian or U.S. “adfunds.” In fiscal 2004, franchisees and company-operated restaurants in Canada contributed $109.7 million (approximately 3.5% of sales), and franchisees and company-operated restaurants in the U.S. contributed US$7.5 million (approximately 4.0% of sales) to the respective adfunds. Each adfund is independently audited and has a national advisory board of elected franchisees.
Regional Marketing Programs
       Regional marketing groups (approximately 280 in Canada and 18 in the U.S.), to which each franchisee and company-operated restaurant contributes 0.025% to 0.5% of its sales as part of its national marketing program contribution, sponsor and support locally-targeted marketing programs. We support these regional marketing groups with market strategy and regional plans and programs.
Our Manufacturing and Distribution Platforms
       In addition to being a franchisor, we are a key supplier to our franchised restaurants. We own and operate five distribution centres that supply system restaurants with non-perishable food supplies, packaging and equipment. These centres are located in Langley, British Columbia; Calgary, Alberta; Kingston, Ontario; Guelph, Ontario; and Debert, Nova Scotia. We also own and operate a fleet of 62 trucks and 118 trailers that deliver to our Canadian restaurants on a weekly and bi-weekly basis. We use third-party logistics providers to deliver products to our U.S. restaurants and limited areas of Canada.
       We completed our newest, 157,000 square foot distribution centre in Guelph, Ontario, in December 2005. By the end of 2006, we expect for the first time to be able to deliver many frozen foods to approximately 85.0% our restaurants in Ontario. We believe this facility, which combines high-density storage and an automated storage/retrieval system, will be one of the most advanced food service distribution facilities in Canada and will allow us to improve our distribution efficiency and create additional economies of scale.
       Our Maidstone Coffee facility, located in Rochester, New York, roasts coffee for approximately one-third of our restaurants, and roasts a separate blend for many Wendy’s restaurants. We acquired this plant in 2001 as part of our U.S. expansion, and we believe it will generate additional distribution efficiencies.
       In 2001, we formed a 50-50 joint venture with a subsidiary of IAWS to commission the construction of the Maidstone Bakeries facility, a 320,000 square foot par-baking facility located in Brantford, Ontario. The Maidstone Bakeries facility manufactures donuts, Timbits and other par-baked breads that are supplied to system restaurants in Canada and the U.S., allowing us to achieve consistency of product, economies of scale and labour efficiencies. The Maidstone Bakeries facility also produces bread products for IAWS subsidiary companies.

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       The agreements governing the joint venture contemplate various procedures relating to the termination of the joint venture, including a compulsory buy/sell procedure. After March 6, 2006, either party may initiate the compulsory buy/sell procedure. A party choosing to initiate the compulsory buy/sell procedure must offer to either purchase all of the other shareholder’s shares or to sell all of its shares, both at the same price. The other shareholder then must choose to control the joint venture by purchasing the offering shareholder’s shares, or to exit the joint venture by electing to have its shares purchased at the specified price.
       If IAWS were to initiate this compulsory buy/sell procedure, and we were to elect to have IAWS purchase all of our shares in the joint venture, our right to buy par-baked donuts and Timbits from the Maidstone Bakeries facility would be limited to the longer of our obligation to buy donuts and Timbits and the joint venture’s corresponding obligation to continue to supply donuts and Timbits to us, extending for 12 years from the last date on which the development of a new donut production line at the joint venture facility was commissioned for us by the joint venture and seven years from the date of sale of our shares. We would also be able to purchase other par-baked products from the joint venture during the seven-year period following a sale. If IAWS were to initiate the compulsory buy/sell procedure and we were to purchase IAWS’ shares, and the buy-out price was less than 85% of a specified formula amount, then IAWS would have the right to build its own par-baked goods manufacturing facility using its independent rights to the par-baking technology, and manufacture and sell par-baked donuts to competitors of ours, provided it did not use our recipes.
       In addition, certain of the technology used at the Maidstone Bakeries facility is owned by a third party, Irish Bakery Inventions Limited (IBIL), and is licensed to the joint venture on an exclusive basis. This license terminates no later than April 2012. A wholly-owned subsidiary of the joint venture has the option to acquire this technology from IBIL by June 2011 for nominal consideration, which option must be exercised and the technology acquired from IBIL for the Maidstone Bakeries facility to continue to use this technology after April 2012 and to secure our independent right to use this technology at any other par-baking facility that we may develop. If this option is not exercised and the rights to the technology are not acquired from IBIL, we would be forced to negotiate with IBIL separately to obtain rights to this technology and, if we are not successful, to seek out alternative products and design processes.
Our Suppliers
       Our system restaurants purchase par-baked products manufactured at the Maidstone Bakeries facility, and many of our system restaurants purchase coffee that is roasted and blended at our Maidstone Coffee plant. We sell most other raw materials and supplies, including coffee, sugar, paper goods and other restaurant supplies, to system restaurants. We purchase those raw materials and supplies from multiple suppliers and generally have alternative sources of supply for each.
       While we have many suppliers and alternate suppliers, the available supply and price for high quality coffee beans can fluctuate dramatically. Accordingly, we monitor world market conditions for green coffee and contract for future supply volumes to ensure an available supply and a stable price. See “Risk Factors— Risks Relating to Our Business and Industry— Termination of our Maidstone Bakery joint venture could adversely affect our business” and “Risk Factors— Risks Relating to Our Business and Industry— We are affected by commodity market fluctuations, particularly with respect to high-quality coffee beans, which could reduce our profitability or sales.”
Management Information Systems
       We have developed information technology systems to generate further efficiencies in our supply chain and in our relationships with our franchisees. For example, our Internet portal allows franchisees and their store managers to place online orders with our distribution centre and report their daily sales. The portal also provides system restaurants with up-to-date news and quality assurance alerts, and permits franchisees to view their order status and accounts receivable online

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and keep their payables current. We have also instituted standardized internal management software for system restaurants.
       We have standardized our restaurant management software with an application service provider to give our restaurants the ability to manage their day-to-day management functions, staff scheduling, inventory control and daily cash accounting.
Corporate Social Responsibility
       We and our franchisees support several community outreach projects and programs. We dedicate time and resources toward three major areas of corporate social responsibility: The Tim Horton Children’s Foundation, local regional marketing programs like the Timbits Minor Sports program and our sustainable coffee project.
The Tim Horton Children’s Foundation
       Our most notable community outreach project is The Tim Horton Children’s Foundation, an independent non-profit charitable organization established in 1974 that provides a professionally-operated, fun-filled camp environment for children from economically disadvantaged homes. Every year, local children are selected from the communities in which our restaurants operate to attend various programs throughout the year at one of our camps, including a ten-day summer residence camp experience.
       The camp experience is designed to give children confidence in their abilities, pride in their accomplishments, and the chance to gain a positive view of this world and their future in it. The camps are unique in that children are flown to regions where they do not live, so as to experience travel and diversity of geography and culture. The foundation has camps located in Kananaskis, Alberta; Parry Sound, Ontario; St. George, Ontario; Quyon, Quebec; Tatamagouche, Nova Scotia; and Campbellsville, Kentucky. Last year over 10,000 children from Canada and the U.S. attended one of these camps.
Timbits Minor Sports Program
       Regional Tim Hortons restaurant groups (280 across Canada and 18 in the U.S.) participate in a variety of marketing programs that benefit their community at a local level. One successful example of this regional approach is the Timbits Minor Sports program, which provides annual support to sports teams for over 140,000 children, ages four through eight.
Coffee Sustainability
       In 2005 we launched a sustainable coffee partnership pilot project to make a meaningful contribution in the fight against poverty among the people who provide one of our most important products, and to play a meaningful role in providing for the future supply of quality green coffee. This pilot project includes approximately 1,000 coffee producers and their families, and is intended to directly improve the living conditions of about 5,000 people. Under the program small coffee producers will be provided with technical support and training to help them increase the amount and quality of coffee they produce and help them get their coffee to market, while emphasizing the need to respect and protect the environment. The program also aims to improve the social conditions of the farmers and their families by identifying and addressing the pressing needs of the families, especially youth education.

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Our Employees
Corporate employees
       We encourage our employees to be innovative, achieve excellence in everything that they do, act fairly and ethically, and demonstrate a “can do” attitude. Tim Hortons has been voted as one of the “100 Best Employers” in Canada for the past several years in Maclean’s Magazine.
       Our head office is in Oakville, Ontario, and we have six regional offices, located in Langley, British Columbia; Calgary, Alberta; Kingston, Ontario; Montreal, Quebec; Debert, Nova Scotia; and Columbus, Ohio. We have approximately 1,600 corporate employees in our regional offices and distribution centres. None of our employees are covered by collective bargaining agreements.
Restaurant-level employees
       We believe that it is important for our system to be the employer of choice in the QSR segment, a business noted for first-time employment. To encourage this, we have developed a restaurant-level human resources strategy that focuses on providing an enjoyable work experience. The program is designed to provide training and advice, including staff incentive program ideas, to franchisees on how to recruit, retain, compensate and treat employees so as to be clearly positioned as an “employer of choice.”
Our Competition
       We face intense competition with a wide variety of restaurants on a national, regional and local level, including QSRs, fast-casual restaurants focused on specialty coffee, baked goods and sandwiches, as well as convenience stores that sell food and beverages. The size and strength of our competitors vary by region, and there are numerous competitors in nearly every market in which we conduct business or expect to enter. We believe competition within the QSR segment is based on, among other things, product quality, concept, atmosphere, customer service, convenience and price. Additionally, we compete with restaurants and other specialty restaurants for personnel, suitable restaurant locations and qualified franchisees.
       In 2002, we surpassed McDonald’s as the number one restaurant chain in Canada in terms of sales and number of restaurants, according to Food Service and Hospitality magazine (FSH). We are also significantly larger in Canada than our other competitors in the QSR segment based on systemwide sales, including, for example, Subway®, KFC®, A&W®, and in the coffee and baked goods segment, Starbucks®, Second Cup® and Coffee Time. In Canada, we also compete with multiple QSRs and specialty coffee restaurants that operate on a regional basis.
       In the U.S., we have developed into a strong regional player in certain markets in the Northeast and Midwest. We currently compete with specialty coffee retailers, baked goods retailers, sandwich shops and convenience stores, ranging from small local independent operators to well-capitalized national and regional chains, such as McDonald’s, Starbucks, Subway and Dunkin’ Donuts®. Many of our competitors in the U.S. are significantly larger than us.
Seasonality
       Our business is moderately seasonal. Sales and operating income are generally lower in the first quarter due, in part, to a low number of new restaurant openings and post-holiday spending patterns, and typically higher in the fourth quarter due, in part, to a higher number of restaurant openings and sales of holiday packaged coffee and other merchandise. Because our business is moderately seasonal, results for any quarter are not necessarily indicative of the results that may be achieved for any other quarter or for the full fiscal year.

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Trademarks and Service Marks
       We have registered various trademarks and service marks in Canada, the U.S. and certain other jurisdictions. We have also registered various Internet domain names, including www.timhortons.com. Our registered marks include:
  •  Tim Hortons signature
 
  •  Tim Hortons & Always Fresh Oval Background Design
 
  •  Roll Up The Rim To Win®
 
  •  Timbits
       We believe our trademarks, service marks and other proprietary rights have significant value and are important to our brand-building efforts and the marketing of our restaurant system. We intend to protect and vigorously defend our rights to this intellectual property.
Environmental
       We own or lease most of our approximately 2,800 restaurant properties in Canada and the U.S. and also own and operate five distribution facilities in Canada and a coffee plant in New York state. Our joint venture with IAWS owns and operates a baking facility in Ontario, Canada. In addition to utilizing third-party distributors, we distribute products to our system restaurants through our trucking fleet. Each of these activities is subject to complex environmental, health and safety regulatory regimes, and involves the risk of environmental liability. There are also potential risks for road and on-site releases and accidents that could result in environmental contamination that is not within our control. Where those activities involve the known use of hazardous substances and petroleum compounds, we undertake to comply with regulatory requirements in connection with our use of such substances and compounds.
       Our restaurants have not been the subject of any material environmental investigations or claims during our ownership, lease or operation; however, we have not conducted a comprehensive environmental review of all of our properties or operations. We have conducted investigations of many of our owned and leased properties, including in connection with our 1995 merger with Wendy’s. We also conduct environmental due diligence when considering potential new restaurant locations, which typically includes a Phase I Environmental Site Assessment, although such an assessment will not necessarily identify all environmental conditions associated with any such property. When the Phase I Environmental Site Assessment indicates a potential environmental problem at a particular location, we carry out a Phase II Environmental Site Assessment to specifically test that location for contaminants. We have identified contamination caused by third-party operations not material to us individually or in the aggregate and have in many cases given third parties notice that it is their obligation to address the contamination. If the relevant third party is insolvent, has not addressed the identified contamination properly or completely or our rights against the third party have otherwise expired, then under certain environmental, health and safety laws, or otherwise at law, we could be held liable as an owner, operator or occupant to address any remaining contamination. Further, we may not have identified all of the potential environmental liabilities at our owned and leased properties, and any such liabilities identified in the future could have a material adverse effect on our operations or results of operations. See also the discussion of environmental, health and safety laws in “Risk Factors—We are subject to government regulation, and our failure to comply with existing or future regulations could adversely affect our business and operating results.”
Government Affairs
       We track ongoing government activity that may have an impact on our business or operations. In particular, we monitor government activity and our compliance in the areas of zoning, employment standards, workplace health and safety, food safety and handling, human rights, income and other

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taxes, the environment and franchise legislation. We comply in all material respects with any applicable franchise disclosure legislation as it pertains to the offer and sale of franchises.
       Governments and consumer advocacy groups are encouraging alternative food processing methods that will result in significant reductions in trans-fatty acids (TFA) and legislation has recently been enacted in Canada that will introduce new nutritional labeling requirements for foods containing TFAs. We are studying the process required to lower TFA content. In this regard, we have examined possible alternatives to our current baking and frying shortenings. We continue to research approaches to allow us to reduce the amount of TFA in our products while still maintaining the taste and quality that our consumers require. We are also monitoring new oilseed technology, which may provide an opportunity to reduce the saturated fat content in some of our products.
Litigation
       From time to time we are a defendant in litigation arising in the normal course of business. Claims typically pertain to “slip and fall” accidents, employment claims and claims from customers alleging illness, injury or other food quality, health or operational concerns. These types of claims, which are referred to and generally covered by insurance, have not had a material effect on us. As of the date of this prospectus, we are not party to any litigation that we believe is material to our business.

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MANAGEMENT
Directors and Executive Officers
       Set forth below is certain information regarding our current executive officers and our current and prospective directors. Currently, two individuals, John Schuessler and Kerrii Anderson, are officers of Wendy’s and are serving as directors for us and for Wendy’s. David Lauer serves as a director for us and for Wendy’s. Contemporaneously with the completion of this offering, we will add up to                     additional directors who are currently unaffiliated with us or Wendy’s and who qualify as independent directors. None of these prospective directors is listed below.
                     
            Years
Name and Municipality of Residence   Age   Position(s)   with us
             
John T. Schuessler
Dublin, Ohio
    54     Director        
Kerrii B. Anderson
Columbus, Ohio
    48     Director        
David P. Lauer
Dublin, Ohio
    62     Director        
Paul D. House
Stoney Creek, Ontario