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Tim Hortons seeks return to its Canadian roots

Globe and Mail Update

Coffee and doughnut chain Tim Hortons Inc. is seeking to come home and reorganize as a Canadian company in a bid to save taxes and expand more easily internationally.

Although Tim Hortons earns most of its revenue in Canada, the parent corporation is based in the United States.

In an application to the U.S. Securities and Exchange Commission Monday, the company said the proposed restructuring will provide corporate cost savings over the long term.

In the short term, however, the move could cause the company to miss its operating income target, Tim Hortons said in a statement Monday.

Last year, the company signalled its intention to restructure, both to simplify its operations and to take advantage of falling Canadian corporate tax rates.

“Today's announcement is the next step in the process to reorganize as a Canadian public company, subject to shareholder approval,” a company spokesman said, noting that Tim Hortons has “its roots and its heritage in Canada.”

The company was co-founded in 1964 in Hamilton, Ont., by professional hockey player Tim Horton.

In 1995, the company was taken over by Wendy's International Inc., a U.S. hamburger chain. Wendy's spun off its Tim Hortons interest in 2006.

Tim Hortons said it will maintain its dual stock listing in New York and Toronto, and that its move does not affect its commitment to expanding in the U.S. market.

“Management and the board believe that the proposed reorganization would be in the best interests of the company and our stockholders by creating operational and administrative efficiencies over the long-term, enhancing the company's ability to expand in Canada and internationally, and improving the company's position to take advantage of lower Canadian tax rates commencing in the year following implementation,” the company said in its statement Monday.

Under the proposed reorganization, the company would be incorporated under the Canada Business Corporations Act and would retain the name Tim Hortons Inc.

“We expect to incur certain charges for discrete items, the majority of which would be non-cash tax charges, and various transactional costs in the year of implementation,” the company said.

“If implemented this year, the impact of the tax charges would result in our 2009 tax rate exceeding the identified range of 32 per cent to 34 per cent and the transactional costs could cause our operating income to fall below the targeted range.”

Tim Horton died in a 1974 car crash. The next year, co-founder Ron Joyce became sole owner of the chain, which had 40 stores at the time.

The company now has 2,930 restaurants in Canada and 527 in the United States.

Tim Hortons reported profit of $66.4-million, or 37 cents a share, in the first quarter of 2009, up 7.5 per cent from $61.8-million, or 33 cents a share, a year earlier. However, the company said in reporting its first-quarter results that its current corporate structure “creates a lot of complexity for us.”

The company said earlier this year that it would be in the long-term interests of its shareholders to “bring our effective tax rates closer to our Canadian statutory rates.”

The federal government has been gradually reducing the general corporate tax rate, which was at 22.1 per cent in 2007.

The rate, currently at 19 per cent, is expected to drop to 18 per cent in 2010, 16.5 per cent in 2011 and 15 per cent in 2012.

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