canadian tire corporation
2018 REPORT TO SHAREHOLDERS
Hockey Stick Artwork, South Edmonton Canadian Tire store
Concept by: TAXI Canada, Dave Watson and Stephen Tasker; Construction by: Rhoddy
Contents
c o n t e n t s
1 Our Three-Year Financial Aspirations
3 Message from the Chairman of the Board
4 Message from the President and CEO
5
7
Canadian Tire Corporation Today
Preparing Our Customers for the Jobs and Joys of a Lifetime in Canada
9 Our Core Business Is Retail
11 Our Banners
17 Our Owned Brands
19 Our Loyalty Program
21 Our Talent
23 Our Contribution to a Healthy Planet
25 Canadian Tire Jumpstart Charities
27 Management’s Discussion and Analysis and
Consolidated Financial Statements
Our Three-Year
Financial Aspirations
(2018–2020)
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10%+
CONSOLIDATED AVERAGE ANNUAL
DILUTED EPS GROWTH
10%+
RETAIL RETURN ON INVESTED CAPITAL
3%+
CONSOLIDATED COMPARABLE SALES GROWTH
o u r t h r e e - y e a r f i n a n c i a l a s p i r a t i o n s
N O R M A L I Z E D D I L U T E D E P S
( C $ ) 1
11.95
10.67
9.22
2016
2017
2018
R E TA I L R E T U R N O N I N V E S T E D C A P I TA L
( R O I C )
( % )
8.3
9.2
9.2
2016
2017
2018
C O N S O L I DAT E D C O M PA R A B L E S A L E S G R OW T H
( % )
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4.7
2.7
2.2
2016
2017
2018
1. Refer to section 7.1.1 of the Q4
2018 MD&A for a description of
normalizing items.
12.00
11.00
10.00
9.00
8.00
7.00
6.00
5.00
12.0
11.0
10.0
9.0
8.0
7.0
6.0
5.0
10.0
8.0
6.0
4.0
2.0
0.0
Message from Maureen J. Sabia,
Chairman of the Board
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Dear Shareholders,
Canadian Tire holds a unique place in the hearts and minds
of Canadians and we do not take our customers’ trust for
granted. As we approach Canadian Tire’s centenary in 2022,
we continue to work hard toward our ambitious goal of
becoming Canada’s #1 retail brand by 2022.
Canadian Tire continues to face head on the challenges
and opportunities of a rapidly changing retail landscape.
Technological innovations and the entrance of disruptive
competitors continue to drive unprecedented change within
our retail environment. I’m proud to report, however, that
Canadian Tire had another successful year.
We have taken important steps to position Canadian Tire
at the forefront of retail innovation. We have evaluated and
taken appropriate steps to mitigate the risks of a dynamic and
evolving marketplace. We have developed winning strategies
while keeping in the forefront of our minds what matters
most – the loyalty and trust of our customers.
My colleagues on the Board and I believe that to keep that
trust and loyalty, Canadian Tire needs to keep a focus on four
major areas – innovation, digital, e-commerce, and talent on
both the Board and in management. Moreover, we need to be
sure that we never lose sight of the continual need to transform
the Company to meet current challenges. While success in the
future must respect and maintain the values that have served
us well for nearly 100 years, we must be courageous, smart and
nimble enough to embrace the changes that will define success
in the future.
I would like to share two thoughts with you. The first is that
to have a vibrant economy, businesses must be successful in
order to provide the jobs, products and services that Canadians
need. I believe that business should be more proactive and
vocal in encouraging policies that support business growth
and investment, whether these be about taxation, regulation,
education or trade.
The second is about taking the long-term view. We take a
long-term view of success and we do not believe that the
relentless focus on the short term in today’s capital markets is
helpful. Canadian Tire’s resilience and success is a testament
to the demonstrable value of long-term thinking. Indeed, it is
doubtful that Canadian Tire would have grown from a tiny
garage tended by the Billes brothers almost 100 years ago to
the iconic and sophisticated corporation that it is today in
the absence of such an approach. Business leaders, investors,
analysts and regulators need to come together to encourage
a more appropriate balance between accountability to
shareholders and the ability to better manage businesses for
success over the long term. One way to achieve this balance
would be to eliminate quarterly reporting. Successful businesses
are not managed on a quarterly basis. While companies have
a clear responsibility to report, I question the efficacy of
quarterly reporting.
During the year, the Board embarked on several initiatives
to improve the Corporation’s communications, productivity
and efficiency. Returning to a printed Report to Shareholders,
which is also available digitally on our website, is part of a
new communications approach to tell our story more boldly.
We owe it to our shareholders to make sure that our business
strategy, its implementation and our accomplishments, as well
as any risks that might impact our strategy, are well known.
While management is working hard to ensure the Corporation
functions as efficiently as possible, the Board has embarked
on some initiatives that will improve its own productivity
and efficiency. For example, we are revising our committee
mandates to make them more laser-focused, while also
slimming down the composition of our committees. In
our fast-moving world we must be as nimble, focused
and productive as we can be.
You will see in our Proxy Circular that we have revised
the mandates of both the Management Resources and
Compensation Committee and the Governance Committee.
We are revising the mandates of the Audit Committee and
the Brand and Community Committee, which we expect to
complete later this year.
We continue to think very hard about the experience
and skill-sets required on our Board of Directors that will
enable us to meet the challenges of today’s dynamic and
disruptive environment.
We have already made one change, appointing Norman Jaskolka
to fill the vacancy created by the retirement of Timothy Price
after more than 11 years of invaluable service to Canadian
Tire. Norman’s experience in driving Aldo’s international
expansion will be of great benefit to Canadian Tire.
I want to say a few words about Tim Price’s enormous
contribution to the Board. Tim was always our elder
statesman, providing us with wisdom, ideas, and solutions. He
never said “no” when asked for his help. Tim will be missed by
both management and the Board.
Also, Anatol von Hahn has informed us that he will not
stand for re-election at our AGM. We will miss Anatol’s
positivity and perspectives. He made a valuable contribution
to our deliberations.
Since people are our most important asset, with the consent of
shareholders, we will be delighted to welcome Cynthia Trudell
to the Board. Cynthia has had a distinguished global career,
most recently heading up Global Talent at Pepsico.
Very importantly, on behalf of the Board of Directors, I want
to thank our CEO, Stephen Wetmore, for all that he does to
make the Tire as successful as it is. Stephen works tirelessly,
always thinking five steps ahead as he leads his executive team
to the right choices.
Also deserving of our thanks are the talented and hard-
working members of the senior management team and the
truly gifted people they lead.
Finally, I would be remiss if I did not thank my colleagues on
the Board for their wisdom, hard work and commitment to
the Tire. Their knowledge and understanding of our business
and the challenges we face contributes greatly to our ability to
make informed decisions.
Maureen Sabia, Chairman of the Board
Message from Stephen G. Wetmore,
President and Chief Executive Officer
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Thank you to Canadian Tire’s Associate Dealers and
our talented team at all levels of our Company for your
continued commitment to the Triangle and your contributions
to our communities across Canada. Thank you also to our
Chairman, Maureen Sabia, and the entire Board of Directors
for your leadership, guidance and support. Together, we have
made great progress over the past year and will continue to
do so as we work hard to prepare for the future and make
Canadian Tire Canada’s #1 retail brand in the eyes of our
customers, our employees and our shareholders.
Stephen G. Wetmore, President and Chief Executive Officer
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Dear Shareholders,
2018 was an exceptional year for the Triangle. We advanced
critical initiatives and made important investments in
our future.
The launch of Triangle Rewards has created the fastest
growing loyalty and credit card offerings in Canada. These
offerings provide Canadians with added value and convenience
and enable us to make data-driven decisions to serve our
customers with more relevant offers. A more personalized
and rewarding shopping experience is at the centre of our
relationship with our customers.
We made it easier for our customers to shop when they
want, how they want. We strengthened our online and
in-store customer experience with the introduction of
first-of-their-kind options in Canada for our customers to
collect their online purchases and launched deliver-to-home
at Canadian Tire Retail.
Within a retail environment defined by constant evolution,
we set an ambitious goal to become Canada’s #1 retail brand
by 2022, the same year our Company will celebrate its 100th
anniversary. Such an achievement demands that we remain
focused on strengthening our core value proposition with our
customers as we prepare them for the Jobs and Joys of Life in
Canada. In doing so, we will continue to create a customer
experience unlike any other in the Canadian retail market,
while also building long-term value for our shareholders.
To this end, we have modified our capital allocation strategy,
returning more funds to shareholders with an increased
dividend payment for the ninth consecutive year. At the
same time, our strategy provides us with the financial flexibility
to make smart and strategic investments in the continued
success and growth of our business.
In a clear demonstration of our commitment to expand
and improve our line of products and services, CTC’s
acquisition of Helly Hansen adds a global brand and
leader in sportswear and workwear to our Company’s
portfolio, while accelerating our ability to distribute
current and future owned brands internationally.
As a leading retailer, we are proud to operate in Canadian
communities from coast to coast to coast. We take our
responsibilities to the communities in which we operate very
seriously and are fully committed to ensuring we contribute
positively to their wellbeing. Through Jumpstart, which
continues to help kids from across Canada participate in
organized sport, we helped over 310,000 kids in the past year,
completed the construction of four universally accessible
Jumpstart Playgrounds across Canada and supported Canada’s
current and future Paralympic athletes through the Parasport
Jumpstart Fund. These contributions would be impossible
without the support from our customers, partner athletes,
Canadian Tire Associate Dealers and employees across
all of our banners.
Canadian Tire
Corporation Today
Canadian Tire Corporation, Limited is a
family of companies designed to prepare
Canadians for the Jobs and Joys of a Lifetime
in Canada. The CTC family includes strong,
iconic retail brands that Canadians love, as well
as Canadian Tire Bank and CT Real Estate
Investment Trust.
We are on a journey to become the #1 retail brand
in Canada by 2022 and have aligned our leadership,
banners and assets to achieve that vision. We are focused
on acting as a truly customer-centric enterprise and
bringing together capabilities and resources across
banners to create strategies that are complementary,
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brands that work in unison, and shared services to
operate effectively and efficiently as One Company.
In 2018 we launched Triangle Rewards™, the evolution
of our loyalty and credit card program through which
we are creating personalized relationships with our
customers and rewarding them for shopping across
our family of companies.
Seasonal divisions. PartSource and Gas+ are key parts
of our Canadian Tire retail businesses. Our banners
also include Mark’s, a leading source for casual and
industrial wear; Pro Hockey Life, a hockey specialty store
catering to elite players; SportChek, Hockey Experts,
Sports Experts, National Sports and Atmosphere, which
offer the best active wear brands; and Helly Hansen,
a leading global brand in sportswear and workwear
which strengthens our Owned Brands while providing a
platform for international expansion.
Our more than 1,700 retail and gasoline outlets are
supported and strengthened by our Financial Services
division and the tens of thousands of people employed
across Canada and around the world by the Company
and its local Dealers, franchisees and petroleum retailers.
We are dedicated to giving back to the communities
in which we live and work. Through our Jumpstart
Charities, we help kids of all abilities participate in
sport and play. We’re also there to help communities in
times of need through the donation of essential items.
And, we are committed to being environmentally and
Our retail business is led by Canadian Tire and it
socially responsible in the sourcing, manufacturing
provides Canadians with products for life in Canada
and transporting of our products.
across its Living, Fixing, Playing, Automotive and
F I N A N C I A L H I G H L I G H T S ( 2 0 1 8 )
Revenue
Normalized net income
(attributable to shareholders of CTC)1
Normalized diluted earnings per share1
1 Refer to section 7.1.1 of the Q4 and full year 2018 MD&A for a description of normalizing items.
G R OW T H
+5.9%
+5.8%
+12.0%
c a n a d i a n t i r e c o r p o r a t i o n t o d a y
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Preparing Our Customers
for the Jobs and Joys
of Life in Canada
S T R AT E G I C F O C U S A R E A S
Brand &
Product
Portfolio
We are introducing new, innovative and improved product assortments and
categories to prepare our customers for the Jobs and Joys of Life in Canada.
We continue to strengthen our Owned Brands portfolio organically and
through strategic acquisitions and partnerships to drive long-term growth
and shareholder value.
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Customer
Experience
With Triangle Rewards we created Canada’s fastest growing credit card and
loyalty offering. We are investing heavily to enhance the customer experience
in-store and online to develop capabilities and future store concepts, so
Canadians can shop how they want, when they want.
Financial
Discipline
We take a disciplined and balanced approach to capital allocation and
continue to roll out productivity initiatives designed to increase sales and
profitability. Our One Company approach is improving core functions
through automation, simplification and digital transformation.
Talent
We are evolving our talent strategy to develop a pipeline of top talent at
all levels of the enterprise. We continue to enhance the Triangle Learning
Academy to support the development of future leaders across the Company.
Platforms
We continue to invest in the platforms that support One Company initiatives,
including the use of Net Promoter Score and data-driven insights that help
improve the customer experience. We are advancing our business models,
processes and technology platforms to support our financial aspirations,
including our international business, and strengthening our commitment
to sustainability and community support through Jumpstart.
p r e p a r i n g o u r c u s t o m e r s
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Our Core Business
Is Retail
Banners
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2018 Revenue
= C$14.1B*
Reporting
Segments
CTC
Business
Divisions
Products
& Services
by Category
C$9.2B
C$2.0B
C$1.2B
C$0.3B
C$1.3B
Retail
Financial
Services
Automotive
Living
Fixing
Seasonal
Playing/Sports Apparel
Wholesale
Financial
Gas
Auto Parts &
Maintenance
Tires
Auto Service
Outdoor Adventure
Car Care
& Accessories
Roadside
Assistance
Home
Cleaning
Home
Repair
Paint
Tools
Home
Décor
Home Org
Kitchen
Gardening
Outdoor
Tools
Home
Essentials
Pet Care
Gardening
Hockey
Golf
Cycling
Fitness
Camping
Hunting
Fishing
Outdoor
Tools
Backyard
Living &
Fun
Toys &
Games
Christmas
Trees &
Seasonal
Décor
Industrial
Wear
Men’s Wear
Women’s Wear
Athletic
Apparel
Lifestyle &
Adventure
Footwear
Accessories
Workwear
Credit Cards
Urban
Retail Deposits
Sportswear
In-store
Acquisitions
& Financing
Insurance
Deferred &
Installment
Payments
* Revenue reported for retail banners and Financial Services includes inter-banner and inter-segment revenue. Numbers may not add due to rounding.
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Canadian Tire Retail
Canadian Tire Retail has more than 500 retail locations
Whether it’s through digital innovation, deliver-to-home,
across Canada, with local Associate Dealer community
or Canada’s first self-serve pick-up towers, we are
presence and trust. We sell more products, in more
reaching more Canadians than ever before. We put
places, than any other Canadian retailer. We continue
our customers at the centre of everything we do,
to innovate with exciting merchandise strategies, great
enabling them to shop when and how they want for
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new Owned Brands and market-leading programs
the brands and products that Canadians covet.
like We Do New and TESTED that drive our
Canadian Tire truly is Canada’s Store.
product offering based on customer insights.
F I N A N C I A L H I G H L I G H T S ( 2 0 1 8 )
Revenue
Sales growth
Comparable sales growth
* Canadian Tire revenue includes PartSource, Pro Hockey Life and Petroleum.
$9.2B
*
+2.4%
+2.1%
Canadian Tire Financial Services
o u r b a n n e r s
As the financial services arm of Canadian Tire
Corporation, Canadian Tire Financial Services (CTFS)
is primarily engaged in marketing the Triangle portfolio
of credit cards to Canadians.
Triangle credit cards, which are held by more than two
million Canadians, are accepted worldwide and allow
cardholders to collect e-Canadian Tire ‘Money’ faster.
CTFS’s close integration with CTC’s retail banners
and Associate Dealers is a competitive advantage
in acquiring new accounts and meeting the needs
of CTC’s most loyal customers.
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F I N A N C I A L H I G H L I G H T S ( 2 0 1 8 )
Revenue
Gross average accounts receivable (GAAR)
Average number of accounts with a balance (thousands)
G R OW T H
$1.3B
+8.9%
$5.8B
+10.7%
2,035
+7.4%
SportChek
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SportChek is Canada’s leading health, fitness and
SportChek believes sport is whatever moves you and
wellness retailer. With 409 locations across the country,
remains passionate about inspiring customers to live
SportChek understands, better than anyone, the role
an active lifestyle.
sports and activity play in the lives of Canadians.
While it is the largest banner, along with Sports Experts
and Atmosphere, other banners include National Sports,
Hockey Experts and Sports Rousseau.
SportChek offers, both in-store and online, a
comprehensive assortment of elite vendor brands,
complemented by our Owned Brands.
F I N A N C I A L H I G H L I G H T S ( 2 0 1 8 )
Revenue
Sales growth
Comparable sales growth
* SportChek revenue includes Atmosphere, Sports Experts, National Sports, Sports Rousseau and Hockey Experts.
$2.0B
*
+1.1%
+2.0%
Mark’s
o u r b a n n e r s
Canadians take pride in who they are and what they do.
Mark’s, founded in 1977, offers owned and national
Mark’s, known as L’Équipeur in Quebec, offers quality
brand products that you can depend on, wear after
clothing that is simple yet significant. From industrial and
wear, and are built for your life in Canada. With over
casual apparel to footwear and accessories, everything is
380 stores across the country, we have strong roots in
well made, built to last, infused with utility and designed
communities from coast to coast and our commitment
with wearable style that’s uniquely Mark’s.
to Canadians is to relentlessly pursue the best products
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that work as hard as the people who wear them.
Mark’s, we are the Well Worn.
F I N A N C I A L H I G H L I G H T S ( 2 0 1 8 )
Revenue
Sales growth
Comparable sales growth
$1.2B
+3.0%
+2.8%
Helly Hansen
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Founded in Norway in 1877, Helly Hansen continues to
Helly Hansen’s outerwear, base layers, sportswear and
develop professional grade apparel that helps people stay
footwear are sold in more than 40 countries and trusted
and feel alive. A leader in designing innovative and high-
by outdoor professionals and enthusiasts worldwide.
quality products for the harshest outdoor conditions,
the company has developed many first-to-market
innovations, including the first supple waterproof
fabrics more than 140 years ago. Helly Hansen is a
leader in technical sailing and performance ski apparel,
as well as premium workwear. It also operates Musto,
the world’s leading technical sailing brand.
F I N A N C I A L H I G H L I G H T S ( S I N C E AC Q U I S I T I O N O N J U LY 3 , 2 0 1 8 )
Total Revenue
Revenue — Canada
Revenue — Foreign
EBITDA
$347.6M
$52.1M
$295.5M
$52.0M
CT REIT
o u r b a n n e r s
CT Real Estate Investment Trust (CT REIT), which
With high occupancy, low lease turnover, and a strong
is listed on the Toronto Stock Exchange, owns over
investment grade credit rating, CT REIT offers a
325 commercial properties across Canada, comprising
compelling set of attributes for investors looking for
approximately 26 million square feet of gross leasable
growth and security.
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area (GLA). Nearly 50% of the GLA in the REIT’s
high-quality portfolio is located in Canada’s six largest
urban markets.
CT REIT’s strategic alignment with CTC, its most
significant tenant and majority unitholder, has enabled
it to deliver a track record of attractive, low risk growth,
reflected in five consecutive distribution increases in the
same number of years.
F I N A N C I A L H I G H L I G H T S ( 2 0 1 8 )
Property revenue
Funds from operations
Adjusted funds from operations
AFFO payout ratio
G R OW T H
+6.6%
+3.5%
+5.6%
$472.5M
$246.0M
$205.2M
76.0%
Our Owned Brands
CTC’s Consumer Brands Division is a
driving force behind our growth strategy.
Building on a foundation of legacy brands,
including Motomaster and Mastercraft,
we continue to expand and evolve our
portfolio through the acquisition of new
brands and those that are home-grown.
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Our Owned Brands, some of which
are Paderno, WOODS, NOMA, CANVAS,
Sher-Wood, Golfgreen, Vermont Castings,
Premier and Denver Hayes, account for billions
of dollars in sales and provide us with an
incredible competitive advantage and runway
for growth. In 2018 we added Helly Hansen
to our family, strengthening our core outdoor
and workwear businesses and accelerating our
ability to distribute our brands internationally.
English
To be used at sizes
above 2 inches wide
French
To be used at sizes
above 2 inches wide
English
To be used at sizes
smaller than 2 inches wide
French
To be used at sizes
above 2 inches wide
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Our Loyalty Program
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Canadian Tire evolved its iconic loyalty program,
Canadian Tire Money, with the introduction of
Triangle RewardsTM in April 2018.
Triangle Rewards is a loyalty program that lets customers
collect Canadian Tire Money faster, redeem it at more
places and delivers personalized offers. Customers
can earn Canadian Tire Money online and in-store at
Canadian Tire, SportChek, participating Mark’s and
Atmosphere locations and on fuel purchases at any
Canadian Tire gas bar. Members are able to redeem
Canadian Tire Money at Canadian Tire, SportChek,
Mark’s and Atmosphere stores. In October 2018,
Triangle Rewards expanded, giving Canadians the
ability to earn Canadian Tire Money on fuel purchases
at participating Husky locations across Canada.
Canadian Tire Money is Canada’s first loyalty program,
dating back to 1958, and has long been considered
Canada’s second currency. With more than 12 million
members nationwide, Canadian Tire Money is so deeply
rooted in Canadian heritage it is even included in the
Oxford English Dictionary.
Canadian Tire Money can be
collected online and in-store
at Canadian Tire, SportChek,
participating Mark’s and
Atmosphere locations and on
fuel purchases at any Gas+
Save time and collect more with
weekly personalized offers, content
and communications including
how-to guides
No-receipt returns
Canadian Tire Money is
redeemable in-store at
Canadian Tire, SportChek
and participating Mark’s
and Atmosphere stores
Get access to experiences
and exclusives
Earn faster at more places, access
no fee, no interest financing with
Triangle Mastercards® and get
4% Canadian Tire Money back at
Canadian Tire, SportChek, Mark’s/
L’Équipeur and Atmosphere
Earn the most with the Triangle
World Elite Mastercard®, including
3% at grocery stores and access to a
range of exclusive benefits, including
concierge service and free
Roadside Assistance
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S I N C E L A U N C H ,
T H E T R I A N G L E R E WA R D S
P R O G R A M H A S D E L I V E R E D :
Strong customer response to and
awareness of the credit card and
loyalty program
Substantial increase in loyalty
issuance and redemption
Double digit increase in
active members and spend
per customer
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+32%
+36%
Credit Acquisition
Loyalty Acquisition
+24%
+15%
Redemption
Spend per
Triangle Member
+42%
+20%
Issuance
Total Number of
Active Members
Our Talent
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The Triangle Learning Academy (TLA)
is a company-wide program that offers
employees curated content on subjects
across the business to accelerate
employee learning. It is designed
to be an ever-evolving learning
hub with a curriculum that will
bring together the art, science
and experience of retail and
career development.
o u r t a l e n t
With relevant content that provides context to the
Through a combination of online content, case studies,
retail environment, the material is tied to our business
challenges and speaker series, the TLA is delivering
strategy and uses senior leaders as Deans and Professors
programs that resonate with employees, provide them
to provide input, oversight and approval of courses and
with the skills required to succeed in the ever-changing
course content to ensure it is meeting CTC’s objectives
retail environment and develop leaders for today and
and those of its employees. In the TLA’s first year,
into the future.
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more than 50,000 individual learnings were
delivered to employees through online and
in-class learning experiences.
Our Contribution
to a Healthy Planet
Sustainability is an imperative for the CTC
brand. A sustainable approach to our business
means we will always work towards building
a better country for all Canadians and we
have a history of contributing to the health
of our planet.
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We recognize that we have a supporting role to play in
As more Canadians seek out environmentally friendly
reducing Greenhouse Gas (GHG) emissions. Since 2011,
products, it is important to CTC to continue to bring
we have been working on reducing our emissions with
innovative and eco-friendly products to our customers
targets to reach by 2022, our 100th anniversary.
and enable them to make informed purchase decisions
As a Company, we have made it a top priority to be
more energy efficient, use fewer resources and produce
less waste in our buildings and operations. A signature
accomplishment of this commitment is the highly
energy-efficient design and construction of our new
Bolton Distribution Centre (DC) in Caledon, Ontario.
with the environment in mind. In addition to more
than 850 energy-efficient products in our stores, we
have installed electric vehicle charging stations at 21
Canadian Tire locations, with more to come, to help
give Canadians more options to reduce their emissions
and to ensure we meet the needs of all Canadian drivers.
In 2018, the Bolton DC was awarded LEED Gold
Our work has not gone unnoticed. The Dow Jones
certification by the Canada Green Building Council
Sustainability Indices, a family of indices evaluating
for exceptional sustainability efforts. It is one of the
thousands of companies on their sustainability
first buildings of this size to be recognized with such
performance, has, since 2014, included us in DJSI
an achievement.
We are doing our part to use clean and sustainable
technologies in our DCs with the proposed expansion
of our use of hydrogen to power our material handling
equipment. Our decision to invest in on-site hydrogen
electrolyzers means that in addition to using clean
energy to fuel material handling equipment, we avoid
the GHGs that would be associated with transporting
hydrogen fuel from the source of generation to the DCs.
World, representing the top 10% of global companies.
In addition, Corporate Knights has recognized us as one
of the Best 50 Corporate Citizens since 2012 and as one
of the Global 100 Most Sustainable Corporations in the
World in 2019.
o u r c o n t r i b u t i o n t o a h e a l t h y p l a n e t
20 1 8
2019
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The Canadian Tire Bolton Distribution Centre in Caledon, Ontario was awarded LEED Gold certification for exceptional sustainability efforts.
Canadian Tire
Jumpstart Charities
With an extensive national network of more
than 300 local chapters, Jumpstart helps kids
overcome financial and accessibility barriers
to sport and recreation in an effort to provide
inclusive play for kids of all abilities.
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Jumpstart helps eligible families cover the costs
In 2017, Jumpstart embarked on building a more
of registration, transportation and equipment,
inclusive Canada through the Play Finds a Way
and provides funding to selected organizations
movement: a five-year, $50 million fundraising
for recreational infrastructure and programming.
commitment from Canadian Tire Corporation that
One hundred per cent of all customer donations
focuses funding efforts towards accessible playgrounds,
made to Jumpstart stays within the community in
as well as accessible infrastructure and programming.
which the donation was made.
In 2018 alone, Jumpstart awarded multiple $1 million
Jumpstart understands that for kids, the opportunity
to play is about much more than getting active: sport
teaches important life skills like courage, confidence
and teamwork.
accessibility grants, completed the construction of
four universally accessible Jumpstart Playgrounds, and
supported Canada’s current and future Paralympic
athletes through the Parasport Jumpstart Fund.
Jumpstart has enabled more than 1.8 million Canadian
kids and counting get in the game since 2005. For more
information, visit www.jumpstart.canadiantire.ca.
c a n a d i a n t i r e j u m p s t a r t c h a r i t i e s
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Official Grand Opening of the universally accessible Jumpstart Playground in Charlottetown’s Victoria Park
Management’s Discussion
and Analysis
and
Consolidated Financial
Statements
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Management's Discussion and Analysis
Canadian Tire Corporation, Limited
Fourth Quarter and Full Year 2018
Table of Contents
1.0
PREFACE
2.0
COMPANY AND INDUSTRY OVERVIEW
3.0
CORE CAPABILITIES
4.0
HISTORICAL PERFORMANCE HIGHLIGHTS
5.0
2018 FINANCIAL ASPIRATIONS AND KEY INITIATIVES
6.0
2019 KEY INITIATIVES
7.0
FINANCIAL PERFORMANCE
7.1 Consolidated Financial Performance
7.2 Retail Segment Performance
7.3 CT REIT Segment Performance
7.4 Financial Services Segment Performance
8.0
BALANCE SHEET ANALYSIS, LIQUIDITY, AND CAPITAL RESOURCES
9.0
EQUITY
10.0
TAX MATTERS
11.0
ACCOUNTING POLICIES, ESTIMATES, AND NON-GAAP MEASURES
12.0
RISKS AND RISK MANAGEMENT
13.0
INTERNAL CONTROLS AND PROCEDURES
14.0
ENVIRONMENTAL AND SOCIAL RESPONSIBILITY
15.0
FORWARD-LOOKING STATEMENTS AND OTHER INVESTOR COMMUNICATION
16.0
RELATED PARTIES
2
5
7
9
12
18
19
19
24
31
34
37
46
47
48
57
64
65
68
70
Page 1 of 145 1.0 Preface
1.1 Definitions
In this document, the terms “we”, “us”, “our”, “Company”, “Canadian Tire Corporation”, “CTC”, and “Corporation”
refer to Canadian Tire Corporation, Limited, on a consolidated basis. This document also refers to the Corporation’s
three reportable operating segments: the “Retail segment”, the “CT REIT segment”, and the “Financial Services
segment”.
The financial results for the Retail segment are delivered by the businesses operated by the Company under the
Company’s retail banners, which include Canadian Tire, PartSource, Petroleum, Gas+, Mark’s, Mark’s Work
Wearhouse, L’Équipeur, SportChek, Sports Experts, Atmosphere, Pro Hockey Life (“PHL”), National Sports, Sports
Rousseau, and Hockey Experts.
In this document:
“Canadian Tire” refers to the general merchandise retail and services businesses carried on under the Canadian
Tire, PartSource and PHL names and trademarks, and the retail petroleum business carried on by Petroleum.
“Canadian Tire stores” and “Canadian Tire gas bars” refer to stores and gas bars (which may include convenience
stores, car washes, and propane stations) operated under the Canadian Tire and Gas+ names and trademarks.
“Consumer brands” refers to brands owned by the Company, which are managed by the consumer brands division
of the Retail segment.
“CT REIT” refers to the business carried on by CT Real Estate Investment Trust and its subsidiaries, including CT
REIT Limited Partnership (“CT REIT LP”).
“Financial Services” refers to the business carried on by the Company’s Financial Services subsidiaries, namely
Canadian Tire Bank (“CTB” or “the Bank”) and CTFS Bermuda Ltd. (“CTFS Bermuda”), a Bermuda reinsurance
company.
“Helly Hansen” refers to the international wholesale and retail businesses that operate under the Helly Hansen
and Musto brands.
“Jumpstart” refers to Canadian Tire Jumpstart Charities.
“Mark’s” refers to the retail and commercial wholesale businesses carried on by Mark’s Work Wearhouse Ltd., and
“Mark’s stores” including stores operated under the Mark’s, Mark’s Work Wearhouse, and L’Équipeur names and
trademarks.
“PartSource stores” refers to stores operated under the PartSource name and trademarks.
“Petroleum” refers to the retail petroleum business carried on under the Canadian Tire and Gas+ names and
trademarks.
“SportChek” refers to the retail business carried on by FGL Sports Ltd., including stores operated under the
SportChek, Sports Experts, Atmosphere, National Sports, Sports Rousseau, and Hockey Experts names and
trademarks.
Other terms that are capitalized in this document are defined the first time they are used.
Page 2 of 145 This document contains trade names, trademarks, and service marks of CTC and other organizations, all of which
are the property of their respective owners. Solely for convenience, the trade names, trademarks, and service marks
referred to herein appear without the ® or TM symbol.
1.2 Forward-Looking Statements
This Management’s Discussion and Analysis (“MD&A”) contains statements that are forward looking and may
constitute “forward-looking information” within the meaning of applicable securities legislation. Actual results or
events may differ materially from those forecast and from statements of the Company’s plans or aspirations that are
made in this MD&A because of the risks and uncertainties associated with the Corporation’s businesses and the
general economic environment. The Company cannot provide any assurance that any forecast financial or operational
performance, plans, or financial aspirations will actually be achieved or, if achieved, will result in an increase in the
Company’s share price. Refer to section 15.0 in this MD&A for a more detailed discussion of the Company’s use of
forward-looking statements.
1.3 Review and Approval by the Board of Directors
The Board of Directors, on the recommendation of its Audit Committee, approved the contents of this MD&A on
February 13, 2019.
1.4 Quarterly and Annual Comparisons in the MD&A
Unless otherwise indicated, all comparisons of results for Q4 2018 (13 weeks ended December 29, 2018) are
compared against results for Q4 2017 (13 weeks ended December 30, 2017) and all comparisons of results for the
full year 2018 (52 weeks ended December 29, 2018) are compared against results for the full year 2017 (52 weeks
ended December 30, 2017).
1.5 Accounting Framework
The annual consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”), also referred to as Generally Accepted Accounting Principles (“GAAP”), using the
accounting policies described in Note 3 of the annual consolidated financial statements.
1.6 Accounting Estimates and Assumptions
The preparation of consolidated financial statements that conform to IFRS requires Management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at
the date of the consolidated financial statements and the reported amounts of revenue and expenses during the
reporting period. Refer to section 11.1 in this MD&A for further information.
1.7 Key Operating Performance Measures and Additional GAAP and Non-GAAP Financial Measures
The Company has identified several key operating performance measures and non-GAAP financial measures which
Management believes are useful in assessing the performance of the Company; however, readers are cautioned
that some of these measures may not have standardized meanings under IFRS and, therefore, may not be comparable
to similar terms used by other companies.
Retail sales is one of these key operating performance measures and refers to the Point of Sale (“POS”) (i.e. cash
register) value of all goods and services sold to retail customers at stores operated by Canadian Tire Associate
Dealers (“Dealers”), Mark’s and SportChek franchisees, and Petroleum retailers, at corporately-owned stores across
all retail banners, of services provided as part of the Home Services offering, and of goods sold through the Company’s
online sales channels, and in aggregate does not form part of the Company’s consolidated financial statements.
Management believes that retail sales and related year-over-year comparisons provide meaningful information to
investors and are expected and valued by them to help assess the size and financial health of the Company’s retail
network of stores. These measures also serve as indicators of the strength of the Company’s brand, which ultimately
impacts its consolidated financial performance. Refer to section 11.3.1 for additional information on retail sales.
Revenue, as reported in the Company’s consolidated financial statements, comprises primarily the sale of goods to
Dealers and to franchisees of Mark’s and SportChek, the sale of gasoline through Petroleum retailers, the sale of
goods to retail customers by stores that are corporately-owned under the Mark’s, PartSource, and SportChek banners,
Page 3 of 145 the Company's cost and margin sharing arrangement with the Dealers, the sale of services through the Home Services
business, the sale of goods to customers through business-to-business operations including Helly Hansen wholesale
operations and through the Company’s online sales channels, as well as revenue generated from interest, service
charges, interchange and other fees, and from insurance products sold to credit card holders in the Financial Services
segment, and rent paid by third-party tenants in the CT REIT segment.
The Company also evaluates its performance based on the effective utilization of its assets. A common metric used
to evaluate the performance of core retail assets is average sales per square foot. Comparison of sales per square
foot over several periods will identify whether existing assets are more productive by the retail businesses’ introduction
of new store layouts and merchandising strategies. In addition, Management believes that return on invested capital
(“ROIC”), analyzed on a rolling 12-month basis, reflects how well the Company allocates capital toward profitable
retail investments. Retail ROIC can be compared to CTC’s cost of capital to determine whether invested capital was
used effectively. Refer to section 11.3.1 for additional information on Retail ROIC.
Management calculates and analyzes certain measures to assess the size, profitability, and quality of Financial
Services’ total-managed portfolio of receivables. Growth in the total-managed portfolio of receivables is measured
by growth in the average number of accounts and growth in the average account balance. A key profitability measure
the Company tracks is the return on the average total-managed portfolio (also referred to as “return on receivables”
or “ROR”). Refer to section 11.3.1 for a description of ROR.
Aspirations with respect to retail sales and Retail ROIC have been included in our financial aspirations for three
years ending in 2020. Refer to section 5.1 in this MD&A for the financial aspirations, assumptions, and related risks.
Additionally, the Company considers earnings before interest, tax, depreciation and amortization, any change in fair
value of the redeemable financial instrument and certain one-time normalizing items (“Normalized EBITDA”) to be
an effective measure of CTC’s profitability on an operational basis. EBITDA and normalized EBITDA is a non-GAAP
financial metric and is commonly regarded as an indirect measure of operating cash flow, a significant indicator of
success for many businesses. Refer to section 11.3.2 for a schedule showing the relationship of the Company’s
consolidated normalized EBITDA to the most comparable GAAP measure.
In the CT REIT segment, certain income and expense measurements recognized under GAAP are supplemented
by Management’s use of certain non-GAAP measures when analyzing operating performance. Management believes
the non-GAAP measures provide useful information to both Management and investors in measuring the financial
performance and financial condition of CT REIT. These measures include funds from operations (“FFO”), adjusted
funds from operations (“AFFO”), and net operating income (“NOI”). Refer to section 11.3.2 for further information
and for a reconciliation of these measures to the nearest GAAP measure.
1.8 Rounding and Percentages
Rounded numbers are used throughout the MD&A. All year-over-year percentage changes are calculated on whole
dollar amounts except in the presentation of basic and diluted earnings per share (“EPS”), in which year-over-year
percentage changes are based on fractional amounts.
2.0 Company and Industry Overview
2.1 Overview of the Business
Canadian Tire Corporation is a family of businesses that includes Canadian Tire, PartSource, Petroleum, SportChek,
Mark’s, Helly Hansen, CT REIT, and a Financial Services division.
The Company’s business model results in several distinct sources of revenue, which primarily comprise:
• shipments to Dealers of Canadian Tire and franchisees of SportChek and Mark’s;
• royalties on sales made by franchisees of SportChek and Mark’s;
• sales of goods to retail customers of corporately owned stores and wholesale revenue from sales to business
customers;
Page 4 of 145 • franchise rent and Dealer property licence fees;
• the Company's cost and margin sharing arrangement with the Dealers;
• sales of gasoline and convenience items at gas bars;
• interest income and service charges on credit card loans receivable;
• merchant and interchange fees on credit card transactions;
• revenue from insurance products sold to credit card holders; and
• rental revenue from third-party tenants leasing space at properties owned by the Company.
Detailed information on the organization and business of the Company can be found in the Company’s 2018 Annual
Information Form, Section 2 “Description of the Business”. The following provides a brief overview of the Company’s
three reportable operating segments for financial reporting purposes: Retail, CT REIT, and Financial Services.
2.1.1 Retail Segment
The Company’s retail business results are delivered through the Company’s retail banners: Canadian Tire,
PartSource, Petroleum, Mark’s, and the various SportChek banners; and the newly acquired Helly Hansen business.
Canadian Tire is one of Canada’s most shopped general merchandise retailers. For over 95 years, Canadian Tire
has been Canadians’ store for life in Canada. Canadian Tire, best known for the iconic red triangle affixed to every
Canadian Tire storefront, offers products and services in the Automotive, Playing, Fixing, Living, Gardening and
Seasonal categories. Canadian Tire also operates the specialty automotive hard parts banner PartSource and the
specialty hockey banner PHL. Canadian Tire aspires to be “Canada’s store” and one of the Canadian consumers’
most recognized and trusted brands. As part of its evolution, Canadian Tire now offers many of its products and
services for purchase online through its website at www.canadiantire.ca, with in-store pick up and deliver-to-home
service for online orders across the entire store network. In addition to Canadian Tire’s commitment to strengthening
its eCommerce platform, the Company is focused on finding ways to use technology to service and connect with
customers.
The 503 Canadian Tire stores across Canada, including approximately 5,620 automotive service bays, are run by
independent business owners, known as Dealers. Dealers buy merchandise primarily from CTC and sell it to
consumers in Canadian Tire stores or online. The Company supports the Dealers with category business
management, sourcing, supply chain management, marketing, financial, and information technology services. Each
Dealer owns the fixtures, equipment and inventory of the Canadian Tire store he or she operates and is responsible
for the store staff and operating expenses of that store. Each Dealer agrees to comply with the policies, marketing
plans, and operating standards prescribed by Canadian Tire, including purchasing merchandise primarily from
Canadian Tire and offering merchandise for sale at prices not exceeding those set by Canadian Tire. The Company's
arrangement with its Dealers is governed by contracts that came into effect in June 2013, and generally expire on
December 31, 2024. Each contract includes guidelines for gross margin and cost sharing, simplified processes to
achieve efficiencies and reduce costs, and guidelines to improve Dealer mobility within the network.
Petroleum is one of Canada’s largest independent retailers of gasoline, with a network of 297 retailer-operated gas
bars, including 297 convenience stores and 87 car washes. Petroleum operates under the Canadian Tire and Gas
+ banners. The majority of Petroleum sites are co-located with a Canadian Tire store as a strategy to drive traffic to
the Company’s core retail banner stores. The service centres feature a gas bar and an associated convenience
store. As part of its network, Petroleum operates 20 Canadian Tire gas bars in state-of-the-art service centres along major Ontario highways (Highway 400 and Highway 401).
Mark’s provides Canadians with apparel and footwear for everyday work and living by focusing its core business on
developing durable and high-quality items that keep Canadians warmer, drier, safer and more comfortable. In addition
to its 386 stores nationwide, Mark’s offers products for sale through its website at www.marks.com or
www.lequipeur.com. Mark’s operates under the banners Mark’s, Mark’s Work Wearhouse and, in Quebec, L’Équipeur.
Mark’s also conducts a business-to-business operation under its Commercial division selling a variety of its assortment
to small and large businesses with a focus on industrial employee needs.
Page 5 of 145
SportChek is a national retailer of sporting goods and active wear in Canada focused on helping customers achieve
their healthy, active lifestyle. SportChek offers, both in-store and online, a comprehensive assortment of brand-
name and Consumer brands products under various banners, with the largest being SportChek, Sports Experts and
Atmosphere (others include National Sports, Hockey Experts and Sports Rousseau) offering a full assortment of
products through their websites at www.sportchek.ca, www.sportsexperts.ca, www.nationalsports.com and
www.atmosphere.ca.
Consumer brands is a division of the retail segment which focuses on expanding the retail banners’ Consumer
brands portfolio, expertise in product development and design, and creating unique and exclusive products. In
addition, this division also has responsibility for the identification and acquisition of brands that would be a logical
complement or extension to CTC’s existing portfolio. Consumer brands include, but are not limited to, Paderno,
WOODS, NOMA, CANVAS, Master Chef, Premier, MOTOMASTER, MasterCraft, Denver Hayes, Helly Hansen and
Musto.
Helly Hansen, acquired in the third quarter of 2018, serves to strengthen the Company’s foothold in sportswear and
workwear and provides a platform for future growth opportunities internationally. Helly Hansen produces workwear,
urban and sports-specific clothing for skiers and sailors. It also produces a wide range of shoes, including casual
footwear, winter boots, and shoes for sailing, and other watersports under the Helly Hansen, Helly Hansen Workwear
and Musto brands.
Other foreign operations supporting the Retail segment include offices in the Hong Kong, Shanghai, Shenzhen,
and Vietnam and third-party sourcing service providers in India and Mexico, as well as a dedicated quality check/
assurance and sourcing team in Bangladesh. These offices provide access to foreign manufacturers and import
sourcing support for Canadian Tire. Each of Canadian Tire, SportChek, Mark’s and Helly Hansen use their own
internal resources and third-party logistics providers to manage supply chain technology and the movement of foreign-
sourced goods from suppliers to distribution centres (“DCs”) and stores. The Company also has a subsidiary that
has wholesale operations based in the United States (“U.S.”), including warehouse facilities in the state of Washington.
2.1.2 CT REIT Segment
CT REIT has a geographically-diversified portfolio of properties which comprises 342 properties located across
Canada totaling approximately 26.5 million square feet of gross leasable area. The property portfolio includes single
tenant retail properties, multi-tenant retail properties, some of which are anchored by a Canadian Tire store, DCs, a
mixed-use commercial property, and properties under development. CT REIT’s primary business involves owning,
developing, and leasing income-producing commercial properties. CTC holds a 76.2% effective interest in CT REIT.
2.1.3 Financial Services Segment
Financial Services issues Canadian Tire’s Triangle branded credit cards and insurance. Financial Services supports
the Retail business by providing payment settlement services to Canadian Tire, SportChek and Mark’s stores as
well as at the Petroleum outlets. In addition, Financial Services offers financing options to credit card customers on
certain purchases at the various retail banners, and provides the opportunity to earn My Canadian Tire Money at
an accelerated rate through purchases on the cards. CTC holds an 80 percent interest in the Financial Services
business. The Financial Services business includes Glacier Credit Card Trust - a trust established to help fund the
receivables portfolio through the purchase of co-ownership interests used to secure debt sold publically. The credit
card portfolio is, in part, funded through various deposit products including high-interest savings accounts (“HIS”),
tax-free savings accounts (“TFSA”), and guaranteed investment certificates (“GIC”) obtained directly and through
third-party brokers.
Page 6 of 145 2.2 Competitive Landscape
The Company anticipates that it will face increased competition from new entrants as well as new opportunities from
industry consolidation. These challenges and opportunities include but are not limited to:
• U.S. or international retailers that do not have brick-and-mortar stores in Canada but are capturing sales from
Canadian customers through eCommerce sites such as Amazon and those belonging to various apparel retailers;
• U.S.-based retailers already in Canada (including Walmart, Costco, Home Depot, Cabela’s, Bass Pro Shops,
Lowe’s, and Nordstrom) that are in the process of expansion or are expected to further expand their store networks
in Canada;
• new retailers that may enter Canada;
• vendor-direct online and outlet-store sales channels, including, for example, those operated by global outdoor
brands such as Under Armour, Nike, Columbia, Northface, and Arcteryx may pose competition for the Company’s
consumer brands both domestically and internationally;
• non-traditional market entrants and new technologies such as mobile payments which impact the competitive
landscape and credit card industry; and
• retailers partnering with a competing financial institution or negotiating special arrangements with one of the
credit card issuers.
In addition to the physical and online presence of other competitors in the marketplace, the expectations of retail
consumers are also changing rapidly, with retailers modifying how they reach out to customers and encourage them
to shop in their stores and online. The changes include:
• technology-savvy and better informed customers, due in part to the breadth of information available online for
education on specific items and product features;
• advances in mobile technology, allowing retailers to market to customers based on their physical location by
sending text and email messages with specific targeted offers as they come within a specific distance of stores;
• a changing Canadian demographic, with customers who have different shopping patterns and needs; and
• customers who are more price sensitive and price compare online before making purchases.
The Company is well positioned in this competitive environment and has identified core capabilities that differentiate
the Company and its businesses and operations from those of its competitors and that add value for its customers.
These core capabilities are discussed in further detail in section 3.0 of this MD&A.
For further information on competitive conditions impacting the Company, refer to Section 2 “Description of the
Business” of the Company’s 2018 Annual Information Form.
3.0 Core Capabilities
Management has identified several core capabilities that differentiate the Company, and its businesses and
operations, from those of its competitors and add value for its customers. Further information on these capabilities
can be found in the Company’s 2018 Annual Information Form, Section 2 “Description of the Business” and Section
3 “General Development of the Business”.
Portfolio of Brands and New and Innovative Products
• CTC is committed to being the #1 retail brand in Canada, preparing Canadians for the “Jobs and Joys for Life
in Canada”.
• The Company’s Consumer Brands division, launched in 2016, strengthens the existing consumer brands portfolio
by creating new and innovative products that appeal to consumers while actively pursuing acquisitions that will
provide long-term growth for the Company.
• The Company’s strength in introducing new and innovative product assortments and categories has resulted in
brands that have earned a level of credibility that is on par with national brands, sought after by consumers
across the country. Examples of these brands include WOODS, Premier, Paderno, Vermont Castings, Golfgreen,
NOMA, WindRiver, Dakota, CANVAS, Master Chef, MAXIMUM, FRANK, MOTOMASTER, Denver Hayes, and
MasterCraft.
• The Company successfully balances a portfolio of strong national and consumer brands.
Page 7 of 145 Marketing Expertise
• The Company’s centralized marketing function allows CTC to create a “One Company serving One Customer”
marketing strategy.
• CTC’s breadth of marketing mediums builds brand awareness, customer awareness, and traffic to stores and
online. These mediums include weekly promotional flyers in print and digital format across all its banners
(Canadian Tire’s flyer is one of Canada’s most read flyers and is delivered to approximately 12 million households
each week), catalogues, radio, television, digital and social media, newspaper and magazines.
• Canadian Tire’s paper and digital catalogue known as the WOW Guide, uses innovative technology to bring on-
line capabilities to a standard catalogue.
• CTC’s brand promise is to become the ‘solutions centre’ for the “Jobs and Joys of a Life in Canada”.
• The Company’s commitment to sport provides an opportunity to broaden its reach among key consumer groups
and increases the attractiveness of its brand and products to customers.
Loyalty and Credit Card Program
•
•
Introduced in 1958 as an innovative customer traffic-builder for Canadian Tire stores and gas bars, My Canadian
Tire Money is one of Canada’s most well-known loyalty programs.
In 2018, the Company launched the Triangle Rewards program and associated Triangle-branded credit cards,
transforming its loyalty program to become Enterprise-wide. The Triangle Rewards program establishes a
platform for CTC to acquire and engage customers and promote cross-shopping across its banners. The Triangle
rewards program now has over 10 million members and over 2 million active credit card holders.
• With Triangle Rewards, the Company laid the foundation to serve One Customer through the lens of One
Company.
• The Triangle Rewards loyalty program provides the Company with valuable customer insights which are used
to build more innovative and customer engaging retail strategies, product assortments and marketing programs.
Dealer Network
• The Canadian Tire Dealer model is unique to the Company and has served both the Dealers and the Company
well for more than 80 years by allowing both parties to successfully compete in an ever-changing retail
environment.
• The Dealer model is a differentiator from other Canadian retailers and provides the Company with a unique
ability to adapt and curate its assortment and experiences to be relevant in each market that Canadian Tire
operates.
Real Estate Expertise
• The Company’s portfolio represents one of Canada’s largest retail networks, comprising 1,700 locations and
approximately 34 million retail square feet.
• The Company’s expertise in real estate enables it to consistently identify properties that are ideally situated for
future development or redevelopment and to secure high-traffic, sought-after locations for its retail outlets.
• The Company’s strong in-house real estate team manages not only the entire retail network of owned and leased
properties for all banners but also a significant portion of CT REIT’s portfolio.
Technology Expertise
• CTC is strategically focused on developing technological capabilities that will drive the omni-channel retail
experience for its customers.
• Using digital capabilities, CTC is now focusing on areas to drive traffic in-stores and online, drive engagement
and conversation to provide personalized experience, drive post-purchase experience with strong customer
retention, and enhance digital and in-store experience.
• CTC continues to demonstrate its strength in the design and implementation of powerful analytical capabilities
that assist its buying and logistics function and digital search capabilities.
Global Supply Chain Network
• The supply chain manages the flow of information and products from sources around the globe through
sophisticated control tower systems which provide end-to-end visibility of product location and status as well as
capacity planning functionality that is used to manage the Company’s distribution network, placement of inventory
Page 8 of 145 and to optimize costs. The same functionality is shared with third-party service providers to provide advanced
visibility to capacity requirements, secure timely product flow and competitive costing.
• CTC’s newest DC, the Bolton Distribution Centre in Caledon, Ontario (“Bolton DC”) represents the next wave of
distribution automation and technology for the Company. Fixed conveyance and storage automation has been
replaced with flexible automated guided vehicles with one of the largest fleets in any retail DC in the world. Tire
handling robots streamline the inbound and outbound flow of tires, improving productivity and workplace health
and safety. The flexible systems and processes in this DC are designed to be equally productive filling large
store replenishment orders and individual customer online orders.
• Online order fulfillment is performed from stores and DCs, supported by leading edge Distributed Order
Management (DOM) technology to facilitate timely, cost effective shipments.
• CTC’s supply chain is committed to sustainability. Management works closely with the Company’s transportation
partners to minimize impact on the environment. In recent years, CTC successfully completed the certification
of the world’s first 60 foot domestic rail container. This container has the capacity to move 14 percent more
product than a conventional 53 foot container by rail and road, with similar costs and minimal additional impact
on the environment.
Prudent Credit Risk Management
• Financial Services has more than 25 years experience using sophisticated industry-standard and proprietary
credit-scoring models to manage credit card risk.
World-class Customer Contact Centres
• The Company’s commitment to creating lifelong relationships with its customers is reflected in the success of
its customer contact centres which have earned five Contact Centre of the Year award titles and eleven Customer
Satisfaction awards over the past decade.
4.0 Historical Performance Highlights
4.1 Selected Annual Consolidated Financial Trends
The following table provides selected annual consolidated financial and non-financial information for the last three
fiscal periods. The financial information has been prepared in accordance with IFRS.
(C$ in millions, except per share amounts and number of retail
locations)
Consolidated comparable sales growth1
Revenue2
Net income
Normalized3 net income
Basic EPS
Diluted EPS
Normalized3 diluted EPS
Total assets
Total non-current financial liabilities4
Financial Services gross average accounts receivables (total
portfolio)
Number of retail locations
2018
2.2%
2017
2.7%
2016
4.7%
$
14,058.7
$
13,276.7
$
12,532.4
783.0
870.4
10.67
10.64
11.95
17,286.8
7,597.1
6,093.0
1,700
818.8
818.8
10.70
10.67
10.67
15,627.0
6,311.8
5,263.9
1,702
747.5
747.5
9.25
9.22
9.22
15,305.6
6,027.3
4,911.9
1,702
Cash dividends declared per share
Stock price (CTC.A)5
1 Does not include Helly Hansen.
2 Certain prior period figures have been restated due to the adoption of new accounting standards (refer to Note 2 of the consolidated financial statements).
3 Refer section 7.1.1 for details on normalized items
4
3.7375
2.8500
163.90
142.08
Includes short and long-term deposits, long-term debt including the current portion, long-term derivative liabilities included in other long-term liabilities, and the
redeemable financial instrument.
2.3750
139.27
$
$
$
5 Closing share price as of the date closest to the Company’s fiscal year end.
Page 9 of 145 The three-year trend chart highlights changes in revenue
by banner between 2016, 2017 and 2018.
REVENUE BY BANNER/UNIT*
($ millions)
Consolidated revenue has increased steadily over the past
three years, achieving a compound annual growth rate
(CAGR) of 5.9 percent
to 2018. This
performance reflects:
from 2016
• Revenue growth across all retail banners, as
customers reacted favourably to a strong product
assortment and promotions;
in
revenue
• Increased
the Financial Services
segment, largely attributable to higher credit card
charges resulting from increased GAAR;
• The acquisition of Helly Hansen in Q3 2018;
• Over the past three years, the Company has
executed on its strategic initiatives to develop omni-
channel retail capabilities, enhancing its online
presence, search engine optimization, deliver-to-
home, and in-store digital experience; and
• During 2018,
the embodiment of CTC’s One
Company strategy culminated in the launch of the
Triangle Rewards loyalty and credit card program.
Canadian Tire
Financial Services
SportChek
Mark’s
Petroleum
* Excludes CT REIT
Helly Hansen
Retail revenue has increased at a higher rate than store
count over the past three years. SportChek continues to
convert franchise locations to buying members and, along
with Petroleum and PartSource, has closed several under-
performing stores in recent years
STORES AND RETAIL REVENUE
Retail revenue
($ billions)
Number of stores
Store count
Retail revenue
Page 10 of 145
Financial Services GAAR for the total portfolio has
increased over the past three years, representing CAGR
of 8.9 percent since 2016.
FINANCIAL SERVICES GROSS AVERAGE
ACCOUNTS RECEIVABLE
($ millions)
Continued strong growth in the average number of active
accounts reflects positive results from the Company’s
initiatives
the
continued focus on integration initiatives with the retail
businesses, including the launch of the Triangle Rewards
program and associated credit cards in 2018.
to stimulate receivables growth and
Average account balances and average number of
accounts increased since 2016 also due in part to
enhanced in-store financing offers for Canadian Tire
customers.
NORMALIZED DILUTED EPS AND DIVIDENDS PER SHARE
(Dividends $ per share)
($ per share)
Normalized diluted EPS and dividends declared per share
have increased steadily over the past three years, resulting
in a normalized diluted EPS CAGR of 13.8 percent since
2016. This reflects:
• strong retail revenue and margin growth across all
businesses;
• benefits of operational effectiveness initiatives; and
• the favourable impact of share repurchases;
partially offset by:
• an increase in selling, general, and administrative
expenses due to the execution of planned investments
in the Company’s key initiatives.
Normalized Diluted EPS
Dividends per share
Page 11 of 145
5.0 2018 Financial Aspirations and Key Initiatives
Canadian Tire Corporation and its retail banners: Canadian Tire, PartSource, PHL, Gas+, SportChek, Sports Experts,
Mark’s, L’Equipeur, and Atmosphere, are among Canada’s most recognized and trusted brands. CTC offers
approximately 1,700 brick and mortar locations in Canada, some of the most visited digital retail properties in Canada,
and a portfolio of world-class products and consumer brands that are sold both domestically and internationally. The
Company’s Retail business is supported and enhanced by its Financial Services business, its real estate capabilities
and CT REIT, and by the impact CTC makes in local communities across Canada, and through Jumpstart.
CTC’s vision is to become the #1 retail brand in Canada by 2022, as measured by its customers, shareholders, and
employees. The Company’s primary focus is serving customers and markets across Canada, while developing new
customers internationally. CTC is committed to deepening relationships with its customers and acquiring new
customers by strengthening its purpose of preparing Canadians for the “Jobs and Joys for Life in Canada”. CTC
operates core businesses in Living, Fixing, Playing, Driving, Apparel and Services, and will continue to evolve its
unique marketplace of products, brands and experiences over time. In the third quarter of 2018, the Company
acquired the international retail and wholesale businesses that own the Helly Hansen brand. Serving both Canadian
and international consumers, Helly Hansen produces workwear, urban and sports-specific clothing, and footwear
for skiers and sailors under the Helly Hansen, Helly Hansen Workwear and Musto brands. It also produces a wide
range of shoes, including casual footwear, winter boots, and shoes for sailing, and other watersports. This acquisition
will serve to strengthen the Company’s foothold in sportswear and workwear in Canada.
While the role CTC plays in the lives of Canadians is its foundation, the Company is evolving customer experiences
and the “how we do it” to stay relevant as the retail market and consumer preferences evolve. Historically, the
Company’s strategies and plans have been focused on individual retail banners. Looking ahead, CTC will operate
as One Company, with strong individual banner brands and a shared platform of services and capabilities aligned
to serve One CTC Customer. The Company believes each of its retail banners and brands will be stronger together,
as part of a CTC marketplace focused on a common CTC customer. By sharing capabilities, platforms, tools, and
data across CTC, all banners and brands will be enabled to deliver unique, personalized, and compelling experiences.
The launch of Triangle Rewards, an enhanced enterprise-wide loyalty and credit card program, is one example of
how CTC will engage existing customers, acquire new ones, and promote cross-shopping across its banners. The
Triangle Rewards program strengthens the Company’s marketplace approach and, ultimately, every customer
relationship.
5.1 Three-Year (2018 to 2020) Financial Aspirations
The following represents forward-looking information and readers are cautioned that actual results may vary.
The Company has established its financial aspirations for fiscal years 2018 to 2020. Achievement of these aspirations
would contribute to the consistent increase of total shareholder return over the next three years.
The financial aspirations and a discussion of the underlying material assumptions and risks that might impact the
achievement of the aspirations are outlined in the following table. In addition, achievement of the aspirations may
be impacted by the risks identified in section 12.0.
Page 12 of 145
1. Consolidated Comparable Sales Growth (excluding Petroleum) of 3+ percent annually
Material assumptions:
• Individual business units contribute positively to Consolidated Comparable Sales Growth
• Sales growth driven by an innovative assortment and an optimized mix of owned and national brands
• Customers engaged through compelling loyalty and credit card programs
• Customer base will grow across all banners utilizing a ‘One Company serving One Customer’ strategy
• Continued focus on promotional and pricing optimization
Material risks:
• Pricing pressure driven by growing competition from new and existing market players
• Accelerated disruption from eCommerce competitors
• Decline in economic growth, consumer confidence, and household spending
• The introduction of unfavourable foreign-trade policies
2. Average Annual Diluted EPS1 Growth of 10+ percent over the three-year period
Material assumptions:
• Realization of the Consolidated Comparable Sales Growth aspiration
• Successful rollout of operational efficiency programs and initiatives
• Continued GAAR growth and positive contribution to earnings by the Financial Services segment
• No major changes to the Company’s financial leverage and capital allocation approach
Material risks:
• Risks associated with the Consolidated Comparable Sales Growth aspiration described above
• Short-term effect on EPS from the Company’s capital-allocation initiatives, including the potential impact of
organic and inorganic growth initiatives designed to create long-term growth
• Negative impacts due to unfavourable commodity prices, foreign exchange fluctuations, protectionist foreign
policies and legislative changes
• Adverse economic or regulatory conditions which negatively impact GAAR growth and increases volatility of
the impairment allowance for credit card receivables
• Lower or lesser contribution from operational efficiencies
3. Retail ROIC of 10+ percent by 2020
Material assumptions:
• Realization of Consolidated Comparable Sales Growth and average annual Diluted EPS growth aspirations
• Prudent management of working capital
• Disciplined approach to selecting growth projects and initiatives which yield improved asset productivity
• Effective management of the Company’s capital allocation priorities
Material risks:
• Lower than anticipated earnings growth; refer to risks associated with the Average Annual Diluted EPS Growth
aspiration described above
• Short-term effects from the Company’s capital-allocation initiatives, including the potential impact of organic
and inorganic growth initiatives designed to create long-term growth
The Company’s performance in 2018 on the financial aspirations outlined above is summarized in the table below:
Financial Measure
Consolidated Comparable Sales Growth (excluding Petroleum) of +3 percent
annually
Average Annual Diluted EPS1 Growth of 10+ percent over the three-year period
Retail ROIC2 of 10+ percent by 2020
1 Based on normalized results
2 Retail ROIC is calculated on a rolling 12-month basis based on normalized earnings. Refer to section 11.3.1 in this MD&A for additional information.
2.2%
12.0%
9.2%
2018
Performance
Achieved/
on-Track in
2018
Not
achieved
On Track
On Track
The Company did not achieve its aspiration for +3 percent sales growth in 2018 due in part to the unseasonable
weather in April and December. The Company remains committed to +3 percent consolidated comparable sales
growth on an annual basis. The Company is on track to meeting its EPS and ROIC financial aspirations for three
years ending 2020. Refer to section 7.0 Financial Performance of this MD&A for details on Company’s financial
performance in 2018.
Page 13 of 145 5.2 2018 Key Initiatives
The following includes forward-looking information and readers are cautioned that actual results may vary.
The Company categorizes its 2018 initiatives under five areas of focus and believes that successfully executing each
by operating as One Company with a view towards serving the needs of a common customer over a lifetime in
Canada, will allow it to achieve both its financial aspirations (section 5.1), and its goal to become the #1 retail brand
in Canada by 2022. The Company’s strategy to succeed in its brand and product portfolio, its customer experience
and financial discipline are supported by its strategies with respect to talent and platforms.
The following is a summary of the Company’s strategic initiatives for 2018 along with Management’s assessment:
Brand and Product Portfolio
• As a brand and product-led Company, continue to introduce new, innovative, and improved product
assortments and categories across the retail banners and Financial Services business, demonstrating the
Company’s commitment to preparing Canadians for the “Jobs and Joys for Life in Canada”.
• Through the Consumer Brands division, strengthen the consumer brands portfolio organically and by
selectively pursuing acquisitions to complement key categories.
The Company is committed to being a “brand and product-led” organization providing customers with the best portfolio
of world-class products and brands. Management believes that the strength and value of the Company’s brands are
directly correlated to the strength of its business results. Successful achievement of the initiatives within this area of
focus will ensure that the Company’s brands are supported and enhanced in the eyes of its customers and other
key stakeholders and that the Company offers products that support Canadians throughout their lifetime.
Management continues to execute its plan to grow the consumer brands portfolio in Canada and achieve a competitive
mix of owned and national brands. During 2018, the Company invested in product design and development
capabilities to expand existing consumer brands, including WOODS, Paderno, NOMA, CANVAS, Maximum,
MOTOMASTER, Denver Hayes, Shambhala, and Dakota, among others, and to develop the newly acquired Vermont
Castings, Golfgreen and Sher-wood brands, adding thousands of new products, unique designs and features. In
addition, the Company’s acquisition of Helly Hansen adds a premium international brand to its Canadian portfolio
and expands its business model to international markets. In 2018, the Company announced a partnership with Petco,
a leading global pet speciality retailer, to exclusively offer a variety of products online and in stores, marking its
entrance into the premium pet category. The Company also announced a partnership with Husky Energy, under its
Triangle Rewards program, which broadens the reach of the Triangle Rewards program in western Canada.
As a retailer committed to delivering quality products for life in Canada, Canadian Tire continued to expand the Tested
for Life in Canada program through 2018. The number of products tested is growing everyday through a panel of
over 80,000 testers. Feedback received from real Canadians is helping Canadian Tire ensure we are delivering
quality and value. In 2018, Canadian Tire grew its customer research panel to over 180,000 people. This in-house
platform allows the Company to conduct hundreds of online surveys each year with a captive group of its customers
across Mark’s, SportChek and Canadian Tire. Feedback from this panel drives customer experience and product
improvements, helping Canadians feel confident that they can count on the products and services they purchase
across the Company’s different banners.
In 2018, SportChek broadened its appeal to consumers through a variety of initiatives. Over 75% of the store network
was converted to a category focused merchandising strategy which has allowed the banner SportChek to showcase
the breadth of its assortment versus a focus on individual brands. The acquisition of Helly Hansen and the launch
of the WOODS and Ripzone consumer brands in outerwear have expanded SportChek’s offerings. The new brand
positioning, “Find What Moves You” was launched in 2018 and is aimed at all individuals looking to lead an active,
healthy lifestyle by turning intent into action. This year’s campaign was launched using a multichannel approach
that included TV spots, digital video, digital display, billboards, and outdoor advertising. During the year SportChek
significantly advanced its new Digital Retail capabilities, which provides customer specific marketing and promotional
offers. In 2019 it will continue to broaden its appeal with new assortments available from Helly Hansen, representing
Page 14 of 145 urban and sports-specific clothing for skiers and sailors, an expanded kids assortment, and a wide range of casual
and winter footwear. SportChek will make investments in new tools and technology to improve customer service
and store productivity.
At Mark’s, the reinvention of the brand through the “Well Worn” positioning in the second half of 2017 started to
produce results through out 2018 in the form of net new customer growth. A curated assortment focused on durability,
strength of character and “wearing it well” has been introduced, and “Well Worn” Shops were featured in all stores
in the fourth quarter, in addition to the three pop-up locations that were opened in the prior year. During the year,
Mark’s also initiated the repositioning of its brand in Quebec, with the tag-line “Equipe pour tout” to align with the
newly conceptualized store format, and has renovated 24 stores with the remaining 16 to be completed in 2019.
Innovation continues to be an important part of Mark’s DNA, focused on keeping Canadians warmer, drier, safer and
more comfortable, launching several new innovative products throughout 2018.
Customer Experience
• Continue to enhance the customers’ in-store and digital experience across banners, enabling them to shop
how they want, when they want.
• Deliver on initiatives to continuously improve the customer experience, informed by direct customer feedback
(Net Promoter Score).
In Q3 2018, the Company completed its national roll-out of deliver-to-home capabilities at Canadian Tire. Now all
major banners of the Company deliver to homes in Canada. Additionally, in Q4 2018, Canadian Tire launched several
self-serve pick-up towers to facilitate a faster and easier click-and-collect experience for customers. The towers,
which are a first of its kind in Canada, allow customers to order online and quickly pick up their orders in-store at a
16-foot self-serve kiosk. The towers are currently installed at five locations across the country in Vancouver, Calgary,
Saskatoon and Toronto.
The Company is also testing new pickup options in the Ottawa area, including additional self-serve lockers and
automated check-in terminals. Canadian Tire is committed to allowing the customer to shop how they want, when
they want.
During 2018, to enhance the customer’s in-store and digital experience, the Company significantly advanced its new
digital retail capabilities. Using these capabilities, the Company is now focusing on areas to drive traffic in-store and
online, drive engagement and conversation that provides personalized customer experience, drive post-purchase
experience with strong customer retention, and enhance digital and in-store experience. SportChek has deployed
tablets in the stores to unlock the full breadth of the assortment, having all styles and sizes accessible to customers
regardless of the store they are shopping in. At Mark’s, customer experience was enhanced through a curated
assortment focused on hero categories and innovative products, a more inviting store ambiance and the new ‘Well
Worn’ brand positioning.
Net Promoter Score has been established as the key measure of customer experience, across all banners for 2018.
During the year, with the launch of the Triangle Rewards program, the Company tested and implemented many of
the foundational CTC Marketplace components, and new marketing capabilities like Triangle days across banners,
1:1 marketing and promotional offers, and digital personalization.
Financial Discipline
• Roll out productivity initiatives designed to increase the sales and profitability of the retail store network and
digital properties across all banners.
• Utilize a One-Company approach to identify and execute opportunities to improve efficiency in its core
functions through process automation and simplification.
• Adhere to a disciplined and balanced approach to capital allocation.
Page 15 of 145 In 2018, a number of operating efficiency initiatives were conducted, with focus on improved demand-forecasting
capabilities and linear productivity, using data analytics at the individual store level to drive sales and operational
productivity. Considerable runway and further opportunity exists for these and similar initiatives going forward.
The Company also initiated an in-house program to train users from across the Company to create software bots to
drive work efficiencies and effectiveness across the organization. The first wave of power users graduated through
the online and classroom training portions of the power user program in October 2018 with content that was created
and taught by an in-house team.
The Company’s centralization initiatives allowed CTC to deliver on the “One Company serving One Customer”
aspiration, through centrally-managed supply chain, marketing, information technology, and product and brand
development functions.
The Company is committed to allocating capital through a balanced approach. In addition to the allocation of capital
to the development of its bricks and mortar and online network, the Company announced, in November 2018, a 15.3
percent increase to the annual dividend from $3.60 to $4.15 per share. The Company also fulfilled its previously
stated intention (announced November 2017) of repurchasing $550 million of its outstanding Class A Non-Voting
shares and announced its intention to repurchase an additional $300 million to $400 million of its Class A Non-Voting
shares by the end of 2019, in excess of the amount required for anti-dilutive purposes.
During the year the Company raised $1,434.2 million by issuing $650.0 million aggregate principal amount of
unsecured medium-term notes, Glacier Credit Card Trust (“GCCT”) issued $584.0 million of term notes and CT REIT
issued $200.0 million aggregate principal amount of senior unsecured debentures, while maintaining its strong
investment grade rating. In the fourth quarter of 2018, the Company reduced its interest in CT REIT from 85.5% to
76.2% and CT REIT completed a treasury unit offering, for gross proceeds of approximately $200.0 million and $65.0
million respectively.
Talent
• Evolve the Company’s talent strategy with a focus on developing key talent and expertise in critical areas and
on building core leadership capabilities required to execute its long-term strategy.
• Continue to enhance the Triangle Learning Academy to support the development of future leaders across the
organization.
Canadian Tire is committed to identifying, attracting and developing a pipeline of talent across all levels of the
enterprise. In 2018, the Company made significant strides in moving its talent strategies in key areas such as Talent
Assessment and Development, Learning and Employee Engagement.
During 2018, the Company developed or acquired talent across all levels of the organization to accelerate its
capabilities in digital retailing, marketing, data analytics, merchandising, and leadership skills. Leaders across the
enterprise attended executive education programs. Internal and external speaker forums were held to provide leaders
with insights about the changing world of retail to provide leaders with additional context to execute against business
initiatives.
In 2018, leaders from across the organization worked with the Talent team to define the key organizational roles to
deliver its long term strategy, identify the capabilities and development required to execute these roles, and career
paths to move internally across the organization to be successful in these key roles. A new assessment framework
was adopted to identify, measure leader capabilities and future potential, and was rolled out to the senior leadership
team. It also includes new assessment and development practices which have been quickly integrated into talent
and succession planning practices.
In late 2017, the Company launched Triangle Learning Academy (“TLA”) an integrated learning approach for its
employees to prepare employees for the future of retail. Composed of online programming, learning seminars and
workshops, experiential learning and “hands on” team challenges, TLA proved successful in engaging employees
Page 16 of 145 in new learning and training programs. In 2018, TLA delivered over 50,000 learning experiences to employees.
Plans in 2019 include expansion of the curriculum to employees and the rollout of the platform to corporate store
employees.
Platforms
• Strengthen the Company’s commitment to environmental sustainability, and community support through
Jumpstart.
• Grow customer engagement through the launch of an enhanced enterprise-wide loyalty and associated credit
card program.
• Advance business models, processes and technology platforms to support financial aspirations.
In Q2 2018, the Company officially launched the Triangle Rewards program and associated credit cards. Triangle
Rewards offers an enhanced value proposition to customers shopping across the CTC marketplace. It enables
members to earn, and redeem electronic My Canadian Tire Money (“eCTM”) across multiple CTC retail banners,
including Canadian Tire, SportChek, Gas+ (earn only), and participating Atmosphere, Mark’s, and L’equipeur stores.
In addition, members can also earn eCTM at participating Husky gas stations, which was launched as a strategic
partnership later in the year. As part of the Triangle Rewards program, CTB offers Triangle-branded credit cards
through which cardholders can earn and redeem My Canadian Tire Money for use across CTC’s retail banners and
participating stores. Triangle Rewards is a key enabler to achieving sustained cross banner customer engagement
and provides valuable insights to better understand customers’ shopping habits and build retail strategies,
assortments and marketing programs that prepare customers for the “Jobs and Joys of Life in Canada” and create
lasting customer relationships. CTC uses customer insights from Triangle Rewards to connect with customers in a
more personalized way with approximately seven million customers receiving targeted product and service offers
each week. Since launch, CTC has experienced significant growth in new loyalty customer acquisition in both credit
card and base loyalty accounts, contributing to a +40% increase in loyalty issuance.
Jumpstart is dedicated to helping kids overcome financial and accessibility barriers to sport and recreation in order
to provide inclusive play for kids of all abilities. In 2018, Jumpstart helped approximately 280,000 kids in financial
need, supported by a network of over 1,900 community partner organizations across Canada. In September 2017,
Canadian Tire Corporation announced the Play Finds a Way movement, an unprecedented $50 million fundraising
commitment over five years to Jumpstart Charities, to give Canadian kids with disabilities greater access to sport
and play. One of the signature programs of Jumpstart’s ‘Play Finds A Way’ movement is the inclusive playground
project, which builds ground-breaking and gold standard playgrounds for inclusive play across Canada. Working
closely with local municipalities and our Canadian Tire Dealer network, 2018 saw the opening of four universally
accessible playgrounds ranging from 10,000 sq. ft. to 15,000 sq. ft. Cities include Calgary, Winnipeg, Toronto and
Charlottetown, with Prince Albert scheduled to open in Spring 2019.
In 2018, the Company also reset its strategy, increased the number of its initiatives and developed targets for its
Sustainability program. The Company continues to be recognized as a Sustainability leader through independent
environmental, social and governance ratings. Refer to section 14.0 of this MD&A for our environmental footprint
accomplishments.
Continued investments in technology platforms that support One Company initiatives including data and analytics
remained an area of focus for the year.
Page 17 of 145 6.0 2019 Key Initiatives
The following represents forward-looking information and readers are cautioned that actual results may vary.
The Company established its financial aspirations for fiscal years 2018 to 2020, as mentioned in section 5.1 of this
MD&A. Based on these, for 2019 (year two of the three year strategic plan), Management will focus on the following
key initiatives:
Brand and Product Portfolio
• Continue to introduce new, innovative and improved product assortments and categories across the Retail
banners and Financial Services business, demonstrating the Company’s commitment to preparing Canadians
for the “Jobs and Joys for Life in Canada”.
• Strengthen the consumer brands portfolio organically and by selectively pursuing acquisitions to complement
key categories.
Customer Experience
• Grow CTC Marketplace engagement with the continued evolution of the Triangle Rewards and associated
credit card program.
• Deliver on initiatives to continuously enhance the customer experience both in-store and digitally, and begin to
develop future store concept(s).
Financial Discipline
• Across all banners and support functions, continue to roll out productivity initiatives designed to increase the
sales and profitability of the retail store network and digital properties.
• Utilize a One Company approach to identify and execute on opportunities to improve efficiency in our core
functions through process automation, simplification and digital transformation.
• Adhere to a disciplined and balanced approach to capital allocation.
Talent
• Evolve the Company’s talent strategy with a focus on developing key talent and expertise in critical areas and
on building core leadership capabilities required to execute our long term strategy.
• Continue to enhance the Triangle Learning Academy to support the development of our future leaders across
the organization.
Platforms
• Strengthen the Company’s commitment to sustainability, and community support through Jumpstart.
• Advance our business models, processes and technology platforms to support financial aspirations, including
our international business.
• Utilize direct customer feedback (Net Promoter Score) and data-driven insights to drive improvements to the
customer experience across all of our businesses.
Page 18 of 145 7.0 Financial Performance
7.1 Consolidated Financial Performance
7.1.1 Consolidated Financial Results
(C$ in millions, except where noted)
Retail sales2
Revenue
Gross margin dollars
Gross margin as a % of revenue
Other (income)
Selling, general and administrative
expenses
Net finance costs
Change in fair value of redeemable
financial instrument
Income before income taxes
Income taxes
Effective tax rate
Net income
Net income attributable to:
Shareholders of Canadian Tire
Corporation
Non-controlling interests
Basic EPS
Diluted EPS
Weighted average number of Common
and Class A Non-Voting Shares
outstanding:
$
$
$
$
$
$
$
$
$
$
Q4 2018
4,637.7
4,131.7
1,418.0
$
$
$
34.3%
(2.5) $
938.9
44.7
50.0
386.9
$
108.7
28.1%
Q4 20171
4,599.3
3,915.5
1,345.4
Change
2018
0.8 % $ 15,494.7
20171
$ 14,980.7
5.5 % $ 14,058.7
$ 13,276.7
5.4 % $
4,711.3
$
4,480.2
Change
3.4 %
5.9 %
5.2 %
34.4%
(0.3)
(4) bps
NM3 $
33.5%
(26.0) $
33.7%
0.2
(23) bps
NM3
911.3
30.1
—
404.3
108.9
3.0 %
3,467.6
48.6 %
151.5
3,254.9
112.6
NM3
(4.3)% $
50.0
—
1,068.2
$
1,112.5
(0.1)%
285.2
293.7
26.4%
6.5 %
34.6 %
NM3
(4.0)%
(2.9)%
26.9%
26.7%
278.2
$
295.4
(5.8)% $
783.0
$
818.8
(4.4)%
254.3
23.9
278.2
4.00
3.99
$
$
$
$
275.7
19.7
295.4
4.12
4.10
(7.8)% $
21.0 %
(5.8)% $
(2.9)% $
(2.7)% $
692.1
90.9
783.0
10.67
10.64
$
$
$
$
735.0
83.8
818.8
10.70
10.67
(5.8)%
8.6 %
(4.4)%
(0.3)%
(0.3)%
Basic
NM3
NM3
67,188,141
1 Revenue, gross margin and selling, general and administrative expenses were restated as a result of IFRS 15 adjustments. Refer to Note 2 of the consolidated
NM3
NM3
63,611,964
66,985,467
68,871,847
68,678,840
65,062,581
63,707,558
64,887,724
Diluted
financial statements for additional information.
2 Key operating performance measures. Refer to section 11.3.1 in this MD&A for additional information.
3 Not meaningful.
Non-Controlling Interests
The following table outlines the net income attributable to the Company’s non-controlling interests. For additional
details, refer to Note 14 of the Company’s 2018 consolidated financial statements.
(C$ in millions)
Financial Services
Q4 2018
Q4 2017
2018
2017
Non-controlling interest percentage 20.0% (2017 - 20.0%)
CT REIT
Non-controlling interest percentage 23.8% (2017 - 14.5%)
Retail segment subsidiary
Non-controlling interest percentage 50.0% (2017 - 50.0%)
Net income attributable to non-controlling interests
$
$
13.4 $
12.9 $
56.6 $
9.8
0.7
5.6
1.2
30.2
4.1
23.9 $
19.7 $
90.9 $
56.0
23.1
4.7
83.8
Page 19 of 145 Normalizing Items
The results of operations include three normalizing items in the current year. These items include:
• One-time costs relating to the roll-out of the Triangle Rewards program and associated credit cards of $17.3
million recorded in Q2 2018;
• Costs incurred relating to the acquisition of Helly Hansen of $5.3 million in Q2 2018 and $22.4 million in Q3
2018; and
• A $50 million fair value adjustment to Scotiabank’s interest in the Financial Services business (a 20% stake was
sold for $500 million in 2014, it is now valued at $567 million). Refer to Note 32.1 in the annual consolidated
financial statements for further details on the redeemable financial instrument provided to Scotiabank in
conjunction with the sale and its accounting treatment.
The table below summarizes the pre-tax amount of the previously listed normalizing items that were included in
results for the year ended December 29, 2018:
(C$ in millions)
Financial Statement line item:
Cost of producing revenue
Inventory cost of sales
Selling, general and administrative expenses
Personnel expenses
Other
Change in fair value of redeemable financial instrument
Q4 2018
Q4 2017
2018
2017
$
$
— $
— $
5.0 $
—
—
50.0
50.0 $
—
—
—
3.0
37.0
50.0
— $
95.0 $
—
—
—
—
—
Where indicated, financial results normalized for the items above have been provided. References to “normalized”
earnings and “normalized” diluted EPS are made throughout the financial results discussion and reflect the results
of operations excluding the above noted items. Normalized results are non-GAAP measures and do not have
standardized meanings under IFRS and, therefore, may not be comparable to similar terms used by other companies.
For further information and a reconciliation to GAAP measures, refer to section 11.3.2 in this MD&A.
Selected Normalized Metrics - Consolidated
(C$ in millions, except per share amount)
Q4 2018
Q4 2017
Change
2018
2017
Change
Normalized cost of producing revenue
$ 2,713.7
$ 2,570.1
5.6% $ 9,342.4
$
8,796.5
Normalized gross margin
1,418.0
1,345.4
5.4% 4,716.3
4,480.2
6.2%
5.3%
Normalized gross margin rate
Normalized selling, general and
administrative expenses
Normalized income before income taxes
Normalized net income
Normalized net income attributable to
shareholders of Canadian Tire Corporation
34.3%
34.4% (4) bps
33.5%
33.7% (20) bps
938.9
436.9
328.2
304.3
911.3
404.3
295.4
275.7
4.10
3.0% 3,427.6
8.1% 1,163.2
11.1%
870.4
3,255.0
1,112.5
818.8
10.4%
777.5
16.6% $
11.95
$
735.0
10.67
5.3%
4.6%
6.3%
5.8%
12.0%
Normalized diluted EPS
$
4.78
$
Consolidated Fourth-Quarter 2018 versus Fourth-Quarter 2017
Earnings Summary
Reported diluted EPS was $3.99 in the quarter, a decrease of $0.11 per share, or 2.7 percent. Normalized diluted
EPS in the quarter was $4.78, an increase of $0.68 per share or 16.6 percent, driven by the inclusion of Helly Hansen’s
operations in the Retail segment, growth in revenue in both retail and the financial services businesses, savings in
depreciation expense due to a change from declining balance to straight-line methodology, and share repurchases
pursuant to the Company’s share buyback program.
Page 20 of 145 Retail Sales
Consolidated retail sales increased $38.4 million, or 0.8 percent, which includes a 0.3 percent decrease in Petroleum,
primarily due to lower per litre gas prices. Excluding Petroleum, consolidated retail sales increased 1.0 percent,
resulting from increased sales across all banners. Consolidated retail sales excludes Helly Hansen. Refer to section
7.2 for further information regarding Retail segment sales in the quarter.
Revenue
Consolidated revenue increased $216.2 million, or 5.5 percent, which includes a $9.0 million decrease in Petroleum
revenue primarily due to lower per litre gas prices. Excluding Petroleum, consolidated revenue increased 6.5 percent.
Consolidated revenue increased primarily due to the recent acquisition of Helly Hansen, continued receivables growth
resulting in higher revenue at Financial Services, and revenue growth at Retail banners. Refer to sections 7.2 and
7.4 for further information regarding revenue in the Retail and Financial Services segments.
Gross Margin
Consolidated gross margin dollars increased $72.6 million, or 5.4 percent, driven by the growth in gross margin
dollars in the Retail segment due to the inclusion of Helly Hansen and growth at Canadian Tire, partially offset by
lower margin dollars at SportChek. Excluding Petroleum, gross margin rate decreased 16 bps primarily due to lower
margin rate at the Financial services segment, as a result of the IFRS 9 implementation, and lower margin rate at
SportChek, partially offset by the inclusion of Helly Hansen and growth in gross margin rate at Canadian Tire. Refer
to sections 7.2 and 7.4 for further information regarding gross margin in the Retail and Financial Services segments.
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses increased $27.6 million, or 3.0 percent. The increase
was primarily due to the inclusion of Helly Hansen and was partially offset by lower variable compensation expense,
and lower depreciation expenses due to the change in methodology from declining balance to straight-line in the
first quarter of 2018. Refer to sections 7.2 and 7.4 for further information regarding selling, general and administrative
expenses in the Retail and Financial Services segments.
Other Income
Other income increased mainly due to higher real estate gains partially offset by closure costs for a retail store and
corporate office.
Net Finance Costs
Consolidated net finance costs increased $14.6 million, or 48.6 percent, primarily due to higher interest expense on
CTC and CT REIT related debt, and a lower amount of capitalized interest expense.
Income Taxes
The effective tax rate increased to 28.1 percent from 26.9 percent in the prior year, primarily due to the non-deductibility
of the change in fair value of the redeemable financial instrument, partially offset by lower non-deductible stock option
expense and changes in tax rates in the period. Refer to Tax Matters in section 10.0 of this MD&A for further details.
Consolidated Full Year 2018 versus Full Year 2017
Earnings Summary
Diluted EPS was $10.64, a decrease of $0.03 per share, or 0.3 percent, over the prior year. Normalized diluted EPS
of $11.95 increased 12.0 percent, driven by the acquisition of Helly Hansen, revenue growth across all businesses,
margin rate expansion at Canadian Tire and Mark’s, lower depreciation expense due to a change in methodology
and, the favourable impact of share repurchases; partially offset by the investments in initiatives such as growing
the Company’s consumer brands and digital retail capabilities, and the impact of the adoption of the IFRS 9 allowance
model at Financial Services.
Page 21 of 145 Retail Sales
Consolidated retail sales increased $514.0 million, or 3.4 percent, over the prior year. Excluding Petroleum,
consolidated retail sales increased 2.2 percent reflecting higher sales at all banners. Refer to sections 7.2.1 for
further information regarding Retail segment sales.
Revenue
Consolidated revenue increased $782.0 million, or 5.9 percent. Excluding Petroleum, consolidated revenue increased
5.1 percent due to the recent acquisition of Helly Hansen, revenue growth across all Retail segment banners and
higher revenue in the Financial Services segment. Refer to sections 7.2.1 and 7.4.2 for further information regarding
Retail and Financial Services segment revenue.
Gross Margin
Consolidated gross margin dollars increased $231.1 million, or 5.2 percent, due to the inclusion of Helly Hansen and
revenue growth at the Retail banners. Excluding Petroleum, gross margin rate increased 9 bps or 13 bps on a
normalized basis due to the inclusion of Helly Hansen, improved margin rate at Canadian Tire and Mark’s, partially
offset by a decline in margin rate at SportChek and the adoption of the IFRS 9 accounting standard at Financial
Services, resulting in the upfront recognition of expected credit losses. Refer to sections 7.2.1 and 7.4.2 for further
information regarding Retail and Financial Services segment gross margin.
Other Income
Consolidated other income increased $26.2 million primarily due to higher real estate gains, partially offset by closure
costs for a retail store and corporate office.
Selling, General and Administrative Expenses
Consolidated selling, general, and administrative expenses increased $212.7 million, or 6.5 percent. Normalized
selling, general and administrative expenses increased $172.6 million or 5.3 percent, compared to the prior year,
primarily due to:
• the inclusion of Helly Hansen operating expenses;
• increased costs to support the execution of planned investments in the Company’s key initiatives and focus
areas such as brand and product development, digital retail and analytics capabilities;
• higher occupancy costs due to a change in the cost sharing arrangement with the Dealers and inflationary
increases;
• higher acquisition costs in the Financial Services segment to support the Company’s continued investment in
GAAR growth;
partially offset by:
• decrease in variable compensation expense;
• lower depreciation expense resulting from the change in methodology from declining balance to straight-line in
the first quarter of 2018. The decrease in depreciation as a percentage of revenue is within the previously
disclosed range of approximately 40 to 50 bps.
Income Taxes
The effective tax rate increased to 26.7 percent from 26.4 percent in the prior year. Refer to Tax Matters in section
10.0 of this MD&A for further details.
Page 22 of 145
7.1.2 Consolidated Key Operating Performance Measures
Key operating performance measures do not have standard meanings under IFRS and, therefore, may not be
comparable to similar terms used by other companies. Refer to section 11.3.1 in this MD&A for definitions and further
information.
(C$ in millions)
Q4 2018
Q4 20171
Change
2018
20171
Change
Net income attributable to Shareholders
of CTC
Normalized net income attributable to
Shareholders of CTC
Normalized EBITDA2
Selling, general and administrative
expenses (excluding depreciation and
amortization) as a % of revenue3
Normalized selling, general and
administrative expenses (excluding
depreciation and amortization) as a %
of revenue
$
254.3
$
275.7
(7.8)% $
692.1
$
735.0
(5.8)%
304.3
588.1
275.7
558.5
10.4 %
777.5
5.4 %
1,742.7
735.0
1,693.8
5.8 %
2.9 %
20.2%
20.2%
1 bps
21.7%
21.0%
62 bps
20.2%
20.2%
1 bps
21.4%
21.0%
34 bps
Normalized EBITDA2 as a % of revenue
1 Selling, general and administrative expenses and Normalized EBITDA as a % of revenue were restated as a result of IFRS 15 adjustments. Refer to Note 2 of the
(36) bps
(2) bps
12.8%
14.3%
12.4%
14.2%
consolidated financial statements for additional information.
2 Normalized EBITDA is a non-GAAP measure; refer to section 11.3.2 in this MD&A for a reconciliation of normalized EBITDA to net income attributable to shareholders
of Canadian Tire Corporation and additional information.
3 Selling, general and administrative expenses exclude depreciation and amortization of $105.1 million in Q4 2018 (2017 - $122.3 million) and $421.8 million Q4
YTD (2017 - $461.9 million).
Selling, General and Administrative Expenses (Excluding Depreciation and Amortization) as a
Percentage of Revenue
In the fourth quarter, selling, general and administrative expenses (excluding depreciation and amortization) as a
percentage of revenue increased 1 bps compared to the prior year. Excluding Petroleum, this measure increased
21 bps. The increase was driven by the inclusion of the results of Helly Hansen, which has a higher expense ratio
than the other banners, partially offset by lower variable compensation expense.
On a full-year basis, selling, general and administrative expenses (excluding depreciation and amortization) as a
percentage of revenue increased by 62 bps compared to the prior year. On a normalized basis, this measure
increased 34 bps compared to the prior year, primarily due to the acquisition of Helly Hansen and the planned increase
in expenses aimed towards growing the Company’s consumer brands, digital retail and analytical capabilities.
Excluding Petroleum, on a normalized basis, this measure increased 57 bps.
Normalized EBITDA as a Percentage of Revenue
In the fourth quarter, normalized EBITDA as a percentage of revenue, was relatively flat compared to the prior year.
Excluding Petroleum, normalized EBITDA as a percentage of revenue increased 9 bps due to the growth in revenue
out-pacing the growth in expenses.
On a full year basis, this measure decreased 36 bps. Excluding Petroleum, it decreased 24 bps, as the growth in
revenue was offset by the planned increase in expenses aimed towards growing the Company’s consumer brands,
digital retail and analytical capabilities, and due to implementation of the IFRS 9 allowance model at Financial
Services.
Page 23 of 145 7.1.3 Seasonal Trend Analysis
Quarterly operating net income and revenue are affected by seasonality. The fourth quarter typically generates the
greatest contribution to revenues and earnings, and the first quarter the least. In the first quarter, the Financial
Services segment contributes the majority of consolidated earnings. The following table shows the consolidated
financial performance of the Company by quarter for the last two years. The quarterly trend could be impacted by
non-operational items.
(C$ in millions, except per share
amounts)
Revenue1
Net income
Normalized net income
Diluted EPS
Q4 2018 Q3 2018 Q2 2018 Q1 2018 Q4 2017 Q3 2017 Q2 2017 Q1 2017
$ 4,131.7 $ 3,631.3 $ 3,480.8 $ 2,814.9 $ 3,915.5 $ 3,265.7 $ 3,374.1 $ 2,721.4
278.2
328.2
3.99
231.3
252.1
3.15
174.4
191.0
2.38
99.1
99.1
1.18
295.4
295.4
4.10
198.5
198.5
2.59
217.0
217.0
2.81
107.9
107.9
1.24
Normalized diluted EPS
1 Revenue figures for all quarters in 2017 were restated as a result of IFRS 15 adjustments. Refer to Note 2 of the consolidated financial statements for additional
2.59
1.24
2.81
1.18
4.10
3.47
2.61
4.78
information.
7.2 Retail Segment Performance
7.2.1 Retail Segment Financial Results
(C$ in millions)
Retail sales2
Revenue
Q4 2018
$ 4,637.7
Q4 20171
$ 4,599.3
Change
2018
0.8 % $ 15,494.7
20171
$ 14,980.7
$ 3,816.9
$ 3,624.5
5.3 % $ 12,813.5
$ 12,121.4
Gross margin dollars
$ 1,237.7
$ 1,161.6
6.6 % $ 3,948.4
$ 3,729.3
Gross margin as a % of revenue
32.4%
32.0%
38 bps
30.8%
30.8%
Other (income)
$
(35.1) $
(29.8)
17.9 % $
(157.1) $
(123.5)
Selling, general and administrative
expenses
Net finance costs (income)
939.6
4.4
895.9
4.9 %
3,439.8
3,188.8
(6.9)
(162.8)%
(2.7)
(26.7)
Change
3.4 %
5.7 %
5.9 %
5 bps
27.3 %
7.9 %
(89.8)%
Income before income taxes
(3.2)%
1 Revenue, gross margin and selling, general and administrative expenses were restated as a result of IFRS 15 adjustments. Refer to Note 2 of the consolidated
8.7 % $
328.8
690.7
302.4
668.4
$
$
$
financial statements for additional information.
2 Retail sales is a key operating performance measure. Refer to section 11.3.1 in this MD&A for additional information.
Selected Normalized Metrics - Retail
(C$ in millions)
Normalized1 gross margin dollars
Normalized1 gross margin as a % of
revenue
Normalized1 selling, general and
administrative expenses
Normalized1 EBITDA
$
Normalized1 income before income taxes $
1 Refer to section 7.1.1 for a description of normalized items.
$
Q4 2018
$ 1,237.7
Q4 2017
Change
2018
2017
Change
$ 1,161.6
6.6% $ 3,953.4
$ 3,729.3
6.0%
32.4%
32.0%
38 bps
30.9%
30.8%
9 bps
939.6
423.4
328.8
$
$
$
895.9
398.3
302.4
4.9% $ 3,413.3
$ 3,188.8
6.3% $ 1,057.5
$ 1,046.1
8.7% $
699.9
$
690.7
7.0%
1.1%
1.3%
7.2.2 Retail Segment Key Operating Performance Measures
Key operating performance measures do not have standard meanings under IFRS and, therefore, may not be
comparable to similar terms used by other companies. Refer to section 11.3.1 in this MD&A for definitions and further
information on performance measures.
Page 24 of 145
(Year-over-year percentage change, C$ in
millions, except as noted)
Retail Segment - Total
Retail sales growth
Consolidated comparable sales growth2
Revenue3
Retail ROIC4
Q4 2018
Q4 20171
Change
2018
20171
Change
0.8 %
0.8 %
4.9 %
3.9 %
3.4 %
2.2 %
4.2%
2.7%
$ 3,816.9
$ 3,624.5
5.3 % $ 12,813.5
$ 12,121.4
5.7 %
9.2 %
9.2 %
n/a
n/a
Retail Segment breakdown
Canadian Tire
Retail sales growth5
Comparable sales growth2, 5
Sales per square foot6 (whole $)
Revenue3, 7
SportChek
Retail sales growth8
Comparable sales growth2, 8
Sales per square foot9 (whole $)
Revenue3
Mark’s
Retail sales growth10
Comparable sales growth2, 10
Sales per square foot11 (whole $)
Revenue3, 12
Helly Hansen
Revenue3
Revenue - Canada3
Revenue - Foreign
Petroleum
0.6 %
0.2 %
3.8 %
3.5 %
$
424
$
412
2.9 %
2.4 %
2.1 %
n/a
3.5%
2.7%
n/a
$ 2,121.7
$ 2,090.3
1.5 % $ 7,209.0
$ 7,090.7
1.7 %
$
$
$
$
1.9 %
2.5 %
298
602.5
1.8 %
1.8 %
356
469.0
165.9
26.9
139.0
5.6%
5.9%
299
592.4
3.9 %
3.4 %
349
461.8
n/a
n/a
n/a
$
$
$
$
$
$
$
1.1 %
2.0 %
n/a
2.2%
1.8%
n/a
(0.3)%
1.7 % $ 1,993.4
$ 1,978.1
0.8 %
3.0 %
2.8 %
n/a
4.7%
4.2%
n/a
2.2 %
1.6 % $ 1,247.2
$ 1,215.2
2.6 %
$
$
$
347.6
52.1
295.5
n/a
n/a
n/a
Gasoline volume growth in litres
0.4 %
(0.1)%
(0.4)%
0.3%
Same-store gasoline volume growth in
litres2
Retail sales growth
Revenue3
Gross margin dollars
0.3 %
(0.3)%
(0.1)%
11.6 %
— %
10.7 %
0.3%
10.7%
$
468.6
$
477.6
(1.9)% $ 2,016.5
$ 1,820.2
10.8 %
0.3 %
1 Certain figures were restated as a result of PHL stores moving from the SportChek banner to the Canadian Tire banner as well as IFRS 15 adjustments. Refer to
(12.5)% $
182.0
181.6
50.0
43.7
$
$
$
Note 2 of the consolidated financial statements for additional information on IFRS 15 adjustments.
2 Consolidated comparable sales growth excludes Petroleum. Refer to section 11.3.1 in this MD&A for additional information on comparable sales growth.
3 Revenue reported for Canadian Tire, SportChek, Mark’s, Petroleum, and Helly Hansen includes inter-segment revenue. Therefore, in aggregate, revenue for
Canadian Tire, SportChek, Mark’s, Petroleum, and Helly Hansen will not equal total revenue for the Retail segment.
4 Retail ROIC is calculated on a rolling 12-month basis based on normalized earnings. Refer to section 11.3.1 in this MD&A for additional information.
5 Retail sales growth includes sales from Canadian Tire stores, PartSource stores, PHL stores, and the labour portion of Canadian Tire’s auto service sales.
6 Sales per square foot figures are calculated on a rolling 12-month basis. Retail space does not include seasonal outdoor garden centres, auto service bays, or
warehouse and administrative space.
7 Revenue includes revenue from Canadian Tire, PartSource, PHL, and Franchise Trust.
8 Retail sales growth includes sales from both corporate and franchise stores.
9 Sales per square foot figures are calculated on a rolling 12-month basis, include both corporate and franchise stores and warehouse and administrative space.
10 Retail sales growth includes retail sales from Mark’s corporate and franchise stores but excludes ancillary revenue relating to alteration and embroidery services.
11 Sales per square foot figures are calculated on a rolling 12-month basis, include sales from both corporate and franchise stores and exclude ancillary revenue.
Sales per square foot do not include warehouse and administrative space.
12 Revenue includes sale of goods to Mark’s franchise stores, retail sales from Mark’s corporate stores, Mark’s wholesale revenue from its commercial division, and
includes ancillary revenue relating to embroidery and alteration services.
Page 25 of 145 7.2.3 Retail Banner Network at a Glance
Number of stores and retail square footage
2018
2017
Consolidated store count
Canadian Tire stores
Canadian Tire Retail
Other1
Total Canadian Tire stores
SportChek stores
SportChek
Sports Experts
Atmosphere
Other
Total SportChek stores
Mark’s stores2
Mark’s
L’Équipeur
Other
Total Mark’s stores
Canadian Tire gas bar locations
Total stores3
Consolidated retail square footage4 (in millions)
Canadian Tire
SportChek
Mark’s
503
105
608
194
105
66
44
409
337
47
2
386
297
501
106
607
194
102
68
47
411
335
45
6
386
298
1,700
1,702
22.5
7.5
3.6
22.3
7.4
3.6
33.3
Total retail square footage4
1 Other Canadian Tire banners include PartSource and PHL.
2 Store count numbers reflect individual selling locations. Both Canadian Tire and Mark’s totals include stores that are co-located.
3 Store count does not include the retail locations acquired as part of the acquisition of the Canadian rights to the Paderno brand, and Helly Hansen.
4 The retail square footage excludes Petroleum’s convenience store rental space.
33.6
Retail Segment Fourth-Quarter 2018 versus Fourth-Quarter 2017
Earnings Summary
Income before income taxes increased $26.4 million, or 8.7 percent due to the inclusion of Helly Hansen, growth in
revenue at Canadian Tire, savings in depreciation expense resulting from the change in methodology from declining
balance to straight-line in the first quarter of 2018 and gain on the sale of a property.
Retail Sales
Despite unseasonably mild weather in December 2018, consolidated comparable sales grew 0.8 percent over and
above a strong comparable quarter in 2017 which saw growth of 4.9 percent. Sales growth was driven primarily by
non-seasonal categories such as Kitchen, Cleaning, Toys and Electronics, and the continued success of targeted
promotional and pricing strategies. Consolidated retail sales excludes Helly Hansen.
Canadian Tire retail sales increased 0.6 percent while comparable sales increased 0.2 percent. The top-line
performance was impacted by unseasonable weather in the month of December, a critical sales month for the banner.
In 2017, Canadian Tire experienced stronger sales in winter weather categories such as batteries, wipers, snow
melters and shovels, due to more seasonable weather conditions. Non-seasonal business lines in the Living division
drove sales growth in the quarter, as did a thoughtfully curated product assortment, showcasing the banner’s
investments in innovation for owned and national brands such as Paderno, Dyson and Insta-pot.
Page 26 of 145 SportChek retail sales, also impacted by the unseasonable weather in December, increased 1.9 percent and
comparable sales increased 2.5 percent due to targeted pricing and promotions strategies in what was a highly
promotional and competitive environment. Accessories, outerwear, and athletic apparel were the top performing
categories and consumer brands penetration increased over the prior year driven by WOODS, and Helly Hansen.
SportChek also benefited from a significant growth in eCommerce sales.
Retail sales at Mark’s, similarly impacted by unseasonable weather in December, increased 1.8 percent and
comparable sales increased 1.8 percent. The increase in retail sales was driven by denim, casual footwear, and
workwear. Sales also benefited from customers’ positive reaction to the “Equipe pour tout” rebranding strategy of
the Mark’s brand in Quebec.
Petroleum retail sales decreased 0.3 percent primarily due to a decrease in year-over-year per litre gas prices,
partially offset by higher non-gas sales and higher gas volume.
Revenue
Revenue increased $192.4 million or 5.3 percent, compared to the prior year. Excluding the impact of Petroleum
which decreased 1.9 percent, retail segment revenue increased 6.4 percent. Revenue growth was primarily
attributable to the acquisition of Helly Hansen and revenue growth at Canadian Tire from increased shipments to
Dealers, and higher revenue earned from the Company’s cost and margin sharing arrangement with the Dealers.
Revenue growth at the other Retail banners reflected unseasonable weather in December, particularly compared to
the prior year. In Q4 2017, retail revenue grew 9.0 percent over Q4 2016.
Gross Margin
Gross margin dollars increased $76.1 million or 6.6 percent and gross margin rate increased 38 bps. Excluding
Petroleum, the retail gross margin rate increased 34 bps mainly due to the acquisition of Helly Hansen, and margin
rate expansion at Canadian Tire due to the Company’s margin sharing arrangements with the Dealers and favourable
product cost assortment. This was partially offset by lower margin rate at SportChek due to pricing and promotion
strategies to drive sales and traffic.
Other Income
Other income increased by $5.3 million or 17.9 percent, primarily due to higher real estate gains partially offset by
closure costs for a retail store and corporate office.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $43.7 million, or 4.9 percent primarily due to:
• the inclusion of Helly Hansen’s operating expenses;
• higher occupancy costs due to a change in the cost sharing arrangement with the Dealers, inflationary increases,
lease renewals and higher property taxes compared to the prior year; and
• increased costs to support the execution of planned investments in the Company’s key initiatives and areas such
as brand and product development, digital retail and analytics capabilities;
partially offset by:
• lower variable compensation expense; and
• reduction in depreciation expense as a result of the change in methodology from declining balance to straight-
line in first quarter of 2018.
Net Finance Cost
Net finance cost increased $11.3 million primarily due to interest expense on recently issued medium-term notes.
Page 27 of 145
Retail Segment Full Year 2018 versus Full Year 2017
Earnings Summary
Income before income taxes decreased $22.3 million, or 3.2 percent, compared to the prior year. Normalized income
before taxes increased $9.2 million or 1.3 percent. The unpredictable weather pattern comprising an unseasonable
start to spring-summer in April and milder winter weather in December negatively impacted sales and earnings.
Despite this headwind, strong year-to-date sales and revenue growth was witnessed across all retail banners. The
increase in revenue, along with the inclusion of Helly Hansen and increased gross margin rate at Canadian Tire,
was partially offset by lower margin at SportChek and increased selling, general, and administrative expenses.
Retail Sales
Consolidated comparable retail sales increased 2.2 percent, which reflected strong sales in non-seasonal categories,
particularly in Canadian Tire’s Living division, and was negatively impacted by unseasonable weather during the key
spring-summer and fall-winter transition months of April and December. Despite the unfavourable timing of weather
patterns, all banners posted greater than 2 percent comparable sales growth for the year. The growth reflects the
benefits of the Company’s 2018 strategic initiatives, including enhanced product assortment across both national
and owned brands, the launch of the Triangle Rewards loyalty and credit card program, and investments in digital
and eCommerce capabilities including in-store pick-up and deliver-to-home.
Canadian Tire retail sales increased 2.4 percent (comparable sales increased 2.1 percent). Performance was driven
by continued strength in assortments, particularly in the Living, Automotive and Playing categories, which were the
largest contributors to sales growth.
SportChek retail sales increased 1.1 percent (comparable sales increased 2.0 percent). The sales increase was
driven by strong sales performance in key categories including outdoor, athletic and casual clothing and accessories,
footwear, licensed apparel, and winter categories as well as higher year-over-year eCommerce sales. Targeted
promotional activity and pricing strategies also boosted sales growth.
Mark’s sales increased 3.0 percent (comparable sales increased 2.8 percent) with growth across all regions. The
Mark’s rebranding strategy grew sales of casual wear categories including denim, casual footwear, and outerwear
which benefited from targeted promotional campaigns throughout the year. The unseasonably mild weather resulted
in lower than expected sales of winter wear.
Petroleum retail sales increased 10.7 percent resulting from higher average per litre gas prices during the year and
higher non-gas sales, partially offset by a decline in gas price in the fourth quarter.
Revenue
Revenue increased $692.1 million, or 5.7 percent, compared to prior year. Excluding the impact of Petroleum, which
increased 10.8 percent year over year, Retail revenue increased 4.8 percent primarily driven by inclusion of Helly
Hansen, and increased revenue at Canadian Tire, SportChek and Mark’s.
Gross Margin
Gross margin dollars increased $219.1 million, or 5.9 percent, and 6.0 percent normalized, primarily due to the
inclusion of Helly Hansen. Excluding Petroleum, gross margin dollars increased 6.3 percent, attributable to the gross
margin rate improvement at Canadian Tire and Mark’s, partially offset by a decline in margin at SportChek due to
increased promotional strategies to drive store sales and traffic, and mix-shift to lower margin sales through the
eCommerce channel.
Canadian Tire’s improvement in gross margin rate during the year was primarily due to a focus on operating efficiency
initiatives (which emphasize optimizing assortments, improving sales mix, and reducing freight costs) as well as the
benefits of the Dealer margin sharing arrangement.
Other Income
Other income increased $33.6 million, or 27.3 percent, primarily due to real estate gains compared to the prior year.
Page 28 of 145 Selling, General and Administrative Expenses
Selling, general, and administrative expenses increased $251.0 million, or 7.9 percent, and $224.5 million or 7.0
percent normalized, compared to the prior year due to:
• the inclusion of Helly Hansen’s operating expenses;
• increased costs to support the execution of planned investments in the Company’s key initiatives and areas such
as brand and product development, digital retail and analytics capabilities;
• higher operating costs to support the Company’s continued investment in operational effectiveness initiatives;
• increased marketing and advertising for targeted promotions; and
• higher occupancy costs due to a change in the cost sharing arrangement with the Dealers, inflationary increases,
lease renewals and higher property taxes compared to the prior year;
partially offset by:
• lower depreciation and variable compensation expense.
Net Finance Income
Net finance income decreased $24.0 million compared to prior year primarily due to lower income earned on inter-
segment debt and higher interest expense due to recently issued medium-term notes.
7.2.4 Retail Segment Business Risks
The Retail segment is exposed to a number of risks in the normal course of its business that have the potential to
affect its operating performance. The following are some of the business risks specific to the Retail segment’s
operations. Refer to section 12.1 of this MD&A for a discussion of the Company’s principal risk identification and
risk management.
Seasonality Risk
Canadian Tire derives a significant amount of its revenue from the sale of seasonal merchandise and, accordingly,
derives a degree of sales volatility from abnormal weather patterns. Canadian Tire mitigates this risk, to the extent
possible, through the breadth of its product mix and proactive assortment management, effective procurement and
inventory management practices, as well as the development of products and offers to stimulate customer demand
for ‘non-seasonal’ and year-round products which are not directly affected by weather patterns.
Mark’s business remains seasonal, with the fourth quarter typically producing the largest share of sales and annual
earnings. Detailed sales reporting and merchandise-planning modules assist Mark’s in mitigating the risks and
uncertainties associated with unseasonable weather and consumer behaviour during the important winter selling
season but cannot eliminate such risks completely because inventory orders, especially for a significant portion of
merchandise purchased offshore, must be placed well ahead of the season.
SportChek is affected by general seasonal trends that are characteristic of the apparel, footwear and hard goods
industries. SportChek strives to minimize the impact of the seasonality of the business by altering its merchandise
mix at certain times of the year to reflect consumer demand.
Evolving Consumer Behaviour and Shopping Habits
The retail business is rapidly evolving as consumers increasingly embrace online shopping and mobile eCommerce
applications. Failure to provide attractive, user-friendly and secure digital platforms that continually meet the changing
expectations of online shoppers could negatively impact the Company’s reputation, place the Company at a
competitive disadvantage and/or have a negative impact on business operations. In order to mitigate this risk, the
Company monitors the competitive landscape, digital evolutions and eCommerce trends to ensure its strategic
initiatives are designed to maintain competitive positioning and continue to be relevant.
Supply Chain Risk
A substantial portion of the Company’s product assortment is sourced from foreign suppliers, lengthening the supply
chain and extending the time between order and delivery to its DCs. Accordingly, the Company is exposed to potential
supply chain disruptions due to foreign supplier failures, extreme weather events, geopolitical risk, labour disruption
or insufficient capacity at ports, and risks of delays or loss of inventory in transit. The Company mitigates these risks
through the use of advanced tracking systems and visibility tools, effective supplier selection and procurement
Page 29 of 145 practices and through strong relationships with transportation companies and port and other shipping authorities,
supplemented by marine insurance coverage.
Conduct Risk
Products that are sourced from factories in less developed countries for which there is a high level of public scrutiny
pertaining to working conditions and labour regulations introduces a heightened level of reputational and brand risk
to CTC. In order to mitigate these risks, CTC works with its suppliers to ensure that products are sourced, manufactured
and transported according to the standards outlined in the Canadian Tire Supplier Code of Conduct. The Company
also works with the Business Social Compliance Initiative (BSCI) factory audit methodology to assess the hiring and
employment practices, as well as the health and safety standards of its foreign suppliers.
Environmental Risk
Environmental risk within CTC is primarily associated with the storage, handling, and recycling of certain materials.
The Company has established and follows comprehensive environmental policies and practices to avoid a negative
impact on the environment, to comply with environmental laws and protect its reputation. It addresses applicable
environmental stewardship requirements and takes the necessary steps to manage the end-of-first life of product in
accordance with these requirements. Petroleum is also subject to federal and provincial regulations relating to
combating climate change, such as carbon taxes, and cap and trade. Petroleum’s comprehensive regulatory
compliance program includes environmental reviews and the remediation of contaminated sites as required,
supplemented by environmental insurance coverage.
Commodity Price and Disruption Risk
The operating performance of Petroleum can be affected by fluctuations in the commodity cost of oil. The wholesale
price of gasoline is subject to global oil supply and demand conditions, domestic and foreign political policy, commodity
speculation, and potential supply chain disruptions from natural and human-caused disasters. To mitigate this risk
to profitability, Petroleum maintains tight controls over its operational costs and enters into long-term gasoline
purchase arrangements with integrated gasoline wholesalers. Petroleum also enhances profitability through a
comprehensive cross-marketing strategy with other retail banners and higher-margin, ancillary businesses such as
convenience store and car wash sales.
Market Obsolescence Risk
Clothing and apparel retailers are exposed, to varying degrees, to ever-changing consumers’ fashion preferences.
SportChek and Mark’s mitigate this risk through brand positioning, consumer preference monitoring, demand
forecasting and merchandise selection efforts; as well as the product development process at Mark’s. SportChek
offers a comprehensive assortment of brand-name products under its various banners and partners with strong,
national-branded suppliers that continually evolve their assortments to reflect customer preferences. In addition,
SportChek employs a number of inventory management practices, including certain agreements with vendors to
manage unsold product or offer markdown dollars to offset margin deterioration in liquidating aged inventory. Mark’s
specifically targets consumers of durable everyday casual wear and is less exposed to changing fashions than
apparel retailers offering high-fashion apparel and accessories. Mark’s industrial wear category is exposed to
fluctuations in the resource and construction industry.
Global Sourcing Risk
Canadian Tire, FGL, and Mark’s use internal resources and third-party logistics providers to manage supply chain
technology and the movement of foreign-sourced goods from suppliers to the Company’s Canadian DCs and to their
retail stores. Similar to other retailers that source products internationally, there is exposure to risks associated with
foreign suppliers which can include, but are not limited to, currency fluctuations, the stability of manufacturing
operations in other countries and transportation and port disruptions (see supply chain disruption risk). The Company
uses internal resources and third-party quality assurance providers to proactively manage product quality with vendors
in the foreign sourcing regions. The Company believes that its business practices are appropriate to mitigate the
risks. Further information regarding the Company’s exposure to foreign currency risk is provided in section 12.2.
Page 30 of 145 7.3 CT REIT Segment Performance
7.3.1 CT REIT Segment Financial Results
(C$ in millions)
Property revenue
Property expense
General and administrative expense
Net finance costs
Fair value (gain) adjustment
Income before income taxes
Q4 2018
Q4 2017
Change
2018
$
119.3 $
111.2
7.2 % $
472.5 $
26.8
3.4
26.1
(11.5)
$
74.5 $
23.7
2.7
24.4
(36.7)
97.1
13.0 %
26.9 %
6.8 %
(68.6)%
108.6
12.2
104.4
(53.6)
(23.3)% $
300.9 $
2017
443.3
98.3
11.0
96.4
(79.7)
317.3
Change
6.6 %
10.5 %
10.4 %
8.3 %
(32.7)%
(5.2)%
CT REIT Segment Key Operating Performance Measures
Key operating performance measures do not have standard meanings under IFRS and, therefore, may not be
comparable to similar terms used by other companies. Refer to section 11.3.1 in this MD&A for definitions and further
information on performance measures.
(C$ in millions)
Net operating income1
Funds from operations1
Adjusted funds from operations1
1 Non-GAAP measures, refer to section 11.3.2 in this MD&A for additional information.
Q4 2018
88.0 $
51.8 $
62.0
$
$
81.9
60.4
49.6
Q4 2017
Change
2018
7.4% $
345.5 $
2.6%
246.0
4.5% $
205.2 $
2017
322.3
237.6
194.4
Change
7.2%
3.5%
5.6%
CT REIT Segment Fourth-Quarter 2018 versus Fourth-Quarter 2017
Earnings Summary
Income before income taxes decreased by $22.6 million, or 23.3 percent, primarily due a decrease in the fair value
gain on investment properties and an increase in interest expense, partially offset by an increase in earnings
attributable to the income generated from properties acquired and intensification activities completed during 2018
and 2017.
Property Revenue
Property revenue consists of base rent as well as operating cost and property tax recoveries. Property revenue
increased $8.1 million, or 7.2 percent, primarily due to higher base rent relating to properties acquired and
intensification activities completed during 2018 and 2017.
Of the $119.3 million in property revenue received, $107.0 million was from CTC. The property revenue received
from CTC was 5.1 percent higher than the prior year of $101.8 million.
Property Expense
Property expense for the quarter was $26.8 million, an increase of $3.1 million or 13.0 percent over the prior year,
primarily due to property acquisitions in 2018 and 2017. The majority of the property expense costs are recoverable
from tenants, with CT REIT absorbing these expenses where vacancies exist. Property expense consists primarily
of property taxes, other recoverable operating expenses, property management expenses (including the outsourcing
of property management services pursuant to the Property Management Agreement between CT REIT and CTC),
and ground rent.
General and Administrative Expense
General and administrative expenses primarily relate to personnel costs, public entity and ongoing operational costs,
and outsourcing costs, which are largely related to the services provided by CTC pursuant to the Services Agreement
between CT REIT and CTC. General and administrative expenses increased by or 26.9 percent compared to the
prior year due to increased personnel expenses in connection with CFO transition costs and the various components
Page 31 of 145 of compensation awards, partially offset by decreased compensation costs due to the fair value adjustment on unit
based awards.
Net Finance Costs
Net finance costs consist primarily of distributions on the Class C LP units held by CTC, and interest on debentures.
Net finance costs increased by $1.7 million or 6.8 percent, primarily due to higher interest expense from the issuance
of Series E debentures in June 2017 and Series F debentures in February 2018. The increase was partially offset
by the redemption of Series 10-15 Class C LP Units in May 2017, changes in the utilization of the Bank Credit Facility
and increased interest capitalization on development projects in 2018.
Fair Value Adjustment on Investment Properties
The fair value gain on investment properties decreased by $25.2 million, or 68.6 percent, due to net higher gains in
the prior year on the distribution centre in Bolton, Ontario.
Net Operating Income
NOI was $88.0 million, an increase of $6.1 million, or 7.4 percent, primarily due to property acquisitions and properties
under development completed in 2018 and 2017. NOI is a non-GAAP measure. Refer to section 11.3.2 for additional
information.
Funds from Operations and Adjusted Funds from Operations
FFO and AFFO for the quarter were $62.0 million and $51.8 million, respectively. FFO and AFFO were higher
compared to the prior year by $1.6 million and $2.2 million, respectively, primarily due to property acquisitions and
properties under development completed in 2018 and 2017, partially offset by higher interest expense. FFO and
AFFO are non-GAAP measures. Refer to section 11.3.2 for additional information.
CT REIT Segment Full Year 2018 versus Full Year 2017
Earnings Summary
Income before income taxes decreased $16.4 million, or 5.2 percent, compared to the prior year largely due to a
decrease in the fair value adjustment on investment properties, offset by an increase in property revenue.
Property Revenue
Property revenue increased by $29.2 million or 6.6 percent, primarily due to higher base rent relating to properties
acquired and intensification activities completed during 2018 and 2017.
Of the $472.5 million in property revenue received, $426.1 million was from CTC, an increase of 4.3 percent over
prior year.
Property Expense
Property expense for the year was $108.6 million, the majority of which are recoverable from tenants, with CT REIT
absorbing these expenses for vacant properties. Property expense increased 10.5 percent compared to the prior
year largely due to property acquisitions in 2018 and 2017.
General and Administrative Expense
General and administrative expenses increased by $1.2 million or 10.4 percent compared to the prior year primarily
due to increased personnel expenses due to CFO transition costs and the various components of compensation
awards, partially offset by decreased compensation costs due to the fair value adjustment on unit-based awards.
Net Finance Costs
Net finance costs increased by $8.0 million or 8.3 percent, primarily due to higher interest expense from the issuance
of Series E debentures in June 2017 and Series F debentures in February 2018. The increase was partially offset
by the redemption of Series 10-15 Class C LP Units in May 2017, changes in the utilization of the Bank Credit Facility
and increased interest capitalization on development projects in 2018.
Page 32 of 145 Fair Value Adjustment on Investment Properties
The fair value gain on investment properties decreased by $26.1 million, or 32.7 percent, due to net higher gains in
the prior year on the DC in Bolton, Ontario.
Net Operating Income
NOI was $345.5 million, an increase of $23.2 million or 7.2 percent from the prior year, primarily due to property
acquisitions and properties under development completed in 2018 and 2017. NOI is a non-GAAP measure; refer
to section 11.3.2 for additional information.
Funds from Operations and Adjusted Funds from Operations
FFO and AFFO were $246.0 million and $205.2 million respectively. FFO and AFFO were higher compared to the
prior year by $8.4 million and $10.8 million primarily due to property acquisitions completed in 2018 and 2017, partially
offset by higher interest expense. FFO and AFFO are non-GAAP measures; refer to section 11.3.2 for additional
information.
7.3.2 CT REIT Segment Business Risks
CT REIT is exposed to a number of risks in the normal course of its business that have the potential to affect its
operating performance. The following are some of the business risks specific to the operations of CT REIT. Please
refer to section 4 in CT REIT’s Annual Information Form and Section 11.0 Enterprise Risk Management in CT REIT’s
Management’s Discussion and Analysis for the period ended December 31, 2018, which are not incorporated herein
by reference, for a discussion of risks that affect CT REIT’s operations and also to section 12.1 in this MD&A for a
discussion of the Company’s principal risk identification and risk management.
Financial Risks
In the normal course of business, CT REIT is exposed to financial risks of varying degrees which could affect its
ability to achieve its key initiatives and could materially adversely affect the financial performance of CT REIT, its
ability to make distributions to its unitholders, and the trading price of its publicly traded units. Refer to Note 20(b) in
CT REIT’s annual consolidated financial statements for a discussion of financial risk management.
Real Estate Ownership and Tenant Risks
Real estate ownership is generally subject to numerous factors and risks, including changes in local economic
conditions, local real estate conditions, the attractiveness of properties to potential tenants or purchasers, competition
with other landlords with similar available space, and the ability of the owner to provide adequate maintenance at
competitive costs. The properties of CT REIT are well located within their respective markets and provide an attractive
platform from which to grow given their stable characteristics, which include high occupancy, staggered lease
maturities, and strong retailing attributes.
Tax-Related Risks
Risks relating to the changes in income tax laws applicable to CT REIT including those such that the CT REIT would
not qualify as a mutual fund trust for the purposes of the Income Tax Act, including the treatment of real estate
investment trusts, mutual fund trusts, or the exclusion from the definition of "SIFT TRUST" for a trust qualifying as
a "real estate investment trust" for a taxation year under the Income Tax Act, could have a material and adverse
impact on the value of the publicly traded units and on distributions to unitholders. Management of CT REIT has a
compliance program to provide reasonable assurances that CT REIT satisfies the conditions to qualify as a closed-
end mutual fund trust, by complying with the restrictions in the Income Tax Act as they are interpreted and applied
by the Canada Revenue Agency. No assurance can be given that CT REIT will be able to comply with these restrictions
at all times. There can be no assurance that income tax laws applicable to CT REIT, including the treatment of real
estate investment trusts and mutual fund trusts under the Income Tax Act, will not be changed in a manner that
adversely affects CT REIT or unitholders.
Page 33 of 145 7.4 Financial Services Segment Performance
7.4.1 Financial Services Segment Financial Results
(C$ in millions)
Revenue
Gross margin dollars
Gross margin (% of revenue)
Other expense (income)
Selling, general and administrative expenses
Net finance (income)
Income before income taxes
1 Not meaningful.
Q4 2018
Q4 2017
Change
2018
2017
Change
$
322.8
$
292.7
10.2 % $ 1,259.9
$ 1,156.6
170.7
170.8
(0.1)%
717.2
695.7
8.9%
3.1%
52.9%
0.6
78.3
(0.3)
$
92.1
$
58.3% (545) bps
NM1
(4.5)%
(0.6)
82.1
56.9%
(0.3)
326.1
(1.1)
60.1% (322) bps
NM1
5.7%
(0.7)
308.5
(0.2)
89.5
66.6 %
(0.6)
2.8 % $
392.5
$
388.5
94.1%
1.0%
Selected Normalized Metrics - Financial Services
(C$ in millions)
Normalized1 selling, general and administrative expenses
Normalized1 income before income taxes
1 Refer to section 7.1.1 for a description of normalized items.
$
$
2018
312.6 $
406.0 $
2017
308.5
388.5
Change
1.3%
4.5%
7.4.2 Financial Services Segment Key Operating Performance Measures
Key operating performance measures do not have standard meanings under IFRS and, therefore, may not be
comparable to similar terms used by other companies. Refer to section 11.3.1 in this MD&A for definitions and further
information on performance measures.
n/a
2018
2017
8.6%
8.0%
2,113
11.5%
10.3%
21.63%
Change
Q4 2018
Q4 2017
$ 5,458.7
$ 6,093.0
$ 5,263.9
11.6% $ 5,825.3
21.97% (34 bps)
(C$ in millions) except where noted
Credit card sales growth1
GAAR
Revenue2 (as a % of GAAR)
Average number of accounts with a
balance3 (thousands)
Average account balance3 (whole $)
Net credit card write-off rate2, 3, 6
Past due credit card receivables3, 4
(“PD2+”)
Allowance rate5
Operating expenses2 (as a % of GAAR)
Return on receivables2
1 Credit card sales growth excludes balance transfers.
2 Figures are calculated on a rolling 12-month basis.
3 Credit card portfolio only.
4 Credit card receivables more than 30 days past due as a percentage of total-ending credit card receivables.
5 The allowance rate was calculated based on the total-managed portfolio of loans receivable.
6 The net credit card write-off rate was favourably impacted by 41 bps due to a change in Management’s estimate of the present value of regular recoveries.
12.24%
3.1% $
7.38%
5.48%
5.60%
2.64%
2.50%
6.75%
5.86%
1.97%
5.43%
1,951
1,895
2,035
2,882
2,862
2,776
2,796
8.3%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
$
$
$
Change
10.7%
7.4%
3.0%
Financial Services Segment Fourth-Quarter 2018 versus Fourth-Quarter 2017
Earnings Summary
Income before income taxes increased $2.6 million, or 2.8 percent, primarily driven by strong revenue growth due
to GAAR growth of 11.6 percent, partially offset by increased incremental credit card allowance which was impacted
by the adoption of IFRS 9. The continued strong growth in the average number of active accounts reflects positive
results from the Company’s initiatives to stimulate receivables growth and the continued focus on integration initiatives
with the retail businesses, including the launch of the Triangle Rewards program and associated credit cards.
Page 34 of 145 Revenue
Revenue increased $30.1 million, or 10.2 percent, due to higher credit charges resulting from increased GAAR and
higher interchange revenue due to strong credit card sales. GAAR increased 11.6 percent driven by an 8.3 percent
growth in the number of average active accounts compared to the prior year. The continued growth in the average
number of active accounts reflects positive results from the Company’s initiatives to stimulate receivables growth.
This was partially offset by a decrease in interest revenue resulting from the adoption of IFRS 9, as interest revenue
on credit impaired accounts (stage 3) is calculated net of an allowance for expected credit losses. Refer to Note 2
in the consolidated financial statements for additional information regarding the adoption of IFRS 9.
Gross Margin
Gross margin dollars decreased 0.1 percent as increased credit charges from receivables growth and the favourable
impact from a change in Management’s estimate of the present value of regular recoveries, was more than offset
by higher regular and insolvency write-offs, and a higher IFRS 9 allowance. The allowance rate, which was
approximately 2.0 percent last year, increased to 12.2 percent this year as a result of implementation of IFRS 9. This
is within the previously disclosed projected range of 11.5 to 13.5 percent.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $3.8 million, or 4.5 percent, primarily due to savings in
personnel costs, partially offset by volume-related increases in credit card operations and higher marketing costs.
Financial Services Segment Full Year 2018 versus Full Year 2017
Earnings Summary
Income before income taxes increased $4.0 million, or 1.0 percent. Normalized income before income taxes increased
$17.5 million or 4.5 percent due to an increase in revenue of 8.9 percent compared to the prior year, partially offset
by a reduction in gross margin rate, due in part to the increased incremental credit card allowance as a result of
IFRS 9.
Revenue
Revenue increased $103.3 million, or 8.9 percent, compared to the prior year primarily driven by higher credit charges
due to an increase in the number of average active accounts and higher interchange revenue resulting from strong
credit card sales; partially offset by a decrease in interest revenue resulting from the adoption of IFRS 9, as interest
revenue on credit impaired accounts (stage 3) is calculated net of allowance for expected credit losses.
Gross Margin
Gross margin dollars increased 3.1 percent compared to the prior year as a result of higher revenue. The positive
impacts to gross margin dollars were partially offset by an increase in the volume of regular and insolvency write-
offs. Gross margin rate decreased 322 bps from the prior year primarily due implementation of IFRS 9.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses increased $17.6 million, or 5.7 percent, and $4.1 million or 1.3 percent
normalized. The normalized increase was primarily due to higher promotional and acquisition costs to support the
Company’s continued investment in GAAR growth and increased operating costs to support the Company’s continued
investment in operational effectiveness initiatives.
7.4.3 Financial Services Segment Business Risks
Financial Services is exposed to a number of risks in the normal course of its business that have the potential to
affect its operating performance. The following are some of the business risks specific to Financial Services’
operations. Refer to section 12.1 for a discussion of the Company’s principal risk identification and risk management.
Page 35 of 145 Consumer Credit Risk
Financial Services grants credit to its customers on its credit cards, which may include varying payment options.
With the granting of credit, Financial Services assumes certain risks with respect to the ability and willingness of its
customers to repay debt. Financial Services manages credit risk to optimize profitability, within the scope of internal
risk policy, by:
• employing sophisticated credit-scoring models to constantly monitor the creditworthiness of customers;
• using the latest technology to make informed credit decisions for each customer account to limit credit risk
exposure;
• adopting technology to improve the effectiveness of the collection process; and
• monitoring the macroeconomic environment, especially with respect to consumer debt levels, interest rates,
employment levels, and income levels.
Liquidity and Funding Risk
Liquidity and funding risk is the risk that Financial Services will be unable to meet its funding obligations or obtain
funding at a reasonable cost. Financial Services mitigates its liquidity and funding risk by maintaining multiple
diversified funding sources that include securitization of receivables, broker GIC deposits, retail deposits, and
committed bank lines of credit. Further mitigation is provided by maintaining a pool of high-quality marketable
securities that can be used as a source of liquidity under a short-term stress scenario. Scotiabank has provided
CTB with a $250.0 million unsecured revolving committed credit facility and $2.0 billion in note purchase facilities
for the purchase of senior and subordinated notes issued by GCCT, both of which expire in October 2021. A number
of regulatory metrics are monitored including Liquidity Coverage Ratio, Net Cumulative Cash Flow, and Net Stable
Funding Ratio. Further details on financing sources for Financial Services are included in section 8.5.
Interest Rate Risk
The Financial Services segment is exposed to interest rate risk to the extent that changes in interest rates impact
net interest income and net economic value. A significant proportion of the funding liabilities for Financial Services
are fixed rate, which reduces interest rate risk. A one percent change in interest rates does not materially affect net
interest income or net economic value.
Regulatory Risk
Regulatory risk is the risk of negative impact to business activities, earnings or capital, regulatory relationships, or
reputation as a result of failure to comply with or failure to adapt to current and changing regulations or regulatory
expectations. The Bank’s Compliance department is responsible for the development and maintenance of a regulatory
compliance management system. Specific activities that assist the Company in adhering to regulatory standards
include communication of regulatory requirements, advice, training, testing, monitoring, reporting, escalation of
control deficiencies, and regulatory risks.
Page 36 of 145 8.0 Balance Sheet Analysis, Liquidity, and Capital Resources
8.1 Selected Balance Sheet Highlights
Selected line items from the Company’s assets, liabilities, as at December 29, 2018 and December 30, 2017 are
noted below:
(C$ in millions)
Assets
Trade and other receivables
Loans receivable
Merchandise inventories
Goodwill and intangible assets
Total assets
Liabilities
Trade and other payables
Short-term borrowings
Current portion of long-term debt
Long-term debt
2018
20171
Change $
Change (%)
$
933.3 $
5,511.3
1,997.5
2,272.0
681.1 $
5,613.2 $
1,769.8 $
1,292.9 $
252.2
(101.9)
227.7
979.1
17,286.8
15,627.0 $
1,659.8
$
2,425.0 $
2,230.8 $
378.1
553.6
144.6 $
282.3 $
4,000.3
3,122.1 $
194.2
233.5
271.3
878.2
37.0 %
(1.8)%
12.9 %
75.7 %
10.6 %
8.7 %
161.5 %
96.1 %
28.1 %
18.0 %
Total liabilities
1 Certain prior period figures have been restated due to the adoption of new accounting standards (refer to Note 2 of the 2018 consolidated financial statements).
10,060.9 $
11,871.8
1,810.9
For the complete balance sheet, refer to the Consolidated Balance Sheets in the 2018 consolidated financial
statements.
The year-over-year increase in total assets of $1,659.8 million was primarily due to:
• an increase in goodwill and intangible assets of 979.1 million primarily due to the acquisition of Helly Hansen;
• an increase in trade and other receivables of $252.2 million primarily driven by the inclusion of Helly Hansen,
higher corporate retail sales, favourable valuation of the Company’s foreign exchange portfolio and the timing
of payments from franchisees; and
• an increase in merchandise inventory of $227.7 million due to the inclusion of Helly Hansen and higher inventory
levels at Canadian Tire primarily due to in-transit inventory and higher non-seasonal inventory;
partially offset by:
• a decrease in loans receivable of $101.9 million attributable to an increase in the credit card allowance, as a
result of the adoption of IFRS 9, partially offset by GAAR growth as a result of an increase in active credit card
holders.
The year-over-year increase in total liabilities of $1,810.9 million was primarily due to:
• a net increase in long-term debt (current portion of long-term debt and long-term debt) of $1,149.5 million due
to the issuance of $200.0 million debentures by CT REIT in February 2018, the issuance of $650.0 million of
medium-term notes in July 2018 and GCCT’s senior and subordinated notes of $584.0 million in September
2018, partially offset by the repayment by GCCT of $264.6 million of senior and subordinated notes in November
2018;
• an increase in short-term borrowings of $233.5 million primarily driven by the issuance of commercial paper and
the acquisition of Helly Hansen, partially offset by lower draws on CT REIT’s credit facility; and
• an increase in trade and other payables by $194.2 million due to the acquisition of Helly Hansen and the timing
of payments made to vendors.
Page 37 of 145 8.2 Summary Cash Flows
The Company’s cash and cash equivalents position, net of bank indebtedness, was $470.4 million at December 29,
2018.
The Company’s Consolidated Statements of Cash Flows for the quarters ended December 29, 2018 and
December 30, 2017 are noted in the following table:
(C$ in millions)
Q4 2018 Q4 2017
Change
2018
2017
Change
Business Combinations, net of cash acquired
—
—
—
Cash (used for) investing activities
(166.7)
(257.2)
90.5
(1,308.6)
(639.9)
Cash generated from operating activities before the
undernoted item
Change in loans receivable
Cash generated from operating activities
Cash generated from investing activities before the
undernoted items
Change in short-term and long-term investments
Additions to property and equipment, investment
property and intangibles
Cash (used for) financing activities before the
undernoted items
Change in long-term debt and short-term borrowings
Repurchase of share capital
Change in non-controlling interest from disposal of CT
REIT units
Net proceeds from issue of trust units to non-controlling
interests
Change in deposits
$ 1,053.7 $ 1,107.6 $
(53.9) $ 1,298.9 $ 1,403.2 $ (104.3)
(246.7)
(270.5)
807.0
837.1
17.8
(9.8)
11.7
24.8
23.8
(30.1)
6.1
(34.6)
(174.7)
(293.7)
119.0
(491.5)
(430.4)
(61.1)
807.4
972.8
(165.4)
40.1
(39.5)
16.3
(4.3)
23.8
(35.2)
(546.3)
(762.9)
(632.6)
(19.3)
86.3
(743.6)
(668.7)
(72.4)
(722.0)
(184.0)
(102.3)
(529.5)
(181.3)
29.9
(287.4)
(272.7)
(14.7)
(192.5)
1,069.7
10.8
1,058.9
(2.7)
(582.4)
(659.3)
76.9
191.8
62.3
131.0
—
191.8
191.8
— $
62.3
16.8
114.2
203.0
62.3
80.6
—
—
191.8
62.3
201.5
(120.9)
Cash (used for) generated from financing activities
(593.3)
(796.3)
534.6
(719.7)
1,254.3
Cash generated (used) in the period
$
47.0 $ (216.4) $
263.4 $
33.4 $ (386.8) $
420.2
Consolidated Fourth-Quarter 2018 versus Fourth-Quarter 2017
The Company’s cash generated in the quarter was $47.0 million compared to cash used of $216.4 million in the
fourth quarter of the prior year. The $263.4 million variance was primarily due to:
• net proceeds from sale of CT REIT units and treasury issuance of CT REIT units totaling $254.1 million;
• an increase of $114.2 million relating to deposits in the Financial Services segment; and
• lower spend on additions to property and equipment, investment property and intangible assets compared to
the prior period by $119.0 million;
partially offset by:
• a higher use of cash $192.5 million in long-term debt and short-term borrowings, due to higher repayments on
the Company’s bank lines, partially offset by a lower repayment of long-term debt in 2018; and
• the net outflow of cash in the current quarter from an increase in short-term investments.
Consolidated Full Year 2018 versus Full Year 2017
On a year-to-date basis, the Company’s cash generated during the period was $33.4 million compared to cash used
of $386.8 million in the prior year. The $420.2 million improvement was primarily due to:
• the issuance of long-term debt of $1,434.0 million partially offset by repayment of long-term debt of $287.5 million
compared to issuances net of repayment of $69.8 million in the prior year.
• the increase in short-term borrowings by the Financial Services segment of $203.6 million, offset by the repayment
of $216.5 million of loans to the former owners of Helly Hansen; and
• net proceeds from the sale of CT REIT units and treasury issuance of CT REIT trust units totaling to $254.1
million;
partially offset by:
Page 38 of 145 • the acquisition of Helly Hansen (refer to section 8.4.2 of this MD&A and Note 36 of the consolidated financial
statements);
• a decrease of $120.9 million relating to deposits in the Financial Services segment; and
• a decrease in the cash generated from operations of $165.4 million driven primarily by unfavourable changes
in working capital of $151.6 million.
8.3 Capital Management
In order to support its growth agenda and pursue its key initiatives, the Company actively manages its capital.
8.3.1 Capital Management Objectives
The Company’s objectives when managing capital are:
• ensuring sufficient liquidity to support its financial obligations and execute its operating and strategic plans;
• maintaining healthy liquidity reserves and access to capital; and
• minimizing the after-tax cost of capital while taking into consideration current and future industry, market and
economic risks and conditions.
The current economic environment has not caused Management to change the Company’s objectives in managing
capital.
8.3.2 Capital Under Management
The definition of capital varies from company to company, from industry to industry, and for different purposes. In
the process of managing the Company’s capital, Management includes the following items in its definition of capital
and includes Glacier indebtedness but excludes Franchise Trust indebtedness:
(C$ in millions)
Capital components
Deposits
Short-term borrowings
Current portion of long-term debt
Long-term debt
Long-term deposits
Total debt
Redeemable financial instrument
Share capital
Contributed surplus
Retained earnings
$
$
Total capital under management
$
2018
% of total
2017
% of total
964.5
378.1
553.6
4,000.3
1,506.7
7,403.2
567.0
591.5
2.9
3,720.7
12,285.3
7.8% $
3.1%
4.5%
32.6%
12.3%
60.3% $
4.6%
4.8%
—%
30.3%
100.0% $
973.9
144.6
282.3
3,122.1
1,412.9
5,935.8
517.0
615.7
2.9
4,161.7
11,233.1
8.7%
1.3%
2.5%
27.8%
12.6%
52.9%
4.6%
5.5%
—%
37.0%
100.0%
The Company monitors its capital structure by measuring debt-to-earnings ratios and manages its debt service and
other fixed obligations by tracking its interest and other coverage ratios and forecasting corporate liquidity.
The Company manages its capital structure over the long term to optimize the balance among capital efficiency,
financial flexibility and risk mitigation. Management calculates its ratios to approximate the methodologies of credit-
rating agencies and other market participants on a current and prospective basis. To assess its effectiveness in
managing capital, Management monitors these ratios against targeted ranges.
In order to maintain or adjust the capital structure, the Company has the flexibility to adjust the amount of dividends
paid to shareholders, repurchase shares pursuant to a normal course issuer bid (“NCIB”) program, repay debt, issue
new debt and equity, issue new debt with different characteristics to replace existing debt, engage in additional sale
and leaseback transactions of real estate properties and increase or decrease the amount of sales of co-ownership
interests in loans receivable to GCCT.
Page 39 of 145 The Company has a policy in place to manage capital. As part of the overall management of capital, Management
and the Audit Committee of the Board of Directors review the Company’s compliance with and performance against,
the policy. In addition, periodic review of the policy is performed to ensure consistency with risk tolerances.
Financial covenants of the existing debt agreements are reviewed by Management on an ongoing basis to monitor
compliance with the agreements. The key financial covenant for Canadian Tire Corporation is a requirement for the
Retail segment to maintain, at all times, a ratio of total indebtedness to total capitalization equal to or lower than a
specified maximum ratio (as defined in the Company’s bank credit agreement, but which excludes consideration of
CTFS Holdings Limited, CT REIT, Franchise Trust and their respective subsidiaries).
The Company was in compliance with all key covenants as at December 29, 2018 and December 30, 2017. Under
these covenants, the Company currently has sufficient liquidity to support business growth.
CT REIT is required to comply with financial covenants established under its Trust Indenture, bank credit agreement
and the Declaration of Trust and was in compliance with all key covenants as at December 31, 2018 and 2017.
In addition, the Company is required to comply with regulatory requirements for capital associated with the operations
of CTB, a federally chartered Schedule I bank and other regulatory requirements that have an impact on its business
operations and certain financial covenants established under its bank credit agreement and note purchase facilities.
8.3.3 Canadian Tire Bank's Regulatory Environment
CTB manages its capital under guidelines established by the Office of the Superintendent of Financial Institutions
of Canada (“OSFI”). OSFI’s regulatory capital guidelines are based on the international Basel Committee on Banking
Supervision framework entitled Basel III: A Global Regulatory Framework for More Resilient Banks and Banking
Systems (“Basel III”), which came into effect in Canada on January 1, 2013, and measures capital in relation to
credit, market and operational risks. The Bank has various capital policies and procedures and controls, including
an Internal Capital Adequacy Assessment Process (“ICAAP”), which it utilizes to achieve its goals and objectives.
The Bank’s objectives include:
• providing sufficient capital to maintain the confidence of investors and depositors; and
• being an appropriately capitalized institution, as measured internally, defined by regulatory authorities and
compared with the Bank’s peers.
OSFI’s regulatory capital guidelines under Basel III allow for two tiers of capital. December 31, 2018 Common Equity
Tier 1 (“CET1”) capital includes common shares, retained earnings and Accumulated Other Comprehensive Income
(“AOCI”), less regulatory adjustments which are deducted from capital. The Bank currently does not hold any
additional Tier 1 capital instruments; therefore, the Bank’s CET1 is equal to its Tier 1 regulatory capital. Tier 2 capital
consists of the eligible portion of general allowances. Risk-weighted assets (“RWA”) include a credit risk component
for all on-balance-sheet assets weighted for the risk inherent in each type of asset, off-balance sheet financial
instruments, an operational risk component based on a percentage of average risk-weighted revenues and a market-
risk component for assets held for trade. For the purposes of calculating RWA, securitization transactions are
considered off-balance-sheet transactions and, therefore, securitization assets are not included in the RWA
calculation. Assets are classified as held for trade when they are held with trading intent.
The Leverage Ratio prescribed by OSFI’s Leverage Requirements Guideline provides an overall measure of the
adequacy of an institution’s capital and is defined as the all-in Tier 1 capital divided by the leverage ratio exposure.
The leverage ratio exposure is the sum of on-balance sheet exposures, derivative exposures, securities financing
transaction exposures and off-balance sheet items.
As at December 31, 2018 and 2017, the Bank complied with all regulatory capital guidelines established by OSFI,
its internal targets as determined by its ICAAP and all financial covenants under its bank credit agreement and note
purchase facilities.
Page 40 of 145 8.4 Investing
8.4.1 Capital Expenditures
The Company’s capital expenditures for periods ended December 29, 2018 and December 30, 2017 were as follows:
(C$ in millions)
Real estate
Information technology
Other operating
Operating capital expenditures
CT REIT acquisitions and developments excluding vend-ins from CTC
$
2018
179.0 $
151.0
118.4
448.4
116.6
2017
139.1
181.4
63.7
384.2
215.4
Distribution capacity
Total capital expenditures1
1 Capital expenditures are presented on an accrual basis and include software additions, but exclude acquisitions relating to business combinations, intellectual
567.0 $
642.1
42.5
2.0
$
properties and tenant allowances received.
Total capital expenditures decreased $75.1 million year over year primarily due to a decrease in CT REIT acquisitions,
lower spend on distribution capacity as the Bolton DC became operational in the third quarter of 2017, and lower IT
spend due to projects completed in the prior year and a delay in timing of projects in the current year. This was
partially offset by increases in operating capital expenditures resulting mainly from increases in intensifications and
development activities in real estate and other operating capital spend.
Operating capital expenditures of $448.4 million were slightly below the previously disclosed range of $450 million
to $500 million, due to the delay in timing of certain real estate and IT projects.
Capital Commitments
The Company had commitments of approximately $158.3 million as at December 29, 2018 (2017 – $120.3 million)
for the acquisition of tangible and intangible assets.
The following represents forward-looking information and readers are cautioned that actual results may vary.
Operating Capital Expenditures
As previously announced, the Company expects its three-year average annual operating capital expenditures to be
within the range of $450 million to $500 million from 2018 to 2020. This excludes spending for operational efficiency
initiatives that may be identified.
The Company expects its 2019 annual operating capital expenditure to be within the range of $475 million to $550
million. The Company expects 2019 operating capital spend to increase over 2018, due to a shift in timing of real
estate projects as well as planned incremental investment in Canadian Tire and Mark’s store networks. This forecast
excludes spending for operational efficiency initiatives that may be identified.
The annual and average operating capital expenditures outlined above do not include spending relating to distribution
capacity, the cost of third-party acquisitions by CT REIT as part of its growth strategy, or capital-to-fund future initiatives
relating to operational efficiency.
8.4.2 Business Acquisition
As part of its growth strategy, the Company actively pursues acquisition candidates that strategically fit with its retail
businesses. Major acquisitions are only considered where the Company expects to strengthen its market position
and create long-term value for Shareholders.
On July 3, 2018, the Company acquired Teodin Holdco AS, which owns and operates the Helly Hansen brands and
related businesses. Helly Hansen is a global leader in sportswear and workwear, based in Oslo, Norway.
Page 41 of 145
Founded in 1877, Helly Hansen is known for its professional-grade gear and for being a leader in designing innovative
and high quality technical performance products developed for the harshest outdoor conditions. Within its core
categories of sailing, skiing, mountain, urban, rainwear, and workwear, Helly Hansen designs and delivers products
used by professionals and outdoor enthusiasts around the world. The acquisition strengthens CTC’s core businesses
across multiple banners, increases its brand offerings in Canada and its ability to grow its brands internationally.
Since acquisition on July 3, 2018, for the year-ended December 29, 2018, Helly Hansen generated revenue of $347.6
million and net income of $32.6 million. Included within Helly Hansen’s net income for the year-ended December
29, 2018 is $4.9 million of depreciation, $4.7 million of interest expense and $9.8 million of income taxes. If the
acquisition had occurred on the first day of fiscal 2018, Management estimates that Helly Hansen would have
contributed $586.9 million of revenue and $30.1 million of net income, before intercompany eliminations, for the year
ended December 29, 2018.
The purchase price of the equity of Teodin Holdco AS was $766.3 million which is in addition to purchased loans
from the previous owners and other related items.
The fair value of identifiable assets acquired and liabilities assumed as at the acquisition date are as follows:
(C$ in millions)
Cash and cash equivalents
Trade and other receivables
Merchandise inventories
Prepaid expenses and deposits
Intangible assets
Property and equipment
Trade and other payables
Short-term borrowings
Loan from previous owners
Provisions
Deferred income taxes (net)
Other long-term liabilities
Total net identifiable assets
Goodwill was recognized as a result of the acquisition as follows:
(C$ in millions)
Total consideration transferred
Less: Total net identifiable assets
Goodwill
$
$
$
$
3.4
87.1
169.0
1.3
566.0
20.7
(120.5)
(91.3)
(216.5)
(0.2)
(86.9)
(0.7)
331.4
766.3
(331.4)
434.9
The goodwill recognized on the acquisition of Helly Hansen is attributable mainly to the expected future growth
potential from the expanded customer base. None of the goodwill recognized is expected to be deductible for income
tax purposes.
The Company incurred acquisition-related costs of $22.7 million, which are recorded in Selling, general and
administrative expenses. The Company also recorded $5.0 million as a fair value adjustment for inventory acquired,
which is recorded in the cost of producing revenue.
As a result of the acquisition, the Company is exposed to certain additional risks. The Company undertakes thorough
due diligence prior to completing an acquisition, but there is no assurance that the Company will achieve the expected
strategic objectives or cost synergies subsequent to the acquisition. Subsequent changes in the exchange rates,
Page 42 of 145 economic, political, regulatory environment and other unanticipated factors, may affect the Company’s ability to
achieve expected earnings growth or expense reductions. The success of the acquisition is dependent upon retaining
processes, customers, and key employees of the company acquired.
8.5 Liquidity and Financing
The Company is in a strong liquidity position with the ability to access capital from multiple sources. A number of
alternative financing sources are available to the Company, CT REIT, and CTB to help ensure an appropriate level
of liquidity is available to meet the Company’s key initiatives.
Summary of the Company’s Financing Sources as of December 29, 2018:
Committed Bank Lines of Credit
Provided by a syndicate of seven Canadian and four international financial institutions, $1.975 billion in a committed
bank line is available to CTC for general corporate purposes, expiring in August 2023. CTC had no borrowings under
its bank lines as at December 29, 2018.
Provided by a syndicate of seven Canadian financial institutions, $300.0 million in a committed bank line is available
to CT REIT for general business purposes, expiring in December 2023. CT REIT had $15.0 million of borrowings
under its bank lines as at December 29, 2018.
Scotiabank has provided CTB with a $250.0 million unsecured revolving committed credit facility and $2.0 billion in
note purchase facilities for the purchase of senior and subordinated notes issued by GCCT, both of which expire in
October 2021. CTB had no borrowings under its bank lines as at December 29, 2018.
Helly Hansen had a total of $68.8 million of Canadian Dollar equivalent borrowings outstanding across its committed
bank lines of credit (175.0 million Norwegian Krone [“NOK”]) and its factoring facility (265.8 million NOK).
Medium-Term Notes and Debentures
During the first quarter of 2018, CT REIT issued $200.0 million aggregate principal amount of senior unsecured
debentures. The debentures have a coupon rate of 3.865 percent and mature December 7, 2027.
On July 3, 2018, CTC completed an offering of $650.0 million aggregate principal amount of unsecured medium-
term notes, issued on a private placement basis pursuant to an offering memorandum dated June 11, 2018. The
offering consisted of a $250.0 million principal amount of 2.646% Series E Unsecured Medium-Term Notes due July
6, 2020 and a $400.0 million principal amount of 3.167% Series F Unsecured Medium-Term Notes due July 6, 2023.
The Company had a total of $1.2 billion in senior unsecured medium-term notes outstanding as at December 29,
2018.
Securitization of Credit Card Loans Receivables
Securitization transactions, in the form of a $300 million asset-backed commercial paper program expiring in August
2021, senior notes, and subordinated notes issued through GCCT, continue to be a cost-effective form of financing
for CTB.
On September 13, 2018, GCCT completed the issuance of $584.0 million of Series 2018-1 term notes that have an
expected repayment date of September 20, 2023, consisting of $546.0 million principal amount of senior notes that
bear an interest rate of 3.138 percent per annum, and $38.0 million principal amount of subordinated notes that bear
an interest rate of 4.138 percent per annum. GCCT had a total of $2.1 billion in senior and subordinated notes and
$294.3 million in commercial paper outstanding as at December 29, 2018.
Broker GIC Deposits
Funds continue to be readily available to CTB through broker networks. As at December 29, 2018, CTB held $1.9
billion in broker GIC deposits.
Page 43 of 145 Retail Deposits
Retail deposits consist of HIS and retail GIC deposits held by CTB, available both within and outside a TFSA. As at
December 29, 2018, CTB held $572.4 million in retail deposits.
Real Estate
The Company can undertake strategic real estate transactions involving properties not owned by CT REIT. It also
owns an investment in CT REIT in the form of publicly traded CT REIT Units.
Additional sources of funding are available to CT REIT as appropriate, including the ability to access equity and other
debt markets, subject to the terms and conditions of CT REIT’s Declaration of Trust and all applicable regulatory
requirements.
Credit Ratings
Canadian Tire Corporation is rated by two independent credit rating agencies: DBRS Limited (“DBRS”) and S&P
Global Ratings (“S&P”), which provide credit ratings of debt securities for commercial entities. A credit rating generally
provides an indication of the risk that the borrower will not fulfill its full obligations in a timely manner with respect to
both interest and principal commitments. Rating categories range from highest credit quality (generally “AAA”) to
default in payment (generally “D”).
Credit rating summary
DBRS
Canadian Tire Corporation
Issuer rating
Medium-term notes
Trend or outlook
BBB (high)
BBB (high)
Stable
Glacier Credit Card Trust
S&P
BBB+
BBB+
Stable
Fitch
-
-
-
Asset-backed commercial paper
R-1 (high) (sf)
-
F1+ (sf)
Asset-backed senior notes
Asset-backed subordinated notes A (sf) - Series after 2014
AAA (sf)
A (high) (sf) - Series 2014-1
AAA (sf) - Series prior to
2018
A (sf) - Series 2015-1 &
2017-1
A+ (sf) - Series 2014-1
AAA (sf) - Series 2018-1
A (sf) - Series 2018-1
-
CT REIT
Issuer rating
Senior unsecured debentures
Trend or outlook
BBB (high)
BBB (high)
Stable
BBB+
BBB+
Stable
-
-
-
Page 44 of 145
8.5.1 Contractual Obligations, Guarantees, and Commitments
8.5.1.1 Contractual Obligations
The Company funds capital expenditures, working capital needs, dividend payments, and other financing needs,
such as debt repayments and Class A Non-Voting Share purchases under an NCIB program, from a combination of
sources. The following table shows the Company’s contractual obligations required to be paid over the next five
years and beyond. The Company believes it has sufficient liquidity available to meet its contractual obligations as
at December 29, 2018.
Contractual Obligations Due by Period
(C$ in millions)
Current and long-term debt1, 3
Glacier Credit Card Trust debt2, 3
Finance lease obligations4
Operating leases5
Purchase obligations
Financial Services’ deposits3
Other obligations
Total
2019
2020
2021
2022
2023
2024 &
beyond
$ 2,313.0 $
37.6 $
250.4 $
150.0 $
150.0 $
400.0 $ 1,325.0
2,144.0
134.7
2,493.3
2,222.8
2,480.3
131.8
500.0
22.1
379.6
1,796.9
973.6
55.9
500.0
20.6
353.7
157.2
336.5
31.7
—
19.5
320.7
92.9
219.0
20.9
560.0
18.5
268.9
44.6
550.0
13.1
584.0
15.2
202.1
29.5
401.2
8.0
—
38.8
968.3
101.7
—
2.2
$ 11,919.9 $ 3,765.7 $ 1,650.1 $
823.0 $ 1,605.1 $ 1,640.0 $ 2,436.0
1 Excludes senior and subordinated notes at GCCT.
2 Represents senior and subordinated notes.
3 Excludes interest obligations on debt or deposits.
4
Includes interest obligations on finance leases.
5
Includes $240.1 million commitment for lease agreements signed but not yet commenced.
In addition, the Company has certain premises where it is on the head lease and subleases the property to franchisees.
The total future minimum sublease payments expected under these non-cancellable subleases were $128.4 million
as at December 29, 2018 (2017 - $118.2 million).
8.5.1.2 Guarantees and Commitments
In the normal course of business, the Company enters into numerous agreements that may contain features that
meet the definition of a guarantee and provides other additional indemnification commitments to counterparties in
various transactions that require the Company to compensate the counterparties for certain amounts and costs
incurred. For a discussion of the Company’s significant guarantees and commitments, refer to Note 34 of the
Company’s 2018 consolidated financial statements.
The Company’s maximum exposure to credit risk with respect to such guarantees and commitments is provided in
Note 5 of the Company’s 2018 consolidated financial statements.
8.6 Funding Costs
The table below shows the funding costs relating to short-term and long-term debt, excludes deposits held by CTB,
Franchise Trust indebtedness and Helly Hansen credit facilities:
(C$ in millions)
Interest expense1
Cost of debt2
3.23%
1 Represents the interest expense relating to short-term and long-term debt. Short-term debt includes lines of credit. Long-term debt includes medium-term,
3.40%
114.6
141.8
2018
2017
$
$
debentures, senior, and subordinated notes.
2 Represents the weighted average cost of short-term and long-term debt during the period.
For a discussion of the liquidity and credit risks associated with the Company’s ability to generate sufficient resources
to meet its financial obligations, refer to section 12.2 and 12.3 in this MD&A.
Page 45 of 145 9.0 Equity
9.1 Shares Outstanding
(C$ in millions)
Authorized
3,423,366 Common Shares
100,000,000 Class A Non-Voting Shares
Issued
2018
2017
Common Shares (December 30, 2017 – 3,423,366)
59,478,460 Class A Non-Voting Shares (2017 - 63,066,561)
$
$
0.2 $
591.3
591.5 $
0.2
615.5
615.7
Each year, the Company files an NCIB with the Toronto Stock Exchange (“TSX”) which allows it to purchase its Class
A Non-Voting Shares in the open market.
On November 9, 2017, the Company announced its intention to repurchase $550 million of its Class A Non-Voting
Shares by the end of 2018, in excess of the amount of shares required to be purchased for anti-dilutive purposes.
On February 20, 2018, the TSX accepted the Company’s notice of intention to make an NCIB to purchase up to 5.9
million Class A Non-Voting Shares during the period from March 2, 2018 through March 1, 2019.
The following table summarizes the Company’s purchases relating to the November 9, 2017 announcement:
(C$ in millions)
Share buy-back intention announced on November 9, 2017
Shares repurchased in 2017 under the November 9, 2017 announcement
Shares repurchased in 2018 under the November 9, 2017 announcement
Shares remaining to be repurchased in 2018 under the November 9, 2017 announcement
$
$
550.0
100.0
450.0
—
In October 2018, the Company completed the repurchases under the November 9, 2017 announcement.
The following represents forward-looking information and readers are cautioned that actual results may vary.
On November 8, 2018, the Company announced its intention to repurchase a further $300 million to $400 million of
its Class A Non-Voting Shares, in excess of the amount required for anti-dilutive purposes, by the end of fiscal 2019,
subject to regulatory approval of the renewal of the Company’s NCIB.
The following table summarizes the Company’s purchases related to the November 8, 2018 announcement:
(C$ in millions)
Share buy-back intention announced on November 8, 2018 (range)
Shares repurchased in 2018 under the November 8, 2018 announcement
$300.0 - $400.0
127.0
Shares remaining to be repurchased in 2019 under the November 8, 2018 announcement (range)
$173.0 - $273.0
9.2 Dividends
The Company has a consistent record of increasing its annual dividend and on November 9, 2017 announced an
increase to the dividend payout ratio target to approximately 30 to 40 percent of the prior year normalized earnings,
after giving consideration to the period end cash position, future cash flow requirements, capital market conditions,
and investment opportunities.
Page 46 of 145 The Company declared dividends payable to holders of Class A Non-Voting Shares and Common Shares at a rate
of $1.0375 per share, an increase of $0.1375 or 15.3% per share on its quarterly dividend (or $0.55 per share
annually) as previously announced in November 2018, payable on June 1, 2019 to shareholders of record as of
April 30, 2019. The dividend is considered an “eligible dividend” for tax purposes.
9.3 Equity Derivative Contracts
The Company enters into equity derivative contracts to partially offset its exposure to fluctuations in stock option,
performance share unit plan, and deferred share unit plan expenses. The Company currently uses floating-rate
equity forwards.
During the year, equity forwards that hedged 1,160,000 stock option and performance share units settled and resulted
in a cash receipt from the counterparties of approximately $15.2 million. Also during the year, the Company entered
into 1,030,000 floating-rate equity forwards at a weighted average purchase price of $164.21 to offset its exposure
to stock options and performance share units.
10.0 Tax Matters
In the ordinary course of business, the Company is subject to ongoing audits by tax authorities. While the Company
has determined that its tax filing positions are appropriate and supportable, from time to time certain matters are
reviewed and challenged by the tax authorities.
With respect to temporary differences relating to and arising from the Company’s investment in its subsidiaries, the
Company is able to control and has no plans that would result in the realization of the respective temporary differences.
Accordingly, the Company has not provided for deferred taxes relating to these respective temporary differences
that might otherwise occur from transactions relating to the Company’s investment in its subsidiaries.
The Company regularly reviews the potential for adverse outcomes with respect to tax matters. The Company
believes that the ultimate disposition of these matters will not have a material adverse effect on its liquidity, consolidated
financial position, or net income, because the Company has determined that it has adequate provision for these tax
matters. Should the ultimate tax liability materially differ from the provision, the Company’s effective tax rate and its
earnings could be affected positively or negatively in the period in which the matters are resolved.
Income taxes for the 13 and 52 weeks ended December 29, 2018 were $108.7 million (2017 - $108.9 million) and
$285.2 million (2017 - $293.7 million), respectively. The effective tax rates for the 13 and 52 weeks ended
December 29, 2018 increased to 28.1 percent (2017 - 26.9 percent) and 26.7 percent (2017 - 26.4 percent)
respectively. The effective tax rate increases are primarily due to the non-deductibility of the change in the fair value
of the redeemable financial instrument, partially offset by lower non-deductible stock option expense and changes
in tax rates.
The effective tax rate decreased to 26.7 percent from the previously disclosed tax rate of approximately 27.0 percent
due to lower non-deductible stock option expense in the period, offset by the non-deductible change in the fair value
of redeemable financial instrument.
The following represents forward-looking information and users are cautioned that actual results may vary.
In Q3 2018, the Company announced the annual effective tax rate, excluding any impact for a potential change in
fair value of the redeemable financial instrument, for fiscal 2019, to be approximately 26.5 percent.
Page 47 of 145 11.0 Accounting Policies, Estimates, and Non-GAAP Measures
11.1 Critical Accounting Estimates
The Company estimates certain amounts reflected in its consolidated financial statements using detailed financial
models based on historical experience, current trends, and other assumptions, to be reasonable. Actual results
could differ from those estimates. In Management’s judgment, the accounting estimates and policies detailed in
Note 2 and Note 3 of the Company’s 2018 consolidated financial statements do not require Management to make
assumptions about matters that are highly uncertain and, accordingly, none of those estimates are considered a
“critical accounting estimate” as defined in Form 51-102F1 - Management Discussion and Analysis, published by
the Ontario Securities Commission, except as noted below.
In the Company’s view, the allowance for loan impairment in Financial Services is considered to be a “critical
accounting estimate”. Accounting standards relating to the allowance for loan impairments have changed effective
for the Company’s 2018 fiscal year. The Company’s estimate of allowances on credit card loans receivable is based
on an expected credit loss (“ECL”) approach that employs an analysis of historical data, economic indicators and
experience of delinquency and default, to estimate the amount of loans that may default as a result of past or future
events, with certain adjustments for other relevant circumstances influencing the recoverability of these loans
receivable. Impairment of loans is assessed based on whether there has been a significant increase in credit risk
since origination and incorporation of forward-looking information in the measurement of expected credit losses.
Default rates, loss rates and the expected timing of future recoveries are periodically benchmarked against actual
outcomes to ensure that they remain appropriate. Future customer behaviour may be affected by a number of
factors, including changes in interest and unemployment rates and program design changes.
11.1.1 Change in Accounting Estimates
Effective in the first quarter 2018, the Company changed its depreciation method to straight-line for all its depreciable
assets that were previously depreciated using the declining balance method. The Company believes that the straight-
line method of depreciation better reflects the pattern of consumption of the economic benefits of the assets. In
accordance with IFRS, this is considered a change in accounting estimate and has been accounted for prospectively.
This change resulted in a one-time charge (due to accelerated depreciation) in Q1 2018 of $16.9 million. In addition,
under the straight-line methodology, the Company expects that the ratio measuring its annual depreciation expense
as a percentage of consolidated revenue will decrease by approximately 40 to 50 bps. The decrease in depreciation
for the year 2018, as a percentage of revenue is within the previously disclosed range of approximately 40 to 50
bps.
11.2 Changes in Accounting Policies
Standards, Amendments and Interpretations Issued and Adopted
During the year, the Company adopted IFRS 9 - Financial Instruments (“IFRS 9”) and the related consequential
amendments to IFRS 7 - Financial Instruments: Disclosures. The Company also early adopted amendments to IFRS
9. As permitted by the transitional provision of IFRS 9, the Company elected not to restate comparative figures. In
addition, the Company has adopted IFRS 15 - Revenue from Contracts with Customers, as well as amendments to
IFRS 2 - Share-based Payment. Refer to Note 2 of the consolidated financial statements for further details.
Standards, Amendments and Interpretations Issued but not yet Adopted
The following new standards, amendments and interpretations have been issued but are not effective for the fiscal
year ending December 29, 2018 and, accordingly, have not been applied in preparing the consolidated financial
statements.
Page 48 of 145
The following represents forward-looking information and readers are cautioned that actual results may vary.
Leases
In January 2016, the International Accounting Standards Board (“IASB”) issued IFRS 16 - Leases (“IFRS 16”), which
will replace IAS 17 - Leases (“IAS 17”) and related interpretations. IFRS 16 provides a single lessee accounting
model, requiring the recognition of assets and liabilities for all leases, unless the lease term is 12 months or less or
the underlying asset has a low value. IFRS 16 substantially carries forward the lessor accounting in IAS 17, with
the distinction between operating leases and finance leases being retained. IFRS 16 is expected to have a material
impact on the Company’s Consolidated Balance Sheets, with the addition of approximately $2.2 billion to $2.4 billion
of lease liabilities and $1.6 billion to $1.8 billion of right-of-use assets. Lease-related expenses previously recorded
in selling, general and administrative expenses, primarily as occupancy costs, will be recorded as depreciation on
the right-of-use assets and a finance charge from unwinding the discount on the lease liabilities. IFRS 16 will also
change the presentation of cash flows relating to leases in the Company’s Consolidated Statements of Cash Flows,
but does not cause a difference in the amount of cash transferred between the parties of a lease.
•
•
•
•
•
the Company has not reassessed, under IFRS 16, contracts that were identified as leases under the previous
accounting standard (IAS 17);
the Company will use a single discount rate to a portfolio of leases with reasonably similar underlying
characteristics;
the Company has used the onerous lease provisions recognized as at December 29, 2018 as an alternative
to performing an impairment review on its right-of-use assets as at December 30, 2018. Where an onerous
lease provision was recorded on a lease, the right-of-use asset has been reduced by the onerous lease
provision recognized on December 29, 2018;
the Company has excluded the initial direct costs in the measurement of the right-of-use asset on transition;
and
the Company has used hindsight in determining the lease term where the lease contracts contain options
to extend or terminate the lease.
In determining the lease term, Management considers all factors that may create an economic incentive to exercise
a renewal option or termination option when determining the lease term under the new standard.
The Company has upgraded its accounting system and implemented processes and internal controls to enable the
application of IFRS 16 for 2019.
Annual Improvements 2015-2017
In December 2017, the IASB issued amendments to four standards, including IFRS 3 – Business Combinations,
IFRS 11 Joint Arrangements, IAS 12 – Income Taxes and IAS 23 – Borrowing Costs. These amendments will be
effective for annual periods beginning on or after January 1, 2019. The implementation of these amendments is not
expected to have a significant impact on the Company.
Post-Employment Benefits
In February 2018, the IASB issued Plan Amendment, Curtailment or Settlement (Amendments to IAS 19 - Employee
Benefits). When a change to a plan (an amendment, curtailment or settlement) takes place, IAS 19 requires a
company to remeasure its net defined benefit liability or asset. The amendments require a company to use the
updated assumptions from this remeasurement to determine current service cost and net interest for the remainder
of the reporting period after the change to the plan. In addition, amendments have been included to clarify the effect
of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling. The amendments
will be effective to plan amendments, curtailments or settlements occurring on or after the beginning of the first annual
reporting period that begins on or after January 1, 2019. The implementation of these amendments is not expected
to have a significant impact on the Company.
Page 49 of 145
Insurance Contracts
In May 2017, the IASB issued IFRS 17 - Insurance Contracts (“IFRS 17”), that replaces IFRS 4 - Insurance Contracts
and establishes a new model for recognizing insurance policy obligations, premium revenue and claims-related
expenses. IFRS 17 is effective for annual periods beginning on or after January 1, 2021; however, based on recent
IASB meetings, an upcoming amendment to IFRS 17 and a deferral of the transition date by one year is anticipated.
Early adoption is permitted. The Company is assessing the potential impact of this standard.
Definition of Material
In October 2018, the IASB issued amendments to IAS 1 - Presentation of Financial Statements and IAS 8 - Accounting
Policies, Changes in Accounting Estimates and Errors, clarifying the definition of material. Under the amended
definition, information is material if omitting, misstating or obscuring it could reasonably be expected to influence the
decisions that the primary users of general purpose financial statements make on the basis of those financial
statements, which provide financial information about a specific reporting entity. The amendments also clarify the
explanations accompanying the definition of material. The amendments are effective January 1, 2020 and are
required to be applied prospectively. Early application is permitted. The implementation of these amendments is
not expected to have a significant impact on the Company.
Definition of Business
In October 2018, the IASB issued amendments to IFRS 3 - Business Combinations. The amendments narrowed
and clarified the definition of a business. The amendments will help companies determine whether an acquisition
is a business or a group of assets. They also permit a simplified assessment of whether an acquired set of activities
and assets is a group of assets rather than a business. Distinguishing between a business and a group of assets
is important because an acquirer recognizes goodwill only when acquiring a business. The amendments apply to
transactions for which the acquisition date is on or after the beginning of the first annual reporting period beginning
on or after January 1, 2020. Earlier adoption is permitted. The implementation of these amendments is not expected
to have a significant impact on the Company.
11.3 Key Operating Performance Measures and Non-GAAP Financial Measures
The Company uses certain key operating performance measures and non-GAAP financial measures and believes
that they provide useful information to both Management and investors in measuring the financial performance and
financial condition of the Company for the following reasons.
Some of these measures do not have a standardized meaning prescribed by GAAP and therefore may not be
comparable to similarly-titled measures presented by other publicly-traded companies. They should not be construed
as an alternative to other financial measures determined in accordance with GAAP.
11.3.1 Key Operating Performance Measures
Retail Sales
Retail sales refers to the POS value of all goods and services sold to retail customers at stores operated by Dealers,
Mark’s and SportChek franchisees, and Petroleum retailers, at corporately-owned stores across all retail banners,
services provided as part of the Home Services offering, and of goods sold through the Company’s online sales
channels, and in aggregate do not form a part of the Company’s consolidated financial statements. Retail sales has
been included as one of the Company’s financial aspirations. Sales descriptions for the retail banners can be found
in the footnotes to the table contained within section 7.2.2 of this MD&A.
Management believes that retail sales and related year-over-year comparisons provide meaningful information to
investors and are expected and valued by them to help assess the size and financial health of the Company’s retail
network of stores. These measures also serve as an indicator of the strength of the Company’s brand, which ultimately
impacts its consolidated financial performance.
Revenue, as reported in the Company’s consolidated financial statements, comprises primarily the sale of goods to
Dealers and to franchisees of Mark’s and SportChek, the sale of gasoline through Petroleum retailers, the sale of
goods to retail customers by stores that are corporately owned under the Mark’s, PartSource, and SportChek banners,
the sale of services through the Home Services business, the sale of goods to customers through a business-to-
Page 50 of 145 business operation, and through the Company’s online sales channels, as well as revenue generated from interest,
service charges, interchange and other fees, and from insurance products sold to credit card holders in the Financial
Services segment, and rent paid by third-party tenants in the CT REIT segment.
Comparable Sales
Effective Q2 2018, the term same-store sales has been replaced with comparable sales with no change in the metric’s
definition or calculation.
Comparable sales is a metric used by Management and is also commonly used in the retail industry to identify sales
growth generated by a Company’s existing store network and removes the effect of opening and closing stores in
the period. For Canadian Tire stores, the calculation excludes stores that have been retrofitted, replaced, or expanded
where the percentage change in square footage exceeds 25 percent of the original store size, and includes sales
from all stores that have been open for a minimum of one year and one week, as well as eCommerce sales. For
Mark’s and SportChek, comparable sales include sales from all stores that have been open since at least the beginning
of the comparative month in the prior year and include eCommerce sales. The Company also reviews consolidated
comparable sales which include comparable sales at Canadian Tire (including PartSource and PHL), SportChek,
and Mark’s but excludes comparable sales at Petroleum. Comparable sales does not include Helly Hansen. Additional
information on comparable sales and retail sales growth descriptions for Canadian Tire, Mark’s, and SportChek can
be found in section 7.2.2 of this MD&A.
Sales per Square Foot
Management and investors use comparisons of sales per square foot metrics over several periods to help identify
whether existing assets are being made more productive by the Company’s introduction of new store layouts and
merchandising strategies. Sales per square foot descriptions for Canadian Tire, Mark’s, and SportChek can be found
in section 7.2.2 of this MD&A.
Retail Return on Invested Capital
The Company believes that Retail ROIC is useful in assessing the return on capital invested in its retail assets. Retail
ROIC is calculated as the rolling 12-month retail earnings divided by average invested retail capital. Retail earnings
are defined as Retail segment after-tax earnings excluding interest expense, inter-segment earnings, minimum lease
payments, non-controlling interests, and any normalizing items. Average invested capital is defined as Retail segment
total assets, including operating leases capitalized at a factor of eight, less Retail segment current liabilities and inter-
segment balances for the current and prior year. A three-year Retail ROIC aspiration has been included as one of
the Company’s financial aspirations.
Return on Receivables
ROR is used by Management to assess the profitability of the Financial Services’ total portfolio of receivables. ROR
is calculated by dividing income before income tax and gains/losses on disposal of property and equipment by the
average total-managed portfolio over a rolling 12-month period.
11.3.2 Non-GAAP Financial Measures
Normalized EBITDA and EBITDA
The following table reconciles the consolidated normalized income before income taxes, net finance costs,
depreciation and amortization, any change in fair value of the redeemable financial instrument and certain one-time
normalizing items, or normalized EBITDA, to net income attributable to shareholders of Canadian Tire Corporation
which is a GAAP measure reported in the consolidated financial statements for the periods ended December 29,
2018 and December 30, 2017. Management uses normalized EBITDA as a supplementary measure when assessing
the performance of its ongoing operations and its ability to generate cash flows to fund its cash requirements, including
the Company’s capital expenditures.
Page 51 of 145 (C$ in millions)
Normalized EBITDA
Less normalizing items:
Q4 2018
Q4 2017
2018
2017
$
588.1
$
558.5
$
1,742.7
$
1,693.8
The roll-out of the Triangle Rewards program and
associated credit cards
Helly Hansen:
Acquisition related costs
Fair value adjustment for inventories acquired1
—
—
—
Change in fair value of redeemable financial instrument
50.0
—
—
—
17.3
22.7
5.0
50.0
—
—
—
EBITDA
Less:
Depreciation and amortization2
Net finance costs
Income before income taxes
Income taxes
Effective tax rate
Net income
$
$
$
538.1
$
558.5
$
1,647.7
$
1,693.8
106.5
44.7
124.1
30.1
428.0
151.5
468.7
112.6
386.9
$
404.3
$
1,068.2
$
1,112.5
108.7
28.1%
108.9
26.9%
285.2
26.7%
278.2
$
295.4
$
783.0
$
293.7
26.4%
818.8
83.8
Net income attributable to non-controlling interests
23.9
19.7
90.9
Net income attributable to shareholders of Canadian Tire
Corporation
275.7
1 Relates to the fair value adjustment to Helly Hansen’s inventory recorded as part of the acquisition on July 3, 2018.
2
254.3
$
$
Includes $1.4 million reported in cost of producing revenue in the quarter (2017 - $1.8 million) and $6.2 million in 2018 (2017 - $6.8 million).
$
692.1
$
735.0
The change in fair value of redeemable financial instruments relates to the liability arising from the Financial Services
transaction with Scotiabank. Refer to Note 32.1 in the annual consolidated financial statements for further details
and accounting treatment. The recurring fair value measurement relating to the redeemable financial instrument is
not included in the measure of segmented profit or loss reviewed by the chief operating decision maker and is
therefore excluded from the financial performance reported in section 7.1 of this MD&A.
The following table reconciles Helly Hansen’s EBITDA to net income which is a GAAP measure reported in Note 36
in the consolidated financial statements for the period ended December 29, 2018.
(C$ in millions)
EBITDA
Less:
Depreciation and amortization
Net finance costs
Income before income taxes
Income taxes
Effective tax rate
Net income
Q4 2018
Q4 2017
2018
2017
$
23.2
$
— $
52.0
$
3.1
2.2
17.9
4.2
23.5%
13.7
$
$
—
—
—
—
—
—
— $
4.9
4.7
42.4
9.8
23.1%
32.6
$
—
—
—
—
—
—
—
—
Page 52 of 145
Retail Segment Normalized EBITDA
The following table reconciles Retail segment normalized income before income taxes, net finance costs, and
depreciation and amortization, or normalized EBITDA, to income before income taxes which is a supplementary
GAAP measure reported in the notes to the consolidated financial statements for the periods ended December 29,
2018 and December 30, 2017.
(C$ in millions)
Normalized EBITDA
Less normalizing item:
The roll-out of the Triangle Rewards program and
associated credit cards
Helly Hansen:
Acquisition related costs
Fair value adjustment for inventories acquired1
EBITDA
Less:
Depreciation and amortization2
Net finance costs (income)
Q4 2018
Q4 2017
2018
2017
$
423.4 $
398.3 $
1,057.5 $
1,046.1
—
—
—
—
—
—
3.8
22.7
5.0
—
—
—
$
423.4 $
398.3 $
1,026.0 $
1,046.1
90.2
4.4
102.8
(6.9)
360.3
(2.7)
668.4 $
382.1
(26.7)
690.7
Income before income taxes
1 Relates to the fair value adjustment to Helly Hansen’s inventory recorded as part of the acquisition on July 3, 2018.
2
328.8 $
$
302.4 $
Includes $1.4 million reported in cost of producing revenue in the quarter (2017 - $1.8 million) and $6.2 million in 2018 (2017 - $6.8 million).
Normalized Gross Margin
The following table reconciles normalized gross margin to gross margin which is a supplementary GAAP measure
reported in the notes to the consolidated financial statements for the periods ended December 29, 2018 and
December 30, 2017.
(C$ in millions)
Normalized gross margin
Add normalizing item:
$
Helly Hansen - Inventory fair value adjustment1
Gross margin
1 Relates to the fair value adjustment to Helly Hansen’s inventory recorded as part of the acquisition on July 3, 2018.
$
2018
4,716.3 $
5.0
4,711.3 $
2017
4,480.2
—
4,480.2
Normalized Selling, General and Administrative Expenses
The following table reconciles normalized selling, general and administrative expenses to selling, general and
administrative expenses which is a supplementary GAAP measure reported in the notes to the consolidated financial
statements for the periods ended December 29, 2018 and December 30, 2017.
(C$ in millions)
Normalized selling, general and administrative expenses
Add normalizing item:
The roll-out of the Triangle Rewards program and associated credit cards
Helly Hansen - Acquisition related costs
Selling, general and administrative expenses
$
$
2018
3,427.6 $
2017
3,255.0
17.3
22.7
—
—
3,467.6 $
3,255.0
Page 53 of 145
Retail Normalized Gross Margin
The following table reconciles Retail normalized gross margin to Retail gross margin which is a supplementary GAAP
measure reported in the notes to the consolidated financial statements for the periods ended December 29, 2018
and December 30, 2017.
(C$ in millions)
Retail normalized gross margin
Add normalizing item:
Helly Hansen - Inventory fair value adjustment1
$
Retail Gross margin
1 Relates to the fair value adjustment to Helly Hansen’s inventory recorded as part of the acquisition on July 3, 2018.
$
2018
3,953.4 $
5.0
3,948.4 $
2017
3,729.3
—
3,729.3
Retail Normalized Selling, General and Administrative Expenses
The following table reconciles Retail normalized selling, general and administrative expenses to selling, general and
administrative expenses which is a supplementary GAAP measure reported in the notes to the consolidated financial
statements for the periods ended December 29, 2018 and December 30, 2017.
(C$ in millions)
Normalized selling, general and administrative expenses
Add normalizing item:
The roll-out of the Triangle Rewards program and associated credit cards
Helly Hansen - Acquisition related costs
Selling, general and administrative expenses
$
$
2018
3,413.3 $
2017
3,188.8
3.8
22.7
—
—
3,439.8 $
3,188.8
Financial Services Normalized Selling, General and Administrative Expenses
The following table reconciles Financial Services normalized selling, general and administrative expenses to selling,
general and administrative expenses which is a supplementary GAAP measure reported in the notes to the
consolidated financial statements for the periods ended December 29, 2018 and December 30, 2017.
(C$ in millions)
Normalized selling, general and administrative expenses
Add normalizing item:
The roll-out of the Triangle Rewards program and associated credit cards
Selling, general and administrative expenses
$
$
2018
312.6 $
13.5
326.1 $
2017
308.5
—
308.5
Normalized Net Income
The following table reconciles normalized net income to net income which is a supplementary GAAP measure reported
in the notes to the consolidated financial statements for the periods ended December 29, 2018 and December 30,
2017.
(C$ in millions)
Normalized net income
Q4 2018
Q4 2017
2018
$
328.2 $
295.4 $
870.4 $
The roll-out of the Triangle Rewards program and
associated credit cards
Helly Hansen - Acquisition related costs and fair value
adjustment1
Change in fair value of redeemable financial instrument
—
—
50.0 $
—
—
—
12.7
24.7
50.0
2017
818.8
—
—
—
Net income
1 Relates to the fair value adjustment to Helly Hansen’s inventory recorded as part of the acquisition on July 3, 2018.
278.2 $
$
295.4 $
783.0 $
818.8
Page 54 of 145 Normalized Net Income Attributable to Shareholders and Earnings per Share
The Company’s results of operations for the 13 and 52 weeks ended December 29, 2018 include non-operating
items. Management believes that normalizing GAAP net income attributable to shareholders of the Company and
basic EPS for non-operating items provides a useful method for assessing the Company’s underlying operating
performance and assists in making decisions regarding the ongoing operations of its business.
The following table is a reconciliation of normalized net income attributable to shareholders of the Company and
normalized basic and diluted EPS to the respective GAAP measures:
(C$ in millions, except per share amounts)
Q4
2018
EPS
Q4
2017
EPS
2018
EPS
2017
EPS
Net income/basic EPS
$ 254.3 $ 4.00 $ 275.7 $ 4.12 $ 692.1 $10.67 $735.0 $10.70
Add the after-tax impact of the following, attributable to
shareholders of the Company:
The roll-out of the Triangle Rewards program and
associated credit cards
Helly Hansen - Acquisition related costs and fair value
adjustment1
Change in fair value of redeemable financial instrument
—
—
—
—
50.0
0.78
—
—
—
— 10.7
0.17
— 24.7
— 50.0
0.38
0.77
—
—
—
—
—
—
Adjusted net income/adjusted basic EPS
$ 304.3 $ 4.78 $ 275.7 $ 4.12 $ 777.5 $11.99 $735.0 $10.70
Adjusted net income/adjusted diluted EPS
1 Relates to the fair value adjustment to Helly Hansen’s inventory recorded as part of the acquisition on July 3, 2018.
$ 304.3 $ 4.78 $ 275.7 $ 4.10 $ 777.5 $11.95 $735.0 $10.67
Adjusted Net Debt
The following tables reconcile adjusted net debt to GAAP measures. The Company believes that adjusted net debt
is relevant in assessing the amount of financial leverage employed.
The Company calculates debt as the sum of short-term debt, long-term debt, short-term deposits, long-term deposits,
and certain other short-term borrowings. The Company calculates adjusted debt as debt less inter-company debt
and liquid assets.
As at December 29, 2018
(C$ in millions)
Consolidated net debt
Bank indebtedness
Short-term deposits
Long-term deposits
Short-term borrowings
Current portion of long-term debt
Long-term debt
Debt
Liquid assets1
Net debt (cash)
Inter-company debt
Consolidated
Retail
CT REIT
Financial
Services
$
— $
— $
— $
964.5
1,506.7
378.1
553.6
4,000.3
7,403.2
(806.8)
6,596.4
—
—
68.8
16.1
1,290.9
1,375.8
(303.5)
1,072.3
—
(1,699.7)
—
—
15.0
37.1
1,069.8
1,121.9
(5.0)
1,116.9
1,451.6
—
964.5
1,506.7
294.3
500.4
1,639.6
4,905.5
(498.3)
4,407.2
248.1
Adjusted net debt (cash)
1 Liquid assets include cash and cash equivalents, short-term investments, and long-term investments.
6,596.4 $
$
(627.4) $
2,568.5 $
4,655.3
Page 55 of 145 As at December 30, 2017
(C$ in millions)
Consolidated net debt
Short-term deposits
Long-term deposits
Short-term borrowings
Current portion of long-term debt
Long-term debt
Debt
Liquid assets1
Net debt (cash)
Inter-company debt
Consolidated
Retail
CT REIT
$
973.9 $
1,412.9
144.6
282.3
3,122.1
5,935.8
(734.5)
5,201.3
— $
—
—
16.8
652.2
669.0
(355.0)
314.0
— $
—
53.9
0.4
913.1
967.4
(10.9)
956.5
—
(2,073.8)
1,577.7
Financial
Services
973.9
1,412.9
90.7
265.1
1,556.8
4,299.4
(368.6)
3,930.8
496.1
Adjusted net debt (cash)
1 Liquid assets include cash and cash equivalents, short-term investments, and long-term investments.
5,201.3 $
$
(1,759.8) $
2,534.2 $
4,426.9
CT REIT Non-GAAP Financial Measures
Net Operating Income
NOI is defined as cash rental revenue from investment properties less property operating costs. NOI is used as a
key indicator of performance as it represents a measure of property operations over which Management has control.
CT REIT evaluates its performance by comparing the performance of the portfolio adjusted for the effects of non-
operational items and current-year acquisitions.
The following table shows the relationship of NOI to GAAP property revenue and property expense in CT REIT’s
Consolidated Statements of Income and Comprehensive Income:
(C$ in millions)
Property revenue
Less:
Property expense
Straight-line rent adjustment
Add:
Straight-line land lease expense adjustment
Net operating income
$
Q4 2018
Q4 2017
2018
$
119.3 $
111.2 $
472.5 $
26.8
4.5
—
88.0 $
23.7
5.6
—
108.6
18.4
—
81.9 $
345.5 $
2017
443.3
98.3
22.8
0.1
322.3
Funds from Operations and Adjusted Funds from Operations
CT REIT calculates its FFO and AFFO in accordance with the Real Property Association of Canada’s White Paper
on FFO and AFFO for IFRS issued in February 2018. FFO and AFFO should not be considered as alternatives to
net income or cash flow provided by operating activities determined in accordance with IFRS.
Management believes that FFO provides an operating performance measure that, when compared period over
period, reflects the impact on operations of trends in occupancy levels, rental rates, operating costs and property
taxes, acquisition activities and interest costs, and provides a perspective of the financial performance that is not
immediately apparent from net income determined in accordance with IFRS. FFO adds back items to net income
that do not arise from operating activities, such as fair value adjustments. FFO, however, still includes non-cash
revenues relating to accounting for straight-line rent and makes no deduction for the recurring capital expenditures
necessary to sustain the existing earnings stream.
Page 56 of 145
AFFO is a supplemental measure of recurring economic earnings used in the real estate industry to assess an entity’s
distribution capacity. CT REIT calculates AFFO by adjusting net income for all adjustments used to calculate FFO
as well as adjustments for non-cash income and expense items such as amortization of straight-line rents. Net
income is also adjusted by a reserve for maintaining productive capacity required to sustain property infrastructure
and revenue from real estate properties and direct leasing costs. Property capital expenditures do not occur evenly
during the fiscal year or from year to year. The capital expenditure reserve in the AFFO calculation is intended to
reflect an average annual spending level.
The following table reconciles income before income taxes, as reported in CT REIT’s Consolidated Statements of
Income and Comprehensive Income, to FFO and AFFO:
(C$ in millions)
Income before income taxes
Fair value (gain) adjustment
Deferred taxes
Fair value of equity awards
Funds from operations
Properties straight-line rent adjustment
Straight-line land lease expense adjustment
Capital expenditure reserve
Adjusted funds from operations
Q4 2018
Q4 2017
2018
$
74.5 $
(11.5)
(0.3)
(0.7)
62.0
(4.5)
—
(5.7)
97.1 $
300.9 $
(36.7)
(0.2)
0.2
60.4
(5.6)
—
(5.2)
(53.6)
—
(1.3)
246.0
(18.4)
—
(22.4)
$
51.8 $
49.6 $
205.2 $
2017
317.3
(79.7)
—
—
237.6
(22.8)
0.1
(20.5)
194.4
12.0 Risks and Risk Management
Overview
CTC is exposed to a number of risks and opportunities through the normal course of its business activities. The
effective management of risk is a key priority for the Company to support CTC in achieving its strategies and business
objectives. Accordingly, CTC has adopted an Enterprise Risk Management Framework (“ERM Framework”) for
identifying, assessing, responding to and monitoring risks and opportunities facing CTC. Refer to section 2.8 in the
Company’s 2018 Annual Information Form for a full description of CTC’s ERM Framework, which is hereby
incorporated by reference.
12.1 Principal risks
A key element of the ERM Framework is the identification and assessment of CTC’s Principal Risks. A Principal
Risk is defined as one that, alone or in combination with other interrelated risks, could have a significant adverse
impact on CTC’s brand, financial position, and/or ability to achieve its strategic objectives. Principal Risks are
enterprise-wide in scope and represent strategic, financial, and operational risks. Management has completed its
formal annual review of CTC’s Principal Risks which have been presented to and approved by the Audit Committee
and the Board.
The following provides a high-level perspective on each of the Principal Risks and describes the main strategies that
the Company has in place to mitigate the potential impacts of these risks on its business objectives. The mitigation
and management of Principal Risks is approached holistically with a view to ensuring all risk exposures associated
with a Principal Risk are considered. The Company maintains insurance coverage to further mitigate exposures to
certain risks. Although the Company believes the measures taken to mitigate all risks described below are reasonable,
there can be no assurance that they will effectively mitigate risks that may have a negative impact on the Company’s
financial position, brand, and/or ability to achieve its strategic objectives.
Page 57 of 145 Global and Domestic Marketplace
CTC is subject to risks resulting from fluctuations or fundamental changes in the external business environment.
These fluctuations or fundamental shifts in the marketplace could include:
• economic recession, depression, or high inflation, impacting consumer spending;
• changes in the domestic or international political environments, impacting the cost of products and/or ability to
do business;
• changes in the competitive landscape in the retail, banking, or real estate sectors, impacting the attractiveness
of shopping at CTC’s businesses and the value of its real estate holdings;
• shifts in the demographics of the Canadian population, impacting the relevance of the products and services
offered by CTC;
• changes in the buying behaviour of consumers or weather patterns, impacting the relevance of the products and
services offered by CTC; and
• introduction of new “technologies” impacting the relevance of the products, channels, or services offered by
CTC, which may result in a negative impact on CTC’s financial position, brand and/or ability to achieve its strategic
objectives.
Risk management strategy:
The Company regularly monitors and analyzes economic, political, demographic, geographic, and competitive
developments in Canada and economic, political, and competitive developments in countries from which it sources
merchandise or technology solutions. Likely impacts of these developments are factored into the Company’s strategic
and operational plans and investment decisions, as Management considers appropriate, to mitigate risk and take
advantage of opportunities that may arise.
Further information regarding the Company’s exposure to this risk for each business segment is provided in sections
7.2.4, 7.3.2 and 7.4.3.
Strategy
CTC operates in a number of industries which are highly competitive and constantly evolving. The Company selects
strategies intended to address these risks and positively differentiate its performance in the marketplace. Should
the Company be unable to appropriately respond to fluctuations in the external business environment as a result of
inaction, ineffective strategies or poor implementation of strategies, there could be adverse impacts on CTC’s financial
position, brand, and/or ability to achieve its strategic objectives.
Risk management strategy:
The Company regularly assesses strategies and its competitive positioning to enable achievement of its financial
aspirations. These strategies take the form of a number of strategic objectives. On at least a quarterly basis, the
Company identifies and assesses the external and internal risks and trends that may impede the achievement of its
strategic objectives. The goal of this approach is to provide early warning and escalation within the Company of
information about significant risks and trends, and to engage in appropriate Management activities to mitigate these
risks. In addition to supporting strategy execution, the approach enables Management to assess the effectiveness
of its strategies in light of external and internal conditions and propose changes to strategic objectives as it may
consider appropriate.
The Company’s annual operating plans include the key initiatives chosen to advance the successful longer-term
execution of its strategic objectives. Further information regarding the key initiatives is included in section 5.0.
Brand
The strength of CTC’s brand significantly contributes to the success of the Company and is sustained through its
culture and processes. Maintaining and enhancing brand equity enables the Company to innovate and better serve
its customers, grow, and achieve its financial goals and strategic aspirations. CTC’s reputation, and consequently
brand, may be negatively affected by various factors, some of which may be outside its control. Should these factors
materialize, stakeholders’ trust in the Company, the perception of what its brand stands for, its connection with
customers, and subsequently its brand equity, may significantly diminish. As a result, CTC’s financial position, brand
and/or ability to achieve its strategic objectives may be negatively affected.
Page 58 of 145 Risk management strategy:
The Company’s strategies include plans and investments to enhance its brand. All employees are expected to
manage risks that can impact the brand. Most risks that could impact the Company’s brand are managed through
the ERM framework. In addition, its Executive Team is accountable for educating employees about the need to
identify and escalate matters that could create brand risk. The Company’s Corporate Communications team monitors
a variety of sources to identify publicly reported issues that could create brand risk and supports the Executive Team
in managing its response to those issues. The Company’s Code of Conduct provides all employees, contractors,
and directors with guidance on ethical values and expected behaviour that enable it to sustain its culture of integrity.
People
CTC is subject to the risk of not being able to attract and retain sufficient and appropriately-skilled people who have
the expertise (focus, commitment, and capability) to support the achievement of CTC’s strategic objectives. CTC’s
financial position, brand, and/or ability to achieve its strategic objectives may be negatively affected by its failure to
manage its people risk.
Risk management strategy:
The Company manages its people risk through its organizational design, employee recruitment programs, succession
planning, compensation structures, ongoing training, professional development programs, and performance
management. The Company also regularly seeks opportunities to recruit new talent.
Technology Innovation and Investment
CTC’s business is affected by the introduction of new technologies, which may positively or adversely impact CTC’s
products, channels, and services. While CTC’s investments in technology supports its ability to achieve its strategic
objectives, the lack of timely investment or innovation may negatively affect its financial position, brand, and/or ability
to achieve its strategic objectives.
Risk management strategy:
The Company supports its key strategic objectives through its investments in people, process, and technology to
meet operational and security requirements, and leverage technological advances in the marketplace.
The Company regularly monitors and analyzes the Company’s needs and technology performance to determine the
effectiveness of its investments and its investment priorities.
The Company maintains policies, processes, and procedures to address capabilities, performance, security, and
availability including resiliency and disaster recovery for systems, infrastructure, and data.
Key Business Relationships
CTC’s business model relies on certain significant business relationships. Such relationships include, but are not
limited to, relationships with its Dealers, agents, franchisees, and suppliers.
The scope, complexity, materiality, and/or criticality of these key business relationships can affect customer service,
procurement, product and service delivery, and expense management. Failure to effectively manage these
relationships may have a negative impact on CTC’s financial position, brand and/or ability to achieve its strategic
objectives.
Risk management strategy:
The Company regularly assesses the capabilities, strategic fit, and other realized benefits of key business
relationships in the context of supporting its strategies.
Governance structures, including policies, processes, contracts, service agreements, and other management
activities, are in place to maintain and strengthen the relationships that are critical to the success of the Company’s
performance and aligned with its overall strategic needs.
Page 59 of 145 A key relationship for the Company is with its Dealers. Management of the Canadian Tire Dealer relationship is led
by Officers of the Company with oversight by the CEO and Board of Directors.
Cyber
CTC relies on IT systems in all areas of operations. The Company’s information systems are subject to an increasing
number of sophisticated cyber threats. The methods used to obtain unauthorized access, disable or degrade service
or sabotage systems are constantly evolving. Should a cyber-attack be successful and a breach of sensitive
information occur or its systems and services be disrupted, CTC’s financial position, brand, and/or ability to achieve
its strategic objectives may be negatively affected.
Risk management strategy:
The Company maintains policies, processes, and procedures to address capabilities, performance, security, and
availability including resiliency and disaster recovery for systems, infrastructure, and data. Security protocols, along
with Corporate Information Security policies, address compliance with information security standards, including those
relating to information belonging to the Company’s customers and employees. The Company actively monitors,
manages, and continues to enhance its ability to mitigate cyber risk through its enterprise-wide programs.
Information
In the normal course of business, the Company collects and stores sensitive data, including personal information of
its customers and employees, information of its business partners and material internal information. The integrity,
reliability and security of information are critical to its business operations and strategy.
The lack of integrity and reliability of information for decision-making, loss or inappropriate disclosure or
misappropriation of sensitive information could negatively affect CTC’s financial position, brand, and/or ability to
achieve its strategic objectives.
Risk management strategy:
The Company has policies, processes, and controls designed to manage and safeguard the information of its
customers, employees, and material internal information throughout its lifecycle. The Company continues to enhance
its ability to mitigate information risk in conjunction with its cyber risk management activities.
Operations
CTC has complex and diverse operations across its business units and functional areas. Sources of Operations
risk include, but are not limited to, merchandising, supply chain, store networks, property management and
development, Financial Services, business disruptions, regulatory requirements, and reliance on technology.
Any significant loss of operating capabilities resulting from inadequate or failed internal processes or systems, human
interactions, or external events could negatively impact CTC’s financial position, brand, and/or ability to achieve its
strategic objectives could be negatively affected.
Risk management strategy:
The Officer in charge of each banner and corporate function is accountable for providing assurances that policies,
processes, and procedures are adequately designed and operating effectively to support the strategic and
performance objectives, availability of business services, and regulatory compliance of the banner that they operate
or support.
Financial
Macroeconomic conditions are highly cyclical, volatile and can have a material effect on the ability of the Company
to achieve strategic goals and aspirations. CTC must manage risks associated with:
• tight capital markets and/or high cost of capital;
• significant volatility in exchange rates; and
• significant volatility or change in interest rates.
Page 60 of 145 Failure to develop, implement, and execute effective strategies to manage these risks may result in insufficient capital
to absorb unexpected losses and/or decreases in margin and/or changes in asset value, negatively affecting CTC’s
financial position, brand, and/or ability to achieve its strategic objectives.
Risk management strategy:
The Company has a Board-approved Financial Risk Management policy in place that governs the management of
capital, funding, and other financial risks. The Treasurer and Chief Financial Officer (“CFO”) provide assurances
with respect to policy compliance.
In particular, the Company’s hedging activities, which are designed to mitigate the Company’s exposure to foreign
exchange rate volatility and sensitivity to adverse movements in interest rates and the equity markets, are governed
by this policy. Hedge transactions are executed with highly rated financial institutions and are monitored against
policy limits. Further details are discussed in section 12.2.
Financial Reporting
Public companies such as CTC are subject to risks relating to the restatement and reissue of financial statements,
which may be due to:
• failure to adhere to financial accounting and presentation standards and securities regulations relevant to financial
reporting;
• fraudulent activity and/or failure to maintain an effective system of internal controls; and/or
• inadequate explanation of a company’s operating performance, financial condition, and future prospects.
The realization of one or more of these risks may result in regulatory-related issues or may negatively impact CTC’s
financial position, brand and/or ability to achieve its strategic objectives.
Risk management strategy:
Internal controls, which include policies, processes and procedures, provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements and other disclosure documents. This
includes monitoring and responding to changing regulations and standards governing accounting and financial
presentation. Further details are set out in section 13.0.
Legal and Litigation
The Company is or may become subject to claims, disputes, and legal proceedings arising in the ordinary course of
business. The outcome of litigation cannot be predicted or guaranteed. Unfavourable rulings may have a material
adverse effect on CTC’s financial position, brand, and/or ability to achieve its strategic objectives.
Risk management strategy:
A formal Legal Risk Management Governance Framework addresses requirements for compliance with applicable
laws, regulations, and regulatory policies. The Legislative Compliance department provides compliance oversight
and guidance to the organization. A team of legal professionals assists employees to mitigate and manage risks
relating to claims or potential claims, disputes, and legal proceedings.
Credit
CTC’s credit risk, which may result if a customer or counterparty fails to meet its contractual obligations, arises
principally from operations of the Company’s credit card portfolio, CTC’s interaction with its Dealer network, and
financial instruments. Failure to effectively manage this risk may negatively impact CTC’s financial position, brand,
and/or ability to achieve its strategic objectives.
Risk management strategy:
Various Board-approved policies and processes are employed to manage and mitigate the Company’s credit risk
exposure and are monitored for compliance with policy limits.
Further information regarding the Company’s exposure to consumer lending risk is provided in section 7.4.3.
Page 61 of 145 12.2 Financial Risks
Financial Instrument Risk
The Company is exposed to a number of risks associated with financial instruments that have the potential to affect
its operating and financial performance. The Company’s primary financial instrument risk exposures relate to credit
card loans receivable and allowances for credit losses thereon and the value of the Company’s financial instruments
(including derivatives and investments) employed to manage exposure to foreign currency risk, interest rate risk,
and equity risk, all of which are subject to financial market volatility.
For further disclosure of the Company’s financial instruments, their classification, their impact on financial statements,
and determination of fair value refer to Note 32 of the consolidated financial statements.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity
is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both
normal and reasonably stressed conditions. The Company has a policy in place to manage its exposure to liquidity
risk.
For a comprehensive discussion of the Company’s liquidity risk, see Note 5 of the consolidated financial statements.
Foreign Currency Risk
The Company sources its merchandise globally. Approximately 40%, 51%, and 7% of the value of the inventory
purchased for the Canadian Tire, Mark’s, and SportChek banners, respectively, is sourced directly from vendors
outside North America, primarily denominated in U.S. dollars. The majority of Helly Hansen purchases are
denominated in U.S. Dollars and Euros. To mitigate the impact of fluctuating foreign exchange rates on the cost of
these purchases, the Company has an established foreign exchange risk management program that governs the
proportion of forecast U.S. Dollar purchases that must and can be hedged through the purchase of foreign exchange
contracts. The purpose of the program is to provide certainty with respect to a portion of the foreign exchange
component of future merchandise purchases.
As the Company has hedged a significant portion of the cost of its near-term U.S.-dollar-denominated forecast
purchases, a change in foreign currency rates will not impact that portion of the cost of those purchases. Even when
a change in rates is sustained, the Company’s program to hedge a proportion of forecast U.S. dollar purchases
continues. As hedges are placed at current foreign exchange rates for future U.S. dollar purchases, the impact of
a sustained change in rate will eventually be reflected in the cost of the Company's U.S. dollar purchases. The
hedging program has historically allowed the Company to defer the impact of sudden exchange rate movements on
margins and allow it time to develop strategies to mitigate the impact of a sustained change in foreign exchange
rates. Some vendors have an underlying exposure to U.S. currency fluctuations which may affect the price they
charge the Company for merchandise; the Company’s hedging program does not mitigate that risk. While the
Company may be able to pass on changes in foreign currency exchange rates through pricing, any decision to do
so would be subject to market conditions.
Interest Rate Risk
The Company may use interest rate derivatives to manage interest rate risk. The Company has a policy in place
whereby, on a consolidated basis, a minimum of 75 percent of its consolidated debt (short-term and long-term) should
be at fixed versus floating interest rates.
12.3 Credit Risks
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to
meet its contractual obligations. Credit risk primarily arises from the Company’s credit card customers, Dealer network,
and financial instruments held with bank or non-bank counterparties.
Page 62 of 145 Financial Instrument Counterparty Credit Risk
The Company has a Board-approved financial risk management policy in place to manage the various risks including
counterparty credit risk relating to cash balances, investment activity, and the use of financial derivatives. The
Company limits its exposure to counterparty credit risk by transacting only with highly-rated financial institutions and
other counterparties and by managing within specific limits for credit exposure and term to maturity. The Company’s
financial instrument portfolio is spread across financial institutions, provincial and federal governments, and, to a
lesser extent, corporate issuers that are dual rated and have a credit rating in the “A” category or better.
Consumer and Dealer Credit Risk
Accounts receivable are primarily from Dealers, franchisees and Helly Hansen’s wholesale customers. This is a large
and geographically-dispersed group whose receivables, individually, generally comprise less than one percent of
the total balance outstanding. Through the granting of credit cards to its customers, the Company assumes certain
risks with respect to the ability and willingness of its customers to repay debt. In addition, the Company may be
required to provide credit enhancement for individual Dealer’s borrowings in the form of standby letters of credit (the
“LCs”) or guarantees of third-party bank debt agreements, with respect to the financing programs available to the
Dealers.
The Company’s maximum exposure to credit risk, over and above amounts recognized in the Consolidated Balance
Sheets of the consolidated financial statements, include the following:
(C$ in millions)
Undrawn loan commitments
Guarantees
Total
$
$
2018
11,009.6 $
414.5
2017
9,768.7
431.4
11,424.1 $
10,200.1
Allowance for Credit Losses
A continuity of the Company’s allowance for impairment on loans receivable is as follows:
(C$ in millions)
Balance at December 30, 2017 per IAS 39
IFRS 9 adjustment
Balance at December 31, 2017 per IFRS 9
Increase (decrease) during the period
Write-offs
Recoveries
New loans originated
Transfers
to Stage 1
to Stage 2
to Stage 3
Net remeasurements
Balance at December 29, 2018
$
12-month
ECL
(Stage 1)
Lifetime
ECL - not
credit-
impaired
(Stage 2)
Lifetime
ECL -
credit-
impaired
(Stage 3)
$
— $
— $
— $
227.0
182.3
285.7
(11.9)
(25.6)
53.9
—
73.2
(32.5)
(28.2)
(28.5)
253.0 $
(50.6)
36.7
(26.8)
70.1
186.1 $
(352.9)
75.4
—
(22.6)
(4.2)
55.0
289.1
325.5 $
Total
111.0
584.0
695.0
(390.4)
75.4
53.9
—
—
—
—
330.7
764.6
Page 63 of 145 12.4 Legal and Regulatory Risks
The Company and certain of its subsidiaries are party to a number of legal proceedings. The Company believes
that each such proceeding constitutes a routine legal matter incidental to the business conducted by the Company.
The Company cannot determine the ultimate outcome of all the outstanding claims but believes that the ultimate
disposition of the proceedings will not have a material adverse effect on its consolidated earnings, cash flow, or
financial position.
Regulatory risk is the risk of negative impact to business activities, earnings or capital, regulatory relationships, or
reputation as a result of failure to comply with or failure to adapt to current and changing regulations or regulatory
expectations. The Company’s Legislative Compliance department is responsible for the development and
maintenance of a regulatory compliance management system. Specific activities that assist the Company in adhering
to regulatory standards include communication of regulatory requirements, advice, training, testing, monitoring,
reporting, and escalation of control deficiencies to Senior Management.
13.0 Internal Controls and Procedures
13.1 Disclosure Controls and Procedures
Management is responsible for establishing and maintaining a system of controls and procedures over the public
disclosure of financial and non-financial information regarding the Company. Such controls and procedures are
designed to provide reasonable assurance that all relevant information is gathered and reported, on a timely basis,
to Senior Management, including the CEO and the CFO, so that they can make appropriate decisions regarding
public disclosure.
The Company’s system of disclosure controls and procedures include, but is not limited to, its Disclosure Corporate
Operating Directive, its Code of Conduct, the effective functioning of its Disclosure Committee, procedures in place
to systematically identify matters warranting consideration of disclosure by the Disclosure Committee, verification
processes for individual financial and non-financial metrics, and information contained in annual and interim filings,
including the consolidated financial statements, MD&A, Annual Information Form, and other documents and external
communications.
As required by CSA National Instrument 52-109 (“NI 52-109”), Certification of Disclosure in Issuers’ Annual and
Interim Filings, an evaluation of the adequacy of the design (quarterly) and effective operation (annually) of the
Company’s disclosure controls and procedures was conducted under the supervision of Management, including the
CEO and the CFO, as at December 29, 2018. The evaluation included documentation review, enquiries and other
procedures considered by Management to be appropriate in the circumstances. Based on that evaluation, the CEO
and the CFO have concluded that the design and operation of the system of disclosure controls and procedures
were effective as at December 29, 2018.
13.2 Internal Control over Financial Reporting
Management is also responsible for establishing and maintaining appropriate internal control over financial reporting.
The Company’s internal control over financial reporting includes, but are not limited to, detailed policies and
procedures relating to financial accounting, reporting, and controls over systems that process and summarize
transactions. The Company’s procedures for financial reporting also include the active involvement of qualified
financial professionals, Senior Management and its Audit Committee.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial statement preparation
and presentation.
As also required by NI 52-109, Management, including the CEO and the CFO, evaluated the adequacy of the design
(quarterly) and the effective operation (annually) of the Company’s internal control over financial reporting as defined
in NI 52-109, as at December 29, 2018. In making this assessment, Management, including the CEO and the CFO,
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal
Control - Integrated Framework (2013). This evaluation included review of the documentation of controls, evaluation
Page 64 of 145 of the design and testing the operating effectiveness of controls, and a conclusion about this evaluation. Based on
that evaluation, the CEO and the CFO have concluded that the design and operation of the internal control over
financial reporting were effective as at December 29, 2018 in providing reasonable assurance regarding the reliability
of financial reporting and the preparation of consolidated financial statements for external purposes in accordance
with IFRS.
13.3 Changes in Internal Control over Financial Reporting
During the quarter and year ended December 29, 2018, there were no changes in the Company’s internal control
over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s
internal control over financial reporting, except as noted below.
In accordance with the provisions of NI 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings,
Management, including the CEO and the CFO, have limited the scope of their design of the Company’s disclosure
controls and procedures and internal control over financial reporting to exclude such controls, policies and procedures
of Helly Hansen.
CTC acquired the company which owns and operates the Helly Hansen brands and related businesses on July 3,
2018. Helly Hansen’s results since its acquisition by the Company until the end of the fourth quarter are included in
our Consolidated Statements of Income. Since the acquisition date, Helly Hansen generated revenue of $347.6
million and net income of $32.6 million; these measures as a percentage of the Company’s consolidated results
represent approximately 2 percent and 5 percent respectively. For the Consolidated Balance Sheets, Helly Hansen
constitutes 4 percent of total current assets, 8 percent of total assets, 4 percent of total current liabilities and 3 percent
of total liabilities as at December 29, 2018. Further details related to the acquisition of Helly Hansen are disclosed
in Section 8.4.2 of this MD&A and in Note 36 of the Company’s consolidated financial statements for the fourth
quarter and year ended December 29, 2018.
The scope limitation is primarily based on the time required to assess Helly Hansen’s disclosure controls and
procedures and internal control over financial reporting in a manner consistent with the Company’s other operations.
14.0 Environmental and Social Responsibility
14.1 Overview
CTC prides itself on being a trusted Canadian brand and an integral part of Canadian communities, with a strong
commitment to improving environmental and social outcomes for Canadians, our communities and our planet. Our
environmental and social strategy is aligned with and contributes to the United Nations Sustainable Development
Goals. Our initiatives are intended to deliver improved outcomes in the areas of Climate risk mitigation, Product and
Packaging, Sourcing, and Inclusion. We identify, measure, and report on environmental and social benefits that
result from these initiatives.
14.1.1 Climate Management conducted a formal risk assessment of top climate change-related risks and
opportunities for the Company, which was concluded in 2018. The results indicate that no climate-related risks are,
individually or in aggregate, material to the Company over the short to medium term and identified opportunities for
the Company. The management and mitigation of climate risk remains a high priority of the Company. CTC’s
Sustainability Steering Committee, comprising Senior Executives from across the Enterprise, has responsibility for
driving results from productivity initiatives that reduce the Company’s environmental footprint. The results of these
efforts are reported annually to CTC’s Audit Committee. The specific sustainability measures derived from CTC's
business sustainability strategy are reported in relation to three key segments of the business operations: (i) product
and packaging; (ii) transportation; and (iii) business and retail operations. The Company has developed aspirational
targets for changes in: (i) transportation; and (ii) business and retail operations, which were presented to CTC’s
Brand and Community Committee in February, 2018. Management is currently tracking progress against these
targets.
Page 65 of 145 14.1.2 Product The Company has a designated quality assurance team that works with the merchandising groups
to improve product quality to extend its life and processes to report and act on consumer feedback. CTC reduces
harmful chemicals in its products where appropriate alternatives exist, reduces the size and improves the sustainability
of packaging, and seeks to develop uses for the second life of tires and certain other products. CTC actively
participates in over 80 provincial product environmental stewardship programs that contribute to the safe disposal
and/or recycling of many products. Through its own initiatives and collaboration with other leading organizations, the
Company has committed to supporting Canada’s movement from a linear economy in which products are
manufactured, used and then disposed of as “waste”, to a circular economy in which products are designed and
manufactured so that they can be reused or recycled in a closed loop.
14.1.3 Sourcing CTC mitigates social compliance risk through a combination of ensuring all suppliers have signed
the Supplier Code as evidence of their agreement and periodic assessments of suppliers’ facilities against globally
recognized audit standards such as the Business Social Compliance Initiative audit standard. CTC reviews all factory
audit findings and, where circumstances warrant, works with suppliers on corrective action plans. Additionally, CTC
has made significant financial contribution to and actively participated in international business efforts to improve
factory safety in Bangladesh through the remediation of issues found during factory inspections, ongoing fire safety
training of factory workers and security guards, and the operation of a helpline to give workers a voice in identifying
safety issues to be resolved.
14.1.4 Inclusion CTC supports a variety of social causes, but the largest single beneficiary is Jumpstart Charities.
Jumpstart is an independent organization committed to assisting financially-challenged families in communities
across Canada by funding costs associated with children participating in organized sport and physical activity. In
2017, Jumpstart launched its “Play Finds a Way” movement, which focuses on funding efforts towards accessible
playgrounds, as well as accessible infrastructure and programming in communities across Canada. Additional
information regarding Jumpstart is available on their website at: http://jumpstart.canadiantire.ca.
14.2 Environmental Footprint
The following table presents the Company and its extended value-chain’s 2017 environmental footprint and the
percentage change relative to the 2011 baseline. The data collection and subsequent review for determining the
Company’s environmental footprint are rigorous processes that are completed after the close of the calendar-year.
As such, the Company’s most recent environmental footprint was for 2017. An independent third-party provided a
limited assurance review on the footprint data.
In 2018, the Company set new GHG emission reduction targets that demonstrate CTC’s commitment to reducing
carbon emissions, in line with Canadian and global goals. Our targets focus on impacts that we have the ability to
control or reasonably influence. We have invested in innovative ways to reduce our GHG emissions and improve
our productivity at the same time. We’re aiming to reduce emissions from our buildings by 22 percent by 2022, against
a 2011 baseline, and to keep emissions from transportation flat. The baseline year for our footprint is 2011 because
that is the earliest year for which reliable and complete footprint data is available.
CTC’s absolute emissions increased 5.8 percent in 2017 compared to 2016. The primary reason was an increase
in the Company’s footprint in the area of raw material acquisition and product manufacturing from our retail banners
due to increased volumes of product and sales of product within more energy intensive product categories. GHG
emissions also increased from third-party transport due to more product volume and weight shipped by all transport
modes. The Company has reduced its footprint from business and retail operations by 9.1 percent since 2011,
achieving 41.3 percent of the 2022 target and transportation has remained relatively flat.
Page 66 of 145 By segment of the value-chain and GHG Protocol category1
Product &
Packaging4
Scope 3 Purchased goods and services
(Canadian Tire, PartSource, Petroleum, Mark’s, SportChek)
Per $1,000 banner revenue
Scope 1 (Canadian Tire and PartSource)
Scope 3 Upstream Transportation and Distribution (Canadian Tire and
PartSource)
Scope 3 Business Air Travel (all banners)
Sub-total
Per 1,000 tonne-kilometres
Scope 1 & 2 (Corporate stores, offices and DCs)
Scope 3 Upstream Leased Assets (Leased offices and Distribution centres)
Scope 3 Downstream Leased Assets (Investment Properties)
Scope 3 Franchises (Dealer and franchise stores and CT Petroleum agents)
Scope 3 Fuel and Energy Related Activities (Electricity Transmission and
Distribution losses)
Sub-total
Per square metre
Scope 1 & 2
Scope 3
Total
Per $1,000 consolidated revenue
Transport5
Business &
Retail
Operations6
Total
GHG emissions
(tonnes carbon dioxide equivalents)
Change3
(B) / W
20112
2017
3,531,724
3,987,217
(11.4)%
0.29
17,730
307,032
4,620
329,382
0.03
77,562
14,988
3,310
131,082
15,126
242,068
0.39
95,291
4,007,883
4,103,174
305.41
0.39
(25.6)%
12,836
313,185
n/a
326,022
0.02
77,537
15,253
1,883
145,531
26,044
266,248
0.42
90,373
4,489,113
4,579,487
440.88
1.0 %
50.0 %
(9.1)%
(7.1)%
5.4%
(10.7)%
(10.4)%
(30.7)%
1 Produced in accordance with principles from the World Business Council on Sustainable Development and World Resource Institute Greenhouse Gas Protocol.
The 2011 baseline was restated to reflect changes in methodology and updates of previous calculations, as necessary. Mark’s and SportChek product transport,
customer use, and product end-of-life emissions for all banners are not currently measured due to data unavailability.
Scope 1 emissions are direct emissions from the combustion of on-site and mobile fuels that occur at, or are associated with, facilities and operations under the
Company’s operational control.
Scope 2 emissions are indirect emissions that occur off-site from the production of energy, such as electricity, which is purchased for use at facilities and operations
under the Company’s operational control.
Scope 3 emissions are other indirect emissions from sources upstream and downstream of the organization’s activities.
2 CTC tracks emission performance against a 2011 baseline as this is the first year for which complete footprint data is available.
3 Percentage change relative to baseline 2011 environmental footprint. A negative change indicates a reduction in energy use and/or GHG emissions which is an
improvement and indicated as Better (B), versus a positive change which indicates an increase in energy use and/or GHG emissions and is indicated as Worse
(W).
4 Values embedded in retail products received by DCs, depots, stores, agents, or customers’ homes and calculated as per a cradle-to-gate analysis which includes
raw material acquisition and processing, transport to manufacturing site, and manufacture of retail products or refining of fuels.
5 Values of product transportation from freight-on-board location to stores or from refining sites to gas bars. Restatement applied historically to reflect methodology
and emission factor changes from source.
6 Values from Corporate and third-party operated sites including offices, DCs and Corporate, Dealer, agent, and franchise retail stores.
For details on Canadian Tire Corporation’s sustainability strategy, environmental performance, and a 2017 Assurance
Statement please refer to our Business Sustainability Performance Reports on the Sustainability site at: https://
corp.canadiantire.ca/English/sustainability/performance-reports/default.aspx. For information on Canadian Tire
Corporation’s environmental and social initiatives and achievements please refer to our Sustainability Report at:
sustainability.canadiantirecorporation.ca.
14.3 2018 Sustainability Initiatives
The Company’s sustainability initiatives aim to enhance its productivity and reduce its environmental footprint relative
to its business growth and provide its customers with sustainable solutions for the “Jobs and Joys for Life in Canada”.
In 2018, new economic benefits were realized through a number of sustainability initiatives. The Company continued
calculating economic benefits that have been realized since it started its sustainability program in 2011 (“2011
baseline”).
The initiatives were targeted at increasing sales of products that reduce energy use or waste, reducing fuel used to
transport products, and increasing energy efficiency in buildings. These initiatives resulted in environmental benefits
equivalent to eliminating the waste generation of over 35,000 Canadian homes and the energy required to power
approximately 5,400 Canadian homes for a year.
Page 67 of 145 The following table summarizes the net new economic benefits to the Company, its Dealers and franchisees and
the net new environmental benefits realized in 2018 from the Company’s sustainability initiatives. It also depicts the
lifetime economic benefit of sustainability initiatives realized since 2011.
2018
Economic
Benefit1
Energy
Use
Avoidance2
Low-
Carbon
Energy
Generation3
Waste
Avoidance2 Waste Diversion4
Lifetime
Economic
Benefit5
Greenhouse
Gas
Emissions
Avoidance2
(tonnes
CO2e)
(GJ)
(GJ)
($M)
396,459
36,421
$ 62.20
2.73
$
($C in millions, except
where indicated)
Product and Packaging6
Product Transport7
Business and Retail
Operations8
Total
1 Economic benefit refers to cost avoidance (e.g. energy costs) and income earned (e.g. from the sale of recyclable materials) associated with sustainability initiatives.
2 Avoidance refers to savings in comparison to the baseline scenario, where the baseline scenario is defined as “what would have most likely occurred in the absence
of the sustainability initiative”. Improvements are related to the specific initiatives reported and do not represent total improvements to the value-chain segment.
3 Refers to energy generated from on-site solar installations. To be considered “low-carbon”, the Greenhouse Gas (GHG) emissions associated with the energy
generated must be lower than traditional means of power generation. This energy is fed into the Ontario electrical grid for general consumption in the province.
78% $
66.55
78% $ 374.36
$ 293.76
14.05
$
$ 14.71
$ 79.64
109,341
542,221
25,106
25,106
1,616
23,707
50,658
50,658
5,209
22,095
22,075
16
14,737
2,149
(tonnes)
(tonnes)
—
—
—
—
($M)
(%)
4 Materials diverted from landfill through reuse, recycling, or composting.
5 Economic benefit to the Company, its Dealers and franchisees realized since our baseline year of 2011 for the entire useful life of the initiative (e.g. in-store lighting
upgrades completed in our baseline year of 2011 will continue to reap benefits every year for the expected lifetime of the asset). Each initiative has a unique useful
life ranging from one to 25 years.
6 Realized reductions in energy use resulting from the transportation of optimized product and packaging, realized reductions in customer energy use resulting from
the sale of energy efficient products, and waste reductions stemming from reduced packaging, damages, and product waste at end-of-life.
7 Realized reductions in energy use from increased fuel efficiency in transportation modes and vehicles (e.g. use of long-combination vehicles).
8 Realized reductions in energy use in buildings and their operations through energy efficiency initiatives (e.g. new construction, retrofits), renewable energy generated
from rooftop solar installations, and percentage of waste diverted from landfill as a result of waste management initiatives at stores and DCs.
15.0 Forward-Looking Statements and Other Investor Communication
Caution Regarding Forward-looking Statements
This document contains forward-looking statements that reflect Management’s current expectations relating to
matters such as future financial performance and operating results of the Company. Specific forward-looking
statements included or incorporated by reference in this document include, but are not limited to, statements with
respect to:
• the Company’s financial aspirations for fiscal years 2018 to 2020 in section 5.1;
• the 2018 key initiatives in section 5.2;
• the 2019 key initiatives in section 6.0;
• capital expenditures in subsection 8.4.1;
• contractual obligations, guarantees, and commitments in subsection 8.5.1;
• the Company’s intention with respect to the purchase of its Class A Non-Voting Shares in section 9.1;
• tax matters in section 10.0;
• changes in accounting estimates in subsection 11.1.1; and
• changes in accounting policies in section 11.2.
Forward-looking statements provide information about Management’s current expectations and plans, and allow
investors and others to better understand the Company’s anticipated financial position, results of operations and
operating environment. Readers are cautioned that such information may not be appropriate for other purposes.
Certain statements other than statements of historical facts included in this document may constitute forward-looking
statements, including, but not limited to, statements concerning Management’s current expectations relating to
possible or assumed future prospects and results, the Company’s strategic goals and priorities, its actions and the
results of those actions and the economic and business outlook for the Company. Often, but not always, forward-
looking statements can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “intend”,
Page 68 of 145 “believe”, “estimate”, “plan”, “can”, “could”, “should”, “would”, “outlook”, “forecast”, “anticipate”, “aspire”, “foresee”,
“continue”, “ongoing” or the negative of these terms or variations of them or similar terminology. Forward-looking
statements are based on the reasonable assumptions, estimates, analyses, beliefs and opinions of Management,
made in light of its experience and perception of trends, current conditions and expected developments, as well as
other factors that Management believes to be relevant and reasonable at the date that such statements are made.
By their very nature, forward-looking statements require Management to make assumptions and are subject to
inherent risks and uncertainties, which give rise to the possibility that the Company’s assumptions, estimates,
analyses, beliefs and opinions may not be correct and that the Company’s expectations and plans will not be achieved.
Examples of material assumptions and Management’s beliefs, which may prove to be incorrect, include, but are not
limited to, the effectiveness of certain performance measures, current and future competitive conditions and the
Company’s position in the competitive environment, the Company’s core capabilities, and expectations around the
availability of sufficient liquidity to meet the Company’s contractual obligations. Although the Company believes that
the forward-looking information in this document is based on information, assumptions and beliefs that are current,
reasonable, and complete, such information is necessarily subject to a number of factors that could cause actual
results to differ materially from Management’s expectations and plans as set forth in such forward-looking statements.
Some of the factors, many of which are beyond the Company’s control and the effects of which can be difficult to
predict, include: (a) credit, market, currency, operational, liquidity and funding risks, including changes in economic
conditions, interest rates or tax rates; (b) the ability of the Company to attract and retain high-quality employees for
all of its businesses, Dealers, Canadian Tire Petroleum retailers, and Mark’s and SportChek franchisees, as well as
the Company’s financial arrangements with such parties; (c) the growth of certain business categories and market
segments and the willingness of customers to shop at its stores or acquire the Company’s consumer brands or its
financial products and services; (d) the Company’s margins and sales and those of its competitors; (e) the changing
consumer preferences and expectations related to eCommerce, online retailing and the introduction of new
technologies; (f) the possible effects on our business from international conflicts, political conditions, and
developments including changes relating to or affecting economic or trade matters; (g) risks and uncertainties relating
to information management, technology, cyber threats, property management and development, environmental
liabilities, supply chain management, product safety, changes in law, regulation, competition, seasonality, weather
patterns, climate change, commodity prices and business disruption, the Company’s relationships with suppliers,
manufacturers, partners and other third parties, changes to existing accounting pronouncements, the risk of damage
to the reputation of brands promoted by the Company and the cost of store network expansion and retrofits; (h) the
Company’s capital structure, funding strategy, cost management program, and share price and (i) the Company’s
ability to obtain all necessary regulatory approvals. Management cautions that the foregoing list of important factors
and assumptions is not exhaustive and other factors could also adversely affect the Company’s results. Investors
and other readers are urged to consider the foregoing risks, uncertainties, factors and assumptions carefully in
evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking
statements.
For more information on the risks, uncertainties and assumptions that could cause the Company’s actual results to
differ from current expectations, please refer to section 5.1 (Three-Year (2018 to 2020) Financial Aspirations) and
all subsections thereunder and section 12.0 (Risks and Risk Management) of this MD&A. Please also refer to section
2.8 (Risk Factors) of the Company’s Annual Information Form for fiscal 2018, as well as the Company’s other public
filings, available on the SEDAR (System for Electronic Document Analysis and Retrieval) website at www.sedar.com
and at https://investors.canadiantire.ca.
The forward-looking information contained herein is based on certain factors and assumptions as of the date hereof
and does not take into account the effect that transactions or non-recurring or other special items announced or
occurring after the statements are made have on the Company’s business. The Company does not undertake to
update any forward-looking statements, whether written or oral, that may be made from time to time by it or on its
behalf, to reflect new information, future events or otherwise, except as required by applicable securities laws.
Information contained in or otherwise accessible through the websites referenced in this MD&A does not form part
of this MD&A and is not incorporated by reference into this MD&A. All references to such websites are inactive
textual references and are for information only.
Page 69 of 145 This document contains trade names, trademarks and service marks of CTC and other organizations, all of which
are the property of their respective owners. Solely for convenience, the trade names, trademarks and service marks
referred to herein appear without the ® or ™ symbol.
Commitment to Disclosure and Investor Communication
The Company strives to maintain a high standard of disclosure and investor communication and has been recognized
as a leader in financial reporting practices. Reflecting the Company’s commitment to full and transparent disclosure,
the Investor Relations section of the Company’s website at: https://investors.canadiantire.ca, includes the following
documents and information of interest to investors:
• Report to shareholders;
• the Annual Information Form;
• the Management Information Circular;
• quarterly reports;
• quarterly fact sheets and other supplementary information;
• reference materials on the Company’s reporting changes; and
• conference call webcasts (archived for one year).
The Company’s Report to shareholders, Annual Information Form, Management Information Circular and quarterly
reports are also available at www.sedar.com.
If you would like to contact the Investor Relations department directly, call Lisa Greatrix, Senior Vice President,
Finance and Investor Relations at (416) 480-8725 or email investor.relations@cantire.com.
16.0 Related Parties
The Company’s majority shareholder is Martha Billes, who beneficially owns, or controls or directs approximately
61.4 percent of the Common Shares of the Company through two privately held companies, Tire ‘N’ Me Pty. Ltd. and
Albikin Management Inc.
Transactions with members of the Company’s Board of Directors who were also Dealers represented less than one
percent of the Company’s total revenue and were in accordance with established Company policy applicable to all
Dealers. Other transactions with related parties, as defined by IFRS, were not significant during the year.
February 13, 2019
Page 70 of 145 Index to the Consolidated Financial Statements and Notes
MANAGEMENT’S RESPONSIBILITY FOR
Note 13. Property and Equipment
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Equity
Note 1.
The Company and its Operations
Note 2.
Basis of Preparation
Note 3.
Significant Accounting Policies
Note 4. Capital Management
Note 5.
Financial Risk Management
Note 6. Operating Segments
Note 7. Cash and Cash Equivalents
Note 8.
Trade and Other Receivables
Note 9.
Loans Receivable
Note 10. Long-Term Receivables and Other Assets
Note 11. Goodwill and Intangible Assets
Note 12.
Investment Property
72
73
75
76
77
78
79
80
80
88
102
104
107
109
110
110
113
113
115
Note 14. Subsidiaries
Note 15.
Income Taxes
Note 16. Deposits
Note 17. Trade and Other Payables
Note 18. Provisions
Note 19. Contingencies
Note 20. Short-Term Borrowings
Note 21. Loans Payable
Note 22. Long-Term Debt
Note 23. Other Long-Term Liabilities
Note 24. Employment Benefits
Note 25. Share Capital
Note 26. Share-Based Payments
Note 27. Revenue
Note 28. Cost of Producing Revenue
Note 29. Selling, General and Administrative Expenses
Note 30. Net Finance Costs
116
117
119
121
121
122
122
122
123
123
125
126
127
129
131
131
132
132
Note 31. Notes to the Consolidated Statements of Cash Flows 133
Note 32. Financial Instruments
Note 33. Operating Leases
Note 34. Guarantees and Commitments
Note 35. Related Parties
Note 36. Business Combinations
134
137
138
140
140
Page 71 of 145 Management’s Responsibility for Financial Statements
The Management of Canadian Tire Corporation, Limited (the "Company") is responsible for the integrity and reliability
of the accompanying consolidated financial statements. These consolidated financial statements have been
prepared by Management in accordance with International Financial Reporting Standards and include amounts
based on judgments and estimates. All financial information in our Management's Discussion and Analysis is
consistent with these consolidated financial statements.
Management is responsible for establishing and maintaining adequate systems of internal control over financial
reporting. These systems are designed to provide reasonable assurance that the financial records are reliable and
form a proper basis for the timely and accurate preparation of financial statements. Management has assessed
the effectiveness of the Company’s internal controls over financial reporting based on the framework in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and concluded that the Company's internal controls over financial reporting were effective as
at the date of these consolidated statements.
The Board of Directors oversees Management’s responsibilities for the consolidated financial statements primarily
through the activities of its Audit Committee, which is comprised solely of directors who are neither officers nor
employees of the Company. This Committee meets with Management and the Company’s independent auditors,
Deloitte LLP, to review the consolidated financial statements and recommend approval by the Board of Directors.
The Audit Committee is responsible for making recommendations to the Board of Directors with respect to the
appointment of and, subject to the approval of the shareholders authorizing the Board of Directors to do so, approving
the remuneration and terms of engagement of the Company’s auditors. The Audit Committee also meets with the
auditors, without the presence of Management, to discuss the results of their audit.
The consolidated financial statements have been audited by Deloitte LLP, in accordance with Canadian generally
accepted auditing standards. Their report is presented on the following page.
Stephen G. Wetmore
President and
Chief Executive Officer
February 13, 2019
Dean McCann
Executive Vice-President
and Chief Financial Officer
Page 72 of 145 Independent Auditor’s Report
To the Shareholders of Canadian Tire Corporation, Limited
Opinion
We have audited the consolidated financial statements of Canadian Tire Corporation, Limited (the “Company”) and
its subsidiaries, which comprise the consolidated balance sheets as at December 29, 2018 and December 30, 2017,
and the consolidated statements of income, consolidated statements of comprehensive income, consolidated
statements of cash flows and consolidated statements of changes in equity for the years ended December 29, 2018
and December 30, 2017, and notes to the consolidated financial statements, including a summary of significant
accounting policies (collectively referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position
of the Company as at December 29, 2018 and December 30, 2017, and its financial performance and cash flows
for the year then ended in accordance with International Financial Reporting Standards (IFRS).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”).
Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the
Financial Statements section of our report. We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our opinion.
Other Information
Management is responsible for the other information. The other information comprises Management’s Discussion
and Analysis.
Our opinion on the financial statements does not cover the other information and we do not and will not express any
form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is
to read the other information identified above and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work
we have performed on this other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with
IFRS, and for such internal control as management determines is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis
of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud
Page 73 of 145 Independent Auditor’s Report
or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance
with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit.
We also:
•
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that
may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures
in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However, future events or
conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures,
and whether the financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Company to express an opinion on the financial statements. We are responsible for the
direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing
of the audit and significant audit findings, including any significant deficiencies in internal control that we identify
during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Keith Michael Pennells.
Chartered Professional Accountants
Licensed Public Accountants
February 13, 2019
Toronto, Ontario
Page 74 of 145 Consolidated Balance Sheets
As at
(C$ in millions)
ASSETS
Cash and cash equivalents (Note 7)
Short-term investments
Trade and other receivables (Note 8)
Loans receivable (Note 9)
Merchandise inventories
Income taxes recoverable
Prepaid expenses and deposits
Assets classified as held for sale
Total current assets
Long-term receivables and other assets (Note 10)
Long-term investments
Goodwill and intangible assets (Note 11)
Investment property (Note 12)
Property and equipment (Note 13)
Deferred income taxes (Note 15)
Total assets
LIABILITIES
Deposits (Note 16)
Trade and other payables (Note 17)
Provisions (Note 18)
Short-term borrowings (Note 20)
Loans payable (Note 21)
Income taxes payable
Current portion of long-term debt (Note 22)
Total current liabilities
Long-term provisions (Note 18)
Long-term debt (Note 22)
Long-term deposits (Note 16)
Deferred income taxes (Note 15)
Other long-term liabilities (Note 23)
Total liabilities
EQUITY
Share capital (Note 25)
Contributed surplus
Accumulated other comprehensive income (loss)
Retained earnings
Equity attributable to shareholders of Canadian Tire Corporation
Non-controlling interests (Note 14)
Total equity
Total liabilities and equity
1 Certain prior period figures have been restated due to the adoption of new accounting standards (refer to Note 2).
$
The related notes form an integral part of these consolidated financial statements.
Maureen J. Sabia
Director
Diana L. Chant
Director
December 29, 2018 December 30, 20171
$
$
470.4 $
183.7
933.3
5,511.3
1,997.5
15.3
138.8
5.5
9,255.8
742.6
152.7
2,272.0
364.7
4,283.2
215.8
17,286.8 $
964.5
2,425.0
171.8
378.1
654.6
110.6
553.6
5,258.2
49.8
4,000.3
1,506.7
184.5
872.3
11,871.8
591.5
2.9
51.1
3,720.7
4,366.2
1,048.8
5,415.0
17,286.8 $
437.0
132.5
681.1
5,613.2
1,769.8
48.3
113.1
1.1
8,796.1
717.8
165.0
1,292.9
344.7
4,193.3
117.2
15,627.0
973.9
2,230.8
158.9
144.6
667.1
72.1
282.3
4,529.7
45.7
3,122.1
1,412.9
102.3
848.2
10,060.9
615.7
2.9
(37.5)
4,161.7
4,742.8
823.3
5,566.1
15,627.0
Page 75 of 145
Consolidated Statements of Income
For the years ended
(C$ in millions, except share and per share amounts)
December 29, 2018 December 30, 20171
Revenue (Note 27)
Cost of producing revenue (Note 28)
Gross margin
Other (income) expense
Selling, general and administrative expenses (Note 29)
Net finance costs (Note 30)
Change in fair value of redeemable financial instrument (Note 32)
Income before income taxes
Income taxes (Note 15)
Net income
Net income attributable to:
Shareholders of Canadian Tire Corporation
Non-controlling interests (Note 14)
Basic earnings per share
Diluted earnings per share
$
14,058.7 $
9,347.4
4,711.3
(26.0)
3,467.6
151.5
50.0
1,068.2
285.2
783.0 $
692.1 $
90.9
783.0 $
10.67 $
10.64 $
$
$
$
$
$
13,276.7
8,796.5
4,480.2
0.2
3,254.9
112.6
—
1,112.5
293.7
818.8
735.0
83.8
818.8
10.70
10.67
Weighted average number of Common and Class A Non-Voting Shares
outstanding:
Basic
Diluted
1 Certain prior period figures have been restated due to the adoption of new accounting standards (refer to Note 2).
The related notes form an integral part of these consolidated financial statements.
64,887,724
65,062,581
68,678,840
68,871,847
Page 76 of 145 Consolidated Statements of Comprehensive Income
For the years ended
(C$ in millions)
Net income
December 29, 2018 December 30, 2017
$
783.0 $
818.8
Other comprehensive income (loss), net of taxes
Items that may be reclassified subsequently to net income:
(Losses) on cash flow hedges and available-for-sale financial assets
Net fair value (losses) on hedging instruments entered into for cash flow
hedges not subject to basis adjustment
Deferred cost of hedging not subject to basis adjustment - Changes in fair
value of the time value of an option in relation to time-period related hedged
items
Reclassification of losses to non-financial assets
Reclassification of losses (gains) to income
Currency translation adjustment
Items that will not be reclassified subsequently to net income:
Actuarial gains (losses)
Net fair value gains on hedging instruments entered into for cash flow hedges
subject to basis adjustment
Other comprehensive income (loss)
Other comprehensive income (loss) attributable to:
Shareholders of Canadian Tire Corporation
Non-controlling interests
Comprehensive income
Comprehensive income attributable to:
Shareholders of Canadian Tire Corporation
Non-controlling interests
$
$
$
$
$
$
The related notes form an integral part of these consolidated financial statements.
—
(6.4)
(7.5)
—
3.7
(40.9)
10.8
141.8
101.5 $
103.0 $
(1.5)
101.5 $
884.5 $
795.1 $
89.4
884.5 $
(85.7)
—
—
19.1
(5.7)
—
(6.2)
—
(78.5)
(80.3)
1.8
(78.5)
740.3
654.7
85.6
740.3
Page 77 of 145 Consolidated Statements of Cash Flows
For the years ended
(C$ in millions)
Cash (used for) generated from:
Operating activities
Net income
Adjustments for:
December 29, 2018
December 30, 2017
$
783.0 $
818.8
Depreciation of property and equipment and investment property (Notes 28 and 29)
Income tax expense
Net finance costs (Note 30)
Amortization of intangible assets (Note 29)
(Gain) loss on disposal of property and equipment and investment property
Change in fair value of redeemable financial instrument (Note 32)
Interest paid
Interest received
Income taxes paid
Other
Total except as noted below
Change in operating working capital and other (Note 31)
Change in loans receivable
Cash generated from operating activities
Investing activities
Additions to property and equipment and investment property
Additions to intangible assets
Total additions
Acquisition of short-term investments
Proceeds from maturity and disposition of short-term investments
Acquisition of long-term investments
Proceeds on disposition of property and equipment and investment property
Business combinations, net of cash acquired (Note 36)
Other
Cash (used for) investing activities
Financing activities
Dividends paid
Distributions paid to non-controlling interests
Total dividends and distributions paid
Net issuance (repayment) of short-term borrowings
Issuance of loans payable
Repayment of loans payable
Issuance of long-term debt (Note 22)
Repayment of long-term debt and finance lease liabilities (Note 22)
Payment of transaction costs related to long-term debt
Repurchase of share capital
Proceeds on disposal of partial interest in CT REIT (Note 14)
Net proceeds from issue of trust units to non-controlling interests (Note 14)
Payments on financial instruments
Change in deposits
Cash generated (used for) from financing activities
Cash generated (used) in the period
Cash and cash equivalents, net of bank indebtedness, beginning of period
Cash and cash equivalents, net of bank indebtedness, end of period (Note 7)
$
The related notes form an integral part of these consolidated financial statements.
301.4
285.2
151.5
126.6
(23.4)
50.0
(148.5)
10.1
(204.4)
12.0
1,343.5
(44.6)
(491.5)
807.4
(416.8)
(129.5)
(546.3)
(203.8)
208.3
(44.0)
28.9
(762.9)
11.2
(1,308.6)
(222.3)
(36.1)
(258.4)
(71.3)
225.9
(238.5)
1,434.0
(287.5)
(5.5)
(582.4)
191.8
62.3
(16.4)
80.6
534.6
33.4
437.0
470.4 $
335.0
293.7
112.6
133.7
0.4
—
(125.9)
8.7
(294.3)
13.5
1,296.2
107.0
(430.4)
972.8
(471.0)
(161.6)
(632.6)
(421.9)
452.6
(35.0)
13.6
(19.3)
2.7
(639.9)
(169.7)
(61.1)
(230.8)
(54.8)
140.9
(173.9)
741.0
(671.2)
(4.2)
(659.3)
—
—
(8.9)
201.5
(719.7)
(386.8)
823.8
437.0
Page 78 of 145
Consolidated Statements of Changes in Equity
(C$ in millions)
Share
capital
Contributed
surplus
Cashflow
hedges1
Currency
translation
adjustment
Total
accumulated
other
comprehensive
income (loss)
Retained
earnings
Equity
attributable to
shareholders
of Canadian
Tire
Corporation
Equity
attributable
to non-
controlling
interests
Total
equity
December 30, 2017, as previously reported
$ 615.7 $
2.9 $
(37.5) $
— $
(37.5) $ 4,169.3 $
4,750.4 $
823.3 $ 5,573.7
Total accumulated other comprehensive
income (loss)
Transition adjustments - IFRS 15 (Note 2)
Restated balance at December 30, 2017
Transition adjustments - IFRS 2 & 9
Restated balance at December 31, 2017
Net income
Other comprehensive income
Total comprehensive income
Transfers of cash flow hedge (gains) to non-financial
assets
—
615.7
—
615.7
—
—
—
—
Contributions and distributions to shareholders of
Canadian Tire Corporation
Issuance of Class A Non-Voting Shares (Note 25)
Repurchase of Class A Non-Voting Shares (Note 25)
Excess of purchase price over average cost (Note 25)
11.9
(588.9)
552.8
Dividends
Contributions and distributions to non-controlling
interests
Sale of ownership interests in the CT REIT business,
net of transaction costs (Note 14)
Issuance of trust units to non-controlling interests, net
of transaction costs
Distributions and dividends to non-controlling interests
Total contributions and distributions
—
—
—
—
(24.2)
$ 591.5 $
—
2.9
—
2.9
—
—
—
—
—
—
—
—
—
—
—
—
—
(37.5)
(0.8)
(38.3)
—
133.5
133.5
(3.2)
—
—
—
—
—
—
—
(3.2)
—
—
—
—
—
(40.9)
(40.9)
—
—
—
—
—
—
—
—
—
—
(7.6)
(7.6)
—
(7.6)
(37.5)
4,161.7
4,742.8
823.3
5,566.1
(0.8)
(351.1)
(351.9)
(81.9)
(433.8)
(38.3)
3,810.6
4,390.9
741.4
5,132.3
—
692.1
92.6
92.6
(3.2)
—
—
—
—
—
—
—
10.4
702.5
—
—
—
(552.8)
(239.6)
—
—
—
692.1
103.0
795.1
(3.2)
11.9
(588.9)
—
(239.6)
—
—
—
(3.2)
(792.4)
(819.8)
90.9
783.0
(1.5)
101.5
89.4
884.5
—
—
—
—
—
(3.2)
11.9
(588.9)
—
(239.6)
191.8
191.8
65.8
(39.6)
218.0
65.8
(39.6)
(601.8)
1,048.8 $ 5,415.0
Balance at December 29, 2018
1 The December 30, 2017 opening cashflow hedges balance includes $0.8 million relating to fair value changes of available-for-sale financial instruments and are included in the IFRS 9 transition adjustments.
51.1 $ 3,720.7 $
4,366.2 $
(40.9) $
92.0 $
2.9 $
(C$ in millions)
Share
capital
Contributed
surplus
Cashflow
hedges2
Currency
translation
adjustment
Total
accumulated
other
comprehensive
income (loss)
Retained
earnings
Equity
attributable to
shareholders
of Canadian
Tire
Corporation
Equity
attributable
to non-
controlling
interests
Total
equity
December 31, 2016, as previously reported
$ 648.1 $
2.9 $
36.7 $
— $
36.7 $ 4,250.9 $
4,938.6 $
798.7 $ 5,737.3
Total accumulated other comprehensive
income (loss)
Transition adjustments - IFRS 15 (Note 2)
Restated balance at December 31, 2016
Net income
Other comprehensive (loss)
Total comprehensive (loss) income
—
648.1
—
—
—
Contributions and distributions to shareholders of
Canadian Tire Corporation
Issuance of Class A Non-Voting Shares (Note 25)
Repurchase of Class A Non-Voting Shares (Note 25)
Excess of purchase price over average cost (Note 25)
9.4
(659.3)
617.5
Dividends
Contributions and distributions to non-controlling
interests
Issuance of trust units to non-controlling interests, net
of transaction costs
Distributions and dividends to non-controlling interests
Total contributions and distributions
—
—
—
(32.4)
$ 615.7 $
—
2.9
—
—
—
—
—
—
—
—
—
—
—
36.7
—
(74.2)
(74.2)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(7.6)
(7.6)
—
(7.6)
36.7
4,243.3
4,931.0
798.7
5,729.7
—
735.0
(74.2)
(6.1)
(74.2)
728.9
—
—
(617.5)
(193.0)
—
—
—
—
—
—
—
—
—
735.0
(80.3)
654.7
9.4
(659.3)
—
(193.0)
—
—
83.8
1.8
85.6
—
—
—
—
818.8
(78.5)
740.3
9.4
(659.3)
—
(193.0)
2.4
(63.4)
(61.0)
2.4
(63.4)
(903.9)
823.3 $ 5,566.1
Balance at December 30, 2017
2 The December 30, 2017 closing cashflow hedges balance included $0.8 million relating to fair value changes of available-for-sale financial instruments, under IAS 39.
(37.5) $ 4,161.7 $
(37.5) $
2.9 $
— $
4,742.8 $
(810.5)
(842.9)
The related notes form an integral part of these consolidated financial statements.
Page 79 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. The Company and its Operations
Canadian Tire Corporation, Limited is a Canadian public company primarily domiciled in Canada. Its registered
office is located at 2180 Yonge Street, Toronto, Ontario, M4P 2V8, Canada. It is listed on the Toronto Stock Exchange
(TSX – CTC, CTC.A). Canadian Tire Corporation, Limited and entities it controls are together referred to in these
consolidated financial statements as the “Company” or “Canadian Tire Corporation”. Refer to Note 14 for the
Company’s major subsidiaries.
The Company comprises three main business operations, which offer a range of retail goods and services, including
general merchandise, apparel, sporting goods, petroleum, Financial Services including a bank and real estate
operations. Details of the Company’s three reportable operating segments are provided in Note 6.
On July 3, 2018, the Company acquired Teodin Holdco AS, which owns and operates the Helly Hansen brands and
related businesses (“Helly Hansen”). The results from the operations of Helly Hansen are included in the Company’s
results from operations and financial position commencing July 3, 2018. For further information regarding the
Company’s acquisition of Helly Hansen, refer to Note 36.
This document contains trade names, trademarks and service marks of CTC and other organizations, all of which
are the property of their respective owners. Solely for convenience, the trade names, trademarks and service marks
referred to herein appear without the ® or TM symbol.
2. Basis of Preparation
Fiscal Year
The fiscal year of the Company consists of a 52 or 53-week period ending on the Saturday closest to December 31.
The fiscal years for the consolidated financial statements and notes presented for 2018 and 2017 are the 52-week
periods ended December 29, 2018 and December 30, 2017, respectively.
Statement of Compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) using the accounting policies described herein.
These consolidated financial statements were authorized for issuance by the Company’s Board of Directors on
February 13, 2019.
Basis of Presentation
These consolidated financial statements have been prepared on the historical cost basis, except for the following
items, which are measured at fair value:
• financial instruments at fair value through profit or loss (“FVTPL”);
• derivative financial instruments;
• available-for-sale financial assets (under IAS 39 - Financial Instruments: Recognition and Measurement (“IAS
39”), amortized cost under IFRS 9 - Financial Instruments (“IFRS 9”) in 2018);
• liabilities for share-based payment plans; and
• initial recognition of assets acquired and liabilities assumed in a business combination.
In addition, the post-employment defined benefit obligation is recorded at its discounted present value.
Functional and Presentation Currency
These consolidated financial statements are presented in Canadian dollars (“C$”), the Company’s functional currency.
Page 80 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Judgments and Estimates
The preparation of these consolidated financial statements in accordance with IFRS requires Management to make
judgments and estimates that affect:
• the application of accounting policies;
• the reported amounts of assets and liabilities;
• disclosures of contingent assets and liabilities; and
• the reported amounts of revenue and expenses during the reporting periods.
Actual results may differ from estimates made in these consolidated financial statements.
Judgments are made in the selection and assessment of the Company’s accounting policies. Estimates are used
mainly in determining the measurement of recognized transactions and balances. Estimates are based on historical
experience and other factors, including expectations of future events believed to be reasonable under the
circumstances. Judgments and estimates are often interrelated. The Company’s judgments and estimates are
continually re-evaluated to ensure they remain appropriate. Revisions to accounting estimates are recognized in
the period in which the estimates are revised and in future periods affected.
Following are the accounting policies that are subject to judgments and estimates that the Company believes could
have the most significant impact on the amounts recognized in these consolidated financial statements.
Impairment of Assets
Judgment - The Company uses judgment in determining the grouping of assets to identify its Cash Generating Units
(“CGUs”) for purposes of testing for impairment of property and equipment and goodwill and intangible assets. The
Company has determined that its Retail CGUs comprise individual stores or groups of stores. In testing for impairment,
goodwill acquired in a business combination is allocated to the CGUs that are expected to benefit from the synergies
of the business combination. In testing for impairment of intangibles with indefinite lives, these assets are allocated
to the CGUs to which they relate. Furthermore, on a quarterly basis, judgment has been used in determining whether
there has been an indication of impairment, which would require the completion of a quarterly impairment test, in
addition to the annual requirement.
Estimation - The Company’s estimate of a CGU’s or group of CGUs’ recoverable amount based on value in use
(“VIU”) involves estimating future cash flows before taxes. Future cash flows are estimated based on multi-year
extrapolation of the most recent historical actual results or budgets and a terminal value calculated by discounting
the final year in perpetuity. The growth rate applied to the terminal value is based on the Bank of Canada’s target
inflation rate or Management’s estimate of the growth rate specific to the individual item being tested. The future
cash flow estimates are then discounted to their present value using an appropriate discount rate that incorporates
a risk premium specific to each business. The Company’s determination of a CGU’s or group of CGUs’ recoverable
amount based on fair value less cost to sell (“FVLCS”) uses factors such as royalty rates or market rental rates for
comparable assets.
Fair Value Measurement of Redeemable Financial Instrument
Judgment - The Company uses judgment in determining the fair value measurement of the redeemable financial
instrument issued in conjunction with the sale of a 20 percent equity interest in the Company’s Financial Services
business. In calculating the fair value, judgment is used when determining the discount and growth rates applied to
the forecast earnings in the discounted cash flow valuation. Refer to Note 32 for further information regarding this
financial instrument.
Estimation - The inputs to determine the fair value are taken from observable markets where possible, but where
they are unavailable, assumptions are required in establishing fair value. The fair value of the redeemable financial
instrument is determined based on the Company’s best estimate of forecast normalized earnings attributable to the
Financial Services business, adjusted for any undistributed earnings.
Page 81 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Merchandise Inventories
Estimation - Merchandise inventories are carried at the lower of cost and net realizable value. The estimation of net
realizable value is based on the most reliable evidence available of the amount the merchandise inventories are
expected to realize. Additionally, estimation is required for inventory provisions due to shrinkage.
Income and Other Taxes
Judgment - In calculating current and deferred income and other taxes, the Company uses judgment when interpreting
the tax rules in jurisdictions where the Company operates. The Company also uses judgment in classifying
transactions and assessing probable outcomes of claimed deductions, which considers expectations of future
operating results, the timing and reversal of temporary differences and possible audits of income tax and other tax
filings by tax authorities.
Consolidation
Judgment - The Company uses judgment in determining the entities that it controls and accordingly consolidates.
An entity is controlled when the Company has power over an entity, exposure or rights to variable returns from its
involvement with the entity, and is able to use its power over the entity to affect its return from the entity. The Company
has power over an entity when it has existing rights that give it the current ability to direct the relevant activities,
which are the activities that significantly affect the investee’s returns. Since power comes from rights, power can
result from contractual arrangements. However, certain contractual arrangements contain rights that are designed
to protect the Company’s interest, without giving it power over the entity.
Loans Receivable
Estimation - The Company’s estimate of allowances on credit card loans receivable is based on an expected credit
loss (“ECL”) approach that employs an analysis of historical data, economic indicators and experience of delinquency
and default, to estimate the amount of loans that may default as a result of past or future events, with certain
adjustments for other relevant circumstances influencing the recoverability of these loans receivable. Impairment
of loans is assessed based on whether there has been a significant increase in credit risk since origination and
incorporation of forward-looking information in the measurement of expected credit losses. Default rates, loss rates
and the expected timing of future recoveries are periodically benchmarked against actual outcomes to ensure that
they remain appropriate. Future customer behaviour may be affected by a number of factors, including changes in
interest and unemployment rates and program design changes.
Post-Employment Benefits
Estimation - The accounting for the Company’s post-employment benefit plan requires the use of assumptions. The
accrued benefit liability is calculated using actuarial determined data and the Company’s best estimates of future
salary escalations, retirement ages of employees, employee turnover, mortality rates, market discount rates and
expected health and dental care costs.
Depreciation
Estimation - Effective in 2018, the Company changed its depreciation method to straight-line for all of its depreciable
assets that were previously depreciated using the declining balance method. The Company believes that the straight-
line method of depreciation better reflects the pattern of consumption of the economic benefits of the assets. In
accordance with IFRS, this is considered a change in accounting estimate and has been accounted for prospectively.
Estimated useful lives are as follows:
Asset Category
Buildings
Fixtures and equipment (including software intangible assets)
Leasehold improvements
Estimated Useful Lives
10 - 45 years
3 - 25 years
Shorter of term of lease or estimated useful life
Assets under finance lease
Shorter of term of lease or estimated useful life
Page 82 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Other
Other estimates include determining the useful lives and depreciation methods applied to investment property and
intangible assets for the purposes of depreciation and amortization; in accounting for and measuring items such as
deferred revenue, provisions and purchase price adjustments on business combinations; and in measuring certain
fair values, including those related to the valuation of business combinations, share-based payments and financial
instruments.
Standards, Amendments and Interpretations Issued and Adopted
Adoption of IFRS 9 - Financial Instruments: Classification and Measurement and Impairment
Effective in 2018, the Company adopted IFRS 9, issued in July 2014 and the related consequential amendments to
IFRS 7 - Financial Instruments: Disclosures. IFRS 9 introduces new requirements for 1) classification and
measurement of financial assets and financial liabilities, 2) impairment for financial assets and 3) general hedge
accounting, which represent a significant change from IAS 39.
IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value
through other comprehensive income (“FVTOCI”) and FVTPL. The classification of financial assets under IFRS 9
is generally based on the business model in which a financial asset is managed and its contractual cash flow
characteristics. The standard eliminates the previous IAS 39 categories of held to maturity, loans and receivables
and available for sale.
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ECL model. The ECL model applies to financial assets
measured at amortized cost. Under IFRS 9, credit losses are recognized earlier than under IAS 39. The adoption
of IFRS 9 has resulted in an increase in the Company's allowance for loans receivable. Refer to Note 9 for a
reconciliation of the previously reported impairment allowance under IAS 39 to the new impairment allowance under
IFRS 9.
The Company also early adopted amendments to IFRS 9, issued in October 2017, effective in 2018. The component
of the amendments relevant to the Company relates to clarifying the accounting for the modification of financial
liabilities and requires the entity to recognize any adjustments to the amortized cost of the financial liability arising
from a modification or exchange in profit or loss at the date of the modification or exchange regardless of whether
the changes are substantial. The Company previously modified the terms for two medium-term notes, which did not
result in the derecognition of the original notes. As a result of applying the amendments to IFRS 9, the carrying
amount of long-term debt increased, with the adjustment recognized in opening retained earnings. Refer to the IFRS
9 transitional adjustment section below.
Adoption of IFRS 9 - Financial Instruments: Transitional Adjustments
As permitted by the transitional provision of IFRS 9, the Company elected not to restate comparative figures. Any
adjustments to the carrying amount of financial assets and financial liabilities at the date of transition were recognized
in the opening retained earnings and Accumulated Other Comprehensive Income (“AOCI”) of the current period.
Accordingly, the information presented in these consolidated financial statements for the prior year does not reflect
the requirements of IFRS 9 and therefore is not comparable to the information presented in the current period under
IFRS 9. The following table summarizes the cumulative impact on previously reported balances:
Page 83 of 145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Amortized cost
6,240.4
(585.7)
5,654.7
Original
classification
under IAS 39
New
classification
under IFRS 9
IAS 39 carrying
amount December
30, 2017
IFRS 9 re-
measurements
IFRS 9 carrying
amount December
31, 2017
Amortized cost
$
437.0 $
— $
(C$ in millions)
Financial assets
Cash and cash equivalents
Short-term investments1
Short-term investments1
Trade and other receivables
Trade and other receivables -
derivatives
Trade and other receivables -
derivatives
Loans receivable2
Long-term receivables and other
assets
Long-term receivables and other
assets - derivatives
Long-term receivables and other
assets - derivatives
Long-term investments1
Total financial assets
Financial liabilities
Loans and
receivables
FVTPL
Amortized cost
Available for sale
Amortized cost
Loans and
receivables
FVTPL
Amortized cost
FVTPL
Fair value -
effective hedging
instruments
Fair value -
effective hedging
instruments
Loans and
receivables
Loans and
receivables
FVTPL
Amortized cost
FVTPL
Fair value -
effective hedging
instruments
Fair value -
effective hedging
instruments
Available for sale
Amortized cost
Deposits
Amortized cost
Amortized cost
Trade and other payables
Amortized cost
Amortized cost
Trade and other payables -
derivatives
Trade and other payables -
derivatives
FVTPL
FVTPL
Fair value -
effective hedging
instruments
Fair value -
effective hedging
instruments
Short-term borrowings
Amortized cost
Amortized cost
Loans payable
Debt3
Other long-term liabilities -
derivatives
Redeemable financial instrument
(recorded in other long-term
liabilities)
Total financial liabilities
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value -
effective hedging
instruments
Fair value -
effective hedging
instruments
FVTPL
FVTPL
45.6
86.9
657.9
19.4
3.8
—
(0.1)
—
—
—
437.0
45.6
86.8
657.9
19.4
3.8
$
$
44.5
27.5
18.6
165.0
7,746.6 $
2,386.8 $
1,780.8
14.2
60.7
144.6
667.1
3,404.4
3.6
517.0
—
—
—
(1.2)
(587.0) $
— $
—
—
—
—
—
5.1
—
—
44.5
27.5
18.6
163.8
7,159.6
2,386.8
1,780.8
14.2
60.7
144.6
667.1
3,409.5
3.6
517.0
$
8,979.2 $
5.1 $
8,984.3
Deferred income taxes
1 Short-term investments and long-term investments previously classified either as available-for-sale or FVTPL under IAS 39 are now classified as amortized cost
under IFRS 9. This adjustment relates to the reclassification of the cumulative gains/losses recorded in AOCI to the carrying amount of the investments to reflect
their amortized costs.
157.0 $
12.1 $
169.1
$
2 The ECL impairment model is applied to financial assets that are classified and measured at amortized cost under IFRS 9. This adjustment relates to the Company’s
impairment loss on loans receivable. The adjustment was recognized in opening retained earnings at December 31, 2017. Refer to Note 9 for further details
regarding the impairment loss on loans receivable measured in accordance with IFRS 9.
3 This adjustment relates to the Company’s previous modification of medium-term notes, which did not result in the derecognition of the original notes. The adjustment
was recognized in opening retained earnings as at December 31, 2017.
In addition, the adoption of IFRS 9 resulted in the reclassification of financial instruments as explained below:
Cash and cash equivalents, trade and other receivables, loans receivable and long-term receivables that were
classified as loans and receivables under IAS 39 are now classified as amortized cost, because their previous
category under IAS 39 was eliminated, with no change in the carrying amounts.
Page 84 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Short-term investments and long-term investments previously classified either as available-for-sale or FVTPL are
now classified as amortized cost because, at the date of initial application, the Company's business model is to hold
these investments to maturity to collect contractual cash flows and these cash flows consist solely of payments of
principal and interest on the principal amount outstanding. The change in classification resulted in an insignificant
change to the carrying amount of short-term and long-term investments.
There were no further changes to the classification of financial asset and liabilities as a result of the adoption of IFRS
9. Refer to Note 3 for the classification of financial instruments other than the above.
Adoption of IFRS 9 - Financial Instruments: Hedge Accounting
The new general hedge accounting requirements retain the three types of hedge accounting, which are cash flow
hedges, fair value hedges and hedges for net investments in foreign operations. However, greater flexibility has
been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of
instruments that qualify for hedging instruments and the types of risk components of non-financial items that are
eligible for hedge accounting. In addition, the effectiveness test has been replaced with the principle of an ‘economic
relationship’. Retrospective assessment of hedge effectiveness is no longer required. Enhanced annual disclosure
requirements about the Company’s risk management activities have also been introduced.
In accordance with IFRS 9’s transition provisions for hedge accounting, the Company has applied the IFRS 9 hedge
accounting requirements prospectively from the date of initial application without restatement of prior period
comparatives. The Company’s qualifying hedging relationships in place as at December 30, 2017 also qualified for
hedge accounting in accordance with IFRS 9 and were therefore regarded as continuing hedging relationships. As
the critical terms of the hedging instruments match those of their corresponding hedged items, all hedging relationships
continue to be effective under IFRS 9’s effectiveness assessment requirements. The Company has not designated
any hedging relationships under IFRS 9 that would not have met the qualifying hedge accounting criteria under IAS
39.
IFRS 9 also introduced the concept of costs of hedging. The fair value of an option consists of its intrinsic value and
its time value. Upon adoption of IFRS 9, the time value of an option can be excluded from the designation of a
financial instrument as the hedging instrument and accounted for as costs of hedging. During the year, the Company
entered into new derivative financial instruments that provide it with an option to enter into an interest rate swap as
part of the Company’s strategy to manage its interest rate exposure. The Company designates only the change in
fair value of the intrinsic value of the instrument as the hedging instrument. The time value of the option relates to
a time-period related hedged item. The change in time value is recognized in Other Comprehensive Income (“OCI”)
and is subsequently amortized on a systematic and rational basis over the period during which the hedge adjustment
for the option’s intrinsic value could affect profit or loss.
IFRS 9 requires hedging gains and losses to be included in the initial carrying amount of non-financial hedged items,
which is referred to as a basis adjustment. Although this is consistent with the Company’s existing practice, IFRS
9 states that such transfers are not a reclassification adjustment under IAS 1 - Presentation of Financial Statements
(“IAS 1”) and hence they do not affect other comprehensive income. Previously, hedging gains and losses subject
to basis adjustments were categorized as amounts that may be subsequently reclassified to net income in other
comprehensive income and the actual basis adjustments were presented as a reclassification adjustment in other
comprehensive income. Since the IFRS 9 hedge accounting requirements apply prospectively from December 31
2017, the comparative figures have not been restated. The current year fair value gain of $141.8 million on foreign
currency contracts subject to cash flow hedge accounting that will be subsequently basis adjusted onto the initial
carrying amount of non-financial hedged items (foreign currency denominated inventory purchases), has been
presented as amounts that will not be subsequently reclassified to net income. Furthermore, the current year basis
adjustment of $3.2 million has been presented as a direct transfer from equity to the initial carrying amount of the
hedged inventories, rather than being presented as a reclassification adjustment affecting other comprehensive
income.
Apart from this, the application of the IFRS 9 hedge accounting requirements has had no impact on the results and
financial position of the Company for current and prior years.
Page 85 of 145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Adoption of IFRS 15 - Revenue from Contracts with Customers (“IFRS 15”)
Effective in 2018, the Company adopted IFRS 15, issued in May 2014 and amended in September 2015 and April
2016. IFRS 15 outlines a single comprehensive model for entities to use in accounting for revenue arising from
contracts with customers, except for contracts that are within the scope of the standards on leases, insurance
contracts and financial instruments. In accordance with the transitional provisions in IFRS 15, the Company elected
to adopt the new standard using the retrospective approach. Accordingly, comparative figures have been restated.
IFRS 15 mainly impacts the accounting for the Company's loyalty programs. The costs of the loyalty program
previously presented within selling, general and administrative expenses are now presented as a reduction of revenue
and the related liabilities previously presented within provisions are now recorded within trade and other payables.
Under IFRS 15, expected loyalty rewards are reflected as a reduction in revenue when the Company sells merchandise
to Canadian Tire Associate Dealers (“Dealers”). Under the previous accounting guidance, the costs were recorded
when merchandise was sold by the Dealers. Therefore, there was a transitional adjustment relating to the timing
difference between when merchandise is sold to the Dealers and when the merchandise is ultimately sold to
customers.
The following tables summarize the impacts of adopting IFRS 15 on the Company's consolidated financial statements:
Consolidated Statement of Income
For the year ended
(C$ in millions)
Revenue
Gross margin
Selling, general and administrative expenses
Income before income taxes
December 30, 2017
As previously
reported
IFRS 15
Adjustments
As restated
$
13,434.9 $
(158.2) $
13,276.7
4,638.4
3,413.1
1,112.5
(158.2)
(158.2)
—
4,480.2
3,254.9
1,112.5
The impact of adopting IFRS 15 resulted in the restatements of the following Balance Sheet line items below. As the
impact is limited to these four line items, a 2016 restated balance sheet has not been provided.
Consolidated Balance Sheets
As at
(C$ in millions)
December 30, 2017
December 31, 2016
As
previously
reported
IFRS 15
Adjustments As restated
As
previously
reported
IFRS 15
Adjustments As restated
Deferred income taxes
$
114.4 $
2.8 $
117.2 $
82.3 $
2.8 $
Trade and other payables
Provisions
Retained earnings
2,100.3
279.0
4,169.3
130.5
(120.1)
(7.6)
2,230.8
158.9
4,161.7
1,859.3
250.8
4,250.9
109.3
(98.9)
(7.6)
85.1
1,968.6
151.9
4,243.3
Adoption of Amendments to IFRS 2 - Share-Based Payment (“IFRS 2”)
Effective in 2018, the Company adopted amendments to IFRS 2, as issued in June 2016. The component of the
amendments relevant to the Company relates to clarifying the accounting for the effects of vesting and non-vesting
conditions on the measurement of cash-settled share-based payments. The implementation of these amendments
did not have a significant impact on the Company. As required by the transitional provisions of IFRS 2, prior periods
have not been restated. The effect of applying the amendments has been recognized in the opening retained earnings
of the current period.
Page 86 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Standards, Amendments and Interpretations Issued but not yet Adopted
The following new standards, amendments and interpretations have been issued but are not effective for the fiscal
year ending December 29, 2018 and, accordingly, have not been applied in preparing these consolidated financial
statements.
Leases
In January 2016, the International Accounting Standards Board (“IASB”) issued IFRS 16 - Leases (“IFRS 16”), which
will replace IAS 17 - Leases (“IAS 17”) and related interpretations. IFRS 16 provides a single lessee accounting
model, requiring the recognition of assets and liabilities for all leases, unless the lease term is 12 months or less or
the underlying asset has a low value. IFRS 16 substantially carries forward the lessor accounting in IAS 17, with
the distinction between operating leases and finance leases being retained. IFRS 16 is expected to have a material
impact on the Company’s Consolidated Balance Sheets, with the addition of approximately $2.2 billion to $2.4 billion
of lease liabilities and $1.6 billion to $1.8 billion of right-of-use assets. Lease-related expenses previously recorded
in selling, general and administrative expenses, primarily as occupancy costs, will be recorded as depreciation on
the right-of-use assets and a finance charge from unwinding the discount on the lease liabilities. IFRS 16 will also
change the presentation of cash flows relating to leases in the Company’s Consolidated Statements of Cash Flows,
but does not cause a difference in the amount of cash transferred between the parties of a lease.
IFRS 16 will be applied for the 2019 annual fiscal period using the modified retrospective approach and the Company
will therefore not be restating comparative information. In addition, the Company has elected to use the following
practical expedients on adoption of IFRS 16:
•
•
•
•
•
the Company has not reassessed, under IFRS 16, contracts that were identified as leases under the previous
accounting standard (IAS 17);
the Company will use a single discount rate to a portfolio of leases with reasonably similar underlying
characteristics;
the Company has used the onerous lease provisions recognized as at December 29, 2018 as an alternative
to performing an impairment review on its right-of-use assets as at December 30, 2018. Where an onerous
lease provision was recorded on a lease, the right-of-use asset has been reduced by the onerous lease
provision recognized on December 29, 2018;
the Company has excluded the initial direct costs in the measurement of the right-of-use asset on transition;
and
the Company has used hindsight in determining the lease term where the lease contracts contain options
to extend or terminate the lease.
In determining the lease term, Management considers all factors that may create an economic incentive to exercise
a renewal option or termination option when determining the lease term under the new standard.
The Company has upgraded its accounting system and implemented processes and internal controls to enable the
application of IFRS 16 for 2019.
Annual Improvements 2015-2017
In December 2017, the IASB issued amendments to four standards, including IFRS 3 – Business Combinations,
IFRS 11 Joint Arrangements, IAS 12 – Income Taxes and IAS 23 – Borrowing Costs. These amendments will be
effective for annual periods beginning on or after January 1, 2019. The implementation of these amendments is not
expected to have a significant impact on the Company.
Post-Employment Benefits
In February 2018, the IASB issued Plan Amendment, Curtailment or Settlement (Amendments to IAS 19 - Employee
Benefits). When a change to a plan (an amendment, curtailment or settlement) takes place, IAS 19 requires a
company to remeasure its net defined benefit liability or asset. The amendments require a company to use the
updated assumptions from this remeasurement to determine current service cost and net interest for the remainder
of the reporting period after the change to the plan. In addition, amendments have been included to clarify the effect
of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling. The amendments
Page 87 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
will be effective to plan amendments, curtailments or settlements occurring on or after the beginning of the first annual
reporting period that begins on or after January 1, 2019. The implementation of these amendments is not expected
to have a significant impact on the Company.
Insurance Contracts
In May 2017, the IASB issued IFRS 17 - Insurance Contracts (“IFRS 17”), that replaces IFRS 4 - Insurance Contracts
and establishes a new model for recognizing insurance policy obligations, premium revenue and claims-related
expenses. IFRS 17 is effective for annual periods beginning on or after January 1, 2021; however, based on recent
IASB meetings, an upcoming amendment to IFRS 17 and a deferral of the transition date by one year is anticipated.
Early adoption is permitted. The Company is assessing the potential impact of this standard.
Definition of Material
In October 2018, the IASB issued amendments to IAS 1 - Presentation of Financial Statements and IAS 8 - Accounting
Policies, Changes in Accounting Estimates and Errors, clarifying the definition of material. Under the amended
definition, information is material if omitting, misstating or obscuring it could reasonably be expected to influence the
decisions that the primary users of general purpose financial statements make on the basis of those financial
statements, which provide financial information about a specific reporting entity. The amendments also clarify the
explanations accompanying the definition of material. The amendments are effective January 1, 2020 and are
required to be applied prospectively. Early application is permitted. The implementation of these amendments is
not expected to have a significant impact on the Company.
Definition of Business
In October 2018, the IASB issued amendments to IFRS 3 - Business Combinations. The amendments narrowed
and clarified the definition of a business. The amendments will help companies determine whether an acquisition
is a business or a group of assets. They also permit a simplified assessment of whether an acquired set of activities
and assets is a group of assets rather than a business. Distinguishing between a business and a group of assets
is important because an acquirer recognizes goodwill only when acquiring a business. The amendments apply to
transactions for which the acquisition date is on or after the beginning of the first annual reporting period beginning
on or after January 1, 2020. Earlier adoption is permitted. The implementation of these amendments is not expected
to have a significant impact on the Company.
3. Significant Accounting Policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated
financial statements, except as noted below and have been applied consistently throughout the Company.
Basis of Consolidation
These consolidated financial statements include the accounts of Canadian Tire Corporation and entities it controls.
An entity is controlled when the Company has the ability to direct the relevant activities of the entity, has exposure
or rights to variable returns from its involvement with the entity and is able to use its power over the entity to affect
its returns from the entity. Refer to Note 14.1 for details of the Company’s significant entities.
The results of certain subsidiaries that have different year ends have been included in these consolidated financial
statements for the 52-week periods ended December 29, 2018 and December 30, 2017. The year end of CTFS
Holdings Limited and its subsidiaries, Franchise Trust, CT Real Estate Investment Trust (“CT REIT”) and Helly Hansen
is December 31.
Income or loss and each component of OCI are attributed to the shareholders of the Company and to the non-
controlling interests. Total comprehensive income is attributed to the shareholders of the Company and to the non-
controlling interests even if this results in the non-controlling interests having a deficit balance on consolidation.
Page 88 of 145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Business Combinations
The Company applies the acquisition method in accounting for business combinations.
The Company measures goodwill as the difference between the fair value of the consideration transferred, including
the recognized amount of any non-controlling interests in the acquiree and the net recognized amount (fair value)
of the identifiable assets acquired and liabilities assumed, all measured as at the acquisition date.
Consideration transferred includes the fair value of the assets transferred (including cash), liabilities incurred by the
Company on behalf of the acquiree, the fair value of any contingent consideration and equity interests issued by the
Company.
Where a business combination is achieved in stages, previously held interests in the acquired entity are remeasured
to fair value at the acquisition date, which is the date control is obtained and the resulting gain or loss, if any, is
recognized in net income. Amounts arising from interests in the acquiree prior to the acquisition date that have
previously been recognized in OCI are reclassified to net income.
The fair values of property and equipment recognized as a result of a business combination is based on either the
cost approach or market approach, as applicable. The market value of property is the estimated amount for which
a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length
transaction after proper marketing wherein the parties each act knowledgeably and willingly. For the cost approach,
the current replacement cost or reproduction cost for each major asset is calculated.
The fair values of banners and trademarks acquired in a business combination are determined using an income
approach. The “relief from royalty” method has been applied to forecast revenue using an appropriate royalty rate.
This results in an estimate of the value of the intangible assets acquired by the Company.
The fair values of franchise agreements and other intangibles, such as customer relationships, are determined using
an income approach or multi-period excess earnings approach. This method is based on the discounted cash flows
expected to be derived from ownership of the assets. The present value of the cash flows represents the value of
the intangible asset. The fair value of off-market leases acquired in a business combination is determined based on
the present value of the difference between market rates and rates in the existing leases.
The fair values of inventories acquired in a business combination is determined based on the estimated selling price
in the ordinary course of business less the estimated costs of sale and a reasonable profit margin based on the effort
required to complete and sell the inventories.
Transaction costs that the Company incurs in connection with a business combination are expensed immediately.
Joint Arrangement
A joint arrangement is an arrangement in which two or more parties have joint control. Joint control is the contractually
agreed sharing of control whereby decisions about relevant activities require unanimous consent of the parties
sharing control. A joint arrangement is classified as a joint operation when the parties that have joint control have
rights to the assets and obligations for the liabilities related to the arrangement. The Company records its share of
a joint operation’s assets, liabilities, revenues and expenses.
Functional and Presentation Currency
Each of the Company’s foreign subsidiaries determines its own functional currency and items included in the
consolidated financial statements of each foreign subsidiary are measured using that functional currency. Assets
and liabilities of foreign operations having a functional currency other than the Canadian dollar are translated at the
rate of exchange prevailing at the reporting date and revenues and expenses at average rates during the period.
Gains or losses on translation are accumulated as a component of equity. On the disposal of a foreign operation,
or the loss of control, the component of AOCI relating to that foreign operation is reclassified to net income.
Page 89 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Foreign Currency Transactions and Balances
Transactions in foreign currencies are translated into the entity’s functional currency at rates in effect at the date of
the transaction. Monetary assets and liabilities in foreign currencies are translated into the entity’s functional currency
at the closing exchange rate at the balance sheet date. Non-monetary items that are measured in terms of historical
cost are translated into the entity’s functional currency at the exchange rate at the date of the original transaction.
Exchange gains or losses arising from translation are recorded in Other income or Cost of producing revenue as
applicable in the Consolidated Statements of Income.
Financial Instruments
As the Company has adopted IFRS 9 using the modified retrospective approach, the prior period results have not
been restated. The accounting policies applied from December 31, 2017 onwards are in compliance with IFRS 9.
The policies applied under the previous accounting standard (IAS 39) were applied in the accounting for the
comparative period results.
Recognition and Initial Measurement
Financial assets and financial liabilities, including derivatives, are recognized in the Consolidated Balance Sheets
when the Company becomes a party to the contractual provisions of a financial instrument or non-financial derivative
contract. All financial instruments are measured at fair value on initial recognition.
Transaction costs that are directly attributable to the acquisition or issuance of financial assets and financial liabilities,
other than financial assets and financial liabilities classified as FVTPL, are added to or deducted from the fair value
on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities
classified as FVTPL are recognized immediately in net income.
Classification and Subsequent Measurement
The Company classifies financial assets, at the time of initial recognition, according to the Company’s business
model for managing the financial assets and the contractual terms of the cash flows. Financial assets are classified
in the following measurement categories: a) amortized cost and b) fair value through profit or loss.
Financial Instruments at Amortized Cost
Financial assets are subsequently measured at amortized cost if both the following conditions are met and they are
not designated as FVTPL:
•
•
the financial asset is held within a business model with the objective to hold financial assets in order to collect
contractual cash flows; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding.
These assets are subsequently measured at amortized cost using the effective interest method and are subject to
impairment. Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.
Financial liabilities are subsequently measured at amortized cost using the effective interest rate method with gains
and losses recognized in net income in the period that the liability is derecognized, except for financial liabilities
classified as FVTPL. These financial liabilities, including derivative liabilities and the redeemable financial instrument,
are subsequently measured at fair value with changes in fair value recorded in net income in the period in which
they arise to the extent they are not part of a designated hedging relationship. Subsequent to initial recognition,
other financial liabilities are measured at amortized cost using the effective interest method, with gains and losses
recognized in net income in the period that the liability is derecognized.
Financial Instruments at Fair Value Through Profit or Loss
Financial instruments are classified as FVTPL when the financial instrument is either held for trading or designated
as such upon initial recognition. Financial instruments are classified as held for trading if acquired principally for the
purpose of selling in the near future or if part of an identified portfolio of financial instruments that the Company
manages together and has a recent actual pattern of short-term profit-making. All financial assets not classified as
Page 90 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
amortized cost are measured at FVTPL. This includes derivative financial assets that are not part of a designated
hedging relationship.
Financial instruments classified as FVTPL are measured at fair value, with changes in fair value recorded in net
income in the period in which they arise.
Impairment of Financial Instruments
The Company recognizes a loss allowance on a forward-looking basis at an amount equal to the lifetime ECL on its
financial assets measured at amortized cost, except for the following, which are measured at 12-month ECL:
•
•
debt investments that are determined to have low credit risk at the reporting date with a credit risk rating
equivalent to investment grade; and
other financial assets, such as loan receivables, for which credit risk has not increased significantly since
initial recognition.
Lifetime ECL represents the expected credit losses that will result from all probable default events over the expected
life of a financial instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to
result from default events that are possible within 12 months after the reporting date.
Losses for impaired credit card loans are recognized when credit is granted. Twelve-month ECL is recognized on
loans except when credit risk has increased significantly since initial recognition, in which case lifetime ECL is applied.
A significant increase in credit risk is assessed based on changes in the probability of default since initial recognition
along with borrower specific qualitative information, or when the loan is more than 30 days past due. Credit card
loans are considered impaired and in default when they are 90 days past due or there is sufficient doubt regarding
the ultimate collectability of principal and/or interest. The estimate of credit card loans receivable for accounts wherein
the customer has initiated the consumer proposal insolvency process is based on the present value of expected
future cash flows based on the terms of consumer proposal agreements received during the year. Credit card loans
that are 180 days past due are written down to the present value of the expected future cash flows.
ECL is calculated as the product of the probability of default, exposure at default and loss given default over the
remaining expected life of the loans and discounted to the reporting date. The ECL model also incorporates forward-
looking information, which increases the degree of judgment required as to how changes in macro-economic factors
will affect ECLs. Macro-economic factors taken into consideration include, but are not limited to, unemployment rate
and require an evaluation of both the current and forecast direction of the macro-economic cycle. The methodologies
and assumptions, including any forecasts of future economic conditions, are reviewed regularly.
All individually significant loans receivable are assessed for impairment. All individually significant loans receivable
found not to be specifically impaired are then collectively assessed for impairment. Loans receivable not individually
significant are collectively assessed for impairment by grouping together loans receivable with similar risk
characteristics.
Derecognition of Financial Instruments
A financial asset is derecognized when the contractual rights to the cash flows from the asset expire or when the
Company transfers the financial asset to another party without retaining control or substantially all the risks and
rewards of ownership of the asset. Any interest in transferred financial assets created or retained by the Company
is recognized as a separate asset or liability.
A financial liability is derecognized when its contractual obligations are discharged, cancelled, or expire.
Derivative Financial Instruments
The Company enters into various derivative financial instruments as part of the Company’s strategy to manage its
foreign currency and interest rate exposures. The Company also enters into equity derivative contracts to hedge
certain future share-based payment expenses. The Company does not hold or issue derivative financial instruments
for trading purposes.
Page 91 of 145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All derivative financial instruments, including derivatives embedded in financial or non-financial contracts not closely
related to the host contracts, are measured at fair value. The gain or loss that results from remeasurement at each
reporting period is recognized in net income immediately unless the derivative is designated and effective as a
hedging instrument, in which case the timing of the recognition in net income depends on the nature of the hedge
relationship.
Hedge Accounting
Where hedge accounting can be applied, certain criteria are documented at the inception of the hedge and updated
at each reporting date.
Cash Flow Hedges
For cash flow hedges, the effective portion of the changes in the fair value of the hedging derivative, net of taxes, is
recognized in OCI, while the ineffective and unhedged portions are recognized immediately in net income. Amounts
recorded in AOCI are reclassified to net income in the periods when the hedged item affects net income. However,
when a forecast transaction that is hedged results in the recognition of a non-financial asset or liability, the gains
and losses previously recognized in AOCI are directly transferred from AOCI and included in the initial measurement
of the cost of the non-financial asset or liability without affecting other comprehensive income.
When hedge accounting is discontinued, the amounts previously recognized in AOCI are reclassified to net income
during the periods when the variability in the cash flows of the hedged item affects net income. If hedge accounting
is discontinued due to the hedged item no longer being expected to occur, the amount previously recognized in AOCI
is reclassified immediately to net income.
The Company enters into foreign currency contracts to hedge the exposure against foreign currency risk on the
future payment of certain foreign-currency-denominated inventory purchases and certain expenses. The Company’s
policy is for the critical terms of the foreign currency contracts to align with the hedged item and applies a hedge
ratio of 1:1. The changes in fair value of these contracts are included in OCI to the extent the hedges continue to
be effective. Hedge ineffectiveness may arise if the timing of the hedged transactions changes from what was
originally estimated. Once the inventory is received, the Company transfers the related AOCI amount to merchandise
inventories and subsequent changes in the fair value of the foreign currency contracts are recorded in net income
as they occur. When the expenses are incurred, the Company reclassifies the related AOCI amount to the expense.
The Company enters into interest rate swap contracts to hedge the exposure against interest rate risk on the future
interest payments of debt issuances and deposits. The Company also enters into “swaption” derivative financial
instruments that provide it with an option to enter into an interest rate swap as part of the Company’s strategy to
manage its interest rate exposure risk on the future interest payments of debt issuances and deposits.
The Company’s policy is for the critical terms of the interest rate swap and swaptions contracts to align with the
hedged item and applies a hedge ratio of 1:1. The changes in fair value of these contracts are included in OCI to
the extent that the hedges continue to be effective. The Company designates only the change in fair value of the
intrinsic value of the instrument as the hedging instrument. The time value of the option relates to a time-period
related hedged item. The change in time value is recognized in OCI and is subsequently amortized on a systematic
and rational basis over the period during which the hedge adjustment for the option’s intrinsic value could affect profit
or loss. Hedge ineffectiveness may arise if the timing of the hedged transactions changes from what was originally
estimated. When the interest expense is incurred, the Company reclassifies the related AOCI amount to finance
costs.
Cash and Cash Equivalents
Cash and cash equivalents are defined as cash plus highly liquid and rated certificates of deposit or commercial
paper with an original term to maturity of three months or less.
Page 92 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Short-Term Investments
Short-term investments are investments in highly liquid and rated certificates of deposit, commercial paper or other
securities, primarily Canadian and United States (“U.S.”) government securities and notes of other creditworthy
parties, with an original term to maturity of more than three months and remaining term to maturity of less than one
year.
Trade and Other Receivables
The lifetime ECL allowance for impairment is recognized for trade and other receivables. It is estimated based on
the Company’s historical loss experience, adjusted for factors that are specific to the debtors and an assessment of
both the current as well as forecast direction of conditions at the reporting date. The carrying amount of the asset
is reduced through the use of an allowance account and the amount of the loss is recognized in Selling, general and
administrative expenses in the Consolidated Statements of Income. When a trade receivable is deemed uncollectible,
it is written off against the allowance account. Subsequent recoveries of amounts previously written off are recognized
as a recovery in Selling, general and administrative expenses in the Consolidated Statements of Income.
Loans Receivable
Loans receivable consists of credit card and line of credit loans, as well as loans to Dealers, who are independent
third-party operators of Canadian Tire Retail stores. Loans receivable are recognized when cash is advanced to the
borrower. They are derecognized when the borrower repays its obligations, the loans are sold or written off, or
substantially all of the risks and rewards of ownership are transferred.
Losses for impaired loans are recognized when the loan is originated. Impairment allowances are calculated on
individual loans and on groups of loans assessed collectively. Impairment losses are recorded in cost of producing
revenue in the Consolidated Statements of Income. The carrying amount of loans receivable in the Consolidated
Balance Sheets is reduced through the use of impairment allowance accounts.
Merchandise Inventories
Merchandise inventories are carried at the lower of cost and net realizable value.
Cash consideration received from vendors is recognized as a reduction to the cost of related inventory, unless the
cash consideration received is either a reimbursement of incremental costs incurred by the Company or a payment
for assets or services delivered to the vendor.
The cost of merchandise inventories is determined based on weighted average cost and includes costs incurred in
bringing the merchandise inventories to their present location and condition. All inventories are finished goods.
Net realizable value is the estimated selling price of inventory during the normal course of business less estimated
selling expenses.
Long-Term Investments
Investments in highly liquid and rated certificates of deposit, commercial paper, or other securities with a remaining
term to maturity of greater than one year are classified as long-term investments. The Company’s exposure to credit,
currency and interest rate risks related to other investments is disclosed in Note 5.
Intangible Assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the
identifiable assets acquired and liabilities assumed in a business combination. Goodwill is measured at cost less
any accumulated impairment and is not amortized.
Page 93 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Finite Life and Indefinite Life Intangible Assets
Intangible assets with finite useful lives are measured at cost and are amortized on a straight-line basis over their
estimated useful lives, generally for a period of two to ten years. The estimated useful lives and amortization methods
are reviewed annually with the effect of any changes in estimate being accounted for on a prospective basis.
Intangible assets with indefinite useful lives are measured at cost, less any accumulated impairment and are not
amortized.
Expenditures on research activities are expensed as incurred.
Investment Property
Investment property is property held to earn rental income or for appreciation of capital or both. The Company has
determined that properties it provides to its Dealers, franchisees and agents are not investment property as these
relate to the Company’s operating activities. This was determined based on certain criteria such as whether the
Company provides significant ancillary services to the lessees of the property. The Company includes property that
it leases to third parties (other than Dealers, franchisees, or agents) in investment property. Investment property is
measured and depreciated in the same manner as property and equipment.
Property and Equipment
Property and equipment is measured at cost less accumulated depreciation and any accumulated impairment. Land
is measured at cost less any accumulated impairment. Properties in the course of construction are measured at
cost less any accumulated impairment. The cost of an item of property or equipment comprises costs that are directly
attributed to its acquisition and initial estimates of the cost of dismantling and removing the item and restoring the
site on which it is located.
Buildings, fixtures and equipment are depreciated on a straight-line basis over their estimated useful lives. The
estimated useful lives, depreciation method and residual values are reviewed annually with the effect of any changes
in estimate being accounted for on a prospective basis.
Leasehold improvements are amortized on a straight-line basis over the terms of the respective leases or useful life,
if shorter.
Assets held under finance leases are depreciated on the same basis as owned assets. If there is no reasonable
certainty that the Company will obtain ownership by the end of the lease term, the asset is depreciated over the
shorter of lease term and its useful life.
Estimated useful lives are as follows:
Asset Category
Buildings
Fixtures and equipment (including software intangible assets)
Leasehold improvements
Assets under finance lease
Estimated Useful Lives
10 - 45 years
3 - 25 years
Shorter of term of lease or estimated useful life
Shorter of term of lease or estimated useful life
Leased Assets
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards
of ownership to the lessee. All other leases are classified as operating leases.
Lessor
When the Company is the lessor in an operating lease, rental income and licence fees are recognized in net income
on a straight-line basis over the term of the lease.
Page 94 of 145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Lessee
When the Company is the lessee in an operating lease, rent payments are charged to net income on a straight-line
basis over the term of the lease. Lease incentives are amortized on a straight-line basis over the terms of the
respective leases.
Assets under finance leases are recognized as assets of the Company at their fair value or, if lower, at the present
value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability is
included in the Consolidated Balance Sheets as a finance lease obligation. Lease payments are apportioned between
finance costs and reduction of the lease obligations, so as to achieve a constant rate of interest on the remaining
balance of the liability.
Sale and Leaseback
The accounting treatment of a sale and leaseback transaction is assessed based upon the substance of the transaction
and whether the sale is made at the asset’s fair value.
For sale and finance leasebacks, any gain or loss from the sale is deferred and amortized over the lease term. For
sale and operating leasebacks, the assets are sold at fair value and, accordingly, the gain or loss from the sale is
recognized immediately in net income.
Impairment of Assets
The carrying amounts of property and equipment, investment property and intangible assets with finite useful lives
are reviewed at the end of each reporting period to determine whether there are any indicators of impairment.
Indicators of impairment may include a significant decline in asset market value, material adverse changes in the
external operating environment which affect the manner in which the asset is used or is expected to be used,
obsolescence, or physical damage of the asset. If any such indicators exist, then the recoverable amount of the
asset is estimated. Goodwill and intangible assets with indefinite useful lives and intangible assets not yet available
for use are not amortized but are tested for impairment at least annually or whenever there is an indicator that the
asset may be impaired.
Cash Generating Units
When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the
recoverable amount of the CGU to which the asset belongs. The CGUs correspond to the smallest identifiable group
of assets whose continuing use generates cash inflows that are largely independent of the cash inflows from other
assets or groups of assets.
Goodwill acquired in a business combination is allocated to each of the CGUs (or groups of CGUs) expected to
benefit from the synergies of the combination. Intangible assets with indefinite useful lives are allocated to the CGU
to which they relate.
Determining the Recoverable Amount
An impairment loss is recognized when the carrying amount of an asset, or of the CGU to which it belongs, exceeds
the recoverable amount. The recoverable amount of an asset or CGU is defined as the higher of its FVLCS and its
VIU.
In assessing VIU, the estimated future cash flows are discounted to their present value. Cash flows are discounted
using a discount rate that includes a risk premium specific to each line of business. The Company estimates cash
flows before taxes based on the most recent actual results or budgets. Cash flows are then extrapolated over a
period of up to five years, taking into account a terminal value calculated by discounting the final year in perpetuity.
The growth rate applied to the terminal values is based on the Bank of Canada’s target inflation rate or a growth rate
specific to the individual item being tested based on Management’s estimate.
Page 95 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Recording Impairments and Reversals of Impairments
Impairments and reversals of impairments are recognized in Other income in the Consolidated Statements of Income.
Any impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then
to the other assets of the CGU. Impairments of goodwill cannot be reversed. Impairments of other assets recognized
in prior periods are assessed at the end of each reporting period to determine if the indicators of impairment have
reversed or no longer exist. An impairment loss is reversed if the estimated recoverable amount exceeds the carrying
amount. The increased carrying amount of an asset attributable to a reversal of impairment may not exceed the
carrying amount that would have been determined had no impairment been recognized in prior periods.
Assets Classified as Held for Sale
Non-current assets and disposal groups are classified as assets held for sale when their carrying amount is to be
recovered principally through a sale transaction rather than through continuing use. This condition is regarded as
met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its
present condition. Management must be committed to the sale and it should be expected to qualify for recognition
as a completed sale within one year from the date of classification. Assets (and disposal groups) classified as held
for sale are measured at the lower of the carrying amount or FVLCS and are not depreciated. The fair value
measurement of assets held for sale is categorized within Level 2 of fair value hierarchy (refer to Note 32.2 for
definition of fair value hierarchy levels).
Borrowing Costs
Borrowing costs directly attributable to the acquisition or construction of a qualifying asset are capitalized. Qualifying
assets are those that require a minimum of three months to prepare for their intended use. All other borrowing costs
are recognized in Cost of producing revenue or in Net finance costs in the Consolidated Statements of Income in
the period in which they are incurred.
Employee Benefits
Short-Term Benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related
service is provided.
The Company recognizes a liability and an expense for short-term benefits such as bonuses, profit-sharing and
employee stock purchases if the Company has a present legal obligation or constructive obligation to pay this amount
as a result of past service provided by the employees and the obligation can be reasonably estimated.
Post-Employment Benefits
The Company provides certain health care, dental care, life insurance and other benefits, but not pensions, for certain
retired employees pursuant to Company policy. The Company accrues the cost of these employee benefits over
the periods in which the employees earn the benefits. The cost of employee benefits earned by employees is
actuarially determined using the projected benefit method pro-rated on length of service and Management’s best
estimate of salary escalation, retirement ages of employees, employee turnover, life expectancy and expected health
and dental care costs. The costs are discounted at a rate that is based on market rates as at the measurement date.
Actuarial gains and losses are immediately recorded in OCI.
The Company also provides post-employment benefits with respect to contributions to a Deferred Profit Sharing
Plan (“DPSP”).
Termination Benefits
Termination benefits are payable when employment is terminated by the Company before the normal retirement date
or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognizes
a provision for termination benefits when it is demonstrably committed to either terminating the employment of current
employees according to a detailed formal plan, without possibility of withdrawal, or providing termination benefits as
a result of an offer made to encourage voluntary redundancy.
Page 96 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Share-Based Payments
Stock options with tandem stock appreciation rights (“stock options”) are granted which enable the employee to
exercise the stock option or receive a cash payment equal to the difference between the market price of the Company’s
Class A Non-Voting Shares as at the exercise date and the exercise price of the stock option. These stock options
are considered to be compound instruments. The fair value of compound instruments is measured at each reporting
date, taking into account the terms and conditions on which the rights to cash or equity instruments are granted. As
the fair value of the settlement in cash is the same as the fair value of the settlement as a traditional stock option,
the fair value of the stock option is the same as the fair value of the debt component. The corresponding expense
and liability are recognized over the respective vesting period.
The fair value of the amount payable to employees with respect to share unit plans and trust unit plans, which are
settled in cash, is recorded as the services are provided over the vesting period. The fair value of the liability is
remeasured at each reporting date with the change in the liability being recognized in Selling, general and
administrative expenses in the Consolidated Statements of Income.
Insurance Reserve
Included in trade and other payables is an insurance reserve that consists of an amount determined from loss reports
and individual cases and an amount, based on past experience, for losses incurred but not reported. These estimates
are continually reviewed and are subject to the impact of future changes in such factors as claim severity and
frequency. While Management believes that the amount is adequate, the ultimate liability may be in excess of or
less than the amounts provided and any adjustment will be reflected in net income during the periods in which they
become known.
The Company uses actuarial valuations in determining its reserve for outstanding losses and loss-related expenses
using an appropriate reserving methodology for each line of business. The Company does not discount its liabilities
for unpaid claims.
Provisions
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation
that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the
obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the
present obligation at the end of the reporting period, taking into account risks and uncertainty of cash flows. Where
the effect of discounting is material, provisions are determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
Sales and Warranty Returns
The provision for sales and warranty returns relates to the Company’s obligation for defective goods in current store
inventories and defective goods sold to customers that have yet to be returned, after-sales service for replacement
parts and future corporate store sales returns. Accruals for sales and warranty returns are estimated on the basis
of historical returns and are recorded as a reduction to revenue. These accruals are reviewed regularly and updated
to reflect Management’s best estimate that is based on a most likely amount at each reporting date.
Site Restoration and Decommissioning
Legal or constructive obligations associated with the removal of underground fuel storage tanks and site remediation
costs on the retirement of certain property and equipment and with the termination of certain lease agreements are
recognized in the period in which they are incurred, when it is probable that an outflow of resources embodying
economic benefits will be required and a reasonable estimate of the amount of the obligation can be made. The
obligations are initially measured at the Company’s best estimate, using an expected value approach and are
discounted to present value.
Page 97 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Onerous Contracts
A provision for onerous contracts is recognized when the expected benefits to be derived by the Company from a
contract are lower than the unavoidable costs of meeting its obligations under the contract. The provision is measured
at the present value of the lower of the expected cost of terminating the contract or the expected net cost of continuing
with the contract.
Debt
Debt is classified as current when the Company expects to settle the liability in its normal operating cycle, it holds
the liability primarily for the purpose of trading, the liability is due to be settled within 12 months after the date of the
Consolidated Balance Sheets, or it does not have an unconditional right to defer settlement of the liability for at least
12 months after the date of the Consolidated Balance Sheets.
Share Capital
Shares issued by the Company are recorded at the value of proceeds received. Repurchased shares are removed
from equity. No gain or loss is recognized in net income on the purchase, sale, issue, or cancellation of the Company’s
shares.
Share repurchases are charged to share capital at the average cost per share outstanding and the excess between
the repurchase price and the average cost is first allocated to the related contributed surplus, with any remainder
allocated to retained earnings.
Dividends
Dividends declared and payable to the Company’s shareholders are recognized as a liability in the Consolidated
Balance Sheets in the period in which the dividends are approved by the Company’s Board of Directors.
Distributions
Distributions to non-controlling interests are recognized as a liability in the Consolidated Balance Sheets in the period
in which the distributions are declared.
Revenue
Sale of Goods
Revenue from the sale of goods includes merchandise sold to Dealers, Mark’s and SportChek1 franchisees, the sale
of gasoline through agents and the sale of goods to the general public by Mark’s, PartSource and SportChek1
corporately-owned stores. This revenue is recognized when the goods are delivered, less an estimate for sales and
warranty returns. Revenue from the sale of goods is measured at the fair value of the consideration received less
an appropriate deduction for actual and expected returns, discounts, rebates and warranty and customer loyalty
program costs, net of sales taxes.
Customer Loyalty Programs
Loyalty reward credits issued as part of a sales transaction results in revenue being deferred until the loyalty reward
is redeemed by the customer. In addition, an obligation arises from the loyalty program when the Company sells
merchandise to the Dealers, for which reward credits may be issued as part of the subsequent sales transaction
with the customer. The obligation is measured at fair value by reference to the fair value of the rewards for which
they could be redeemed and based on the estimated probability of their redemption. The loyalty program costs are
recorded as a reduction to revenue in the Consolidated Statements of Income.
Interest Income on Loans Receivable
Interest income includes interest charged on loans receivable and fees that are an integral part of the effective interest
rate on financial instruments. Interest income on financial assets is determined using the effective interest method.
1 “SportChek” refers to the retail business carried on by FGL Sports Ltd., including stores operated under the SportChek, Sports Experts, Atmosphere, National
Sports, Sports Rousseau and Hockey Experts names and trademarks.
Page 98 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Services Rendered
Service revenue includes Roadside Assistance Club membership revenue; Drivers Academy revenue; merchant,
interchange and processing fees; cash advance fees; home services fees; foreign exchange fees; and service
charges on the loans receivable of the Financial Services operating segment, as well as Mark’s clothing alteration
revenue. Service revenue is recognized according to the contractual provisions of the arrangement, which is generally
when the service is provided or over the contractual period.
Merchant, interchange and processing fees, cash advance fees and foreign exchange fees on credit card transactions
are recognized as revenue at the time transactions are completed.
Reinsurance Revenue
Reinsurance premiums are recorded on an accrual basis and are included in net income on a pro rata basis over
the life of the insurance contract, with the unearned portion deferred in the Consolidated Balance Sheets. Premiums
that are subject to adjustment are estimated based on available information. Any variances from the estimates are
recorded in the periods in which they become known.
Royalties and Licence Fees
Royalties and licence fees include licence fees from petroleum agents and Dealers and royalties from Mark’s and
SportChek franchisees. Royalties and licence fee revenues are recognized as they are earned in accordance with
the substance of the relevant agreement, which is generally based on percentage of occurred sales.
Rental Income
Rental income from operating leases where the Company is the lessor is recognized on a straight-line basis over
the terms of the respective leases.
Vendor Rebates
The Company records cash consideration received from vendors as a reduction in the price of vendors’ products
and recognizes it as a reduction to the cost of related inventory or, if the related inventory has been sold, to the cost
of producing revenue. Certain exceptions apply where the cash consideration received is either a reimbursement
of incremental selling costs incurred by the Company or a payment for assets or services delivered to the vendor,
in which case the cost is reflected as a reduction in Selling, general and administrative expenses.
The Company recognizes rebates that are at the vendor’s discretion when the vendor either pays the rebates or
agrees to pay them and payment is considered probable and can be reasonably estimated.
Net Finance Costs
Finance income comprises interest income on funds invested. Interest income is recognized as it accrues using the
effective interest method.
Finance costs comprises interest expense on borrowings (including borrowings relating to the Dealer Loan Program),
unwinding of the discount on provisions and is net of borrowing costs that have been capitalized. Interest on deposits
is recorded in Cost of producing revenue in the Consolidated Statements of Income.
Income Taxes
The income tax expense for the year comprises current and deferred income tax. Income tax expense is recognized
in net income except to the extent that it relates to items recognized either in OCI or directly in equity. In this case,
the income tax expense is recognized in OCI or in equity, respectively.
The income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the date of
the Consolidated Balance Sheets in the countries where the Company operates and generates taxable income.
Deferred income tax is recognized using the liability method for unused tax losses, unused tax benefits and temporary
differences arising between the tax bases of assets and liabilities and their carrying amounts in these consolidated
financial statements. However, deferred income tax is not accounted for if it arises from the initial recognition of
Page 99 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
goodwill or the initial recognition of an asset or liability in a transaction, other than a business combination, that at
the time of the transaction affects neither accounting nor taxable income. Deferred income tax is determined using
tax rates (and laws) that have been enacted or substantively enacted at the date of the Consolidated Balance Sheets
and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability
is settled.
Deferred income tax assets are recognized only to the extent that it is probable that future taxable income will be
available against which the temporary differences can be utilized. Deferred income tax liabilities are provided on
temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal
of the temporary difference is controlled by the Company and it is probable that the temporary difference will not
reverse in the foreseeable future.
Earnings per Share
Basic earnings per share (“Basic EPS”) is calculated by dividing the net income attributable to the shareholders of
the Company by the weighted average number of Common and Class A Non-Voting shares outstanding during the
reporting period. Diluted earnings per share (“Diluted EPS”) is calculated by adjusting the net income attributable
to the shareholders of the Company and the weighted average number of shares outstanding for the effects of all
potentially dilutive equity instruments, which comprise employee stock options. Net income attributable to the
shareholders of the Company is the same for both the Basic EPS and Diluted EPS calculations.
Non-controlling Interests
When the proportion of the equity held by non-controlling interests changes, the Company adjusts the carrying
amounts of the controlling and non-controlling interests to reflect the changes in their relative interest in the subsidiary.
The Company recognizes directly in equity any difference between the amount by which the non-controlling interests
are adjusted and the fair value of the consideration paid or received and attribute it to the shareholders of the
Company.
Financial Instruments Prior to December 31, 2017
The following is applicable only for periods prior to December 31, 2017, for financial instruments accounted for under
IAS 39.
Recognition, Classification and Initial and Subsequent Measurement
Financial assets and financial liabilities, including derivatives, are recognized in the Consolidated Balance Sheets
when the Company becomes a party to the contractual provisions of a financial instrument or non-financial derivative
contract. All financial instruments are required to be measured at fair value on initial recognition. Subsequent
measurement of these assets and liabilities is based on either fair value or amortized cost using the effective interest
method, depending upon their classification.
Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities
(other than financial assets and financial liabilities classified as FVTPL) are added to or deducted from the fair value
of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable
to the acquisition of financial assets or financial liabilities classified as FVTPL are recognized immediately in
net income.
The Company classifies financial instruments, at the time of initial recognition, according to their characteristics and
Management’s choices and intentions related thereto for the purposes of ongoing measurement. Classification
choices for financial assets include a) FVTPL, b) held to maturity, c) available-for-sale and d) loans and receivables.
Classification choices for financial liabilities include a) FVTPL and b) other liabilities.
Page 100 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Available-for-Sale
Financial assets classified as available-for-sale are measured at fair value with changes in fair value recognized in
OCI until realized through disposal or other than temporary impairment, at which point the change in fair value is
recognized in net income. Dividend income from available-for-sale financial assets is recognized in net income when
the Company’s right to receive payments is established. Interest income on available-for-sale financial assets,
calculated using the effective interest method, is recognized in net income.
Loans and Receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active
market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective
interest method, less any impairment, with gains and losses recognized in net income in the period that the asset is
derecognized or impaired.
Cash Flow Hedges
For cash flow hedges, the effective portion of the changes in the fair value of the hedging derivative, net of taxes, is
recognized in OCI, while the ineffective and unhedged portions are recognized immediately in net income. Amounts
recorded in AOCI are reclassified to net income in the periods when the hedged item affects net income. However,
when a forecast transaction that is hedged results in the recognition of a non-financial asset or liability, the gains
and losses previously recognized in AOCI are reclassified from AOCI and included in the initial measurement of the
cost of the non-financial asset or liability.
When hedge accounting is discontinued, the amounts previously recognized in AOCI are reclassified to net income
during the periods when the variability in the cash flows of the hedged item affects net income. Gains and losses
on derivatives are reclassified immediately to net income when the hedged item is sold or terminated early. If hedge
accounting is discontinued due to the hedged item no longer being expected to occur, the amount previously
recognized in AOCI is reclassified immediately to net income.
The Company enters into foreign currency contracts to hedge the exposure against foreign currency risk on the
future payment of foreign-currency-denominated inventory purchases and certain expenses. The changes in fair
value of these contracts are included in OCI to the extent the hedges continue to be effective. Once the inventory
is received, the Company reclassifies the related AOCI amount to merchandise inventories and subsequent changes
in the fair value of the foreign currency contracts are recorded in net income as they occur. When the expenses are
incurred, the Company reclassifies the related AOCI amount to the expense.
The Company enters into interest rate-swap contracts to hedge the exposure against interest rate risk on the future
interest payments of debt issuances and deposits. The changes in fair value of these contracts are included in OCI
to the extent that the hedges continue to be effective. When the interest expense is incurred, the Company reclassifies
the related AOCI amount to finance costs.
Trade and Other Receivables
The allowance for impairment of trade and other receivables is established when there is objective evidence that
the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant
financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization and
default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of
the allowance is calculated as the difference between the asset’s carrying amount and the present value of estimated
future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced
through the use of an allowance account and the amount of the loss is recognized in Selling, general and administrative
expenses in the Consolidated Statements of Income. When a trade receivable is deemed uncollectible, it is written
off against the allowance account. Subsequent recoveries of amounts previously written off are recognized as a
recovery in Selling, general and administrative expenses in the Consolidated Statements of Income.
Page 101 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Loans Receivable
Loans receivable consists of credit card and line of credit loans, as well as loans to Dealers, who are independent
third-party operators of Canadian Tire Retail stores. Loans receivable are recognized when cash is advanced to the
borrower. They are derecognized when the borrower repays its obligations, the loans are sold or written off, or
substantially all of the risks and rewards of ownership are transferred.
Losses for impaired loans are recognized when there is objective evidence that impairment of the loans has occurred.
Impairment allowances are calculated on individual loans and on groups of loans assessed collectively. Impairment
losses are recorded in Cost of producing revenue in the Consolidated Statements of Income. The carrying amount
of impaired loans in the Consolidated Balance Sheets is reduced through the use of impairment allowance accounts.
Losses expected from future events are not recognized.
All individually significant loans receivable are assessed for specific impairment. All individually significant loans
receivable found not to be specifically impaired are then collectively assessed for any impairment that has been
incurred but not yet identified. Loans receivable not individually significant are collectively assessed for impairment
by grouping together loans receivable with similar risk characteristics.
The Company uses a roll-rate methodology to calculate allowances for credit card loans. This methodology employs
analysis of historical data, economic indicators and experience of delinquency and default to estimate the amount
of loans that will eventually be written off as a result of events occurring before the reporting date, with certain
adjustments for other relevant circumstances influencing the recoverability of the loans receivable. Default rates,
loss rates and cash recoveries are regularly benchmarked against actual outcomes to ensure that they remain
appropriate.
4. Capital Management
The Company’s objectives when managing capital are:
• ensuring sufficient liquidity to support its financial obligations and execute its operating and strategic plans;
• maintaining healthy liquidity reserves and access to capital; and
• minimizing the after-tax cost of capital while taking into consideration current and future industry, market and
economic risks and conditions.
The definition of capital varies from company to company, industry to industry and for different purposes. In the
process of managing the Company’s capital, Management includes the following items in its definition of capital,
which includes Glacier Credit Card Trust (“GCCT”) indebtedness but excludes Franchise Trust indebtedness:
(C$ in millions)
Capital components
Deposits
Short-term borrowings
Current portion of long-term debt
Long-term debt
Long-term deposits
Total debt
Redeemable financial instrument
Share capital
Contributed surplus
Retained earnings
2018
% of total
2017
% of total
$
$
964.5
378.1
553.6
4,000.3
1,506.7
7,403.2
567.0
591.5
2.9
7.8% $
3.1%
4.5%
32.6%
12.3%
60.3% $
4.6%
4.8%
—%
973.9
144.6
282.3
3,122.1
1,412.9
5,935.8
517.0
615.7
2.9
3,720.7
30.3%
4,161.7
8.7%
1.3%
2.5%
27.8%
12.6%
52.9%
4.6%
5.5%
—%
37.0%
100.0%
Total capital under management
$
12,285.3
100.0% $
11,233.1
Page 102 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company monitors its capital structure by measuring debt-to-earnings ratios and manages its debt service and
other fixed obligations by tracking its interest and other coverage ratios and forecasting corporate liquidity.
The Company manages its capital structure over the long term to optimize the balance among capital efficiency,
financial flexibility and risk mitigation. Management calculates its ratios to approximate the methodologies of credit-
rating agencies and other market participants on a current and prospective basis. To assess its effectiveness in
managing capital, Management monitors these ratios against targeted ranges.
In order to maintain or adjust the capital structure, the Company has the flexibility to adjust the amount of dividends
paid to shareholders, repurchase shares pursuant to a normal course issuer bid (“NCIB”) program, repay debt, issue
new debt and equity, issue new debt with different characteristics to replace existing debt, engage in additional sale
and leaseback transactions of real estate properties and increase or decrease the amount of sales of co-ownership
interests in loans receivable to GCCT.
The Company has a policy in place to manage capital. As part of the overall management of capital, Management
and the Audit Committee of the Board of Directors review the Company’s compliance with and performance against,
the policy. In addition, periodic review of the policy is performed to ensure consistency with risk tolerances.
Financial covenants of the existing debt agreements are reviewed by Management on an ongoing basis to monitor
compliance with the agreements. The key financial covenant for Canadian Tire Corporation is a requirement for the
Retail segment to maintain, at all times, a ratio of total indebtedness to total capitalization equal to or lower than a
specified maximum ratio (as defined in the Company’s bank credit agreement, but which excludes consideration of
CTFS Holdings Limited, CT REIT, Franchise Trust and their respective subsidiaries).
The Company was in compliance with all key covenants as at December 29, 2018 and December 30, 2017. Under
these covenants, the Company currently has sufficient liquidity to support business growth.
Helly Hansen is required to comply with covenants established under its bank credit agreements, and was in
compliance with the financial covenants thereunder as at December 29, 2018.
CT REIT is required to comply with financial covenants established under its Trust Indenture, bank credit agreement
and the Declaration of Trust and was in compliance with all key covenants as at December 31, 2018 and 2017.
In addition, the Company is required to comply with regulatory requirements for capital associated with the operations
of Canadian Tire Bank (“CTB” or “the Bank”), a federally chartered Schedule I bank and other regulatory requirements
that have an impact on its business operations and certain financial covenants established under its bank credit
agreement and note purchase facilities.
CTB manages its capital under guidelines established by the Office of the Superintendent of Financial Institutions
of Canada (“OSFI”). OSFI’s regulatory capital guidelines are based on the international Basel Committee on Banking
Supervision framework entitled Basel III: A Global Regulatory Framework for More Resilient Banks and Banking
Systems (“Basel III”), which came into effect in Canada on January 1, 2013, and measures capital in relation to
credit, market and operational risks. The Bank has various capital policies and procedures and controls, including
an Internal Capital Adequacy Assessment Process (“ICAAP”), which it utilizes to achieve its goals and objectives.
The Bank’s objectives include:
• providing sufficient capital to maintain the confidence of investors and depositors; and
• being an appropriately capitalized institution, as measured internally, defined by regulatory authorities and
compared with the Bank’s peers.
OSFI’s regulatory capital guidelines under Basel III allow for two tiers of capital. Common Equity Tier 1 (“CET1”)
capital includes common shares, retained earnings and AOCI, less regulatory adjustments which are deducted from
capital. The Bank currently does not hold any additional Tier 1 capital instruments; therefore, the Bank’s CET1 is
equal to its Tier 1 regulatory capital. Tier 2 capital consists of the eligible portion of general allowances. Risk-weighted
Page 103 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
assets (“RWA”) include a credit risk component for all on-balance-sheet assets weighted for the risk inherent in each
type of asset, off-balance sheet financial instruments, an operational risk component based on a percentage of
average risk-weighted revenues and a market-risk component for assets held for trade. For the purposes of calculating
RWA, securitization transactions are considered off-balance-sheet transactions and, therefore, securitization assets
are not included in the RWA calculation. Assets are classified as held for trade when they are held with trading intent.
The Leverage Ratio prescribed by OSFI’s Leverage Requirements Guideline provides an overall measure of the
adequacy of an institution’s capital and is defined as the all-in Tier 1 capital divided by the leverage ratio exposure.
The leverage ratio exposure is the sum of on-balance sheet exposures, derivative exposures, securities financing
transaction exposures and off-balance sheet items.
As at December 31, 2018 and 2017, the Bank complied with all regulatory capital guidelines established by OSFI,
its internal targets as determined by its ICAAP and all financial covenants under its bank credit agreement and note
purchase facilities.
5. Financial Risk Management
5.1 Overview
The Company has exposure to the following risks from its use of financial instruments:
• credit risk;
• liquidity risk; and
• market risk (including foreign currency and interest rate risk).
This note presents information about the Company’s exposure to each of the foregoing risks and the Company’s
objectives, policy and processes for measuring and managing risk. Further quantitative disclosures are included
throughout these consolidated financial statements and notes thereto.
5.2 Risk Management Framework
The Company’s financial risk management policy serves to identify and analyze the risks faced by the Company, to
set acceptable risk tolerance limits and controls and to monitor risks and adherence to limits. The financial risk
management strategies and systems are reviewed regularly to ensure they remain consistent with the objectives
and risk tolerance acceptable to the Company and current market trends and conditions. The Company, through its
training and management standards and procedures, aims to uphold a disciplined and constructive control
environment in which all employees understand their roles and obligations.
5.3 Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to
meet their contractual obligations. Credit risk primarily arises from the Company’s credit card customers, Dealer
network and financial instruments held with bank or non-bank counterparties.
5.3.1 Financial Instrument Counterparty Credit Risk
The Company has a Board-approved Financial Risk Management policy in place to manage the various risks including
counterparty credit risk relating to cash balances, investment activity and the use of financial derivatives. The
Company limits its exposure to counterparty credit risk by transacting only with highly-rated financial institutions and
other counterparties and by managing within specific limits for credit exposure and term to maturity. The Company’s
financial instrument portfolio is spread across financial institutions, provincial and federal governments and, to a
lesser extent, corporate issuers that are dual rated and have a credit rating in the “A” category or better.
5.3.2 Consumer and Dealer Credit Risk
Through the granting of credit cards to its customers, the Company assumes certain risks with respect to the ability
and willingness of its customers to repay debt. In addition, the Company may be required to provide credit
enhancement for individual Dealer’s borrowings in the form of standby letters of credit (the “LCs”) or guarantees of
third-party bank debt agreements, with respect to the financing programs available to the Dealers (Note 34).
Page 104 of 145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company’s maximum exposure to credit risk, over and above amounts recognized in the Consolidated Balance
Sheets, include the following:
(C$ in millions)
Undrawn loan commitments
Guarantees
Total
$
$
2018
11,009.6 $
414.5
2017
9,768.7
431.4
11,424.1 $
10,200.1
Refer to Note 9 for information on the credit quality and performance of loans receivable.
5.4 Liquidity Risk
Liquidity risk is the risk that the Company might encounter difficulty in meeting the obligations associated with its
financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing
liquidity is to ensure, as much as possible, that it will always have sufficient liquidity to meet its liabilities when due,
under both normal and reasonably stressed conditions. The Company’s financial risk management policy serves to
manage its exposure to liquidity risk. The Company uses a detailed consolidated cash flow forecast model to regularly
monitor its near-term and longer-term cash flow requirements, which assists in optimizing its short-term cash and
indebtedness position while evaluating longer-term funding strategies.
In addition, CTB has in place an Asset Liability Management policy. It is CTB’s objective to ensure the availability
of adequate funds by maintaining a strong liquidity management framework and to satisfy all applicable regulatory
and statutory requirements.
Provided by a syndicate of seven Canadian and four international financial institutions, $1.975 billion in a committed
bank line is available to CTC for general corporate purposes, expiring in August 2023.
Provided by a syndicate of seven Canadian financial institutions, $300.0 million in a committed bank line is available
to CT REIT for general business purposes, expiring in December 2023.
Scotiabank has provided CTB with a $250.0 million unsecured revolving committed credit facility and $2.0 billion in
note purchase facilities for the purchase of senior and subordinated notes issued by GCCT, both of which expire in
October 2021.
In addition to the committed bank lines of credit, the Company has access to additional funding sources including
internal cash generation, access to public and private financial markets and strategic real estate transactions. Assets
of CTB are funded through the securitization of credit card receivables using GCCT, broker guaranteed investment
certificate (“GICs”) deposits, retail GIC deposits and high-interest savings (“HIS”) account deposits. CTB also holds
high quality liquid assets, as required by regulators, which are available to address funding disruptions.
Due to the diversification of its funding sources, the Company is not overly exposed to any concentration risk regarding
liquidity.
Page 105 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the Company’s contractual maturity for its financial liabilities, including both principal
and interest payments:
(C$ in millions)
2019
2020
2021
2022
2023 Thereafter
Total
$
973.6 $
336.5 $
219.0 $
550.0 $
401.2 $
— $ 2,480.3
Non-derivative financial liabilities
Deposits1
Trade and other payables
Short-term borrowings2
Loans payable
Long-term debt
Finance lease obligations
2,034.4
363.1
654.6
500.9
15.8
Mortgages
Interest payments3
Total
1 Deposits exclude the GIC broker fee discount of $9.1 million.
2
192.1
37.1
$ 4,771.6 $ 1,267.6 $
—
—
—
750.0
15.1
—
166.0
—
—
—
150.0
15.0
—
147.0
—
—
—
710.0
14.8
—
128.8
—
15.0
—
984.0
12.3
—
88.5
—
—
—
2,034.4
378.1
654.6
1,325.0
4,419.9
35.0
—
108.0
37.1
395.4
1,117.8
531.0 $ 1,403.6 $ 1,501.0 $ 1,755.4 $ 11,230.2
Includes CT REIT’s $15.0 million credit facility that matures in 2023, however is classified as a short-term liability as Management expects to repay this amount
within the next twelve months.
Includes interest payments on deposits, short-term borrowings, loans payable, long-term debt and finance lease obligations.
3
It is not expected that the cash flows included in the maturity analysis would occur significantly earlier or at significantly
different amounts.
5.5 Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices,
will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk
management is to manage market risk exposures within acceptable parameters while optimizing the return. The
Company’s financial risk management policy establishes guidelines on how the Company is to manage the market
risk inherent to the business and provides mechanisms to ensure business transactions are executed in accordance
with established limits, processes and procedures.
All such transactions are carried out within the established guidelines and, generally, the Company seeks to apply
hedge accounting in order to manage volatility in its net income.
5.5.1 Foreign Currency Risk
The Company sources its merchandise globally. Approximately 40%, 51%, and 7% of the value of the inventory
purchased for the Canadian Tire, Mark’s, and SportChek banners, respectively, is sourced directly from vendors
outside North America, primarily denominated in U.S. dollars. The majority of Helly Hansen’s purchases are
denominated in U.S. dollars and Euro. To mitigate the impact of fluctuating foreign exchange rates on the cost of
these purchases, the Company has an established foreign exchange risk management program that governs the
proportion of forecast U.S. dollar purchases that must and can be hedged through the purchase of foreign exchange
contracts. The purpose of the program is to provide certainty with respect to a portion of the foreign exchange
component of future merchandise purchases.
As the Company has hedged a significant portion of the cost of its near-term U.S.-dollar-denominated forecast
purchases, a change in foreign currency rates will not significantly impact that portion of the cost of those purchases.
Even when a change in rates is sustained, the Company’s program to hedge a proportion of forecast U.S. dollar
purchases continues. As hedges are placed at current foreign exchange rates for future U.S. dollar purchases, the
impact of a sustained change in rate will eventually be reflected in the cost of the Company's U.S. dollar purchases.
The hedging program has historically allowed the Company to defer the impact of sudden exchange rate movements
on margins and allow it time to develop strategies to mitigate the impact of a sustained change in foreign exchange
rates. Some vendors have an underlying exposure to U.S. currency fluctuations which may affect the price they
charge the Company for merchandise; the Company’s hedging program does not mitigate that risk. While the
Company may be able to pass on changes in foreign currency exchange rates through pricing, any decision to do
so would be subject to market conditions.
Page 106 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5.5.2 Interest Rate Risk
The Company may use interest rate derivatives to manage interest rate risk. The Company has a policy in place
whereby, on a consolidated basis, a minimum of 75 percent of its consolidated debt should be at fixed versus floating
interest rates.
A one percent change in interest rates would not materially affect the Company’s net income or equity as the Company
has minimal floating interest rate exposure given the indebtedness of the Company is predominantly at fixed rates.
The Company’s exposure to interest rate changes is predominantly driven by the Financial Services business to the
extent that the interest rates on future issuances of GIC deposits, HIS account deposits, tax free savings account
(“TFSA”) deposits and securitization transactions are market-dependent. Partially offsetting this will be rates charged
on credit cards and a significant portion of the funding liabilities for Financial Services are fixed rate, which reduces
interest rate risk. In addition, Financial Services has entered into interest rate derivatives to hedge a portion of its
planned GCCT term debt issuances and GIC deposits in 2019 to 2022.
6. Operating Segments
The Company has three reportable operating segments: Retail, CT REIT and Financial Services. The reportable
operating segments are strategic business units offering different products and services. They are separately
managed due to their distinct nature. The following summary describes the operations in each of the Company’s
reportable segments:
• The retail business is conducted under a number of banners including Canadian Tire, Canadian Tire Gas
(“Petroleum”), Mark’s, PartSource, Helly Hansen and various SportChek banners. Retail also includes the Dealer
Loan Program (the portion [silo] of Franchise Trust that issues loans to Dealers). Non-CT REIT real estate is
included in Retail.
• CT REIT is an unincorporated, closed-end real estate investment trust. CT REIT holds a geographically-diversified
portfolio of properties comprised largely of Canadian Tire banner stores, Canadian Tire anchored retail
developments, mixed-use commercial property and distribution centres.
• Financial Services issues Canadian Tire and Canadian Tire’s Triangle branded credit cards, as well as insurance
and warranty products and provides settlement services to the Company’s affiliates. In the second quarter of
2018, the Company launched its Triangle Rewards program and associated Triangle MasterCard, Triangle World
MasterCard and Triangle World Elite MasterCard credit cards. Certain existing customers were given the option
to upgrade from existing Canadian Tire card offerings and Canadian Tire Money loyalty program. Financial
Services also offers Cash Advantage MasterCard and Gas Advantage MasterCard products. Certain costs
associated with these activities were allocated to Financial Services for segment reporting purposes. Financial
Services includes CTB, a federally regulated financial institution that manages and finances the Company’s
consumer MasterCard and retail credit card portfolios, as well as an existing block of Canadian Tire branded
line of credit loans. CTB also offers HIS deposit accounts, TFSAs and GIC deposits, both directly and through
third-party brokers. Financial Services includes GCCT, a structured entity established to purchase co-ownership
interests in the Company’s credit card loans. GCCT issues debt to third-party investors to fund its purchases.
Page 107 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Performance is measured based on segment income before income taxes, as included in the internal management
reports. Management has determined that this measure is the most relevant in evaluating segment results and
allocating resources. Information regarding the results of each reportable operating segment is as follows:
(C$ in millions)
Retail
CT
REIT
Financial
Services
Eliminations
and
adjustments
2018
Total
Retail
CT
REIT
Financial
Services
Eliminations
and
adjustments
20171
Total
External revenue
$12,804.6 $
46.4 $ 1,216.1 $
(8.4) $14,058.7 $12,115.5 $
34.8 $ 1,131.9 $
(5.5) $13,276.7
Intercompany revenue
Total revenue
8.9
12,813.5
Cost of producing revenue
8,865.1
426.1
472.5
—
Gross margin
3,948.4
472.5
43.8
1,259.9
542.7
717.2
(478.8)
—
5.9
(487.2) 14,058.7
12,121.4
(60.4)
9,347.4
8,392.1
408.5
443.3
—
(426.8)
4,711.3
3,729.3
443.3
24.7
(439.1)
—
1,156.6
(444.6) 13,276.7
460.9
695.7
(56.5)
8,796.5
(388.1)
4,480.2
Other (income) expense
(157.1)
—
(0.3)
131.4
(26.0)
(123.5)
—
(0.7)
124.4
0.2
Selling, general and
administrative expenses2
3,439.8
120.8
326.1
(419.1)
3,467.6
3,188.8
109.3
308.5
(351.7)
3,254.9
Net finance (income) costs
(2.7)
104.4
—
—
(1.1)
—
50.9
50.0
151.5
50.0
(26.7)
—
96.4
—
(0.6)
—
43.5
—
Change in fair value of
redeemable financial
instrument
Fair value (gain) loss on
investment properties
—
(53.6)
—
53.6
—
—
(79.7)
—
79.7
Income before income taxes $
668.4 $ 300.9 $
392.5 $
(293.6) $ 1,068.2 $
690.7 $ 317.3 $
388.5 $
(284.0) $ 1,112.5
Items included in the above:
Depreciation and
amortization
Interest income
Interest expense
$
360.3 $
— $
10.0 $
57.7 $
428.0 $
382.1 $
— $
10.3 $
76.3 $
468.7
91.6
70.0
0.2
1,028.5
(72.7)
1,047.6
104.6
121.6
(73.7)
222.5
92.1
49.7
0.1
96.5
931.2
111.9
(72.6)
(79.9)
950.8
178.2
1 Certain prior period figures have been restated due to the adoption of new accounting standards (refer to Note 2).
2 Effective in 2018, the Company changed its depreciation method for certain depreciable assets (refer to Note 2).
The eliminations and adjustments include the following items:
• reclassifications of certain revenues and costs in the Financial Services segment to net finance costs;
• conversion from CT REIT’s fair value investment property valuation policy to the Company’s cost model, including
the recording of depreciation; and
• inter-segment eliminations and adjustments including intercompany rent, property management fees, credit card
processing fees and the change in fair value of the redeemable financial instrument.
While the Company primarily operates in Canada, following the acquisition of Helly Hansen, it now also operates in
foreign jurisdictions. Foreign revenue earned by Helly Hansen amounted to $295.5 million for the year ended
December 29, 2018. Property and equipment and intangible assets (brand and goodwill) located outside of Canada
was $979.1 million as at December 29, 2018.
Capital expenditures by reportable operating segment are as follows:
2018
2017
(C$ in millions)
Capital expenditures1
1 Capital expenditures are presented on an accrual basis and include software additions, but exclude acquisitions relating to business combinations, intellectual
Retail CT REIT
Retail CT REIT
567.0 $
116.6 $
413.6 $
215.4 $
440.7 $
13.1 $
9.7 $
642.1
Total
Total
$
Financial
Services
Financial
Services
properties and tenant allowances received.
112.6
—
—
Page 108 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Total assets by reportable operating segment are as follows:
(C$ in millions)
Retail
CT REIT
Financial Services
2018
$
11,894.3 $
5,708.7
6,345.6
2017
11,051.7
5,455.4
6,172.5
Eliminations and adjustments
Total assets1
1 The Company employs a shared-services model for several of its back-office functions, including finance, information technology, human resources and legal. As
a result, expenses relating to these functions are allocated on a systematic and rational basis to the reportable operating segments. The associated assets and
liabilities are not allocated among segments in the presented measures of segmented assets and liabilities.
17,286.8 $
(6,661.8)
(7,052.6)
15,627.0
$
Total liabilities by reportable operating segment are as follows:
(C$ in millions)
Retail
CT REIT
Financial Services
$
2018
5,239.3 $
2,623.8
5,407.1
2017
4,238.6
2,594.0
5,027.2
Eliminations and adjustments
Total liabilities1
1 The Company employs a shared-services model for several of its back-office functions, including finance, information technology, human resources and legal. As
a result, expenses relating to these functions are allocated on a systematic and rational basis to the reportable operating segments. The associated assets and
liabilities are not allocated among segments in the presented measures of segmented assets and liabilities.
11,871.8 $
(1,398.4)
(1,798.9)
10,060.9
$
The eliminations and adjustments include the following items:
• conversion from CT REIT’s fair value investment property valuation policy to the Company’s cost model, including
the recording of depreciation; and
• inter-segment eliminations.
7. Cash and Cash Equivalents
Cash and cash equivalents comprise the following:
(C$ in millions)
Cash
$
2018
125.2 $
2017
104.4
Cash equivalents
Restricted cash1
Total cash and cash equivalents2
1 Relates to GCCT and is restricted for the purpose of paying out note holders and additional funding costs of $16.2 million (2017 - $11.1 million) and other operational
470.4 $
321.5
324.8
437.0
11.1
20.4
$
items $4.2 million (2017 - nil).
2 Included in cash and cash equivalents are amounts held in reserve in support of Financial Services’ liquidity and regulatory requirements (refer to Note 31.1).
Page 109 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
8. Trade and Other Receivables
Trade and other receivables include the following:
(C$ in millions)
Trade receivables
Other receivables
Derivatives (Note 32)
Total financial assets
$
$
2018
618.6 $
167.8
146.9
933.3 $
2017
450.9
207.0
23.2
681.1
Trade receivables are primarily from Dealers, franchisees and Helly Hansen’s wholesale customers. This is a large
and geographically-dispersed group whose receivables, individually, generally comprise less than one percent of
the total balance outstanding. Other receivables are primarily receivables from vendors and tenants and insurance
receivables.
Receivables from Dealers are in the normal course of business and include cost-sharing and financing arrangements.
The net average credit period on sale of goods is between 0 and 120 days.
9. Loans Receivable
Quantitative information about the Company’s loans receivable portfolio is as follows:
Total principal amount of receivables1
2017
(C$ in millions)
Credit card loans2
Dealer loans3
Total loans receivable
Less: long-term portion4
Current portion of loans receivable
1 Amounts shown are net of allowance for loan impairment. Due to the adoption of IFRS 9, prior period figures presented are not comparable.
2
3 Dealer loans primarily relate to loans issued by Franchise Trust (refer to Note 21).
4 The long-term portion of loans receivable is included in long-term receivables and other assets and includes Dealer loans of $633.7 million (2017 – $624.5 million).
Includes line of credit loans and are expected to be recovered within one year of the reporting date.
5,484.2 $
5,511.3 $
5,567.5
6,146.2
6,240.4
5,613.2
662.0
634.9
672.9
627.2
2018
$
$
For the year ended December 29, 2018, cash received from interest earned on credit cards and loans was $959.6
million (2017 – $874.3 million).
The carrying amount of loans includes loans to Dealers that are secured by the assets of the respective Dealer
corporations. The Company’s exposure to loans receivable credit risk resides at Franchise Trust and at the Bank.
Credit risk at the Bank is influenced mainly by the individual characteristics of each credit card customer. The Bank
uses sophisticated credit scoring models, monitoring technology and collection modelling techniques to implement
and manage strategies, policies and limits that are designed to control risk. Loans receivable are generated by a
large and geographically-dispersed group of customers. Current credit exposure is limited to the loss that would be
incurred if all of the Bank’s counterparties were to default at the same time.
Page 110 of 145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
A continuity of the Company’s allowance for impairment on loans receivable is as follows:
(C$ in millions)
12-month ECL
(Stage 1)
Lifetime ECL - not
credit-impaired
(Stage 2)
Lifetime ECL -
credit-impaired
(Stage 3)
Balance at December 30, 2017 per IAS 39
$
— $
— $
— $
IFRS 9 adjustment
Balance at December 31, 2017 per IFRS 9
227.0
182.3
285.7
Increase (decrease) during the period
Total
111.0
584.0
695.0
Write-offs
Recoveries
New loans originated
Transfers
to Stage 1
to Stage 2
to Stage 3
Net remeasurements
(11.9)
53.9
73.2
(32.5)
(28.2)
(28.5)
(25.6)
(352.9)
(390.4)
—
(50.6)
36.7
(26.8)
70.1
75.4
—
(22.6)
(4.2)
55.0
289.1
75.4
53.9
—
—
—
—
330.7
764.6
Balance at December 29, 2018
$
253.0 $
186.1 $
325.5 $
Credit card loans are considered impaired when a payment is 90 days past due or there is sufficient doubt regarding
the collectability of the outstanding balance. No collateral is held against loans receivable, except for loans to Dealers,
as discussed above. The Bank continues to seek recovery on amounts that were written-off during the period, unless
the Bank no longer has the right to collect, the receivable has been sold to a third party, or all reasonable efforts to
collect have been exhausted.
The following table sets out information about the credit risk exposure of loans receivable:
(C$ in millions)
Low risk
Moderate risk
High risk
Total gross carrying amount
ECL allowance
Net carrying amount
Stage 1
2,119.3 $
1,864.4
836.6
4,820.3
253.0
4,567.3 $
$
$
Stage 2
Stage 3
210.6 $
251.9
290.4
752.9
186.1
566.8 $
— $
—
675.6
675.6
325.5
350.1 $
Total
2,329.9
2,116.3
1,802.6
6,248.8
764.6
5,484.2
Transfers of Financial Assets
Glacier Credit Card Trust
GCCT is a structured entity that was created to securitize the Bank’s credit card loans receivable. The Bank has
transferred co-ownership interest in credit card loans receivable to GCCT and has determined, for the purposes of
accounting, consolidation of GCCT is appropriate. The associated liabilities, as at December 29, 2018 and
December 30, 2017, secured by these assets, include the commercial paper notes and term notes on the Consolidated
Balance Sheets and are carried at amortized cost. The table below sets out the carrying amounts and the fair values
of the Bank’s transferred credit card loans receivable and the associated liabilities.
(C$ in millions)
Credit card loans receivable transferred1
Associated liabilities
Carrying amount
Fair value Carrying amount
Fair value
$
2,438.2 $
2,438.2 $
2,432.8
2,419.2
1,915.1 $
1,910.5
1,915.1
1,903.3
2018
2017
Net position
1 The fair value measurement of credit card loans receivable is categorized within Level 2 of the fair value hierarchy. For definitions of the levels refer to Note 32.2.
19.0 $
5.4 $
4.6 $
11.8
$
Page 111 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For legal purposes, the co-ownership interests in the Bank’s receivables owned by GCCT have been sold at law to
GCCT and are not available to the creditors of the Bank. Furthermore, GCCT’s liabilities are not legal liabilities of
the Company.
The Bank has not identified any factors arising from current market circumstances that could lead to a need for the
Bank to extend liquidity and/or credit support to GCCT over and above the existing arrangements or that could
otherwise change the substance of the Bank’s relationship with GCCT. There have been no relevant changes in the
capital structure of GCCT since the Bank’s assessment for consolidation.
Franchise Trust
The consolidated financial statements include a portion (silo) of Franchise Trust, a legal entity sponsored by a third-
party bank that originates and services loans to Dealers for their purchases of inventory and fixed assets (the “Dealer
loans”). The Company has arranged for several major Canadian banks to provide standby LCs to Franchise Trust
as credit support for the Dealer loans. Franchise Trust has sold all of its rights in the LCs and outstanding Dealer
loans to other independent trusts set up by major Canadian banks (the “Co-owner Trusts”) that raise funds in the
capital markets to finance their purchase of these undivided co-ownership interests. Due to the retention of
substantially all of the risks and rewards relating to these Dealer loans, the transfers are accounted for as secured
financing transactions. Accordingly, the Company continues to recognize the current portion of these assets in loans
receivable and the long-term portion in long-term receivables and other assets and records the associated liability
secured by these assets as loans payable, being the loans that Franchise Trust has incurred to fund the Dealer
loans. The Dealer loans and loans payable are initially recorded at fair value and subsequently carried at amortized
cost.
(C$ in millions)
Dealer loans1
Associated liabilities
Carrying amount
Fair value Carrying amount
Fair value
2018
2017
$
654.6 $
654.6
654.6 $
654.6
667.1 $
667.1
667.1
667.1
—
Net position
1 The fair value measurement of Dealer loans is categorized within Level 2 of the fair value hierarchy. For definitions of the levels refer to Note 32.2
— $
— $
— $
$
The Dealer loans have been sold at law and are not available to the creditors of the Company. Loans payable are
not legal liabilities of the Company.
In the event that a Dealer defaults on a loan, the Company has the right to purchase such loan from the Co-owner
Trusts, at which time the Co-owner Trusts will assign such Dealer’s debt instrument and related security
documentation to the Company. The assignment of this documentation provides the Company with first-priority
security rights over all of such Dealer’s assets, subject to certain prior ranking statutory claims.
In most cases, the Company would expect to recover any payments made to purchase a defaulted loan, including
any associated expenses. In the event the Company does not choose to purchase a defaulted Dealer loan, the Co-
owner Trusts may draw against the LCs.
The Co-owner Trusts may also draw against the LCs to cover any shortfalls in certain related fees owing to them.
In any case, where a draw is made against the LCs, the Company has agreed to reimburse the bank issuing the
LCs for the amount so drawn. Refer to Note 34 for further information.
Page 112 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. Long-Term Receivables and Other Assets
Long-term receivables and other assets include the following:
(C$ in millions)
Loans receivable (Note 9)
Derivatives (Note 32)
Mortgages receivable
Other receivables
Total long-term receivables
Other
$
$
2018
634.9 $
44.8
31.9
5.8
717.4
25.2
742.6 $
2017
627.2
46.1
14.8
4.9
693.0
24.8
717.8
11. Goodwill and Intangible Assets
The following table presents the changes in cost and accumulated amortization and impairment of the Company’s
goodwill and intangible assets:
(C$ in millions)
Cost
Balance, beginning of year
Additions2
Additions related to business combinations
Disposals/retirements3
Currency translation adjustment
Reclassifications and transfers
Balance, end of year
Accumulated amortization and impairment
Balance, beginning of year
Amortization for the year
Impairment
Disposals/retirements3
Reclassifications and transfers
Indefinite-life intangible assets and
goodwill
Finite-life intangible assets
Goodwill
Banners and
trademarks
Franchise
agreements
and other
intangibles
Software
Other
intangibles1
Total
2018
$
446.6 $
288.6 $
158.0 $
1,536.9 $
23.1 $
2,453.2
—
434.9
—
(18.0)
—
1.9
566.0
—
(23.8)
—
7.5
—
—
—
—
137.5
—
(626.3)
—
—
—
—
—
—
—
146.9
1,000.9
(626.3)
(41.8)
—
863.5 $
832.7 $
165.5 $
1,048.1 $
23.1 $
2,932.9
(1.9) $
(0.6) $
— $
(1,136.2) $
(21.6) $
(1,160.3)
—
—
—
—
—
—
—
—
—
—
—
—
(125.8)
—
626.0
—
(0.8)
(126.6)
—
—
—
—
626.0
—
$
$
Balance, end of year
$
(1.9) $
(0.6) $
— $
(636.0) $
(22.4) $
(660.9)
Net carrying amount, end of year
1 Relates to SportChek off-market leases.
2 Additions primarily relate to internally developed intangible assets.
3 Current year disposals includes $624.0 million of zero net book value assets no longer in use.
861.6 $
832.1 $
$
165.5 $
412.1 $
0.7 $
2,272.0
Page 113 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(C$ in millions)
Cost
Balance, beginning of year
Additions2
Disposals/retirements
Reclassifications and transfers
Balance, end of year
Accumulated amortization and impairment
Balance, beginning of year
Amortization for the year
Impairment
Disposals/retirements
Reclassifications and transfers
Indefinite-life intangible assets and goodwill
Finite-life intangible assets
Goodwill
Banners and
trademarks
Franchise
agreements
and other
intangibles
Software
Other
intangibles1
Total
2017
$
$
$
446.6 $
270.3 $
156.0 $
1,410.8 $
23.1 $
2,306.8
—
—
—
18.3
—
—
2.0
—
—
127.4
(3.6)
2.3
—
—
—
147.7
(3.6)
2.3
446.6 $
288.6 $
158.0 $
1,536.9 $
23.1 $
2,453.2
(1.9) $
(0.6) $
— $
(1,003.5) $
(20.5) $
(1,026.5)
—
—
—
—
—
—
—
—
—
—
—
—
(133.2)
(0.5)
(133.7)
—
2.8
(2.3)
—
—
(0.6)
—
2.8
(2.9)
Balance, end of year
$
(1.9) $
(0.6) $
— $
(1,136.2) $
(21.6) $
(1,160.3)
Net carrying amount, end of year
1 Relates to SportChek off-market leases.
2 Additions primarily relate to internally developed intangible assets.
$
444.7 $
288.0 $
158.0 $
400.7 $
1.5 $
1,292.9
The following table presents the details of the Company’s goodwill:
(C$ in millions)
Helly Hansen
SportChek
Mark’s
Canadian Tire
Total
$
$
2018
416.7
364.6 $
56.7
23.5
861.5 $
2017
n/a
364.6
56.7
23.4
444.7
The Company’s banners and trademarks, which include SportChek, Mark’s and Helly Hansen store banners and
trademarks and acquired private-label brands, represent legal trademarks of the Company with expiry dates ranging
from 2019 to 2033 with further renewals at the Company’s election and discretion dependent on use. As the Company
currently has no approved plans to change its store banners and intends to continue to use and renew its trademarks
and private-label brands at each expiry date for the foreseeable future, there is no foreseeable limit to the period
over which the assets are expected to generate net cash inflows. Therefore, these intangible assets are considered
to have indefinite useful lives.
Franchise agreements have expiry dates with options to renew, or have indefinite lives. As the Company intends to
renew these agreements at each renewal date for the foreseeable future, there is no foreseeable limit to the period
over which the franchise agreements and franchise locations will generate net cash inflows. Therefore, these assets
are considered to have indefinite useful lives.
Finite-life intangible assets are amortized over a term of 2 to 10 years. Off-market leases are amortized over the
term of the lease to which they relate.
The amount of borrowing costs capitalized in 2018 was $5.0 million (2017 - $2.4 million). The capitalization rate
used to determine the amount of borrowing costs capitalized during the year was 5.3 percent (2017 - 6.1 percent).
Amortization expense of software and other finite-life intangible assets is included in selling, general and administrative
expenses in the Consolidated Statements of Income.
Page 114 of 145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Impairment of Intangible Assets and Subsequent Reversal
The Company performed its annual impairment test on goodwill and indefinite-life intangible assets for all CGUs
based on VIU using after-tax discount rates ranging from 8.0 to 9.3 percent and growth rates ranging from 2.0 to 6.0
percent per annum.
There was no impairment or reversal of impairment of intangible assets in 2018 or 2017.
For all goodwill and intangible assets, the estimated recoverable amount is based on VIU exceeding the carrying
amount. There is no reasonably possible change in assumptions that would cause the carrying amount to exceed
the estimated recoverable amount.
12. Investment Property
The following table presents changes in the cost and the accumulated depreciation and impairment on the Company’s
investment property:
(C$ in millions)
Cost
Balance, beginning of year
Additions
Other 1
Balance, end of year
Accumulated depreciation and impairment
Balance, beginning of year
Depreciation for the year
Other 1
Balance, end of year
2018
391.6 $
119.3
(94.5)
416.4 $
(46.9) $
(2.0)
(2.8)
(51.7) $
2017
306.3
86.7
(1.4)
391.6
(39.9)
(7.8)
0.8
(46.9)
$
$
$
$
Net carrying amount, end of year
1 Other includes disposals, retirements, impairment, reversals of impairment, reclassifications and transfers. The current year includes a $70.0 million transfer to
364.7 $
344.7
$
property and equipment for a distribution centre in Alberta that became owner-occupied during the year.
The investment properties generated rental income of $50.0 million (2017 - $38.4 million).
Direct operating expenses (including repairs and maintenance) arising from investment property recognized in net
income were $22.0 million (2017 - $15.6 million).
The estimated fair value of investment property was $483.2 million (2017 - $488.6 million). This recurring fair value
measurement is categorized within Level 3 of the fair value hierarchy (refer to Note 32.2 for definition of levels). The
Company determines the fair value of investment property by applying a pre-tax capitalization rate to the annual
rental income for the current leases. The capitalization rate ranged from 4.75 percent to 7.75 percent (2017 - 4.85
percent to 7.69 percent). The cash flows are for a term of five years, including a terminal value. The Company has
real estate management expertise that is used to perform the valuation of investment property and has also completed
independent appraisals on certain investment property owned by CT REIT.
Impairment of Investment Property and Subsequent Reversal
Any impairment or reversals of impairment are reported in Other income in the Consolidated Statements of Income.
Page 115 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13. Property and Equipment
The following table presents changes in the cost and the accumulated depreciation and impairment on the Company’s
property and equipment:
(C$ in millions)
Cost
Land
Buildings
Fixtures and
equipment
Leasehold
improvements
Assets under
finance lease
Construction
in progress
2018
Total
Balance, beginning of year
$
955.1 $
3,289.2 $
1,606.5 $
1,370.9 $
218.5 $
161.4 $ 7,601.6
Additions
Additions related to business
combinations
Disposals/retirements1
Currency translation adjustment
Reclassifications and transfers2
1.8
—
—
14.9
65.1
0.6
(9.6)
—
44.8
157.1
13.6
(255.5)
(0.9)
14.3
83.0
4.9
(135.1)
(0.3)
(4.0)
1.6
—
(10.4)
—
(10.1)
1.4
310.0
1.7
(8.0)
(0.2)
9.3
20.8
(418.6)
(1.4)
69.2
Balance, end of year
$
971.8 $
3,390.1 $
1,535.1 $
1,319.4 $
199.6 $
165.6 $ 7,581.6
Accumulated depreciation and
impairment
Balance, beginning of year
$
(7.0) $
(1,589.0) $
(1,035.7) $
(626.7) $
(149.9) $
— $ (3,408.3)
Depreciation for the year
Disposals/retirements1
Reclassifications and transfers
—
—
—
(80.3)
8.2
8.6
(121.3)
253.8
(8.6)
(87.8)
135.0
(3.8)
(10.0)
9.4
6.7
—
—
—
(299.4)
406.4
2.9
Balance, end of year
$
(7.0) $
(1,652.5) $
(911.8) $
(583.3) $
(143.8) $
— $ (3,298.4)
Net carrying amount, end of year
1 Current year disposals includes $380.6 million of zero net book value assets no longer in use.
2 Current year reclassification and transfers includes a $70.0 million transfer from investment property for a distribution centre in Alberta that became owner-occupied
165.6 $ 4,283.2
1,737.6 $
964.8 $
736.1 $
623.3 $
55.8 $
$
during the year.
(C$ in millions)
Cost
Land
Buildings
Fixtures and
equipment
Leasehold
improvements
Assets under
finance lease
Construction
in progress
2017
Total
Balance, beginning of year
$
911.2 $
2,943.9 $
1,382.0 $
1,306.4 $
223.0 $
425.9 $ 7,192.4
Additions
Disposals/retirements
Reclassifications and transfers
44.5
(0.8)
0.2
346.5
(1.2)
—
222.6
(14.0)
15.9
67.0
(3.1)
0.6
15.7
(3.0)
(17.2)
(262.1)
(10.0)
7.6
434.2
(32.1)
7.1
Balance, end of year
$
955.1 $
3,289.2 $
1,606.5 $
1,370.9 $
218.5 $
161.4 $ 7,601.6
Accumulated depreciation and
impairment
Balance, beginning of year
$
(6.6) $
(1,481.6) $
(919.1) $
(535.0) $
(152.9) $
— $ (3,095.2)
Depreciation for the year
Impairment
Disposals/retirements
Reclassifications and transfers
Balance, end of year
Net carrying amount, end of year
—
(0.5)
—
0.1
(104.1)
(119.5)
(0.4)
1.0
(3.9)
(0.9)
12.5
(8.7)
(91.2)
(1.2)
3.0
(2.3)
(12.4)
—
2.6
12.8
—
—
—
—
(327.2)
(3.0)
19.1
(2.0)
$
$
(7.0) $
(1,589.0) $
(1,035.7) $
948.1 $
1,700.2 $
570.8 $
(626.7) $
744.2 $
(149.9) $
— $ (3,408.3)
68.6 $
161.4 $ 4,193.3
The Company capitalized borrowing costs of $5.8 million (2017 - $12.8 million) on indebtedness relating to property
and equipment under construction. The rate used to determine the amount of borrowing costs capitalized during
the year was 4.8 percent (2017 - 6.1 percent).
The carrying amount of assets under finance leases at December 29, 2018, comprises $25.2 million (2017 - $28.9
million) in buildings and $30.6 million (2017 - $39.7 million) in fixtures and equipment.
Page 116 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Impairment of Property and Equipment and Subsequent Reversal
There was no impairment of property and equipment in 2018 (2017 - $3.0 million). There was no reversal of impairment
in 2018 or 2017. Any impairment or reversal of impairment is reported in Other income in the Consolidated Statements
of Income.
14. Subsidiaries
14.1 Control of Subsidiaries and Composition of the Company
These consolidated financial statements include entities controlled by Canadian Tire Corporation. Control exists
when Canadian Tire Corporation has the ability to direct the relevant activities and the returns of an entity. The
financial statements of these entities are included in these consolidated financial statements from the date that control
commences until the date that control ceases. Details of the Company’s significant entities are as follows:
Name of subsidiary
CTFS Holdings Limited1
Principal activity
Marketing of insurance products, processing credit
card transactions at Canadian Tire stores, banking
and reinsurance
Canadian Tire Real Estate Limited
Real estate
CT Real Estate Investment Trust
FGL Sports Ltd. (“SportChek”)2
Franchise Trust3
Glacier Credit Card Trust4
Mark’s Work Wearhouse Ltd.
Helly Hansen Group AS
Real estate
Retailer of sporting equipment, apparel and
footwear
Canadian Tire Dealer Loan Program
Financing program to purchase co-ownership
interests in Canadian Tire Bank’s credit card loans
Retailer of clothing and footwear
Holding company for “Helly Hansen” branded global
whole-seller of sportswear and workwear
Country of
incorporation
and operation
Canada
Ownership Interest
2018
80.0%
2017
80.0%
Canada
Canada
Canada
Canada
Canada
Canada
Norway
100.0%
76.2%
100.0%
0.0%
0.0%
100.0%
100.0%
100.0%
85.5%
100.0%
0.0%
0.0%
100.0%
0.0%
1 Legal entity CTFS Holdings Limited, incorporated in 2014, is the parent company of CTB and CTFS Bermuda Ltd. CTB's principal activity is banking, marketing
2
of insurance products and processing credit card transactions at the Company’s stores. CTFS Bermuda Ltd.’s principal activity is reinsurance.
“SportChek” refers to the retail business carried on by FGL Sports Ltd., including stores operated under the SportChek, Sports Experts, Atmosphere, National
Sports, Sports Rousseau and Hockey Experts names and trademarks.
3 Franchise Trust is a legal entity sponsored by a third-party bank that originates loans to Dealers under the Dealer Loan program. The Company does not have
any share ownership in Franchise Trust. However, the Company has determined that it has the ability to direct the relevant activities and returns on the silo of
assets and liabilities of Franchise Trust that relate to the Canadian Tire Dealer Loan Program. As the Company has control over this silo of assets and liabilities,
it is consolidated in these financial statements.
4 GCCT was formed to meet specific business needs of the Company, namely to buy co-ownership interests in the Company’s credit card loans. GCCT issues debt
to third-party investors to fund its purchases. The Company does not have any share ownership in GCCT. However, the Company has determined that it has the
ability to direct the relevant activities and returns of GCCT. As the Company has control over GCCT, it is consolidated in these financial statements.
14.2 Details of Non-wholly Owned Subsidiaries that have Non-Controlling Interests
The portion of net assets and income attributable to third parties is reported as non-controlling interests and net
income attributable to non-controlling interests in the Consolidated Balance Sheets and Consolidated Statements
of Income, respectively. The non-controlling interests of CT REIT and CTFS Holdings Limited were initially measured
at fair value on the date of acquisition.
Page 117 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the information relating to non-controlling interests:
(C$ in millions)
Non-controlling interests
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Revenue
Net income attributable to non-controlling interests
Equity attributable to non-controlling interests
CT REIT1
23.8%
CTFS
Holdings
Limited2
20.0%
9.7
$
5,993.9
$
5,699.0
99.0
2,524.8
3,084.9
472.5
30.2
555.6
$
$
346.7
2,223.8
3,178.3
938.5
1,355.5
56.6
485.7
$
$
$
$
$
2018
Total
6,014.0
6,075.7
2,326.7
5,722.7
4,040.3
2,046.9
90.9
1,048.8
Other3
50.0%
10.4
30.0
3.9
19.6
16.9
218.9
4.1
7.5
$
$
$
Distributions to non-controlling interests
1 Net income attributable to non-controlling interests is based on net income of CT REIT adjusted to convert to the Company’s cost method, including recording of
(10.5)
(25.3)
(39.6)
(3.8)
depreciation.
2 Net income attributable to non-controlling interests is based on the net income of CTFS Holdings Limited adjusted for contractual requirements as stipulated in
the Universal Shareholder Agreement.
3 Net income attributable to non-controlling interests is based on net income of the subsidiary adjusted for contractual requirements as stipulated in the ownership
agreement.
(C$ in millions)
Non-controlling interests
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Revenue
Net income attributable to non-controlling interests
Equity attributable to non-controlling interests
CT REIT1
14.5%
CTFS
Holdings
Limited2
20.0%
$
15.9
$
5,942.7
$
5,439.5
225.9
2,368.0
2,861.5
443.3
23.1
293.0
$
$
232.2
2,028.3
2,998.9
1,147.7
1,239.4
56.0
523.1
$
$
$
$
Other3
50.0%
15.4
31.5
5.6
21.5
19.8
209.6
4.7
7.2
$
$
$
2017
Total
5,974.0
5,703.2
2,259.8
5,388.4
4,029.0
1,892.3
83.8
823.3
(63.4)
Distributions to non-controlling interests
1 Net income attributable to non-controlling interests is based on net income of CT REIT adjusted to convert to the Company’s cost method, including recording of
(21.5)
(38.7)
(3.2)
depreciation.
2 Net income attributable to non-controlling interests is based on the net income of CTFS Holdings Limited adjusted for contractual requirements as stipulated in
the Universal Shareholder agreement.
3 Net income attributable to non-controlling interests is based on net income of the subsidiary adjusted for contractual requirements as stipulated in the ownership
agreement.
14.3 Change in the Company's Ownership Interest in a Subsidiary
During the year, the Company reduced its interest in CT REIT from 85.5% to 76.2% and CT REIT completed a
treasury unit offering, for gross proceeds of approximately $200.0 million and $65.0 million and net transaction costs
of $8.2 million and $2.7 million respectively. As a result, $254.1 million has been transferred to non-controlling
interests.
Page 118 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. Income Taxes
15.1 Deferred Income Tax Assets and Liabilities
The amount of deferred tax assets or liabilities recognized in the Consolidated Balance Sheets and the corresponding
movement recognized in the Consolidated Statements of Income, Consolidated Statements of Changes in Equity,
or resulting from a business combination is as follows:
(C$ in millions)
Provisions, deferred revenue and
reserves
Property and equipment
Intangible assets
Employee benefits
Cash flow hedges
Finance leases
Non-capital losses carryforward
Other
Net deferred tax asset (liability)1
1
Balance,
beginning of
year
Recognized
in profit or
loss
Recognized in
other
comprehensive
income
Recognized
in equity
Other
adjustments
Balance,
end of year
2018
$
173.8 $
(29.5) $
— $
163.9 $
(52.9)
(169.8)
43.2
13.2
14.6
3.3
(10.5)
14.9 $
$
(13.8)
14.3
1.1
—
(1.0)
(5.0)
13.8
—
—
(3.9)
(48.0)
—
—
—
6.3
5.5
—
1.2
—
(1.6)
0.1
3.2 $
—
(127.5)
—
—
—
37.0
0.3
311.4
(60.4)
(277.5)
40.4
(33.6)
13.6
33.7
3.7
31.3
2017
Includes the net amount of deferred tax assets of $215.8 million and deferred tax liabilities of $184.5 million.
(20.1) $
(51.9) $
175.4 $
(87.0) $
(C$ in millions)
Provisions, deferred revenue and
reserves
Property and equipment
Intangible assets
Employee benefits
Cash flow hedges
Finance leases
Non-capital losses carryforward
Other
Net deferred tax asset (liability)1
Balance,
beginning of
year
Recognized in
profit or loss
Recognized in
other
comprehensive
income
Recognized in
equity
Other
adjustments
Balance,
end of year
$
155.6 $
(37.9)
(170.6)
39.7
(13.2)
14.7
2.8
(10.2)
(19.1) $
$
17.6 $
(14.5)
1.7
1.2
—
(0.1)
0.5
0.1
— $
—
—
2.3
26.4
—
—
—
— $
0.3
—
—
—
—
—
—
6.5 $
28.7 $
0.3 $
0.6 $
(0.8)
(0.9)
—
—
—
—
(0.4)
(1.5) $
173.8
(52.9)
(169.8)
43.2
13.2
14.6
3.3
(10.5)
14.9
1
Includes the net amount of deferred tax assets of $117.2 million and deferred tax liabilities of $102.3 million.
No deferred tax is recognized on the amount of temporary differences arising from the difference between the carrying
amount of the investment in subsidiaries, branches and associates and interests in joint arrangements accounted
for in these consolidated financial statements and the cost amount for tax purposes of the investment. The Company
is able to control the timing of the reversal of these temporary differences and believes it is probable that they will
not reverse in the foreseeable future. The amount of these taxable temporary differences was approximately $2.4
billion at December 29, 2018 (2017 - $2.4 billion).
No deferred tax asset is recognized for the carryforward of unused tax losses and unused tax credits to the extent
that it is not probable that future taxable profit will not be available against which they can be utilized. The amount
of these deductible temporary differences was approximately $150.4 million at December 29, 2018 (2017 - nil).
Page 119 of 145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15.2 Income Tax Expense
The following are the major components of income tax expense:
(C$ in millions)
Current tax expense
Current period
Adjustments with respect to prior years
Deferred tax expense (benefit)
Deferred income tax expense relating to the origination and reversal of temporary
differences
Deferred income tax (benefit) adjustments with respect to prior years
Deferred income tax (benefit) expense resulting from change in tax rate
Total income tax expense
$
$
$
$
Income tax expense (benefit) recognized in other comprehensive income was as follows:
(C$ in millions)
(Losses) on derivatives designated as cash flow hedges and available-for-sale
financial assets
Net fair value (losses) on hedging instruments entered into for cash flow hedges
not subject to basis adjustment
Deferred cost of hedging not subject to basis adjustment - Changes in fair value of
the time value of an option in relation to time-period related hedged items
Reclassification of losses to non-financial assets
Reclassification of losses (gains) to income
Net fair value gains on hedging instruments entered into for cash flow hedges
subject to basis adjustment
Actuarial gains (losses)
Total income tax expense (benefit)
$
$
2018
264.3 $
0.8
265.1 $
23.4 $
(2.2)
(1.1)
20.1
285.2 $
2018
n/a $
(2.6)
(2.7)
n/a
1.6
51.7
3.9
51.9 $
2017
291.9
8.3
300.2
4.4
(11.9)
1.0
(6.5)
293.7
2017
(31.2)
n/a
n/a
6.9
(2.1)
n/a
(2.3)
(28.7)
Reconciliation of Income Tax Expense
Income taxes in the Consolidated Statements of Income vary from amounts that would be computed by applying the
statutory income tax rate for the following reasons:
(C$ in millions)
Income before income taxes
Income taxes based on the applicable statutory tax rate of 26.70% (2017 -
26.66%)
Adjustment to income taxes resulting from:
Non-deductible (non-taxable) stock option (recovery) expense
Non-deductible acquisition-related costs
Non-deductibility of change in fair value of redeemable financial instrument
Non-taxable portion of capital gains
Income attributable to non-controlling interest in flow-through entities
Other
Income tax expense
$
$
2018
1,068.2 $
2017
1,112.5
285.2 $
296.5
(1.6)
2.9
13.3
(3.4)
(9.1)
(2.1)
5.7
—
—
(0.1)
(7.4)
(1.0)
$
285.2 $
293.7
The applicable statutory tax rate is the aggregate of the Canadian federal income tax rate of 15.0 percent (2017 -
15.0 percent) and the Canadian provincial income tax rate of 11.70 percent (2017 - 11.66 percent).
Page 120 of 145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In the ordinary course of business, the Company is subject to ongoing audits by tax authorities. While the Company
has determined that its tax filing positions are appropriate and supportable, from time to time certain matters are
reviewed and challenged by the tax authorities.
The Company regularly reviews the potential for adverse outcomes with respect to tax matters. The Company
believes that the ultimate disposition of these will not have a material adverse effect on its liquidity, Consolidated
Balance Sheets, or net income because the Company has determined that it has adequate provision for these tax
matters. Should the ultimate tax liability materially differ from the provision, the Company’s effective tax rate and its
earnings could be affected positively or negatively in the period in which the matters are resolved.
16. Deposits
Deposits consist of broker deposits and retail deposits.
Cash from broker deposits is raised through sales of GICs through brokers rather than directly to the retail customer.
Broker deposits are offered for varying terms ranging from 30 days to five years and issued broker GICs are non-
redeemable prior to maturity (except in certain rare circumstances). Total short-term and long-term broker deposits
outstanding at December 29, 2018, were $1,898.8 million (2017 - $1,746.5 million).
Retail deposits consist of HIS deposits, retail GICs and TFSA deposits. Total retail deposits outstanding at
December 29, 2018, were $572.4 million (2017 - $640.3 million).
For repayment requirements of deposits refer to Note 5.4. The following are the effective rates of interest:
GIC deposits
HIS account deposits
17. Trade and Other Payables
Trade and other payables include the following:
(C$ in millions)
Trade payables and accrued liabilities
Derivatives (Note 32)
Total financial liabilities
Deferred revenue
Insurance reserve
Other
2018
2.75%
1.59%
2017
2.67%
1.40%
$
$
2018
2,034.4 $
21.4
2,055.8
216.2
14.4
138.6
20171
1,780.8
74.9
1,855.7
196.1
15.2
163.8
2,425.0 $
2,230.8
1 Certain prior period figures have been restated due to the adoption of new accounting standards (refer to Note 2).
Deferred revenue consists mainly of unearned revenue relating to gift cards and customer loyalty program rewards.
Deferred revenue will be recognized as revenue as the customer utilizes gift cards and loyalty rewards are redeemed.
The majority of deferred revenue is expected to be redeemed within one year from issuance. $194.4 million included
in deferred revenue at the beginning of the period was recognized as revenue in 2018 (2017 - $156.3 million).
Other consists primarily of the short-term portion of share based payment transactions and sales taxes payable.
The credit range period on trade payables is one to 270 days (2017 - one to 270 days).
Page 121 of 145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
18. Provisions
The following table presents the changes to the Company’s provisions:
(C$ in millions)
Balance, beginning of year
Charges, net of reversals
Utilizations
Discount adjustments
Balance, end of year
Current provisions
Long-term provisions
19. Contingencies
$
$
Sales and
warranty
returns
Site restoration
and
decommissioning
Other
147.6 $
40.2 $
16.8 $
563.6
(545.3)
1.7
167.6 $
160.2
7.4
1.0
(1.6)
(1.2)
7.2
(8.4)
—
38.4 $
15.6 $
4.3
34.1
7.3
8.3
2018
Total
204.6
571.8
(555.3)
0.5
221.6
171.8
49.8
Legal Matters
The Company is party to a number of legal and regulatory proceedings. The Company has determined that each
such proceeding constitutes a routine matter incidental to the business conducted by the Company and that the
ultimate disposition of the proceedings will not have a material effect on its consolidated net income, cash flows, or
financial position.
The Bank’s commodity tax assessments for the years 2011 through 2015 have been appealed to the Tax Court of
Canada. The Bank is of the view that certain credit card processing services are exempt financial services under
the Excise Tax Act (Canada). Although the Court has recently ruled in a proceeding unrelated to the Bank that similar
processing services are subject to Federal and Quebec sales taxes, that decision is currently under appeal and the
Bank is of the view that there is a more likely than not chance that its position will be accepted by the Courts and
the services will be viewed as exempt financial services. Accordingly, no provision has been made for amounts that
would be payable in the event of an adverse outcome. If the Court rules against the Bank, the total aggregate
exposure as of 2018 would not be significant.
20. Short-Term Borrowings
Short-term borrowings include commercial paper notes issued by GCCT, bank line of credit borrowings and factoring
facility borrowings. Short-term borrowings may bear interest payable at maturity or be sold at a discount and mature
at face value.
The commercial paper notes are short-term notes issued with varying original maturities of one year or less at interest
rates fixed at the time of each renewal and are recorded at amortized cost. As at December 29, 2018, $294.3 million
(2017 - $90.7 million) of commercial paper notes were outstanding.
As at December 29, 2018, $15.0 million (2017 - $53.9 million) of bank line of credit borrowings had been drawn on
CT REIT’s Bank Credit Facility. Helly Hansen had a total of $68.8 million of Canadian Dollar equivalent borrowings
outstanding across its committed bank lines of credit (175.0 million Norwegian Krone [“NOK”]) and its factoring facility
(265.8 million NOK). CTC had no borrowings under its bank lines as at December 29, 2018.
Page 122 of 145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
21. Loans Payable
Franchise Trust, a special purpose entity, is a legal entity sponsored by a third-party bank that originates loans to
Dealers. Loans payable are the loans that Franchise Trust incurs to fund loans to Dealers. These loans are not
direct legal liabilities of the Company but have been consolidated in the accounts of the Company as the Company
effectively controls the silo of Franchise Trust containing the Dealer Loan Program.
Loans payable, which are initially recognized at fair value and are subsequently measured at amortized cost, are
due within one year.
22. Long-Term Debt
Long-term debt includes the following:
(C$ in millions)
Senior notes (GCCT)
Face value Carrying amount
Face value Carrying amount
2018
2017
Series 2013-1, 2.755%, November 20, 2018
$
— $
— $
250.0 $
Series 2014-1, 2.568%, September 20, 2019
Series 2015-1, 2.237%, September 20, 2020
Series 2017-1, 2.048%, September 20, 2022
Series 2018-1, 3.138%, September 20, 2023
Subordinated notes (GCCT)
Series 2013-1, 3.275%, November 20, 2018
Series 2014-1, 3.068%, September 20, 2019
Series 2015-1, 3.237%, September 20, 2020
Series 2017-1, 3.298%, September 20, 2022
Series 2018-1, 4.138%, September 20, 2023
Medium-term notes and debentures (CT REIT)
2.159% due June 1, 2021
2.852% due June 9, 2022
3.527% due June 9, 2025
3.289% due June 1, 2026
3.469% due June 16, 2027
3.865% due December 7, 2027
Medium-term notes and debentures (CTC)
2.646% due July 6, 2020
3.167% due July 6, 2023
6.375% due April 13, 2028
6.445% due February 24, 2034
5.61% due September 4, 2035
Finance lease obligations
Mortgages
Promissory note
Total debt
Current
Non-current
472.5
465.0
523.6
546.0
—
27.5
35.0
36.4
38.0
150.0
150.0
200.0
200.0
175.0
200.0
250.0
400.0
150.0
200.0
200.0
108.0
37.1
0.9
472.2
464.3
521.7
543.4
—
27.5
35.0
36.4
38.0
149.6
149.5
198.9
199.0
174.0
198.8
249.5
398.6
150.6
201.3
199.6
108.0
37.1
0.9
472.5
465.0
523.6
—
14.6
27.5
35.0
36.4
—
150.0
150.0
200.0
200.0
175.0
—
—
—
150.0
200.0
200.0
123.4
44.0
1.4
$
4,565.0 $
4,553.9 $
3,418.4 $
553.6
4,011.4
553.6
4,000.3
282.3
3,136.1
249.7
471.5
463.8
521.2
—
14.6
27.5
35.0
36.4
—
149.3
149.3
198.7
198.7
173.5
—
—
—
148.7
198.2
199.5
123.4
44.0
1.4
3,404.4
282.3
3,122.1
Page 123 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The carrying amount of long-term debt is net of debt issuance costs of $16.2 million (2017 - $14.0 million).
Senior and Subordinated Notes
Asset-backed senior and subordinated notes issued by GCCT are recorded at amortized cost using the effective
interest method.
Subject to the payment of certain priority amounts, the senior notes have recourse on a priority basis to the related
series ownership interest. The subordinated notes have recourse to the related series ownership interests on a
subordinated basis to the senior notes in terms of the priority of payment of principal and, in some circumstances,
interest. The asset-backed notes, together with certain other permitted obligations of GCCT, are secured by the
assets of GCCT. The entitlement of note holders and other parties to such assets is governed by the priority and
payment provisions set forth in the GCCT’s Trust Indenture dated as of November 29, 1995, as amended and related
series supplements under which these series of notes were issued.
Repayment of the principal of the series 2014-1, 2015-1, 2017-1 and 2018-1 notes is scheduled for the expected
repayment dates indicated in the preceding table. Subsequent to the expected repayment date, collections distributed
to GCCT with respect to the related ownership interest will be applied to pay any remaining amount owing.
Principal repayments may commence earlier than these scheduled commencement dates if certain events occur
including:
• the Bank failing to make required payments to GCCT or failing to meet covenant or other contractual terms;
• the performance of the receivables failing to achieve set criteria; and
• insufficient receivables in the pool.
None of these events occurred in the year ended December 29, 2018.
Medium-Term Notes and Debentures
Medium-term notes and debentures are unsecured and are redeemable by the Company, in whole or in part, at any
time, at the greater of par or a formula price based upon interest rates at the time of redemption.
During the first quarter of 2018, CT REIT issued $200.0 million aggregate principal amount of senior unsecured
debentures. The debentures have a coupon rate of 3.865 percent and mature December 7, 2027.
On July 3, 2018, the Company completed the issuance of $650.0 million aggregate principal amount of unsecured
medium-term notes, consisting of $250.0 million aggregate principal amount of 2.646 percent Series E Unsecured
Medium-Term Notes due July 6, 2020 and $400.0 million aggregate principal amount of 3.167 percent Series F
Unsecured Medium-Term Notes due July 6, 2023.
On September 13, 2018, GCCT completed the issuance of $584.0 million term notes that have an expected repayment
date of September 20, 2023, consisting of $546.0 million principal amount of senior notes that bear an interest rate
of 3.138 percent per annum and $38.0 million principal amount of subordinated notes that bear an interest rate of
4.138 percent per annum.
Finance Lease Obligations
Finance leases relate to distribution centres, fixtures and equipment. The Company generally has the option to
renew such leases or purchase the leased assets at the conclusion of the lease term. During 2018, interest rates
on finance leases ranged from 0.6 percent to 8.0 percent. Remaining terms at December 29, 2018, were five to 96
months.
Page 124 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Finance lease obligations are payable as follows:
(C$ in millions)
Future
minimum
lease
payments
Interest
2018
Present
value of
future
minimum
lease
payments
2017
Present value
of future
minimum
lease
payments
Future
minimum
lease
payments
Interest
Due in less than one year
$
22.1 $
6.3 $
15.8 $
24.4 $
7.0 $
Due between one year and two years
Due between two years and three years
Due between three years and four years
Due between four years and five years
Due in more than five years
20.6
19.5
18.5
15.2
38.8
5.5
4.5
3.7
2.9
3.8
15.1
15.0
14.8
12.3
35.0
21.7
20.0
19.0
18.2
53.8
6.2
5.5
4.6
3.7
6.7
17.4
15.5
14.5
14.4
14.5
47.1
$
134.7 $
26.7 $
108.0 $
157.1 $
33.7 $
123.4
Mortgages
Mortgages payable at December 29, 2018 had a weighted average interest rate of 3.81% percent and a maturity
date of December 8, 2019.
Promissory Notes
Promissory notes were issued as part of franchise acquisitions in 2015. These notes are non-interest bearing.
23. Other Long-Term Liabilities
Other long-term liabilities include the following:
(C$ in millions)
Redeemable financial instrument1
Employee benefits (Note 24)
Deferred gains
Derivatives (Note 32)
Deferred revenue
Other
$
$
2018
567.0 $
151.9
11.0
5.0
2.0
135.4
872.3 $
2017
517.0
162.4
12.5
3.6
2.7
150.0
848.2
1 A financial liability; refer to Note 32 for further information on the redeemable financial instrument.
Deferred gains relate to the sale and leaseback of certain distribution centres. The deferred gains are amortized
over the terms of the leases.
Other includes the long-term portion of share-based payment transactions, deferred lease inducements and straight-
line rent liabilities.
Page 125 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
24. Employment Benefits
Profit-Sharing Program
The Company has a profit-sharing program for certain employees. The amount awarded to employees is contingent
on the Company’s profitability but shall be equal to at least one percent of the Company’s previous year’s net profits
after income tax. A portion of the award (“Base Award”) is contributed to a DPSP for the benefit of the employees.
The maximum amount of the Company’s Base Award contribution to the DPSP per employee per year is subject to
limits set by the Income Tax Act. Each participating employee is required to invest and maintain 10 percent of the
Base Award in a Company share fund of the DPSP. The share fund holds both Common Shares and Class A Non-
Voting Shares. The Company’s contributions to the DPSP, with respect to each employee, vest 20 percent after one
year of continuous service and 100 percent after two years of continuous service.
In 2018, the Company contributed $24.1 million (2017 - $23.5 million) under the terms of the DPSP.
Defined Benefit Plan
The Company provides certain health care, dental care, life insurance and other benefits for certain retired employees
pursuant to Company policy. The Company does not have a pension plan. Information about the Company’s defined
benefit plan is as follows:
(C$ in millions)
Change in the present value of defined benefit obligation
2018
Defined benefit obligation, beginning of year
$
162.4 $
Current service cost
Interest cost
Actuarial (gain) arising from changes in demographic assumptions
Actuarial (gain) loss arising from changes in financial assumptions
Actuarial loss (gain) arising from changes in experience assumptions
Benefits paid
2.1
5.6
(6.8)
(13.5)
5.6
(3.5)
Defined benefit obligation, end of year1
151.9 $
1 The accrued benefit obligation is not funded because funding is provided when benefits are paid. Accordingly, there are no plan assets.
$
Significant actuarial assumptions used:
Defined benefit obligation, end of year:
Discount rate
Net benefit plan expense for the year:
Discount rate
2018
3.90%
3.50%
2017
149.3
1.9
5.7
—
9.9
(1.1)
(3.3)
162.4
2017
3.50%
3.90%
For measurement purposes, a 4.08 percent weighted average health care cost trend rate is assumed for 2018 (2017
- 4.67 percent). The rate is assumed to decrease gradually to 2.11 percent for 2040 and remain at that level thereafter.
The most recent actuarial valuation of the obligation was performed as of December 29, 2018.
The cumulative amount of actuarial losses before tax recognized in equity at December 29, 2018, was $41.9 million
(2017 - $56.6 million).
Page 126 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Sensitivity Analysis:
The Company’s defined benefit plan is exposed to actuarial risks such as the health care cost trend rate, the discount
rate and the life expectancy assumptions. The following tables provide the sensitivity of the defined benefit obligation
to these assumptions. For each sensitivity test, the impact of a reasonably possible change in a single factor is
shown with other assumptions left unchanged.
(C$ in millions)
Sensitivity analysis
A fifty basis point change in assumed discount rates
$
A one-percentage-point change in assumed health care cost trend rates
A one-year change in assumed life expectancy
2018
Accrued benefit obligation
Increase
Decrease
(11.5) $
14.0
3.4
13.0
(12.1)
(3.4)
The weighted-average duration of the defined benefit plan obligation at December 29, 2018 is 16.1 years (2017 -
16.6 years).
25. Share Capital
Share capital consists of the following:
(C$ in millions)
Authorized
3,423,366 Common Shares
100,000,000 Class A Non-Voting Shares
Issued
3,423,366 Common Shares (2017 - 3,423,366)
59,478,460 Class A Non-Voting Shares (2017 - 63,066,561)
2018
2017
$
$
0.2 $
591.3
591.5 $
0.2
615.5
615.7
All issued shares are fully paid. The Company does not hold any of its Common or Class A Non-Voting Shares.
Neither the Common nor Class A Non-Voting Shares have a par value.
During 2018 and 2017, the Company issued and repurchased Class A Non-Voting Shares. The Company’s share
repurchases were made pursuant to its NCIB program.
The following transactions occurred with respect to Class A Non-Voting Shares during 2018 and 2017:
(C$ in millions)
Shares outstanding at beginning of the year
Issued under the dividend reinvestment plan1
Repurchased2
Excess of purchase price over average cost
Number
63,066,561 $
73,010
2018
$
615.5
11.9
Number
67,323,781 $
60,785
(3,661,111)
(588.9)
(4,318,005)
—
552.8
—
2017
$
647.9
9.4
(659.3)
617.5
Shares outstanding at end of the period
1
2 Repurchased shares, pursuant to the Company’s NCIB program, have been restored to the status of authorized but unissued shares. The Company records
Includes 776 shares issued pursuant to the Company`s stock option program. The associated cost of these shares is $0.1.
59,478,460 $
63,066,561 $
591.3
615.5
shares repurchased on a transaction date basis.
Page 127 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Conditions of Class A Non-Voting Shares and Common Shares
The holders of Class A Non-Voting Shares are entitled to receive a fixed cumulative preferential dividend at the rate
of $0.01 per share per annum. After payment of fixed cumulative preferential dividends at the rate of $0.01 per share
per annum on each of the Class A Non-Voting Shares with respect to the current year and each preceding year and
payment of a non-cumulative dividend on each of the Common Shares with respect to the current year at the same
rate, the holders of the Class A Non-Voting Shares and the Common Shares are entitled to further dividends declared
and paid in equal amounts per share without preference or distinction or priority of one share over another.
In the event of the liquidation, dissolution, or winding up of the Company, all of the property of the Company available
for distribution to the holders of the Class A Non-Voting Shares and the Common Shares shall be paid or distributed
equally, share for share, to the holders of the Class A Non-Voting Shares and to the holders of the Common Shares
without preference or distinction or priority of one share over another.
The holders of Class A Non-Voting Shares are entitled to receive notice of and to attend all meetings of the
shareholders; however, except as provided by the Business Corporations Act (Ontario) and as hereinafter noted,
they are not entitled to vote at those meetings. Holders of Class A Non-Voting Shares, voting separately as a class,
are entitled to elect the greater of (i) three Directors or (ii) one-fifth of the total number of the Company’s Directors.
The holders of Common Shares are entitled to receive notice of, to attend and to have one vote for each Common
Share held at all meetings of holders of Common Shares, subject only to the restriction on the right to elect those
directors who are elected by the holders of Class A Non-Voting Shares as set out above.
Common Shares can be converted, at any time and at the option of each holder of Common Shares, into Class A
Non-Voting Shares on a share-for-share basis. The authorized number of shares of either class cannot be increased
without the approval of the holders of at least two-thirds of the shares of each class represented and voted at a
meeting of the shareholders called for the purpose of considering such an increase. Neither the Class A Non-Voting
Shares nor the Common Shares can be changed in any manner whatsoever, whether by way of subdivision,
consolidation, reclassification, exchange, or otherwise, unless at the same time the other class of shares is also
changed in the same manner and in the same proportion.
Should an offer to purchase Common Shares be made to all, or substantially all of the holders of Common Shares,
or be required by applicable securities legislation or by the Toronto Stock Exchange to be made to all holders of
Common Shares in Ontario and should a majority of the Common Shares then issued and outstanding be tendered
and taken up pursuant to such offer, the Class A Non-Voting Shares shall thereupon and thereafter be entitled to
one vote per share at all meetings of the shareholders and thereafter the Class A Non-Voting Shares shall be
designated as Class A Shares. The foregoing voting entitlement applicable to Class A Non-Voting Shares would not
apply in the case where an offer is made to purchase both Class A Non-Voting Shares and Common Shares at the
same price per share and on the same terms and conditions.
The foregoing is a summary of certain conditions attached to the Class A Non-Voting Shares of the Company and
reference should be made to the Company’s articles of amendment dated December 15, 1983 for a full statement
of such conditions, which are available on SEDAR at www.sedar.com.
As of December 29, 2018, the Company had dividends declared and payable to holders of Class A Non-Voting
Shares and Common Shares of $64.9 million (2017 - $59.6 million) at a rate of $1.0375 per share (2017 - $0.900
per share).
On February 13, 2019 the Company’s Board of Directors declared a dividend of $1.0375 per share payable on
June 1, 2019 to shareholders of record as of April 30, 2019.
Dividends per share declared were $3.7375 in 2018 (2017 - $2.8500).
The dilutive effect of employee stock options is 174,857 (2017 - 193,007).
Page 128 of 145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
26. Share-Based Payments
The Company’s share-based payment plans are described below.
Stock Options
The Company has granted stock options to certain employees that enable such employees to exercise their stock
options and subscribe for Class A Non-Voting Shares or surrender their options and receive a cash payment. Such
cash payment is calculated as the difference between the fair market value of Class A Non-Voting Shares as at the
surrender date and the exercise price of the option. Stock options granted prior to 2012 vested on the third anniversary
of their grant. Stock options that were granted in 2012 and later vest over a three-year period. All outstanding stock
options have a term of seven years. At December 29, 2018, and December 30, 2017, the aggregate number of
Class A Non-Voting Shares that were authorized for issuance under the stock option plan was 3.4 million.
Stock option transactions during 2018 and 2017 were as follows:
Outstanding at beginning of year
Granted
Exercised and surrendered1
Forfeited
Outstanding at end of year
2018
Weighted
average
exercise
price
130.14
177.09
118.47
159.38
144.91
2017
Number of
options
Weighted
average
exercise price
961,349 $
300,217
(193,493)
(42,234)
1,025,839 $
116.41
156.20
100.46
138.85
130.14
Number of
options
1,025,839 $
302,160
(239,559)
(61,895)
1,026,545 $
Stock options exercisable at end of year
1 The weighted average market price of the Company's shares when the options were exercised in 2018 was $171.97 (2017 - $155.67).
425,267
483,704
The following table summarizes information about stock options outstanding and exercisable at December 29,
2018:
Options outstanding
Options exercisable
Range of exercise prices
$ 177.09
159.29
129.14 to 129.92
99.72
62.30 to 69.01
Number of
outstanding
options
276,717
249,712
392,453
80,773
26,890
$ 62.30 to 177.09
1,026,545
1 Weighted average remaining contractual life is expressed in years.
Weighted
average
remaining
contractual
life1
6.16 $
Weighted
average
exercise price
5.17
3.80
2.20
0.98
4.57 $
177.09
156.29
129.63
99.72
67.87
144.91
Number of
exercisable
options
Weighted
average
exercise price
— $
—
317,604
80,773
26,890
425,267 $
—
—
129.56
99.72
67.87
119.99
Performance Share Units and Performance Units
The Company grants Performance Share Units (“PSUs”) to certain of its employees that generally vest after three
years. Each PSU entitles the participant to receive a cash payment equal to the fair market value of the Company’s
Class A Non-Voting Shares on the date set out in the Performance Share Unit plan, multiplied by a factor determined
by specific performance-based criteria and, a relative total shareholder return modifier.
Page 129 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CT REIT grants Performance Units (“PUs”) to certain of its employees that generally vest after three years. Each
PU entitles the participant to receive a cash payment equal to the fair market value of Units of CT REIT on the date
set out in the Performance Unit plan, multiplied by a factor determined by specific performance-based criteria.
The fair value of stock options and PSUs at the end of the year was determined using the Black-Scholes option
pricing model with the following inputs:
Stock options
2018
PSUs Stock options
2017
PSUs
Share price at end of year (C$)
Weighted average exercise price1(C$)
Expected remaining life (years)
$
$
142.08
$
142.08
$
163.90
$
163.90
144.21
3.6
N/A $
129.42
1.0
3.8
Expected dividends
Expected volatility2
Risk-free interest rate
1 Reflects expected forfeitures.
2 Reflects historical volatility over a period of time similar to the remaining life of the stock options, which may not necessarily be the actual outcome.
20.6%
21.0%
25.5%
4.5%
2.3%
2.4%
2.3%
2.2%
3.0%
N/A
1.2
3.2%
15.7%
1.9%
Service and non-market performance conditions attached to the transactions are not taken into account in determining
fair value.
Deferred Share Units and Deferred Units
The Company offers Deferred Share Unit (“DSU”) plans to certain of its Executives and to members of its Board of
Directors. Under the Executives’ DSU plan, eligible Executives may elect to receive all or a portion of their annual
bonus in DSUs. The Executives’ DSU plan also provides for the granting of discretionary DSUs. Under the Directors’
DSU plan, eligible Directors may defer all or a portion of their annual director fees into DSUs. DSUs received under
both the Executives’ and Directors’ DSU plans are settled in cash following termination of service with the Company
and/or the Board based on the fair market value of the Company’s Class A Non-Voting Shares on the settlement
date.
CT REIT also offers a Deferred Unit (“DU”) plan for members of its Board of Trustees. Under this plan, eligible
trustees may elect to receive all or a portion of their annual trustee fees in DUs. DUs are settled through the issuance
of an equivalent number of Units of CT REIT or, at the election of the trustee, cash, following termination of service
with the Board.
Restricted Unit Plan
CT REIT offers a Restricted Unit (“RU”) plan for its Executives. RUs may be issued as discretionary grants or,
Executives may elect to receive all or a portion of their annual bonus in RUs. At the end of the vesting period, which
is generally three years from the date of grant (in the case of discretionary grants) and five years from the annual
bonus payment date (in the case of deferred bonus), an Executive receives an equivalent number of Units issued
by CT REIT or, at the Executive’s election, the cash equivalent thereof.
The Company enters into equity derivative transactions to hedge share-based payments and does not apply hedge
accounting. The expense recognized for share-based compensation is summarized as follows:
(C$ in millions)
Expense arising from share-based payment transactions
Effect of hedging arrangements
Total expense included in net income
$
$
2018
14.4 $
28.2
42.6 $
2017
75.4
(32.0)
43.4
The total carrying amount of liabilities for share-based payment transactions at December 29, 2018, was $91.2 million
(2017 - $129.3 million).
The intrinsic value of the liability for vested benefits at December 29, 2018, was $33.1 million (2017 - $47.4 million).
Page 130 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
27. Revenue
Revenue by reportable operating segment is as follows:
(C$ in millions)
Sale of goods
Interest income on loans
receivable
Royalties and licence fees
Services rendered
Rental income
Retail CT REIT
Financial
Services
Adjust-
ments
Total
Retail CT REIT
Financial
Services
Adjust-
ments
2018
20171
Total
$12,303.0 $
— $
— $
— $12,303.0 $11,628.9 $
— $
— $
— $11,628.9
18.8
424.3
15.7
42.8
— 1,027.2
(8.4)
1,037.6
—
—
46.4
—
188.9
—
—
—
—
424.3
204.6
89.2
15.7
414.9
13.7
42.3
—
—
—
34.8
930.6
—
201.3
—
(5.5)
—
—
—
940.8
414.9
215.0
77.1
$12,804.6 $
46.4 $ 1,216.1 $
(8.4) $14,058.7 $12,115.5 $
34.8 $ 1,131.9 $
(5.5) $13,276.7
1 Certain prior period figures have been restated due to the adoption of new accounting standards (refer to Note 2).
Retail revenue breakdown is as follows:
(C$ in millions)
Canadian Tire
SportChek
Mark’s
Helly Hansen
Petroleum
Other and inter-segment eliminations
Major Customers
The Company does not rely on any one customer.
28. Cost of Producing Revenue
Cost of producing revenue consists of the following:
(C$ in millions)
Inventory cost of sales1
Net impairment loss on loans receivable
Finance costs on deposits
Other
$
2018
7,209.0 $
1,993.4
1,247.2
347.6
2,016.5
(9.1)
$
12,804.6 $
2017
7,090.7
1,978.1
1,215.2
n/a
1,820.2
11.3
12,115.5
$
$
2018
8,863.8 $
360.6
61.1
61.9
2017
8,398.9
292.9
55.6
49.1
9,347.4 $
8,796.5
1 Inventory cost of sales includes depreciation for the year ended December 29, 2018 of $6.2 million (2017 - $6.8 million).
Inventory writedowns, as a result of net realizable value being lower than cost, recognized in the year ended
December 29, 2018 were $50.1 million (2017 - $59.0 million).
Inventory writedowns recognized in prior periods and reversed in the year ended December 29, 2018 were $5.7
million (2017 - $9.6 million). The reversal of writedowns was the result of actual losses being lower than previously
estimated.
The writedowns and reversals are included in inventory cost of sales.
Page 131 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
29. Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of the following:
(C$ in millions)
Personnel expenses
Occupancy
Marketing and advertising
Depreciation of property and equipment and investment property2,3
Information systems
Amortization of intangible assets
Other
$
2018
1,281.5 $
748.0
329.5
295.2
175.5
126.6
511.3
20171
1,191.7
697.2
277.6
328.2
167.9
133.7
458.6
$
3,467.6 $
3,254.9
1 Certain prior period figures have been restated due to the adoption of new accounting standards (refer to Note 2).
2 Refer to Note 28 for depreciation included in cost of producing revenue.
3 Effective in 2018, the Company changed its depreciation method for certain depreciable assets (refer to Note 2).
30. Net Finance Costs
Net finance costs consists of the following:
(C$ in millions)
Finance (income)1
Finance costs
Subordinated and senior notes
Medium-term notes and debentures
Loans payable
Finance leases
Other
Less: Capitalized borrowing costs
Total finance costs
Net finance costs
1 Primarily includes interest income on short and long-term investments and tax instalments.
$
$
$
$
2018
(9.9) $
49.6 $
78.7
16.8
7.1
20.0
172.2
10.8
161.4 $
151.5 $
2017
(10.0)
49.4
58.9
13.6
7.5
8.4
137.8
15.2
122.6
112.6
Page 132 of 145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31. Notes to the Consolidated Statements of Cash Flows
Change in operating working capital and other comprise the following:
(C$ in millions)
Change in operating working capital
Trade and other receivables
Merchandise inventories
Income taxes
Prepaid expenses and deposits
Trade and other payables
Total
Change in other
Provisions
Long-term provisions
Other long-term liabilities
Total
Change in operating working capital and other
Changes in liabilities arising from financing activities comprise the following:
(C$ in millions)
Balance at December 30, 2017 per IAS 39
IFRS 9 adjustment
Balance at December 31, 2017 per IFRS 9
Cash changes:
Change in deposits
Long-term debt issuance
Long-term debt repayment
Finance lease obligation repayment
Mortgage repayment
Payment of transaction costs related to long-term debt
Total changes from financing cash flows
Non-cash changes:
Finance lease addition
Amortization of debt issuance costs
Amortization of broker commission
Balance, end of year
$
$
$
2018
32.8 $
(104.4)
(6.5)
(24.5)
76.2
(26.4)
13.6
6.2
(38.0)
(18.2)
(44.6) $
2017
(50.8)
(29.2)
(1.0)
(8.0)
175.3
86.3
10.4
(1.3)
11.6
20.7
107.0
2018
Deposits
Long-term debt
2,386.8 $
—
2,386.8
80.6
—
—
—
—
—
3,404.4
5.1
3,409.5
—
1,434.0
(265.3)
(17.0)
(6.8)
(5.5)
80.6
1,139.4
—
—
3.8
1.6
3.4
—
$
2,471.2 $
4,553.9
31.1 Cash and Marketable Investments Held in Reserve
Cash and marketable investments includes reserves held by the Financial Services segment in support of its liquidity
and regulatory requirements. As at December 29, 2018, reserves held by Financial Services totaled $498.3 million
(2017 - $368.6 million) and includes restricted cash disclosed in Note 7 as well as short-term investments.
Page 133 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
32. Financial Instruments
32.1 Fair Value of Financial Instruments
Fair values have been determined for measurement and/or disclosure purposes based on the following:
The carrying amount of the Company’s cash and cash equivalents, trade and other receivables, loans receivable,
bank indebtedness, trade and other payables, short-term borrowings and loans payable approximate their fair value
either due to their short-term nature or because they are derivatives, which are carried at fair value.
The carrying amount of the Company’s long-term receivables and other assets approximate their fair value either
because the interest rates applied to measure their carrying amount approximate current market interest or because
they are derivatives, which are carried at fair value.
Fair values of financial instruments reflect the credit risk of the Company and counterparties when appropriate.
Investments in Equity and Debt Securities
The fair values of financial assets at FVTPL, held-to-maturity investments (under IAS 39) and available-for-sale
financial assets (under IAS 39) that are traded in active markets are determined by reference to their quoted closing
bid price or dealer price quotations at the reporting date. For investments that are not traded in active markets, the
Company determines fair values using a combination of discounted cash flow models, comparison to similar
instruments for which market-observable prices exist and other valuation models.
Derivatives
The fair value of a foreign exchange forward contract is estimated by discounting the difference between the
contractual forward price and the current forward price for the residual maturity of the contract using a risk-free
interest rate (based on government bonds).
The fair value of interest rate swaps and swaptions reflect the estimated amounts the Company would receive or
pay if it were to settle the contracts at the measurement date and is determined by an external valuator using valuation
techniques based on observable market input data.
The fair value of equity derivatives is determined by reference to share price movement adjusted for interest using
market interest rates specific to the terms of the underlying derivative contracts.
Redeemable Financial Instrument
On October 1, 2014, the Bank of Nova Scotia (“Scotiabank”) acquired a 20.0 percent interest in the Financial Services
business from the Company for proceeds of $476.8 million, net of $23.2 million in transaction costs. In conjunction
with the transaction, Scotiabank was provided an option to sell and require the Company to purchase all of the
interest owned by Scotiabank at any time during the six-month period following the tenth anniversary of the transaction.
This obligation gives rise to a liability for the Company (the “redeemable financial instrument”) and is recorded on
the Company’s Consolidated Balance Sheets in Other long-term liabilities. The purchase price will be based on the
fair value of the Financial Services business and Scotiabank’s proportionate interest in the Financial Services
business, at that time.
The redeemable financial instrument was initially recorded at $500.0 million and is subsequently measured at fair
value with changes in fair value recorded in net income for the period in which they arise. The subsequent fair value
measurements of the redeemable financial instrument are calculated based on a discounted cash flow analysis using
normalized earnings attributable to the Financial Services business, adjusted for any undistributed earnings and
Scotiabank’s proportionate interest in the business. The Company estimates future normalized earnings based on
the most recent actual results. The earnings are then forecast over a period of up to five years, taking into account
a terminal value calculated by discounting the final year in perpetuity. The growth rate applied to the terminal value
is based on an industry-based estimate of the Financial Services business. The discount rate reflects the cost of
equity of the Financial Services business and is based on expected market rates adjusted to reflect the risk profile
Page 134 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
of the business. The fair value measurement is performed quarterly using internal estimates and judgment
supplemented by input from a third party, as required. This recurring fair value measurement is categorized within
Level 3 of the fair value hierarchy (refer to Note 32.2).
32.2 Fair Value of Financial Assets and Financial Liabilities Classified Using the Fair Value Hierarchy
The Company uses a fair value hierarchy to categorize the inputs used to measure the fair value of financial assets
and financial liabilities, the levels of which are:
Level 1 - Inputs are unadjusted quoted prices of identical instruments in active markets;
Level 2 - Inputs are other than quoted prices included in Level 1 but are observable for the asset or liability, either
directly or indirectly; and
Level 3 - Inputs are not based on observable market data.
The following table presents the financial instruments measured at fair value classified by the fair value hierarchy:
(C$ in millions)
Balance sheet line
Short-term investments1
Short-term investments1
Long-term investments1
Trade and other receivables
Trade and other receivables
Long-term receivables and other assets
Long-term receivables and other assets
Trade and other payables
Trade and other payables
Category
FVTPL
Available-for-sale
Available-for-sale
FVTPL2
Effective hedging instruments
FVTPL2
Effective hedging instruments
FVTPL2
Effective hedging instruments
Redeemable financial instrument
FVTPL
$
Level
2
2
2
2
2
2
2
2
2
3
$
2018
n/a
n/a
n/a
25.1
121.8
7.7
37.1
16.7
4.7
567.0
Level
2
2
2
2
2
2
2
2
2
3
2
Other long-term liabilities
1 Under IAS 39, short-term and long-term investments were measured at fair value and categorized within Level 2 of the fair value hierarchy.
2
Effective hedging instruments
5.0
2
Includes derivatives that were classified as held for trading under IAS 39.
2017
45.6
86.9
165.0
19.4
3.8
27.5
18.6
14.2
60.7
517.0
3.6
There were no transfers in either direction between categories in 2018 or 2017.
Changes in Fair Value Measurement for Instruments Categorized in Level 3
Level 3 financial instruments include a redeemable financial instrument.
As of December 29, 2018, the fair value of the redeemable financial instrument was estimated to be $567.0 million
(2017 - $517.0 million). The determination of the fair value of the redeemable financial instrument requires significant
judgment on the part of Management. Refer to Note 2 of these consolidated financial statements for further
information.
Page 135 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
32.3 Fair Value Measurement of Investments, Debt and Deposits
The fair value measurement of investments, debt and deposits is categorized within Level 2 of the fair value hierarchy
(refer to Note 32.2). The fair values of the Company’s investments, debt and deposits compared to the carrying
amounts are as follows:
As at
(C$ in millions)
Short-term investments1,2
Long-term investments2
Debt
December 29, 2018
December 30, 2017
Carrying
amount
$
183.7 $
152.7
4,553.9
Fair value
183.7
153.4
Carrying
amount
n/a
n/a
4,603.9 $
3,404.4 $
Fair value
n/a
n/a
3,534.8
2,404.4
Deposits
1 The effective interest rate of investments that were reclassified out of FVTPL upon transition to IFRS 9 is 1.1% per annum.
2 Under IFRS 9, short-term and long-term investments are measured at amortized cost; previously under IAS 39 they were measured at fair value.
2,471.2
2,386.8
2,450.4
The difference between the fair values and the carrying amounts (excluding transaction costs, which are included
in the carrying amount of debt) is due to changes in market interest rates for similar instruments. The fair values
are determined by discounting the associated future cash flows using current market interest rates for items of similar
risk.
32.4 Items of Income, Expense, Gains or Losses
The following table presents certain amounts of income, expense, gains, or losses, arising from financial instruments
that were recognized in net income or equity:
(C$ in millions)
Net (loss) gain on:
2018
Financial instruments designated and/or classified as FVTPL1
$
(66.7) $
Interest income (expense):
Total interest income calculated using effective interest method for financial
instruments that are not at FVTPL
Total interest expense calculated using effective interest method for financial
instruments that are not at FVTPL
Fee expense arising from financial instruments that are not at FVTPL:
1,047.6
(226.4)
2017
29.4
947.0
(183.8)
Other fee expense
(14.7)
1 Excludes gains (losses) on cash flow hedges, which are effective hedging relationships and gains (losses) on available-for-sale investments (under IAS 39) that
(15.0)
are both reflected in the Consolidated Statements of Comprehensive Income.
32.5 Derivatives Designated as Hedging Instruments
The following table details the effectiveness of the hedging relationships and the amounts reclassified from hedging
reserve to profit or loss:
(C$ in millions)
Foreign currency risk
Interest rate risk
2018
Amounts reclassified to profit or loss
Current period
hedging gains
(losses)
recognized in OCI
$
$
198.1 $
(23.8) $
Due to hedged
item affecting
profit or loss
Line item in profit
or loss affected by
the reclassification
0.2
5.1
Other income
Net finance costs
Page 136 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table shows a reconciliation of cash flow hedges, net of tax, in relation to hedge accounting:
(C$ in millions)
Balance, beginning of year
Changes in fair value:
Foreign currency risk
Hedging instruments entered into for cash flow hedges subject to basis adjustment
Hedging instruments entered into for cash flow hedges not subject to basis adjustment
Interest rate risk
Hedging instruments entered into for cash flow hedges not subject to basis adjustment
Deferred cost of hedging not subject to basis adjustment - time value of an option in relation to time-
period related hedged items
Amount reclassified to profit or loss:
Foreign currency risk
Interest rate risk
Amount reclassified to non-financial assets:
Foreign currency risk
Tax on movements on reserves during the year
Attributable to non-controlling interests
Balance, end of year
33. Operating Leases
$
$
2018
(38.3)
193.5
4.6
(13.6)
(10.2)
0.2
5.1
(4.4)
(46.8)
1.9
92.0
The Company as Lessee
The Company leases a number of retail stores, distribution centres, petroleum sites, facilities and office equipment,
under operating leases with termination dates extending to March 25, 2060. Generally, the leases have renewal
options, primarily at the Company’s option.
The annual lease payments for property and equipment under operating leases are as follows:
(C$ in millions)
Less than one year
Between one and five years
More than five years
$
$
20181
379.6 $
1,145.4
968.3
2,493.3 $
2017
338.9
1,044.2
769.0
2,152.1
1
Includes $240.1 million commitment for lease agreements signed but not yet commenced.
In addition to the above, due to the redevelopment or replacement of existing properties, certain leased properties
are no longer needed for business operations. Where possible, the Company subleases these properties to third
parties, receiving sublease payments to reduce costs. In addition, the Company has certain premises where it is
on the head lease and subleases the property to franchisees. The total future minimum sublease payments expected
under these non-cancellable subleases were $128.4 million as at December 29, 2018 (2017 - $118.2 million).
The amounts recognized as an expense are as follows:
(C$ in millions)
Minimum lease payments1
Sublease payments received
1 Minimum lease payments includes contingent rent.
$
$
2018
407.0 $
(39.5)
367.5 $
2017
380.6
(38.7)
341.9
Page 137 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company as Lessor
The Company leases out a number of its investment properties (refer to Note 12) and has certain sublease
arrangements, under operating leases, with lease terms between 1 to 36 years with the majority having an option
to renew after the expiry date.
The lessee does not have an option to purchase the property at the expiry of the lease period.
The future annual lease payments receivable from lessees under non-cancellable leases are as follows:
(C$ in millions)
Less than one year
Between one and five years
More than five years
$
$
2018
49.1 $
138.5
96.3
283.9 $
2017
47.1
128.4
81.1
256.6
34. Guarantees and Commitments
Guarantees
In the normal course of business, the Company enters into numerous agreements that may contain features that
meet the definition of a guarantee. A guarantee is defined to be a contract (including an indemnity) that contingently
requires the Company to make payments to the guaranteed party based on (i) changes in an underlying interest
rate, foreign exchange rate, equity or commodity instrument, index or other variable that is related to an asset, a
liability or an equity security of the counterparty; (ii) failure of another party to perform under an obligating agreement;
or (iii) failure of a third party to pay its indebtedness when due.
The Company has provided the following significant guarantees and other commitments to third parties:
Standby Letters of Credit
Franchise Trust, a legal entity sponsored by a third-party bank, originates loans to Dealers for their purchase of
inventory and fixed assets. While Franchise Trust is consolidated as part of these financial statements, the Company
has arranged for several major Canadian banks to provide standby LCs to Franchise Trust to support the credit
quality of the Dealer loan portfolio. The banks may also draw against the LCs to cover any shortfalls in certain related
fees owing to it. In any case where a draw is made against the LCs, the Company has agreed to reimburse the
banks issuing the standby LCs for the amount so drawn. The Company has not recorded any liability for these
amounts due to the credit quality of the Dealer loans and to the nature of the underlying collateral represented by
the inventory and fixed assets of the borrowing Dealers. In the unlikely event that all the LCs have been fully drawn
simultaneously, the maximum payment by the Company under this reimbursement obligation would have been $115.7
million at December 29, 2018 (2017 - $117.0 million).
The Company has obtained documentary and standby letters of credit aggregating $36.0 million (2017 - $41.2 million)
relating to the importation of merchandise inventories and to facilitate various real estate activities.
Business and Property Dispositions
In connection with agreements for the sale of all or part of a business or property and in addition to indemnifications
relating to failure to perform covenants and breach of representations and warranties, the Company has agreed to
indemnify the purchasers against claims from its past conduct, including environmental remediation. Typically, the
term and amount of such indemnification will be determined by the parties in the agreements. The nature of these
indemnification agreements prevents the Company from estimating the maximum potential liability it would be required
to pay to counterparties. Historically, the Company has not made any significant indemnification payments under
such agreements and no amount has been accrued in the consolidated financial statements with respect to these
indemnification agreements.
Page 138 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Lease Agreements Guarantees
The Company has guaranteed leases on certain franchise stores in the event the franchisees are unable to meet
their remaining lease commitments. These lease agreements have expiration dates through November 2023. The
maximum amount that the Company may be required to pay under these agreements was $3.2 million (2017 - $3.9
million). In addition, the Company could be required to make payments for percentage rents, realty taxes and
common area costs. No amount has been accrued in the consolidated financial statements with respect to these
lease agreements.
Third-Party Financial Guarantees
The Company has guaranteed the debts of certain Dealers. These third-party financial guarantees require the
Company to make payments if the Dealer fails to make scheduled debt payments. The majority of these third-party
financial guarantees have expiration dates extending up to and including June 2018. Under these financial
guarantees, $14.3 million (2017 - $17.2 million) was issued at December 29, 2018. No amount has been accrued
in the consolidated financial statements with respect to these debt agreements.
The Company has entered into agreements to buy back franchise-owned merchandise inventory should the banks
foreclose on any of the franchisees. The terms of the guarantees range from less than a year to the lifetime of the
particular underlying franchise agreement. The Company’s maximum exposure as at December 29, 2018, was $59.4
million (2017 - $68.9 million).
Indemnification of Lenders and Agents Under Credit Facilities
In the ordinary course of business, the Company has agreed to indemnify its lenders under various credit facilities
against costs or losses resulting from changes in laws and regulations that would increase the lenders’ costs and
from any legal action brought against the lenders related to the use of the loan proceeds. These indemnifications
generally extend for the term of the credit facilities and do not provide any limit on the maximum potential liability.
Historically, the Company has not made any significant indemnification payments under such agreements and no
amount has been accrued in the consolidated financial statements with respect to these indemnification agreements.
Other Indemnification Agreements
In the ordinary course of business, the Company provides other additional indemnification agreements to
counterparties in transactions such as leasing transactions, service arrangements, investment banking agreements,
securitization agreements, indemnification of trustees under indentures for outstanding public debt, director and
officer indemnification agreements, escrow agreements, price escalation clauses, sales of assets (other than
dispositions of businesses discussed above) and the arrangements with Franchise Trust discussed above. These
additional indemnification agreements require the Company to compensate the counterparties for certain amounts
and costs incurred, including costs resulting from changes in laws and regulations (including tax legislation) or as a
result of litigation claims or statutory sanctions that may be suffered by a counterparty as a consequence of the
transaction.
The terms of these additional indemnification agreements vary based on the contract and do not provide any limit
on the maximum potential liability. Historically, the Company has not made any significant payments under such
additional indemnifications and no amount has been accrued in the consolidated financial statements with respect
to these additional indemnification commitments.
The Company’s exposure to credit risks related to the above-noted guarantees are disclosed in Note 5.
Capital Commitments
As at December 29, 2018, the Company had capital commitments for the acquisition of property and equipment,
investment property and intangible assets for an aggregate cost of approximately $158.3 million (2017 - $120.3
million).
Page 139 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
35. Related Parties
The Company’s majority shareholder is Martha Billes, who beneficially owns, or controls or directs approximately
61.4 percent of the Common Shares of the Company through two privately held companies, Tire ‘N’ Me Pty. Ltd. and
Albikin Management Inc.
Transactions with members of the Company’s Board of Directors who were also Dealers represented less than one
percent of the Company’s total revenue and were in accordance with established Company policy applicable to all
Dealers. Other transactions with related parties, as defined by IFRS, were not significant during the year.
The following outlines the compensation of the Company’s Board of Directors and key Management personnel (the
Company’s Chief Executive Officer, Chief Financial Officer and certain other Senior Officers):
(C$ in millions)
Salaries and short-term employee benefits
Share-based payments and other
36. Business Combinations
$
$
2018
15.1 $
7.7
22.8 $
2017
12.2
24.2
36.4
On July 3, 2018, the Company acquired Teodin Holdco AS, which owns and operates the Helly Hansen brands and
related businesses. Helly Hansen is a global leader in sportswear and workwear based in Oslo, Norway.
Founded in 1877, Helly Hansen is known for its professional-grade gear and for being a leader in designing innovative
and high quality technical performance products developed for the harshest outdoor conditions. Within its core
categories of sailing, skiing, mountain, urban, rainwear, and workwear, Helly Hansen designs and delivers products
used by professionals and outdoor enthusiasts around the world. The acquisition strengthens CTC’s core businesses
across multiple banners, increases its brand offerings in Canada and its ability to grow its brands internationally.
Since acquisition on July 3, 2018, for the year-ended December 29, 2018, Helly Hansen generated revenue of $347.6
million and net income of $32.6 million. Included within Helly Hansen’s net income for the year-ended December
29, 2018 is $4.9 million of depreciation, $4.7 million of interest expense and $9.8 million of income taxes. If the
acquisition had occurred on the first day of fiscal 2018, Management estimates that Helly Hansen would have
contributed $586.9 million of revenue and $30.1 million of net income, before intercompany eliminations, for the year
ended December 29, 2018.
The purchase price of the equity of Teodin Holdco AS was $766.3 million which is in addition to purchased loans
from the previous owners and other related items.
Page 140 of 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The fair value of identifiable assets acquired and liabilities assumed as at the acquisition date are as follows:
(C$ in millions)
Cash and cash equivalents
Trade and other receivables
Merchandise inventories
Prepaid expenses and deposits
Intangible assets
Property and equipment
Trade and other payables
Short-term borrowings
Loan from previous owners
Provisions
Deferred income taxes (net)
Other long-term liabilities
Total net identifiable assets
Goodwill was recognized as a result of the acquisition as follows:
(C$ in millions)
Total consideration transferred
Less: Total net identifiable assets
Goodwill
$
$
$
$
3.4
87.1
169.0
1.3
566.0
20.7
(120.5)
(91.3)
(216.5)
(0.2)
(86.9)
(0.7)
331.4
766.3
(331.4)
434.9
The goodwill recognized on the acquisition of Helly Hansen is attributable mainly to the expected future growth
potential from the expanded customer base. None of the goodwill recognized is expected to be deductible for income
tax purposes.
The Company incurred acquisition-related costs of $22.7 million, which are recorded in Selling, general and
administrative expenses. The Company also recorded $5.0 million as a fair value adjustment for inventory acquired,
which is recorded in the cost of producing revenue.
In the prior year, on July 14, 2017, the Company completed the acquisition of Padinox Inc., the company that owned
the Canadian rights to the Paderno brand, for cash consideration of $19.3 million.
Page 141 of 145 2018 Quarterly Information
(C$ in millions, except where noted)
(Store numbers are cumulative at end of
period)
Retail segment
Revenue
First Quarter Second Quarter
Third Quarter
Fourth Quarter
(December 31,
2017 to March
31, 2018)
(April 1, 2018 to
June 30, 2018)
(July 1, 2018 to
September 29,
2018)
(September 30,
2018 to December
29, 2018)
Total
$
2,506.9
$
3,179.8
$
3,309.9
$
3,816.9
$
12,813.5
Income before income taxes
23.0
149.9
166.7
328.8
668.4
CT REIT segment
Revenue
Income before income taxes
Financial Services segment
Revenue
Income before income taxes
Total
Revenue
116.6
72.5
305.1
97.1
118.9
74.8
306.4
71.4
117.7
79.1
325.6
131.9
119.3
74.5
322.8
92.1
472.5
300.9
1,259.9
392.5
$
2,814.9
$
3,480.8
$
3,631.3
$
4,131.7
$
14,058.7
Cost of producing revenue
1,843.1
2,382.1
2,408.5
2,713.7
Other (income)
Selling, general and administrative expenses
Net finance costs
Change in fair value of redeemable financial
instrument
Income taxes
Net income
Net income attributable to shareholders of
Canadian Tire Corporation
Net income attributable to non-controlling
interests
Basic EPS1
Diluted EPS1
Canadian Tire
Retail sales growth
Comparable sales growth
Number of Canadian Tire stores
Number of Other2 Canadian TIre stores
SportChek
Retail sales growth3
Comparable sales growth3
Number of SportChek stores
Canadian Tire Petroleum
Number of gas bars
Mark’s
Retail sales growth
Comparable sales growth
Number of Mark’s stores
Financial Services segment
Average number of accounts with a balance4
(thousands)
Average account balance4 ($)
Gross average accounts receivable5
(millions)
(17.3)
826.6
30.7
—
32.7
99.1
78.0
21.1
1.18
1.18
6.0%
5.8%
501
106
2.5%
3.9%
409
(1.5)
831.2
32.7
—
61.9
174.4
156.0
18.4
2.39
2.38
2.3 %
2.0 %
501
106
(1.9)%
(0.3)%
408
298
297
3.6%
3.4%
385
1.6 %
1.3 %
386
(4.7)
870.9
43.4
—
81.9
231.3
203.8
27.5
3.16
3.15
2.4%
2.2%
501
105
1.6%
2.2%
408
298
6.4%
6.1%
386
(2.5)
938.9
44.7
50.0
108.7
278.2
254.3
23.9
4.00
3.99
0.6%
0.2%
503
105
1.9%
2.5%
409
297
1.8%
1.8%
386
9,347.4
(26.0)
3,467.6
151.5
50.0
285.2
783.0
692.1
90.9
10.67
10.64
2.4%
2.1%
1.1%
2.0%
3.0%
2.8%
1,945
2,868
2,006
2,848
2,074
2,848
2,113
2,882
2,035
2,862
5,583.1
5,715.5
5,909.5
6,093.0
5,825.3
Page 142 of 145
2018 Quarterly Information (continued)
(C$ in millions, except where noted)
Class A Non-Voting Shares
High
Low
Close
Volume (thousands of shares)
Common Shares
High
Low
Close
$
$
First Quarter Second Quarter
Third Quarter
Fourth Quarter
(December 31,
2017 to March
31, 2018)
(April 1, 2018 to
June 30, 2018)
(July 1, 2018 to
September 29,
2018)
(September 30,
2018 to December
29, 2018)
180.21 $
177.50 $
183.93 $
167.40 $
157.60
169.40
13,516
161.43
171.60
12,751
151.14
151.34
12,155
137.10
142.08
16,220
269.90 $
268.70 $
263.30 $
241.80 $
231.00
269.90
241.41
247.80
230.98
237.05
204.79
211.10
Total
183.93
137.10
142.08
54,642
269.90
204.79
211.10
Volume (thousands of shares)
1 Basic EPS is calculated by dividing the net income attributable to shareholders of Canadian Tire Corporation by the weighted average number of Common and
Class A Non-Voting shares outstanding during the reporting period. Diluted EPS is calculated by dividing the net income attributable to shareholders of Canadian
Tire Corporation by the weighted average number of shares outstanding adjusted for the effects of all dilutive potential equity instruments, which comprise employee
stock options.
16
14
57
13
14
2 Other Canadian Tire banners include PartSource and PHL.
3 Retail sales include sales from both corporate and franchise stores.
4 Credit card portfolio only.
5 Total portfolio of loans receivable.
Page 143 of 145 2017 Quarterly Information
(C$ in millions, except where noted)
(Store numbers are cumulative at end of
period)
Retail segment
Revenue
First Quarter Second Quarter
Third Quarter
Fourth Quarter
(January 1,
2017 to April 1,
2017)
(April 2, 2017 to
July 1, 2017)
(July 2, 2017 to
September 30,
2017)
(October 1, 2017
to December 30,
2017)
Total
$
2,439.2
$
3,086.1
$
2,971.6
$
3,624.5
$
12,121.4
Income before income taxes
44.4
183.6
160.3
302.4
690.7
CT REIT segment
Revenue
Income before income taxes
Financial Services segment
Revenue
Income before income taxes
Total
Revenue
Cost of producing revenue
Other (income)
Selling, general and administrative expenses
Net finance costs
Change in fair value of redeemable financial
instrument
Income taxes
Net income
Net income attributable to shareholders of
Canadian Tire Corporation
Net income attributable to non-controlling
interests
Basic EPS1
Diluted EPS1
Canadian Tire
Retail sales growth
Comparable sales growth
Number of Canadian Tire stores
Number of Other2 Canadian Tire stores
SportChek
Retail sales growth3
Comparable sales growth3
Number of SportChek stores
Canadian Tire Petroleum
Number of gas bars
Mark’s
Retail sales growth
Comparable sales growth
Number of Mark’s stores
Financial Services segment
Average number of accounts with a balance4
(thousands)
Average account balance4 ($)
Gross average accounts receivable5
(millions)
111.1
75.3
281.0
97.6
111.7
74.3
288.3
101.2
109.3
70.6
294.6
100.2
111.2
97.1
292.7
89.5
443.3
317.3
1,156.6
388.5
$
2,721.4
$
3,374.1
$
3,265.7
$
3,915.5
$
13,276.7
1,780.6
2,262.5
2,183.3
2,570.1
—
767.0
24.8
—
41.1
107.9
87.5
20.4
1.24
1.24
2.1 %
0.6 %
501
106
(1.7)%
(3.0)%
418
296
5.7 %
5.4 %
382
0.5
792.5
26.2
—
75.4
217.0
195.2
21.8
2.82
2.81
2.3%
1.5%
501
106
3.2%
2.1%
417
297
4.7%
4.0%
383
—
784.1
31.5
—
68.3
198.5
176.6
21.9
2.59
2.59
5.3%
4.7%
501
106
0.01%
0.01%
414
296
5.2%
4.6%
385
(0.3)
911.3
30.1
—
108.9
295.4
275.7
19.7
4.12
4.10
3.8%
3.5%
501
106
5.6%
5.9%
411
298
3.9%
3.4%
386
8,796.5
0.2
3,254.9
112.6
—
293.7
818.8
735.0
83.8
10.70
10.67
3.5%
2.7%
2.2%
1.8%
4.7%
4.2%
1,837
2,778
1,874
2,761
1,918
2,769
1,951
2,796
1,895
2,776
5,105.2
5,177.9
5,313.8
5,458.7
5,263.9
Page 144 of 145 2017 Quarterly Information (continued)
(C$ in millions, except where noted)
Class A Non-Voting Shares
High
Low
Close
Volume (thousands of shares)
Common Shares
High
Low
Close
First Quarter Second Quarter
Third Quarter
Fourth Quarter
(January 1,
2017 to April 1,
2017)
(April 2, 2017 to
July 1, 2017)
(July 2, 2017 to
September 30,
2017)
(October 1, 2017
to December 30,
2017)
$
$
159.79 $
171.91 $
158.12 $
165.46 $
137.07
157.98
11,844
145.36
147.56
14,116
140.60
155.34
13,474
154.31
163.90
11,230
210.00 $
241.00 $
249.00 $
242.00 $
193.00
206.89
202.00
241.00
226.00
230.00
226.31
231.11
Total
171.91
137.07
163.90
50,664
249.00
193.00
231.11
Volume (thousands of shares)
1 Basic EPS is calculated by dividing the net income attributable to shareholders of Canadian Tire Corporation by the weighted average number of Common and
Class A Non-Voting shares outstanding during the reporting period. Diluted EPS is calculated by dividing the net income attributable to shareholders of Canadian
Tire Corporation by the weighted average number of shares outstanding adjusted for the effects of all dilutive potential equity instruments, which comprise employee
stock options.
12
66
18
12
24
2 Other Canadian Tire banners include PartSource and PHL.
3 Retail sales include sales from both corporate and franchise stores.
4 Credit card portfolio only.
5 Total portfolio of loans receivable.
Page 145 of 145