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canadian tire corporation
2019 REPORT TO SHAREHOLDERS
management’s discussion
and analysis
AND
consolidated financial
statements
Management’s Discussion and Analysis
Canadian Tire Corporation, Limited
Fourth Quarter and Full-Year 2019
Table of Contents
1.0
PREFACE
2.0
COMPANY AND INDUSTRY OVERVIEW
3.0
HISTORICAL PERFORMANCE HIGHLIGHTS
4.0
THREE-YEAR (2018 TO 2020) FINANCIAL ASPIRATIONS
5.0
FINANCIAL PERFORMANCE
5.1 Consolidated Financial Performance
5.2 Retail Segment Performance
5.3 Financial Services Segment Performance
5.4 CT REIT Segment Performance
6.0
BALANCE SHEET ANALYSIS, LIQUIDITY, AND CAPITAL RESOURCES
7.0
EQUITY
8.0
TAX MATTERS
9.0
ACCOUNTING POLICIES, ESTIMATES, AND NON-GAAP MEASURES
10.0
KEY RISKS AND RISK MANAGEMENT
11.0
INTERNAL CONTROLS AND PROCEDURES
12.0
ENVIRONMENTAL AND SOCIAL RESPONSIBILITY
13.0
FORWARD-LOOKING STATEMENTS AND OTHER INVESTOR COMMUNICATION
14.0
RELATED PARTIES
1
3
3
5
7
7
13
20
23
25
33
34
35
45
54
56
59
61
MANAGEMENT'S DISCUSSION AND ANALYSIS
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+, Party City, Mark’s, Mark’s
Work Wearhouse, L’Équipeur, Helly Hansen, 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 and 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.
“Party City” refers to the party supply business that operates under the Party City names and trademarks in Canada.
“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.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 1
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 forecasted 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 13.0 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 12, 2020.
1.4 Quarterly and Annual Comparisons in the MD&A
Unless otherwise indicated, all comparisons of results for Q4 2019 (13 weeks ended December 28, 2019) are
compared against results for Q4 2018 (13 weeks ended December 29, 2018) and all comparisons of results for the
full year 2019 (52 weeks ended December 28, 2019) are compared against results for the full year 2018 (52 weeks
ended December 29, 2018).
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 9.1 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. Refer to section 9.3.1 and 9.3.2 for additional information on these metrics.
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 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
2.0 Company and Industry Overview
Canadian Tire Corporation, Limited, (TSX: CTC.A) (TSX: CTC), is a family of businesses that includes a Retail
segment, a Financial Services division and CT REIT. Our retail business is led by Canadian Tire, which was founded
in 1922 and provides Canadians with products for life in Canada across its Living, Playing, Fixing, Automotive and
Seasonal & Gardening divisions. PartSource, Gas+ and Party City are key parts of the Canadian Tire network. The
Retail segment also includes Mark's, a leading source for casual and industrial wear; Pro Hockey Life, a hockey
specialty store catering to elite players; and SportChek, Hockey Experts, Sports Experts, National Sports, Intersport
and Atmosphere, which offer the best active wear brands. The approximately 1,746 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 Canadian Tire Associate Dealers (“Dealers”), franchisees
and petroleum retailers. In addition, Canadian Tire Corporation owns and operates Helly Hansen, a leading global
brand in sportswear and workwear based in Oslo, Norway. A description of the Company’s business and select core
capabilities can be found in the Company’s 2019 Annual Information Form (“2019 AIF”), including Section 2
“Description of the Business” and on the Company’s Corporate (https://corp.canadiantire.ca/English/home/
default.aspx) and Investor Relations (https://corp.canadiantire.ca/English/investors/default.aspx) websites.
3.0 Historical Performance Highlights
3.1 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
2019
3.6%
2018
2.2%
2017
2.7%
$
14,534.4
$
14,058.7
$
13,276.7
894.8
923.3
12.60
12.58
13.04
19,518.3
7,535.3
6,253.5
1,746
783.0
870.4
10.67
10.64
11.95
17,286.8
7,597.1
5,825.3
1,700
818.8
818.8
10.70
10.67
10.67
15,627.0
6,311.8
5,263.9
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 5.1.1 for details on normalized items.
4
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.
3.7375
142.08
4.2500
140.63
163.90
2.8500
$
$
$
5 Closing share price as of the date closest to the Company’s fiscal year end.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
REVENUE BY BANNER/UNIT*
($ millions)
STORES AND RETAIL REVENUE
Retail revenue
($ billions)
Number of stores
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
2017
2018
2019
Canadian Tire
Financial Services
SportChek
Mark’s
Petroleum
* Excludes CT REIT
Helly Hansen
14
13
12
11
10
1,775
1,750
1,725
1,700
1,675
1,650
$13.2
$12.8
$12.1
2017
2018
2019
Store count
Retail revenue
FINANCIAL SERVICES GROSS AVERAGE
ACCOUNTS RECEIVABLE
($ millions)
NORMALIZED DILUTED EPS AND
DIVIDENDS PER SHARE
($ per share)
(Dividends $ per share)
6,500
6,250
6,000
5,750
5,500
5,250
5,000
4,750
4,500
$15
$13
$11
2.850
$9
$7
$5
4.250
3.738
$5
$4
$3
$2
$1
$0
2017
2018
2019
2017
2018
2019
Normalized Diluted EPS
Dividends per share
4 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
4.0 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 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 below. In addition, achievement of the aspirations may be impacted by
the risks identified in section 10.0.
Consolidated
Comparable
(excluding Petroleum) 3%+
Sales Growth
Average
Annual Diluted
EPS Growth
10%+ Retail ROIC
10%+
Material assumptions
Material assumptions
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.
• 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.
• 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
Material risks
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.
• Risks associated with the Consolidated
Comparable Sales Growth aspiration
described below.
• 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.
• Lower than anticipated earnings growth;
refer to risks associated with the Average
Annual Diluted EPS Growth aspiration.
• 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 2019 and 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
2018
2.2%
in year
12.0%
2019
3.6%
in year
2 year average of
10.6%
Status
Achieved
On Track
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 9.3.1 in this MD&A for additional information.
9.2%
as at December 29, 2018
9.0%
as at December 28, 2019
Actively Pursuing
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management is committed to achieving its financial aspirations. Retail ROIC is the Company’s most ambitious
aspiration. The Company continues to actively pursue Retail ROIC of 10+ percent; however, due to recent acquisitions,
including Helly Hansen, additional time may be required to achieve this aspiration. While accretive to earnings, the
Helly Hansen acquisition has had a dilutive impact on ROIC in the short term. Refer to section 5.0 Financial
Performance of this MD&A for details on Company’s financial performance in 2019 and 2018.
The following represents forward-looking information and readers are cautioned that actual results may vary.
Operational Efficiency
Since launching our One Company, One Customer strategy we have invested heavily in our banners, brands, talent,
loyalty program and digital infrastructure to drive our long-term and ambitious growth agenda. These investments
have generated strong financial performance, an enhanced customer experience and key insights on meeting our
customers’ needs. But importantly, we have built the foundation supporting the most critical parts of our strategy to
drive long-term growth.
These investments, including in our consumer brands, Triangle Rewards, analytics, Ship to Home, and enhancements
of physical locations, have provided tremendous uplift to our revenue. While this work was underway, other than
our focus to achieve significant cost of goods/sourcing savings at Canadian Tire, we maintained most of our traditional
processes as these new ways of doing business gained traction. We are now in the position, as planned, to drive
operational efficiencies.
Our Operational Efficiency program will target $200+ million in annualized savings by 2022. Management is committed
to its financial aspirations and driving long-term sustainable growth, and believes this program, will allow us to:
1. Eliminate duplicate systems and processes across our multiple banners as we begin operating as One
Company;
2. Drive enterprise-wide efficiencies by decommissioning legacy infrastructure; and
3. Continue our extensive program to target internal and external expense reduction.
In order to support the Operational Efficiency program and realize savings, management expects to record one-time
costs, reported quarterly as an adjustment to EBITDA, for items such as severance, retraining, systems development,
and real estate related closure costs. We recorded the first of these costs in Q2 2019. Management may also make
capital investments to accelerate the program, which are included as part of our 2020 capital spending guidance.
During the quarter, the Company recorded $6.5 million for severance, store closure and program-related expenses.
On a year-to-date basis, the Company has recorded $34.4 million.
In furtherance of the Company’s financial aspirations described above and its goal to become the #1 retail brand in
Canada by 2022, the Company executed against a number of strategic initiatives during 2019 (see section 6 of the
2018 Annual MD&A for an overview of the 2019 key initiatives). Developments with respect to these initiatives are
discussed in this MD&A, the 2019 AIF and on the Company’s Corporate (https://corp.canadiantire.ca/English/home/
default.aspx) and Investor Relations (https://corp.canadiantire.ca/English/investors/default.aspx) websites.
6 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
5.0 Financial Performance
5.1 Consolidated Financial Performance
5.1.1 Consolidated Financial Results
(C$ in millions, except where noted)
Retail sales1
Revenue
Gross margin dollars
Q4 2019
Q4 2018
Change
2019
2018
Change
$ 4,838.2
$ 4,637.7
4.3% $ 15,879.0
$ 15,494.7
$ 4,316.7
$ 4,131.7
4.5% $ 14,534.4
$ 14,058.7
$ 1,503.0
$ 1,418.0
6.0% $ 4,873.8
$ 4,711.3
Gross margin as a % of revenue
34.8%
34.3%
50 bps
33.5%
33.5%
Other expense (income)
$
2.0
$
(2.5)
(13.4) $
(26.0)
(48.7)%
2.5 %
3.4 %
3.4 %
2 bps
(0.9)%
76.2 %
NM2
10.7 %
1.0 %
NM2 $
0.5%
48.0%
3,437.5
266.8
3,467.6
151.5
NM2
27.0% $ 1,182.9
—
50.0
$ 1,068.2
15.2%
288.1
285.2
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:
943.7
66.0
—
$
491.3
$
125.4
938.9
44.7
50.0
386.9
108.7
$
365.9
Shareholders of Canadian Tire Corporation $
334.1
Non-controlling interests
Basic EPS
Diluted EPS
31.8
365.9
5.42
5.42
$
$
$
Weighted average number of Common and
Class A Non-Voting Shares outstanding:
25.5%
28.1%
24.4%
26.7%
$
$
$
$
$
278.2
31.6% $
894.8
254.3
23.9
278.2
4.00
3.99
31.4% $
33.4%
31.6% $
35.7% $
35.7% $
778.4
116.4
894.8
12.60
12.58
$
$
$
$
$
783.0
14.3 %
692.1
90.9
783.0
10.67
10.64
12.5 %
28.0 %
14.3 %
18.1 %
18.3 %
Basic
Diluted
61,592,583 63,611,964
61,669,335 63,707,558
NM2 61,794,565 64,887,724
NM2 61,861,486 65,062,581
NM2
NM2
1 Key operating performance measures. Refer to section 9.3.1 in this MD&A for additional information.
2 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 15 to the Company’s 2019 Consolidated Financial Statements.
(C$ in millions)
Financial Services
Non-controlling interest percentage 20.0% (2018 – 20.0%)
CT REIT
Non-controlling interest percentage 30.6% (2018 – 23.8%)
Retail segment subsidiary
Non-controlling interest percentage 50.0% (2018 – 50.0%)
Net income attributable to non-controlling interests
Q4 2019
Q4 2018
2019
2018
$
$
15.9 $
13.4 $
61.7 $
15.2
0.7
9.8
0.7
51.3
3.4
31.8 $
23.9 $
116.4 $
56.6
30.2
4.1
90.9
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
Normalizing Items
The results of operations include two normalizing items in 2019 and three in 2018. These items include:
2019
1. Acquisition of Party City in
Canada (“Party City”)
$2.4 million in Q4 2019 (2019: $4.7 million).
2. Operational Efficiency program Costs incurred of $8.1 million in Q2 2019, $19.8 million in Q3 2019 and $6.5 million
in Q4 2019 in relation to the Company’s Operational Efficiency program for severance,
store-closure and program-related expenses (2019: $34.4 million).
Cost incurred relating to the acquisition of Party City of $2.3 million in Q3 2019 and
2018
1. Triangle Rewards Program
One-time costs related to the roll-out of the Triangle Rewards program and associated
credit cards of $17.3 million recorded in Q2 2018.
2. Acquisition of Helly Hansen
Costs incurred relating to the acquisition of Helly Hansen of $5.3 million in Q2 2018
and $22.4 million in Q3 2018 (2018: $27.7 million).
3. Fair value adjustment to
Scotiabank’s 20% interest in
Financial Services
A $50.0 million fair value adjustment to Scotiabank’s interest in the Financial Services
business (a 20% stake was sold for $500.0 million in 2014, it is now valued at $567.0
million) in Q4 2018. Refer to Note 33.1 in the consolidated annual financial statements
for further details.
Normalized results are non-GAAP measures and do not have standardized meanings under IFRS and, therefore,
may not be comparable to similar terms used by other companies. For further information and a reconciliation to
GAAP measures, refer to section 9.3.2 in this MD&A.
Selected Normalized Metrics – Consolidated
(C$ in millions, except
where noted)
Revenue
Q4 2019
$ 4,316.7
Normalizing
Items1
—
$
Normalized
Q4 2019
Q4 2018
Normalizing
Items1
Normalized
Q4 2018
$ 4,316.7
$ 4,131.7
$
— $ 4,131.7
Change2
4.5 %
3.6 %
6.2 %
2,713.7
1,418.0
34.3% 55bps
(2.5)
NM3
938.9
44.7
—
436.9
108.7
328.2
304.3
4.78
— %
47.7 %
— %
14.5 %
17.6 %
13.5 %
11.9 %
15.7 %
Cost of producing revenue
Gross margin
Gross margin rate
Other expense (income)
Selling, general and
administrative expenses
Net finance costs
Change in fair value of
redeemable financial
instrument
Income before income taxes $
Income taxes
Net income
Net income attributable to
Shareholders of CTC
2,813.7
1,503.0
34.8%
2.0
943.7
66.0
—
491.3
125.4
365.9
334.1
(2.4)
2.4
6bps
(1.3)
(5.2)
—
—
8.9
2.4
6.5
6.5
2,811.3
1,505.4
2,713.7
1,418.0
34.9%
0.7
34.3%
(2.5)
938.5
66.0
—
$
500.2
$
127.8
372.4
938.9
44.7
50.0
386.9
108.7
278.2
340.6
254.3
—
—
—
—
—
—
(50.0)
50.0 $
—
50.0
50.0
Diluted EPS
1 Refer to Normalizing Items table in this section for more details.
2 Change is between normalized results.
3 Not meaningful
5.42
$
$
0.11
$
5.53
$
3.99
$
0.79 $
8 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
(C$ in millions, except where
noted)
Revenue
Cost of producing revenue
Gross margin
Gross margin rate
Other expense (income)
Selling, general and
administrative expenses
Net finance costs
Change in fair value of
redeemable financial
instrument
2019
$14,534.4
9,660.6
4,873.8
33.5%
(13.4)
3,437.5
266.8
—
Income before income taxes
$ 1,182.9
Income taxes
Net income
Net income attributable to
Shareholders of CTC
288.1
894.8
778.4
Diluted EPS
1 Refer to Normalizing Items table in this section for more details.
2 Change is between normalized results.
12.58
$
$
Normalizing
Items1
—
$
Normalized
2019
2018
$ 14,534.4
$14,058.7
Normalized
Normalizing
Items1
— $ 14,058.7
2018 Change2
3.4 %
$
(2.4)
2.4
2bps
(1.3)
(35.4)
—
9,658.2
4,876.2
9,347.4
4,711.3
33.5%
(14.7)
33.5%
(26.0)
3,402.1
3,467.6
266.8
151.5
(5.0)
5.0
4bps
—
(40.0)
—
9,342.4
4,716.3
3.4 %
3.4 %
33.5% —bps
(26.0)
(43.5 )%
3,427.6
151.5
(0.7 )%
76.1 %
—
39.1
10.6
28.5
28.5
0.46
—
50.0
(50.0)
—
$
1,222.0
$ 1,068.2
$
298.7
923.3
285.2
783.0
806.9
692.1
$
13.04
$
10.64
$
95.0
7.6
87.4
85.4
1.31
$ 1,163.2
292.8
870.4
777.5
11.95
$
— %
5.1 %
2.0 %
6.1 %
3.8 %
9.1 %
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
Consolidated Results Commentary
Q4
p Diluted EPS:
$1.43 per share, or
Full Year
35.7% p Diluted EPS:
$1.94 per share, or
18.3%
Earnings
Summary
Consolidated revenue increased $185.0 million, or
4.5 percent. Excluding Petroleum, consolidated
revenue
increased 5.1 percent. Consolidated
revenue was primarily driven by revenue growth at
the Retail banners and continued receivable growth
resulting in higher revenue in the Financial Services
segment.
Consolidated gross margin dollars increased $85.0
million or 6.0 percent, normalized gross margin
increased $87.4 million or 6.2 percent. The increase
in the gross margin dollars is driven by sales growth
across the Retail segment, led by Canadian Tire, an
improvement in the Retail segment’s gross margin
rate and revenue growth in the Financial Services
segment.
Consolidated selling, general and administrative
expenses increased by $4.8 million or 0.5 percent.
Normalized consolidated selling, general and
administrative expenses decreased by $0.4 million
due to the impact of IFRS 16. Excluding the impact
of IFRS 16, normalized selling, general and
administrative expenses increased primarily in the
Retail segment driven by higher variable
compensation expenses and higher occupancy
costs.
Consolidated revenue increased $475.7 million, or
3.4 percent. Excluding Petroleum, consolidated
revenue increased 5.0 percent due to the inclusion
of a full year of Helly Hansen, growth across all
Retail segment banners, and higher revenue in the
Financial Services segment.
Consolidated gross margin dollars
increased
$162.5 million, or 3.4 percent, normalized gross
margin increased $159.9 million or 3.4 percent.
Gross margin
to
revenue growth across the Retail banners and in
the Financial Services segment.
increases were attributable
Consolidated selling, general and administrative
expenses decreased by $30.1 million or 0.9 percent.
Normalized consolidated selling, general and
administrative expenses decreased by $25.5 million
or 0.7 percent due to the impact of IFRS 16.
Excluding the impact of IFRS 16, normalized selling,
general and administrative expenses increased
primarily in the Retail segment driven by higher
personnel costs and higher occupancy costs.
Income taxes for the quarter were $125.4 million an
increase of $16.7 million compared to 2018. The
effective tax rate for the quarter decreased to 25.5
percent compared to 28.1 percent in 2018, primarily
due to the absence of a non-deductible fair value
change in the redeemable financial instrument in
2019, partially offset by lower tax benefits relating
to capital property dispositions and changes in tax
rates in the period.
Income taxes for the year were $288.1 million an
increase of $2.9 million compared to 2018. The
effective tax rate decreased to 24.4 percent
compared to 26.7 percent in 2018, primarily due to
favourable adjustments to tax estimates and prior
years’ tax settlements, the absence of a non-
deductible fair value change in the redeemable
financial instrument in 2019, and higher non-
controlling interest related to CT REIT in the period.
Normalized diluted EPS in the quarter was $5.53,
an increase of $0.75 or 15.7 percent. The growth in
earnings was primarily driven by growth in revenue
in both Retail and Financial Services segments.
Refer to section 5.2 and 5.3 for further information
regarding earnings in the Retail and Financial
Services segments.
the
Normalized diluted EPS of $13.04 increased by
$1.09 or 9.1 percent, driven by strong revenue
growth in all Retail banners (except Petroleum),
strong revenue and earnings growth in the Financial
Services segment and
impact of share
repurchases associated with the Company’s share
buy back program. This was partially offset by lower
earnings contribution from the Retail segment,
attributable to the performance in the first half of the
year due to the impact of the Company’s cost and
margin sharing agreement with its Dealers and
unseasonable spring weather performance. Lower
contribution from the Petroleum business, the
impact of IFRS 16, and higher non-operational
foreign exchange losses recognized in Helly
Hansen and higher net finance costs, excluding the
impact of IFRS 16, mainly due to higher interest
expense in the Retail segment also negatively
impacted normalized diluted EPS. Refer to section
5.2 and 5.3 for further information regarding
earnings in the Retail and Financial Services
segments.
10 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
IFRS 16 – Impact
The Company’s financial performance reporting was impacted by the adoption of IFRS 16 – Leases (“IFRS 16”) in
2019. Certain lease-related expenses previously recorded in occupancy costs on a straight-line basis are now
recorded as depreciation on a right-of-use asset and interest expense on a lease liability. The depreciation expense
is recognized on a straight-line basis, while the interest expense declines over the life of the lease, as the liability is
repaid. When compared to the previous accounting method, under IFRS 16, lease-related expenses are higher in
the first half of the lease term, and lower in the second half. This change in pattern of expense recognition is expected
to result in a positive year-over-year variance in income before tax in the consolidated statements but a negative
year-over-year variance in the Retail segment. The change in classification of expense results in an increase in
EBITDA. Additionally, IFRS 16 has changed the presentation of revenue and expenses relating to certain subleases
to our SportChek franchisees, which are now reflected as finance income on a lease receivable and finance costs
on the lease liability.
The following table provides the estimated impact of the adoption of IFRS 16:
(C$ in millions) increase/(decrease)
Consolidated Consolidated Explanation
Q4 2019
2019
Financial Statement line item:
Revenue and gross margin
$
(5) $
(21) Franchise rental income now reflected as
interest income
Rent/Occupancy expense
(100)
(384) Rent now represented as depreciation and
Depreciation expense
Net finance costs – on lease liabilities
Income before income taxes
67
23
5
interest expense
252 Relating to right-of-use assets
94 Lease interest expense net of interest
income
17 Net pre-tax impact of IFRS 16
The depreciation and interest expense on right-of-use (“ROU”) assets and lease liabilities respectively, is disclosed
in Note 30 and 31 to the consolidated financial statements.
The following table provides the year-over-year analysis of occupancy and lease-related costs reported in Note 30
and 31 to the consolidated financial statements:
Q4 2019
Q4 2018
Change
Impact of
IFRS 16
$
103.9 $
193.2 $
(89.3) $
(100) $
Change (ex
IFRS 16)
10.7
(C$ in millions)
Occupancy
Depreciation on ROU assets / assets under
finance lease1
Net finance costs related to leases1
69.8
24.8
2.4
1.7
67.4
23.1
1.2 $
1 $2.4 million and $1.7 million relates to depreciation and finance cost on assets/liabilities under finance lease under IAS 17.
197.3 $
198.5 $
$
(C$ in millions)
Occupancy
2019
417.6 $
2018
748.0 $
Change
(330.4) $
$
Depreciation on ROU assets / assets under
finance lease1
Net finance costs related to leases1
262.3
101.0
10.0
7.1
252.3
93.9
15.8 $
1 $10.0 million and $7.1 million relates to depreciation and finance cost on assets/liabilities under finance lease under IAS 17.
765.1 $
780.9 $
$
67
23
(10) $
0.4
0.1
11.2
Impact of
IFRS 16
(384) $
Change
(ex IFRS 16)
53.6
252
94
(38) $
0.3
(0.1)
53.8
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
Occupancy and lease-related costs in the quarter increased approximately $11.2 million excluding the impact of
IFRS 16 (2019 – $53.8 million). Refer to the Retail segment results commentary in section 5.2.1 for an explanation
of the increase in occupancy and lease-related costs.
Refer to section 9.2 of this MD&A for further details regarding the adoption of IFRS 16.
5.1.2 Consolidated Key Operating Performance Measures, Excluding Petroleum
Key operating performance measures do not have standard meanings under IFRS and, therefore, may not be
comparable to similar terms used by other companies. Refer to section 9.3.1 in this MD&A for definitions and further
information.
(C$ in millions) increase/(decrease)
Normalized1 selling, general and administrative
expenses (excluding depreciation and
amortization2) as a % of revenue, excluding
Petroleum
Normalized EBITDA1,3 as a % of revenue,
excluding Petroleum4
Q4 2019
Q4 2018
Change
Impact of
IFRS 16
Change
(ex IFRS 16)
20.0%
22.8% (280 bps)
(260 bps)
(20 bps)
18.2%
14.9% 330 bps
249 bps
81 bps
1 Refer to section 5.1.1 for a description of normalizing items.
2 Selling, general and administrative expenses exclude depreciation and amortization of $170.5 million (2018 – $105.1 million).
3 Normalized EBITDA is a non-GAAP measure; refer to section 9.3.2 in this MD&A for a reconciliation of normalized EBITDA to net income attributable to shareholders
of Canadian Tire Corporation and additional information.
4 Revenue excludes Petroleum, EBITDA excludes Petroleum gross margin.
(C$ in millions) increase/(decrease)
Normalized1 selling, general and administrative
expenses (excluding depreciation and
amortization2) as a % of revenue, excluding
Petroleum
Normalized EBITDA1,3 as a % of revenue,
excluding Petroleum4
2019
2018
Change
Impact of
IFRS 16
Change
(ex IFRS 16)
21.8%
25.0% (320 bps)
(304 bps)
(16 bps)
15.7%
13.0% 270 bps
289 bps
(19 bps)
1 Refer to section 5.1.1 for a description of normalizing items.
2 Selling, general and administrative expenses exclude depreciation and amortization of $647.4 million (2018 – $421.8 million).
3 Normalized EBITDA is a non-GAAP measure; refer to section 9.3.2 in this MD&A for a reconciliation of normalized EBITDA to net income attributable to shareholders
of Canadian Tire Corporation and additional information.
4 Revenue excludes Petroleum, EBITDA excludes Petroleum gross margin.
Consolidated Results Commentary
Normalized SG&A
(excluding
depreciation
and amortization)
as a % of Revenue,
excluding
Petroleum
Normalized EBITDA
as a % of Revenue,
excluding
Petroleum
Q4
q 280 bps
Full Year
q 320 bps
(excluding
Excluding the impact of IFRS 16, normalized
SG&A
and
amortization) as a percentage of Revenue,
excluding Petroleum improved by 20 bps
compared to the prior year. The improvement
was mainly driven by the growth in revenue
and continued focus on lowering expenses.
depreciation
(excluding
Excluding the impact of IFRS 16, normalized
SG&A
and
amortization) as a percentage of Revenue,
excluding Petroleum improved by 16 bps
compared to the prior year attributable to
revenue growth and cost containment.
depreciation
p 330 bps
p 270 bps
Excluding the impact of IFRS 16, normalized
EBITDA as a percentage of Revenue,
excluding Petroleum
increased 81 bps
attributable to revenue growth outpacing the
increased in operating expenses during the
quarter.
Excluding the impact of IFRS 16, normalized
EBITDA as a percentage of Revenue,
excluding Petroleum decreased 19 bps
attributable to the performance of the Retail
segment in the first half of the year.
12 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
5.1.3 Seasonal Trend Analysis
The following table shows the consolidated financial performance of the Company by quarter for the last two years.
The quarterly trend could be impacted by non-operational items.
(C$ in millions, except per share
amounts)
Revenue
Q4 2019 Q3 2019 Q2 2019 Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018
$ 4,316.7 $ 3,636.7 $ 3,686.6 $ 2,894.4 $ 4,131.7 $ 3,631.3 $ 3,480.8 $ 2,814.9
Net income
Normalized1 net income
Diluted EPS
Normalized1 diluted EPS
1 Refer to section 5.1.1 for a description of normalizing items.
365.9
372.4
5.42
5.53
5.2 Retail Segment Performance
5.2.1 Retail Segment Financial Results
227.7
243.8
3.20
3.46
203.8
209.7
2.87
2.97
97.4
97.4
1.12
1.12
278.2
328.2
3.99
4.78
231.3
252.1
3.15
3.47
174.4
191.0
2.38
2.61
99.1
99.1
1.18
1.18
(C$ in millions)
Retail sales1
Revenue
Q4 2019
Q4 2018
Change
2019
2018
Change
$ 4,838.2
$ 4,637.7
4.3 % $ 15,879.0
$ 15,494.7
$ 3,989.2
$ 3,816.9
4.5 % $ 13,209.8
$ 12,813.5
Gross margin dollars
$ 1,304.2
$ 1,237.7
5.4 % $ 4,075.8
$ 3,948.4
Gross margin as a % of revenue
32.7%
32.4%
26 bps
30.9%
30.8%
Other (income)
$
(28.3) $
(35.1)
(19.6)% $
(138.8) $
(157.1)
(11.7)%
Selling, general and administrative expenses
Net finance costs (income)
923.0
57.9
939.6
4.4
Income before income taxes
1 Retail sales is a key operating performance measure. Refer to section 9.3.1 in this MD&A for additional information.
2 Not meaningful.
351.6
328.8
$
$
(1.8)%
NM2
6.9 % $
3,326.6
3,439.8
240.2
(2.7)
647.8
$
668.4
2.5 %
3.1 %
3.2 %
4 bps
(3.3)%
NM2
(3.1)%
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 9.3.2 in this MD&A.
Selected Normalized Metrics – Retail
(C$ in millions, except where
noted)
Revenue
Cost of producing revenue
Gross margin
Gross margin rate
Other expense (income)
Selling, general and
administrative expenses
Net finance costs
Q4 2019
$ 3,989.2
2,685.0
1,304.2
32.7%
(28.3)
923.0
57.9
Income before income taxes
1 Refer to section 5.1.1 for a description of normalizing items.
2 Change is between normalized results.
3 Not meaningful.
351.6
$
(2.4)
2.4
6bps
(1.3)
(5.2)
—
8.9
Normalizing
Items1
—
Normalized
Q4 2019
Q4 2018
Normalizing
Items1
Normalized
Q4 2018
$
3,989.2
$ 3,816.9
— $ 3,816.9
2,682.6
1,306.6
2,579.2
1,237.7
32.8%
(29.6)
32.4%
(35.1)
917.8
57.9
939.6
4.4
—
—
—
—
—
—
$
360.5
$
328.8
— $
328.8
Change2
4.5 %
4.0 %
5.6 %
2,579.2
1,237.7
32.4% 40bps
(35.1)
(15.7 )%
939.6
4.4
(2.3 )%
NM3
9.6 %
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
(C$ in millions, except where
noted)
Revenue
Cost of producing revenue
Gross margin
Gross margin rate
Other expense (income)
Selling, general and
administrative expenses
Net finance costs (income)
2019
$13,209.8
9,134.0
4,075.8
30.9%
(138.8)
3,326.6
240.2
Income before income taxes
1 Refer to section 5.1.1 for a description of normalizing items.
2 Change is between normalized results.
3 Not meaningful.
647.8
$
(2.4)
2.4
2bps
(1.3)
(35.4)
—
39.1
Normalizing
Items1
—
Normalized
2019
2018
$ 13,209.8
$12,813.5
Normalizing
Items1
— $ 12,813.5
Normalized
2018
9,131.6
4,078.2
8,865.1
3,948.4
30.9%
30.8%
(140.1)
(157.1)
(5.0)
5.0
4bps
—
Change2
3.1 %
3.1 %
3.2 %
8,860.1
3,953.4
30.9%
0bps
(157.1)
(10.8 )%
3,291.2
3,439.8
(26.5)
3,413.3
240.2
(2.7)
—
(2.7)
$
686.9
$
668.4
31.5
$
699.9
(3.6 )%
NM3
(1.9 )%
IFRS 16 impact
As discussed in section 5.1.1, the adoption of IFRS 16 is expected to result in a negative year-over-year variance
in income before taxes and a positive year-over-year variance in EBITDA in the Retail segment. The following table
provides the estimated impact of the adoption of IFRS 16 on the Retail segment:
(C$ in millions) increase/(decrease)
Q4 2019
2019
Explanation
Financial Statement line item:
Revenue and gross margin
$
(5) $
(21) Franchise rental income now reflected as
interest income
Rent/Occupancy expense
(182)
(720) Rent now represented as depreciation and
Depreciation expense
Net finance costs – on lease liabilities
Income before income taxes
126
56
(5)
interest expense
486 Relating to right-of-use assets
230 Lease interest expense net of interest
income
(17) Net pre-tax impact of IFRS 16
14 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
IFRS 16 Impact to Normalized Metrics – Retail
(C$ in millions)
Normalized1 gross margin dollars
Normalized1 gross margin dollars, excluding
Petroleum
Normalized1 gross margin as a % of revenue
Normalized1 gross margin as a % of revenue,
excluding Petroleum
Normalized1 selling, general and administrative
expenses
Q4 2019
Q4 2018
Change
$
1,306.6
$
1,237.7
$
68.9
$
1,265.9
1,194.0
71.9
32.8%
32.4%
40 bps
(13 bps)
Impact of
IFRS 16
Change
(ex IFRS 16)
(5)
(5)
$
73.9
76.9
53 bps
36.0%
35.7%
30 bps
(19 bps)
49 bps
917.8
939.6
(21.8)
(56)
34.2
Normalized1 EBITDA2
Normalized1 income before taxes
1 Refer to section 5.1.1 for a description of normalizing items.
2 EBITDA is a non-GAAP measure; refer to section 9.3.2 in this MD&A for a reconciliation of EBITDA to net income attributable to shareholders of Canadian Tire
423.4
635.2
328.8
211.8
360.5
31.7
34.8
36.7
177
(5)
Corporation and additional information.
(C$ in millions)
Normalized1 gross margin dollars
Normalized1 gross margin dollars, excluding
Petroleum
Normalized1 gross margin as a % of revenue
Normalized1 gross margin as a % of revenue,
excluding Petroleum
Normalized1 selling, general and administrative
expenses
2019
2018
Change
Impact of
IFRS 16
Change
(ex IFRS 16)
$
4,078.2
$
3,953.4
$ 124.8
$
(21)
$ 145.8
3,910.0
3,771.4
138.6
(21)
30.9%
30.9%
0 bps
(16 bps)
159.6
16 bps
34.6%
34.9% (38 bps)
(25 bps)
(13 bps)
3,291.2
3,413.3
(122.1)
(234)
111.9
Normalized1 EBITDA2
Normalized1 income before taxes
1 Refer to section 5.1.1 for a description of normalizing items.
2 EBITDA is a non-GAAP measure; refer to section 9.3.2 in this MD&A for a reconciliation of EBITDA to net income attributable to shareholders of Canadian Tire
1,750.2
1,057.5
(13.0)
692.7
699.9
686.9
(6.3)
(17)
699
4.0
Corporation and additional information.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
5.2.2 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 9.3.1 in this MD&A for further information.
(Year-over-year percentage change,
C$ in millions, except as noted)
Q4 2019
Q4 2018
Change
2019
2018 Change
Revenue1
$ 3,989.2
$ 3,816.9
4.5 % $13,209.8
$12,813.5
Revenue, excluding Petroleum
3,520.8
3,348.3
5.1 % 11,315.3
10,797.0
3.1 %
4.8 %
Store count
Retail sales growth
Retail sales growth, excluding
Petroleum
Consolidated comparable sales growth2
Retail ROIC3
1,746
1,700
4.3 %
5.1 %
3.9 %
9.0 %
0.8 %
1.0 %
0.8 %
9.2 %
Total Retail
2.5 %
3.9 %
3.6 %
n/a
3.4 %
2.2 %
2.2 %
n/a
Revenue1, 4
Store count5
Sales per square foot6
Retail sales growth7
Comparable sales growth2, 7
Revenue1
Store count
Sales per square foot8
Retail sales growth9
Comparable sales growth2, 9
Revenue1, 10
■Mark's
Store count
Sales per square foot 11
Retail sales growth12
Comparable sales growth2, 12
Revenue1
$ 2,233.7
$ 2,121.7
5.3 % $ 7,418.0
$ 7,209.0
2.9 %
$
$
$
$
$
$
$
$
$
$
667
441
6.6 %
4.8 %
619.4
402
305
1.3 %
2.0 %
476.3
380
360
1.5 %
1.8 %
608
424
0.6 %
0.2 %
4.0 %
n/a
4.5 %
3.8 %
n/a
2.4 %
2.1 %
602.5
2.8 % $ 2,036.3
$ 1,993.4
2.2 %
409
298
1.9 %
2.5 %
2.3 %
n/a
2.6 %
3.3 %
n/a
1.1 %
2.0 %
469.0
1.6 % $ 1,274.3
$ 1,247.2
2.2 %
386
356
1.8 %
1.8 %
1.2 %
n/a
2.4 %
2.5 %
n/a
3.0 %
2.8 %
$
199.7
$
165.9
20.4 % $
650.8
$
347.6
Revenue - Canada1
Revenue - Foreign
Revenue1
Gas bar locations
Gross margin dollars
Retail sales growth
Gasoline volume growth in litres
Comparable store gasoline volume
growth in litres2
38.4
161.3
468.4
297
40.7
$
$
26.9
139.0
468.6
297
43.7
$
$
(1.1)%
(2.4)%
(0.3)%
0.4 %
(2.7)%
0.3 %
NM13
NM13
NM13
42.8 %
16.0 %
137.5
513.3
52.1
295.5
— % $ 1,894.5
$ 2,016.5
(6.0)%
(6.9)% $
168.2
$
182.0
(7.6)%
(5.7)%
(0.6)%
(0.5)%
10.7 %
(0.4)%
— %
1 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.
2 Comparable sales growth excludes Petroleum. Refer to section 9.3.1 in this MD&A for additional information on comparable sales growth.
3 Retail ROIC is calculated on a rolling 12-month basis based on normalized earnings. Refer to section 9.3.1 in this MD&A for additional information.
4 Revenue includes revenue from Canadian Tire, PartSource, PHL, Party City and Franchise Trust.
5 Stores count includes stores from Canadian Tire, and other banner stores of 163 (2018: 105 stores). Other banners include PartSource, PHL and Party City.
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 Retail sales growth includes sales from Canadian Tire stores, PartSource stores, PHL stores, and the labour portion of Canadian Tire’s auto service sales.
8 Sales per square foot figures are calculated on a rolling 12-month basis, include both corporate and franchise stores and warehouse and administrative space.
9 Retail sales growth includes sales from both corporate and franchise stores.
10 Revenue includes the 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.
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 does not include warehouse and administrative space.
12 Retail sales growth includes retail sales from Mark’s corporate and franchise stores, but excludes ancillary revenue relating to alteration and embroidery services.
13 Not meaningful due to the fact that Helly Hansen was acquired on July 3, 2018, therefore the comparative period includes only six months of operations.
16 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
Year-over-year Retail Sales and Revenue Growth
10.6%
5.1%
6.4%
6.3%
5.2%
4.8%
7.8%
0.8%
1.6%
0.5%
2.6%
1.0%
2.2%
2.3%
2.7%
1.2%
5.1%
5.1%
4.8%
3.9%
Q1 2018 Q2 2018 Q3 2018 Q4 2018
2018
Q1 2019 Q2 2019 Q3 2019 Q4 2019
2019
Retail Sales, excluding Petroleum
Revenue, excluding Petroleum
Retail Segment Commentary
Retail
Sales
Q4
p $200.5 million or 4.3%
p 3.9% in comparable sales growth
Full Year
p $384.3 million or 2.5%
p 3.6% in comparable sales growth
The fourth-quarter results reflected strong retail
sales and comparable sales growth across all
banners driven by the continued success of
targeted promotional and pricing strategies,
eCommerce penetration growth and favourable
weather conditions. Consolidated retail sales
include Party City.
Canadian Tire retail sales increased by 6.6
percent while comparable sales grew 4.8 percent.
This strong growth was primarily driven by non-
seasonal categories such as Kitchen and Personal
Care, Outdoor tools and Cleaning categories,
which were partially offset by Electronics. The
inclusion of Party City also contributed to the
increase in retail sales.
retail sales growth of 1.3 percent and
comparable sales growth of 2.0 percent were driven
by the newly expanded Accessories and Wellness
categories along with continued growth
in
Footwear. Owned brands had strong sales driven
largely by Helly Hansen, Ripzone, and Sherwood.
retail sales increased 1.5 percent and
comparable
increased 1.8 percent
attributable to sales growth in all categories, in
particular, casual footwear, casual wear, and winter
commodities.
sales
Petroleum retail sales decreased 1.1
percent due to a decrease in year-over-year gas
volume and lower non-gas sales which were
partially offset by higher per litre gas prices.
Consolidated comparable retail sales increased
across all Retail banners, which is reflective of the
success of the Company’s strategic initiatives, with
its brands and retail offerings resonating with the
consumer in Canada.
Canadian Tire retail sales increased by 4.5
percent while comparable sales increased 3.8
percent. Growth was driven by strength in product
assortment, particularly in Kitchen and Personal
largest
Care and Cleaning which were
contributors to sales growth. The inclusion of Party
City also contributed to the increase in retail sales.
the
retail sales increased 2.6 percent and
comparable sales increased 3.3 percent driven by
expanded assortments and efficient promotional
strategies. Footwear, Accessories and Wellness
were the top performing categories.
retail sales increased 2.4 percent and
comparable sales increased 2.5 percent. The
increases in sales was driven by increases across
all channels and regions with promotions benefiting
casual footwear and casual wear categories.
Petroleum retail sales decreased by 5.7
percent attributable to lower per litre gas prices,
lower gas volume and lower non-gas sales.
.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
Retail Segment Commentary (continued)
Q4
Revenue p $172.3 million or 4.5%
p 5.1% excluding Petroleum
Full Year
p $396.3 million or 3.1%
p 4.8% excluding Petroleum
Revenue grew across all banners due to strong
shipments at Canadian Tire, retail sales growth at
SportChek and Mark’s, strong sales at Helly
Hansen and the inclusion of Party City in 2019.
Retail revenue increased primarily driven by
shipment growth at Canadian Tire as well as sales
growth across other Retail banners. Retail revenue
was also positively impacted by the inclusion of
Party City and the full-year impact of Helly Hansen.
Gross
Margin
p $66.5 million or
p 26 bps in gross margin rate
p 5.8% excluding Petroleum
5.4%
p $127.4 million or 3.2%
p 4 bps in gross margin rate
p 3.7% excluding Petroleum
Excluding Petroleum, normalized gross margin rate
improvement of 30 bps was driven by Canadian
Tire due to favourable product costs, favourable
product mix and the inclusion of Party City, partially
offset by a decline in gross margin rate at Mark’s
attributable
the eCommerce
businesses.
to growth
in
Excluding Petroleum, normalized gross margin
dollars increased by $138.6 million, which was
mainly attributable to higher revenue across all
Retail banners. Excluding Petroleum, normalized
gross margin rate declined by 38 bps, driven by
Canadian Tire due to the impact from the
Company’s margin sharing arrangement with the
Dealers in the first half of the year and lower margin
rates for Mark’s and SportChek due to growth in
eCommerce businesses.
Other
Income
Selling,
General &
Administr-
ative
Expenses
Net
Finance
Cost
q $6.8 million or
19.6%
q $18.3 million or
11.7%
The decrease in other income is primarily driven by
lower real estate gains compared to the prior year.
The decrease in other income is attributable to non-
operational foreign exchange losses recognized in
Helly Hansen, partially offset by higher real estate
gains during the year compared to prior year.
q $16.6 million or
1.8%
q $113.2 million or 3.3%
Normalized selling, general and administrative
expenses are lower by $21.8 million or 2.3 percent,
primarily due to IFRS 16.
Normalized selling, general and administrative
expenses are lower by $122.1 million or 3.6
percent, primarily due to IFRS 16.
Excluding the impact of IFRS 16, increases in
selling, general and administrative expenses were
attributable
to higher variable compensation-
related expenses and higher occupancy costs
primarily due to new builds at Canadian Tire which
were partially offset by lower marketing spend
during the quarter.
Excluding the impact of IFRS 16, increases in
selling, general and administrative expenses were
attributable to higher personnel costs in part due to
higher variable compensation-related expenses
and higher occupancy due to new builds at
Canadian Tire.
p $53.5 million
p $242.9 million
8,890.3%
Net finance cost increased primarily due to an
increase in long-term debt compared to the prior
year and the impact of IFRS 16.
Net finance costs increased primarily due to the
impact of IFRS 16 and higher interest expense
related long-term and short-term debt.
18 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
Retail Segment Commentary (continued)
Q4
p $22.8 million or
6.9%
Earnings
Summary
Full Year
q $20.6 million or
3.1%
Normalized income before income taxes increased
$31.7 million or 9.6 percent. Income before income
taxes benefited from strong shipments at Canadian
Tire and sales growth at SportChek, Mark’s, and
Helly Hansen, which were partially offset by higher
selling, general and administrative expenses
primarily driven by higher variable compensation
expenses and the impact of IFRS 16.
Normalized
income
income before
taxes
decreased by $13.0 million of 1.9 percent.
Normalized income before taxes in the second half
of the year increased by $35.3 million, driven by
strong results in the fourth quarter in revenue and
gross margin. The performance in the first half of
the year more than offset this due to the Company’s
cost and margin sharing agreement with its Dealers
and unseasonable spring weather. Full year
normalized
taxes was also
negatively impacted by $16.2 million related to the
gross margin in Petroleum, higher selling, general
and administrative expenses mainly due
to
personnel expenses, the impact of IFRS 16, $9.9
million non-operational foreign exchange losses
recognized in Helly Hansen and higher net finance
costs, excluding IFRS 16.
income before
5.2.3 Retail Segment Seasonal Trend Analysis
Quarterly operating net income and revenue are affected by seasonality. The fourth quarter typically generates the
greatest contribution to revenues and earnings, and the first quarter the least. The following table shows the retail
segment financial performance of the Company by quarter for the last two years. The quarterly trend could be
impacted by non-operational items.
(C$ in millions, except per share
amounts)
Retail sales
Revenue
Income before income taxes
Normalized1 income before
income taxes
Q4 2019 Q3 2019 Q2 2019 Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018
$ 4,838.2 $ 3,904.3 $ 4,303.7 $ 2,832.8 $ 4,637.7 $ 3,865.3 $ 4,250.1 $ 2,741.6
3,989.2
3,296.3
3,360.3
2,564.0
3,816.9
3,309.9
3,179.8
2,506.9
351.6
170.6
139.1
(13.5)
328.8
166.7
149.9
360.5
192.7
147.2
(13.5)
328.8
189.1
159.0
23.0
23.0
1 Refer to section 5.1.1 for a description of normalizing items.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
5.3 Financial Services Segment Performance
5.3.1 Financial Services Segment Financial Results
(C$ in millions)
Revenue
Gross margin dollars
Gross margin as a % of revenue
Other expense (income)
Selling, general and administrative expenses
Net finance (income)
Income before income taxes
1 Not meaningful.
$
333.0
$
186.5
56.0%
0.5
76.8
(0.3)
$
109.5
$
Q4 2019
Q4 2018
Change
2019
2018
Change
322.8
170.7
3.2 % $ 1,334.1
$ 1,259.9
9.2 %
737.2
717.2
5.9 %
2.8 %
52.9% 309 bps
NM1
(1.9)%
78.3
0.6
(12.7)%
(0.3)
92.1
55.3%
1.9
310.0
(1.0)
56.9% (168) bps
NM1
(4.9)%
(0.3)
326.1
(1.1)
(10.7)%
18.9 % $
426.3
$
392.5
8.6 %
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 9.3.2 in this MD&A.
Selected Normalized Metrics – Financial Services
(C$ in millions, except
where noted)
Q4 2019
Normalizing
Items1
Normalized
Q4 2019
Q4 2018
Normalizing
Items1
Normalized
Q4 2018
Revenue
Gross margin
Gross margin rate
Other expense (income)
Selling, general and
administrative expenses
Net finance costs
$
333.0
186.5
56.0%
0.5
76.8
(0.3)
Income before income taxes $
1 Refer to section 5.1.1 for a description of normalizing items.
2 Change is between normalized results.
109.5
— $
333.0
$
—
—
—
—
—
186.5
56.0%
0.5
76.8
(0.3)
— $
109.5
$
322.8
170.7
52.9%
0.6
78.3
(0.3)
92.1
— $
—
—
—
—
—
— $
Change2
3.2 %
9.3 %
5.9 %
322.8
170.7
52.9%
0.6
(16.7)%
78.3
(0.3)
92.1
(1.9)%
— %
18.9 %
(C$ in millions, except
where noted)
Revenue
Gross margin
Gross margin rate
Other expense (income)
Selling, general and
administrative expenses
Net finance costs
2019
Normalizing
Items1
Normalized
2019
2018
Normalizing
Items1
Normalized
2018
$ 1,334.1
— $ 1,334.1
$ 1,259.9
— $ 1,259.9
737.2
55.3%
1.9
310.0
(1.0)
—
—
—
—
—
737.2
717.2
55.3%
1.9
310.0
(1.0)
56.9%
(0.3)
326.1
(1.1)
—
—
—
(13.5)
—
717.2
56.9%
(0.3)
312.6
(1.1)
— $
426.3
$
392.5
(13.5) $
406.0
Change2
5.9 %
2.8 %
(2.8)%
— %
(0.8)%
— %
5.0 %
Income before income taxes $
1 Refer to section 5.1.1 for a description of normalizing items.
2 Change is between normalized results.
426.3
20 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
Financial Services Segment Commentary
Q4
Revenue p $10.2 million or
3.2%
Full Year
p $74.2 million or
5.9%
Increase due to higher credit charges resulting from
GAAR growth, partially offset by lower insurance
revenue. GAAR increased 5.0 percent driven by a
1.6 percent increase in the number of average
active accounts and an increase in the average
balance per account.
Primarily driven by higher credit charges due to
GAAR growth and interchange revenue due to
higher credit card sales, partially offset by lower
insurance revenue. GAAR increased 7.4 percent
driven by a 3.8 percent increase in the number of
average active accounts and an increased average
balance per account.
Gross
Margin
p 9.2% in gross margin dollars
p 309 bps in gross margin rate
p 2.8% in gross margin dollars
q 168 bps in gross margin rate
Increase due to higher credit charges driven by
GAAR growth.
Increase due to higher revenue offset by increased
net write-offs resulting from 2018 operational
initiatives that led to a significant portfolio growth.
The increase in the net write-offs resulted in a
decrease in gross margin rate.
SG&A
Expenses
Earnings
Summary
q $1.5 million or
1.9%
q $16.1 million or
4.9%
Overall, relatively in line to the prior year.
Normalized selling, general and administrative
expenses are lower by $2.6 million, mainly due to
lower marketing acquisition costs.
p $17.4 million or
18.9%
p $33.8 million or
8.6%
Primarily due to higher revenue driven by strong
GAAR growth of 5.0 percent for the quarter, along
with lower cost of producing revenue and selling,
general and administrative expenses.
Normalized income before taxes increased $20.3
million or 5.0 percent primarily driven by strong
revenue growth due to GAAR growth of 7.4 percent
for the full year.
5.3.2 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 9.3.1 in this MD&A for definitions and further
information on performance measures.
2019
2018
5.4%
3.3%
10.3%
11.5%
21.63%
21.33%
Change
Change
Q4 2019
Q4 2018
$ 6,093.0
$ 6,398.3
5.0% $ 6,253.5
(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, 4
Past due credit card receivables3, 5 (“PD2+”)
Allowance rate6
Operating expenses2, 7 (as a % of GAAR)
Return on receivables2
1 Credit card sales growth excludes balance transfers. Represents year-over-year percentage change.
2 Figures are calculated on a rolling 12-month basis.
3 Credit card portfolio only.
4 The net credit card write-off rate was favourably impacted by 41 bps in Q4 2018 due to a change in Management’s estimate of the present value of regular
$ 5,825.3
12.18%
12.24%
3.3% $
5.60%
6.75%
6.82%
6.20%
2.64%
4.96%
2.77%
5.43%
2,882
2,112
2,862
2,959
2,978
2,113
2,035
2,148
3.4%
3.8%
7.4%
1.6%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
$
$
$
recoveries.
5 Credit card receivables more than 30 days past due as a percentage of total-ending credit card receivables.
6 The allowance rate was calculated based on the total-managed portfolio of loans receivable.
7
IFRS 16 impact was insignificant on this metric.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
Financial Services Scorecard
To evaluate the overall financial performance of the Financial Services segment, the following scorecard provides a
balanced view on how Financial Services segment is moving towards achieving its strategic objectives.
Q4 2019 vs Q4 2018
Growth
p 5.0% in GAAR
p 3.3% in credit card sales growth
p 1.6% in average number of accounts with a balance
p 3.3% in average account balance
Growth was created through continued strong earnings driven by higher credit charges as a result
of GAAR growth of 5.0 percent over prior year.
The growth of receivables in 2019 was the result of a balanced approach, with gains in both
average active accounts and average account balances compared to Q4 2018.
Performance
p 7 bps in return on receivables
q 29 bps in revenue as a % of GAAR
q 64 bps in OPEX as a % of GAAR
Return on receivables for Q4 2019 outperformed the prior year by 7 bps driven by growth in income
before income taxes of 18.9 percent, which outpaced GAAR growth.
Operating expenses remained well controlled during the quarter as OPEX as a percentage of
GAAR measured 64 bps better than prior year.
Credit metrics
p 13 bps in PD2+ rate
p 77 bps in net credit card write-off rate
q 12.18% allowance rate, down 5 bps
Approximately half of the increase in the rolling twelve month net credit card write off rate is due
to the previously disclosed accounting change in Q3 2018, the remainder is due to the maturation
of balances added following the Triangle launch in 2018 and a moderation of the growth rate of
the portfolio. In addition, the industry wide increase in insolvency rates had a modest impact on
the rate.
The allowance rate is in line with the prior year and is within the previously disclosed range of
11.5 to 13.5 percent.
5.3.3 Financial Services Segment Seasonal Trend Analysis
Quarterly operating net income and revenue are affected by seasonality. 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)
Revenue
Income before income taxes
Normalized1 income before
income taxes
Q4 2019 Q3 2019 Q2 2019 Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018
$
333.0 $
343.0 $
329.3 $
328.8 $
322.8 $
325.6 $
306.4 $
305.1
109.5
108.9
95.5
112.4
92.1
131.9
109.5
108.9
95.5
112.4
92.1
131.9
71.4
84.9
97.1
97.1
1 Refer to section 5.1.1 for a description of normalizing items.
22 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
5.4 CT REIT Segment Performance
5.4.1 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
CT REIT Segment Commentary
Q4 2019
Q4 2018
Change
2019
$
123.7 $
119.3
3.7 % $
489.0 $
26.8
3.5
27.1
(10.6)
$
76.9 $
26.8
3.4
26.1
(11.5)
74.5
(0.2)%
5.6 %
3.6 %
(7.6)%
106.1
14.2
108.8
(47.3)
2018
472.5
108.6
12.2
104.4
Change
3.5 %
(2.3)%
17.2 %
4.2 %
(53.6)
(11.8)%
3.2 % $
307.2 $
300.9
2.1 %
Property
Revenue
Property
Expense
SG&A
Expenses
Net
Finance
Cost
Fair Value
Adjustment
on
Investment
Properties
Earnings
Summary
Q4
p $4.4 million or
3.7%
Full Year
p $16.5 million or 3.5%
The $4.4 million increase was mainly attributable
to contractual rent escalations and additional
base rent related to properties acquired and
intensification completed during 2019 and 2018.
The $16.5 million increase was attributable to
contractual rent escalations and additional base
rent
to properties acquired and
intensification completed during 2019 and 2018.
related
G $— Flat to prior year
q $2.5 million or
2.3%
Property expense was in line with last year.
Property expense was 2.3 percent lower primarily
due to reduced ground rent expense as a result
of the adoption of IFRS 16.
p $0.1 million or
5.6%
p $2.0 million or
17.2%
Increase was mainly driven by
fair value
adjustments on unit based awards included as
part of personnel compensation and trustee fees.
Increase was mainly driven by
fair value
adjustments on unit based awards included as
part of personnel compensation and trustee fees.
p $1.0 million or
3.6%
p $4.4 million or
4.2%
Increase was mainly due to increased interest
expense on lease liabilities as a result of the
adoption of IFRS 16 and decreased interest
capitalization on development projects in 2019.
Increase was mainly due to increased interest
expense on lease liabilities as a result of IFRS 16,
decreased interest capitalization on development
projects in 2019 and higher interest on debentures
issued in February 2018.
q $0.9 million or
7.6%
q $6.3 million or
11.8%
The decrease was primarily due to higher
increases in property values across the portfolio
in Q4 2018.
The decrease was primarily due to higher
increases in property values across the portfolio
in 2018.
p $2.4 million or
3.2%
p $6.3 million or
2.1%
Increase in earnings was primarily due to steady
growth of business activity resulting in property
revenue increase, which was 3.7 percent (or
approximately $4 million).
Increase in earnings was primarily due to steady
growth of business activity resulting in property
revenue increase, which was 3.5 percent.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
5.4.2 CT REIT Segment Key Operating Performance Measures
Key operating performance measures do not have standard meanings under IFRS and, therefore, may not be
comparable to similar terms used by other companies. Refer to section 9.3.1 in this MD&A for definitions and further
information on performance measures.
(C$ in millions)
Net operating income1
Funds from operations1
Adjusted funds from operations1
1 Non-GAAP measures, refer to section 9.3.2 in this MD&A for additional information.
Q4 2019
93.4 $
66.6
57.3
$
Q4 2018
88.9
62.0
51.8
Change
2019
5.1% $
368.8 $
7.7%
10.7%
261.9
224.3
2018
349.2
246.0
205.2
Change
5.6%
6.4%
9.3%
Year-over-year Property Revenue and AFFO Growth
6.5%
6.0%
7.7%
6.1%
7.2%
5.7%
4.9%
6.6%
5.6%
4.5%
4.2%
11.5%
10.7%
9.3%
8.3%
6.8%
2.6%
3.5%
3.7%
3.5%
Q1 2018 Q2 2018 Q3 2018 Q4 2018
2018
Q1 2019 Q2 2019 Q3 2019 Q4 2019
2019
Property Revenue
AFFO
Net operating income (NOI)
NOI for the quarter increased by 5.1 percent compared to the prior year and increased of 5.6 percent for the full year
primarily attributable to the acquisition of income-producing properties and properties under development completed
in 2019 and 2018. NOI is a non-GAAP measure. Refer to section 9.3.2 for additional information.
Funds from operations (FFO)
FFO for the quarter increased by 7.7 percent compared to the prior year and increased by 6.4 percent for the full
year primarily attributable to the impact of NOI increases partially offset by higher interest expense. FFO is a non-
GAAP measure. Refer to section 9.3.2 for additional information.
Adjusted funds from operations (AFFO)
AFFO for the quarter increased by 10.7 percent and increased of 9.3 percent for the full year primarily attributable
to the impact of NOI increases partially offset by higher interest expense. AFFO is a non-GAAP measure. Refer to
section 9.3.2 for additional information.
24 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
6.0 Balance Sheet Analysis, Liquidity, and Capital Resources
6.1 Balance Sheet Highlights
6.1.1 Selected Balance Sheet Highlights
The Company’s reported results were impacted by the adoption of IFRS 16 in 2019. Refer to section 9.2 of this
MD&A for the impacts to the consolidated balance sheet as a result of the adoption of IFRS 16.
Selected line items from the Company’s assets and liabilities, as at December 28, 2019 and December 29, 2018,
are noted below:
Total change excluding IFRS 16
transition adjustments
p $
472.1
Selected Asset
2019 Balance
Goodwill and intangible assets
Merchandise inventories
Loans receivable
2,414.3
2,212.9
5,813.8
Year-over-year change in assets
142.3
215.4
302.5
Total change excluding IFRS 16
transition adjustments
p $
135.4
Selected Liability
2019 Balance
Year-over-year change in liabilities
Long-term debt (current and long-term
portion)
Short-term borrowings
Trade and other payables
(35.5)
4,518.4
450.0
2,492.4
71.9
67.4
Assets
Goodwill and
intangible assets
p $142.3 million
Primarily due to the acquisition of Party City in October 2019 and additions to the
portfolio of owned brands during the year.
Merchandise
inventory
p $215.4 million
Due to the inclusion of Party City, increased inventory positions at SportChek in order
to better meet customer needs and at Helly Hansen to support increased sales.
Loans receivable p $302.5 million
Due to increased GAAR growth in the Financial Services segment resulting from the
continued success of the 2018 Triangle loyalty program expansion initiatives.
Liabilities
Long-term debt
(current and
long-term portion)
q $35.5 million
Excluding the initial impact of IFRS 16 ($108 million), long term debt increased as
a repayment of $500.0 million in Glacier Credit Card Trust (“GCCT”) senior and
subordinated notes in September 2019 was more than offset by the issuance of
$560.0 million in GCCT senior and subordinated notes in June 2019.
Short-term
borrowings
p $71.9 million
The increase in short-term borrowings is mainly attributable to the timing of
borrowings outstanding at Canadian Tire Bank under its committed bank line of
credit.
Trade and other
payables
p $67.4 million
Excluding the initial impact of IFRS 16 ($95.1 million), trade and other payables
increased due to the timing of payments made to vendors.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
6.2 Summary Cash Flows
The Company’s cash and cash equivalents position, net of bank indebtedness, was $195.1 million as at December 28,
2019. Selected line items from the Company’s Consolidated Statements of Cash Flows for the quarters and years
ended December 28, 2019 and December 29, 2018 are noted in the following tables:
(C$ in millions)
Q4 2019
Q4 2018
Change
Impact of
IFRS 16
Change
(ex IFRS 16)
Cash generated from operating activities
$
1,106.8 $
807.0 $
299.8 $
227.7 $
Cash (used for) investing activities
Cash (used for) financing activities
(354.0)
(744.3)
(166.7)
(593.3)
(187.3)
(151.0)
11.2
(238.9)
Cash generated in the period
$
8.5 $
47.0 $
(38.5) $
— $
72.1
(198.5)
87.9
(38.5)
(C$ in millions)
2019
2018
Change
Impact of
IFRS 16
Change
(ex IFRS 16)
Cash generated from operating activities
$
1,087.6 $
807.4 $
280.2 $
280.9 $
Cash (used for) investing activities
Cash (used for) generated from financing activities
(758.7)
(604.2)
(1,308.6)
549.9
534.6
(1,138.8)
16.4
(297.3)
Cash (used) generated in the period
$
(275.3) $
33.4 $
(308.7) $
— $
(0.7)
533.5
(841.5)
(308.7)
Q4
p $299.8 million change
Operating
activities
Full Year
p $280.2 million change
Investing
activities
Financing
activities
The increase in cash generated from operating
activities was due to IFRS 16, the timing of trade
and other payables and lower growth in loans
receivable in the Financial Services segment,
partially offset by higher interest payments.
The increase in cash generated from operating
activities was primarily attributable to IFRS 16 and
lower growth in loans receivable in the Financial
Services segment, partially offset by higher interest
payments and the timing of tax installments.
p $187.3 million change
q $549.9 million change
Cash used
increased
primarily due to the acquisition of Party City in the
fourth quarter and higher capital expenditures.
investing activities
for
Change in cash used for investing activities
decreased primarily due to the acquisition of Helly
Hansen in the third quarter of the prior year, partially
offset in 2019 by the acquisition of Party City and
higher investments in owned brands and the retail
network.
p $151.0 million change
p $1,138.8 million change
Excluding the impact of IFRS 16, cash used for
financing activities decreased due to a repayment
of GCCT senior and subordinated notes in Q4 2018
as well as lower spend in connection with the
Company’s share repurchase program compared
to the prior year. These decreases were partially
offset by net proceeds from sale and issuance of
CT REIT units in Q4 2018.
Excluding the impact of IFRS 16, change in cash
used for financing activities increased due to less
net debt being issued in 2019 (2018 included
$674.0 million higher debt issued by CTC and
$200.0 million by CT REIT) partially offset by lower
spend during the year in connection with the
Company’s share repurchase program.
6.3 Capital Management
In order to support its growth agenda and pursue its key initiatives, the Company actively manages its capital. The
definition of capital varies from company to company, from industry to industry, and for different purposes. In the
process of managing the Company’s capital, Management includes the following items in its definition of capital and
includes GCCT indebtedness but excludes Franchise Trust indebtedness:
26 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
(C$ 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
2019 % of total
2018 % of total
790.8
450.0
788.2
3,730.2
1,653.4
7,412.6
567.0
588.0
2.9
6.4% $
3.7%
6.5%
30.3%
13.4%
60.3% $
4.6%
4.8%
—%
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%
—%
3,729.6
30.3%
12,300.1
100.0% $
3,720.7
12,285.3
30.3%
100.0%
$
$
$
The Company’s objectives when managing capital are ensuring sufficient liquidity to support its financial obligations
and to 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.
In order to maintain or adjust the capital structure, the Company has the flexibility to adjust the amount of shares
purchased under its normal course issuer bid (“NCIB”) program, adjust the amount of dividends paid to shareholders,
repay debt, issue new debt and equity, monetize various assets, 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.
6.3.1 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.
As at December 31, 2019 and 2018, 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.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 27
MANAGEMENT'S DISCUSSION AND ANALYSIS
6.4 Investing
6.4.1 Capital Expenditures
The Company’s capital expenditures for periods ended December 28, 2019 and December 29, 2018 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
$
2019
232.0 $
124.1
88.1
444.2
93.1
2018
179.0
151.0
118.4
448.4
116.6
Distribution capacity
Total capital expenditures1
1 Capital expenditures are presented on an accrual basis and include software additions, but exclude right-of-use asset additions, acquisitions relating to business
537.3 $
567.0
— $
2.0
$
$
combinations, intellectual properties, and tenant allowances received.
Total
CAPEX
Full Year
q $29.7 million
Total capital expenditure decreased by $29.7 million year over year primarily attributable to lower IT spend
mainly due to the timing of projects, lower other operating spend and lower CT REIT acquisitions which
were partially offset by an increase in real estate spend due to an increased volume of projects and
investments in land.
Operating capital expenditures of $444.2 million were slightly below the previously disclosed range of $475 million
to $550 million, due primarily to the timing of certain real estate and IT projects.
Capital Commitments
The Company had commitments of approximately $201.5 million as at December 28, 2019 (2018 – $158.3 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.
The Company expects its 2020 annual operating capital expenditures to be within the range of $450 million to $500
million, including capital required to fund the Company’s Operational Efficiency program. The Company expects
2020 operating capital spend to increase slightly over the prior year, attributable to planned investments in its retail
store network. This forecast also includes spending for operational efficiency initiatives that may be identified.
These annual and average operating capital expenditures do not include spending relating to the cost of third-party
acquisitions by CT REIT as part of its growth strategy or spending relating to distribution capacity.
6.4.2 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 October 1, 2019, the Company acquired the brand, store network, leaseholds, and fixed assets of Party City for
$178.0 million. Party City is a leading, one-stop shopping destination for party supplies, and an expert in seasonal
and micro-seasonal celebrations, with 65 Canadian retail stores in seven provinces.
28 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
The fair value of identifiable assets acquired and liabilities assumed as at the acquisition date are as follows:
(C$ in millions)
Cash and cash equivalents
Merchandise inventories
Prepaid expenses and deposits
Intangible assets
Property and equipment
Right-of-use assets
Trade and other payables
Lease 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
$
$
$
$
0.7
47.6
2.7
57.0
20.4
76.1
(0.8)
(74.1)
129.6
178.0
(129.6)
48.4
The goodwill recognized on acquisition is attributable mainly to the expected future growth potential from the expanded
operations and customer base. None of the goodwill recognized is expected to be deductible for income tax purposes.
The Company incurred acquisition-related costs of $2.3 million to date which is recorded in selling, general and
administrative expenses. The Company also recorded $2.4 million as fair value adjustment for inventory acquired,
which is recorded in 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,
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.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
6.5 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.
Financing Source
Committed Bank
Lines of Credit
Commercial Paper
Programs
Medium-Term
Notes and
Debentures
Senior and
Subordinated
Notes
Provided by a syndicate of seven Canadian and three international financial institutions, $1.975 billion
in a committed bank line is available to CTC for general corporate purposes, expiring in August 2024.
CTC had no borrowings under its bank lines as at December 28, 2019.
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 2024. CT REIT had
no borrowings under its bank lines as at December 28, 2019.
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, each of which expire in October 2022. CTB had $216.0 million of borrowings under its bank
lines as at December 28, 2019, and no borrowings other than a nominal balance on a note purchase
facility to maintain GCCT’s ownership interest.
Helly Hansen has a 350.0 million Norwegian Krone (”NOK”) secured revolving committed credit facility
and a NOK 350.0 million factoring facility (both $51.9 million C$ equivalent) provided by a Norwegian
bank which expire in October 2022. Helly Hansen had a total of $67.0 million of C$ equivalent
borrowings (452.0 million NOK) outstanding on its bank lines as at December 28, 2019.
During 2019, the Company established a commercial paper program that allows it to issue up to a
maximum aggregate principal amount of US$1.0 billion of short-term promissory notes in the United
States. This program was established to increase funding flexibility and to decrease funding costs.
Terms to maturity for the promissory note range from one to 270 days. Notes are issued at a discount
and rank equally in right of payment with all other present and future unsecured and unsubordinated
obligations to creditors of the Company.
As at December 28, 2019, the Company had no U.S. commercial paper outstanding.
Concurrent with the Company’s commercial paper issuances, the Company entered into foreign
exchange derivatives to hedge the foreign currency risk associated with the principal and interest
component of the borrowings under the program. The Company has not designated these debt
derivatives as hedges for accounting purposes.
As at December 28, 2019, GCCT had $166.9 million of asset-backed commercial paper notes
outstanding.
As at December 28, 2019, CTC had an aggregate principal amount of $1.2 billion of medium-term
notes outstanding.
As at December 28, 2019, CT REIT had an aggregate principal amount of $1.075 billion of senior
unsecured debentures outstanding.
On June 12, 2019, GCCT completed the issuance of $560.0 million series 2019-1 term notes that have
an expected repayment date of June 6, 2024, consisting of $523.6 million principal amount of senior
term notes that bear an interest rate of 2.28 percent per annum and $36.4 million principal amount of
subordinated term notes that bear an interest rate of 3.43 percent per annum.
On September 20, 2019, GCCT fully repaid $472.5 million of series 2014-1 senior term notes, which
bore an interest rate of 2.568 percent per annum as well as $27.5 million of series 2014-1 subordinated
term notes, which bore an interest rate of 3.068 percent per annum.
Broker GIC
Deposits
Funds continue to be readily available to CTB through broker networks. As at December 28, 2019,
CTB held $1,916.7 million in broker guaranteed investment certificate (“GIC”) deposits.
Retail Deposits
Retail deposits consist of HIS and retail GIC deposits held by CTB, available both within and outside
a Tax-free savings account. As at December 28, 2019, CTB held $527.6 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.
30 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
Credit Ratings
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. Due to the establishment of a U.S. commercial
paper program in 2019, the Company obtained a short-term rating from S&P and Moody’s. Ratings for long-term
debt instruments range from highest credit quality (generally “AAA”) to default in payment (generally “D”). Ratings
for short-term debt instruments range from A-1+ (S&P), P-1 (Moody’s), or F1+ (Fitch), representing the highest credit
quality to C (S&P and Fitch), and not prime (Moody’s) for the lowest quality of securities rated.
DBRS
Morningstar
S&P
Moody’s
Fitch
Credit rating summary
Canadian Tire Corporation
Issuer rating
Medium-term notes
Short-term —
Long-term BBB (high)
Long-term BBB (high)
U.S. Commercial Paper
Short-term —
Trend or outlook
Stable
Glacier Credit Card Trust
Asset-backed commercial paper
Asset-backed senior term notes
Short-term R-1 (high) (sf)
Long-term AAA (sf)
Asset-backed subordinated term
notes
Long-term A (sf)
A-2
BBB+
BBB+
A-2
Stable
—
AAA (sf) - Series
2015-1, 2017-1
& 2019-1
A (sf) - Series
2015-1, 2017-1
& 2019-1
—
—
—
P-2
Stable
—
—
—
—
—
—
—
—
—
—
—
F1+ (sf)
AAA (sf) - Series
2018-1
A (sf) - Series
2018-1
—
—
—
CT REIT
Issuer rating
Senior unsecured debentures
Trend or outlook
Long-term BBB (high)
Long-term BBB (high)
—
Stable
BBB+
BBB+
Stable
6.5.1 Contractual Obligations, Guarantees, and Commitments
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 28, 2019.
Contractual Obligations Due by Period
(C$ in millions)
Current and long-term debt1, 3
Glacier Credit Card Trust debt2, 3
Lease obligations4
Purchase obligations
Financial Services’ deposits3
Other obligations
Total
2020
2021
2022
2023
2024
2025 &
beyond
$ 2,323.1 $
288.0 $
150.4 $
159.7 $
400.0 $
— $ 1,325.0
2,204.0
2,261.0
3,477.9
2,453.8
137.4
500.0
410.3
2,285.2
800.3
67.1
—
364.7
227.2
244.5
33.4
560.0
313.2
152.6
562.3
18.5
584.0
264.5
131.5
409.7
11.9
560.0
207.7
124.9
437.0
6.0
—
700.6
556.5
—
0.5
$ 12,857.2 $ 4,350.9 $ 1,020.2 $ 1,766.3 $ 1,801.6 $ 1,335.6 $ 2,582.6
1 Excludes senior and subordinated notes at GCCT.
2 Represents senior and subordinated notes.
3 Excludes interest obligations on debt or deposits.
4 Excludes reasonably certain options of $517.3 million and excludes $269.4 million (2018 – $240.1 million) commitment for lease agreements signed but not yet
commenced.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 31
MANAGEMENT'S DISCUSSION AND ANALYSIS
In the normal course of business, the Company enters into numerous agreements that may contain features that
meet the definition of a guarantee. For a discussion of the Company’s significant guarantees and commitments,
refer to Note 34 of the Company’s 2019 consolidated financial statements. The Company’s maximum exposure to
credit risk with respect to such guarantees and commitments is provided in Note 5 of the Company’s 2019 consolidated
financial statements.
6.6 Funding Costs
The table below shows the funding costs relating to short-term and long-term debt, excludes deposits held by CTB,
Franchise Trust indebtedness, and Helly Hansen credit facilities:
(C$ in millions)
Interest expense1
Cost of debt2
3.40%
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,
3.14%
161.2
141.8
2019
2018
$
$
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 10.1 in this MD&A.
32 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
7.0 Equity
7.1 Shares Outstanding
(C$ in millions)
Authorized
3,423,366 Common Shares
100,000,000 Class A Non-Voting Shares
Issued
2019
2018
3,423,366 Common Shares (2018 – 3,423,366)
58,096,958 Class A Non-Voting Shares (2018 – 59,478,460)
$
$
0.2 $
587.8
588.0 $
0.2
591.3
591.5
Each year, the Company files a NCIB with the Toronto Stock Exchange (“TSX”) which allows it to purchase its Class
A Non-Voting Shares on the open market.
On November 8, 2018, the Company announced its intention to repurchase $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. On
February 19, 2019, the TSX accepted the Company’s notice of intention to make an NCIB to purchase up to 5.5
million Class A Non-Voting Shares during the period from March 2, 2019 through March 1, 2020.
During the year, the Company entered into an Automatic Share Purchase Plan (“ASPP”) with a broker that allows
the broker to purchase Class A Non-Voting Shares for cancellation under the NCIB during the Company’s blackout
periods. As at December 28, 2019, an obligation to repurchase $49.1 million of shares (2018 – n/a) was recognized
under the ASPP in trade and other payables.
The following table summarizes the Company’s purchases relating to the November 8, 2018 announcement:
(C$ in millions)
Share buy-back intention announced on November 8, 2018
$300.0 – $400.0
Shares repurchased in 2018 under the November 8, 2018 announcement
Shares repurchased in 2019 under the November 8, 2018 announcement
Total shares repurchased under the November 8, 2018 announcement
$
127.0
189.5
316.5
In September 2019, the Company completed the repurchases under the November 8, 2018 announcement.
The following represents forward-looking information and readers are cautioned that actual results may vary.
On November 7, 2019, the Company announced its intention to repurchase a further $350 million of its Class A Non-
Voting Shares, in excess of the amount required for anti-dilutive purposes, by the end of fiscal 2020, subject to
regulatory approval of the renewal of the Company’s NCIB.
The following table summarizes the Company’s purchases related to the November 7, 2019 announcement:
(C$ in millions)
Share buy-back intention announced on November 7, 2019
Shares repurchased in 2019 under the November 7, 2019 announcement
Total shares repurchased under the November 7, 2019 announcement
$
$
350.0
11.4
11.4
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 33
MANAGEMENT'S DISCUSSION AND ANALYSIS
7.2 Dividends
The Company has a consistent record of increasing its annual dividend and has a payout ratio target of 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.
The Company declared dividends payable to holders of Class A Non-Voting Shares and Common Shares at a rate
of 1.1375 per share, an increase of $0.10 or 9.6 percent per share, payable on June 1, 2020 to shareholders of
record as of April 30, 2020. The dividend is considered an “eligible dividend” for tax purposes.
7.3 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 980,000 stock option and performance share units settled and resulted
in a cash payment to the counterparties of approximately $10.2 million. Also during the year, the Company entered
into 1,010,000 floating-rate equity forwards at a weighted average purchase price of $147.18 to offset its exposure
to stock options and performance share units.
8.0 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.
During the second quarter of 2019, the Company reached an agreement with the Ontario Ministry of Finance relating
to the tax treatment of income earned by a foreign affiliate of the Company for the 2004 and 2005 taxation years.
As a result of the settlement, the Company recorded an income tax recovery of $3.3 million and pre-tax interest
income earned on the overpayment of taxes of $6.9 million, in 2018, no such agreements occurred.
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 quarter ended December 28, 2019 were $125.4 million, compared to $108.7 million in 2018.
The effective tax rate for the quarter ended December 28, 2019 decreased to 25.5 percent from 28.1 percent in 2018
primarily due to the absence of non-deductible fair value change in the redeemable financial instrument in 2019
compared to in 2018, partially offset by lower tax benefits relating to capital property dispositions and changes in tax
rates in the period.
Income taxes for the full year ended December 28, 2019 were $288.1 million, compared to $285.2 million in 2018.
The effective tax rate for the full year ended December 28, 2019 decreased to 24.4 percent from 26.7 percent in
2018 primarily due to favourable adjustments to tax estimates and prior years’ tax settlements, the absence of a
non-deductible fair value change in the redeemable financial instrument in 2019, and higher non-controlling interest
related to CT REIT in the period.
34 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
The effective tax rate decreased to 24.4 percent from the previously disclosed tax rate of approximately 25.0 percent
due to lower non-deductible stock option expense in the period.
The following represents forward-looking information and users are cautioned that actual results may vary.
In Q3 2019, 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 2020, to be approximately 26.0 percent.
9.0 Accounting Policies, Estimates, and Non-GAAP Measures
9.1 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 to the Company’s 2019 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 Canadian Securities Administrators, except for the allowance for loan impairment in the Financial Services
segment.
9.2 Changes in Accounting Policies
Standards, Amendments and Interpretations Issued and Adopted
Effective in the first quarter 2019, the Company adopted IFRS 16, issued in January 2016 and the related
consequential amendments. 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 – Leases (“IAS 17”), with the distinction between
operating leases and finance leases being retained. The adoption of IFRS 16 has resulted in the recognition of right-
of-use assets and lease liabilities for all operating leases where the Company is a lessee. Assets and liabilities
relating to finance leases on the date of transition remain unchanged. The Company transitioned to IFRS 16 in
accordance with the modified retrospective approach, with the cumulative effect of initially applying the new standard
recognized in retained earnings on December 30, 2018. The prior year’s figures were not adjusted. Refer to Note
2 of the consolidated financial statements for further details of these changes.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 35
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following table summarizes the major adjustments to opening balances resulting from the initial adoption of IFRS
16:
As previously
reported
under IAS 17,
December 29,
2018
IFRS 16
transition
adjustments
Balance at
December
30, 2018 Explanation
(C$ in millions)
Assets
Trade and other receivables
$
933.3 $
14.8 $
948.1
Short-term portion of net investment in finance
sublease receivable
Long-term receivables and other
assets
Goodwill and intangible assets
Investment property
742.6
2,272.0
364.7
85.0
(0.7)
4.6
Long-term portion of net investment in finance sublease
receivable and write off initial direct cost and straight-
line rent balances
827.6
2,271.3 Write-off of market lease intangible assets on transition
369.3
Right-of-use asset recognized on transition relating to
investment properties
Property and equipment
4,283.2
(122.6)
4,160.6
Reclassification of finance leases and asset retirement
obligations (“AROs”) on leased properties to right-of-
use assets
Right-of-use assets
Deferred income taxes
Liabilities and equity
Trade payables and other
liabilities
—
215.8
1,704.3
74.0
Right-of-use asset recognized on transition, this
includes AROs on leased assets, finance leases under
IAS 17, tenant incentives, and onerous lease provisions
1,704.3
289.8 Deferred tax impact on transition
$
2,425.0 $
(95.1) $
2,329.9
Straight-line rent balances written off and reclassified
tenant incentives to the right of use asset on transition
Current portion of lease liabilities
—
311.4
311.4 Short-term portion of lease liability
Provisions
Current portion of long-term debt
Long-term lease liabilities
Long-term debt
Deferred income taxes
171.8
553.6
—
4,000.3
184.5
(1.1)
170.7
Onerous lease provisions reclassified to the right of use
asset to approximate the impairment on the right of use
assets
(15.4)
538.2
Short-term portion of finance lease liability reclassified
to current portion of lease liability
2,034.9
2,034.9 Lease liability recognized on transition
(92.6)
(16.1)
3,907.7
Long-term portion of finance lease liability reclassified
to Long-term portion of lease liability
168.4 Deferred tax impact on transition
752.7
Tenant incentives reclassified to the right of use asset
and to write-off straight-line rent balances
Other long-term liabilities
872.3
(119.6)
Retained earnings
3,720.7
(246.9)
3,473.8
Non-controlling interest
1,048.8
(0.1)
1,048.7
After tax retained earnings impact on transition of the
modified retrospective measurement of the right of use
asset, the write-off of straight line rent balances and
initial direct costs
Impact of transition on CT REIT and others to the non-
controlling interest
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 ended December 28, 2019 and, accordingly, have not been applied in preparing the consolidated financial
statements.
Insurance Contracts
In May 2017, the International Accounting Standards Board (“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. In June 2019, the IASB proposed an amendment to IFRS 17 providing a deferral of one
year of the effective date to January 1, 2022. Early adoption is permitted. The Company is assessing the potential
impact of this standard.
36 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
Interest Rate Benchmark Reform: Amendments to IFRS 9 and IFRS 7
In September 2019, IASB issued Phase 1 of its amendments to IFRS 9 – Financial Instruments and IFRS 7 – Financial
Instruments: Disclosures, to amend certain requirements for hedge accounting and provide relief during the period
of uncertainty arising from the phase out of interest rate benchmarks (e.g. interbank offered rates [“IBOR”s]). These
amendments modify hedge accounting requirements, allowing entities to assume that the interest rate benchmark
on which the cash flows of the hedged item and the hedging instrument are based are not altered as a result of IBOR
reform, thereby allowing hedge accounting to continue. Mandatory application of the amendments ends at the earlier
of when the uncertainty regarding the timing and amount of interest rate benchmark-based cash flows is no longer
present and the discontinuation of the hedging relationship. Phase 2 of the IASB’s project on IBOR is underway and
will address transition from IBOR. The Phase 1 amendments will be effective for annual periods beginning on or
after January 1, 2020, with early adoption permitted. The Company is assessing the potential impact of these
amendments on hedge accounting relationships.
9.3 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.
9.3.1 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 5.2.2 of this MD&A. Retail sales excludes Helly Hansen retail
sales at its retail stores.
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.
Comparable Sales
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. The calculation includes sales from all stores that have been open for a minimum of one year and one
week, as well as 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 and Helly Hansen. Additional information on comparable sales and retail sales growth descriptions
for Canadian Tire, Mark’s, and SportChek can be found in section 5.2.2 of this MD&A.
Prior period comparable sales calculation for Canadian Tire stores excludes stores that have been retrofitted,
replaced, or expanded where the percentage change in square footage exceeds 25 percent of the original store size.
Effective Q1 2019, the calculation of comparable sales no longer excludes such stores. The change in definition
had no material impact on the metric’s calculation for the current or prior period.
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 5.2.2 of this MD&A.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 37
MANAGEMENT'S DISCUSSION AND ANALYSIS
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, lease-related depreciation expense
(IFRS 16), inter-segment earnings, minimum lease payments (for periods prior to IFRS 16 adoption), non-controlling
interests, and any normalizing items. Average invested capital is defined as Retail segment total assets (excluding
IFRS 16-related ROU assets), including operating leases capitalized at a factor of eight, less Retail segment current
liabilities (excluding IFRS 16 lease 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”)
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.
38 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
9.3.2 Non-GAAP Financial Measures
Consolidated Normalized EBITDA and EBITDA
The following table reconciles the consolidated normalized income before income taxes, net finance costs,
depreciation and amortization 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 28, 2019 and December 29, 2018. Management uses
normalized EBITDA, which includes normalized gross margin and normalized selling, general and administrative
expenses, 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.
(C$ in millions)
Normalized EBITDA
Less normalizing items:
Party City:
Acquisition-related costs
Fair value adjustment for inventories acquired1
Operational Efficiency program
The rollout of the Triangle Rewards program and
associated credit cards
Helly Hansen:
Acquisition-related costs
Fair value adjustment for inventories acquired2
Change in fair value of redeemable financial instrument
EBITDA
Less:
Depreciation and amortization, other than right-of-use
assets3 and assets under finance lease
Depreciation of right-of-use assets / assets under finance
lease
Net finance costs, other than related to leases
Net finance costs, related to leases
Income before income taxes
Income taxes
Effective tax rate
Net income
Q4 2019
Q4 2018
2019
2018
$
739.9
$
588.1
$
2,146.3
$
1,742.7
—
2.4
6.5
—
—
—
—
—
—
—
—
—
—
50.0
2.3
2.4
34.4
—
—
—
—
—
—
—
17.3
22.7
5.0
50.0
$
731.0
$
538.1
$
2,107.2
$
1,647.7
103.9
104.1
69.8
41.2
24.8
2.4
43.0
1.7
395.2
262.3
165.8
101.0
418.0
10.0
144.4
7.1
491.3
$
386.9
$
1,182.9
$
1,068.2
125.4
25.5%
108.7
28.1%
288.1
24.4%
365.9
$
278.2
$
894.8
$
285.2
26.7%
783.0
90.9
$
$
Net income attributable to non-controlling interests
31.8
23.9
116.4
Net income attributable to shareholders of Canadian Tire
Corporation
254.3
1 Relates to the fair value adjustment to Party City’s inventory recorded as part of the acquisition on October 1, 2019.
2 Relates to the fair value adjustment to Helly Hansen’s inventory recorded as part of the acquisition on July 3, 2018.
3 Depreciation and amortization reported in cost of producing revenue for the 13 and 52 weeks ended December 28, 2019 was $3.2 million (2018 – $1.4 million)
778.4
334.1
692.1
$
$
$
$
and $10.1 million (2018 – $6.2 million), respectively.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 39
MANAGEMENT'S DISCUSSION AND ANALYSIS
Retail Segment Normalized EBITDA
The following table reconciles Retail segment normalized EBITDA to income before income taxes which is a
supplementary GAAP measure reported in the notes to the consolidated financial statements for the periods ended
December 28, 2019 and December 29, 2018.
(C$ in millions)
Normalized EBITDA
Less normalizing items:
Party City:
Acquisition-related costs
Fair value adjustment for inventories acquired1
Operational Efficiency program
The rollout of the Triangle Rewards program and
associated credit cards
Helly Hansen:
Acquisition-related costs
Fair value adjustment for inventories acquired2
EBITDA
Less:
Q4 2019
Q4 2018
2019
2018
$
635.2 $
423.4 $
1,750.2 $
1,057.5
—
2.4
6.5
—
—
—
—
—
—
—
—
2.3
2.4
34.4
—
—
—
—
—
3.8
22.7
5.0
$
626.3 $
423.4 $
1,711.1 $
1,026.0
Depreciation and amortization, other than right-of-use
assets3 and assets under finance lease
Depreciation of right-of-use assets / assets under finance
lease
Net finance costs, other than related to leases
Net finance costs, related to leases
88.1
87.8
128.7
(0.4)
58.3
2.4
2.7
1.7
327.6
495.5
3.4
236.8
350.6
9.7
(9.7)
7.0
Income before income taxes
1 Relates to the fair value adjustment to Party City’s inventory recorded as part of the acquisition on October 1, 2019.
2 Relates to the fair value adjustment to Helly Hansen’s inventory recorded as part of the acquisition on July 3, 2018.
3 Depreciation and amortization reported in cost of producing revenue for the 13 and 52 weeks ended December 28, 2019 was $3.2 million (2018 – $1.4 million)
351.6 $
647.8 $
328.8 $
668.4
$
and $10.1 million (2018 – $6.2 million), respectively.
Helly Hansen Adjusted EBITDA
The following table reconciles Helly Hansen’s income before income taxes, net finance costs, depreciation and
amortization, and impact of foreign currency translation to Adjusted EBITDA. Management uses Adjusted EBITDA
as a supplementary measure when assessing the performance of Helly Hansen’s ongoing operations.
(C$ in millions)
Adjusted EBITDA
Less:
Q4 2019
Q4 2018
$
22.2 $
22.7 $
2019
72.1 $
Impact of non-operational foreign currency translation
(1.0)
(0.5)
Depreciation and amortization, other than right-of-use
assets
Depreciation of right-of-use assets / assets under finance
lease
Net finance costs, other than related to leases
Net finance costs, related to leases
Income before income taxes
2.2
3.1
0.8
0.6
3.1
—
2.2
—
9.6
8.6
13.1
4.0
2.5
$
16.5 $
17.9 $
34.3 $
42.4
2018
51.7
(0.3)
4.9
—
4.7
—
Due to the adoption of IFRS 16, Helly Hansen’s EBITDA for the 13 and 52 weeks ended December 28, 2019 was
approximately $3.7 million and $15.6 million higher, respectively, than it would have been under the previous
accounting standard.
40 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
Normalized Gross Margin
The following table reconciles normalized gross margin to gross margin which is a supplementary GAAP measure
reported in the notes to the consolidated financial statements for the periods ended December 28, 2019 and
December 29, 2018.
(C$ in millions)
Normalized gross margin
Less normalizing items:
Party City – Inventory fair value adjustment1
Helly Hansen – Inventory fair value adjustment2
$
2019
4,876.2 $
2.4
—
2018
4,716.3
—
5.0
Gross margin
1 Relates to the fair value adjustment to Party City’s inventory recorded as part of the acquisition on October 1, 2019.
2 Relates to the fair value adjustment to Helly Hansen’s inventory recorded as part of the acquisition on July 3, 2018.
$
4,873.8 $
4,711.3
Normalized Other Expense (Income)
The following table reconciles normalized other expense (income) to other expense (income) which is a supplementary
GAAP measure reported in the notes to the consolidated financial statements for the periods ended December 28,
2019 and December 29, 2018.
(C$ in millions)
Normalized other expense (income)
Add normalizing items:
Operational Efficiency program
Other expense (income)
$
$
2019
(14.7) $
1.3
(13.4) $
2018
(26.0)
—
(26.0)
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 28, 2019 and December 29, 2018.
(C$ in millions)
Normalized selling, general and administrative expenses
Add normalizing items:
Party City – Acquisition-related costs
Operational Efficiency program
The rollout of the Triangle Rewards program and associated credit cards
Helly Hansen – Acquisition-related costs
Selling, general and administrative expenses
$
$
2019
3,402.1 $
2018
3,427.6
2.3
33.1
—
—
—
—
17.3
22.7
3,437.5 $
3,467.6
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 28, 2019
and December 29, 2018.
(C$ in millions)
Retail normalized gross margin
Less normalizing items:
Party City – Inventory fair value adjustment1
Helly Hansen – Inventory fair value adjustment2
$
2019
4,078.2 $
2.4
—
2018
3,953.4
—
5.0
Retail gross margin
1 Relates to the fair value adjustment to Party City’s inventory recorded as part of the acquisition on October 1, 2019.
2 Relates to the fair value adjustment to Helly Hansen’s inventory recorded as part of the acquisition on July 3, 2018.
$
4,075.8 $
3,948.4
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 41
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 28, 2019 and December 29, 2018.
(C$ in millions)
Normalized selling, general and administrative expenses
Add normalizing items:
Party City – Acquisition-related costs
Operational Efficiency program
The rollout of the Triangle Rewards program and associated credit cards
Helly Hansen – Acquisition-related costs
Selling, general and administrative expenses
$
$
2019
3,291.2 $
2018
3,413.3
2.3
33.1
—
—
—
—
3.8
22.7
3,326.6 $
3,439.8
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 28, 2019 and December 29, 2018.
(C$ in millions)
Normalized selling, general and administrative expenses
Add normalizing items:
The rollout of the Triangle Rewards program and associated credit cards
Selling, general and administrative expenses
$
$
2019
310.0 $
—
310.0 $
2018
312.6
13.5
326.1
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 28, 2019 and December 29,
2018.
Management believes that normalizing GAAP net income provides a useful method for assessing the Company’s
underlying operating performance and assists in making decisions regarding the ongoing operations of its business.
(C$ in millions)
Normalized net income
Less normalizing items:
Party City:
Q4 2019
Q4 2018
2019
$
374.8 $
328.2 $
933.9 $
2018
870.4
Acquisition-related costs
Fair value adjustment for inventories acquired1
Operational Efficiency program
The rollout of the Triangle Rewards program and
associated credit cards
Helly Hansen:
Acquisition related costs
Fair value adjustment for inventories acquired2
Change in fair value of redeemable financial instrument
—
2.4
6.5
—
—
—
—
—
—
—
—
—
50.0
Net income
1 Relates to the fair value adjustment to Party City’s inventory recorded as part of the acquisition on October 1, 2019.
2 Relates to the fair value adjustment to Helly Hansen’s inventory recorded as part of the acquisition on July 3, 2018.
365.9 $
$
278.2 $
2.3
2.4
34.4
—
—
—
—
—
—
12.7
20.5
4.2
50.0
894.8 $
783.0
42 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
Normalized Net Income Attributable to Shareholders and Earnings per Share
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
2019
EPS
Q4
2018
EPS
2019
EPS
2018
EPS
Net income/basic EPS
$334.1 $ 5.42 $254.3 $ 4.00 $778.4 $12.60 $692.1 $10.67
Add the after-tax impact of the following, attributable to
shareholders of the Company:
Party City – Acquisition related costs and fair value
adjustment1
Operational Efficiency program
The rollout of the Triangle Rewards program and
associated credit cards
Helly Hansen – Acquisition related costs and fair value
adjustment2
Change in fair value of redeemable financial instrument
1.8
4.7
—
—
—
0.03
0.08
—
—
—
—
—
—
—
3.4
— 25.1
0.06
0.40
—
—
—
—
—
—
—
—
—
— 10.7
0.17
— 24.7
— 50.0
0.38
0.77
— 50.0
0.78
Normalized net income/normalized basic EPS
$340.6 $ 5.53 $304.3 $ 4.78 $806.9 $13.06 $777.5 $11.99
Normalized net income/normalized diluted EPS
1 Relates to the fair value adjustment to Party City’s inventory recorded as part of the acquisition on October 1, 2019.
2 Relates to the fair value adjustment to Helly Hansen’s inventory recorded as part of the acquisition on July 3, 2018.
$340.6 $ 5.53 $304.3 $ 4.78 $806.9 $13.04 $777.5 $11.95
Adjusted Net Debt
The following tables reconcile adjusted net debt to GAAP measures. The Company believes that adjusted net debt
is relevant in assessing the amount of financial leverage employed.
As at December 28, 2019
(C$ 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
$
10.4 $
2.0 $
— $
790.8
1,653.4
450.0
788.2
3,730.2
7,423.0
(546.1)
6,876.9
—
—
—
67.0
250.5
950.8
1,270.3
(129.2)
1,141.1
(1,737.7)
—
—
—
37.7
1,081.4
1,119.1
(9.7)
1,109.4
1,453.6
8.4
790.8
1,653.4
383.0
500.0
1,698.0
5,033.6
(407.2)
4,626.4
284.1
4,910.5
Adjusted net debt (cash)
1 Liquid assets include cash and cash equivalents, short-term investments and long-term investments.
6,876.9 $
$
(596.6) $
2,563.0 $
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 43
MANAGEMENT'S DISCUSSION AND ANALYSIS
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
$
— $
— $
— $
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
6,596.4 $
Adjusted net debt (cash)
1 Liquid assets include cash and cash equivalents, short-term investments and long-term investments.
$
(627.4) $
2,568.5 $
CT REIT Non-GAAP Financial Measures
Financial
Services
—
964.5
1,506.7
294.3
500.4
1,639.6
4,905.5
(498.3)
4,407.2
248.1
4,655.3
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
Property straight-line rent revenue
Q4 2019
Q4 2018
2019
$
123.7 $
119.3 $
489.0 $
26.8
3.5
26.8
4.5
106.1
14.1
2018
472.5
108.6
18.4
Transition adjustments – IFRS 161
$
Net operating income
1 2018 net operating income has been reduced to exclude ground lease expense and straight-line expense to achieve consistency in reporting under IFRS 16.
368.8 $
88.9 $
93.4 $
0.9
—
—
349.2
3.7
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 2019. 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.
44 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
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
Lease principal payments on right-of-use assets
Fair value of equity awards
Internal leasing expense
Funds from operations
Properties straight-line rent adjustment
Capital expenditure reserve
Adjusted funds from operations
Q4 2019
Q4 2018
$
76.9 $
(10.6)
(0.5)
(0.1)
0.7
0.2
66.6
(3.5)
(5.8)
74.5 $
(11.5)
(0.3)
—
(0.7)
—
62.0
(4.5)
(5.7)
2019
307.2 $
(47.3)
(0.4)
(0.1)
2.0
0.5
261.9
(14.1)
(23.5)
$
57.3 $
51.8 $
224.3 $
2018
300.9
(53.6)
—
—
(1.3)
—
246.0
(18.4)
(22.4)
205.2
10.0 Key Risks and Risk Management
Overview
CTC is exposed to a number of opportunities and risks 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, monitoring, mitigating and reporting risks and opportunities facing CTC. Refer to section 2.8
in the 2019 AIF for further details of CTC’s ERM Framework.
10.1 Key Risks
The Company regularly assesses its businesses to identify and assess key risks that alone, or in combination with
other interrelated risks, could have a significant adverse impact on the Company’s brand, financial position, and/or
ability to achieve its strategic objectives. The following section provides a high-level view of CTC’s risks that have
the most potential to impact its businesses and CTC’s approaches to mitigate such risks.
The mitigation and management of risk is approached holistically with a view to ensuring all risk exposures are
considered. Although the Company believes the measures taken to mitigate 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. In addition, there are numerous other risk
factors that are difficult to predict and could adversely impact financial results, plans, and objectives.
Strategy
CTC operates in a number of industries which are highly competitive and constantly evolving. The Company selects
strategies intended to address opportunities and 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. Factors affecting these risks may
include, but are not limited to:
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 45
MANAGEMENT'S DISCUSSION AND ANALYSIS
• 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;
• 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;
• shifts in the buying behaviour of consumers, demographics or weather patterns, impacting the relevance of the
products and services offered by CTC;
• transition and integration of significant acquisitions into the CTC business model and ability to achieve expected
performance and growth plans; and
• introduction of new technologies and trends impacting the relevance of the products, channels, or services
offered by CTC.
Risk management strategy:
The Company regularly assesses strategies 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 that may impede the achievement of its strategic objectives. This includes the regular
monitoring of economic, political, demographic, geographic and competitive developments in Canada and other
countries where CTC conducts business, as wells as the capabilities, strategic fit, and other benefits of key initiatives
and acquisitions. The goal of this approach is to provide early warning and escalation within the Company regarding
significant risks 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 considering
external and internal conditions and propose changes to strategic objectives as may be appropriate.
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.
A key relationship for the Company is with its Dealers. Management of the Canadian Tire Dealer relationship is led
by Senior Management with oversight by the CEO and Board of Directors.
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 to better serve
its customers, as well as 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.
46 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
Risk management strategy:
The Company’s strategies include plans and investments to protect and enhance its significant brands. All employees
are expected to manage risks that can impact those brands. Most risks that could impact the Company’s brand are
managed through its risk frameworks. In addition, Senior Management is accountable to ensure that employees
identify and escalate matters that could create brand risk. The Company’s communications department monitors a
variety of sources to identify publicly-reported issues that could create brand risk and supports Senior Management
in managing its response to those issues. The Company’s Code of Conduct provides all employees, contractors,
suppliers, and Directors with guidance on ethical values and expected behaviour that enable it to sustain its culture
of integrity. To further protect its brands, CTC has established requirements with respect to materials used, and the
quality of its products, packaging and labelling, that meet or exceed regulatory standards.
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 manages a number of financial risks including, with respect to,
financial instruments, liquidity, foreign currency exchange and interest rates, which are outlined in more detail below.
Financial Instrument Risk
The Company’s primary financial instrument risk exposures relate to credit card loans receivable and allowances
for credit losses therein 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 33 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 reasonably ensure that it will have sufficient liquidity to meet its liabilities when due, under both normal and
reasonably stressed conditions.
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 39%, 42%, 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.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 47
MANAGEMENT'S DISCUSSION AND ANALYSIS
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.
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
financial instruments, liquidity, foreign currency, interest rate and other financial risks. The Treasurer and Chief
Financial Officer (“CFO”) provide assurances with respect to policy compliance. Refer to section 6.3 for further
details.
In particular, the Company’s hedging activities, are governed by this policy. Hedge transactions are executed with
highly rated financial institutions and are monitored against policy limits.
Talent
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 talent risk.
Risk management strategy:
The Company manages its talent risk through its organizational design, employee recruitment programs, succession
planning, compensation structures, ongoing training, professional development programs, code of conduct, and
performance management. The Company also continues to adopt strategies to attract and retain talent, in particular
to support key and emerging business areas such as cyber, digital, and consumer data analytics.
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. CTC’s choices of investments in technology may support its ability to achieve its
strategic objectives, or may negatively affect its financial position, brand, and/or ability to achieve its strategic
objectives.
Risk management strategy:
The Company manages its risks through its investments in people, processes, and technology to meet operational
and security requirements, and leverage technological advances in the marketplace.
The Company maintains policies, processes, and controls to address capabilities, performance, security, and
availability including resiliency and disaster recovery for systems, infrastructure, and data.
The Company regularly monitors and analyzes its technology needs and performance to determine the effectiveness
of its investments and its investment priorities.
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. A breach of sensitive information or its systems may negatively impact
CTC’s financial position, brand, and/or ability to achieve its strategic objectives.
48 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
Risk management strategy:
The Company maintains policies, processes, and controls to address capabilities, performance, security, and
availability including resiliency and disaster recovery for systems, infrastructure, and data. Security protocols, along
with 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 enterprise-wide programs.
Data and Information
In the normal course of business, the Company collects and stores sensitive data, including the personal information
of its customers and employees, information of its business partners and 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 internal information throughout its lifecycle. The Company continues to enhance its
ability to mitigate information risk in conjunction with its cyber risk management programs.
Operations
CTC has complex and diverse operations across its business units and functional areas. Sources of operational
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.
Operations risk is the risk of potential for loss resulting from inadequate or failed internal processes or systems,
human interactions, or external events. Should this risk materialize, CTC’s financial position, brand, and/or ability
to achieve its strategic objectives could be negatively affected.
Risk management strategy:
Management 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. To ensure continuity of business activities and services, the Company has identified critical processes
and developed robust business continuity plans to mitigate and respond to significant disruptions.
Further information regarding the Company’s exposure to this risk for each business segment is provided in section
10.2.
Financial Reporting
Public companies such as CTC are subject to risks relating to the restatement and reissuance 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
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 49
MANAGEMENT'S DISCUSSION AND ANALYSIS
includes monitoring and responding to changing regulations and standards governing accounting and financial
presentation. Further details are set out in section 11.0.
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, which are discussed in more detail below.
Consumer 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.
Dealer and Other Wholesale Customer Credit Risk
Accounts receivable credit risk is primarily from Dealers, franchisees, and wholesale customers. In addition, the
Company may be required to provide credit enhancement for individual Dealer’s borrowings in the form of standby
letters of credit issued by highly-rated financial institutions and guaranteed by the Company (the “LCs”) or guarantees
of third-party bank debt agreements, with respect to the financing programs available to the Dealers.
Financial Instrument Counterparty 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.
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, processes and controls 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 10.2.2.
For further disclosure of the Company’s maximum exposure to credit risk, over and above amounts recognized in
the Consolidated Balance Sheets, refer to Note 5.3.2 in the consolidated financial statements.
For further disclosure of the Company’s allowance for impairment on loans receivable, refer to Note 9 in the
consolidated financial statements.
Legal, Regulatory and Litigation
The Company is or may become subject to claims, disputes, legal proceedings, and regulatory compliance issues
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.
Regulatory risk may have a negative impact on 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.
Risk management strategy:
Policies, processes and controls address requirements for compliance with applicable laws, regulations, and
regulatory policies. A team of legal professionals assists employees with mitigating and managing risks relating to
50 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
claims or potential claims, disputes, and legal proceedings. The Company’s Legislative Compliance department
provides compliance oversight and guidance to the organization, including 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.
10.2 Business Segment Risks
10.2.1 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 the business risks most relevant to the Retail segment’s operations.
Refer to section 10.1 of this MD&A for further details of the Company’s risk management strategies.
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. Canadian Tire, Mark’s, and SportChek use internal
resources and third-party logistics providers to manage the movement of foreign-sourced goods from suppliers to
the Company’s Distribution Centres and to their retail stores. 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
practices and through strong relationships with transportation companies and port and other shipping authorities,
supplemented by marine insurance coverage.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 51
MANAGEMENT'S DISCUSSION AND ANALYSIS
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
Similar to other retailers that source products internationally, CTC is exposed to risks associated with foreign suppliers
which can include, but are not limited to, currency fluctuations, the stability of manufacturing operations in other
countries, labour practices in other countries (see Conduct Risk), and transportation and port disruptions (see Supply
Chain 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 10.1.
10.2.2 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 the business risks most relevant to Financial Services’ operations.
Refer to section 10.1 for further details of the Company’s risk management strategies.
52 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 2022. 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 6.5.
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 portion 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.
10.2.3 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, 2019, which are not incorporated herein
by reference, for a discussion of risks that affect CT REIT’s operations and also to section 10.1 in this MD&A for
further details of the Company’s risk management strategies.
External Economic Environment
CT REIT is subject to risks resulting from fluctuations or fundamental changes in the external business environment,
which could include changes in the current and future economic environment, the economic stability of local markets,
geographic and industry concentrations, retail shopping behaviours and habits of consumers, and increased
competition amongst investors, developers, owners and operators of similar properties.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 53
MANAGEMENT'S DISCUSSION AND ANALYSIS
Key Business Relationship
CT REIT’s relationship with its majority unitholder, CTC, is integral to its business strategy. Key factors inherent in
this relationship include situations where the interests of CTC and CT REIT are in conflict, dependence of CT REIT’s
revenues on the ability of CTC to meet its rent obligations and renew its tenancies, tenant concentration, reliance
on the services of key personnel including certain CTC personnel, and CTC lease renewals and rental increases.
Financial
Risks associated with macroeconomic conditions which are highly cyclical and volatile could have a material effect
on CT REIT. Such risks include changes in interest rates, the availability of capital, unit price risks, and CT REIT’s
degree of leverage.
Legal and Regulatory Compliance
Failure to adhere to laws and regulations and changes to laws and regulations applicable to CT REIT’s operations
may have an adverse affect, including in relation to tax-related risks, regulatory risks and environmental matters.
Operations
CT REIT is subject to the risk that a direct or indirect loss of operating capabilities may occur due to property,
development, redevelopment and renovation risks, disasters, cyber incidents, climate change, ineffective business
continuity and contingency planning, and talent shortages.
11.0 Internal Controls and Procedures
11.1 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 - Certification of Disclosure in Issuers’ Annual and Interim Filings
(“NI 52-109”), 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 28, 2019. 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 28, 2019.
11.2 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.
54 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 28, 2019. 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
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 28, 2019 in providing reasonable assurance regarding the reliability
of financial reporting and the preparation of consolidated financial statements for external purposes in accordance
with IFRS.
11.3 Changes in Internal Control over Financial Reporting
During the quarter and year ended December 28, 2019, 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.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 55
MANAGEMENT'S DISCUSSION AND ANALYSIS
12.0 Environmental and Social Responsibility
12.1 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.
12.1.1 Climate
In 2018, following the release of the Financial Stability Board's Task Force on Climate-related Financial Disclosures
(TCFD) recommendations, CTC worked with an external advisor to develop a climate risk and opportunity framework.
Using this framework, the Company carried out a climate risk and opportunity assessment, using scenario analysis
to identify and assess risks and opportunities in the short (0-1 years), medium (1-5 years), and long-term (5-30
years), out to 2040. While the identified risks are not currently impacting business growth, the Company will continue
to monitor, evaluate and mitigate them.
The Company is committed to reducing its carbon footprint in line with Canadian and global goals. CTC has set
ambitious, scientifically-informed targets to reduce greenhouse gas (“GHG”) emissions across its value chain. The
targets go beyond areas of the value chain that CTC controls and extend to areas that CTC can reasonably influence.
By 2022, CTC is committed to reducing the GHG emissions of its stores, offices, warehouses and distribution centres
by 22 percent, and keeping product transportation emissions flat, despite growth in eCommerce, both against a 2011
baseline. For further information please refer to https://corp.canadiantire.ca/sustainability/environmental-
sustainability/default.aspx.
To achieve the GHG reduction targets, the Company is investing in energy efficient technologies to retrofit existing
locations, incorporating innovative designs into store prototypes, and seeking strategic opportunities to collaborate
with product transportation partners and drive efficiencies across the supply chain.
12.1.2 Extending the Life of Product and Materials
The Company has a number of initiatives which extend the life of products and materials in these products. The
Company’s designated Quality Assurance Team has worked with the merchandising groups to improve product
defect rates by 11 bps, as a percentage of sales, over the last three years. Canadian Tire Retail stores offer “as is”
programs which keep product that has been returned, or for other reasons cannot be sold as “new”, but are still
functional and safe, from entering the waste stream. CTC 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.
12.1.3 Product Chemical Management
CTC reduces harmful chemicals in its products where appropriate alternatives exist. Helly Hansen, SportChek and
Mark’s are transitioning water repellency finishes to prohibit the use of Perfluorinated chemicals (PFCs) and the
resulting Perfluorooctanoic acid (PFOA) and Perfluorooctane sulfonate (PFOS) bi-products. Mark’s stain repellency
treatments are PFOA and PFOS free, complying with the OEKO-TEX® and bluesign® industry standards and the
EU REACH restrictions. Mark’s moisture management technologies employ non-PFC and non-formaldehyde
chemistries, complying with the OEKO-TEX® and bluesign® industry standards and the European Union Registration,
Evaluation, Authorisation and Restriction of Chemicals (REACH) restrictions which are more stringent than
regulations in the Canadian market. Additionally, methylene chloride, formaldehyde, bisphenal A, phthalates and a
56 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
number of heavy metals have been designed out of our owned brands products. For further information please refer
to: https://s22.q4cdn.com/405442328/files/doc_downloads/sustainability/2019/CTC-Chemical-Transparency.pdf
12.1.4 Community Disaster Relief
CTC has established comprehensive crisis management and business continuity programs that consider the effects
of climate change and other risks, threats and hazards that could affect our operations and the communities where
we operate. When disaster strikes and communities are affected, the CTC Crisis Management Team and Dealers
partner with the Canadian Red Cross, other support agencies, and local municipalities to support response and relief
activities.
12.1.5 Worker Safety
CTC mitigates social compliance risk by ensuring all suppliers have agreed to the Supplier Code of Conduct, and
the 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.
12.1.6 Jumpstart
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 providing 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.
12.2 Environmental Footprint
The following represents forward-looking information and users are cautioned that actual results may vary.
The following table presents the Company and its extended value-chain’s 2018 environmental footprint and the
percentage change relative to the 2011 baseline. The data collection and subsequent review for determining the
Company’s environmental footprint involve rigorous processes that are completed after the close of the calendar
year. As such, the Company’s most recent environmental footprint year is 2018. An independent third-party provided
a limited assurance review on the footprint data.
The Company has set GHG emission reduction targets that demonstrate CTC’s commitment to reducing carbon
emissions in line with Canadian and global goals. We are 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 are available. Our
targets focus on impacts that we have the ability to control or reasonably influence. The Company has reduced its
footprint from business and retail operations by 5.6 percent since 2011, achieving 25 percent of the 2022 target, and
while transportation emissions have increased, we will continue to make progress to achieve the target in 2022.
In 2018, CTC’s absolute emissions decreased 3.5 percent from 2017, primarily due to a decrease in the area of raw
material acquisition and product manufacturing, as a result of a lower dollar value of product received in 2018 and
a decreased intensity in certain product categories. Emissions from buildings and operations were 5.6 percent lower
than our 2011 baseline. The colder winter in 2018 caused natural gas consumption to increase over 2017, which
outpaced the GHG savings from our efficiency initiatives, resulting in less GHG savings over our 2011 baseline than
realized in the prior year. In 2018, emissions from transportation were 11 percent higher than our 2011 baseline. A
higher than usual dependence on road carriers to move product that would normally have been sent by rail was the
primary driver of the increase. The switch from rail to road was due to the closure of certain rail corridors and the
impact of labour action at one of our rail carriers.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 57
MANAGEMENT'S DISCUSSION AND ANALYSIS
By segment of the value-chain and GHG Protocol category1
Product &
Packaging4
Transport5
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 Distribution centres)
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)
Business &
Retail
Operations6
Sub-total
Per square metre
Scope 1 & 2
Scope 3
Total
Total
GHG emissions
(tonnes carbon dioxide equivalents)
Change3
(B) / W
20112
2018
3,344,399.0
3,987,217.0
(16.1)%
0.27
0.39
(30.8)%
16,403.0
12,836.0
341,175.0
313,185.0
5,090.0
n/a
362,668.0
326,021.0
0.03
0.02
79,559.0
13,581.0
4,048.0
147,007.0
7,079.0
77,537.0
15,253.0
1,883.0
145,531.0
26,044.0
11.2 %
50.0 %
251,274.0
266,248.0
0.40
0.42
95,962.0
90,373.0
3,862,379.0
4,489,113.0
3,958,341.0
4,579,486.0
(5.6)%
(4.8)%
6.2%
(14.0)%
(13.6)%
Per $1,000 consolidated revenue
(36.1)%
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.
440.88
281.56
2 CTC tracks emission performance against a 2011 baseline as this is the first year for which complete footprint data are 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 2018 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:
https://sustainability.canadiantirecorporation.ca.
12.3 2019 Sustainability Initiatives
As part of the Company’s commitment to sustainability and efforts to achieve its GHG reduction targets, economic
benefits were realized through a number of sustainability initiatives. The initiatives aim to enhance the Company’s
productivity and reduce its environmental footprint.
The following table summarizes the net new economic benefits to the Company, its Dealers and franchisees and
the net new environmental benefits realized in 2019 from the Company’s sustainability initiatives. It also depicts the
lifetime economic benefit of sustainability initiatives realized since 2011.
58 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
2019
Economic
Benefit1
Energy
Use
Avoidance2
Low-
Carbon
Energy
Generation3
Waste
Avoidance2 Waste Diversion4
Lifetime
Economic
Benefit5
Greenhouse
Gas
Emissions
Avoidance2
(tonnes
CO2e)
4,721
3,125
$
$
(GJ)
(GJ)
($M)
51.6
1.2
($C in millions, except
where indicated)
Product and Packaging6
Product Transport7
Business and Retail
Operations8
37,199
Total
37,199
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 GHG emissions associated with the energy generated must be
77.0% $
77.0% $
248,878
334,720
1,693
21,462
19,711
58
12,416
20,262
25,569
25,569
63,859
21,983
— $
— $
337.6
26.7
88.3
452.6
11.5
64.3
(tonnes)
(tonnes)
—
—
—
—
($M)
(%)
$
$
lower than traditional power generation. This energy is fed into the Ontario electrical grid for general consumption in the province.
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.
13.0 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 4.0;
• the Company’s Operational Efficiency program, including the target annualized savings in section 4.0;
• capital expenditures in subsection 6.4.1;
• the Company’s intention with respect to the purchase of its Class A Non-Voting Shares in section 7.1;
• tax matters in section 8.0; and
• GHG targets in section 12.2.
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”,
“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,
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 59
MANAGEMENT'S DISCUSSION AND ANALYSIS
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. Management’s expectations with
respect to the Operational Efficiency program are based on a number of assumptions relating to anticipated cost
savings and operational efficiencies. 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; (i) the Company’s ability to obtain all
necessary regulatory approvals; (j) the Company’s ability to complete any proposed acquisition; and (k) the Company’s
ability to realize the anticipated benefits or synergies from its acquisitions. With respect to the statements concerning
the Company’s Operational Efficiency program, such factors also include: (a) the possibility that the Company does
not achieve the targeted annualized savings; (b) the possibility that the program results in unforeseen impacts to
overall performance; (c) the possibility that the one-time costs and capital investments associated with the program
are more significant than expected; and (d) the possibility that the Company does not achieve the expected payback
during the anticipated timeframe for the severance, store closure and other related expenses recorded. 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, refer to section 4.0 (Three-Year [2018 to 2020] Financial Aspirations) and section
10.0 (Key Risks and Risk Management) of this MD&A and all subsections thereunder. Also refer to section 2.8 (Risk
Factors) of the 2019 AIF, 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.
60 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
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, email investor.relations@cantire.com.
14.0 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 12, 2020
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 61
Index to the Consolidated Financial Statements and Notes
MANAGEMENT’S RESPONSIBILITY FOR
Note 13. Property and Equipment
Note 14. Leases
Note 15. Subsidiaries
Note 16.
Income Taxes
Note 17. Deposits
Note 18. Trade and Other Payables
Note 19. Provisions
Note 20. Contingencies
Note 21. Short-Term Borrowings
Note 22. Loans
Note 23. Long-Term Debt
Note 24. Other Long-Term Liabilities
Note 25. Employment Benefits
Note 26. Share Capital
Note 27. Share-Based Payments
Note 28. Revenue
Note 29. Cost of Producing Revenue
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
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 Receivables and Other
Note 9.
Loans Receivable
Note 10. Long-Term Receivables and Other Assets
Note 11. Goodwill and Intangible Assets
Note 12.
Investment Property
63
64
66
67
68
69
70
71
71
76
89
90
93
96
96
96
99
Note 30. Selling, General and Administrative Expenses 122
Note 31. Net Finance Costs
Note 32. Notes to the Consolidated Statements of
Cash Flows
Note 33. Financial Instruments
Note 34. Guarantees and Commitments
100
102
Note 35. Related Parties
Note 36. Business Combination
Note 37. Subsequent Event
103
105
106
108
110
110
111
111
111
112
113
115
115
117
118
120
121
122
123
124
127
129
129
??
??
62 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
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 Executive Vice-President
Chief Executive Officer
and Chief Financial Officer
Dean McCann
February 12, 2020
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 63
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 28, 2019 and December 29, 2018,
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 28, 2019
and December 29, 2018, 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 28, 2019 and December 29, 2018, and its financial performance and its cash flows
for the years 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
•
The information, other than the financial statements and our auditor’s report thereon, in the Annual Report.
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.
The Annual Report is expected to be made available to us after the date of the auditor’s report. If, based on the work
we will perform on this other information, we conclude that there is a material misstatement of this other information,
we are required to report that fact to those charged with governance.
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.
64 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
Independent Auditor’s Report
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
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 12, 2020
Toronto, Ontario
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 65
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)
Right-of-use assets (Note 14)
Deferred income taxes (Note 16)
Total assets
LIABILITIES
Bank indebtedness (Note 7)
Deposits (Note 17)
Trade and other payables (Note 18)
Provisions (Note 19)
Short-term borrowings (Note 21)
Loans (Note 22)
Current portion of lease liabilities
Income taxes payable
Current portion of long-term debt (Note 23)
Total current liabilities
Long-term provisions (Note 19)
Long-term debt (Note 23)
Long-term deposits (Note 17)
Long-term lease liabilities
Deferred income taxes (Note 16)
Other long-term liabilities (Note 24)
Total liabilities
EQUITY
Share capital (Note 26)
Contributed surplus
Accumulated other comprehensive (loss) income
Retained earnings
Equity attributable to shareholders of Canadian Tire Corporation
Non-controlling interests (Note 15)
Total equity
Total liabilities and equity
1 Certain prior period figures are not comparable due to the adoption of IFRS 16 (refer to Note 2).
December 28, 2019 December 29, 20181
$
$
$
$
205.5 $
201.7
938.3
5,813.8
2,212.9
33.2
139.3
10.6
9,555.3
807.8
138.9
2,414.3
389.1
4,283.3
1,610.4
319.2
19,518.3 $
10.4 $
790.8
2,492.4
190.2
450.0
621.5
335.3
72.6
788.2
5,751.4
61.1
3,730.2
1,653.4
1,871.0
136.4
810.1
14,013.6
588.0
2.9
(129.9)
3,729.6
4,190.6
1,314.1
5,504.7
19,518.3 $
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
The related notes form an integral part of these consolidated financial statements.
Maureen J. Sabia
Director
Diana L. Chant
Director
66 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
Consolidated Statements of Income
For the years ended
(C$ in millions, except share and per share amounts)
Revenue (Note 28)
Cost of producing revenue (Note 29)
Gross margin
Other (income)
Selling, general and administrative expenses (Note 30)
Net finance costs (Note 31)
Change in fair value of redeemable financial instrument (Note 33)
Income before income taxes
Income taxes (Note 16)
Net income
Net income attributable to:
Shareholders of Canadian Tire Corporation
Non-controlling interests (Note 15)
Basic earnings per share
Diluted earnings per share
December 28, 2019 December 29, 20181
$
14,534.4 $
14,058.7
9,660.6
4,873.8
(13.4)
3,437.5
266.8
—
1,182.9
288.1
894.8 $
778.4 $
116.4
894.8 $
12.60 $
12.58 $
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
$
$
$
$
$
Weighted average number of Common and Class A Non-Voting Shares
outstanding:
Basic
Diluted
1 Certain prior period figures are not comparable due to the adoption of IFRS 16 (refer to Note 2).
The related notes form an integral part of these consolidated financial statements.
61,794,565
61,861,486
64,887,724
65,062,581
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 67
Consolidated Statements of Comprehensive Income
For the years ended
(C$ in millions)
Net income
December 28, 2019 December 29, 2018
$
894.8 $
783.0
Other comprehensive (loss) income, net of taxes
Items that may be reclassified subsequently to net income:
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 income
Currency translation adjustment
Items that will not be reclassified subsequently to net income:
Actuarial (losses) gains
Net fair value (losses) gains on hedging instruments entered into for cash flow
hedges subject to basis adjustment
Other comprehensive (loss) income
Other comprehensive (loss) income attributable to:
Shareholders of Canadian Tire Corporation
Non-controlling interests
Comprehensive income
Comprehensive income attributable to:
Shareholders of Canadian Tire Corporation
Non-controlling interests
(4.5)
(18.7)
0.6
(60.7)
(15.1)
(52.7)
(151.1) $
(146.1) $
(5.0)
(151.1) $
743.7 $
632.3 $
111.4
743.7 $
$
$
$
$
$
$
(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
The related notes form an integral part of these consolidated financial statements.
68 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
Consolidated Statements of Cash Flows
For the years ended
(C$ in millions)
Cash (used for) generated from:
Operating activities
Net income
Adjustments for:
Depreciation of property and equipment, investment property, assets held for sale and right-of-
use assets (Notes 29 and 30)
Income tax expense (Note 16)
Net finance costs (Note 31)
Amortization of intangible assets (Note 30)
(Gain) on disposal of property and equipment, investment property, assets held for sale and
right-of-use assets
Change in fair value of redeemable financial instrument (Note 33)
Total except as noted below
Interest paid
Interest received
Income taxes paid
Change in loans receivable
Change in operating working capital and other
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
Proceeds on disposition of property and equipment, investment property and assets held for
sale
Business combinations, net of cash acquired (Note 36)
Lease payments for finance subleases (principal portion)1
Acquisition of long-term investments and 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
Repayment of loans
Issuance of long-term debt (Note 23)
Repayment of long-term debt and finance lease liabilities2 (Note 23)
Payment of lease liabilities (principal portion)
Payment of transaction costs related to long-term debt
Repurchase of share capital
Proceeds on disposal of partial interest in CT REIT (Note 15)
Net proceeds from issue of trust units to non-controlling interests (Note 15)
Payments on financial instruments
Change in deposits
Cash (used for) generated from financing activities
Cash (used) generated 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)
1 Previously reported within Operating activities under IAS 17.
2 Comparative number includes repayment of finance lease liabilities under IAS 17.
The related notes form an integral part of these consolidated financial statements.
December 28, 2019
December 29, 2018
$
894.8 $
546.7
288.1
266.8
110.8
(25.8)
—
2,081.4
(297.3)
27.3
(347.9)
(270.4)
(105.5)
1,087.6
(435.2)
(178.6)
(613.8)
(297.3)
326.0
20.2
(177.3)
16.4
(32.9)
(758.7)
(242.5)
(84.1)
(326.6)
71.9
259.2
(292.3)
571.3
(500.3)
(313.3)
(2.6)
(218.0)
142.6
86.3
(51.6)
(30.8)
(604.2)
(275.3)
470.4
$
195.1 $
783.0
301.4
285.2
151.5
126.6
(23.4)
50.0
1,674.3
(148.5)
10.1
(204.4)
(491.5)
(32.6)
807.4
(416.8)
(129.5)
(546.3)
(203.8)
208.3
28.9
(762.9)
—
(32.8)
(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
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 69
Consolidated Statements of Changes in Equity
(C$ in millions)
Balance at
December 29, 2018, as previously reported
Transition adjustments – IFRS 16 (Note 2)
Restated balance at December 30, 2018
Net income
Other comprehensive (loss)
Total comprehensive (loss) income
Transfers of cash flow hedge (gains) to non-financial
assets
Contributions and distributions to shareholders of
Canadian Tire Corporation
—
591.5
—
—
—
—
Issuance of Class A Non-Voting Shares (Note 26)
14.3
Repurchase of Class A Non-Voting Shares (Note 26)
(215.2)
Accrued liability for automatic share purchase plan
commitment (Note 26)
(3.0)
Excess of purchase price over average cost (Note 26)
200.4
Dividends
Contributions and distributions to non-controlling
interests
Sale of ownership interests in the CT REIT business,
net of transaction costs (Note 15)
Issuance of trust units to non-controlling interests, net
of transaction costs
Distributions and dividends to non-controlling interests
—
—
—
—
Total contributions and distributions
(3.5)
Total accumulated other comprehensive
income (loss)
Share
capital
Contributed
surplus
Cashflow
hedges
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
$ 591.5 $
2.9 $
92.0 $
(40.9) $
51.1 $ 3,720.7 $
4,366.2 $
1,048.8 $ 5,415.0
—
2.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
92.0
—
(70.8)
(70.8)
(49.5)
—
—
—
—
—
—
—
—
(49.5)
—
(40.9)
—
(60.7)
(60.7)
—
—
—
—
—
—
—
—
—
—
—
(246.9)
(246.9)
(0.1)
(247.0)
51.1
3,473.8
4,119.3
1,048.7
5,168.0
—
778.4
778.4
116.4
894.8
(131.5)
(14.6)
(146.1)
(5.0)
(151.1)
(131.5)
763.8
632.3
111.4
743.7
(49.5)
—
(49.5)
(49.5)
—
—
—
—
—
—
—
—
—
—
—
(46.1)
(200.4)
(261.5)
—
—
—
14.3
(215.2)
(49.1)
—
(261.5)
—
—
—
—
—
—
—
—
14.3
(215.2)
(49.1)
—
(261.5)
142.7
142.7
96.7
(85.4)
154.0
96.7
(85.4)
(407.0)
Balance at December 28, 2019
$ 588.0 $
2.9 $
(28.3) $
(101.6) $
(129.9) $ 3,729.6 $
4,190.6 $
1,314.1 $ 5,504.7
(C$ in millions)
Share
capital
Contributed
surplus
Cashflow
hedges
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)
(49.5)
(508.0)
(561.0)
Transition adjustments – IFRS 15
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
Contributions and distributions to shareholders of
Canadian Tire Corporation
—
615.7
—
615.7
—
—
—
—
Issuance of Class A Non-Voting Shares (Note 26)
Repurchase of Class A Non-Voting Shares (Note 26)
Excess of purchase price over average cost (Note 26)
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 15)
Issuance of trust units to non-controlling interests, net
of transaction costs
Distributions and dividends to non-controlling interests
Total contributions and distributions
Balance at December 29, 2018
—
—
—
—
(24.2)
—
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
—
692.1
92.6
92.6
(3.2)
—
—
—
—
—
—
10.4
702.5
—
—
—
(552.8)
(239.6)
—
—
—
(3.2)
—
(792.4)
4,390.9
692.1
103.0
795.1
(3.2)
11.9
(588.9)
—
(239.6)
—
—
—
(819.8)
741.4
90.9
5,132.3
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)
$ 591.5 $
2.9 $
92.0 $
(40.9) $
51.1 $ 3,720.7 $
4,366.2 $
1,048.8 $ 5,415.0
The related notes form an integral part of these consolidated financial statements.
70 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
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 15 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.
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 2019 and 2018 are the 52-week
periods ended December 28, 2019 and December 29, 2018, 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 12, 2020.
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;
• 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.
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.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 71
NOTES TO THE 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 is based on value in use
(“VIU”) and 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 33 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 forecasted normalized earnings attributable to
the Financial Services business, adjusted for any undistributed earnings.
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.
72 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
Lease Liabilities
Estimation – For the measurement of lease liabilities, Management considers all factors that create an economic
incentive to exercise extension options, or not exercise termination options available in its leasing arrangements.
Extension options, or periods subject to termination options, are only included in the lease term if management
determines it is reasonably certain to be extended or not terminated. The assessment is reviewed if a significant
event or a significant change in circumstances occurs which affects this assessment and that is within the control of
the lessee.
Estimation – The Company generally uses the lessee’s incremental borrowing rate when initially recording property
leases. For property leases, the implicit rates are not readily available as information from the lessor regarding the
fair value of underlying assets and initial direct costs incurred by the lessor related to the leased assets is not available.
The Company determines the incremental borrowing rate as the rate of interest that the lessee would pay to borrow
over a similar term and with a similar security the funds necessary to obtain an asset of a similar value to the right-
of-use-asset in a similar economic environment.
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 16 – Leases
Effective in the first quarter 2019, the Company adopted IFRS 16, issued in January 2016 and the related
consequential amendments. 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 – Leases (“IAS 17”), with the distinction between
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
operating leases and finance leases being retained. The adoption of IFRS 16 has resulted in the recognition of right-
of-use assets and lease liabilities for all operating leases where the Company is a lessee. Assets and liabilities
relating to finance leases on the date of transition remain unchanged. The Company transitioned to IFRS 16 in
accordance with the modified retrospective approach, with the cumulative effect of initially applying the new standard
recognized in retained earnings on December 30, 2018. The prior year’s figures were not adjusted.
The following table summarizes the adjustments to opening balances resulting from the initial adoption of IFRS 16:
(C$ in millions)
Assets
Trade and other receivables
Long-term receivables and other assets
Goodwill and intangible assets
Investment property
Property and equipment
Right-of-use assets
Deferred income taxes
Liabilities and equity
Trade payables and other liabilities
Current portion of lease liabilities
Provisions
Current portion of long-term debt
Long-term lease liabilities
Long-term debt
Deferred income taxes
Other long-term liabilities
Retained earnings
Non-controlling interest
As previously
reported under IAS 17,
December 29, 2018
IFRS 16 transition
adjustments
Balance at
December 30, 2018
$
$
933.3 $
742.6
2,272.0
364.7
4,283.2
—
215.8
2,425.0 $
—
171.8
553.6
—
4,000.3
184.5
872.3
3,720.7
1,048.8
14.8 $
85.0
(0.7)
4.6
(122.6)
1,704.3
74.0
(95.1) $
311.4
(1.1)
(15.4)
2,034.9
(92.6)
(16.1)
(119.6)
(246.9)
(0.1)
948.1
827.6
2,271.3
369.3
4,160.6
1,704.3
289.8
2,329.9
311.4
170.7
538.2
2,034.9
3,907.7
168.4
752.7
3,473.8
1,048.7
Upon adoption of IFRS 16, the Company recognized lease liabilities in relation to leases which have previously been
classified as operating leases under the principles of IAS 17. These liabilities are measured at the present value of
the remaining fixed lease payments, discounted using the lessee’s incremental borrowing rate as of December 30,
2018. The weighted average lessee’s incremental borrowing rate applied to lease liabilities recognized in the
consolidated balance sheet on December 30, 2018 was 4.88 percent.
The following table reconciles the operating lease commitments as at December 29, 2018 to the opening balance
of lease liabilities as at December 30, 2018:
(C$ in millions)
Operating lease commitments as at December 29, 20181
Add: finance lease liabilities recognized as at December 29, 2018
Add: adjustments as a result of a different treatment for extension and termination options
Effect of discounting using the lessee’s incremental borrowing rate
Less: leases committed not yet commenced
Less: short-term, low-value asset leases and others
$
$
2,621.7
108.0
402.6
(505.8)
(244.2)
(36.0)
2,346.3
Lease liabilities recognized as at December 30, 2018
1
Includes operating lease commitments of $128.4 million relating to properties where the Company is an intermediate lessor in sublease arrangements.
The associated right-of-use assets were primarily measured as if the standard had been applied since the
commencement date of the lease, but discounted using the lessee’s incremental borrowing rate at the date of initial
application. Certain right-of-use assets were measured at the amount equal to the lease liability, adjusted by the
74 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
amount of any prepaid or accrued lease payments relating to the lease recognized in the balance sheet as at
December 30, 2018.
In applying IFRS 16 for the first time, the Company has used the following practical expedients permitted by the
standard:
• the Company has not reassessed, under IFRS 16, contracts that were identified as leases under the previous
accounting standard (IAS 17 and IFRIC 4 – Determining whether an arrangement contains a lease);
• the Company has applied 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 initial direct costs in the measurement of the right-of-use asset on transition;
• the Company accounted for real estate operating leases with a remaining lease term of less than 12 months as
at December 30, 2018 as short-term leases; and
• the Company has used hindsight in determining the lease term where the lease contracts contain options to
extend or terminate the lease.
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 ended December 28, 2019 and, accordingly, have not been applied in preparing these consolidated financial
statements.
Insurance Contracts
In May 2017, the International Accounting Standards Board (“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. In June 2019, the IASB proposed an amendment to IFRS 17 providing a deferral of one
year of the effective date to January 1, 2022. Early adoption is permitted. The Company is assessing the potential
impact of this standard.
Interest Rate Benchmark Reform: Amendments to IFRS 9 and IFRS 7
In September 2019, IASB issued Phase 1 of its amendments to IFRS 9 – Financial Instruments and IFRS 7 – Financial
Instruments: Disclosures, to amend certain requirements for hedge accounting and provide relief during the period
of uncertainty arising from the phase out of interest rate benchmarks (e.g. interbank offered rates [“IBOR”s]). These
amendments modify hedge accounting requirements, allowing entities to assume that the interest rate benchmark
on which the cash flows of the hedged item and the hedging instrument are based are not altered as a result of IBOR
reform, thereby allowing hedge accounting to continue. Mandatory application of the amendments ends at the earlier
of when the uncertainty regarding the timing and amount of interest rate benchmark-based cash flows is no longer
present and the discontinuation of the hedging relationship. Phase 2 of the IASB’s project on IBOR is underway and
will address transition from IBOR. The Phase 1 amendments will be effective for annual periods beginning on or
after January 1, 2020, with early adoption permitted. The Company is assessing the potential impact of these
amendments on hedge accounting relationships.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 15.1 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 28, 2019 and December 29, 2018. The year end of CT Real
Estate Investment Trust (“CT REIT”), Helly Hansen, Franchise Trust and CTFS Holdings Limited and its subsidiaries
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.
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.
76 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
Lease liabilities and corresponding right-of-use assets are recognized for leases in which the acquiree is a lessee.
The lease liability is measured at the present value of the remaining lease payments as if the acquired lease were
a new lease at the acquisition date. The right-of-use asset is equal to the lease liability, adjusted to reflect favourable
or unfavourable market terms.
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.
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
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.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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
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-
78 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
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
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
80 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
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, prior to adoption of IFRS 16, were depreciated on the same basis as owned assets.
If there was no reasonable certainty that the Company would obtain ownership by the end of the lease term, the
asset was depreciated over the shorter of lease term and its useful life.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Estimated useful lives are as follows:
Asset Category
Buildings
Fixtures and equipment (including software intangible assets)
Leasehold improvements
Assets under finance lease (prior to adoption of IFRS 16)
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
As a result of adopting IFRS 16 in 2019, the lease accounting policies were updated as follows. The prior period
accounting policies related to leases (under IAS 17) are discussed at the end of this section.
Lessee
The Company assesses whether a contract is or contains a lease, at inception of a contract. Leases are recognized
as a right-of-use asset and corresponding liability at the commencement date. Each lease payment included in the
lease liability is apportioned between the repayment of the liability and a finance cost. The finance cost is recognized
in net finance costs in the Consolidated Statements of Income over the lease period so as to produce a constant
periodic rate of interest on the remaining balance of the liability for each period. Lease liabilities include the net
present value of fixed payments (including in-substance fixed payments), variable lease payments that are based
on an index or a rate or subject to a fair market value renewal, amounts expected to be payable by the lessee under
residual value guarantees, the exercise price of a purchase option if the lessee is reasonably certain to exercise that
option, and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
The Company allocates the consideration in the contract to each lease component on the basis of the relative stand-
alone price of the lease component and the aggregate stand-alone price of the non-lease components. The lease
liability is net of lease incentives receivable. The lease payments are discounted using the interest rate implicit in
the lease or, if that rate cannot be determined, the lessee’s incremental borrowing rate. The period over which the
lease payments are discounted is the reasonably certain lease term, including renewal options that the Company is
reasonably certain to exercise. Renewal options are included in a number of leases across the Company.
Payments associated with short-term leases and leases of low-value assets are recognized as an expense on a
straight-line basis in selling, general and administrative expenses in the Consolidated Statements of Income. Short-
term leases are leases with a lease term of 12 months or less. Variable lease payments that do not depend on an
index or a rate or subject to a fair market value renewal are expensed as incurred and recognized in Selling, general
and administrative expenses in the Consolidated Statements of Income.
Right-of-use assets are measured at cost which is calculated as the amount of the initial measurement of lease
liability plus any lease payments made at or before the commencement date, any initial direct costs and related
restoration costs. The right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term
and the useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the
right-of-use asset reflects that the Company expects to exercise a purchase option, the related right-of-use asset is
depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the
lease.
Lessor
When the Company is the lessor in an operating lease, rental income is recognized in net income on a straight-line
basis over the term of the lease.
Subleases
When the Company enters into sublease arrangements as an intermediate lessor, it determines whether the sublease
is a finance sublease or operating sublease by reference to the right-of-use asset arising from the head lease. A
sublease is a finance sublease if substantially all the risks and rewards of the related head lease right-of-use asset
have been transferred to the sub-lessee. When the Company is an intermediate lessor, it accounts for the head lease
and the sublease as two separate contracts.
82 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For finance subleases, the Company derecognizes the corresponding right-of-use asset and records a net investment
in the finance sublease and corresponding interest income is recognized in net finance costs. The net investment
in the sublease is recognized in trade and other receivables and long-term receivables and other assets.
Sale and Leaseback
The accounting treatment of a sale and leaseback transaction is assessed based upon the substance of the transaction
and whether the transfer of an asset is considered as a sale when the control of the asset has been transferred to
the purchaser.
If the transfer of the asset by the Company as seller-lessee is considered a sale, the Company measures the right-
of-use asset arising from the leaseback at the proportion of the previous carrying amount of the asset that relates
to the right of use retained by it. Accordingly, the amount of any gain or loss that relates to the rights transferred to
the buyer-lessor are recognized in other income in the Consolidated Statements of Income.
If the transfer of an asset is not considered a sale, the asset continues to be recognized and a financial liability equal
to the transfer proceeds is recorded.
Impairment of Assets
The carrying amounts of property and equipment, investment property, right-of-use assets 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, physical damage of the asset, or expected permanent closing of the store related to a
property lease. 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.
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
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 33.2 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.
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
84 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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, the sale of goods to the general public by Mark’s, PartSource, SportChek1, Helly Hansen
and Party City in Canada corporately-owned stores as well as the sale of goods through Helly Hansen’s wholesale
channels. 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.
Services Rendered
Service revenue includes Roadside Assistance Club membership 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. 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.
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.
86 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 and interest income on lease receivables for finance
subleases. 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, as well as finance cost on lease liabilities 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
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.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 87
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
Leases Prior to December 30, 2018
The following is applicable only for periods prior to December 30, 2018, for leases accounted for under IAS 17.
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.
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.
88 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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:
2019
% of total
2018
% of total
(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
$
$
790.8
450.0
788.2
3,730.2
1,653.4
7,412.6
567.0
588.0
2.9
6.4% $
3.7%
6.5%
30.3%
13.4%
60.3% $
4.6%
4.8%
—%
964.5
378.1
553.6
4,000.3
1,506.7
7,403.2
567.0
591.5
2.9
3,729.6
30.3%
3,720.7
7.8%
3.1%
4.5%
32.6%
12.3%
60.3%
4.6%
4.8%
—%
30.3%
100.0%
Total capital under management
$
12,300.1
100.0% $
12,285.3
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, many of these ratios include lease
liabilities. 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 shares
purchased under its normal course issuer bid (“NCIB”) program, adjust the amount of dividends paid to shareholders,
repay debt, issue new debt and equity, monetize various assets, 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).
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 89
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company was in compliance with all financial covenants under its existing debt agreements as at December 28,
2019 and December 29, 2018. Under these covenants, the Company has sufficient flexibility to support business
growth.
Helly Hansen is required to comply with covenants established under its bank credit agreements, and was in
compliance with all financial covenants thereunder as at December 28, 2019.
CT REIT is required to comply with covenants established under its Declaration of Trust, the Trust Indenture and
bank credit agreement and was in compliance with all financial covenants thereunder as at December 31, 2019 and
2018.
Canadian Tire Bank (“CTB” or “the Bank”), a federally chartered Schedule I bank, is required to comply with regulatory
requirements for capital, other regulatory requirements that have an impact on its business operations and certain
financial covenants established under its bank credit agreement.
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 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, 2019 and 2018, 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.
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).
90 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 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, which are discussed in more detail below.
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 issued by highly-rated financial
institutions and guaranteed by the Company (the “LCs”) or guarantees of third-party bank debt agreements, with
respect to the financing programs available to the Dealers (Note 34).
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
$
$
2019
10,695.9 $
414.9
11,110.8 $
2018
11,009.6
414.5
11,424.1
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 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 reasonably ensure that it will 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.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 91
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 three international financial institutions, $1.975 billion in a committed
bank line is available to CTC for general corporate purposes, expiring in August 2024.
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 2024.
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, each of which expire in
October 2022.
Provided by a syndicate of five Canadian financial institutions, $300.0 million in a committed liquidity facility provides
backstop protection to GCCT’s Series 1997-1 asset-backed commercial paper program, expiring in August 2022.
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 (“GIC”) 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.
During the second quarter, the Company entered into a U.S. dollar-denominated commercial paper program that
allows it to issue up to a maximum aggregate principal amount of U.S. $1.0 billion of short-term promissory notes in
the United States. Funds can be borrowed under this program with terms to maturity ranging from one to 270 days.
Any issuances made under the program are issued at a discount and the notes rank equally in right of payment with
all other present and future unsecured and unsubordinated obligations to creditors of the Company.
Due to the diversification of its funding sources, the Company is not overly exposed to any concentration risk.
The following table summarizes the Company’s contractual maturity for its financial liabilities, including both principal
and interest payments:
(C$ in millions)
2020
2021
2022
2023
2024 Thereafter
Total
$
800.2 $
244.5 $
562.3 $
409.7 $
437.0 $
— $ 2,453.7
Non-derivative financial liabilities
Deposits1,2
Trade and other payables
Short-term borrowings
Loans
Long-term debt
2,087.0
450.0
621.5
751.3
—
—
—
—
—
—
150.0
710.0
Mortgages
Interest payments3
Total
1 Deposits exclude the GIC broker fee discount of $9.5 million.
2 The average remaining term of the GIC deposits is 32 months as at December 28, 2019.
3
$ 4,936.6 $
Includes interest payments on deposits, short-term borrowings, loans, and long-term debt.
169.2
189.1
37.5
0.5
9.7
151.0
—
—
—
984.0
—
111.0
—
—
—
—
—
—
2,087.0
450.0
621.5
560.0
1,325.0
4,480.3
—
80.4
—
47.7
399.0
1,099.7
564.2 $ 1,433.0 $ 1,504.7 $ 1,077.4 $ 1,724.0 $ 11,239.9
It is not expected that the cash flows included in the maturity analysis would occur significantly earlier or at significantly
different amounts.
92 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 39%, 42%, 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.
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 (short-term and long-term) 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 short-term Retail borrowings (on the
lines or in the U.S. commercial paper markets) and 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 2020 to 2024.
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
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 93
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
managed due to their distinct nature. The following summary describes the operations of 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, Party City in Canada 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's Triangle branded credit cards, including Triangle Mastercard, Triangle
World Mastercard and Triangle World Elite Mastercard. Financial Services also offers Cash Advantage
Mastercard and Gas Advantage Mastercard products, markets insurance and warranty products, and provides
settlement services to the Company’s affiliates. 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 high-interest savings
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.
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)
External revenue
Retail
CT
REIT
Financial
Services
Eliminations
and
adjustments
Total
Retail
CT
REIT
Financial
Services
Eliminations
and
adjustments
2019
2018
Total
$13,205.1 $
51.6 $ 1,291.4 $
(13.7) $14,534.4 $12,804.6 $
46.4 $ 1,216.1 $
(8.4) $14,058.7
Intercompany revenue
Total revenue
4.7
13,209.8
Cost of producing revenue
9,134.0
437.4
489.0
—
Gross margin
4,075.8
489.0
Other (income) expense
(138.8)
—
42.7
1,334.1
596.9
737.2
1.9
(484.8)
—
8.9
(498.5) 14,534.4
12,813.5
(70.3)
9,660.6
8,865.1
426.1
472.5
—
(428.2)
4,873.8
3,948.4
472.5
43.8
(478.8)
—
1,259.9
(487.2) 14,058.7
542.7
717.2
(60.4)
9,347.4
(426.8)
4,711.3
123.5
(13.4)
(157.1)
—
(0.3)
131.4
(26.0)
Selling, general and
administrative expenses2
3,326.6
120.3
310.0
(319.4)
3,437.5
3,439.8
120.8
326.1
(419.1)
3,467.6
Net finance costs (income)
240.2
108.8
(81.2)
266.8
(2.7)
104.4
—
—
—
—
—
(1.0)
—
(1.1)
—
50.9
50.0
151.5
50.0
Change in fair value of
redeemable financial
instrument
Fair value (gain) loss on
investment properties
—
—
—
(47.3)
—
47.3
—
(53.6)
—
53.6
—
Income before income taxes $
647.8 $ 307.2 $
426.3 $
(198.4) $ 1,182.9 $
668.4 $ 300.9 $
392.5 $
(293.6) $ 1,068.2
Items included in the above:
Depreciation and
amortization
Interest income
Interest expense
$
823.1 $
— $
13.2 $
(178.8) $
657.5 $
360.3 $
— $
10.0 $
57.7 $
428.0
105.3
325.0
0.3
1,115.1
(69.7)
1,151.0
109.1
137.5
(210.6)
361.0
91.6
70.0
0.2
1,028.5
(72.7)
1,047.6
104.6
121.6
(73.7)
222.5
The eliminations and adjustments include the following items:
• reclassifications of certain revenues and costs in the Financial Services segment to net finance (income) costs;
• conversion from CT REIT’s fair value investment property valuation policy to the Company’s cost model, including
the recording of depreciation; and
94 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
• intersegment 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 on July 3, 2018, it now
also operates in foreign jurisdictions. Foreign revenue earned by Helly Hansen amounted to $513.3 million for the
year ended December 28, 2019 (2018 – $295.5 million). Property and equipment and intangible assets (brand and
goodwill) located outside of Canada was $984.7 million as at December 28, 2019 (2018 – $979.1 million).
Capital expenditures by reportable operating segment are as follows:
2019
2018
Financial
Services
Financial
Services
(C$ in millions)
Capital expenditures1
1 Capital expenditures are presented on an accrual basis and include software additions, but exclude right-of-use asset additions, acquisitions relating to business
Retail CT REIT
Retail CT REIT
116.6 $
537.3 $
440.7 $
432.2 $
93.1 $
12.0 $
9.7 $
567.0
Total
Total
$
combinations, intellectual property additions and tenant allowances received.
Right-of-use asset additions by reportable operating segment are as follows:
(C$ in millions)
Right-of-use asset additions1
1 Not applicable for the prior year due to the initial application of IFRS 16 in 2019 (refer to Note 2).
CT REIT
129.0 $
Retail
— $
— $
$
Total
129.0 $
Financial
Services
2019
Total assets by reportable operating segment are as follows:
(C$ in millions)
Retail
CT REIT
Financial Services
Retail
CT REIT
Financial
Services
— $
— $
— $
2018
Total
—
2019
$
15,995.4 $
6,024.5
6,606.4
20181
11,894.3
5,708.7
6,345.6
Eliminations and adjustments
Total assets2
1 Prior period figures are not comparable due to the adoption of IFRS 16 in 2019 (refer to Note 2).
2 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.
19,518.3 $
17,286.8
(6,661.8)
(9,108.0)
$
Total liabilities by reportable operating segment are as follows:
(C$ in millions)
Retail
CT REIT
Financial Services
$
2019
9,870.2 $
2,690.4
5,589.9
20181
5,239.3
2,623.8
5,407.1
Eliminations and adjustments
Total liabilities2
1 Prior period figures are not comparable due to the adoption of IFRS 16 in 2019 (refer to Note 2).
2 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.
14,013.6 $
11,871.8
(1,398.4)
(4,136.9)
$
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
• intersegment eliminations.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 95
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. Cash and Cash Equivalents
Cash and cash equivalents comprise the following:
(C$ in millions)
Cash
Cash equivalents
Restricted cash and cash equivalents1
Total cash and cash equivalents2
Bank indebtedness
$
$
2019
117.9 $
69.4
18.2
205.5 $
(10.4)
2018
125.2
324.8
20.4
470.4
—
470.4
Cash and cash equivalents, net of bank indebtedness
1 Restricted cash and cash equivalents relates to GCCT and is restricted for the purpose of paying out note holders and additional funding costs of $12.8 million
195.1 $
$
(2018 – $16.2 million) and other operational items $5.4 million (2018 – $4.2 million).
Included in cash and cash equivalents are amounts held in reserve in support of Financial Services’ liquidity and regulatory requirements (refer to Note 32.1).
2
8. Trade and Other Receivables
Trade and other receivables include the following:
(C$ in millions)
Trade receivables
Other receivables
Net investment in subleases (Note 14)
Derivatives (Note 33)
Total financial assets
$
$
2019
747.9 $
151.7
17.5
21.2
938.3 $
2018
618.6
167.8
—
146.9
933.3
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 1 and 120 days.
9. Loans Receivable
Quantitative information about the Company’s loans receivable portfolio is as follows:
Total principal amount of receivables1
2018
2019
(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.
2
3 Dealer loans primarily relate to loans issued by Franchise Trust (refer to Note 22).
4 The long-term portion of loans receivable is included in long-term receivables and other assets and includes Dealer loans of $601.6 million (2018 – $633.7 million).
Includes line of credit loans and are expected to be recovered within one year of the reporting date.
5,794.1 $
5,813.8 $
6,416.6
6,146.2
5,484.2
5,511.3
622.5
602.8
662.0
634.9
$
$
96 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 28, 2019, cash received from interest earned on credit cards and loans was $1,043.9
million (2018 – $959.6 million).
The carrying amount of loans includes loans to Dealers that are secured by the assets of the respective Dealer
corporations. The Company’s exposure to loans receivable credit risk resides at Franchise Trust and at the Bank.
Credit risk at the Bank is influenced mainly by the individual characteristics of each credit card customer. The Bank
uses sophisticated credit scoring models, monitoring technology and collection modelling techniques to implement
and manage strategies, policies and limits that are designed to control risk. Loans receivable are generated by a
large and geographically-dispersed group of customers. Current credit exposure is limited to the loss that would be
incurred if all of the Bank’s counterparties were to default at the same time.
A continuity of the Company’s allowance for impairment on loans receivable is as follows:
(C$ in millions)
12-month ECL1
(Stage 1)
Lifetime ECL1 –
not credit-impaired
(Stage 2)
Lifetime ECL1 –
credit-impaired
(Stage 3)
Balance at December 29, 2018
$
253.0 $
186.1 $
325.5 $
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 28, 2019
1 Expected Credit Loss (“ECL”) model.
(14.1)
—
25.3
147.1
(26.8)
(26.8)
(57.2)
(28.9)
—
—
(92.5)
37.1
(27.6)
117.9
(436.8)
82.8
—
(54.6)
(10.3)
54.4
343.2
$
300.5 $
192.1 $
304.2 $
(C$ in millions)
12-month ECL1
(Stage 1)
Lifetime ECL1 –
not credit-impaired
(Stage 2)
Lifetime ECL1 –
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
Write-offs
Recoveries
New loans originated
Transfers
to Stage 1
to Stage 2
to Stage 3
Net remeasurements
Balance at December 29, 2018
1 Expected Credit Loss (“ECL”) model.
(11.9)
53.9
73.2
(32.5)
(28.2)
(28.5)
(25.6)
—
(50.6)
36.7
(26.8)
70.1
(352.9)
75.4
—
(22.6)
(4.2)
55.0
289.1
$
253.0 $
186.1 $
325.5 $
2019
Total
764.6
(479.8)
82.8
25.3
—
—
—
—
403.9
796.8
2018
Total
111.0
584.0
695.0
(390.4)
75.4
53.9
—
—
—
—
330.7
764.6
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
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 97
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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
(C$ in millions)
Low risk
Moderate risk
High risk
Total gross carrying amount
ECL allowance
Net carrying amount
Stage 1
Stage 2
Stage 3
$
2,536.5 $
67.0 $
1,982.5
923.9
5,442.9
300.5
137.0
325.7
529.7
192.1
— $
—
618.3
618.3
304.2
$
5,142.4 $
337.6 $
314.1 $
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 $
2019
Total
2,603.5
2,119.5
1,867.9
6,590.9
796.8
5,794.1
2018
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 28, 2019 and
December 29, 2018, 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
$
2,370.8 $
2,370.8 $
2,364.9
2,380.0
2,438.2 $
2,432.8
2,438.2
2,419.2
2019
2018
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 33.2.
(9.2) $
5.9 $
5.4 $
19.0
$
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
98 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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, being the loans that Franchise Trust has incurred to fund the Dealer loans. The
Dealer loans and Loans 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
2019
2018
$
621.5 $
621.5
621.5 $
621.5
654.6 $
654.6
654.6
654.6
—
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 33.2
— $
— $
— $
$
The Dealer loans have been sold at law and are not available to the creditors of the Company. Loans 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.
10. Long-Term Receivables and Other Assets
Long-term receivables and other assets include the following:
(C$ in millions)
Loans receivable (Note 9)
Net investment in subleases (Note 14)
Derivatives (Note 33)
Mortgages receivable
Other receivables
Total long-term receivables
Other
1 Prior period figures are not comparable due to the adoption of IFRS 16 in 2019 (refer to Note 2).
$
$
2019
602.8 $
112.5
42.9
32.1
7.0
797.3
10.5
807.8 $
20181
634.9
—
44.8
31.9
5.8
717.4
25.2
742.6
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 99
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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, as previously reported
IFRS 16 transition adjustment1
Balance, beginning of year
Additions
Additions related to business combination
Disposals/retirements
Indefinite-life intangible assets and
goodwill
Finite-life intangible assets
Goodwill
Banners and
trademarks
Franchise
agreements
and other
intangibles
Software
Other
intangibles
Total
2019
$
863.5 $
832.7 $
165.5 $
1,048.1 $
23.1 $
2,932.9
—
863.5
—
48.4
—
—
832.7
68.5
57.0
—
—
165.5
2.2
—
—
—
—
1,048.1
121.9
—
(2.9)
—
(11.4)
11.7
—
—
—
—
(11.4)
2,921.5
192.6
105.4
(2.9)
(44.2)
Currency translation adjustment
(18.9)
(25.3)
Balance, end of year
Accumulated amortization and impairment
Balance, as previously reported
IFRS 16 transition adjustment1
Balance, beginning of year
Amortization for the year
Disposals/retirements
Balance, end of year
Net carrying amount, end of year
1 Relates to SportChek off-market leases.
$
$
$
$
893.0 $
932.9 $
167.7 $
1,167.1 $
11.7 $
3,172.4
(1.9) $
(0.6) $
— $
(636.0) $
(22.4) $
(660.9)
—
(1.9)
—
—
—
(0.6)
—
—
—
—
—
—
—
(636.0)
(110.8)
2.9
10.7
(11.7)
—
—
10.7
(650.2)
(110.8)
2.9
(1.9) $
(0.6) $
— $
(743.9) $
(11.7) $
(758.1)
891.1 $
932.3 $
167.7 $
423.2 $
— $
2,414.3
Indefinite-life intangible assets and goodwill
Finite-life intangible assets
Goodwill
Banners and
trademarks
Franchise
agreements
and other
intangibles
Software
Other
intangibles1
2018
Total
(C$ in millions)
Cost
Balance, beginning of year
$
446.6 $
288.6 $
158.0 $
1,536.9 $
23.1 $
2,453.2
Additions
Additions related to business combinations
Disposals/retirements2
Currency translation adjustment
Balance, end of year
Accumulated amortization and impairment
Balance, beginning of year
Amortization for the year
Disposals/retirements2
Balance, end of year
$
$
$
—
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)
—
(1.9) $
(0.6) $
— $
(636.0) $
(22.4) $
(126.6)
626.0
(660.9)
Net carrying amount, end of year
1 Relates to SportChek off-market leases.
2 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
100 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the details of the Company’s goodwill:
(C$ in millions)
Helly Hansen
SportChek
Mark’s
Canadian Tire1
Total
1
$
$
2019
397.9 $
364.6
56.7
71.9
891.1 $
2018
416.7
364.6
56.7
23.5
861.5
Includes $48.4 million from Party City in Canada, which was acquired on October 1, 2019. Refer to Note 36 for details.
The Company’s banners and trademarks, which include SportChek, Mark’s, Helly Hansen and Party City in Canada
store banners and trademarks and acquired private-label brands, represent legal trademarks of the Company with
expiry dates ranging from 2020 to 2038 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 two to 10 years.
The amount of borrowing costs capitalized in 2019 was $5.9 million (2018 – $5.0 million). The capitalization rate
used to determine the amount of borrowing costs capitalized during the year was 4.4 percent (2018 – 5.3 percent).
Amortization expense of software and other finite-life intangible assets is included in selling, general and administrative
expenses in the Consolidated Statements of Income.
Impairment of Intangible Assets and Subsequent Reversal
The Company performed its annual impairment test on goodwill and indefinite-life intangible assets for all CGUs
based on VIU using after-tax discount rates ranging from 6.5 to 7.5 percent and terminal growth rates ranging from
2.0 to 2.5 percent per annum to extrapolate cash flow projections beyond the period covered by the most recent
forecasts.
There was no impairment or reversal of impairment of intangible assets in 2019 or 2018.
For all goodwill and intangible assets, the estimated recoverable amount is based on VIU exceeding the carrying
amount. There is no reasonably possible change in assumptions that would cause the carrying amount to exceed
the estimated recoverable amount.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 101
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. Investment Property
The following table presents changes in the cost and the accumulated depreciation and impairment on the Company’s
investment property:
(C$ in millions)
Cost
Balance, as previously reported
IFRS 16 transition adjustment
Balance, beginning of year
Additions
Other1
Balance, end of year
Accumulated depreciation and impairment
Balance, beginning of year
2019
416.4 $
4.6
421.0
45.6
(21.2)
445.4 $
2018
391.6
—
391.6
119.3
(94.5)
416.4
(51.7) $
(46.9)
$
$
$
Depreciation for the year
Other1
Balance, end of year
Net carrying amount, end of year2
1 Other includes disposals, retirements, impairment, reversals of impairment, reclassifications and transfers. The prior year includes a $70.0 million transfer to
389.1 $
(56.3) $
(51.7)
364.7
(2.8)
(2.0)
(6.2)
1.6
$
$
property and equipment for a distribution centre in Alberta that became owner-occupied during the year.
Investment property includes $4.6 million (2018 – n/a) right-of-use assets related to operating subleases where the Company is an intermediate lessor.
2
The investment properties generated rental income of $54.9 million (2018 – $50.0 million).
Direct operating expenses (including repairs and maintenance) arising from investment property recognized in net
income were $24.3 million (2018 – $22.0 million).
The estimated fair value of investment property was $541.0 million (2018 – $483.2 million). This recurring fair value
measurement is categorized within Level 3 of the fair value hierarchy (refer to Note 33.2 for definition of levels). The
Company determines the fair value of investment property by applying a pre-tax capitalization rate to the annual
rental income for the current leases. The capitalization rate ranged from 4.75 percent to 7.75 percent (2018 – 4.75
percent to 7.75 percent). The cash flows are for a term of five years, including a terminal value. The Company has
real estate management expertise that is used to perform the valuation of investment property and has also completed
independent appraisals on certain investment property owned by CT REIT.
Impairment of Investment Property and Subsequent Reversal
Any impairment or reversals of impairment are reported in Other income in the Consolidated Statements of Income.
102 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13. Property and Equipment
The following table presents changes in the cost and the accumulated depreciation and impairment on the Company’s
property and equipment:
(C$ in millions)
Cost
Land
Buildings
Fixtures and
equipment
Leasehold
improvements
Assets under
finance lease
Construction
in progress
2019
Total
Balance, as previously reported
$
971.8 $
3,390.1 $
1,535.1 $
1,319.4 $
199.6 $
165.6 $ 7,581.6
IFRS 16 transition adjustments
Balance, beginning of year
Additions
Additions related to business
combination
Disposals/retirements1
Currency translation adjustment
Reclassifications and transfers
—
971.8
113.6
—
(0.4)
—
(30.7)
—
3,390.1
109.8
—
(4.0)
—
47.7
(6.8)
1,528.3
152.8
9.3
(40.0)
—
30.0
(63.1)
(199.6)
—
(269.5)
1,256.3
66.4
11.1
(22.1)
(0.3)
(72.8)
—
—
—
—
—
—
165.6
7,312.1
(75.0)
367.6
—
—
—
27.4
20.4
(66.5)
(0.3)
1.6
Balance, end of year
$ 1,054.3 $
3,543.6 $
1,680.4 $
1,238.6 $
— $
118.0 $ 7,634.9
Accumulated depreciation and
impairment
Balance, as previously reported
$
(7.0) $
(1,652.5) $
(911.8) $
(583.3) $
(143.8) $
IFRS 16 transition adjustments
Balance, beginning of year
Depreciation for the year
Impairment
Reversal of impairment losses
Disposals/retirements1
Reclassifications and transfers
—
—
(7.0)
(1,652.5)
—
—
—
—
—
(84.8)
—
—
3.2
8.1
3.1
(908.7)
(127.5)
(1.6)
0.2
39.0
(0.4)
Balance, end of year
$
(7.0) $
(1,726.0) $
(999.0) $
681.4 $
Net carrying amount, end of year
1 Current year disposals includes $33.8 million of zero net book value assets no longer in use.
$ 1,047.3 $
1,817.6 $
—
(583.3)
(65.2)
—
—
22.1
6.8
(619.6) $
619.0 $
143.8
—
—
—
—
—
—
— $ (3,298.4)
—
146.9
— (3,151.5)
—
—
—
—
—
(277.5)
(1.6)
0.2
64.3
14.5
— $
— $
— $ (3,351.6)
118.0 $ 4,283.3
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 103
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(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 Disposals includes $380.6 million of zero net book value assets no longer in use.
2 Reclassification and transfers includes a $70.0 million transfer from investment property for a distribution centre in Alberta that became owner-occupied during
165.6 $ 4,283.2
1,737.6 $
964.8 $
736.1 $
623.3 $
55.8 $
$
2018.
The Company capitalized borrowing costs of $5.0 million (2018 – $5.8 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 4.3 percent (2018 – 4.8 percent).
Impairment of Property and Equipment and Subsequent Reversal
The amount of impairment of property and equipment in 2019 was $1.6 million (2018 – nil). There was $0.2 million
reversal of impairment in 2019 (2018 – nil). Any impairment or reversal of impairment is reported in Other income
in the Consolidated Statements of Income.
104 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14. Leases
14.1 As a Lessee
Extension and termination options are included in a number of leases across the Company particularly for property
related leases. These terms are used to maximize the operational flexibility in terms of managing contracts. The
majority of the extension and termination options held are exercisable only by the Company and not by the respective
Lessor.
14.1.1 Right-of-use Assets
The following table presents changes to the carrying amount of the Company’s right-of-use assets at the end of the
reporting period:
(C$ in millions)
Balance, beginning of year
Transition adjustment (Note 2)
Additions
Additions related to business combinations
Depreciation for the year
Disposals/retirements and other
Property
Non-property1
$
— $
— $
1,672.6
121.3
76.1
(253.1)
(35.5)
Balance, end of year
1 Non-property leases consist of leased IT equipment, supply chain and transportation related assets.
$
1,581.4 $
14.1.2 Undiscounted Cash Flows
The annual lease payments for property and non-property leases are as follows:
(C$ in millions)
Less than one year
One to five years
More than five years
Total undiscounted lease obligation1
1 Excludes $269.4 million (2018 – $240.1 million) commitment for lease agreements signed but not yet commenced.
31.7
7.7
—
(9.2)
(1.2)
29.0 $
$
$
2019
Total
—
1,704.3
129.0
76.1
(262.3)
(36.7)
1,610.4
2019
437.1
1,446.5
894.7
2,778.3
14.2 As a Lessor
The Company leases out a number of its investment properties (refer to Note 12), and has certain sublease
arrangements 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.
14.2.1 Net Investment in Subleases
The table below summarizes the Company’s contractual cash flows from its net investment in subleases.
(C$ in millions)
Less than one year
One to two years
Two to three years
Three to four years
More than five years
Total undiscounted lease payments receivable
Unearned finance income
Net investment in subleases
$
$
2019
23.2
23.2
22.5
20.6
66.2
155.7
(25.7)
130.0
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 105
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14.2.2 Operating Leases
The table below summarizes the Company’s future undiscounted annual minimum lease payments receivable from
lessees under non-cancellable operating leases.
(C$ in millions)
Less than one year
One to two years
Two to three years
Three to four years
More than five years
Total
15. Subsidiaries
$
$
2019
31.0
28.2
26.0
22.3
101.2
208.7
15.1 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 wholesaler of sportswear and workwear
Country of
incorporation
and operation
Canada
Ownership Interest
2019
80.0%
2018
80.0%
Canada
Canada
Canada
Canada
Canada
Canada
Norway
100.0%
69.4%
100.0%
0.0%
0.0%
100.0%
100.0%
100.0%
76.2%
100.0%
0.0%
0.0%
100.0%
100.0%
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.
15.2 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.
106 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
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
30.6%
CTFS
Holdings
Limited2
20.0%
$
15.8
$
6,157.4
$
6,008.7
343.0
2,347.4
3,334.1
489.0
51.3
804.5
$
$
398.0
2,140.9
3,398.1
1,016.4
1,425.0
61.7
501.5
$
$
$
$
2019
Total
6,186.0
6,460.0
2,487.7
5,789.3
4,369.0
2,125.7
116.4
1,314.1
Other3
50.0%
12.8
53.3
3.8
43.8
18.5
211.7
3.4
8.1
$
$
$
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
(85.4)
(40.8)
(42.1)
(2.5)
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
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
$
$
$
$
$
Other3
50.0%
10.4
30.0
3.9
19.6
16.9
218.9
4.1
7.5
$
$
$
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
(39.6)
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)
(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.
15.3 Change in the Company's Ownership Interest in a Subsidiary
In September 2019, the Company reduced its interest in CT REIT from 76.1% to 69.3% and CT REIT completed a
treasury unit offering, for gross proceeds of approximately $150.1 million and $90.0 million and net transaction costs
of $7.4 million and $3.8 million, respectively. As a result, $228.9 million has been transferred to non-controlling
interests.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 107
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16. Income Taxes
16.1 Deferred Income Tax Assets and Liabilities
The amount of deferred tax assets or liabilities recognized in the Consolidated Balance Sheets and the corresponding
movement recognized in the Consolidated Statements of Income, Consolidated Statements of Changes in Equity,
or resulting from a business combination is as follows:
Balance,
beginning of
year
Recognized
in profit or
loss
Recognized in
other
comprehensive
income
Recognized
in equity
Other
adjustments
Balance,
end of year
2019
(C$ in millions)
Provisions, deferred revenue and
reserves
Property and equipment
Intangible assets
Employee benefits
Cash flow hedges
Right-of-use asset and lease liabilities
Finance leases
Non-capital losses carryforward
Other
Net deferred tax asset (liability)1
$
311.4 $
(60.4)
(277.5)
40.4
(33.6)
—
13.6
33.7
3.7
25.6 $
(16.8)
1.5
0.8
—
(14.8)
—
2.3
1.4
— $
(89.2) $
—
—
5.3
27.4
—
—
—
—
26.1
6.0
—
18.1
171.2
(13.6)
(1.4)
1.6
$
31.3 $
— $
32.7 $
118.8 $
— $
(1.6)
2.7
—
—
(0.5)
—
—
(0.6)
— $
1
Includes the net amount of deferred tax assets of $319.2 million and deferred tax liabilities of $136.4 million.
Balance,
beginning of
year
Recognized in
profit or loss
Recognized in
other
comprehensive
income
Recognized in
equity
Other
adjustments
Balance,
end of year
(C$ 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
$
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
(20.1) $
(51.9) $
175.4 $
(87.0) $
1
Includes the net amount of deferred tax assets of $215.8 million and deferred tax liabilities of $184.5 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 28, 2019 (2018 – $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 be available against which they can be utilized. The amount of
these deductible temporary differences was approximately $153.4 million at December 28, 2019 (2018 – 150.4
million).
108 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
247.8
(52.7)
(267.3)
46.5
11.9
155.9
—
34.6
6.1
182.8
2018
311.4
(60.4)
(277.5)
40.4
(33.6)
13.6
33.7
3.7
31.3
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16.2 Income Tax Expense
The following are the major components of income tax expense:
(C$ 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 expense (benefit) resulting from change in tax rate
Total income tax expense
2019
282.2 $
5.9
288.1 $
13.0 $
(13.5)
0.5
—
288.1 $
2018
264.3
0.8
265.1
23.4
(2.2)
(1.1)
20.1
285.2
$
$
$
$
Income tax (benefit) expense recognized in other comprehensive income was as follows:
(C$ in millions)
2019
2018
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 income
Net fair value (losses) gains on hedging instruments entered into for cash flow
hedges subject to basis adjustment
Actuarial (losses) gains
Total income tax (benefit) expense
$
$
(1.6) $
(6.7)
0.2
(19.3)
(5.3)
(32.7) $
(2.6)
(2.7)
1.6
51.7
3.9
51.9
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 26.65% (2018 – 26.7%) $
Adjustment to income taxes resulting from:
Non-deductible (non-taxable) stock option (recovery)
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
Prior years’ tax settlement
Other
Income tax expense
2019
1,182.9 $
315.3 $
2018
1,068.2
285.2
—
—
—
(3.0)
(14.7)
(5.3)
(4.2)
(1.6)
2.9
13.3
(3.4)
(9.1)
—
(2.1)
$
288.1 $
285.2
The applicable statutory tax rate is the aggregate of the Canadian federal income tax rate of 15.0 percent (2018 –
15.0 percent) and the Canadian provincial income tax rate of 11.65 percent (2018 – 11.7 percent).
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 109
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.
During the second quarter, the Company reached an agreement with the Ontario Ministry of Finance relating to the
tax treatment of income earned by a foreign affiliate of the Company for the 2004 and 2005 taxation years. As a
result of the settlement, the Company recorded an income tax recovery of $3.3 million (2018 – nil) and pre-tax interest
income earned on the overpayment of taxes of $6.9 million (2018 – nil).
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.
17. 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 up 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 28, 2019,
were $1,916.6 million (2018 – $1,898.8 million).
Retail deposits consist of HIS deposits, retail GICs and TFSA deposits. Total retail deposits outstanding at
December 28, 2019, were $527.6 million (2018 – $572.4 million).
For repayment requirements of deposits refer to Note 5.4. The following are the effective rates of interest:
GIC deposits
HIS account deposits
18. Trade and Other Payables
Trade and other payables include the following:
(C$ in millions)
Trade payables and accrued liabilities
Derivatives (Note 33)
Total financial liabilities
Deferred revenue
Insurance reserve
Other
2019
2.87%
1.78%
2018
2.75%
1.59%
$
$
2019
2,087.0 $
28.3
2,115.3
222.8
8.6
145.7
2018
2,034.4
21.4
2,055.8
216.2
14.4
138.6
2,492.4 $
2,425.0
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. $198.3 million included
in deferred revenue at the beginning of the period was recognized as revenue in 2019 (2018 – $194.4 million).
110 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Other consists primarily of the short-term portion of share based payment transactions and sales taxes payable.
The credit range period on trade payables is one to 180 days (2018 – one to 270 days).
19. Provisions
The following table presents the changes to the Company’s provisions:
(C$ in millions)
Balance, beginning of year
Charges, net of reversals
Utilizations
Discount adjustments
Balance, end of year
Current provisions
Long-term provisions
20. Contingencies
$
$
Sales and
warranty
returns
Site restoration
and
decommissioning
Other
167.6 $
38.4 $
15.6 $
584.7
(570.1)
1.5
183.7 $
174.3
9.4
11.2
(4.9)
5.9
5.0
(3.6)
—
50.6 $
17.0 $
4.5
46.1
11.4
5.6
2019
Total
221.6
600.9
(578.6)
7.4
251.3
190.2
61.1
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. In addition, the 2016 and 2017 tax years have also been reassessed and Management is taking the
necessary steps to add them to the appeal. 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 2019 would not be significant.
21. Short-Term Borrowings
Short-term borrowings include commercial paper notes issued by the Company and 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 28, 2019, the Company
had no U.S. commercial paper notes outstanding and GCCT had $166.9 million (2018 – $294.3 million) of asset-
backed commercial paper notes outstanding.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 111
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 28, 2019, the Company (excluding Helly Hansen, CTB and CT REIT) had no borrowings outstanding
under its committed bank line of credit. Helly Hansen had a total of $67.0 million (2018 – $68.8 million) of C$
equivalent borrowings outstanding on its committed bank line of credit (180 million Norwegian Krone [”NOK’]) and
its factoring facility (272 million NOK), CT REIT had no borrowings under its committed bank line of credit (2018 –
$15.0 million) and CTB had $216.0 million (2018 – nil) of borrowings outstanding under its committed bank line of
credit and no borrowings outstanding on its note purchase facilities.
22. Loans
Franchise Trust, a special purpose entity, is a legal entity sponsored by a third-party bank that originates loans to
Dealers. Loans are what Franchise Trust incurs to fund loans to Dealers, which are secured by such Dealers’ store
assets. These loans are not direct legal liabilities of the Company but have been consolidated in the accounts of
the Company as the Company effectively controls the silo of Franchise Trust containing the Dealer Loan Program.
Loans, which are initially recognized at fair value and are subsequently measured at amortized cost, are due within
one year.
112 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
23. Long-Term Debt
Long-term debt includes the following:
(C$ in millions)
Senior term notes (GCCT)
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
Series 2019-1, 2.280%, June 6, 2024
Subordinated term notes (GCCT)
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
Series 2019-1, 3.430%, June 6, 2024
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 obligations1
Mortgages
Promissory note and other
Total debt
Current
Face value
2019
Carrying
amount
Face value
2018
Carrying
amount
—
465.0
523.6
546.0
523.6
—
35.0
36.4
38.0
36.4
150.0
150.0
200.0
200.0
175.0
200.0
250.0
400.0
150.0
200.0
200.0
—
47.7
1.3
—
464.8
522.2
544.0
521.3
—
35.0
36.4
38.0
36.4
149.8
149.6
199.1
199.1
174.1
198.9
249.8
398.9
150.6
201.4
199.7
—
48.0
1.3
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
$
4,528.0 $
4,518.4 $
4,565.0 $
788.2
788.2
3,730.2
553.6
4,011.4
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
4,553.9
553.6
4,000.3
Non-current
1 Prior period figures are not comparable due to the adoption of IFRS 16 (refer to Note 2).
3,739.8
The carrying amount of long-term debt is net of debt issuance costs of $14.6 million (2018 – $16.2 million).
Senior and Subordinated Term Notes
Asset-backed senior and subordinated term notes issued by GCCT are recorded at amortized cost using the effective
interest method.
Subject to the payment of certain priority amounts, the senior term notes have recourse on a priority basis to the
related series ownership interest in a pool of credit card receivables originated by CTB. The subordinated term notes
have recourse to the related series ownership interests on a subordinated basis to the senior term notes in terms of
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 113
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 co-ownership interest 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 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 2015-1, 2017-1, 2018-1 and 2019-1 term 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 credit card receivables failing to achieve set criteria; and
• insufficient credit card receivables in the securitized pool.
None of these events occurred in the year ended December 28, 2019.
On June 12, 2019, GCCT completed the issuance of $560.0 million series 2019-1 term notes that have an expected
repayment date of June 6, 2024, consisting of $523.6 million principal amount of senior term notes that bear an
interest rate of 2.28 percent per annum and $36.4 million principal amount of subordinated term notes that bear an
interest rate of 3.43 percent per annum.
On September 20, 2019, GCCT fully repaid $472.5 million of series 2014-1 senior term notes, which bore an interest
rate of 2.568 percent per annum as well as $27.5 million of series 2014-1 subordinated term notes, which bore an
interest rate of 3.068 percent per annum.
Medium-Term Notes and Debentures
Medium-term notes and debentures are unsecured and those with terms greater than two years are redeemable by
the Company, in whole or in part, at any time, at the greater of par or a formula price based upon interest rates at
the time of redemption.
Finance Lease Obligations
Finance leases relate to distribution centres, fixtures and equipment. The Company generally has the option to
renew such leases or purchase the leased assets at the conclusion of the lease term. During 2018, interest rates
on finance leases ranged from 0.6 percent to 8.0 percent. Remaining terms at December 29, 2018, were five to 96
months.
Finance lease obligations are payable as follows:
Future
minimum
lease
payments
Interest
20191
Present
value of
future
minimum
lease
payments
2018
Present value
of future
minimum
lease
payments
Future
minimum
lease
payments
Interest
(C$ in millions)
Due in less than one year
$
— $
— $
— $
22.1 $
6.3 $
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
15.8
15.1
15.0
14.8
12.3
35.0
— $
1 Current year figures are not applicable due to the adoption of IFRS 16 (refer to Note 2).
— $
$
— $
134.7 $
26.7 $
108.0
114 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Mortgages
Mortgages payable at December 28, 2019 had a weighted average interest rate of 3.82% percent and a maturity
date of March 10, 2020 and July 1, 2022.
Promissory Notes
Promissory notes were issued as part of franchise acquisitions in 2015. These notes are non-interest bearing.
24. Other Long-Term Liabilities
Other long-term liabilities include the following:
(C$ in millions)
Redeemable financial instrument1
Employee benefits (Note 25)
Deferred gains2
Derivatives (Note 33)
Deferred revenue
Other
$
$
2019
567.0 $
176.4
—
5.6
1.1
60.0
810.1 $
2018
567.0
151.9
11.0
5.0
2.0
135.4
872.3
1 A financial liability; refer to Note 33 for further information on the redeemable financial instrument.
2 Prior year deferred gains relate to the sale and leaseback of certain distribution centres, and were moved to right-of-use assets upon the adoption of IFRS 16 in
2019.
Other primarily includes the long-term portion of share-based payment transactions in 2019, as well as deferred
lease inducements and straight-line rent liabilities in 2018.
25. 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 2019, the Company contributed $25.3 million (2018 – $24.1 million) under the terms of the DPSP.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 115
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Defined Benefit Plan
The Company provides certain health care, dental care, life insurance and other benefits for certain retired employees
pursuant to Company policy. The Company does not have a pension plan. Information about the Company’s defined
benefit plan is as follows:
(C$ in millions)
Change in the present value of defined benefit obligation
2019
Defined benefit obligation, beginning of year
$
151.9 $
Current service cost
Interest cost
Actuarial (gain) arising from changes in demographic assumptions
Actuarial loss (gain) arising from changes in financial assumptions
Actuarial (gain) loss arising from changes in experience assumptions
Benefits paid
1.7
5.8
—
21.4
(1.0)
(3.4)
Defined benefit obligation, end of year1
176.4 $
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
2019
3.10%
3.90%
2018
162.4
2.1
5.6
(6.8)
(13.5)
5.6
(3.5)
151.9
2018
3.90%
3.50%
For measurement purposes, a 3.96 percent weighted average health care cost trend rate is assumed for 2019 (2018
– 4.08 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 28, 2019, was $62.3 million
(2018 – $41.9 million).
Sensitivity Analysis:
The Company’s defined benefit plan is exposed to actuarial risks such as the health care cost trend rate, the discount
rate and the life expectancy assumptions. The following tables provide the sensitivity of the defined benefit obligation
to these assumptions. For each sensitivity test, the impact of a reasonably possible change in a single factor is
shown with other assumptions left unchanged.
(C$ 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
2019
Accrued benefit obligation
Increase
Decrease
(13.9) $
17.6
4.5
15.8
(15.0)
(4.5)
The weighted-average duration of the defined benefit plan obligation at December 28, 2019 is 16.9 years (2018 –
16.1 years).
116 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
26. 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
2019
2018
3,423,366 Common Shares (2018 – 3,423,366)
58,096,958 Class A Non-Voting Shares (2018 – 59,478,460)
$
$
0.2 $
587.8
588.0 $
0.2
591.3
591.5
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 2019 and 2018, the Company issued and repurchased Class A Non-Voting Shares. The Company’s share
repurchases were made pursuant to its NCIB program.
During the year, the Company entered into an Automatic Share Purchase Plan (“ASPP”) with a broker that allows
the broker to purchase Class A Non-Voting Shares for cancellation under the NCIB during the Company’s blackout
periods. As at December 28, 2019, an obligation to repurchase shares of $49.1 million (2018 – n/a) was recognized
under the ASPP in trade and other payables.
The following transactions occurred with respect to Class A Non-Voting Shares during 2019 and 2018:
(C$ in millions)
Shares outstanding at beginning of the year
Issued under the dividend reinvestment plan
Repurchased1
Accrued liability for ASPP commitment
Number
59,478,460 $
99,863
2019
$
591.3
14.3
Number
63,066,561 $
73,010
(1,481,365)
(215.2)
(3,661,111)
—
(3.0)
—
2018
$
615.5
11.9
(588.9)
—
Excess of purchase price over average cost
552.8
591.3
Shares outstanding at end of the period
1 Repurchased shares, pursuant to the Company’s NCIB program, have been restored to the status of authorized but unissued shares. The Company records
59,478,460 $
58,096,958 $
200.4
587.8
—
—
shares repurchased on a transaction date basis.
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.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 117
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 28, 2019, the Company had dividends declared and payable to holders of Class A Non-Voting
Shares and Common Shares of $70.0 million (2018 – $64.9 million) at a rate of $1.1375 per share (2018 – $1.0375
per share).
On February 12, 2020 the Company’s Board of Directors declared a dividend of $1.1375 per share payable on
June 1, 2020 to shareholders of record as of April 30, 2020.
Dividends per share declared were $4.25 in 2019 (2018 – $3.7375).
The dilutive effect of employee stock options is 66,921 (2018 – 174,857).
27. 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 28, 2019, and December 29, 2018, the aggregate number of
Class A Non-Voting Shares that were authorized for issuance under the stock option plan was 3.4 million.
118 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Stock option transactions during 2019 and 2018 were as follows:
Outstanding at beginning of year
Granted
Exercised and surrendered1
Forfeited
Outstanding at end of year
2019
Weighted
average
exercise
price
144.91
144.08
121.07
155.13
146.71
2018
Number of
options
Weighted
average
exercise price
1,025,839 $
302,160
(239,559)
(61,895)
1,026,545 $
130.14
177.09
118.47
159.38
144.91
Number of
options
1,026,545 $
446,227
(134,928)
(51,837)
1,286,007 $
Stock options exercisable at end of year
1 The weighted average market price of the Company's shares when the options were exercised in 2019 was $146.73 (2018 – $171.97).
362,552
425,267
The following table summarizes information about stock options outstanding and exercisable at December 28, 2019:
Range of exercise prices
$ 177.09
159.29
144.35
129.14 to 129.92
69.01 to 99.72
Number of
outstanding
options
259,747
234,867
428,841
281,432
81,120
$ 69.01 to 177.09
1 Weighted average remaining contractual life is expressed in years.
1,286,007
Options outstanding
Options exercisable
Weighted
average
remaining
contractual
life1
5.17 $
4.17
6.16
2.74
1.06
4.53 $
Weighted
average
exercise
price
Number of
exercisable
options
Weighted
average
exercise
price
177.09
156.29
144.35
129.58
95.31
146.71
— $
—
—
281,432
81,120
362,552 $
—
—
—
129.58
95.31
121.91
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.
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
PSUs Stock options
2019
2018
PSUs
Share price at end of year (C$)
Weighted average exercise price1(C$)
Expected remaining life (years)
$
$
140.63
$
140.63
$
142.08
$
142.08
146.80
3.6
N/A $
144.21
1.3
3.6
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.
21.0%
19.8%
18.3%
2.0%
2.1%
2.3%
3.0%
4.0%
4.5%
N/A
1.0
4.5%
25.5%
2.3%
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 119
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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
$
$
2019
31.6 $
4.9
36.5 $
2018
14.4
28.2
42.6
The total carrying amount of liabilities for share-based payment transactions at December 28, 2019, was $86.7 million
(2018 – $91.2 million).
The intrinsic value of the liability for vested benefits at December 28, 2019, was $33.6 million (2018 – $33.1 million).
28. Revenue
Revenue by reportable operating segment is as follows:
(C$ 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
2019
20181
Total
$12,708.3 $
— $
— $
— $12,708.3 $12,303.0 $
— $
— $
— $12,303.0
20.5
55.4
19.4
— 1,113.4
(10.5)
1,123.4
— 1,027.2
(8.4)
1,037.6
—
—
—
178.0
—
—
(2.4)
(0.8)
55.4
195.0
452.3
401.5
51.6
410.0
46.4
—
—
—
188.9
—
—
—
—
57.1
204.6
456.4
18.8
57.1
15.7
1 Certain prior period figures have been reclassified to align with current year presentation.
$13,205.1 $
51.6 $ 1,291.4 $
(13.7) $14,534.4 $12,804.6 $
46.4 $ 1,216.1 $
(8.4) $14,058.7
120 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Retail revenue breakdown is as follows:
(C$ in millions)
Canadian Tire1
SportChek
Mark’s
Helly Hansen
Petroleum
Other and intersegment eliminations
1
Includes Party City in Canada, which was acquired on October 1, 2019. Refer to Note 36 for details.
$
2019
7,418.0 $
2,036.3
1,274.3
650.8
1,894.5
(68.8)
2018
7,209.0
1,993.4
1,247.2
347.6
2,016.5
(9.1)
$
13,205.1 $
12,804.6
Major Customers
The Company does not rely on any one customer.
29. 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
$
$
2019
9,116.8 $
409.5
66.6
67.7
2018
8,863.8
360.6
61.1
61.9
9,660.6 $
9,347.4
1
Inventory cost of sales includes depreciation for the year ended December 28, 2019 of $10.1 million (2018 – $6.2 million).
Inventory writedowns, as a result of net realizable value being lower than cost, recognized in the year ended
December 28, 2019 were $50.7 million (2018 – $50.1 million).
Inventory writedowns recognized in prior periods and reversed in the year ended December 28, 2019 were $7.8
million (2018 – $5.7 million). The reversal of writedowns was the result of actual losses being lower than previously
estimated.
The writedowns and reversals are included in inventory cost of sales.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 121
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
30. Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of the following:
(C$ in millions)
Personnel expenses
Occupancy1
Marketing and advertising
Depreciation of property and equipment, investment property and assets held-for-
sale2,3
Depreciation of right-of-use assets
Amortization of intangible assets
Information systems
Other
$
2019
1,375.0 $
417.6
312.8
274.3
262.3
110.8
187.0
497.7
2018
1,281.5
748.0
329.5
295.2
—
126.6
175.5
511.3
3,467.6
1 Prior period figures are not comparable due to the adoption of IFRS 16 (refer to Note 2). Lease payments previously recorded as occupancy cost are now reflected
3,437.5 $
$
as depreciation of right-of-use-assets (disclosed in this note) and finance costs on lease liabilities (Note 29).
2 Refer to Note 29 for depreciation included in cost of producing revenue.
3 Prior period includes depreciation on finance leases of $10.0 million, now reflected as depreciation of right-of-use assets in the current period due to the adoption
of IFRS 16 (refer to Note 2).
31. Net Finance Costs
Net finance costs consists of the following:
(C$ in millions)
Finance (income)
Finance (income) on lease receivables1
Finance costs2
Finance costs on lease liabilities3
$
2019
(21.5) $
(6.1)
187.3
107.1
2018
(9.9)
—
161.4
—
151.5
1 Prior period figures are not comparable due to the adoption of IFRS 16 (refer to Note 2). Relates to properties where the Company is an intermediate lessor in a
266.8 $
$
sublease arrangement classified as a finance sublease under IFRS 16.
2 Prior period includes interest on finance leases of $7.1 million, now reflected as finance costs on lease liabilities in the current period due to the adoption of IFRS
16 (refer to Note 2).
3 Prior period figures are not comparable due to the adoption of IFRS 16 (refer to Note 2).
122 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
32. Notes to the Consolidated Statements of Cash Flows
Changes in liabilities arising from financing activities comprise the following:
(C$ in millions)
Balance, beginning of year
Cash changes:
Change in deposits
Long-term debt issuance
Long-term debt repayment
Mortgage issuance
Mortgage repayment
Payment of transaction costs related to long-term debt
Payment of lease liabilities (principal portion)
Total changes from financing cash flows
Non-cash changes:
IFRS 16 transition adjustment
Acquisition through business combinations
Currency translation adjustment
New leases, interest accretion and other
Amortization of debt issuance costs
Amortization of broker commission
Balance, end of year
(C$ in millions)
Lease liabilities
Deposits
Long-term debt
$
— $
2,471.2 $
4,553.9
2019
—
—
—
—
—
—
(313.3)
(313.3)
2,346.3
74.1
(2.1)
101.3
—
—
(30.8)
—
—
—
—
—
—
(30.8)
—
—
—
—
—
3.8
—
560.4
(500.0)
10.9
(0.3)
(2.6)
—
68.4
(108.0)
—
—
—
4.1
—
$
2,206.3 $
2,444.2 $
4,518.4
Deposits
Long-term debt
2018
Balance at December 30, 2017 per IAS 39
$
2,386.8 $
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
—
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
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 123
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
32.1 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 28, 2019, reserves held by Financial Services totaled $407.2 million
(2018 – $498.3 million) and includes restricted cash disclosed in Note 7 as well as short-term investments.
33. Financial Instruments
33.1 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 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 Debt Securities
The fair values of financial assets 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
124 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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
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 33.2).
33.2 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
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
Redeemable financial instrument
Other long-term liability
Category
FVTPL1
Effective hedging instruments
FVTPL1
Effective hedging instruments
FVTPL1
Effective hedging instruments
FVTPL
FVTPL1
Effective hedging instruments
Other long-term liabilities
1 Relates to derivatives not designated as hedging instruments.
2019
Level
Level
2
2
2
2
2
2
3
2
2
$
12.1
9.1
2
2
— 2
42.9
9.2
19.1
567.0
0.4
5.2
2
2
2
3
2
2
2018
25.1
121.8
7.7
37.1
16.7
4.7
567.0
—
5.0
There were no transfers in either direction between categories in 2019 or 2018.
Changes in Fair Value Measurement for Instruments Categorized in Level 3
Level 3 financial instruments include a redeemable financial instrument.
As of December 28, 2019, the fair value of the redeemable financial instrument was estimated to be $567.0 million
(2018 – $567.0 million). The determination of the fair value of the redeemable financial instrument requires significant
judgment on the part of Management. Refer to Note 2 of these consolidated financial statements for further
information.
33.3 Fair Value Measurement of Investments, Debt and Deposits
The fair value measurement of investments, debt and deposits is categorized within Level 2 of the fair value hierarchy
(refer to Note 33.2). The fair values of the Company’s investments, debt and deposits compared to the carrying
amounts are as follows:
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 125
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at
(C$ in millions)
Short-term investments
Long-term investments
Debt
Deposits
December 28, 2019
December 29, 2018
Carrying
amount
Fair value
Carrying
amount
$
201.7 $
201.7 $
183.7 $
138.9
4,518.4
2,444.2
139.5
4,711.7
2,459.0
152.7
4,553.9
2,471.2
Fair value
183.7
153.4
4,603.9
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.
33.4 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:
2019
Financial instruments designated and/or classified as FVTPL1
$
(20.5) $
2018
(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:
1,144.8
1,047.6
(261.7)
(226.4)
Other fee expense
(15.0)
1 Excludes gains (losses) on cash flow hedges, which are effective hedging relationships and are reflected on the Consolidated Statements of Comprehensive
(9.8)
Income.
33.5 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
(C$ in millions)
Foreign currency risk
Interest rate risk
Amounts reclassified to profit or loss
2019
Current period
hedging gains
(losses)
recognized in OCI
Due to hedged
item affecting
profit or loss
Line item in profit or
loss affected by the
reclassification
$
$
$
$
(73.7) $
(29.8) $
(1.8)
2.6
Other (income)
Net finance costs
Amounts reclassified to profit or loss
2018
Current period
hedging gains
(losses) recognized
in OCI
Due to hedged item
affecting profit or
loss
Line item in profit or
loss affected by the
reclassification
198.1 $
(23.8) $
0.2 Other (income) expense
5.1
Net finance costs
126 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
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
34. Guarantees and Commitments
$
$
2019
92.0 $
(72.0)
(1.7)
(4.4)
(25.4)
(1.8)
2.6
(67.6)
45.5
4.5
(28.3) $
2018
(38.3)
193.5
4.6
(13.6)
(10.2)
0.2
5.1
(4.4)
(46.8)
1.9
92.0
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 certain 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. Franchise Trust 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 an LC, the Company has agreed to
reimburse the bank issuing such standby LC 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 $115.4 million at December 28, 2019 (2018 – $115.7 million).
The Company has obtained documentary and standby letters of credit aggregating $42.2 million (2018 – $36.0
million) relating to the importation of merchandise inventories and to facilitate various real estate activities.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 127
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
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 $2.5 million (2018 – $3.2
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 January 2022. Under these financial
guarantees, $11.5 million (2018 – $14.3 million) was issued at December 28, 2019. 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 applicable 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 28,
2019, was $52.4 million (2018 – $59.4 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.
128 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company’s exposure to credit risks related to the above-noted guarantees are disclosed in Note 5.
Capital Commitments
As at December 28, 2019, the Company had capital commitments for the acquisition of property and equipment,
investment property and intangible assets for an aggregate cost of approximately $201.5 million (2018 – $158.3
million).
35. Related Parties
The Company’s majority shareholder is Martha Billes, who beneficially owns, or controls or directs approximately
61.4 percent of the Common Shares of the Company through two privately held companies, Tire ‘N’ Me Pty. Ltd. and
Albikin Management Inc.
Transactions with members of the Company’s Board of Directors who were also Dealers represented less than one
percent of the Company’s total revenue and were in accordance with established Company policy applicable to all
Dealers. Other transactions with related parties, as defined by IFRS, were not significant during the year.
The following outlines the compensation of the Company’s Board of Directors and key Management personnel (the
Company’s Chief Executive Officer, Chief Financial Officer and certain other Senior Officers):
(C$ in millions)
Salaries and short-term employee benefits
Share-based payments and other
36. Business Combination
$
$
2019
16.1 $
13.3
29.4 $
2018
15.1
7.7
22.8
On October 1, 2019, the Company acquired the brand, store network, leaseholds, and fixed assets of Party City in
Canada for $178.0 million. Party City in Canada is a leading, one-stop shopping destination for party supplies, and
an expert in seasonal and micro-seasonal celebrations, with 65 Canadian retail stores in seven provinces.
The fair value of identifiable assets acquired and liabilities assumed as at the acquisition date are as follows:
(C$ in millions)
Cash and cash equivalents
Merchandise inventories
Prepaid expenses and deposits
Intangible assets
Property and equipment
Right-of-use assets
Trade and other payables
Lease 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
$
$
$
$
0.7
47.6
2.7
57.0
20.4
76.1
(0.8)
(74.1)
129.6
178.0
(129.6)
48.4
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 129
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The goodwill recognized on acquisition is attributable mainly to the expected future growth potential from the expanded
operations and customer base. None of the goodwill recognized is expected to be deductible for income tax purposes.
The Company incurred acquisition-related costs of $2.3 million to date which is recorded in selling, general and
administrative expenses. The Company also recorded $2.4 million as fair value adjustment for inventory acquired,
which is recorded in cost of producing revenue.
130 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
[THIS PAGE INTENTIONALLY LEFT BLANK]
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 131
2019 Quarterly Information
(C$ 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 30,
2018 to March
30, 2019)
(March 31, 2019
to June 29,
2019)
(June 30, 2019
to September
28, 2019)
(September 29,
2019 to December
28, 2019)
Total
$
2,564.0
$
3,360.3
$
3,296.3
$
3,989.2
$
13,209.8
Income before income taxes
(13.5)
139.1
170.6
351.6
647.8
CT REIT segment
Revenue
Income before income taxes
Financial Services segment
Revenue
Income before income taxes
Total
Revenue
Cost of producing revenue
Other (income) expense
Selling, general and administrative expenses
Net finance costs
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
121.6
71.4
328.8
112.4
122.0
78.8
329.3
95.5
121.7
80.1
343.0
108.9
123.7
76.9
333.0
109.5
489.0
307.2
1,334.1
426.3
$
2,894.4
$
3,686.6
$
3,636.7
$
4,316.7
$
14,534.4
1,896.1
(5.0)
812.9
67.0
26.0
97.4
69.7
27.7
1.12
1.12
7.4%
7.1%
503
104
2.8%
3.4%
404
2,542.7
2,408.1
2,813.7
(28.3)
848.6
62.3
57.5
203.8
177.4
26.4
2.87
2.87
2.1%
1.9%
504
102
3.0%
3.7%
402
17.9
832.3
71.5
79.2
227.7
197.2
30.5
3.20
3.20
2.7%
2.4%
504
101
3.8%
4.6%
403
2.0
943.7
66.0
125.4
365.9
334.1
31.8
5.42
5.42
6.6%
4.8%
504
163
1.3%
2.0%
402
297
295
296
297
5.5%
4.9%
385
2.7%
2.6%
380
0.9%
1.2%
381
1.5%
1.8%
380
9,660.6
(13.4)
3,437.5
266.8
288.1
894.8
778.4
116.4
12.60
12.58
4.5%
3.8%
2.6%
3.3%
2.4%
2.5%
Financial Services segment
Average number of accounts with a balance4
(thousands)
Average account balance4 ($)
Gross average accounts receivable (millions)
2,082
2,930
6,104.6
2,093
2,955
6,187.3
2,126
2,973
6,324.0
2,148
2,978
2,112
2,959
6,398.3
6,253.5
132 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
2019 Quarterly Information (continued)
(C$ 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 30,
2018 to March
30, 2019)
(March 31, 2019
to June 29,
2019)
(June 30, 2019
to September
28, 2019)
(September 29,
2019 to December
28, 2019)
$
$
153.63 $
154.69 $
149.64 $
157.36 $
137.00
143.99
16,527
133.56
142.68
13,924
131.47
148.03
13,159
139.73
140.63
16,774
243.89 $
231.83 $
229.80 $
214.00 $
216.90
233.32
215.00
228.00
205.65
209.00
175.20
175.30
2019
157.36
131.47
140.63
60,384
243.89
175.20
175.30
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.
17
17
13
37
84
2 Other Canadian Tire banners include PartSource, PHL and Party City in Canada.
3 Retail sales growth include sales from both corporate and franchise stores.
4 Credit card portfolio only.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 133
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
(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
(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
(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
298
297
298
297
3.6%
3.4%
385
1.6 %
1.3 %
386
6.4%
6.1%
386
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%
Financial Services segment
Average number of accounts with a balance4
(thousands)
Average account balance4 ($)
Gross average accounts receivable (millions)
1,945
2,868
5,583.1
2,006
2,848
5,715.5
2,074
2,848
5,909.5
2,113
2,882
6,093.0
2,035
2,862
5,825.3
134 CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS
2018 Quarterly Information (continued)
(C$ 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
2018
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.
13
14
14
16
57
2 Other Canadian Tire banners include PartSource and PHL.
3 Retail sales growth include sales from both corporate and franchise stores.
4 Credit card portfolio only.
CANADIAN TIRE CORPORATION 2019 REPORT TO SHAREHOLDERS 135
CONTACT
HE AD OFFICE
MEDIA CONTACT
Canadian Tire Corporation, Limited
2180 Yonge Street
P.O. Box 770, Station K
Toronto, Ontario M4P 2V8
Canada
Telephone: 416-480-3000
Fax: 416-544-7715
Website: http://corp.canadiantire.ca
SHAREHOLDER CONTACT
Lisa Greatrix
Senior Vice-President,
Finance & Investor Relations
lisa.greatrix@cantire.com
Investor Relations email:
investor.relations@cantire.com
Jane Shaw
Vice-President, Communications
jane.shaw@cantire.com
Media Inquiries email:
mediainquiries@cantire.com
REGISTRAR AND TRANSFER AGENT
Computershare Trust Company of Canada
100 University Avenue, 8th floor
Toronto, Ontario M5J 2Y1
Canada
Toll-free (Canada and U.S.): 1-877-982-8768
Telephone (Global): 514-982-7122
Fax (Canada and U.S.): 1-866-249-7775
Fax (Global): 416-263-9524
Email: service@computershare.com
To change your address, eliminate multiple mailings,
transfer shares of the Company, inquire about our Dividend
Reinvestment Program or for other shareholder account
inquiries, please contact the principal offices of Computershare
Trust Company of Canada in Halifax, Montreal, Toronto, Calgary
or Vancouver.
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