Canadian Tire fourth quarter 2007 adjusted net earnings increase 29.0% to $127.6 million; net earnings rise 15.5% to $125.1 million
2007 adjusted net earnings rise 18.0% to $410.1 million; net earnings for
the year increase by 17.8% to $417.6 million------------------------------------------------
Year-over- Year-over-
Consolidated 2007 year 2007 year
Highlights(1): 4th quarter change full year change
-------------------------------------------------------------------------
Retail sales $3.0 billion 3.1% $10.1 billion 3.3%
Gross operating revenue $2.5 billion 3.4% $8.6 billion 4.3%
Earnings before income
taxes and minority
interest $174.5 million 3.1% $620.1 million 11.2%
Adjusted earnings before
income taxes and
minority interest
(excludes non-operating
gains and losses)(2) $178.5 million 15.5% $608.7 million 11.3%
Net earnings $125.1 million 15.5% $417.6 million 17.8%
Adjusted net earnings
(excludes non-operating
gains and losses)(2) $127.6 million 29.0% $410.1 million 18.0%
Basic earnings per
share $1.53 15.6% $5.12 17.9%
Adjusted basic earnings
per share (excludes
non-operating gains
and losses)(2) $1.56 29.2% $5.03 18.1%
(1) All dollar figures in this table are rounded.
(2) Non-GAAP measure. Please refer to Section 12.0 of Management's
Discussion and Analysis contained in our 2006 Financial Report and to
commentary contained in the Financial Services section of this news
release.TORONTO, Feb. 7 /CNW/ - Canadian Tire Corporation, Limited (CTC, CTC.a)
today reported fourth quarter 2007 net earnings of $125.1 million, an increase
of 15.5 percent compared to $108.3 million for the corresponding 2006 period.
Adjusted net earnings for the quarter, which exclude non-operating gains and
losses, were $127.6 million, a 29.0 percent increase compared to $98.8 million
last year.
Basic earnings per share in the quarter were $1.53, a 15.6 percent
increase from the $1.33 recorded in the same period last year. Adjusted basic
earnings per share, which exclude non-operating gains and losses, increased
29.2 percent to $1.56 compared to $1.21 in the fourth quarter of 2006.
Consolidated net earnings for the fourth quarter benefited by
$11.4 million or $0.14 per share principally from recoveries of prior years'
taxes paid to settle various minor issues and also a lower tax rate because of
the reduction of federal tax rates announced during the fourth quarter of
2007.
Net earnings for 2007 were $417.6 million, an increase of 17.8 percent
compared to $354.6 million in 2006. Adjusted net earnings, which exclude
non-operating gains and losses, were $410.1 million, an increase of 18.0
percent compared to $347.5 million last year.
Basic earnings per share were $5.12 in 2007, an increase of 17.9 percent
compared to $4.35 per share recorded in 2006. Adjusted basic earnings per
share, which exclude non-operating gains and losses, increased 18.1 percent to
$5.03 compared to $4.26 the previous year.
"Our businesses delivered strong financial and operating results in
2007," said Tom Gauld, president and CEO. "Our strong market position,
balanced portfolio of businesses and diverse mix of consumer products and
financial services give Canadian Tire the financial flexibility and resilience
to deliver sustainable long-term earnings growth for our shareholders."Business Overview
CANADIAN TIRE RETAIL (CTR)
Q4 Q4
($ in millions) 2007 2006 Change 2007 2006 Change
-------------------------------------------------------------------------
Retail sales(1) $2,166.2 $2,156.7 0.4% $7,338.0 $7,226.8 1.5%
Same store
sales(2)
(year-over-year
% change) (1.8)% 2.2% (0.5)% 3.5%
Gross operating
revenue $1,585.8 $1,576.8 0.6% $5,485.1 $5,355.4 2.4%
Net shipments
(year-over-year
% change) 0.4% 3.8% 2.3% 4.9%
Earnings before
income taxes
and minority
interest $81.7 $71.5 14.2% $304.7 $306.1 (0.4%)
-------------------------------------------------------------------------
Less adjustment for:
Gain on disposals
of property and
equipment(3) $7.3 $48.1 $17.6 $59.8
Stock option
agreement
modification - $(32.2) - $(32.2)
Former CEO
retirement
obligation 0.3 - (6.2) -
-------------------------------------------------------------------------
Adjusted earnings
before income
taxes and
minority
interest(4) $74.1 $55.6 33.0% $293.3 $278.5 5.3%
-------------------------------------------------------------------------
(1) Includes sales from Canadian Tire stores, PartSource stores, sales
from CTR's online web store and the labour portion of CTR's auto
service sales.
(2) Same store sales include sales from all stores that have been open
for more than 53 consecutive weeks in the same location.
(3) Includes fair market value adjustments and impairments on property
and equipment.
(4) Non-GAAP measure. Please refer to section 12.0 of Management's
Discussion and Analysis contained in our 2006 Financial Report.CTR's fourth quarter retail sales were $2.17 billion, a 0.4 percent
increase from the $2.16 billion recorded last year, while same store sales
decreased 1.8 percent in the quarter. CTR posted double-digit sales increases
of fall and winter weather-related merchandise during the quarter, led by
strong snowthrower and automotive accessories sales. Sales were negatively
impacted by a significant decline in the tool category year-over-year, a
result of changes to the pricing and promotional strategy combined with a
challenging retail environment associated with this category. Excluding the
impact of lower tool sales, CTR's retail sales would have been up 3.5 percent
in the quarter and same store sales would have increased 1.3 percent. For the
year, CTR's retail sales grew 1.5 percent, while same store sales remained
essentially flat to last year. Excluding the impact of sales in the tool
category, same store sales would have been up 0.9 percent year-over-year.
CTR's fourth quarter earnings before taxes were $81.7 million, a
14.2 percent increase over the $71.5 million recorded in the comparable 2006
period. Adjusted pre-tax earnings, which exclude the gain on disposals of
property and equipment, the impact of amendments to the stock option
agreement, and the impact of the retirement obligation to the former CEO,
increased by 33.0 percent to $74.1 million from $55.6 million a year ago. The
increase in earnings reflects the continued focus on improving productivity
throughout CTR's operations and stronger margins over the same period last
year.
For the year, earnings before taxes totaled $304.7 million compared to
$306.1 million recorded in 2006. Adjusted pre-tax earnings increased
5.3 percent, to $293.3 million from $278.5 million in the previous year.
During the year, expenses associated with productivity initiatives totaled
approximately $12.6 million.
CTR completed 67 Concept 20/20 projects during the year, opening eight
new stores, retrofitting and expanding 49 stores and replacing 10 stores. In
late 2007, CTR opened two CTR/Mark's integrated stores in Waterdown, Ontario
and Dartmouth, Nova Scotia that are both attracting new customers who are
spending more time browsing and cross-shopping. There are now 192 Concept
20/20 stores and 32 CTR-Mark's combination stores within CTR's total network
of 473 stores.
PartSource achieved double-digit total sales growth in the fourth quarter
and for the full year, driven mainly by increases in commercial sales. In
2007, PartSource opened five new stores, including one store with an expanded
warehouse (hub store), which is part of the Automotive Infrastructure project
announced in September 2007. In addition, PartSource acquired three new
stores, one of which is also a hub store, and converted nine stores to the
PartSource banner during the year, bringing the network total to 71 stores.CANADIAN TIRE PETROLEUM (Petroleum)
Q4 Q4
($ in millions) 2007 2006 Change 2007 2006 Change
-------------------------------------------------------------------------
Sales volume
(millions of
litres) 450.5 457.4 (1.5)% 1,737.5 1,701.2 2.1%
Retail sales $463.1 $399.8 15.8% $1,771.6 $1,635.4 8.3%
Gross operating
revenue $434.1 $375.1 15.8% $1,666.5 $1,545.3 7.8%
Earnings (loss)
before income
taxes $3.7 $(6.0) 161.0% $20.5 $(5.4) 472.4%
-------------------------------------------------------------------------
Less adjustment for:
Loss on disposals
of property and
equipment(1) $(0.7) $(0.3) $(2.7) $(0.6)
-------------------------------------------------------------------------
Adjusted earnings
(loss) before
income taxes(2) $4.4 $(5.7) 177.1% $23.2 $(4.8) 577.6%
-------------------------------------------------------------------------
(1) Includes asset impairment losses.
(2) Non-GAAP measure. Please refer to section 12.0 of Management's
Discussion and Analysis contained in our 2006 Financial Report.Petroleum's gasoline sales volumes decreased 1.5 percent during the
quarter to 450.5 million litres from 457.4 million litres a year ago. The
slight decline was primarily attributable to lower comparable site sales, as
consumers reacted to higher pump prices, which were partially offset by the
cumulative effect of new site openings in 2007. For the year, gasoline sales
volumes grew by a healthy 2.1 percent to 1.74 billion litres from 1.70 billion
litres in 2006. Non-gasoline sales also increased, led by a 13.4 percent rise
in convenience store sales for the quarter and a 15.0 percent increase for the
year.
Petroleum recorded earnings before taxes of $3.7 million for the quarter
compared to a loss of $6.0 million in the same 2006 period. The strong
earnings reflect improved gasoline margins during the period. Adjusted pre-tax
earnings, which exclude the impact of disposals of property and equipment,
increased to $4.4 million from a loss of $5.7 million one year ago.
For the year, Petroleum posted earnings before taxes of $20.5 million
compared to a loss of $5.4 million in 2006. Adjusted pre-tax earnings
increased in 2007 to $23.2 million from a loss of $4.8 million in 2006.
Petroleum opened seven new gas bars, each including a convenience store,
during 2007. The business also refurbished 22 existing gas bars, rebuilt four
gas bars, and re-branded one gas bar/convenience store. Petroleum now operates
266 gas bars, 258 convenience stores and kiosks, and 74 car washes.MARK'S WORK WEARHOUSE (Mark's)
Q4 Q4
($ in millions) 2007 2006 Change 2007 2006 Change
-------------------------------------------------------------------------
Total retail
sales(1) $385.7 $367.2 5.0% $974.9 $903.0 8.0%
Same store
sales(2)
(% increase over
prior year) 1.4% 10.0% 4.8% 13.0%
Gross operating
revenue(3) $326.2 $309.5 5.4% $825.3 $762.3 8.3%
-------------------------------------------------------------------------
Earnings before
income taxes $56.6 $50.0 13.0% $104.6 $90.1 16.1%
-------------------------------------------------------------------------
Less adjustment for:
Loss on disposals
of property and
equipment (0.1) (0.5) (0.9) (1.2)
Stock option
agreement
modification - (2.7) - (2.7)
-------------------------------------------------------------------------
Adjusted earnings
before income
taxes(4) $56.7 $53.2 6.6% $105.5 $94.0 12.3%
-------------------------------------------------------------------------
(1) Includes retail sales from corporate and franchise stores.
(2) Mark's same store sales exclude new stores, stores not open for the
full period in each year and store closures.
(3) Gross operating revenue includes retail sales at corporate stores
only.
(4) Non-GAAP measure. Please refer to section 12.0 of Management's
Discussion and Analysis contained in our 2006 Financial Report.Mark's fourth quarter total retail sales grew to $385.7 million, an
increase of 5.0 percent from the $367.2 million recorded a year ago, while
total same store sales were up 1.4 percent. Sales were soft during October and
November but strengthened in December to generate the fourth quarter sales
increase. Mark's Quebec, Greater Toronto Area and British Columbia regions
posted the largest sales increases in the quarter. Corporate store sales in
industrial wear increased 11.5 percent during the quarter, led by men's and
ladies industrial footwear and men's accessories. For the year, Mark's total
retail sales were $974.9 million, an 8.0 percent increase over the
$903.0 million recorded a year ago, while same store sales increased
4.8 percent in 2007.
Mark's fourth quarter earnings before taxes were $56.6 million, a
13.0 percent increase over the $50.0 million recorded for the same period last
year. Adjusted pre-tax earnings, which exclude the impact of disposals of
property and equipment and the stock option agreement modification in the
fourth quarter of 2006, increased 6.6 percent to $56.7 million from
$53.2 million one year ago. The growth in earnings reflects stronger margins
and good expense control, particularly at the retail level.
Mark's earnings before taxes in 2007 were $104.6 million, a 16.1 percent
increase over the $90.1 million recorded in 2006. Adjusted pre-tax earnings in
2007 increased 12.3 percent to $105.5 million compared to $94.0 million in the
previous year. In 2007, Mark's opened 20 new stores, relocated 19 stores and
expanded eight stores, bringing the total store network to 358 locations and
increasing total retail space by 10.8 percent to 3.0 million square feet.CANADIAN TIRE FINANCIAL SERVICES (Financial Services)
Q4 Q4
($ in millions) 2007 2006 Change 2007 2006 Change
-------------------------------------------------------------------------
Total managed
portfolio end
of period $3,952.2 $3,632.5 8.8%
Gross operating
revenue 196.0 198.0 (1.0)% 769.1 721.7 6.6%
Earnings before
income taxes $32.5 $53.7 (39.4)% $190.3 $167.0 14.0%
-------------------------------------------------------------------------
Less adjustment for:
Gain on disposal/
redemption of
shares - - 18.4 6.9
Net effect of
securitization
activities(1) (10.6) 8.2 (14.4) (12.7)
Loss on disposals
of property and
equipment (0.2) (0.3) (0.4) (0.6)
Stock option
agreement
modification - (5.6) - (5.6)
-------------------------------------------------------------------------
Adjusted earnings
before income
taxes(2) $43.3 $51.4 (15.8)% $186.7 $179.0 4.3%
-------------------------------------------------------------------------
(1) Includes initial gain/loss on the sale of loans receivable,
amortization of servicing liability, securitization reserve and
gain/loss on re-investment.
(2) Non-GAAP measure. Please refer to section 12.0 of Management's
Discussion and Analysis contained in our 2006 Financial Report.Financial Services' total managed portfolio of loans receivable was
$4.0 billion at the end of 2007, an 8.8 percent increase over the $3.6 billion
portfolio at the end of 2006. Ending credit card loans receivable grew
10.8 percent to $3.8 billion. The increase was primarily a result of an
11.6 percent increase in the fourth quarter average account balance compared
to the same quarter of 2006. Personal loan receivables represent approximately
3.7 percent of the total portfolio.
Financial Services continually seeks ways to enhance credit risk
management practices aimed at improving the quality of the receivables
portfolio. In 2007, these activities included enhanced scorecards for new
account acquisitions, improved credit limit management and improvements to the
collection processes for delinquent accounts. As a result, the net write-off
rate for the total managed portfolio on a rolling 12-month basis was
5.76 percent, an improvement from 6.01 percent in the comparable 2006 period.
The net write-off rate on a rolling 12-month basis for the credit card
portfolio improved to 5.67 percent from 5.98 percent in the comparable 2006
period. Over the last several years, Financial Services' strategy has been to
methodically improve the quality of the portfolio while maintaining the
targeted return on receivables. This has resulted in an increasing proportion
of the portfolio consisting of lower risk customers.
Financial Services' fourth quarter earnings before taxes were
$32.5 million, a 39.4 percent decrease from the $53.7 million recorded in the
same period last year. The decline in earnings reflects a significant
year-over-year swing of $18.8 million from securitization activities. Adjusted
pre-tax earnings for the quarter decreased 15.8 percent to $43.3 million from
$51.4 million in the previous year. Adjusted pre-tax earnings were impacted by
two factors, the first being an increase in marketing investments of
$6.4 million in the quarter compared to the previous year, aimed at increasing
the level of new accounts and growing future receivables. The second factor
impacting adjusted pre-tax earnings was an increase in the allowance for
doubtful accounts of $6.7 million due to an increase in receivables of
$319.7 million year-over-year, and a slight increase in year-end aging over
2006, due to a planned change in collection tactics aimed at reducing future
write-off rates.
For the year, Financial Services recorded earnings before taxes of
$190.3 million, a 14.0 percent increase over the $167.0 million recorded in
2006. Adjusted pre-tax earnings increased 4.3 percent to $186.7 million
compared to $179.0 million in the previous year. Earnings in 2007 were
impacted by ongoing net expenses of $25.5 million related to the retail
banking initiative, compared to $9.6 million in 2006. Excluding the impact of
this growth initiative, adjusted pre-tax earnings grew by 12.5 percent
year-over year.
Financial Services' retail banking pilot will enter its second full year
in 2008 and, to date, has shown that customers respond favourably to Canadian
Tire retail banking products and service offerings. At the end of 2007,
Financial Services had accumulated over $100.0 million in deposits and
approximately $35.0 million in high-quality mortgages. Mortgage growth is
expected to accelerate in 2008 with the recent launch of the Canadian Tire
One-and-Only™ account, but overall, the retail banking initiative is still
expected to be self-financing during 2008. Financial Services expects to
continue the pilot throughout 2008, while assessing the various alternatives
for the next stage of this initiative.
2008 PLANS AND FORECAST
"While we remain committed to delivering consistent earnings growth
during the next few years of our strategic plan, our earnings growth in 2008
will be tempered by the substantial investments we plan to make to support
future earnings growth, to improve overall productivity and ensure our
long-term competitive position," noted Mr. Gauld.
The Company's earnings forecast, based on its 2008 business plan, is in
the range of $5.15 to $5.40 per share, excluding non-operating gains and
losses. This forecast reflects the following items:- approximately $55.0 million, or $0.46 per share (2007 - $0.10 per
share), for investments in productivity and growth initiatives noted
below;
- approximately $28.0 million in expenses, or $0.23 per share (2007 -
$0.21 per share), for the retail banking initiative;
- a preliminary estimate of the impact of approximately $6.8 million in
reduced earnings or $0.06 per share (2007 - NIL), which will arise as
a result of the adoption of a new Canadian Institute of Chartered
Accountants standard for inventories (CICA Handbook section 3031).
The final adjustments for inventory values will be dependent upon
business activities and inventory levels during 2008 and will be
reflected as appropriate in the Company's consolidated financial
statements each quarter. It is anticipated that the Company's
comparative consolidated financial statements for 2007 will be
restated on the adoption of this new standard, which will lead to a
downward adjustment of 2007 pre-tax earnings by approximately
$7.0 million ($0.06 per share).
Benefits from the amended CTR dealer contract announced in September 2007,
of approximately $15.0 million ($0.12 per share) (2007 - NIL), are expected to
partially mitigate these expenditures.
The various productivity and growth initiatives which will be undertaken
in 2008 are as follows:
- continued growth of the CTR, Mark's, Petroleum and PartSource
networks in 2008, including ongoing store expansions and upgrades
with contemplated development of up to 140 projects, of which 40 to
45 are additions;
- continued testing of three new CTR store design concepts including:
an infill retailing concept for underserved urban and rural markets;
the CTR/Mark's integrated store concept; and, the next major CTR
store format which will emphasize best merchandising practices, more
efficient operations and better-performing product lines. All of
these initiatives are expected to offer consumers a more exciting
shopping experience in their relevant markets and provide a platform
for further sales growth;
- continued growth of the CTR/PartSource automotive business through
investment in new technology and supply chain infrastructure, and the
further development of PartSource stores with expanded warehouses
(hub stores) across Canada;
- major re-launch of the Canadian Tire Options® Mastercard
incorporating a new card design, with additional features designed to
encourage usage and attract new customers;
- continued testing of Financial Services high interest savings
account, GICs, mortgages and One-and-Only™ account banking
products which, if successful, will provide a significant long-term
growth opportunity for Financial Services; and,
- productivity initiatives to streamline and strengthen operations and
improve organizational structures at CTR, Petroleum and PartSource
including: investments in critical areas of supply chain, automotive
and technology infrastructure; continued expansion of global sourcing
programs; development of automated marketing processes for pricing
and inventory management controls at CTR; and, investment in a new
enterprise-wide human resources information and payroll system.Total projected capital expenditures for 2008 will be in the range of
$430 million to $455 million, (down from 2007 expenditures of approximately
$594 million) the majority of which will support store and network expansions.
The 2008 capital expenditures are net of proceeds of approximately
$145.0 million, which are expected to be realized on the sale and leaseback of
three CTR urban stores during the year.
SUBSEQUENT FINANCING
On February 3, 2008, the Company entered into an agreement to sell a
portion of its loans receivable to Glacier Credit Card Trust, a third-party
trust, in a securitization transaction. The agreement is expected to close on
February 11, 2008. As a result, the Company anticipates receiving net proceeds
of approximately $630.0 million. This is expected to improve overall liquidity
and support further profitable growth of our Financial Services business.
DIVIDENDS
The Board of Directors today approved an increase in the 2008 quarterly
dividend payments from $0.185 per share to $0.21 per share, an annualized
increase of 13.5 percent. The total annualized dividend payment will rise from
$0.74 per share to $0.84 per share. Declaration of the increased dividend is
expected in March 2008 for payment on June 2, 2008 to shareholders of record
as of April 30, 2008. These dividends are considered "eligible dividends" for
tax purposes.
Canadian Tire's policy is to maintain dividend payments equal to
approximately 15 to 20 percent of the prior year's normalized basic net
earnings per share, after giving consideration to the period end cash
position, future cash requirements and investment opportunities. Normalized
net earnings per share for this purpose exclude gains and losses on the sale
of credit card and loans receivable and non-recurring items but include gains
and losses on the ordinary course disposition of property and equipment.
FORWARD-LOOKING STATEMENTS
This disclosure contains statements that are forward-looking. Actual
results or events may differ materially from those forecasted in this
disclosure because of the risks and uncertainties associated with Canadian
Tire's business and the general economic environment. Risks and uncertainties
are disclosed in other public filings by the Company, such as Management's
Discussion and Analysis in the Annual Report and include, but are not limited
to: changes in interest, currency exchange and tax rates; the ability of
Canadian Tire to attract and retain quality employees, Associate Dealers,
Petroleum agents and PartSource and Mark's Work Wearhouse store operators and
franchisees; and the willingness of customers to purchase the Company's
merchandise, financial products and services.
Risk factors associated with the assumptions that underlie Canadian
Tire's forecasted performance in 2008, as outlined previously, and that have
the potential to affect the operating performance and results of the Company's
divisions include:- expansion activity planned for Mark's, PartSource, Petroleum and CTR
("the retail businesses"), including the associated supply chain
infrastructure, could be affected by the Company's ability to acquire
and develop suitable real estate properties, obtain municipal and
other required government approvals, access construction labour and
materials at reasonable prices and lease suitable properties, as well
as by weather conditions that could impact the timing of
construction;
- expansion activity planned for the retail businesses, as well as for
the associated supply chain infrastructure and Financial Services,
could also be affected by the Company's ability to access sufficient
funds in a cost effective manner, due to difficulties in the capital
markets;
- unseasonable weather patterns could affect the sales of seasonal
merchandise at CTR and Mark's, particularly in the second and fourth
quarters which historically are these divisions' largest selling
periods;
- adverse environmental occurrences could damage the Company's
reputation or threaten its licenses to operate, particularly in the
Petroleum division;
- changes in commodity prices could affect the profitability of
Petroleum, CTR and Mark's;
- fluctuating foreign exchange currency rates could impact cross-border
shopping patterns and employment levels in the manufacturing and
export sector and, consequently, negatively impact consumer spending
practices;
- the earnings of Financial Services could be affected by customers'
inability to repay their Canadian Tire credit card, mortgage or
personal loan balances or by an unsatisfactory response to the retail
banking pilot initiative; and
- failure to comply with applicable laws and regulations could result
in sanctions and financial penalties by regulatory bodies that could
impact the Company's earnings and reputation. Areas of compliance
include environment, health and safety, competition, transportation
of dangerous goods, tax, customs and excise and regulations governing
financial institutions.The Company has developed its 2008 forecast on the assumption that there
will not be a material deviation in the risks described in this disclosure
compared to the current operating environment. The Company cannot provide any
assurance that forecasted financial or operational performance will actually
be achieved, or if it is, that it will result in an increase in the price of
Canadian Tire shares.
REVIEW BY BOARD OF DIRECTORS
The Canadian Tire Board of Directors, on the recommendation of its Audit
Committee, has approved the contents of this disclosure.
CONFERENCE CALL
Canadian Tire will conduct a conference call to discuss information
included in this news release and related matters at 3:30 p.m. EST on
Thursday, February 7, 2008. The conference call will be available
simultaneously and in its entirety to all interested investors and the news
media through a webcast at http://investor.relations.canadiantire.ca, and will
be available through replay at this website for 12 months.
Canadian Tire Corporation, Limited (TSX: CTC.a, CTC), operates more than
1,160 general merchandise and apparel retail stores, gas stations and car
washes in an inter-related network of businesses engaged in retail, financial
services and petroleum. Canadian Tire Retail, Canada's most shopped general
merchandise retailer, with 473 stores operated by Associate Dealers across
Canada offers a unique mix of products and services through three specialty
categories in which the organization is the market leader - Automotive, Sports
and Leisure, and Home Products. www.canadiantire.ca offers Canadians the
opportunity to shop online. PartSource is an automotive parts specialty chain
with 71 stores designed to meet the needs of purchasers of automotive parts -
professional automotive installers and serious do-it-yourselfers. Canadian
Tire Petroleum is one of the country's largest and most productive independent
retailers of gasoline, operating 266 gas bars, 258 convenience stores and
kiosks, and 74 car washes. Mark's Work Wearhouse is one of the country's
leading apparel retailers operating 358 stores in Canada. Under the Clothes
that Work™ marketing strategy, Mark's sells apparel and footwear in work,
work-related, casual and active-wear categories, as well as health-care and
business-to-business apparel. www.marks.com offers Canadians the opportunity
to shop for Mark's products online. Canadian Tire Financial Services manages
over 4.6 million Canadian Tire MasterCard accounts and markets related
financial products and services for retail and petroleum customers. Canadians
can also access Financial Services online at www.ctfs.com. Over 57,000
Canadians work across Canadian Tire's organization from coast-to-coast in the
enterprise's retail, financial services, and petroleum businesses.2007 FOURTH QUARTER
INTERIM REPORT FINANCIALS
Consolidated Statements of Earnings (Unaudited)
-------------------------------------------------------------------------
(Dollars in 13 weeks ended, 52 weeks ended,
millions except December 29, December 30, December 29, December 30,
per share amounts) 2007 2006 2007 2006
-------------------------------------------------------------------------
Gross operating
revenue $ 2,507.9 $ 2,426.1 $ 8,621.4 $ 8,269.1
-------------------------------------------------------------------------
Operating expenses
Cost of merchandise
sold and all other
operating expenses
except for the
undernoted items 2,242.0 2,180.5 7,685.1 7,415.7
Interest
Long-term debt 20.5 16.2 67.1 71.2
Short-term debt 7.1 2.4 11.3 4.5
Depreciation and
amortization 57.1 51.0 206.9 191.7
Employee Profit
Sharing Plan 6.7 6.8 30.9 28.2
-------------------------------------------------------------------------
Total operating
expenses 2,333.4 2,256.9 8,001.3 7,711.3
-------------------------------------------------------------------------
Earnings before
income taxes and
minority interest 174.5 169.2 620.1 557.8
Income taxes
Current 65.4 80.0 210.3 222.7
Future (16.0) (19.1) (7.8) (21.9)
-------------------------------------------------------------------------
Income taxes 49.4 60.9 202.5 200.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings
before minority
interest 125.1 108.3 417.6 357.0
-------------------------------------------------------------------------
Minority interest
(Note 7) - - - 2.4
-------------------------------------------------------------------------
Net earnings $ 125.1 $ 108.3 $ 417.6 $ 354.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic earnings
per share $ 1.53 $ 1.33 $ 5.12 $ 4.35
Diluted earnings
per share
(Note 5) $ 1.53 $ 1.32 $ 5.12 $ 4.31
-------------------------------------------------------------------------
Weighted average
number of Common
and Class A
Non-Voting Shares
outstanding
(Note 5) 81,512,263 81,616,331 81,502,273 81,575,556
-------------------------------------------------------------------------
Consolidated Statements of Cash Flows (Unaudited)
-------------------------------------------------------------------------
13 weeks ended, 52 weeks ended,
(Dollars in December 29, December 30, December 29, December 30,
millions) 2007 2006 2007 2006
-------------------------------------------------------------------------
(Note 15) (Note 15)
Cash generated from (used for):
Operating activities
Net earnings $ 125.1 $ 108.3 $ 417.6 $ 354.6
Items not affecting
cash
Depreciation and
amortization of
property and
equipment 56.5 50.1 204.5 189.1
Net provision for
loans receivable
(Note 3) 33.9 8.6 81.4 58.6
Employee future
benefits expense
(Note 4) 1.6 1.8 6.5 7.2
Fair market
value adjustment
and impairments
on property and
equipment 1.1 - 3.9 -
Other - 0.1 2.5 (1.6)
Amortization of
other assets 0.6 0.9 2.4 4.7
Impairment of
other long-term
investments
(Note 11) - - 1.3 -
Loss on sale
of Associate
Dealer receivables - 2.5 - 2.5
Future income
taxes (16.0) (19.1) (7.8) (21.9)
Gain on disposals
of property and
equipment (7.3) (47.0) (17.4) (57.4)
Gain on
disposals/
redemptions of
shares - - (18.4) (6.9)
Securitization
loans receivable (12.3) (11.9) (52.7) (39.9)
Gain on sales of
loans receivable
(Note 3) (16.7) (25.0) (83.6) (78.9)
-------------------------------------------------------------------------
166.5 69.3 540.2 410.1
-------------------------------------------------------------------------
Changes in other
working capital
components 459.1 514.2 (365.5) (14.8)
-------------------------------------------------------------------------
Cash generated
from operating
activities 625.6 583.5 174.7 395.3
-------------------------------------------------------------------------
Investing activities
Additions to
property and
equipment (167.7) (223.6) (587.7) (529.2)
Net securitization
of loans
receivable (403.2) 323.5 (420.1) 291.7
Investment in
loans receivable,
net (225.8) (168.9) (296.5) (269.9)
Purchases of
stores (4.6) (2.3) (11.4) (7.8)
Reclassification
of other long-
term investments
(Note 11) - - (8.9) -
Asset retirement
obligations (0.3) (1.0) (2.0) (2.1)
Employee future
benefits (0.5) (0.5) (1.9) (1.9)
Proceeds on
disposals/
redemptions of
shares - - 18.4 6.9
Long-term
receivables and
other assets 0.5 (63.7) 20.8 (85.6)
Proceeds on
disposition of
property and
equipment 10.9 86.8 30.0 340.1
Sale of Associate
Dealer receivables - 347.5 - 347.5
-------------------------------------------------------------------------
Cash generated from
(used for)
investing
activities (790.7) 297.8 (1,259.3) 89.7
-------------------------------------------------------------------------
Financing activities
Issuance of
long-term debt 300.7 0.3 300.9 1.2
Commercial paper (135.4) (113.0) - -
Class A Non-
Voting Share
transactions (4.2) (14.4) 0.2 (25.3)
Repayment of
limited
partnership
interest
(Note 7) - - - (300.0)
Repayment of
long-term debt (2.1) (1.3) (4.5) (205.4)
Dividends (15.2) (13.5) (58.8) (52.2)
-------------------------------------------------------------------------
Cash generated
from (used for)
financing
activities 143.8 (141.9) 237.8 (581.7)
-------------------------------------------------------------------------
Cash generated
(used) in the
period (21.3) 739.4 (846.8) (96.7)
Cash and cash
equivalents,
beginning of
period (84.2) 1.9 741.3 838.0
-------------------------------------------------------------------------
Cash and cash
equivalents, end
of period
(Note 9) $ (105.5) $ 741.3 $ (105.5) $ 741.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated Statements of Comprehensive Income (Unaudited)
-------------------------------------------------------------------------
13 52
weeks ended, weeks ended,
December 29, December 29,
(Dollars in millions) 2007 2007
-------------------------------------------------------------------------
Net earnings $ 125.1 417.6
Other comprehensive income (loss),
net of taxes
Gain/(loss) on derivatives designated as 3.3 (80.2)
cash flow hedges (net of tax of $4.7
and $(40.3))
Reclassification to non-financial asset of 7.5 22.8
gain on derivatives designated as cash flow
hedges (net of tax of $3.3 and $11.5)
Reclassification to earnings of gain/(loss) 1.4 (1.2)
on derivatives designated as cash flow
hedges (net of tax of $0.7 and $(0.7))
-------------------------------------------------------------------------
Other comprehensive income (loss) 12.2 (58.6)
-------------------------------------------------------------------------
Comprehensive income $ 137.3 359.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
-------------------------------------------------------------------------
52 weeks ended,
December 29, December 30,
(Dollars in millions) 2007 2006
-------------------------------------------------------------------------
Share capital
Balance, beginning of period $ 702.7 $ 702.7
Transactions, net (2.0) -
-------------------------------------------------------------------------
Balance, end of period $ 700.7 $ 702.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contributed surplus
Balance, beginning of period $ 0.1 $ 1.5
Transactions, net 2.2 (1.4)
-------------------------------------------------------------------------
Balance, end of period $ 2.3 $ 0.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Foreign currency translation adjustment
Balance, beginning of period as previously
reported $ (5.7) $ (5.7)
Reclassification to accumulated other
comprehensive income 5.7 5.7
-------------------------------------------------------------------------
Balance, beginning of period as restated and
end of period $ - $ -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained earnings
Balance, beginning of period as previously
reported $ 2,088.1 $ 1,812.6
Transitional adjustment on adoption of new
accounting policies (Note 2) (4.4) -
-------------------------------------------------------------------------
Balance, beginning of period as restated 2,083.7 1,812.6
Net earnings for the period 417.6 354.6
Dividends (60.4) (53.8)
Repurchase of Class A Non-Voting Shares - (25.3)
-------------------------------------------------------------------------
Balance, end of period $ 2,440.9 $ 2,088.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated other comprehensive income (loss)
Balance, beginning of period as previously
reported $ - $ -
Reclassification from foreign currency
translation adjustment (5.7) (5.7)
-------------------------------------------------------------------------
Balance, beginning of period as restated (5.7) (5.7)
Transitional adjustment on adoption of new
accounting policies (Note 2) 14.3 -
Other comprehensive income (loss) for the
period (58.6) -
-------------------------------------------------------------------------
Balance, end of period $ (50.0) $ (5.7)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained earnings and accumulated other
comprehensive income (loss) $ 2,390.9 2,082.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated Balance Sheets (Unaudited)
-------------------------------------------------------------------------
(Dollars in millions) December 29, December 30,
As at 2007 2006
-------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents (Note 9) $ - $ 741.3
Accounts receivable 707.1 340.5
Loans receivable (Note 3) 1,486.1 694.2
Merchandise inventories 756.7 667.3
Income taxes recoverable 59.0 -
Prepaid expenses and deposits 29.5 46.2
Future income taxes 77.7 51.5
-------------------------------------------------------------------------
Total current assets 3,116.1 2,541.0
-------------------------------------------------------------------------
Long-term receivables and other assets (Note 3) 231.2 283.5
Other long-term investments, net (Note 11) 7.6 -
Goodwill 51.8 46.4
Intangible assets 52.4 52.4
Property and equipment 3,283.6 2,881.3
-------------------------------------------------------------------------
Total assets $ 6,742.7 $ 5,804.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES
Current liabilities
Bank indebtedness (Note 9) $ 105.5 $ -
Accounts payable and other 1,847.8 1,579.5
Income taxes payable - 81.1
Current portion of long-term debt (Note 10) 156.3 3.0
-------------------------------------------------------------------------
Total current liabilities 2,109.6 1,663.6
-------------------------------------------------------------------------
Long-term debt (Note 10) 1,341.8 1,168.4
Future income taxes 71.8 75.0
Other long-term liabilities 125.6 112.4
-------------------------------------------------------------------------
Total liabilities 3,648.8 3,019.4
-------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital (Note 6) 700.7 702.7
Contributed surplus 2.3 0.1
Accumulated other comprehensive loss (50.0) (5.7)
Retained earnings 2,440.9 2,088.1
-------------------------------------------------------------------------
Total shareholders' equity 3,093.9 2,785.2
-------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 6,742.7 $ 5,804.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (Unaudited)
-------------------------------------------------------------------------
1. Basis of Presentation
These unaudited interim consolidated financial statements (the
"financial statements") have been prepared by management in
accordance with Canadian generally accepted accounting principles
("GAAP") and include the accounts of Canadian Tire Corporation,
Limited and its subsidiaries and partnership (up until April 3, 2006
- see Note 7), collectively referred to as the "Company". These
financial statements do not contain all disclosures required by
Canadian GAAP for annual financial statements, and accordingly, the
financial statements should be read in conjunction with the most
recently prepared annual financial statements for the 52 weeks ended
December 30, 2006 contained in our 2006 Financial Report.
The preparation of the financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from these
estimates. Estimates are used when accounting for items such as
income taxes, impairment of assets, employee benefits, product
warranties, inventory provisions, amortization, uncollectible credit
card receivables and personal loans, environmental reserves, asset
retirement obligations, financial instruments, and the liability for
the Company's loyalty programs.
2. Accounting Policies
These financial statements follow the same accounting policies and
methods of their application as the most recently prepared annual
financial statements for the 52 weeks ended December 30, 2006, except
as noted below.
Financial Instruments/Comprehensive Income/Hedges
-------------------------------------------------
The Canadian Institute of Chartered Accountants (CICA) issued the
following new accounting standards that apply to the Company as of
the first day of the Company's 2007 fiscal year: a) CICA Handbook
Section 3855 "Financial Instruments, Recognition and Measurement";
b) CICA Handbook Section 3861 "Financial Instruments - Disclosure and
Presentation"; c) CICA Handbook Section 3865 "Hedges"; d) CICA
Handbook Section 1530 "Comprehensive Income"; and e) CICA Handbook
Section 3251 "Equity".
Financial instruments
This new standard requires the Company to revalue certain of its
financial assets and liabilities, including derivatives designated in
qualifying hedging relationships and embedded derivatives in certain
contracts, at fair value on the initial date of implementation and at
each subsequent financial reporting date.
This standard also requires the Company to classify financial assets
and liabilities according to their characteristics and management's
choices and intentions related thereto for the purposes of ongoing
measurement. Classification choices for financial assets include:
a) held for trading - measured at fair value with changes in fair
value recorded in net earnings; b) held to maturity - recorded at
amortized cost with gains and losses recognized in net earnings in
the period that the asset is derecognized or impaired; c) available
for sale - measured at fair value with changes in fair value
recognized in other comprehensive income for the current period until
realized through disposal or impairment; and d) loans and receivables
- recorded at amortized cost with gains and losses recognized in net
earnings in the period that the asset is derecognized or impaired.
Classification choices for financial liabilities include: a) held for
trading - measured at fair value with changes in fair value recorded
in net earnings and b) other - measured at amortized cost with gains
and losses recognized in net earnings in the period that the
liability is derecognized. Subsequent measurement for these assets
and liabilities are based on either fair value or amortized cost
using the effective interest method, depending upon their
classification. Any financial asset or liability can be classified as
held for trading as long as its fair value is reliably determinable.
In accordance with the new standard, the Company's financial assets
and liabilities are generally classified and measured as follows:
Asset/Liability Category Measurement
--------------- -------- -----------
Cash and cash equivalents Held for trading Fair value
Accounts receivable Loans and receivables Amortized cost
Loans receivable Loans and receivables Amortized cost
Long-term receivables and Loans and receivables Amortized cost
other assets
Other long-term investments Held for trading Fair value
Bank indebtedness Held for trading Fair value
Commercial paper Other liabilities Amortized cost
Accounts payable and other Other liabilities Amortized cost
Long-term debt Other liabilities Amortized cost
Other long-term liabilities Other liabilities Amortized cost
Included in the above financial statement captions are the following:
- interest-only strip related to the sale of loans receivable,
which is included in long-term receivables and other assets,
has been classified as held for trading and measured at fair
value; and
- an equity investment included in long-term receivables and
other assets, has been classified as available for sale and
measured at cost (nominal value) because this equity investment
does not have a quoted price in an active market.
Other balance sheet accounts, such as merchandise inventories,
prepaid expenses and deposits, current and future income taxes,
goodwill, intangible assets and property and equipment are not within
the scope of the new accounting standards as they are not financial
instruments.
Transaction costs related to all financial instruments are now
expensed as incurred. Upon transition to the new standards on
December 31, 2006, the Company elected to charge the remaining
unamortized transaction costs related to debt financing in the amount
of $2.9 million (net of tax) to retained earnings.
Credit card balance transfer promotions offered by the Company at
rates not equal to market value are now measured at fair value at
date of acquisition and then subsequently accounted for at amortized
cost using the effective interest method. The difference between the
promotional rates offered and market rates are recorded as an expense
under the new standards. This resulted in a $3.7 million decrease in
loans receivable and $2.4 million decrease (net of tax) to opening
retained earnings on transition.
Embedded derivatives (elements of contracts whose cash flows move
independently from the host contract) are required to be separated
and measured at fair values if certain criteria are met. Under an
election permitted by the new standard, management reviewed contracts
entered into or modified subsequent to December 28, 2002 and
determined that the Company does not currently have any significant
embedded derivatives in these contracts that require separate
accounting and disclosure.
Comprehensive income
In accordance with the new comprehensive income standard, the Company
has chosen to report a new financial statement entitled "Consolidated
Statements of Comprehensive Income" for changes in the fair value of
certain of these financial assets and liabilities (e.g. the effective
portion of changes in the fair value of a derivative designated in a
cash flow hedging relationship). The "accumulated other comprehensive
income" (i.e. the portion of comprehensive income not already
included in net earnings) is being presented as a separate line in
shareholders' equity.
In accordance with the new standards, management has estimated the
net amount of gains and losses reported in accumulated other
comprehensive income, which are currently expected to be reclassified
to net earnings within the next 12 months, as a loss of approximately
$35.7 million (net of tax).
Hedges
With respect to the new standard related to hedging, the Company
enters into various cash flow hedges. The Company enters into foreign
exchange contracts to hedge the exposure to foreign currency risk on
the future payment of foreign currency denominated inventory
purchases. The fair value of these contracts is included in accounts
receivable. The changes in fair value of these contracts are included
in other comprehensive income to the extent the hedges continue to be
effective. Once the inventory has been recognized, the Company has
elected to reclassify the related accumulated other comprehensive
income amount to merchandise inventories. Subsequent changes in the
fair value of the foreign exchange contracts are recorded in net
earnings for the period. The Company enters into equity derivative
contracts to hedge certain future stock-based compensation expenses.
The fair value of these contracts is included in accounts receivable
and long-term receivables and other assets depending on the
derivative's maturity. The changes in fair value of these contracts
is included in other comprehensive income to the extent the hedges
continue to be effective. The related other comprehensive income
amounts are reclassified to net earnings based on vesting of the
respective stock-based share units. The Company also enters into
certain interest rate swap contracts to manage its exposure to
interest rate risks. The fair value of these contracts is included in
other long-term liabilities. The changes in fair value of these
contracts is included in other comprehensive income to the extent the
hedges continue to be effective. The related other comprehensive
income amounts are allocated to net earnings in the same period in
which the hedged item affects net earnings. For all cash flow hedges,
to the extent the change in fair value of the derivative is not
completely offset by the change in the fair value of the hedged item,
the ineffective portion of the hedging relationship is recorded
immediately in net earnings.
The Company also enters into fair value hedges, including certain
interest rate swap contracts. The fair value of these hedges is
included in other long-term liabilities. In fair value hedges the
change in fair value of both the hedged item attributable to the risk
being hedged and the entire hedging item are recorded in the net
earnings for the respective period.
The maximum length of time over which the Company is hedging its
exposure to future cash flow variability for anticipated transactions
is ten years.
Equity
Handbook Section 3251 describes standards for the presentation of
equity and changes in equity during the period with reference to the
new comprehensive income standard.
The new standards were applied retrospectively without restatement of
prior periods on December 31, 2006 (the first day of the Company's
2007 fiscal year), and thus prior periods presented have not been
restated with the exception of accumulated foreign currency
translation adjustment. The opening balance of retained earnings, net
of income taxes, has been adjusted by the following:
- the difference between the previous carrying amount and the fair
value of financial assets and liabilities designated as held for
trading;
- the cumulative ineffective portion of the gain or loss on the
hedging items in designated cash flow hedging relationships and
the total gain or loss on the hedging items in designated fair
value hedging relationships; and
- unamortized deferred debt issue expenses.
The opening balance of accumulated other comprehensive income, net of
income taxes, has been similarly adjusted by the following:
- the cumulative effective portion of the gain or loss on the
hedging items that are included in designated cash flow hedging
relationships; and
- restatement of current and prior periods to reflect the
accumulated foreign currency translation adjustment on the
translation of certain subsidiaries from a separate category of
shareholders' equity.
The transitional impact of the new standards on relevant items in the
Company's opening Balance Sheet for 2007 is summarized as follows:
1. Accounts receivable (derivative assets) - increase of
$37.0 million
2. Loans receivable - decrease of $3.7 million
3. Long-term receivables and other assets (debt issue expenses net
of derivative assets) - decrease of $0.9 million
4. Future income taxes (current asset) - decrease of $9.7 million
5. Future income taxes (long-term liability) - decrease of
$4.4 million
6. Accounts payable - increase of $6.8 million
7. Other long-term liabilities (derivative liabilities) - increase
of $12.9 million
8. Long-term debt - decrease of $2.5 million
9. Opening retained earnings - decrease of $4.4 million
10. Accumulated other comprehensive income - increase of
$14.3 million
3. Loans Receivable
The Company sells pools of loans receivable ("the Loans") to third
party trusts ("the Trusts") in transactions known as securitizations.
Loans include both credit card and personal loans receivable. The
transactions are accounted for as sales in accordance with Accounting
Guideline 12, "Transfers of Receivables" ("AcG-12"), and the Loans
are removed from the Consolidated Balance Sheets. The Company retains
the interest-only strip, and for the personal loan securitization, a
subordinated interest in the loans sold (the "seller's interest") and
cash deposited with one of the Trusts (the "securitization reserve"),
all of which are retained interests. The seller's interest and
securitization reserve provide that Trust with a source of funds in
the event that the interest and principal collected on the Loans is
not sufficient to pay the Trust's creditors. The Trusts' recourse to
the Company is limited to the retained interests. The Company also
assumes responsibility for servicing the Loans, for which it does not
receive any direct compensation.
The proceeds of the sale are deemed to be the cash received,
interest-only strip and securitization reserve, less any servicing
obligation assumed. The proceeds are allocated between the Loans,
interest-only strip, seller's interest and securitization reserve
based on their relative fair value at the date of sale, with any
excess or deficiency recorded as a gain or loss on sale respectively.
The Company estimates fair values by discounting future cash flows or
comparing the appropriate yield curves to matching maturity terms.
Retained interests are measured at fair value and are reviewed for
impairment on a quarterly basis.
As the Company does not control the Trusts, they have not been
consolidated in these financial statements.
Quantitative information about loans managed and securitized by the
Company is as follows:
(Dollars in Total principal amount Average balances
millions) of receivables as at(1) for the 52 weeks ended
------------------------- -------------------------
December 29, December 30, December 29, December 30,
2007 2006 2007 2006
------------ ------------ ------------ ------------
Total net managed
credit card
loans 3,719.1 $ 3,372.3 $ 3,416.0 $ 3,115.8
Credit card loans
sold (2,271.5) (2,702.9) (2,647.8) (2,413.7)
------------ ------------ ------------ ------------
Credit card loans
held 1,447.6 669.4 768.2 702.1
Total net managed
personal loans(2) 143.6 225.5 184.1 256.6
Personal loans
sold (59.4) (124.5) (89.5) (164.6)
------------ ------------ ------------ ------------
Personal loans held 84.2 101.0 94.6 92.0
Total net managed
mortgage loans(3) 35.4 1.4 13.1 0.1
------------ ------------ ------------ ------------
Total loans
receivable 1,567.2 771.8 $ 875.9 $ 794.2
Less: long-term ------------ ------------
portion(4) (81.1) (77.6) ------------ ------------
------------ ------------
Current portion
of loans
receivable $ 1,486.1 $ 694.2
----------- ------------
----------- ------------
(1) Amounts shown are net of allowance for credit losses.
(2) Personal loans are unsecured loans that are provided to
qualified existing credit cardholders for terms of three to
five years. Personal loans have fixed monthly payments of
principal and interest; however, the personal loans can be
repaid at any time without penalty.
(3) Mortgage loans are issued for terms of up to ten years, have
fixed or variable interest rates, are secured and include a mix
of both high and low ratio loans. High ratio loans are fully
insured and low ratio loans are partially insured.
(4) The long-term portion of loans is included in "Long-term
receivables and other assets".
Net credit losses for the owned portfolio for the 13 weeks ended
December 29, 2007 were $33.9 million (2006 - $8.6 million). Net
credit losses for the owned portfolio for the 52 weeks ended
December 29, 2007 were $81.4 million (2006 - $58.6 million). Net
credit losses for the total managed portfolio for the 13 weeks ended
December 29, 2007 were $58.5 million (2006 - $51.6 million). Net
credit losses for the total managed portfolio for the 52 weeks ended
December 29, 2007 were $217.3 million (2006 - $207.4 million).
4. Employee Future Benefits
The net employee future benefit expense for the 13 weeks and 52 weeks
ended December 29, 2007 was $1.6 million (2006 - $1.8 million) and
$6.5 million (2006 - $7.2 million), respectively.
5. Diluted Earnings Per Share
The reconciliation of the number of shares used in the diluted
earnings per share calculation is as follows:
13 weeks 13 weeks 52 weeks 52 weeks
ended ended ended ended
December 29, December 30, December 29, December 30,
2007 2006 2007 2006
------------ ------------ ------------ ------------
Average number of
shares for basic
earnings per
share
calculations 81,512,263 81,616,331 81,502,273 81,575,556
Dilutive options - 252,782 - 640,953
------------ ------------ ------------ ------------
Average number of
shares for
dilutive earnings
per share
calculations 81,512,263 81,869,113 81,502,273 82,216,509
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Effective November 2006, all outstanding stock options have a feature
that enables the employee to exercise the stock option or receive a
cash payment equal to the difference between the market price of a
Class A Non-Voting Share at the exercise date and the exercise price
of the stock option. As the employee can request settlement in cash
and the Company is obligated to pay cash upon demand, compensation
expense is accrued over the vesting period of the stock options based
on the expected total compensation to be paid upon the stock options
being exercised. Accordingly, outstanding stock options have no
dilutive impact on the average number of shares outstanding. For
further details of the terms of the stock option plans prior to
amendment, please refer to Note 11 to the most recently prepared
annual financial statements for the 52 weeks ended December 30, 2006.
6. Share Capital
(Dollars in millions) December 29, December 30,
2007 2006
-------------------------
Authorized
3,423,366 Common Shares
100,000,000 Class A Non-Voting Shares
Issued
3,423,366 Common Shares
(December 30, 2006 - 3,423,366) $ 0.2 $ 0.2
78,048,062 Class A Non-Voting Shares
(December 30, 2006 - 78,047,456) 700.5 702.5
-------------------------
$ 700.7 $ 702.7
-------------------------
-------------------------
The Company issues and repurchases Class A Non-Voting Shares. The
net excess of the issue price over the repurchase price results in
contributed surplus. The net excess of the repurchase price over the
issue price is allocated first to contributed surplus, to the extent
of any previous net excess from the issue of shares with any
remainder allocated to retained earnings.
The following transactions occurred with respect to Class A Non-
Voting Shares:
(Dollars in 52 weeks ended 52 weeks ended
millions) December 29, 2007 December 30, 2006
------------------------- -------------------------
Number $ Number $
------------ ------------ ------------ ------------
Shares outstanding
at the beginning
of the period 78,047,456 702.5 78,032,724 702.5
Issued 457,606 35.1 1,222,032 57.4
Repurchased (457,000) (34.9) (1,207,300) (82.7)
Excess of
repurchase price
over issue price
(issue price over
repurchase price) - (2.2) - 25.3
------------ ------------ ------------ ------------
Shares outstanding
at the end of
the period 78,048,062 700.5 78,047,456 702.5
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
7. Minority Interest
The Company was the general partner in a limited partnership for
purposes of raising $300 million of capital in relation to a
portfolio of its retail properties. The partnership invested in the
retail properties by way of a note and equity in an entity that owns
the portfolio of properties. The partnership had an indefinite life,
but could be liquidated in certain circumstances. The assets and
liabilities, results of operations and cash flows of the partnership
were included in the financial statements of the Company. The
preferred interest was treated as minority interest on the
Consolidated Balance Sheets and in the Consolidated Statements of
Earnings.
On April 3, 2006, the $300 million note was repaid and the equity was
redeemed. The limited partnership repaid the limited partners.
Accordingly, the minority interest ceased to be reflected on the
Consolidated Balance Sheets after April 3, 2006, and no further
charge has been reflected in the Consolidated Statements of Earnings
after April 3, 2006.
8. Segmented Information - Statement of Earnings
---------------------------------------------------------------------
13 weeks 13 weeks 52 weeks 52 weeks
ended ended ended ended
(Dollars in December 29, December 30, December 29, December 30,
millions) 2007 2006 2007 2006
---------------------------------------------------------------------
Gross operating
revenue(1)
CTR $ 1,585.8 $ 1,576.8 $ 5,485.1 $ 5,355.4
Financial
Services 196.0 198.0 769.1 721.7
Petroleum 434.1 375.1 1,666.5 1,545.3
Mark's 326.2 309.5 825.3 762.3
Eliminations (34.2) (33.3) (124.6) (115.6)
---------------------------------------------------
Total gross
operating
revenue $ 2,507.9 $ 2,426.1 $ 8,621.4 $ 8,269.1
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings (loss)
before income
taxes and
minority interest
CTR $ 81.7 $ 71.5 $ 304.7 $ 306.1
Financial
Services 32.5 53.7 190.3 167.0
Petroleum 3.7 (6.0) 20.5 (5.4)
Mark's 56.6 50.0 104.6 90.1
---------------------------------------------------
Total earnings
before income
taxes and
minority
interest 174.5 169.2 620.1 557.8
Income taxes 49.4 60.9 202.5 200.8
Minority interest - - - 2.4
---------------------------------------------------
Net earnings $ 125.1 $ 108.3 $ 417.6 $ 354.6
---------------------------------------------------------------------
---------------------------------------------------------------------
Interest expense
CTR $ 34.4 $ 24.9 $ 105.6 $ 97.9
Financial
Services 11.4 4.9 24.5 20.3
Petroleum - - - -
Mark's 0.9 0.6 3.0 3.0
Eliminations (19.1) (11.8) (54.7) (45.5)
---------------------------------------------------
Total interest
expense $ 27.6 $ 18.6 $ 78.4 $ 75.7
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Depreciation and
amortization
expense
CTR $ 44.2 $ 38.7 $ 159.1 $ 147.7
Financial
Services 3.4 3.9 12.8 13.0
Petroleum 4.4 4.1 16.7 15.2
Mark's 5.1 4.3 18.3 15.8
---------------------------------------------------
Total
depreciation and
amortization
expense $ 57.1 $ 51.0 $ 206.9 $ 191.7
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(1) Gross operating revenue includes dividend and interest income.
Segmented Information - Total Assets
---------------------------------------------------------------------
As at As at
December 29, December 30,
(Dollars in millions) 2007 2006
---------------------------------------------------------------------
CTR $ 5,498.4 $ 4,502.5
Financial Services 1,852.0 1,476.0
Petroleum 573.4 477.9
Mark's 454.2 406.7
Eliminations (1,635.3) (1,058.5)
-------------------------
Total $ 6,742.7 $ 5,804.6
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9. Cash and Cash Equivalents (Bank Indebtedness)
The components of cash and cash equivalents are:
December 29, December 30,
(Dollars in millions) 2007 2006
------------ ------------
Cash $ 71.8 $ (52.3)
Bank indebtedness (316.8) -
Short-term investments 139.5 793.6
------------ ------------
Cash and cash equivalents
(bank indebtedness) $ (105.5) $ 741.3
------------ ------------
------------ ------------
As at December 29, 2007, the balance of ($105.5) million has been
classified as bank indebtedness. The bank indebtedness represents
line of credit borrowings.
10. Long-Term Debt
On October 1, 2007, the Company issued medium term notes totaling
$300 million. The medium term notes bear interest at 5.22% per annum
and mature on October 1, 2010.
11. Other Long-Term Investments
As of December 29, 2007, the Company held third-party asset-backed
commercial paper ("ABCP") with an original cost of $8.9 million.
These ABCP were rated by the Dominion Bond Rating Service ("DBRS") as
R-1 (High), the highest credit rating for commercial paper since the
ABCP are backed by R-1 (High) rated assets.
A global disruption in the market for such commercial paper in
mid-August 2007 resulted in a sudden constraint on the liquidity of
ABCP. DBRS placed certain of the ABCP "Under Review with Developing
Implications" following which a consortium representing banks, asset
providers and major investors agreed in principle to a long-term
proposal and interim agreement regarding the ABCP (commonly referred
to as "the Montreal Proposal"). Under this proposal, the affected
ABCP would be converted into term floating rate notes maturing no
earlier than the scheduled termination dates of the underlying
assets. The Montreal Proposal called for the investors to continue to
roll their ABCP during the standstill period. A Pan-Canadian
Investors Committee ("the Committee") was subsequently formed to
oversee the proposed restructuring process of the ABCP during this
standstill period. A restructuring plan was announced on December 23,
2007 which is anticipated to be completed by March 2008.
There are continuing uncertainties regarding the final outcome of the
restructuring process being considered and in estimating the value of
the assets which underlie these ABCP. As a result, the company used
its best judgment to assess the market conditions at December 29,
2007, and using a discounted cash flow model, has estimated the fair
value of these ABCP. The valuation model used by the Company
considered the best available information regarding market conditions
and other factors that a market participant would consider for such
investments, assuming that a restructuring will be ultimately
successful. The assumptions used in determining the estimated fair
value reflect the public statements made by the Committee that it
expects the ABCP will be converted into long-term floating rate notes
with maturities matching the maturities of the underlying assets and
the cash flows they are expected to generate. The Company's valuation
assumes that the replacement notes will bear interest rates similar
to short-term instruments and that such rates would be commensurate
with the nature of the underlying assets and their associated cash
flows. Assumptions have also been made as to the amount of
restructuring and other costs that the Company will bear. The
estimate has been calculated without the benefit of a full
understanding of the underlying assets of each of the trusts it holds
as this information has not been provided by each trust. The Company
has classified its ABCP, previously classified as "Cash and cash
equivalents", as Long-term investments on the balance sheet, as
management anticipates that this investment will mature beyond a 365-
day period.
As a result of the valuation, the Company has recorded during the 52
weeks ended December 29, 2007 a $1.3 million before tax provision for
impairment of the ABCP in the Consolidated Statement of Earnings.
Continuing uncertainties regarding the value of the assets that
underlie the ABCP, the amount and timing of cash flows and the final
outcome of the restructuring process could give rise to a further
change in the value of the Company's investment in ABCP which would
impact the Company's future earnings.
12. Supplementary Cash Flow Information
The Company paid income taxes during the 13 weeks ended December 29,
2007, amounting to $44.4 million (2006 - $51.6 million) and made
interest payments of $31.4 million (2006 - $27.1 million). For the
52 weeks ended December 29, 2007, the Company paid income taxes
amounting to $348.4 million (2006 - $212.5 million) and made interest
payments of $88.5 million (2006 - $87.3 million).
During the 13 weeks ended December 29, 2007, property and equipment
were acquired at an aggregate cost of $233.4 million (2006 -
$275.9 million), of which $65.1 million (2006 - $52.3 million) was
included in accounts payable and other. During the 52 weeks ended
December 29, 2007, property and equipment were acquired at an
aggregate cost of $654.0 million (2006 - $557.4 million), of which
$65.1 million (2006 - $28.2 million) was included in accounts payable
and other.
13. Tax Matters
In the ordinary course of business, the Company is subject to ongoing
audits by tax authorities. While the Company believes that its tax
filing positions are appropriate and supportable, from time to time
certain matters are reviewed and challenged by the tax authorities.
The Canada Revenue Agency (CRA) has reassessed and is also expected
to issue further reassessments regarding the tax treatments of
commissions paid to foreign subsidiaries of the Company (covering
periods from 1995 onwards), and dividends received on an investment
made by a wholly-owned subsidiary of the Company related to
reinsurance (covering periods from 1999 to 2003). The applicable
provincial tax authorities have reassessed and are also expected to
issue further reassessments for the corresponding periods. The
Company does not have a significant exposure on these matters
subsequent to the 2003 taxation year. The reassessments and expected
reassessments in these matters are based on multiple grounds, some of
which are highly unusual and the Company will appeal these
reassessments as and when they are received.
If the CRA (and applicable provincial tax authorities) were entirely
successful in their reassessments - an outcome that the Company and
its tax advisors believe to be very unlikely - it is estimated that
the total liability of the Company for additional taxes, interest and
penalties could be approximately $256.0 million. Although the Company
will appeal these reassessments, current tax legislation requires the
Company to remit to the CRA and its provincial counterparts
approximately $158.3 million, of which $152.6 million had been
remitted by the end of the quarter.
The Company regularly reviews the potential for adverse outcomes in
respect of tax matters. The Company believes that the ultimate
disposition of these reassessments will not have a material adverse
effect on its liquidity, consolidated financial position or results
of operations because the Company believes that it has adequate
provision for these tax matters. Should the ultimate tax liability
materially differ from the provisions, 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 tax expense for 2007 has been reduced by $11.4 million mainly
due to settlements of various minor issues with the tax authorities
and a reduction in tax rates required to be used in estimating income
tax expense for accounting purposes as a result of the reduction of
federal tax rates announced during the fourth quarter.
14. Related Party Transactions
During the quarter ended September 29, 2007, the Company purchased
the shares of a corporation, one of the owners of which is an
Associate Dealer and also a director of the Company. The purchase
price was $3.7 million. The purchased corporation owns the real
estate for a Canadian Tire store. The purchase price was considered
to be fair market value, based on independent appraisals. The land
and building acquired is included in "Property and equipment". As the
purchase price has not yet been fully paid by the Company,
$3.0 million is included in "Accounts payable and accrued
liabilities".
Separately, during the quarter ended December 29, 2007, the Company
provided to the same Associate Dealer a loss mitigation agreement for
the first two years of operation in respect of a new Canadian Tire
Associate store, as it does, in various forms, for Associate Dealers
from time to time, to help mitigate some of the financial risk
inherent in a new store. Losses, if any, that the Company shares with
the Associate Dealer pursuant to the agreement would not be material
to the Company and may be partially recoverable by the Company over
the following three years from the Associate Dealer.
15. Comparative Figures
Certain of the prior period's figures have been reclassified to
conform to the current year's presentation, including amounts with
respect to securitizations and net provision for loans receivable in
the consolidated statements of cash flows. As a result, cash flow
from operations has been restated by $71.7 million for the 13 weeks
ended December 30, 2006 ($280.3 million for the 52 weeks ended
December 30, 2006) with a corresponding offset to investing
activities. There is no impact on cash generated/used in the
respective periods.
16. Subsequent Event
Subsequent to December 29, 2007, the Company entered into a
contractual agreement which is expected to close on February 11,
2008, whereby the Company will sell a portion of its loans receivable
to Glacier Credit Card Trust (GCCT), a third party trust in which the
Company does not have a controlling interest, in a transaction
referred to as securitization. The transaction will be accounted for
as a sale in accordance with Accounting Guideline 12, "Transfer of
Receivables" (AcG-12) and the loans receivable will be removed from
the Consolidated Balance Sheet in the first quarter of 2008.
As a result of this future securitization of its loans receivable,
the Company expects to receive net proceeds of approximately
$630.0 million.Interest Coverage Exhibit to the Consolidated Financial Statements
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The Company's long-term interest requirements for the 52 weeks ended
December 29, 2007, after annualizing interest on long-term debt issued and
retired during this period, amounted to $93.1 million. The Company's earnings
before interest on long-term debt, income taxes and minority interest for the
52 weeks then ended were $686.2 million, which is 7.4 times the Company's
long-term interest requirements for this period.
%SEDAR: 00000534EF
For further information:
For further information: Media: Caroline Casselman, (416) 480-8159, caroline.casselman@cantire.com; Investors: Huw Thomas, (416) 480-3568, huw.thomas@cantire.com