Canadian Tire releases fourth quarter earnings - Retail sales up 6.8%; adjusted net earnings down 3.0%
2008 retail sales up 5.3%; adjusted net earnings for the year down 2.2%
Quarterly dividend payments continue at $0.21 per shareTORONTO, Feb. 12 /CNW/ - Canadian Tire Corporation, Limited (CTC, CTC.a)
today released its unaudited fourth quarter earnings and year-end results.
Despite challenging market conditions, the Company reported an increase of
6.8% in retail sales in the fourth quarter compared to the same period in
2007, reflecting strong sales of seasonal merchandise, improvements in
pricing, promotional programs and an extra sales week.
"Our fourth quarter operating results demonstrate the unique positioning
and strength of our retail offering," said Stephen Wetmore, president and CEO,
Canadian Tire Corporation. "We enter the new year well-positioned to adapt to
and respond to the changing Canadian economy."----------------------------------------------------------
Consolidated 2008(2) Year-over- 2008(2) Year-over-
Highlights(1): 4th quarter year change full year year change
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Retail sales $ 3.2 billion 6.8% $ 10.6 billion 5.3%
Gross operating
revenue $ 2.6 billion 3.3% $ 9.1 billion 6.0%
EBITDA(3) $277.3 million 4.1% $892.7 million 1.3%
Adjusted $192.0 million 2.0% $572.5 million (4.5)%
earnings
before income
taxes (excludes
non-operating
gains and
losses)(4)
Net earnings $101.2 million (22.9)% $374.2 million (9.1)%
Adjusted net $129.9 million (3.0)% $395.3 million (2.2)%
earnings
(excludes
non-operating
gains and
losses)(4)
Basic earnings
per share $ 1.24 (22.9)% $ 4.59 (9.1)%
Adjusted basic
earnings per
share (excludes
non-operating $ 1.59 (3.0)% $ 4.85 (2.2)%
gains and losses)(4)
(1) All dollar figures in this table are rounded.
(2) Fiscal 2008 sales and earnings figures are based on a 14 week period
for the fourth quarter and a 53-week period for the year compared to
13 weeks for the quarter and 52 weeks for the year in 2007.
(3) Earnings before interest, taxes, depreciation and amortization. Non-
GAAP measure. Please refer to Section 12.0 of the 2007 Management's
Discussion and Analysis.
(4) Non-GAAP measure. Please refer to Section 12.0 of the 2007
Management's Discussion and Analysis."While our EBITDA for the quarter and the full year grew modestly despite
the impact of increased costs associated with our strategic initiatives, our
net earnings were additionally impacted by non-cash mark-to-market adjustments
on our interest rate hedges discussed below," stated Wetmore.
The table below provides a reconciliation of adjusted net earnings for
the fourth quarter 2008 and for 2008 as a whole.($ in millions) Q4 2008 Change 2008 Change
-------------------------------------------------------------------------
Net earnings 101.2 (22.9)% $ 374.2 (9.1)%
-------------------------------------------------------------------------
Adjustments:
Executive retirement obligations (4.2) (3.4)
Gain on disposal of property
and equipment 1.9 3.5
Net effect of securitization
activities (7.1) (1.9)
Delayed start interest rate
swaps (19.3) (19.3)
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Adjusted net earnings 129.9 (3.0%) 395.3 (2.2)%
-------------------------------------------------------------------------Canadian Tire uses derivative financial instruments, such as hedges and
swaps, to manage financial risks related to interest rate, foreign exchange
and equity-based compensation. As at January 3, 2009, long-term delayed start
interest rate swaps, which had been put in place 10 years ago to manage the
Company's long-term interest expense by fixing interest rates at a then
attractive rate, now no longer meet the requirements for hedge accounting and
accordingly $19.3 million after-tax was expensed in the fourth quarter.
The Company has a number of additional financial instruments in place. At
year end, on a mark-to-market basis, the value of these items was a net in the
money position of approximately $177.8 million. This amount is substantially
included in the Accumulated Other Comprehensive Income ("AOCI") section of the
Company's Unaudited Consolidated Balance Sheet. The most significant item
included in AOCI is in the money foreign exchanges hedges, which total $149.5
million pre-tax. In the absence of a material strengthening of the Canadian
dollar versus the US dollar, this gain will positively impact the cost of
inventory purchases during the next six to nine months.
The remaining mark-to-market adjustments on hedges that do not qualify
for hedge accounting have been reflected in operating earnings.
Wetmore noted that "in a year that became more challenging with each
successive quarter, CTC delivered growth across virtually all of its
businesses in the fourth quarter and for the full year in 2008."Highlights of top-line performance by business
(year-over-year percentage change) Q4 2008 2008
-------------------------------------------------------------------------
CTR retail sales(1) 9.1% 3.8%
CTR gross operating revenue 3.3% 3.6%
CTR net shipments 3.0% 3.5%
Mark's retail sales 5.9% 3.5%
Petroleum retail sales (3.5)% 12.2%
Petroleum gasoline volume 4.1% (0.6)%
Financial Services' credit card sales 1.4% 6.7%
Financial Services' gross average receivables 6.6% 7.2%
-------------------------------------------------------------------------
(1) Includes sales from Canadian Tire stores, PartSource stores, sales
from CTR's online web store and the labour portion of CTR's auto
service sales.
Business Overview
CANADIAN TIRE RETAIL (CTR)(1)
($ in millions) Q4 Q4
2008 2007(2) Change 2008 2007(2) Change
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Retail
sales(3) $ 2,364.2 $ 2,166.2 9.1% $ 7,617.8 $ 7,338.0 3.8%
Same store
sales(4)
(year-over-year
% change) 7.3% (1.8)% 1.8% (0.5)%
Gross operating
revenue $ 1,636.4 $ 1,583.7 3.3% $ 5,669.1 $ 5,473.5 3.6%
Net shipments
(year-over-year
% change) 3.0% 0.4% 3.5% 2.3%
Earnings before
income taxes $ 26.6 $81.0 (67.1)% $ 249.2 $ 302.4 (17.6)%
-------------------------------------------------------------------------
Adjustments:
Gain on disposals
of property and
equipment(5) 3.7 7.3 7.4 17.6
Executive
retirement
obligations (6.2) 0.3 (5.1) (6.2)
Delayed start
interest
rate swaps (28.7) - (28.7) -
-------------------------------------------------------------------------
Adjusted
earnings
before
income
taxes(6) $ 57.8 $ 73.4 (21.3)% $ 275.6 $ 291.0 (5.3)%
-------------------------------------------------------------------------
(1) Fiscal 2008 sales and earnings figures are based on a 14-week period
for the fourth quarter and a 53-week period for the year compared to
13-weeks for the quarter and 52-weeks for the year in 2007.
(2) 2007 figures have been restated for the implementation, on a
retrospective basis, of the CICA HB 3031- Inventories. Please refer
to note 2 in the Consolidated Financial Statements
(3) 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.
(4) Same store sales include sales from stores that have been open for
more than 53 weeks in the same location.
(5) Includes fair market value adjustments and impairments on property
and equipment.
(6) Non-GAAP measure. Please refer to section 12.0 in the 2007
Management's Discussion and Analysis.CTR's retail sales increased 9.1% over the same quarter in 2007
reflecting a significant increase in sales of winter-related merchandise in
the quarter, as well as an increase in the kitchen and tools categories.
Overall, same store sales were up 7.3% compared to the fourth quarter of 2007.
Retail sales and same store sales were particularly strong with the addition
of the 53rd trading week in 2008.
Increases in shipment levels were lower than those for retail sales in
the quarter as CTR Dealers sought to manage their inventory levels due to the
expectation of a slowing economy.
CTR's fourth quarter adjusted earnings were $57.8 million, down 21.3%
from the fourth quarter in 2007. The overall margin rate as a percentage of
gross operating revenue for the quarter was consistent year-over-year,
reflecting a number of items, including the benefits of purchasing with hedged
Canadian dollars and higher dealer rents. Adjusted operating earnings were
impacted by additional mark-to-market adjustments on interest rate hedges and
swaps which totaled approximately $8 million; costs associated with CTR's
long- term productivity and efficiency initiatives such as Automotive
Infrastructure, CTR Change Program and IT renewal; and higher advertising and
administrative costs due to the addition of the 53rd trading week.
For the year, retail sales increased 3.8%, while same store sales were up
1.8%. Adjusted earnings before taxes were $275.6 million compared with $291.0
million in 2007. By year end, corporate inventories were at forecasted levels,
but still higher than in 2007 due to spring and summer seasonal carry over
products which will be shipped to CTR Dealers in 2009.
In addition to completing 36 Concept 20/20 projects in 2008, CTR also
launched its new Smart store format in Welland and Orleans, Ontario and opened
four Small Market stores. The two new concepts have been well-received by
customers and are performing above expectations.
In 2008, PartSource acquired 11 new corporate stores, opened 2 new hub
stores, retrofitted 3 existing stores into hub stores and converted 5
franchise stores to corporate stores bringing the total store network to 86.CANADIAN TIRE PETROLEUM (Petroleum)(3)
Q4 Q4
($ in millions) 2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Sales volume
(millions
of litres) 469.1 450.5 4.1% 1,727.0 1,737.5 (0.6)%
Retail sales $447.0 $463.1 (3.5)% $1,988.1 $1,771.6 12.2%
Gross operating
revenue $414.3 $434.1 (4.6)% $1,871.2 $1,666.5 12.3%
Earnings before
income taxes $6.1 $3.7 66.6% $26.6 $20.5 30.4%
-------------------------------------------------------------------------
Adjustments:
Loss on
disposals of
property and
equipment(1) $(0.2) $(0.7) $(0.5) $(2.7)
-------------------------------------------------------------------------
Adjusted earnings
before income
taxes(2) $6.3 $4.4 43.2% $27.1 $23.2 17.1%
-------------------------------------------------------------------------
(1) Includes asset impairment losses.
(2) Non-GAAP measure. Please refer to section 12.0 of the 2007
Management's Discussion and Analysis
(3) Fiscal 2008 sales and earnings figures are based on a 14-week period
for the fourth quarter and a 53-week for the year compared to 13-week
for the quarter and 52-week for the year in 2007.Petroleum's gasoline sales volumes rose 4.1% over the comparable period
in 2007; while convenience stores sales increased 13.5% over the fourth
quarter in 2007. Both increases are primarily due to an extra week of sales in
2008.
Petroleum recorded earnings before taxes of $6.1 million, a 66.6%
increase compared to the $3.7 million recorded in the same period in 2007.
For the year, Petroleum posted earnings before taxes of $26.6 million, an
increase of 30.4% over the $20.5 million recorded in 2007. Performance both in
the quarter and for the full year was due to strong margins and effective
expense management.
In addition to opening 9 new gas bars in 2008, Petroleum also rebuilt 3
gas bars and refurbished 21 existing gas bars to enhance the customer
experience and better reflect the Canadian Tire brand. Petroleum now operates
273 gas bars, 266 convenience stores and kiosks and 74 car washes.MARK'S WORK WEARHOUSE (Mark's)(5)
($ in millions) Q4 Q4
2008 2007(6) Change 2008 2007(6) Change
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Total
retail
sales(1) $408.4 $385.7 5.9% $1,008.5 974.9 3.5%
Same store
sales(2)
(% increase
over
prior year) 3.9% 1.4% 0.3% 4.8%
Gross operating
revenue(3) $355.7 $326.2 9.0% $872.4 $825.3 5.7%
-------------------------------------------------------------------------
Earnings before
income taxes $71.7 $67.0 7.0% $75.9 $98.0 (22.5)%
-------------------------------------------------------------------------
Adjustments:
Loss on
disposals
of property and
equipment (0.5) (0.2) (0.9) (1.0)
-------------------------------------------------------------------------
Adjusted earnings
before income
taxes(4) $72.2 $67.2 7.4% $76.8 $99.0 (22.4)%
-------------------------------------------------------------------------
(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. A 13 week to 13 week
comparison would produce a (0.3%) same store sales decrease in the
fourth quarter and a 52 week to 52 week comparison would produce a
(1.4%) same stores sales decrease for the year.
(3) Gross operating revenue includes retail sales at corporate stores
only.
(4) Non-GAAP measure. Please refer to section 12.0 of the 2007
Management's Discussion and Analysis.
(5) Fiscal 2008 sales and earnings figures are based on a 14-week period
for the fourth quarter and a 53 week period for the year, compared to
13 weeks for the quarter in 2007 and 52 weeks for the year in 2007.
(6) 2007 figures have been restated for the implementation on a
retrospective basis of the CICA HB 3031- Inventories. Please refer to
note 2 in the Consolidated Financial StatementsMark's sales were positively impacted by the severe winter weather in
Canada for the last three weeks of the year, which led to strong sales of
industrial wear. As a result, Mark's fourth quarter retail sales increased by
5.9%, from $385.7 million last year to $408.4 million this year. Adjusted pre-
tax earnings for the quarter increased 7.4% from the comparable period in
2007, reflecting positive same store sales growth, when comparing 14 weeks to
13 weeks, improvements in margins due to improved purchase markup, fewer
markdowns and effective expense management, offset somewhat by a higher shrink
accrual.
Despite a strong fourth quarter, adjusted pre-tax earnings for the year
were down 22.4% from $99.0 million in 2007 to $76.8 million this year, due to
a decline in the gross margin rate caused by the higher shrink of inventory in
the second quarter, flat annual same stores sales when comparing 53 weeks to
52 weeks, and higher expenses associated with new store and infrastructure
additions.
At the end of the year, inventories on hand were well-controlled and down
11.0% on a per square foot basis year-over-year, reflecting conservative
activity on fall merchandise orders, effective markdown management and strong
sell through of industrial winter merchandise.
In 2008, Mark's opened 18 new corporate stores, relocated 11 corporate
stores and one franchise store and expanded 6 corporate stores bringing the
total store network to 372 stores. In addition, Mark's now has three mobile
stores.CANADIAN TIRE FINANCIAL SERVICES (Financial Services)
Q4 Q4
($ in millions) 2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Total managed
portfolio
end of period $4,120.9 $3,952.2 4.3%
Gross operating
revenue 212.4 190.3 11.6% 820.4 745.9 10.0%
Earnings before
income taxes $45.1 $32.6 38.6% $189.5 $190.3 (0.4)%
-------------------------------------------------------------------------
Adjustments:
Gain on
disposal of shares - - - 18.4
Net effect of
securitization
activities(1) (10.6) (10.6) (2.9) (14.4)
Loss on disposals
of property
and equipment - (0.1) (0.6) (0.4)
-------------------------------------------------------------------------
Adjusted
earnings before
income
taxes(2) $55.7 $43.3 29.0% $193.0 $186.7 3.4%
-------------------------------------------------------------------------
(1) Includes initial gain/loss on the sale of loans receivable,
amortization of servicing liability, change in securitization
reserve and gain/loss on reinvestment.
(2) Non-GAAP measure. Please refer to section 12.0 in the 2007
Management's Discussion and Analysis.Financial Services' total managed portfolio of loan receivables was $4.1
billion at the end of the fourth quarter, an increase of 4.3% over the
approximate $4.0 billion at the end of the comparable 2007 period. Growth in
receivables slowed during the quarter to well below historical levels due to
lower growth in credit card usage.
The net write-off rate for the total managed portfolio on a rolling 12-
month basis was 6.34% compared to 5.76% in the comparable period. The increase
reflects the impact of deteriorating economic conditions and the associated
higher bankruptcies, as well as the refinement of the treatment of consumer
proposals effective November 2008 which increased the write-off rate by 23
bps.
Financial Services had a very strong fourth quarter with adjusted net
earnings increasing 29.0% from $43.3 million in the comparable period last
year to $55.7 million for the quarter driven by higher revenues and tight
expense management. Fourth quarter earnings were negatively impacted by $2.4
million due to the refinement in the treatment of consumer proposals noted
above.
Financial Services continued its retail banking pilot and at quarter-end
had more than $166 million in high rate savings accounts, $973 million in
total GIC deposits and $139 million in outstanding mortgage balances.
2009 COMMENTARY
OPERATIONS
"While we are very pleased with our momentum coming into 2009,
particularly in our core retail businesses, the year ahead is projected to be
challenging for all retailers, due to the impact of the global economic
slowdown and declining consumer confidence among Canadians," said Wetmore.
Given the unprecedented volatility in the Canadian economy and the
difficulty in assessing the potential magnitude of the impact of the above
conditions on CTC's business, Management will not be providing a specific
earnings per share guidance range for the year. Management will, however,
continue to provide information on its operations, growth and productivity
initiatives, capital plan and liquidity as appropriate throughout the year.
If the Canadian economy and employment continues to be weak, CTC could
experience declining same store sales and margins in its retail businesses,
lower growth in receivables at CTFS as consumers reduce their credit card
usage, higher bankruptcies and write-offs and further increases in funding
costs across its businesses.CTC is well-positioned, however, in that:
- CTR has extremely strong consumer brands, a loyal customer base and a
wide range of everyday products which are competitively priced and
relevant to a cost-conscious consumer.
- Mark's emphasis on private label products, many of which have added
features and benefits to improve customer satisfaction, has in the
recent past allowed Mark's to continue to grow its business, despite
adverse business conditions.
- Over the last year, Financial Services has taken numerous steps to
reduce its exposure to accounts with higher credit risk.CTC's focus in 2009 will be based on a balanced approach to maximize
earnings potential through focused growth initiatives, strong expense
management and on-going improvements in financial flexibility, while also
continuing to invest in long-term growth and productivity.
"Canadian Tire is financially strong and is well-positioned to manage
through this economic downturn. We have a solid cash position, manageable debt
levels and despite the potential challenges, we remain confident in our
strategy and will continue to take the prudent actions necessary to ensure
Canadian Tire is well-positioned to take full advantage of the economic
recovery when it comes," Wetmore added.
Key initiatives in 2009 will include:
Growth
Despite the challenging economy, CTC continues to believe it has
significant opportunities to drive long-term growth across each of its retail
businesses. While the level of capital commitment is significantly reduced
from 2008, the following investments reflect continued confidence in the
future potential of the businesses that make up CTC:- Growth of the CTR, Mark's, Petroleum and PartSource networks,
including ongoing store expansions and upgrades with contemplated
development of up to 40 projects for CTR of which approximately 6
projects will be new to market. Square footage growth in CTR year
over year will be approximately 2% and will be focused on further
testing and expansion of the Smart and Small Market store concepts.
Square footage growth at Mark's will be approximately 5% in 2009
versus 2008.
- Investment in new technology and supply chain infrastructure and the
further development of PartSource stores with expanded warehouses
(hub stores) across Canada to drive growth at CTR and PartSource. In
total, 16 hub stores are expected to be open by the end of 2009.
- At CTFS selected investment in balance transfer offers, leverage of
the relaunched credit cards with PayPass capability and the launch of
new credit cards to drive managed growth of loan receivables.
Productivity and Efficiency Initiatives
CTC plans to continue with its long-term productivity and efficiency
investments. On a net basis, including benefits, these programs are expected
to cost approximately $44.0 million in 2009. The programs include:
- The Automotive Infrastructure program is designed to support the
growth of CTR's automotive business, as well as the growth of the
PartSource chain of stores. The program, which will be fully
implemented by 2011, will make auto parts more accessible to the
customer, broaden and optimize the automotive parts assortment, as
well as improve the customer experience by leveraging improvements of
in-store technology and processes. The program will provide
significant top and bottom line benefits for CTR, PartSource and
Dealers as the various phases of the program are deployed over the
next several years.
- The CTR Change Program represents a significant investment in new
systems, together with major changes in processes and organizational
structures, which will streamline major merchandising and marketing
capabilities within CTR. For example: price management, promotional
planning, vendor relationship management, assortment and markdown
management.
- IT renewal represented by a multi-year program designed to upgrade
the technology infrastructure which supports CTR, Petroleum and
PartSource. Renewal will provide increased functionality, reduced
risk, lower operating costs and a simplified overall architecture.
- A variety of smaller projects, all designed to manage compliance risk
or to lower operating costs and provide business units with enhanced
functionality for improved decision-making.OPERATING EXPENSES
Early in 2009, CTR's new 1.5 million square foot distribution centre in
Coteau du Lac will open on time and on budget. This new facility will support
future sales growth at CTR and enable the closing of two much smaller third
party facilities in Montreal and Toronto. Net annualized incremental costs
upon opening the facility are estimated at $35.9 million pre-tax. Over the
next several years, the throughput volume of this facility will increase and
with improving productivity and declining depreciation charges, this
incremental cost will be largely mitigated.
CAPITAL
Total projected capital expenditures for 2009 will be in the range of
$380 million to $400 million, (down from 2008 expenditures of approximately
$472 million) the majority of which will support store and network expansions.
As of the date of this release, only $150 million of the 2009 planned
expenditures has been committed. Management will look for every opportunity to
manage this capital in the most effective way, including spending lower
amounts if considered appropriate.
FUNDING AND LIQUIDITY
Overall, CTC was very active in 2008 in securing various funding sources
to support the Company's on-going growth. As the year progressed and
traditional sources of financing such as the Medium Term Note ("MTN") program
and securitization were not available, CT Bank developed a new cost effective
funding source through broker deposits and by the year end had secured a
balance of $973 million in total GIC deposits with an average term of 30
months. In addition, high rate savings accounts provided an additional $166
million of funding.
Like all companies, CTC has been exposed to significantly higher bank
fees as banks re-price the cost of financing. CTC will continue to look for
cost-effective sources of funding despite the credit markets being "frozen"
for a number of typical sources of financing. While CTC has no concerns about
its ability to fund its operations in 2009 and beyond, financing will clearly
come at a significantly increased cost. Given the unprecedented volatility in
the financial markets, CTC will be conservative in that it will ensure it has
more than sufficient access to liquidity, even if it comes at the expense of
short-term profitability.
For 2009, no corporate debt maturities are scheduled, but late in the
year, term notes at Glacier Credit Card Trust of $625 million will mature
which will result in a corresponding increase in receivables at Financial
Services, unless the notes are re-financed.
Working capital optimization will continue to be a focus, building on the
positive trends exhibited late in 2008 at both CTR and Mark's. Inventory
reduction in particular will be a focus for CTR as on-hand seasonal carry-over
product is flowed to CTR stores during the spring and summer season.
To meet the operating and capital demands of 2009, management expects to
have available:- Operating cash flow
- Further broker deposits
- High rate savings receipts
- Committed bank linesAs of January 3rd, 2009, CTC had $1.22 billion in committed lines of
credit of which $775 million will be increased in term to two years, with
annual renewals, subject only to the completion of legal documentation, which
is expected by the end of February. The balance of the lines are committed
until early 2010 and are typically extended on a quarterly basis thereafter.
Management will continue to monitor market conditions and consider the
following actions to lock down longer-term financing, as it warrants:- Securitization of receivables
- Corporate MTNs
- Sale and leaseback of selected CTR store propertiesShort-term funding needs will be met through corporate and Glacier CP
programs.
Overall, Management is very confident that it has sufficient liquidity to
support its funding requirements throughout 2009.
DIVIDENDS
The Board of Directors today declared a quarterly dividend paymentof 21
cents per share, unchanged from the amount paid in the last quarter of 2008,
which will be paid on June 1, 2009 to shareholders of record as of April 30,
2009. These dividends are considered "eligible dividends" for tax purposes.
Canadian Tire's policy is to maintain dividend payments equal to
approximately 15 to 20% of the prior year's normalized basic net earnings per
share, after giving consideration to the period end cash position, future cash
requirements, market conditions 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 document contains forward-looking statements. These forward-looking
statements relate to, among other things, our objectives, goals, strategies,
intentions, plans, beliefs, expectations and estimates, and can generally be
identified by the use of words such as "may", "will", "could", "should",
"would", "suspect", "outlook", "expect", "intend", "estimate", "anticipate",
"believe", "plan", "forecast", "objective" and "continue" (or the negative
thereof) and words and expressions of similar import, and include statements
concerning possible or assumed future results. Certain material factors or
assumptions are applied in making forward-looking statements, and actual
results may differ materially from those expressed or implied in such
statements. Information about material factors that could cause actual results
to differ materially from expectations and about material factors or
assumptions applied in making forward-looking statements may be found in the
body of this document, as well as in the 2007 Management's Discussion and
Analysis ("MD&A").
The forward-looking information contained in this earnings release is
presented for the purpose of assisting the Company's security holders and
financial analysts in understanding its financial position and results of
operations as at and for the periods ended on the dates presented and the
Company's strategic priorities and objectives, and may not be appropriate for
other purposes. When relying on the forward-looking statements to make
decisions with respect to the Company, investors and others should carefully
consider the foregoing factors and other uncertainties and potential events.
Although the Company believes that the expectations reflected in such forward-
looking statements are reasonable, such statements involve risks and
uncertainties, and undue reliance should not be placed on such statements. The
Company does not undertake to update any forward-looking statements, including
those statements that are incorporated by reference herein, whether written or
oral, that may be made from time to time by or on its behalf, except in
accordance with applicable securities laws.
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 4:30 p.m. EDT on
Thursday, February 12, 2009. The conference call will be available
simultaneously and in its entirety to all interested investors and the news
media through a webcast at http://corp.canadiantire.ca/EN/investors, and will
be available through replay at this website for 12 months.
Canadian Tire Corporation, Limited (TSX: CTC.a, CTC), operates more than
1,200 general merchandise and apparel retail stores and gas stations 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 475 stores operated by 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 research
more than 25,000 products online. PartSource is an automotive parts specialty
chain with 86 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 273 gas bars, 266 convenience
stores and kiosks, and 74 car washes. Mark's Work Wearhouse is one of the
country's leading apparel retailers operating 372 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 has issued over 5 million Canadian Tire MasterCards and also 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.2008 FOURTH QUARTER
INTERIM REPORT FINANCIALS
Consolidated Statements of Earnings (Unaudited)
-------------------------------------------------------------------------
14 weeks 13 weeks 53 weeks 52 weeks
(Dollars in ended, ended, ended, ended,
millions except January 3, December 29, January 3, December 29,
per share amounts) 2009 2007 2009 2007
-------------------------------------------------------------------------
(Restated - (Restated -
Notes 2 Notes 2
and 15) and 15)
Gross operating
revenue $ 2,587.8 $ 2,505.1 $ 9,121.3 $ 8,606.1
-------------------------------------------------------------------------
Operating expenses
Cost of merchandise
sold and all other
operating expenses
except for the
undernoted items 2,304.6 2,232.1 8,199.6 7,694.0
Net interest
expense (Note 7) 65.9 24.9 122.6 63.1
Depreciation and
amortization 61.9 57.1 228.9 206.9
Employee Profit
Sharing Plan 5.9 6.7 29.0 30.9
-------------------------------------------------------------------------
Total operating
expenses 2,438.3 2,320.8 8,580.1 7,994.9
-------------------------------------------------------------------------
Earnings before
income taxes 149.5 184.3 541.2 611.2
Income taxes
Current 68.4 72.4 209.1 210.7
Future (20.1) (19.4) (42.1) (11.2)
-------------------------------------------------------------------------
Income taxes 48.3 53.0 167.0 199.5
-------------------------------------------------------------------------
Net earnings $ 101.2 $ 131.3 $ 374.2 $ 411.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic and diluted
earnings per share $ 1.24 $ 1.61 $ 4.59 $ 5.05
-------------------------------------------------------------------------
Weighted average
number of Common
and Class A
Non-Voting Shares
outstanding 81,538,127 81,512,263 81,517,702 81,502,273
-------------------------------------------------------------------------
Consolidated Statements of Cash Flows (Unaudited)
-------------------------------------------------------------------------
14 weeks 13 weeks 53 weeks 52 weeks
ended, ended, ended, ended,
January 3, December 29, January 3, December 29,
(Dollars in millions) 2009 2007 2009 2007
-------------------------------------------------------------------------
(Restated - (Restated -
Notes 2 Notes 2
and 15) and 15)
Cash generated from
(used for):
Operating activities
Net earnings $ 101.2 $ 131.3 $ 374.2 $ 411.7
Items not affecting
cash
Depreciation and
amortization 61.9 57.1 228.9 206.9
Net provision for
loans receivable
(Note 3) 32.0 34.3 87.3 81.4
Changes in fair
value of
derivative
instruments 39.1 (7.9) 55.6 (2.2)
Other 9.4 - 7.9 2.5
Employee future
benefits expense
(Note 4) 1.6 1.6 6.4 6.5
Fair market value
adjustment and
impairments on
property and
equipment 0.8 1.1 2.5 3.9
Impairment of other
long-term investments
(Note 11) 1.0 - 2.0 1.3
Gain on disposals
of property and
equipment (3.7) (7.3) (7.8) (17.4)
Future income taxes (20.1) (19.4) (42.1) (11.2)
Securitization loans
receivable (11.6) (12.2) (51.9) (52.7)
Gain on sales of
loans receivable
(Note 3) (10.2) (16.6) (73.7) (83.6)
Gain on
disposals/redemptions
of shares - - - (18.4)
-------------------------------------------------------------------------
201.4 162.0 589.3 528.7
-------------------------------------------------------------------------
Changes in other working
capital components 253.2 387.9 (406.9) (467.1)
-------------------------------------------------------------------------
Cash generated from
operating activities 454.6 549.9 182.4 61.6
-------------------------------------------------------------------------
Investing activities
Additions to
property and
equipment (61.2) (167.7) (436.9) (587.7)
Investment in loans
receivable, net (105.1) (227.1) (140.5) (296.5)
Purchases of stores (8.0) (4.6) (36.5) (11.4)
Net securitization
of loans receivable (272.0) (403.2) (31.7) (420.1)
Long-term receivables
and other assets (28.7) 1.2 (27.2) 20.8
Other long-term
investments (19.6) - (19.6) -
Reclassification of
other long-term
investments (Note 11) - - - (8.9)
Other (0.7) (0.8) (4.2) (3.9)
Proceeds on
disposition of
property and
equipment 9.5 10.9 240.1 30.0
Proceeds on
disposals/redemptions
of shares - - - 18.4
-------------------------------------------------------------------------
Cash used for investing
activities (485.8) (791.3) (456.5) (1,259.3)
-------------------------------------------------------------------------
Financing activities
Net change in
deposits (Note 15) 838.4 76.3 1,024.1 113.1
Class A Non-Voting
Share transactions 6.0 (4.2) 7.0 0.2
Issuance of
long-term debt (0.1) 300.7 0.1 300.9
Commercial paper (367.2) (135.4) - -
Dividends (17.1) (15.2) (66.4) (58.8)
Repayment of
long-term debt (1.9) (2.1) (156.2) (4.5)
-------------------------------------------------------------------------
Cash generated from
financing activities 458.1 220.1 808.6 350.9
-------------------------------------------------------------------------
Cash generated (used)
in the period 426.9 (21.3) 534.5 (846.8)
Cash and cash
equivalents, beginning
of period 2.1 (84.2) (105.5) 741.3
-------------------------------------------------------------------------
Cash and cash
equivalents, end of
period (Note 8) $ 429.0 $ (105.5) $ 429.0 $ (105.5)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated Statements of Comprehensive Income (Unaudited)
-------------------------------------------------------------------------
14 weeks 13 weeks 53 weeks 52 weeks
ended, ended, ended, ended,
January 3, December 29, January 3, December 29,
(Dollars in millions) 2009 2007 2009 2007
-------------------------------------------------------------------------
(Restated - (Restated -
Notes 2) Notes 2)
Net earnings $ 101.2 $ 131.3 $ 374.2 $ 411.7
Other comprehensive
income (loss), net
of taxes
Gain (loss) on
derivatives
designated as
cash flow hedges,
net of tax of
$56.7 and $68.9
(2007 - $4.7 and
$40.3), respectively 117.4 3.3 139.7 (80.2)
Reclassification
to non-financial
asset of (gain) loss
on derivatives
designated as cash
flow hedges, net of
tax of $18.5 and
$10.1 (2007 - $3.3
and $11.5),
respectively (38.4) 7.5 (20.5) 22.8
Reclassification to
earnings of loss
(gain) on
derivatives
designated as cash
flow hedges, net
of tax of $9.2 and
$12.0 (2007 - $0.7
and $0.7),
respectively 22.0 1.4 28.0 (1.2)
-------------------------------------------------------------------------
Other comprehensive
income (loss) 101.0 12.2 147.2 (58.6)
-------------------------------------------------------------------------
Comprehensive income $ 202.2 $ 143.5 $ 521.4 $ 353.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
-------------------------------------------------------------------------
53 weeks 52 weeks
ended, ended,
January 3, December 29,
(Dollars in millions) 2009 2007
-------------------------------------------------------------------------
(Restated -
Notes 2)
Share capital
Balance, beginning of period $ 700.7 $ 702.7
Transactions, net (Note 5) 14.7 (2.0)
-------------------------------------------------------------------------
Balance, end of period $ 715.4 $ 700.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contributed surplus
Balance, beginning of period $ 2.3 $ 0.1
Transactions, net (2.3) 2.2
-------------------------------------------------------------------------
Balance, end of period $ - $ 2.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained earnings
Balance, beginning of period as previously
reported $ 2,440.9 $ 2,083.7
Transitional adjustment on adoption of new
accounting policies (Note 2) 14.2 20.1
-------------------------------------------------------------------------
Balance, beginning of period as restated 2,455.1 2,103.8
Net earnings for the period 374.2 411.7
Dividends (68.4) (60.4)
Repurchase of Class A Non-Voting Shares (5.4) -
-------------------------------------------------------------------------
Balance, end of period $ 2,755.5 $ 2,455.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated other comprehensive income (loss)
Balance, beginning of period $ (50.0) $ 8.6
Other comprehensive income (loss) for the
period 147.2 (58.6)
-------------------------------------------------------------------------
Balance, end of period $ 97.2 $ (50.0)
-------------------------------------------------------------------------
Retained earnings and accumulated other
comprehensive income $ 2,852.7 $ 2,405.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated Balance Sheets (Unaudited)
-------------------------------------------------------------------------
(Dollars in millions) January 3, December 29,
As at 2009 2007
-------------------------------------------------------------------------
(Restated -
Notes 2
and 15)
ASSETS
Current assets
Cash and cash equivalents (Note 8) $ 429.0 $ -
Accounts receivable 824.1 715.0
Loans receivable (Note 3) 1,683.4 1,486.1
Merchandise inventories (Note 2) 917.5 778.7
Income taxes recoverable 64.2 53.2
Prepaid expenses and deposits 40.2 29.5
Future income taxes 20.2 75.7
-------------------------------------------------------------------------
Total current assets 3,978.6 3,138.2
-------------------------------------------------------------------------
Long-term receivables and other assets (Note 3) 265.4 231.2
Other long-term investments, net (Note 11) 25.2 7.6
Goodwill 70.7 51.8
Intangible assets 58.4 52.4
Property and equipment, net 3,389.8 3,283.6
-------------------------------------------------------------------------
Total assets $ 7,788.1 $ 6,764.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES
Current liabilities
Bank indebtedness (Note 8) $ - $ 105.5
Deposits 540.7 111.5
Accounts payable and other 1,444.2 1,740.4
Current portion of long-term debt 14.8 156.3
-------------------------------------------------------------------------
Total current liabilities 1,999.7 2,113.7
-------------------------------------------------------------------------
Long-term debt 1,373.5 1,341.8
Future income taxes 45.9 71.8
Long-term deposits 598.7 3.8
Other long-term liabilities 202.2 125.6
-------------------------------------------------------------------------
Total liabilities 4,220.0 3,656.7
-------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital (Note 5) 715.4 700.7
Contributed surplus - 2.3
Accumulated other comprehensive income (loss) 97.2 (50.0)
Retained earnings 2,755.5 2,455.1
-------------------------------------------------------------------------
Total shareholders' equity 3,568.1 3,108.1
-------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 7,788.1 $ 6,764.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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, collectively referred to as the
"Company". These financial statements do not contain all disclosures
required by Canadian GAAP for annual financial statements, and
accordingly, these financial statements should be read in conjunction
with the most recently issued annual financial statements for the 52
weeks ended December 29, 2007 contained in our 2007 Annual 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 (including goodwill), employee
benefits, product warranties, inventory provisions, amortization,
uncollectible loans, environmental reserves, asset retirement
obligations, financial instruments, and the liability for the
Company's loyalty programs.
The quarter and year ended January 3, 2009 consisted of 14 weeks and
53 weeks, respectively while the quarter and year ended December 29,
2007 consisted of 13 weeks and 52 weeks, respectively.
2. Change in Accounting Policies
These financial statements follow the same accounting policies and
methods of their application as the most recently issued annual
financial statements for the 52 weeks ended December 29, 2007, except
as noted below.
Merchandise inventories
Effective, December 30, 2007 (the first day of the Company's 2008
fiscal year), the Company implemented, on a retrospective basis with
restatement, the Canadian Institute of Chartered Accountants (CICA)
Handbook Section 3031 - Inventories, which is effective for interim
and annual financial statements for fiscal years beginning on or
after January 1, 2008.
This new standard provides guidance on the determination of cost and
requires inventories to be measured at the lower of cost and net
realizable value. The cost of inventories includes the cost of
purchase and other costs incurred in bringing the inventories to
their present location and condition. Costs such as storage costs,
administrative overheads that do not contribute to bringing the
inventories to their present location and condition, and selling
costs are specifically excluded from the cost of inventories and are
expensed in the period incurred. Reversals of previous write-downs to
net realizable value are now required when there is a subsequent
increase in the value of inventories. The cost of inventories should
be determined using either a first-in, first-out or weighted average
cost formula. Techniques for the measurement of cost of inventories,
such as the retail method or standard cost method, may be used for
convenience if the results approximate actual cost. The new standard
also requires additional disclosures including the accounting
policies adopted in measuring inventories, the carrying amount of
inventories, amount of inventories recognized as an expense during
the period, the amount of write-downs during the period and the
amount of any reversal of write-downs that is recognized as a
reduction of expenses.
The Company's new policy to correspond with the new standard is as
follows:
Merchandise inventories are carried at the lower of cost and net
realizable value, with cost being determined as weighted average
cost.
As a result of the retrospective implementation of this new standard,
the cumulative impact on previously reported balances on the
following dates is as follows:
(Dollars in millions) Increase / (Decrease)
------------------------------------------
December 29, 2007 December 30, 2006
------------------------------------------
Retained earnings $14.2 $20.1
Inventories 22.0 31.5
Income taxes recoverable (5.8) -
Future income tax assets (2.0) (5.3)
Accounts payable and other - 0.6
Income taxes payable - 5.5
In addition, the retrospective impact on net earnings for the 13
weeks ended December 29, 2007 was an increase of $6.3 million, or
$0.08 per share, and for the 52 weeks ended December 29, 2007 a
reduction of $5.9 million, or $0.07 per share.
Included in "cost of merchandise sold and all other operating
expenses except for the undernoted items" for the 14 weeks and 53
weeks ended January 3, 2009 is $1,811.9 million (2007 - $1,797.6
million) and $6,422.0 million (2007 - $6,060.8 million),
respectively, of inventory recognized as an expense, which included
$19.3 million (2007 - $11.0 million) and $68.2 million (2007 - $42.6
million), respectively, of write-downs of inventory as a result of
net realizable value being lower than cost. Inventory write-downs
recognized in previous periods and reversed in the current quarter
and year to date and the comparative quarter and year to date were
insignificant.
Financial instruments
Effective, December 30, 2007, the Company implemented the new CICA
Handbook Section 3862 "Financial Instruments - Disclosures" and CICA
Handbook Section 3863 "Financial Instruments - Presentation". These
standards replaced the existing CICA Handbook Section 3861 "Financial
Instruments - Disclosure and Presentation". They require increased
disclosures regarding the risks associated with financial instruments
and how these risks are managed. These new standards carry forward
the presentation standards for financial instruments and non-
financial derivatives but provide additional guidance for the
classification of financial instruments, from the perspective of the
issuer, between liabilities and equity. The adoption of these new
standards did not require any changes to the Company's accounting,
but does require additional note disclosure, which is included in
note 10.
Capital management disclosures
Effective, December 30, 2007, the Company implemented the new CICA
Handbook Section 1535 "Capital Disclosures" which is effective for
fiscal years beginning on or after October 1, 2007. The new standard
requires entities to disclose information about their objectives,
policies and processes for managing capital, as well as their
compliance with any externally imposed capital requirements. The
adoption of this new standard did not require any changes to the
Company's accounting, but does require additional note disclosure,
which is included in note 9.
Future accounting changes
Goodwill and intangible assets
In February 2008, the CICA issued CICA HB 3064 - Goodwill and
Intangible Assets, which replaces CICA HB 3062 - Goodwill and Other
Intangible Assets as well as CICA HB 3450 - Research and Development.
This new standard provides guidance on the recognition, measurement,
presentation and disclosure of goodwill and intangible assets.
As this standard applies to interim and annual financial statements
for fiscal years beginning on or after October 1, 2008, the Company
will adopt this new standard effective January 4, 2009 (the first day
of the Company's 2009 fiscal year) retrospectively with a restatement
of prior periods. It is anticipated that the restatement upon
adoption will not result in a significant impact on pre-tax earnings
and total assets.
International Financial Reporting Standards (IFRS)
In February 2008, the CICA announced that Canadian generally accepted
accounting principles (GAAP) for publicly accountable enterprises
will be replaced by International Financial Reporting Standards
(IFRS) for fiscal years beginning on or after January 1, 2011.
Companies will be required to provide IFRS comparative information
for the previous fiscal year. Accordingly, the conversion from
Canadian GAAP to IFRS will be applicable to the Company's reporting
for the first quarter of 2011 for which the current and comparative
information will be prepared under IFRS. The Company expects the
transition to IFRS to impact accounting, financial reporting,
internal control over financial reporting, taxes, IT systems and
processes as well as certain contractual arrangements. The Company is
currently assessing the impact of the transition to IFRS in the above
areas and has deployed additional trained resources and formal
project management practices and governance to ensure the timely
conversion to IFRS.
3. Loans Receivable
The Company sells pools of loans receivable (the Loans) to third
party trusts (the Trusts) in transactions known as securitizations.
The transactions are accounted for as sales in accordance with CICA
Accounting Guideline 12 (AcG-12), Transfers of Receivables, 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"), which are components of retained
interests. The interest-only strip represents the present value of
the expected spread to be earned over the collection period on the
loans receivable sold. The expected spread is equal to the yield
earned, less the net write-offs and interest expense on the loans
receivable sold. The seller's interest and securitization reserve
provide the 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 interest-only strip, the seller's interest and the
securitization reserve and for the credit card loan securitization,
the additional enhancement required to be maintained.
The proceeds of the sale are deemed to be the cash received,
interest-only strip and securitization reserve, less any servicing
obligation assumed. The servicing liability represents the Company's
estimated cost of servicing the securitized loans and is amortized
over the life of the securitized loans. 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 Trusts have not been consolidated in these financial statements
because either they meet the criteria for a qualified special purpose
entity (which are exempt from consolidation) or the Company is not
the primary beneficiary.
Quantitative information about loans managed and securitized by the
Company is as follows:
Average balances
for the for the
(Dollars in Total principal amount 53 weeks 52 weeks
millions) of receivables as at(1) ended ended
----------------------- -------------------------
January 3, December 29, January 3, December 29,
2009 2007 2009 2007
------------ ------------ ------------ ------------
Total net managed
credit card loans $ 3,780.4 $ 3,681.3 $ 3,601.5 $ 3,370.2
Credit card loans
sold (2,216.0) (2,233.7) (2,592.9) (2,602.0)
------------ ------------ ------------ ------------
Credit card loans
held 1,564.4 1,447.6 1,008.6 768.2
Total net managed
personal loans(2) 83.8 140.2 114.2 179.7
Personal loans sold - (56.0) (17.8) (85.1)
------------ ------------ ------------ ------------
Personal loans held 83.8 84.2 96.4 94.6
Total net managed
mortgage loans(3) 138.8 35.4 76.0 13.1
------------ ------------ ------------ ------------
Total net managed
line of credit
loans(4) 20.6 - 23.7 -
------------ ------------ ------------ ------------
Total loans
receivable 1,807.6 1,567.2 $ 1,204.7 $ 875.9
------------ ------------
------------ ------------
Less: long-term
portion(5) (124.2) (81.1)
------------ ------------
Current portion of
loans receivable $ 1,683.4 $ 1,486.1
------------ ------------
(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. The securitized portfolio
of personal loans of $43.7 million was repurchased in May 2008
for $26.7 million.
(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) Line of credit portfolio was purchased in January 2008 for
$29.6 million.
(5) The long-term portion of loans is included in "Long-term
receivables and other assets".
Net credit losses for the owned portfolio for the 14 weeks and 53
weeks ended January 3, 2009 were $32.0 million (2007 - $34.3 million)
and $87.3 million (2007 - $81.4 million), respectively. Net credit
losses for the total managed portfolio for the 14 weeks and 53 weeks
ended January 3, 2009 were $67.6 million (2007 - $58.5 million) and
$249.2 million (2007 - $217.3 million), respectively.
4. Employee Future Benefits
The net employee future benefit expense for the 14 weeks and 53 weeks
ended January 3, 2009 was $1.6 million (2007 - $1.6 million) and $6.4
million (2007 - $6.5 million), respectively.
5. Share Capital
(Dollars in millions) January 3, December 29,
2009 2007
-------------------------
Authorized
3,423,366 Common Shares
100,000,000 Class A Non-Voting Shares
Issued
3,423,366 Common Shares
(December 29, 2007 - 3,423,366) $ 0.2 $ 0.2
78,178,066 Class A Non-Voting Shares
(December 29, 2007 - 78,048,062) 715.2 700.5
------------ ------------
$ 715.4 $ 700.7
------------ ------------
------------ ------------
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 53 weeks ended 52 weeks ended
millions) January 3, 2009 December 29, 2007
------------------------- -------------------------
Number $ Number $
------------ ------------ ------------ ------------
Shares outstanding
at the beginning
of the period 78,048,062 700.5 78,047,456 702.5
Issued 649,804 36.9 457,606 35.1
Repurchased (519,800) (29.9) (457,000) (34.9)
Excess of
repurchase price
over issue price
(issue price over
repurchase price) - 7.7 - (2.2)
------------ ------------ ------------ ------------
Shares outstanding
at the end of
the period 78,178,066 715.2 78,048,062 700.5
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
6. Stock-based Compensation Plans
All stock-based compensation plans are as disclosed in the most
recently issued annual financial statements for the 52 weeks ended
December 29, 2007 except as follows:
2008 Performance Share Unit Plan
The Company has granted 2008 performance share units (2008 PSUs) to
certain employees. Each 2008 PSU entitles the participant to receive
a cash payment in an amount equal to the weighted average closing
price of Class A Non-Voting Shares traded on the Toronto Stock
Exchange for the 20-day period prior to and including the last day of
the performance period, multiplied by an applicable multiplier
determined by specific performance-based criteria. Compensation
expense related to 2008 PSUs is accrued over the performance period
based on the expected total compensation to be paid out at the end of
the performance period. For the 14 weeks and 53 weeks ended
January 3, 2009, $1.4 million and $2.9 million of compensation
expense was recorded for the 2008 PSUs, respectively.
7. Segmented Information - Statement of Earnings
---------------------------------------------------------------------
14 weeks 13 weeks 53 weeks 52 weeks
ended ended ended ended
January 3, December 29, January 3, December 29,
2009 2007 2009 2007
(Restated - (Restated -
(Dollars in Notes 2 and Notes 2 and
millions) 15) 15)
---------------------------------------------------------------------
Gross operating
revenue
CTR $ 1,636.4 $ 1,583.7 $ 5,669.1 $ 5,473.5
Financial
Services 212.4 190.3 820.4 745.9
Petroleum 414.3 434.1 1,871.2 1,666.5
Mark's 355.7 326.2 872.4 825.3
Eliminations (31.0) (29.2) (111.8) (105.1)
----------------------------------------------------
Total gross
operating
revenue $ 2,587.8 $ 2,505.1 $ 9,121.3 $ 8,606.1
---------------------------------------------------------------------
Earnings before
income taxes
CTR $ 26.6 $ 81.0 $ 249.2 $ 302.4
Financial
Services 45.1 32.6 189.5 190.3
Petroleum 6.1 3.7 26.6 20.5
Mark's 71.7 67.0 75.9 98.0
----------------------------------------------------
Total earnings
before income
taxes 149.5 184.3 541.2 611.2
----------------------------------------------------
Income taxes 48.3 53.0 167.0 199.5
----------------------------------------------------
Net earnings $ 101.2 $ 131.3 $ 374.2 $ 411.7
---------------------------------------------------------------------
Net Interest
expense(1)
CTR $ 55.5 $ 18.6 $ 103.2 $ 59.0
Financial
Services 9.3 5.4 15.1 1.0
Mark's 1.1 0.9 4.3 3.1
----------------------------------------------------
Total interest
expense $ 65.9 $ 24.9 $ 122.6 $ 63.1
---------------------------------------------------------------------
Depreciation and
amortization
expense
CTR $ 46.9 $ 44.2 $ 174.6 $ 159.1
Financial
Services 3.5 3.4 13.5 12.8
Petroleum 4.9 4.4 17.2 16.7
Mark's 6.6 5.1 23.6 18.3
----------------------------------------------------
Total deprec-
iation and
amortization
expense $ 61.9 $ 57.1 $ 228.9 $ 206.9
---------------------------------------------------------------------
(1) Net interest expense includes interest on short-term and long-
term debt, offset by passive interest income. Interest on long-
term debt for the 14 weeks and 53 weeks ended January 3, 2009
was $60.3 million (2007 - $20.5 million) and $117.9 million
(2007 - $67.1 million), respectively.
Segmented Information - Total Assets
---------------------------------------------------------------------
January 3, December 29,
2009 2007
(Restated -
(Dollars in millions) Note 2)
---------------------------------------------------------------------
CTR $ 5,802.5 $ 5,732.4
Financial Services 2,552.8 1,852.0
Petroleum 352.9 573.4
Mark's 510.4 464.1
Eliminations (1,430.5) (1,857.1)
----------------------------------------------------
Total $ 7,788.1 $ 6,764.8
---------------------------------------------------------------------
8. Cash and Cash Equivalents (Bank Indebtedness)
The components of cash and cash equivalents (bank indebtedness) are:
January 3, December 29,
(Dollars in millions) 2009 2007
------------ ------------
Cash $ 59.2 $ 71.8
Line of credit borrowings - (316.8)
Short-term investments 369.8 139.5
------------ ------------
Cash and cash equivalents (bank
indebtedness) $ 429.0 $ (105.5)
------------ ------------
------------ ------------
9. Capital Management Disclosures
The Company's objectives when managing capital are:
- minimizing the after-tax cost of capital; and
- maintaining flexibility in capital structure to ensure the ongoing
ability to execute the Strategic Plan;
Management includes the following items in its definition of capital:
(Dollars in January 3, December 29,
millions) 2009 % of total 2007 % of total
------------------------ --------------------------
Current portion
of long-term
debt $ 14.8 0.3% $ 156.3 3.4%
Long-term debt 1,373.5 25.1% 1,341.8 28.8%
Long-term deposits 598.7 11.0% 3.8 0.1%
Other long-term
liabilities(1) 3.2 0.1% 10.6 0.2%
Share capital 715.4 13.1% 700.7 15.0%
Contributed
surplus - - % 2.3 0.0%
Components of
accumulated other
comprehensive
loss(2) - - % (8.5) (0.2)%
Retained earnings 2,755.5 50.4% 2,455.1 52.7%
------------------------ --------------------------
Net capital under
management $ 5,461.1 100.0% $ 4,662.1 100.0%
------------------------ --------------------------
------------------------ --------------------------
(1) Long-term liabilities that are derivative or hedge instruments
related to capital items only.
(2) Components of other comprehensive loss relating to capital
items only.
The Company has in place various policies which it uses to manage
capital, including a leverage and liquidity policy and a securities
and derivatives policy. As part of the overall management of capital,
management's Financial Risk Management Committee and the Audit
Committee of the Board review the Company's compliance with and
performance against these policies.
In addition, management's Financial Risk Management Committee and the
Audit Committee of the Board perform periodic reviews of the policies
to ensure they remain consistent with the risk tolerance acceptable
to the Company and with current market trends and conditions.
To assess its effectiveness in managing capital, management monitors
certain key ratios to ensure they are within targeted ranges.
January 3, December 29,
2009 2007(1)
------------------------
Debt ratio
Long-term debt to total capitalization(2) 34.2% 31.2%
Coverage ratio
Interest coverage(3) 5.4 times 10.7 times
------------------------
(1) 2007 results have been restated for the implementation, on a
retrospective basis, of CICA HB 3031 - Inventories.
(2) Long-term debt includes the current portion of long-term debt.
Capitalization is based on current and long-term debt, long-
term deposits, future income taxes, other long-term liabilities
and shareholders' equity.
(3) Interest coverage is calculated on a rolling 12-month basis for
short-term and long-term interest on debt, net of short-term
interest income.
As part of existing debt agreements, two key financial covenants are
monitored on an on-going basis by management to ensure compliance
with the agreements. The key covenants are as follows:
- net tangible assets coverage - calculated as:
- total assets less intangible assets, current liabilities
(excluding current portion of long-term debt), and liability
for employee future benefits
- divided by long-term debt (including current portion of long-
term debt)
- limitations on surplus available for distribution to shareholders
- the Company is restricted from distributions (including dividends
and redemptions or purchases of shares) exceeding its accumulated net
income over a defined period.
The Company was in compliance with these covenants during the period.
The Company's wholly-owned subsidiary, Canadian Tire Bank (the
"Bank") manages its capital under guidelines established by the
Office of the Superintendent of Financial Institutions Canada
("OSFI"). The regulatory capital guidelines measure capital in
relation to credit, market and operational risks. The Bank has
various capital policies, procedures and controls which it utilizes
to achieve its goals and objectives.
The Bank's objectives include:
- Providing sufficient capital to maintain the confidence of
depositors.
- Being an appropriately capitalized institution, as measured
internally, defined by regulatory authorities and compared
with the Bank's peers.
- Achieving the lowest overall cost of capital consistent with
preserving the appropriate mix of capital elements to meet
target capitalization levels.
The Bank's total capital consists of two tiers of capital approved
under OSFI's current regulatory capital guidelines. As at December
31, 2008 (the bank's fiscal fourth quarter), Tier 1 capital includes
common shares and retained earnings reduced by net securitization
exposures. The Bank currently does not hold any instruments in Tier 2
capital. Risk-weighted assets ("RWA"), referenced in the regulatory
guidelines, include all on-balance sheet assets weighted for the risk
inherent in each type of asset as well as an operational risk
component based on a percentage of average risk-weighted revenues.
The Bank's ratios are above internal minimum targets of 12% for Tier
1 and Total capital ratios and within internal maximum targets of
11.0 times for the assets to capital multiple. OSFI's minimum Tier 1
and Total capital ratios for Canadian banks are 7% and 10%,
respectively.
During the twelve months ended December 31, 2008, the Bank complied
with the capital guidelines issued by OSFI under the "International
Convergence of Capital Measurement and Capital Standards - A Revised
Framework" ("Basel II"). For the comparative period, the Bank
complied with the capital guidelines issued by OSFI under the then
current Basel I Capital Accord ("Basel I").
10. Financial Instruments Disclosures
Allowance for credit losses
The Company's allowances for receivables are maintained at levels
which are considered adequate to absorb future credit losses. A
continuity of the Company's allowances for credit losses is as
follows:
Credit card loans Other loans(1)
---------------------------------------------------
(Dollars in January 3, December 29, January 3, December 29,
millions) 2009 2007 2009 2007
---------------------------------------------------
Balance, beginning
of year $ 51.5 $ 30.4 $ 2.7 $ 2.9
Provision for
credit losses 78.0 75.8 9.3 5.6
Recoveries 15.0 11.5 0.7 0.2
Write-offs (92.7) (66.2) (9.2) (6.0)
---------------------------------------------------
Balance, end of
period $ 51.8 $ 51.5 $ 3.5 $ 2.7
---------------------------------------------------
Accounts receivable Total(2)
---------------------------------------------------
(Dollars in January 3, December 29, January 3, December 29,
millions) 2009 2007 2009 2007
---------------------------------------------------
Balance, beginning
of year $ 5.0 $ 4.6 $ 59.2 $ 37.9
Provision for
credit losses 1.0 0.4 88.3 81.8
Recoveries 0.3 0.1 16.0 11.8
Write-offs (3.0) (0.1) (104.9) (72.3)
---------------------------------------------------
Balance, end of
period $ 3.3 $ 5.0 $ 58.6 $ 59.2
---------------------------------------------------
(1) Other Loans include personal loans, mortgages loans and lines
of credit loans.
(2) Relates to Company owned receivables.
Foreign currency risk
The Company has significant demand for foreign currencies, primarily
United States dollars, due to global sourcing. However, it mitigates
its exposure to foreign exchange rate risk through active hedging
programs and through its ability, subject to competitive conditions,
to pass on changes in foreign currency exchange rates through
pricing.
Liquidity risk
The following table summarizes the Company's contractual maturity for
its financial liabilities. The table includes both interest and
principal cash flows.
(Dollars in
millions) 1 year 2 years 3 years 4 years 5 years
--------------------------------------------------
Deposits $ 545.7 $ 162.4 $ 95.6 $ 39.3 $ 301.5
Accounts payable
and other 1,425.4 - - - -
Long-term debt 14.7 458.9 21.1 8.4 6.5
Interest payment(1) 100.1 89.5 62.7 56.1 118.8
Other - 9.7 - - 8.1
--------------------------------------------------
Total $ 2,085.9 $ 720.5 $ 179.4 $ 103.8 $ 434.9
--------------------------------------------------
--------------------------------------------------
(Dollars in
millions) Thereafter Total
---------------------
Deposits $ - $ 1,144.5
Accounts payable
and other - 1,425.4
Long-term debt 862.9 1,372.5
Interest payment(1) 665.3 1,092.5
Other - 17.8
--------------------
Total $ 1,528.2 $ 5,052.7
--------------------
--------------------
(1) Includes interest payments on deposits and long-term debt.
Interest rate risk
The Company is exposed to interest rate risk, which it manages
through the use of interest rate swaps. The Company has a policy in
place that requires a minimum of 75% of its long term debt (term
greater than one year) to be at fixed versus floating interest rates.
The Company is in compliance with the policy.
11. Other Long-Term Investments
Included in other long-term investments is the Company's remaining
investment of $5.6 million (2007 - $7.6 million) in Canadian third-
party asset-backed commercial paper ("ABCP") issued by a number of
trusts with an original cost of $8.9 million.
The market for Canadian third-party ABCP, which was greatly impacted
by the global disruption in the market experienced in August 2007,
has been addressed in a formal restructuring proposal. Based on
information provided to investors who hold ABCP through the formal
restructuring proposal and market changes during the year, the
Company recorded an additional $2.0 million before-tax provision for
impairment of the ABCP during 2008. The total charge for impairment
is $3.3 million or 37 percent of the original value of the ABCP. The
valuation model used by the Company to estimate the fair value of the
ABCP incorporates discounted cash flows considering the best
available information regarding market conditions and other factors
that a market participant would consider for such investments. The
valuation assumed a redemption term of approximately nine years
corresponding to the expected maturities of the ABCP held by the
Company. As indicated above, the Company's valuation assumed 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. The Company
used a weighted average discount rate of 7.35%.
Subsequent to the year-end, on January 21, 2009, the Company received
restructured ABCP as designed in the Montreal Accord. The $8.9
million MAV II notes are floating rate notes with expected payouts in
eight years in January 2017. Accrued interest owed from August 2007
to present is expected in two payments, the first was received on
January 21, 2009 at 3.21 per cent of face value ($0.3 million), and
the rest will be received at a future date.
There still remains some uncertainty regarding the value of the
underlying assets, the amount and timing of cash flows and whether a
secondary market can be established for the new notes and this could
give rise to a further change in the value of the Company's
investment in ABCP. While these changes could positively or
negatively affect the Company's future earnings, it would not be
considered material to the Company's overall financial position,
given the relatively small amount of ABCP held at January 3, 2009.
The write-down of the Company's investment in ABCP had no effect to
date on the Company's debt covenants, debt ratings or compliance with
banking regulations governing the Financial Services segment or
Canadian Tire Bank. The Company does not expect a material adverse
impact on its business as a result of the current third-party ABCP
liquidity issue.
12. Supplementary Cash Flow Information
The Company paid income taxes during the 14 weeks ended January 3,
2009 of $49.5 million (2007 - $44.4 million) and made interest
payments of $35.5 million (2007 - $31.4 million). For the 53 weeks
ended January 3, 2009, the Company paid income taxes of $220.1
million (2007 - $348.4 million) and made interest payments of $108.7
million (2007 - $88.5 million).
During the 14 weeks ended January 3, 2009, property and equipment
were acquired at an aggregate cost of $134.9 million (2007 - $194.8
million). During the 53 weeks ended January 3, 2009, property and
equipment were acquired at an aggregate cost of $471.9 million (2007
- $592.7 million). The amount of property and equipment acquired that
is included in accounts payable and other at January 3, 2009 was
$102.1 million (2007 - $65.1 million).
13. Legal Matters
The Company and certain of its subsidiaries are party to a number of
legal proceedings. The Company believes that each such proceeding
constitutes a routine legal matter incidental to the business
conducted by the Company and that the ultimate disposition of the
proceedings will not have a material effect on the Company's
consolidated earnings, cash flow or financial position.
14. 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 main issues challenged by the Canada Revenue Agency (CRA) relate
to the tax treatment of commissions paid to foreign subsidiaries of
the Company (covering periods from 1995 to 2007), 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 on these matters for the
corresponding periods.
The Company has agreed with the CRA to settle the commissions issue
for the period 1995-2003, although the determination of the final tax
liability pursuant to the settlement is subject to the verification
by the CRA of certain information provided by the Company. The
Company believes the provincial tax authorities will also reassess on
the same basis. The Company does not have a significant exposure on
this issue subsequent to the 2003 taxation year.
The reassessments with respect to the dividends received issue are
based on multiple grounds, some of which are highly unusual. The
Company has appealed the reassessments and the matter is currently
pending before the Tax Court of Canada. 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 unlikely - it is estimated that the total liability of
the Company for additional taxes, interest and penalties could be
approximately $189.0 million. Although the Company has appealed these
reassessments, current tax legislation requires the Company to remit
to the CRA and its provincial counterparts approximately $117.0
million related to this matter, of which $112.7 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 the settlements, finalization of the commissions
issue, resolution of the dividends received issue and other tax
matters, 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
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.
15. Comparative Figures
Passive interest income has been reclassified from gross operating
revenue to net short-term interest expense on the consolidated
statement of earnings.
The Company's wholly-owned subsidiary, Canadian Tire Bank, began
taking deposits from customers commencing in 2007. Previously, these
amounts were classified in accounts payable and other in the
consolidated balance sheets and in changes in other working capital
components in the consolidated statements of cash flows. Commencing
in the second quarter of 2008, these deposits are shown as current
and long-term deposits in the consolidated balance sheets and a
separate line in financing activities in the consolidated statements
of cash flows. The prior period's figures have been reclassified to
conform to the current year's presentation.
Interest Coverage Exhibit to the Consolidated Financial Statements
(unaudited)
The Company's long-term interest requirements for the 53 weeks ended
January 3, 2009, after annualizing interest on long-term debt issued
and retired during this period, amounted to $129.2 million. The
Company's earnings before interest on long-term debt and income taxes
for the 53 weeks then ended were $659.0 million, which is 5.1 times
the Company's long-term interest requirements for this period.%SEDAR: 00000534EF
For further information:
For further information: Media: Lisa Gibson, (416) 544-7655, lgibson@cantire.com; Investors: Karen Meagher, (416) 480-8058, karen.meagher@cantire.com