Canadian Tire Corporation Reports Strong Fourth Quarter and Full Year Earnings Growth

TORONTO, Feb. 10 /CNW/ - Canadian Tire Corporation, Limited (TSX: CTC, CTC.a) reported solid fourth quarter and full year earnings today. Basic EPS was $2.22 for the quarter, up 88.8% over 2009, and for the full year basic EPS was $5.56, up 35.6%.

Operating EPS for the quarter was $1.51, up 17.8%, and $5.05 for the full year, up 18.5% versus 2009. The increase in earnings in the quarter was largely due to improved margins and lower interest costs. In the quarter, after tax earnings were negatively impacted by the change in the tax treatment for stock options which amounted to approximately ten cents per share.

"I am very encouraged by our results," said Stephen Wetmore, President and CEO, Canadian Tire Corporation. "Our earnings growth was positive, particularly in a tempered consumer market, and I am pleased with our progress in managing our business. We've advanced our strategic plan in 2010 and I believe we're well-positioned as we enter 2011."

Cash flow generation continues to be a long-term priority for the Company. For the year, cash generated from operating activities increased by approximately $572 million, mainly due to improvements in working capital as well as improved operating performance. Capital expenditures for the year totalled $318 million.

Consolidated retail sales for Canadian Tire Corporation rose 2.4% in the quarter to $3.1 billion. For the year, consolidated retail sales rose 3.1% to $10.3 billion.

         
Consolidated Highlights1: 2010
4thquarter
Year-over-
year change
2010 full year Year-over-
year change
         
Retail sales $3.1 billion 2.4% $10.3 billion 3.1%
Gross operating revenue $2.5 billion 4.0% $9.0 billion   3.4%
EBITDA2 $283.9 million 14.1% $947.6 million 8.4%
Adjusted earnings before income taxes
(excludes non-operating gains and
losses)3
$184.7 million 20.3%   $597.1 million 19.8%
Net earnings $181.1 million  88.2% $453.6 million 35.4%
Adjusted net earnings (excludes non-
operating gains and losses)3
$122.6 million 17.4% $411.6 million 18.3%
Basic earnings per share $2.22 88.8% $5.56 35.6%
Adjusted basic earnings per share
(excludes non-operating gains and
losses)3
$1.51 17.8% $5.05 18.5%
      (1) All dollar figures in this table are rounded.
      (2) Earnings before interest, taxes, depreciation and amortization.  Non-GAAP measure.  Please refer to Section 18.0 of the 2009 Management's Discussion and Analysis.
      (3) Non-GAAP measure.  Please refer to Section 18.0 of the 2009 Management's Discussion and Analysis.

During the quarter, the Company settled an outstanding tax matter which favourably impacted income tax expense and interest income for the quarter and full year. Net earnings for the fourth quarter were impacted by the non-operating items indicated below:

($ in millions)           Q4 2010       Change       2010       Change
Net earnings           $181.1       88.2%       $453.6       35.4%
Less after-tax adjustment for:                                    
  Net effect of securitization activities           4.5               (0.9)        
  Restructuring charge           -               (10.2)        
  Income tax provision adjustment           42.0               42.0        
  Interest income on tax deposit           12.6               12.6        
  Loss on disposals of property and equipment           (0.5)               (1.5)        
  Other           (0.1)               -        
Adjusted net earnings           $122.6       17.4%       $411.6       18.3%


Highlights of top-line performance by business: 

            As Reported
(year-over-year percentage change)                  Q4 2010                    2010
CTR retail sales1           0.5%       1.4%
CTR gross operating revenue           1.9%       1.2%
CTR net shipments           1.4%       1.0%
Mark's retail sales           1.9%       3.7%
Petroleum retail sales           12.4%       10.2%
Petroleum gasoline volume           5.3%       1.6%
Financial Services' credit card sales           0.6%       2.8%
Financial Services' gross average credit card receivables growth           1.4%       4.0%
(1) Includes sales from Canadian Tire stores, PartSource stores and the labour portion of CTR's auto service sales.

Retail

Total sales for Canadian Tire Retail increased 0.5% in the fourth quarter and 1.4% for the full year. Same store sales rose 0.8% for the full year, which reflects a 0.4% decline in the last quarter. Adjusted earnings before taxes at Canadian Tire Retail increased 82.3%, or $36 million, this quarter compared to the fourth quarter of 2009 and 19.4% year-over-year. The increase in earnings is primarily due to lower interest costs and several positive margin impacts from a number of items, including lower product acquisition costs.

Living, Fixing and Playing category performance in the quarter was driven by positive growth in key areas such as tools, outdoor recreation and kitchen. Over the course of 2010, Canadian Tire also saw growth in categories, such as household consumables and pet foods, which are key to driving traffic to stores and increasing trip frequency.

Automotive ended the year on a high note, despite persistently difficult industry conditions in 2010. Auto accessories showed sales growth in the quarter and tire sales were up due to an increase in light truck, winter and performance tires. Over the course of 2010, Canadian Tire made excellent progress in executing its automotive strategy and will continue to execute on priority projects that will improve the in-store and online customer experience.

At Mark's, total retail sales rose 1.9% in the fourth quarter and 3.7% for the year. Fourth-quarter same-store sales edged up 0.7% and were up 1.9% for the full year. However, operating earnings were down 10.8% year-over-year and down 6.7% in the quarter because of higher operating expenses, which included costs associated with three planned store closures. For the quarter, industrial wear was up 3.9% over the prior year while men's wear sales were down by 0.5% and women's wear was flat. Margin performance was strong at Mark's, which held firm on prices despite competitive pressures to lower them.

Customers continue to respond positively to new store formats and retrofits at Canadian Tire Retail and at Mark's. At Canadian Tire Retail, the Smart store format has facilitated the introduction of the "Sports Store" and the "Hardware Store," which feature a broader assortment of in-house and national products within the Smart store layout. In 2010, Canadian Tire Retail completed 72 projects, including 59 Smart store retrofits, 3 new Smart stores, and 3 new Small Market stores. For 2011, Canadian Tire Retail intends to build, refresh or retrofit 73 stores. Mark's will continue to test the re-branding of its stores from "Mark's Work Wearhouse" to "Mark's" and institute in-store changes that enhance the customer experience and encourage interaction and testing of product innovations.

Financial Services

Financial Services had a very successful year, returning to historical levels of performance. For 2010, the rolling 12 month return on receivables was 4.96%, which is within the aspirational range of 4.5-5.0%.

The improvement in the aging of the portfolio and Financial Services' well managed operations were key factors to its performance. In the fourth quarter, as expected and outlined earlier in the year, Financial Services' results were negatively impacted by sales tax changes, migration to chip card technology and new credit card regulations. Financial Services also increased marketing activities to acquire a higher volume of new credit card customers in order to drive growth in 2011 and beyond.

The result was a decline in operating earnings for the quarter of 4.9% from last year to $42.2 million. For the year, however, operating earnings rose 38.1% to $200.6 million. Credit card gross average receivables rose 4.0% for the year and Financial Services' net write-off rate for the total managed credit card portfolio on a rolling 12 month basis was 7.49% at the end of the fourth quarter, down from 7.83% a year ago.

Funding and Liquidity

Canadian Tire enters 2011 in a strong financial position with ready access to capital through diversified channels, including $1.17 billion in committed lines of credit and $1.9 billion in deposits. Canadian Tire has no corporate debt maturing in either 2011 or 2012.

2011 Review

In 2010, Canadian Tire outlined its strategy for growth, which included a strengthened automotive business, a focus on growth and traffic driving categories, and returning Financial Services to historic levels of performance. Canadian Tire is starting 2011 on a solid footing with its highly successful new store concept, improved customer service, strength in core categories and financial stability.

Core categories and products: With consumer confidence slowly returning to pre-recession levels and an increasingly competitive environment, Canadian Tire is well-positioned among retailers to offer the most convenient locations and a wide assortment of innovative and quality everyday products at great prices.

Canadian Tire is the store for life in Canada and will continue to invest in - and grow - its core businesses:  automotive (including parts, accessories, tires and service), sports (including hockey, camping and outdoor recreation), hardware (including tools, paint and home repair) and its key seasonal businesses. In addition, the Company continues to build tremendous authority in categories that are essential to running a household in Canada - kitchen products, cleaning essentials and storage and organization solutions. The Company will continue to add to its assortments in these competitive categories.

Customer-friendly stores: Consumers will benefit from store retrofits at Canadian Tire Retail and at Mark's, which provide a better in-store shopping experience. The Smart store's racetrack floor plan includes more space for high growth and 'cornerstone' categories and helps customers find products more easily through better signage and more logical product adjacencies. In addition, Mark's will continue to implement its new store format throughout 2011.

Online and technology: The Company's website currently has 70 million visitors per year and we plan to expand the in-store tire selection kiosks launched in 2010 to include online tire purchasing and special ordering in 2011. Recent and ongoing investments in technology will also enhance the automotive service experience with faster ordering of parts, coordinated scheduling of maintenance and visual depictions and explanations of required repairs.

Canadian Tire catalogue: As Canadian Tire makes itself more accessible to shoppers through its in-store and online environment, the automotive division will take a page from its 89 year history and launch a national Canadian Tire automotive catalogue that combines a traditional catalogue format with informative editorial content for automotive enthusiasts. 

New consumer campaign: Canadian Tire will launch a new consumer campaign across all mediums this Spring that reinforces a unique competitive differentiator for the Company: as a home-grown Canadian retailer with 89 years of history in Canada, Canadian Tire is the only company with the credibility to best prepare Canadians for everyday life in Canada. The campaign will include tv advertising, radio, online, public relations, retail events, social media and the Company's flyer - which remains the most-read Canadian flyer in 11 million households every week.

Loyalty program: The Company continues to evolve its loyalty program and customer-centric retailing initiatives with a pilot of its new loyalty program planned to launch in a test market later in 2011.

Commitment to community: Canadian Tire continues its ongoing commitment to communities across the country through Canadian Tire Jumpstart. Canadian Tire Jumpstart removes financial barriers, allowing children to participate in organized sport and recreation. Through its 700 non-profit and charity partners from coast-to-coast, Canadian Tire Jumpstart helped more than 98,000 children during 2010 and has helped more than 300,000 children since 2005.

Expense control: As the marketplace continues to promote sales and discounts across dozens of categories, Canadian Tire will continue to balance competitive pricing with maintaining strong margin performance.  Canadian Tire will drive stronger margins - in part - through its merchandise procurement review that will reduce the costs of procuring more than $5 billion a year of merchandise. In addition, Canadian Tire is also reviewing non-merchandise procurement with the objective of reducing annual operating costs.

Capital Expenditures: The Company expects 2011 capital expenditures, which will finance its strategic plan and capital projects related to store Concept Renewal programs at Canadian Tire Retail and Mark's, to be in line with 2010 levels.

Quarterly Dividend

Canadian Tire Corporation has declared a quarterly dividend of $0.275 per share on each Common and Class A Non-Voting share. The dividend is payable June 1, 2011 to Common and Class A shareholders of record as of April 29, 2011. The dividend is considered an "eligible dividend" for tax purposes.

FINANCIAL CHARTS

Canadian Tire Retail

($ in millions)     Q4 2010     Q4 2009     Change     2010     2009     Change
Retail sales1     $2,177.7     $2,167.8     0.5%     $7,510.0     $7,407.2     1.4%
Same store sales2 (year-over-year % change)     (0.4)%     (4.1)%           0.8%     (2.6)%      
Gross operating revenue     1,522.6     1,494.4     1.9%     5,620.9     5,552.2     1.2%
Net shipments (year-over-year % change)     1.4%     (8.6)%           1.0%     (2.4)%      
Earnings before income taxes     97.9     38.0     157.8%     321.6     261.6     23.0%
Less adjustment for:                                    
  Redemption of debentures     -     (7.7)           -     (6.1)      
  Interest revenue on tax deposit     18.0     -           18.0     -      
  Restructuring charge     -     -           (14.7)     -      
  Gain on disposals of property and equipment3     0.8     2.2           1.3     1.8      
  Other     (0.2)     -                 0.5      
Adjusted earnings before income taxes4     $79.3     $ 43.5     82.3%     $317.0     $265.4     19.4%
1.     Includes sales from Canadian Tire stores, PartSource stores 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 weeks.
3.     Includes fair market value adjustments and impairments on property and equipment.
4.     Non-GAAP measure. Please refer to section 18.0 in the 2009 Management's Discussion and Analysis.

Petroleum

($ in millions)     Q4 2010     Q4 2009     Change     2010     2009     Change
Sales volume (millions of litres)     454.4     431.3     5.3%     1,736.7     1,708.8     1.6%
Retail sales     $487.4     $433.5     12.4%     $1,822.8     $1,653.7     10.2%
Gross operating revenue     449.8     398.8     12.8%     1,664.8     1,515.1     9.9%
Earnings before income taxes     3.6     1.9     92.1%     22.2     24.2     (8.2)%
Less adjustment for:                                    
  Loss on disposals of property and equipment1     (0.4)     (0.3)           (1.3)     (0.7)      
Adjusted earnings before income taxes2     $4.0     $2.2     85.0%     $23.5     $24.9     (5.5)%
1.     Includes asset impairment losses.
2.     Non-GAAP measure.  Please refer to section 18.0 in the 2009 Management's Discussion and Analysis.


Mark's

($ in millions)     Q4 2010     Q4 2009     Change     2010     2009     Change
Retail sales1     $  399.1     $ 391.7     1.9%     $995.3     $960.0     3.7%
Same store sales2     0.7%     (0.2)%           1.9%     (4.7)%      
Gross operating revenue3     349.5     340.3     2.7%     872.2     833.8     4.6%
Earnings before income taxes     58.1     63.1     (8.0)%     54.1     61.5     (12.1)%
Less adjustment for:                                    
  Loss on disposals of property and equipment     (1.1)     (0.4)           (1.9)     (1.2)      
Adjusted earnings before income taxes4     $ 59.2     $ 63.5     (6.7)%     $56.0     $    62.7     (10.8)%
1.     Includes retail sales from corporate and franchise stores, and in 2010, total system ancillary revenue. 
2.     Mark's same store sales exclude new stores, stores not open for the full period in each year, store closures  and ancillary revenue.
3.     Gross operating revenue includes retail sales at corporate stores and in 2010, total system ancillary revenue.
4.     Non-GAAP measure.  Please refer to section 18.0 in the 2009 Management's Discussion and Analysis.



Financial Services

($ in millions)     Q4 2010     Q4 2009     Change          2010          2009     Change
Total gross average receivables                       $  4,041.2     $  4,071.5     (0.7)%
Gross operating revenue     $ 248.4     $  237.7     4.5%     $  946.0     $   909.9     4.0%
Earnings before income taxes             48.7             38.4     26.5%           199.1     131.9     51.0%
Less adjustment for:                                    
  Gain (loss) on disposals of property and equipment             (0.1)             0.4                   (0.3)             (0.3)      
  Net effect of securitization activities1             6.6             (1.0)                   (1.2)             (7.8)      
  Costs associated with the sale of mortgage portfolio            -     (5.3)                -     (5.3)      
Adjusted earnings before income taxes2     $   42.2     $   44.3     (4.9)%     $  200.6     $  145.3     38.1%
1.     Includes initial gain/loss on the sale of loans receivable, amortization of servicing liability and gain/loss on reinvestment.
2.     Non-GAAP measure. Please refer to section 18.0 in the 2009 Management's Discussion and Analysis.

NORMAL COURSE ISSUER BID

Canadian Tire also announced that it intends to make a normal course issuer bid (NCIB) to purchase from February 19, 2011 to February 18, 2012, through the facilities of the Toronto Stock Exchange (TSX), certain of its outstanding Class A Non-Voting Shares. As at February 9, 2011, there were 78,020,007 Class A Non-Voting shares issued and outstanding. The number of Class A Non-Voting Shares which may be purchased during the period of the bid will not exceed 3.5 million Class A Non-Voting Shares, which is approximately 5.4 percent of 65.2 million shares, the approximate public float of Class A Non-Voting Shares issued and outstanding as of February 9, 2011.

Canadian Tire has a policy of purchasing Class A Non-Voting Shares to offset the dilutive effects of the issuance of Class A Non-Voting Shares pursuant to the Company's employee profit sharing plan, profit sharing plan for employees of Canadian Tire Dealers, stock option plan and dividend reinvestment plan. Canadian Tire intends to continue that policy. In addition, Canadian Tire may purchase additional Class A Non-Voting Shares if the Board of Directors of Canadian Tire determines, after consideration of market conditions and Canadian Tire's financial flexibility and investment opportunities, that a purchase of additional Class A Non-Voting Shares is an appropriate means of enhancing value of the remaining Class A Non-Voting Shares.

The number of Class A Non-Voting Shares purchased by Canadian Tire during 2010 pursuant to its NCIB was 458,449. The weighted average price at which such purchases were made was $55.34 per Class A Non-Voting Share, including commissions.

Any purchases made pursuant to the NCIB will be made in accordance with the rules of the TSX and will be made at the market price of the Class A Non-Voting Shares at the time of the acquisition. No purchases (other than by way of exempt offers, exemption orders or otherwise in accordance with applicable regulations of the TSX) will be made except through open market transactions during the period the NCIB is outstanding. Subject to any block purchases made in accordance with the rules of the TSX, Canadian Tire will be subject to a daily repurchase restriction of 46,866 Class A Non-Voting Shares, which represent 25 percent of the average daily trading volume of Canadian Tire's Class A Non-Voting Shares on the TSX for the six months ended January 31, 2011. The Class A Non-Voting Shares acquired pursuant to the NCIB will be restored to the status of authorized and unissued shares.

Canadian Tire's NCIB is subject to regulatory approval.

FORWARD-LOOKING STATEMENTS

This document contains forward-looking information that reflects management's current expectations related to matters such as future financial performance and operating results of the Company. Forward-looking statements are provided for the purposes of providing information about management's current expectations and plans and allowing investors and others to get a better understanding of our financial position, results of operation and operating environment. Readers are cautioned that such information may not be appropriate for other circumstances.

All statements other than statements of historical facts included in this document may constitute forward-looking information, including but not limited to, statements concerning management's expectations relating to possible or assumed future prospects and results, our strategic goals and priorities, our actions and the results of those actions and the economic and business outlook for us. Often but not always, forward-looking information can be identified by the use of forward-looking terminology such as "may", "will", "expect", "believe", "estimate", "plan", "could", "should", "would", "outlook", "forecast", "anticipate", "foresee", "continue" or the negative of these terms or variations of them or similar terminology. Forward-looking information is based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable at the date that such statements are made.

By its very nature, forward-looking information requires us to make assumptions and is subject to inherent risks and uncertainties, which give rise to the possibility that the Company's assumptions may not be correct and that the Company's expectations and plans will not be achieved. Although the Company believes that the forward-looking information in this document is based on information and assumptions which are current, reasonable and complete, this information is necessarily subject to a number of factors that could cause actual results to differ materially from management's expectations and plans as set forth in such forward-looking information for a variety of reasons. Some of the factors - many of which are beyond our control and the effects of which can be difficult to predict - include (a) credit, market, currency, operational, liquidity and funding risks, including changes in economic conditions, interest rates or tax rates; (b) the ability of Canadian Tire to attract and retain quality employees, Dealers, Canadian Tire Petroleum agents and PartSource and Mark's Work Wearhouse store operators and franchisees, as well as our financial arrangements with such parties; (c) the growth of certain business categories and market segments and the willingness of customers to shop at our stores or acquire our financial products and services; (d) our margins and sales and those of our competitors; (e) risks and uncertainties relating to information management, technology, supply chain, product safety, changes in law, competition, seasonality, commodity price and business disruption, our relationships with suppliers and manufacturers, changes to existing accounting pronouncements, the risk of damage to the reputation of brands promoted by Canadian Tire and the cost of store network expansion and retrofits and (f) our capital structure, funding strategy, cost management programs and share price. WEe caution that the foregoing list of important factors and assumptions is not exhaustive and other factors could also adversely affect our results. Investors and other readers are urged to consider the foregoing risks, uncertainties, factors and assumptions carefully in evaluating the forward-looking information and are cautioned not to place undue reliance on such forward-looking information. 

For more information on the risks, uncertainties and assumptions that could cause the Company's actual results to differ from current expectations, please refer to the "Risk Factors" section of our Annual Information Form for fiscal 2009 and our 2009 Management's Discussion and Analysis, as well as Canadian Tire's other public filings, available at www.sedar.com and at www.corp.canadiantire.ca.

Statements that include forward-looking information do not take into account the effect that transactions or non-recurring or other special items announced or occurring after the statements are made have on the Company's business. For example, they do not include the effect of any dispositions, acquisitions, asset write-downs or other charges announced or occurring after such statements are made. 

The forward-looking statements and information contained herein are based on certain factors and assumptions as of the date hereof. The Company does not undertake to update any forward-looking information, whether written or oral, that may be made from time to time by it or on its behalf, to reflect new information, future events or otherwise, unless required by 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. EST on February 10, 2011. 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.

ABOUT CANADIAN TIRE

Canadian Tire Corporation, Limited (TSX: CTC, CTC.a) is one of Canada's most shopped general retailers with 485 Canadian Tire stores across the country. Our core retail and automotive operation is strengthened by PartSource, an automotive parts speciality chain; Canadian Tire Petroleum, one of the country's largest independent retailers of gasoline; Mark's, under the banner "Clothes That Work," a leading retailer of men's, women's and work apparel; and Canadian Tire Financial Services, which has issued approximately four million Canadian Tire MasterCard credit cards. More than 58,000 Canadians work across Canadian Tire's organization from coast-to-coast in the enterprise's retail, financial services and petroleum businesses. Canadian Tire Jumpstart is the Company's flagship community program that helps children in financial need participate in organized sport and recreation.




2010 FOURTH QUARTER

INTERIM REPORT FINANCIALS




Consolidated Statements of Earnings (Unaudited)                                        
          13 weeks ended,           52 weeks ended,  
(Dollars in millions except per share amounts)         January 1, 2011         January 2, 2010         January 1, 2011         January 2, 2010
                                         
Gross operating revenue     $   2,535.6     $   2,437.7     $   8,980.8     $   8,686.5
                                         
Operating expenses                                        
  Cost of merchandise sold and all other operating 
expenses except for the undernoted items (Note 8)
        2,243.7         2,184.6         8,000.2         7,788.1
  Net interest expense (Note 6 and 11)         11.3         42.7         103.3         147.0
  Depreciation and amortization         64.3         64.6         247.3         247.5
  Employee Profit Sharing Plan         8.0         4.4         33.0         24.7
Total operating expenses         2,327.3         2,296.3         8,383.8         8,207.3
                                         
Earnings before income taxes         208.3         141.4         597.0         479.2
                                         
Income taxes                                         
  Current         18.8         49.8         132.8         135.2
  Future         8.4         (4.6)         10.6         9.0
Income taxes (Note 11)         27.2         45.2         143.4         144.2
                                         
Net earnings     $   181.1     $   96.2     $   453.6     $   335.0
                                         
Basic and diluted earnings per share     $   2.22     $   1.18     $   5.56     $   4.10
                                         
Weighted average number of Common and
Class A Non-Voting Shares outstanding
        81,434,334         81,692,260         81,565,476         81,678,775
                                         

                                           
Consolidated Statements of Cash Flows (Unaudited)                                        
      13 weeks ended,     52 weeks ended,  
(Dollars in millions)         January 1, 2011         January 2, 2010         January 1, 2011         January 2, 2010
Cash generated from (used for):                                        
                                         
Operating activities                                        
  Net earnings     $   181.1     $   96.2     $   453.6     $   335.0
  Items not affecting cash                                          
    Depreciation         51.2         50.7         196.8         193.7
    Net provision for loans receivable (Note 2)         43.7         52.3         177.5         181.2
    Amortization of intangible assets         13.1         13.9         50.5         53.8
    Future income taxes         8.4         (4.6)         10.6         9.0
    Employee future benefits expense         1.5         1.5         6.3         6.0
    Other         3.9         7.7         2.6         4.0
    Impairments on property and equipment         0.4         0.4         2.1         1.9
    Loss (Gain) on disposal of property and equipment         1.9         (2.2)         1.8         (1.6)
    (Recovery) impairment loss of other long-term investments         -         0.6         (0.6)         1.1
    Changes in fair value of derivative instruments         (14.2)         11.7         (16.0)         (11.4)
    Loss on disposal of mortgage portfolio         -         0.6         -         0.6
    Securitization loans receivable         (7.0)         (8.1)         (30.9)         (39.4)
    Gain on sales of loans receivable (Note 2)         (12.0)         (7.4)         (33.8)         (39.2)
          272.0         213.3         820.5         694.7
Changes in other working capital components         89.2         145.0         170.7         (275.9)
Cash generated from operating activities          361.2         358.3         991.2         418.8
                                         
Investing activities                                        
    Additions to property and equipment (Note 9)         (85.4)         (52.0)         (237.5)         (220.0)
    Investment in loans receivable, net         (128.9)         (125.7)         (156.6)         (208.5)
    Net securitization of loans receivable          84.3         (111.6)         (155.1)         (532.3)
    Short-term investments         48.8         130.0         (99.6)         (38.0)
    Additions to intangible assets (Note 9)         (27.7)         (19.0)         (70.3)         (67.8)
    Other long-term investments         (57.3)           -           (58.7)         (50.7)
    Other         (4.7)         (1.9)         (8.3)         (7.7)
    Purchases of stores         -         (2.3)         (0.2)         (6.1)
    Long-term receivables and other assets         10.7         (1.5)         6.7         (3.1)
    Proceeds on disposition of property and equipment         4.4         15.5         9.5         27.8
    Proceeds on disposal of mortgage portfolio         -         162.2         -         162.2
Cash used for investing activities         (155.8)         (6.3)         (770.1)         (944.2)
                                         
Financing activities                                        
    Class A Non-Voting Share transactions         0.9         (7.8)         (8.7)         (0.9)
    Dividends         (17.1)         (17.1)         (68.5)         (68.7)
    Net change in deposits         (109.5)         (265.0)         (183.5)         917.3
    Repayment of long-term debt         (2.0)         (151.9)         (310.1)         (165.4)
    Issuance of long-term debt         -            -         -           200.1
Cash (used for) generated from financing activities         (127.7)         (441.8)         (570.8)         882.4
                                         
Cash generated (used) in the period         77.7         (89.8)         (349.7)         357.0
Cash and cash equivalents, net of bank indebtedness, beginning of period         358.6         875.8         786.0         429.0
Cash and cash equivalents, net of bank indebtedness, end of period     $   436.3     $   786.0     $   436.3     $   786.0
                                         

Consolidated Statements of Comprehensive Income (Unaudited)                                        
                                         
        13 weeks ended,       52 weeks ended,
(Dollars in millions)         January 1, 2011         January 2, 2010         January 1, 2011         January 2, 2010
                                         
Net earnings     $   181.1     $   96.2     $   453.6     $   335.0
Other comprehensive income (loss), net of taxes                                        
  Loss on derivatives designated as cash flow hedges, net of tax of $11.8 and $22.7 (2009 -
$10.2 and $33.7), respectively
        (30.1)         (23.6)         (54.9)         (80.7)
  Reclassification to non-financial asset of loss (gain) on derivatives designated as cash
flow hedges, net of tax of $3.0 and $25.3 (2009 - $7.9 and $31.1), respectively
        7.6         16.5         58.4         (58.5)
  Reclassification to earnings of loss (gain) on derivatives designated as cash flow hedges,
net of tax of $0.2 and $1.9 (2009 - $0.1 and $0.9), respectively
        0.7         0.1         4.2         (1.9)
Other comprehensive income (loss)         (21.8)         (7.0)         7.7         (141.1)
Comprehensive income     $   159.3     $   89.2     $   461.3     $   193.9

                 
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)                
              52 weeks ended,  
(Dollars in millions)           January 1, 2011   January 2, 2010
                 
Share capital                
Balance, beginning of period         $ 720.4 $                            715.4
Transactions, net (Note 4)                                                (8.8)                                   5.0
Balance, end of period         $                                   711.6 $                            720.4
                 
Contributed surplus                
Balance, beginning of period         $                                        0.2 $                                   -  
Transactions, net                                                  0.1                                   0.2
Balance, end of period         $                                        0.3 $                                 0.2
                 
Retained earnings                
Balance, beginning of period         $                                3,013.7 $                         2,752.4
Transitional adjustment on adoption of new accounting policies - EIC 173                                                    -                                     1.1
Net earnings for the period                                             453.6                              335.0
Dividends                                              (73.8)                               (68.7)
Repurchase of Class A Non-Voting Shares                                                    -                                   (6.1)
Balance, end of period         $                                3,393.5 $                         3,013.7
                 
Accumulated other comprehensive income (loss)                 
Balance, beginning of period         $                                    (46.4) $                              97.2
Transitional adjustment on adoption of new accounting policies - EIC 173                                                    -                                   (2.5)
Other comprehensive income (loss) for the period                                                  7.7                            (141.1)
Balance, end of period         $                                    (38.7) $                             (46.4)
Retained earnings and accumulated other comprehensive income (loss)          $                                3,354.8 $                         2,967.3
                 

Consolidated Balance Sheets (Unaudited)        
(Dollars in millions)        
As at    January 1, 2011   January 2, 2010
ASSETS       (Restated - Note 12)
Current assets        
  Cash and cash equivalents $                                   554.3 $                           869.7
  Short-term investments                                     195.9                               64.0
  Accounts receivable                                     662.3                             835.9
  Loans receivable (Note 2)                                 2,481.2                          2,274.8
  Merchandise inventories                                     901.5                             933.6
  Income taxes recoverable                                       99.4                               94.7
  Prepaid expenses and deposits                                       37.6                               40.7
  Future income taxes                                       72.4                               82.8
  Total current assets                                 5,004.6                          5,196.2
Long-term receivables and other assets                                     100.9                             109.9
Other long-term investments, net                                       75.8                               48.8
Goodwill                                       71.9                               71.8
Intangible assets                                      291.1                             265.4
Property and equipment, net                                 3,219.8                          3,180.4
  Total assets $                               8,764.1 $                        8,872.5
         
LIABILITIES        
Current liabilities        
  Bank indebtedness $                                   118.0 $                             83.7
  Deposits                                     615.6                             863.4
  Accounts payable and other                                 1,355.9                          1,391.4
  Current portion of long-term debt (Note 3)                                       22.6                             309.3
  Total current liabilities                                 2,112.1                          2,647.8
Long-term debt                                  1,079.4                          1,101.2
Future income taxes                                       54.6                               49.8
Long-term deposits                                 1,264.5                          1,196.9
Other long-term liabilities                                      186.8                             188.9
  Total liabilities                                 4,697.4                          5,184.6
SHAREHOLDERS' EQUITY        
Share capital (Note 4)                                     711.6                             720.4
Contributed surplus                                         0.3                                  0.2
Accumulated other comprehensive loss                                     (38.7)                              (46.4)
Retained earnings                                  3,393.5                          3,013.7
  Total shareholders' equity                                 4,066.7                          3,687.9
  Total liabilities and shareholders' equity $                               8,764.1 $                        8,872.5
           

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 follow the same accounting policies and methods of their application as the most recently issued annual financial statements for the 52 weeks ended January 2, 2010. 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 January 2, 2010 contained in our 2009 Annual Report.
 
The preparation of the financial statements in conformity with Canadian 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 a number of items including, but not limited to, income taxes, impairment of assets (including goodwill), employee benefits, product warranties, inventory and inventory provisions, amortization, uncollectible loans, environmental reserves, asset retirement obligations, financial instruments, and the liability for the Company's loyalty programs.
 
 
Future Accounting Changes
 
International Financial Reporting Standards
 
In February 2008, the Canadian Institute of Chartered Accountants (CICA) announced that Canadian GAAP for publicly accountable enterprises will be replaced by International Financial Reporting Standards (IFRS) for fiscal years beginning on or after January 1, 2011. 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 2010 information will be prepared under IFRS.  The transition to IFRS will impact accounting, financial reporting, internal control over financial reporting, taxes, information systems and processes as well as certain contractual arrangements.  The Company has assessed the impact of the transition to IFRS in the above areas through the deployment of additional trained resources and formal project management practices and governance to ensure the timely conversion to IFRS.
 
2. Loans Receivable
 
The Company sells co-ownership interests in a pool of credit card receivables to a third party Trust (the Trust) 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 receivables are removed from the Consolidated Balance Sheets. 
 
For additional information on Loans Receivable, see Note 1 of the most recently issued annual financial statements for the 52 weeks ended January 2, 2010 contained in our 2009 Annual Report.
  
Quantitative information about loans managed and securitized by the Company is as follows: 

    Total principal amount   Average balances
($ in millions)   of receivables as at 1   for the 52 weeks ended
    January 1,   January 2,   January 1,   January 2,
    2011   2010   2011   2010
Total net managed credit card loans  $      3,997.8    $                3,932.8    $       3,886.7    $                3,742.4
Credit card loans sold   (1,535.1)   (1,693.4)   (1,594.4)   (2,044.1)
Credit card loans held   2,462.7   2,239.4   2,292.3   1,698.3
                 
Total net personal loans 11.2   34.0   20.7   56.2
                 
Total net mortgage loans 0.0   0.0                       -    141.0
                 
Total net line of credit loans 11.2   15.6   13.0   18.1
                 
Total loans receivable   2,485.1   2,289.0    $       2,326.0    $                  1,913.6
Less: long-term portion 4 3.9   14.2        
                 
Current portion of loans receivable  $       2,481.2    $                2,274.8        

1 Amounts shown are net of allowance for credit losses.

2 Personal loans are unsecured loans that are provided to qualified existing credit card holders 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. The Company sold its mortgage portfolio in November 2009.

4 The long-term portionof loans is included in long-term receivables and other assets.

Provision for net credit losses for the owned portfolio for the 13 weeks and 52 weeks ended January 1, 2011 were $43.7 million (2009 - $52.3 million) and $177.5 million (2009 - $181.2 million), respectively. Provision for net credit losses for the total managed portfolio for the 13 weeks and 52 weeks ended January 1, 2011 were $72.6 million (2009 - $86.2 million) and $293.9 million (2009 - $337.7 million), respectively. Provision for net credit losses consist of total write-offs (including regular and bankruptcy write-offs and consumer proposals), net of recoveries and any changes in allowances.

3. Long-Term Debt

On October 1, 2010, medium term notes totaling $300.0 million matured and were repaid

4. Share Capital  

($ in millions) January 1,   January 2,
    2011   2010
Authorized      
  3,423,366 Common Shares      
  100,000,000 Class A Non-Voting Shares      
Issued      
  3,423,366 Common Shares (January 2, 2010 - 3,423,366)  $            0.2    $            0.2
  78,020,007 Class A Non-Voting Shares (January 2, 2010 -  78,178,066) 711.4   720.2
     $        711.6    $        720.4

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, if any, with any remainder allocated to retained earnings.

The following transactions occurred with respect to shares:

                 
    52 weeks ended   52 weeks ended
($ in millions) January 1, 2011   January 2, 2010
    Number   $   Number   $
Class A Non-Voting Shares              
  Shares outstanding at the beginning of the period 78,178,066   720.2   78,178,066   715.2
  Issued 300,390   16.7   742,198   36.6
  Repurchased             (458,449)   (25.4)               (742,198)   (37.5)
  Excess of repurchase price over issue price                         -     (0.1)                          -     5.9
  Shares outstanding at the end of the period 78,020,007   711.4   78,178,066   720.2

5. 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 January 2, 2010 except as follows:

2010 Performance Share Unit Plan

The Company has granted 2010 Performance Share Units (2010 PSUs) to certain employees.  Each 2010 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 commencing the day after the last day of the performance period, multiplied by an applicable multiplier determined by specific performance-based criteria.  Compensation expense related to 2010 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 13 weeks and 52 weeks ended January 1, 2011, $0.9 million and $ 3.8 million of compensation expense was recorded for the 2010 PSUs, respectively.

6. Segmented Information - Statement of Earnings

 
 ($ in millions)
13 weeks ended
January 1, 2011
13 weeks ended
January 2, 2010
 
52 weeks ended
January 1, 2011
 
52 weeks ended
January 2, 2010
 
Gross operating revenue        
    CTR  $            1,522.6  $            1,494.4  $            5,620.9  $            5,552.2
     Petroleum                   449.8                   398.8                1,664.8                1,515.1
   Mark's                   349.5                   340.3                   872.2                   833.8
    Financial Services                   248.4                   237.7                   946.0                   909.9
     Eliminations                   (34.7)                   (33.5)                 (123.1)                 (124.5)
     Total gross operating revenue  $            2,535.6  $            2,437.7  $            8,980.8  $            8,686.5
         
Earnings (loss) before income taxes        
     CTR  $                 97.9  $                 38.0  $               321.6  $               261.6
     Petroleum                       3.6                       1.9                     22.2                     24.2
     Mark's                     58.1                     63.1                     54.1                     61.5
    Financial Services                     48.7                     38.4                   199.1                   131.9
    Total earnings before income taxes                    208.3                   141.4                   597.0                   479.2
    Income taxes                   (27.2)                   (45.2)                 (143.4)                 (144.2)
    Net earnings  $               181.1  $                 96.2  $               453.6  $               335.0
         
Net Interest expense1        
     CTR  $                 (5.0)  $                 26.2  $                 40.3  $                 82.9
  Mark's                       0.2                       0.3                       0.8                       1.7
  Financial Services                     16.1                     16.2                     62.2                     62.4
    Total interest expense  $                 11.3  $                 42.7  $               103.3  $               147.0
         
Depreciation and amortization expense        
   CTR  $                 48.2  $                 50.4  $               189.9  $               191.2
     Petroleum                       5.1                       4.7                     18.2                     18.0
    Mark's                       9.1                       7.1                     32.6                     27.3
     Financial Services                       1.9                       2.4                       6.6                     11.0
   Total depreciation and amortization expense  $                 64.3  $                 64.6  $               247.3  $               247.5

1 Net interest expense includes interest on short-term and long-term debt offset by passive interest income (includes interest income earned on bank deposits, ancillary investments, tax refunds and all inter-company interest income). Interest on long-term debt for the 13 weeks and 52 weeks ended January 1, 2011 was $27.2 million (2009 - $39.5 million) and $111.2 million (2009 - $130.0 million), respectively.

Segmented Information - Total Assets

 
($ in millions)
January 1, 2011 January 2, 2010
(Restated - Note 12)
     
CTR  $                          6,030.2  $                          5,888.3
     
Petroleum                                 363.7                                 279.7
     
Mark's                                  516.3                                 498.7
     
Financial Services                              3,166.8                              3,319.0
     
Eliminations                            (1,312.9)                            (1,113.2)
     
Total  $                          8,764.1  $                          8,872.5
     

7. Capital Management

The Company's objectives when managing capital and the definition of capital are the same as described in Note18 of the most recently issued annual financial statements for the 52 weeks ended January 2, 2010 contained in our 2009 Annual Report.

The Company is in compliance with key covenants under its existing debt agreements during the quarter.  Under these covenants, the Company currently has significant flexibility to fund business growth and maintain the Company's existing dividend policy.

The Company is in compliance with regulatory requirements associated with the operations of Canadian Tire Bank (CTB), its federally chartered bank, and other regulatory requirements that impact its business operations.

The Bank's ratios are above internal minimum targets for Tier 1 and Total capital ratios and below its internal maximum targets for the assets to capital multiple. OSFI's minimum Tier 1 and Total capital ratios for Canadian banks are 7 per cent and 10 per cent, respectively. During the twelve months ended December 31, 2010 and the comparative period, 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). 

8. Merchandise Inventory

Included in "cost of merchandise sold and all other operating expenses except for the undernoted items" for the 13 weeks and 52 weeks ended January 1, 2011 is $ 1,708.6 million (2009 - $1,670.9 million) and $ 6,019.5 million (2009 - $5,856.0 million), respectively, of inventory recognized as an expense, which included $13.3 million (2009 - $14.3 million) and $50.9 million (2009 - $55.7 million), respectively, of write-downs of inventory as a result of net realizable value being lower than cost. Inventory write-downs recognized in previous years and reversed in the current quarter and the comparative quarter were insignificant.

9. Supplementary Cash Flow Information

The Company paid income taxes during the 13 weeks ended January 1, 2011 of $37.1 million (2009 - $28.6 million) and made interest payments of $39.9 million (2009 - $63.1 million). For the 52 weeks ended January 1, 2011, the Company paid income taxes of $131.5 million (2009 - $165.2 million) and made interest payments of $127.3 million (2009 - $173.9 million.)

During the 13 weeks and 52 weeks ended January 1, 2011, property and equipment were acquired at an aggregate cost of $97.6 million (2009 - $62.6 million) and $242.3 million (2009 - $202.8 million), respectively. The amount of property and equipment acquired that is included in accounts payable and other at January 1, 2011 was $29.3 million (2009 - $22.7 million). 

During the 13 weeks and 52 weeks ended January 1, 2011, intangible software was acquired at an aggregate cost of $29.6 million (2009 - $18.6 million) and $76.1 million (2009 - $70.3 million), respectively. The amount of intangible software acquired that is included in accounts payable and other at January 1, 2011 was $8.4 million (2009 - $2.6 million). 

10. 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 its consolidated earnings, cash flows, or financial position.

There have been no material changes in any legal matters disclosed in Note 21 of the most recently issued annual financial statements for the 52 weeks ended January 2, 2010 contained in our 2009 Annual Report, except as described in the following paragraph.

The Company's wholly-owned subsidiary, Canadian Tire Bank (CTB), is the subject of two class action proceedings regarding allegations that certain fees charged on CTB issued credit cards are not permitted under the Quebec Consumer Protection Act. CTB believes it has a solid defense to both actions on the basis that banking and cost of borrowing disclosure is a matter of exclusive federal jurisdiction. Accordingly, no provision has been made for amounts, if any, that would be payable in the event of an adverse outcome. If adversely decided, the present total aggregate exposure to CTB is expected to be approximately $22.5 million.

11. 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 that were challenged by the Canada Revenue Agency (CRA) in recent years related 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 also reassessed on these matters for the corresponding periods. 

The company has settled the commissions issue for the periods 1995-2003 and does not have a significant exposure on this issue subsequent to the 2003 tax year.

During the fourth quarter of 2010, the company reached an agreement with the CRA to settle the dividends received issue. Once federal reassessments have been issued in accordance with the settlement, the Company believes the provincial tax authorities will also reassess on the same basis. As a result of the settlement, the Company recorded an income tax recovery of $42 million and pre-tax interest income from overpayment of taxes of $18 million.

The 2010 tax provision has been reduced by $37.3 million due mainly to the settlement of the dividends received issue, revision to the prior year's estimated tax expense and a change in tax legislation relating to stock options. 

The Company regularly reviews the potential for adverse outcomes in respect of tax matters.  The Company believes that the ultimate disposition of these 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.

12. Comparative Figures

Certain of the prior period's figures have been reclassified to correspond to the current year presentation. Debt issuance costs previously included in long-term receivables and other assets is presented with long-term debt. Bank overdrafts previously included in cash and cash equivalents is now presented as current liabilities. As a result, total assets have been restated by $83.0 million at January 2, 2010, with a corresponding increase in total liabilities.

Interest Coverage Exhibit to the Consolidated Financial Statements (unaudited)


The Company's long-term interest requirements for the 52 weeks ended January 1, 2011, after annualizing interest on long-term debt issued and retired during this period, amounted to $109.2 million.  The Company's earnings before interest on long-term debt and income taxes for the 52 weeks ended January 1, 2011 were $716.8 million, which is 6.6 times the Company's long-term interest requirements for this period.


SOURCE Canadian Tire Corporation, Limited

For further information:

Media: Amy Cole, 416-544-7655, (m) 416-997-9825, amy.cole@cantire.com
Investors: Karen Meagher, 416-480-8058 karen.meagher@cantire.com

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Canadian Tire Corporation, Limited

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CANADIAN TIRE CORPORATION, LIMITED - INVESTOR RELATIONS

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