Canadian Tire releases second quarter earnings - retail sales up 4.0%; gross operating revenue up 5.9%



    Earnings impacted by the relaunch of the Options MasterCard and by an
    inventory adjustment at Mark's

    
                                   ------------------------------------------
                                                                   Year-over-
    Consolidated                          2008           2007(2)      year
    Highlights(1):                    2nd quarter     2nd quarter    change
    -------------------------------------------------------------------------

    Retail sales                      $2.95 billion   $2.84 billion     4.0%
    Gross operating revenue           $2.45 billion   $2.31 billion     5.9%
    Earnings before income taxes     $144.7 million  $188.5 million  (23.2)%
    Adjusted earnings before income
     taxes (excludes non-operating
     gains and losses)(3)            $140.3 million  $169.1 million  (17.0)%
    Net earnings                      $97.7 million  $122.5 million  (20.3)%
    Adjusted net earnings (excludes
     non-operating gains and
     losses)(3)                       $94.7 million  $109.8 million  (13.8)%
    Basic earnings per share          $1.20           $1.50          (20.3)%
    Adjusted basic earnings per share
     (excludes non-operating gains
     and losses)(3)                   $1.16           $1.35          (13.9)%

    (1) All dollar figures in this table are rounded.
    (2) The 2007 earnings figures have been restated for the implementation,
        on a retrospective basis, of the CICA HB 3031- Inventories. Please
        refer to Note 2 in the Notes to Consolidated Financial Statements.
    (3) Non-GAAP measure. Please refer to Section 14.0 of Management's
        Discussion and Analysis.
    

    TORONTO, Aug. 7 /CNW/ - Canadian Tire Corporation, Limited (CTC.a, CTC)
released its second quarter earnings today. Despite a period of unseasonable
weather and challenging economic conditions, the Company reported a 5.9%
increase in gross operating revenue due to a higher volume of shipments to
Dealers, increased sales at Petroleum and receivables growth at Canadian Tire
Financial Services (Financial Services). Adjusted net earnings were
$94.7 million, 13.8% below the second quarter of 2007.
    "Retail sales, while positive during the quarter, were impacted by the
unseasonable spring weather and continuing economic headwinds. The
$15.1 million reduction in adjusted net earnings compared to last year
reflects the impact of a planned investment of $6.4 million after tax to
relaunch the Options MasterCard and a book to physical adjustment of
$8.1 million after tax in Mark's inventory," said Tom Gauld, president and
CEO, Canadian Tire. "Earnings are expected to improve in the second half of
the year as investments in the credit card relaunch and various productivity
initiatives begin to positively impact results."

    
    Business Overview

    CANADIAN TIRE RETAIL (CTR)

    ($ in millions)    Q2 2008 Q2 2007(1) Change  YTD 2008 YTD 2007(1) Change
    -------------------------------------------------------------------------
    Retail sales(2)   $2,174.5  $2,141.9    1.5%  $3,393.3  $3,384.4    0.3%
    Same store
     sales(3) (year-
     over-year %
     change)            (0.5)%      1.7%            (1.8)%      1.5%
    Gross operating
     revenue          $1,562.1  $1,514.9    3.1%  $2,633.4  $2,585.8    1.8%
    Net shipments
     (year-over-year
     % change)            3.2%    (0.5)%              1.8%      3.9%
    Earnings before
     income taxes        $85.0     $88.5  (4.1)%    $128.6    $126.5    1.7%
    -------------------------------------------------------------------------
    Less adjustment for:
      Gain on disposals
       of property and
       equipment(4)        0.1       3.7               4.0       3.7
      Former CEO
       retirement
       obligations         0.5      (6.7)              0.9      (6.7)
    -------------------------------------------------------------------------
    Adjusted earnings
     before income
     taxes(5)            $84.4     $91.5  (7.9)%    $123.7    $129.5  (4.5)%
    -------------------------------------------------------------------------
    (1) 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 Notes to Consolidated Financial Statements.
    (2) 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.
    (3) Same store sales include sales from stores that have been open for
        more than 53 weeks.
    (4) Includes fair market value adjustments and impairments on property
        and equipment.
    (5) Non-GAAP measure. Please refer to section 14.0 in Management's
        Discussion and Analysis.
    

    Retail sales across all product categories were generally impacted by the
economy, however seasonal businesses in the leisure category were particularly
soft due to the cold wet weather in May and June. CTR's total retail sales
increased 1.5% over the same quarter in 2007 reflecting an average increase of
3.7% in the home and automotive businesses (approximately 60% of CTR sales)
and a decrease of 2.1% in leisure sales (approximately 40% of CTR sales).
Overall same store sales, which were down 0.5%, followed a similar pattern.
With the arrival of more seasonal weather in July, sales performance
strengthened, with overall retail sales up 5.1% and same stores sales up 3.1%
for the month.
    CTR's second quarter adjusted earnings before taxes were $84.4 million,
down 7.9% compared to a year ago. Pre-tax earnings were impacted by slightly
lower margins and continuing net investments of $5.9 million in long-term
growth and productivity initiatives such as Automotive Infrastructure and
technology renewal.
    CTR opened 27 new stores in the quarter including one incremental store,
five replacement stores and 21 retrofitted or expanded stores.
    PartSource experienced another quarter of year-over-year sales increases
driven by the continued expansion of the network and strong growth in the
commercial customer segment. In addition, PartSource shipments to Dealers
continue to improve as components of the Automotive Infrastructure project are
rolled out. During the quarter, PartSource converted three acquired stores and
opened one new store, bringing its total store network to 75.

    
    CANADIAN TIRE PETROLEUM (Petroleum)

    ($ in millions)    Q2 2008   Q2 2007  Change  YTD 2008  YTD 2007  Change
    -------------------------------------------------------------------------
    Sales volume
     (millions of
     litres)             429.6     437.4  (1.8)%     843.4     852.7  (1.1)%
    Retail sales        $541.9    $471.9   14.8%    $990.9    $857.3   15.6%
    Gross operating
     revenue            $514.8    $445.6   15.5%    $937.6    $808.4   16.0%
    Earnings before
     income taxes         $8.0      $6.4   27.2%     $13.0      $8.9   47.1%
    -------------------------------------------------------------------------
    Less adjustment for:
      Loss on disposals
       of property and
       equipment(1)        0.0      (1.1)             (0.2)     (1.3)
    -------------------------------------------------------------------------
    Adjusted earnings
     before income
     taxes(2)             $8.0      $7.5    9.8%     $13.2     $10.2   30.6%
    -------------------------------------------------------------------------
    (1) Includes asset impairment losses.
    (2) Non-GAAP measure. Please refer to section 14.0 in Management's
        Discussion and Analysis.
    

    The 1.8% decrease in gasoline sales volumes reflected consumer response
to higher fuel prices.
    Petroleum's gross operating revenue totaled $514.8 million during the
quarter, a 15.5% increase over the $445.6 million in the comparable 2007
period reflecting an increase in pump prices during the period and a 5.0%
growth in convenience store sales.
    Petroleum recorded adjusted pre-tax earnings of $8.0 million, compared to
the $7.5 million recorded in the comparable 2007 period. The increase in
earnings was due to healthy margins during the quarter and effective expense
management.
    Petroleum opened one new gas bar and refurbished one existing gas bar
during the quarter.

    
    MARK'S WORK WEARHOUSE (Mark's)

    ($ in millions)    Q2 2008 Q2 2007(1) Change  YTD 2008 YTD 2007(1)Change
    -------------------------------------------------------------------------

    Total retail sales  $233.1    $221.3    5.3%    $405.6    $399.7    1.5%
    Same store sales(2)
     (% increase over
     prior year)          0.9%      6.9%            (2.8)%     10.6%
    Gross operating
     revenue(3)         $200.6    $187.2    7.2%    $348.1    $339.3    2.6%
    -------------------------------------------------------------------------
    Earnings before
     income taxes         $7.9     $25.0 (68.4)%      $4.5     $24.8 (81.9)%
    -------------------------------------------------------------------------
    Less adjustment for:
      Loss on disposal
       of property and
       equipment          (0.1)     (0.3)             (0.1)     (0.6)
    -------------------------------------------------------------------------
    Adjusted earnings
     before income
     taxes(4)             $8.0     $25.3 (68.5)%      $4.6     $25.4 (82.0)%
    -------------------------------------------------------------------------
    (1) The 2007 earnings results have been restated for restatement, on a
        retrospective basis, of CICA HB 3031 - inventories. Please refer to
        Note 2 in the Notes to the Consolidated Financial Statements.
    (2) Mark's same store sales exclude new stores, stores not open for the
        full period in each year and store closures.
    (3) Gross operating revenue includes retail sales at corporate stores
        only.
    (4) Non-GAAP measure. Please refer to section 14.0 of Management's
        Discussion and Analysis.
    

    Despite unfavourable weather conditions and the slowing economy, Mark's
retail sales increased 5.3% during the quarter and same store sales showed
modest growth reflecting strong sales in its industrial product categories.
    Mark's second quarter adjusted pre-tax earnings were $8.0 million, down
from $25.3 million in 2007. Earnings were impacted a higher than expected
$12.0 million pre-tax book to physical inventory adjustment and higher
operating expenses to support continued network expansion.
    During the quarter, Mark's opened four new stores and relocated two
existing stores, four of which are co-located within a CTR store.

    
    CANADIAN TIRE FINANCIAL SERVICES (Financial Services)

    ($ in millions)    Q2 2008   Q2 2007  Change  YTD 2008  YTD 2007  Change
    -------------------------------------------------------------------------
    Total managed
     portfolio end of
     period                                       $3,926.7  $3,704.3    6.0%
    Gross operating
     revenue            $201.5    $192.3    4.8%    $410.2    $368.4   11.4%
    Earnings before
     income taxes        $43.8     $68.6 (36.2)%     $97.4    $114.0 (14.6)%
    -------------------------------------------------------------------------
    Less adjustment for:
      Gain on disposal/
       redemption of
       shares              0.0      18.4               0.0      18.4
      Net effect of
       securitization
       activities(1)       3.9       5.5              16.8       2.5
      Loss on disposals
       of property and
       equipment           0.0      (0.1)              0.0      (0.2)
    -------------------------------------------------------------------------
    Adjusted earnings
     before income
     taxes(2)            $39.9     $44.8 (10.9)%     $80.6     $93.3 (13.6)%
    -------------------------------------------------------------------------
    (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 14.0 in Management's
        Discussion and Analysis.
    

    In the second quarter, Financial Services' total managed portfolio of
loans receivable grew by 6.0% over the comparable 2007 period, driven by a
5.6% increase in the credit card portfolio.
    Financial Services' gross operating revenue was $201.5 million in the
quarter, a 4.8% increase over the $192.3 million recorded in the prior year.
    Adjusted pre-tax earnings for the quarter were $39.9 million, or
$4.9 million below the same quarter last year. Excluding the $9.7 million
pre-tax cost of relaunching the Options MasterCard, adjusted pre-tax earnings
were 10.8% higher than the second quarter of 2007.
    The relaunch activity included the reissue of 2.6 million cards with new
PayPass functionality enabling customers to quickly execute small ticket
transactions without a signature. The relaunch is expected to increase sales
by approximately 2.0% thereby returning the investment in 12 to 18 months.
    Financial Services' net write-off rate for the credit card portfolio on a
rolling 12-month basis was 5.96% compared to 5.79% in the 2007 period. Aging
of the credit card portfolio, while above last year's level, is equivalent to
the same period in 2006.
    Financial Services continued its investment in the retail banking pilot
and at quarter-end had more than $180 million in deposits and approximately
$67 million in mortgages. Customer response continues to meet expectations.

    SECOND HALF 2008 FORECAST

    The Company has updated its earnings guidance for 2008 and expects that
earnings per share for 2008 will now be in the range of $4.75 to $5.05 per
share, excluding non-operating items. This is below management's initial 2008
guidance of $5.15 to $5.40 per share, excluding non-operating items. The
principal reasons for this change in forecast are; the book to physical
inventory adjustment at Mark's; lower second quarter earnings at CTR and
Mark's; and the higher on-hand CTR inventory at the end of the second quarter
leading to increased carrying and clearance costs for the balance of the year.
    Earnings for the second half of 2008 are forecasted to be ahead of 2007.
This growth is not based on an assumption of significant economic recovery in
the balance of the year. The forecast does however reflect healthy earnings
growth in excess of 20% from Financial Services, due to benefits from the
launch of the PayPass functionality and lower loan loss provisioning and
operating costs.
    Total capital commitments for 2008 remain approximately $588 million on a
gross basis. The sale/ leaseback of the CTR Carling store in Ottawa was
completed for proceeds of $40 million in July and additional sale/leasebacks
of CTR stores are anticipated before the end of the year.

    OUTLOOK

    During 2008 and 2009, the Corporation is investing in a number of
initiatives to drive growth, improve productivity and enhance financial
flexibility. Growth in the three retail divisions will be generated through
continued network expansion at Mark's and PartSource and the introduction of
two new store concepts at CTR.
    The new CTR small market store, which is designed primarily for
expansions into new underserved markets will incorporate a Mark's store and,
where appropriate, a Petroleum site. The first four stores will be opened this
year.
    With the Concept 20/20 program substantially complete, the new Smart
store represents the next wave of renewal for CTR stores. The first two sites
will be opened in 2008, with 25 more expected to follow in 2009.
Remerchandising or retrofitting an existing store to a Smart store will not
require physical expansion of the existing store, thereby substantially
reducing the capital cost compared to the average Concept 20/20 project.
    The lower costs associated with the Smart store program, as well as the
completion of the Eastern Canada Distribution Centre in early 2009 will result
in a reduction in the Corporation's gross capital expenses from approximately
$600 million in 2008 to approximately $400 million in each of 2009 and 2010.
    This lower capital demand, combined with the additional planned
sale/leaseback activity for select CTR sites and the new Eastern Canada
Distribution Centre over the next twelve months, will improve cash flow and
financial flexibility in 2009 and beyond.
    CTC now has approximately $1.25 billion of committed bank lines in
support of CTC and Glacier Trust financing activities further improving the
Corporation's financial flexibility.
    In 2010, repayment of $150 million of 20 year debentures with 12.1%
interest, which are not expected to be replaced, will also have a substantial
positive impact on interest costs and earnings.
    Finally, investments in productivity initiatives such as technology
renewal and Automotive Infrastructure, as well as increasing benefits from the
amended Dealer contract are expected to positively impact CTR productivity
levels and earnings in 2010 and beyond.

    FORWARD-LOOKING STATEMENTS

    This disclosure contains statements that are forward-looking. Actual
results or events may differ materially from those forecasted in this
disclosure because of the risks and uncertainties associated with Canadian
Tire's business and the general economic environment. Risks and uncertainties
are disclosed in other public filings by the Company, such as Management's
Discussion and Analysis ("the MD&A") and the 2007 Financial Report and
include, but are not limited to: changes in interest, currency exchange and
tax rates; the ability of Canadian Tire to attract and retain quality
employees, Associate Dealers, Petroleum agents and PartSource and Mark's Work
Wearhouse store operators and franchisees; and the willingness of customers to
purchase the Company's merchandise, financial products and services.
    Risk factors associated with the assumptions that underlie Canadian
Tire's forecasted performance in 2008 that have the potential to affect the
operating performance and results of the Company's divisions are outlined in
Section 11.2 of the MD&A.
    The Company has developed its 2008 forecast on the assumption that there
will not be a material deviation in the risks described in the MD&A compared
to the current operating environment. The Company cannot provide any assurance
that forecasted financial or operational performance will actually be
achieved, or if it is, that it will result in an increase in the price of
Canadian Tire shares.

    REVIEW BY BOARD OF DIRECTORS

    The Canadian Tire Board of Directors, on the recommendation of its Audit
Committee, has approved the contents of this disclosure.

    CONFERENCE CALL

    Canadian Tire will conduct a conference call to discuss information
included in this news release and related matters at 4:30 p.m. EDT on
Thursday, August 7, 2008. The conference call will be available simultaneously
and in its entirety to all interested investors and the news media through a
webcast at http://investor.relations.canadiantire.ca, and will be available
through replay at this website for 12 months.

    Canadian Tire Corporation, Limited (TSX: CTC.a, CTC), operates more than
1,170 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 473 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 shop online.
PartSource is an automotive parts specialty chain with 75 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 267 gas bars, 260 convenience stores and kiosks, and 74 car washes.
Mark's Work Wearhouse is one of the country's leading apparel retailers
operating 364 stores in Canada. Under the Clothes that Work(TM) 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.



    Management's discussion and analysis (MD&A)
    -------------------------------------------------------------------------

    Introduction

    This Management's Discussion and Analysis (MD&A) provides management's
perspective on our Company, our performance and our strategy for the future.

    We, us, our, Company and Canadian Tire

    In this document, the terms "we", "us", "our", "Company" and "Canadian
Tire" refer to Canadian Tire Corporation, Limited and its business units and
subsidiaries.

    Review and approval by the Board of Directors

    The Board of Directors, on the recommendation of its Audit Committee,
approved the contents of this MD&A on August 7, 2008.

    Quarterly and annual comparisons in this MD&A

    Unless otherwise indicated, all comparisons of results for the second
quarter (13 weeks ended June 28, 2008) are against results for the second
quarter of 2007 (13 weeks ended June 30, 2007).

    Restated figures

    Certain of the prior period's figures have been reclassified or restated
to conform to the current year's presentation or to be in accordance with the
adoption of the Canadian Institute of Chartered Accountants (CICA) new
accounting standards. Please refer to notes 2 and 16 in the Notes to the
Consolidated Financial Statements for further information.

    Accounting estimates and assumptions

    The preparation of consolidated financial statements that conform with
Canadian generally accepted accounting principles (GAAP) requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent liabilities at the date of the
Consolidated Financial Statements and the reported amounts of revenue and
expenses during the reporting period. We calculate our estimates using
detailed financial models that are based on historical experience, current
trends and other assumptions that are believed to be reasonable under the
circumstances. Actual results could differ from those estimates. In our
judgment, none of the estimates highlighted in note 1 in the Notes to the
Consolidated Financial Statements for the quarter ended June 28, 2008 requires
us to make assumptions about matters that are highly uncertain. For these
reasons, none of the estimates is considered a "critical accounting estimate"
as defined in Form 51-102F1 published by the Ontario Securities Commission.

    Forward-looking statements

    This MD&A contains statements that are forward-looking. Actual results or
events may differ materially from those forecasted in this disclosure because
of the risks and uncertainties associated with Canadian Tire's business and
the general economic environment. In addition to the principal risks
identified and discussed in detail in MD&A sections 9.0 to 9.3 of the 2007
Financial Report, there are other external factors that could affect our
results. These include, but are not limited to: changes in interest rates,
currency exchange rates and tax rates; the ability of Canadian Tire to attract
and retain quality employees, Dealers, Canadian Tire Petroleum(TM) (Petroleum)
agents and PartSource(R) and Mark's Work Wearhouse(R) (Mark's) store operators
and franchisees; and the willingness of customers to shop at our stores or
acquire our financial products and services. Please also refer to section 11.2
of this MD&A which identifies some of the operational risks that can affect
our businesses.
    The Company is revising its earnings forecast for 2008, please see
section 3.1 for further details.
    We cannot provide any assurance that forecasted financial or operational
performance will actually be achieved, or if it is, that it will result in an
increase in the price of Canadian Tire shares.

    1.0 Our Company

    1.1 Overview of the business

    Canadian Tire has been in business for over 85 years, offering everyday
products and services to Canadians through its growing network of interrelated
businesses. Canadian Tire, our Dealers, franchisees and Petroleum agents
operate more than 1,170 general merchandise and apparel retail stores and gas
bars. The Canadian Tire Financial Services(R) (Financial Services) division of
the Company also markets a variety of financial services to Canadians,
primarily its proprietary Options(R) MasterCard(R), personal loans, lines of
credit, insurance and warranty products, and a retail banking pilot offering
products to customers in certain test markets.
    Canadian Tire's model of interrelated businesses provides market
differentiation and competitive advantage. Canadian Tire's businesses benefit
from the Company's key capabilities in merchandising, marketing and
advertising, supply chain and real estate, which enable us to achieve a
greater level of efficiency. Canadian Tire's primary loyalty program, Canadian
Tire 'Money'(R) - shared by Canadian Tire Retail (CTR), Financial Services and
Petroleum - is an example of how interrelationships between the businesses
create a strong competitive advantage for the Company.
    The success of the loyalty program has proven - through high customer
acceptance and redemption - to be a key element of Canadian Tire's total
customer value proposition and is designed to drive higher total sales across
CTR, Financial Services and Petroleum. For example, a customer who fills up
with gas at Petroleum's gas bars and uses Canadian Tire credit cards spends
considerably more at Canadian Tire stores, on average, than a customer who
only shops at Canadian Tire stores.
    Mark's has derived meaningful cost and operating synergies from Canadian
Tire's strengths in real estate and supply chain since its acquisition by the
Company in 2002. The Company co-locates Mark's and Canadian Tire stores in
certain locations and, where appropriate, has been extending its national
marketing and advertising channels to boost customer traffic and loyalty to
Mark's and increase its brand penetration.

    1.2 Operational synergies

    All of our businesses benefit from strategic and operational synergies
including real estate management, supply chain, merchandising, marketing and
advertising. Meaningful cost savings are also derived through Canadian Tire's
collective buying power and economies of scale, and we are continually
enhancing our customer value proposition by creating promotions and reward
programs to increase customer loyalty.
    Canadian Tire's four main businesses are described below.

    CTR is Canada's most shopped general merchandise retailer with a network
of 473 Canadian Tire stores that are operated by Dealers, who are independent
business owners. Dealers buy merchandise from the Company and sell it to
consumers in Canadian Tire stores. CTR also includes our online shopping
channel and PartSource. PartSource is a chain of 75 specialty automotive hard
parts stores that cater to serious "do-it-yourselfers" and professional
installers of automotive parts. The PartSource network consists of 35
franchise stores and 40 corporate stores.

    Mark's is one of Canada's leading clothing and footwear retailers,
operating 364 stores nationwide, including 317 corporate and 47 franchise
stores that offer men's wear, women's wear and industrial wear. Mark's
operates under the banner "Mark's", and in Quebec, "L'Equipeur(R)". Mark's
also conducts a business-to-business operation under the "Imagewear by Mark's
Work Wearhouse(R)" brand.

    Petroleum is Canada's largest independent retailer of gasoline with a
network of 267 gas bars, 260 convenience stores and kiosks, 74 car washes, 13
Pit Stops and 87 propane stations. The majority of Petroleum's sites are co-
located with Canadian Tire stores as a strategy to attract customers to
Canadian Tire stores. Substantially all of Petroleum's sites are operated by
agents.

    Financial Services markets a range of Canadian Tire-branded credit cards,
including the Canadian Tire Options MasterCard, Commercial Link(R)
MasterCard(R) and Gas Advantage(R) MasterCard(R). Financial Services also
markets personal loans, lines of credit, insurance and warranty products and
an emergency roadside assistance service called Canadian Tire Roadside
Assistance(R). Canadian Tire Bank(R), a wholly-owned subsidiary, is a
federally regulated bank that manages and finances Canadian Tire's consumer
MasterCard and retail credit card portfolios, as well as the personal loan and
line of credit portfolios. Canadian Tire Bank also offers high interest
savings accounts, guaranteed investment certificates and residential mortgages
in three pilot markets as well as the Canadian Tire One-and-Only(TM) account
which offers customers the opportunity to pay down their loan balances faster
by consolidating their chequing, savings, loans and mortgage loan balances
into one account.

    
    1.3 Store network at a glance

                                                                June    June
                                                                  28,     30,
    Number of stores and retail square footage                  2008    2007
    -------------------------------------------------------------------------
    Consolidated store count
      CTR retail stores(1)                                       473     466
      PartSource stores                                           75      67
      Mark's retail stores(1)                                    364     341
      Petroleum gas bar locations                                267     264
    -------------------------------------------------------------------------
    Total stores                                               1,179   1,138

    Consolidated retail square footage
      CTR retail square footage (in millions)                   18.4    17.0
      PartSource retail square footage (in millions)             0.2     0.2
      Mark's retail square footage (in millions)                 3.1     2.8
    -------------------------------------------------------------------------
    Total retail square footage(2)                              21.7    20.0
    -------------------------------------------------------------------------
    (1) Store count numbers reflect individual selling locations; therefore,
        CTR and Mark's store count numbers each include stores that are co-
        located on the same property.
    (2) The average retail square footage for Petroleum's convenience stores
        was 400 square feet per store in 2007 and has not been included in
        the total above.
    

    2.0 Our Strategic Plan

    2.1 Rolling Five-Year Strategic Plan to 2012 (2012 Plan)

    The 2012 Plan outlines our strategy to build a Bigger and Better Canadian
Tire through a continued focus on growth and productivity from a consolidated
perspective. The key initiatives of the 2012 Plan include network expansion
across all of our retail businesses (CTR, PartSource and Mark's), store
concept renewals and the continued testing of our retail banking products.
Other initiatives to improve productivity include upgrading our automotive
supply chain, renewing our technology infrastructure and streamlining our
organizational design.
    Specific objectives related to these programs are included in section 3.3
of this MD&A and section 3.0 of the MD&A section contained in the 2007
Financial Report.

    2.2 Financial aspirations

    The 2012 Plan includes financial aspirations for the Company for the
five- year period ending in 2012. These aspirations are not to be construed as
guidance or forecasts for any individual year within the 2012 Plan, but rather
as long-term, rolling targets that we aspire to achieve over the life of the
2012 Plan, based on the successful execution of our various initiatives.

    
    Financial aspirations                                          2012 Plan
    -------------------------------------------------------------------------
    Same store sales
    (simple average of annual percentage growth, CTR stores only)   3% to 4%
    Gross operating revenue  (compound annual growth rate)          6% to 8%
    Retail sales  (compound annual growth rate)                          6%+
    Adjusted earnings per share(1)  (compound annual growth rate)       10%+
    After-tax return on invested capital  (annual simple average)       10%+
    -------------------------------------------------------------------------
    (1) Excludes gains and losses on real estate and the net effect of
        securitization activities, gain on disposal/ redemption of investment
        and former CEO retirement obligation.


    3.0 Our performance in 2008

    3.1 Consolidated financial results

    ($ in millions
    except per share
    amounts)           Q2 2008 Q2 2007(1) Change  2008 YTD 2007 YTD(1)Change
    -------------------------------------------------------------------------
    Retail sales(2)   $2,949.5  $2,835.1    4.0%  $4,789.8  $4,641.4    3.2%
    Gross operating
     revenue           2,450.7   2,314.1    5.9%   4,276.0   4,051.8    5.5%
    EBITDA(3)            217.0     252.5 (14.1)%     391.5     396.9  (1.4)%
    Earnings before
     income taxes        144.7     188.5 (23.2)%     243.5     274.2 (11.2)%
    Effective tax rate   32.5%     35.0%             32.5%     35.0%
    Net earnings      $   97.7  $  122.5 (20.3)%  $  164.4  $  178.2  (7.8)%
    Basic earnings per
     share            $   1.20  $   1.50 (20.3)%  $   2.02  $   2.19  (7.8)%
    Adjusted basic
     earnings per
     share(3)         $   1.16  $   1.35 (13.9)%  $   1.84  $   2.06 (10.7)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) 2007 figures have been restated for the implementation, on a
        retrospective basis, of CICA HB 3031 - Inventories. See section 13.1
        for additional information.
    (2) Represents retail sales at CTR (which includes PartSource), Mark's
        corporate and franchise stores and Petroleum's sites.
    (3) See section 14.0 for non-GAAP measures.


    Highlights of top-line performance by business

    (year-over-year percentage change)                       Q2 2008 Q2 2007
    -------------------------------------------------------------------------
    CTR retail sales(1)                                         1.5%    3.8%
    CTR gross operating revenue                                 3.1%  (0.1)%
    CTR net shipments                                           3.2%  (0.5)%
    Mark's retail sales                                         5.3%    9.7%
    Petroleum retail sales                                     14.8%    9.7%
    Petroleum gasoline volume (litres)                        (1.8)%    4.6%
    Financial Services' credit card sales                       5.0%   16.1%
    Financial Services' gross average receivables               6.8%    6.6%
    -------------------------------------------------------------------------
    (1) Includes sales from Canadian Tire stores, PartSource stores and CTR's
        online web store and the labour portion of CTR's auto service sales.
    

    Gross operating revenue

    During the second quarter of 2008, consolidated gross operating revenue
increased primarily due to higher shipment volume to Dealers, increased sales
at Petroleum and receivables growth at Financial Services. Financial Services
growth was driven by both increased transaction volume and higher account
balances. Increased Petroleum revenues were a function of sustained higher
retail gasoline prices as well as strong convenience store sales. Our retail
businesses faced similar challenges as those that prevailed during the first
quarter of the year due to the softening economic conditions affecting many
retailers across Canada.

    Net earnings

    The second quarter year-over-year earnings decrease in CTR, Mark's and
Financial Services was attributable to challenging economic conditions
existing in Canada and unseasonably cool weather experienced in May and June
of this year. This was partially offset by an increase in Petroleum earnings
attributable to strengthening margins and strong convenience sales. The
decrease in overall earnings also reflects a higher book to physical inventory
adjustment at Mark's as compared with the prior year ($12.0 million pre-tax)
and an investment to relaunch the Options MasterCard at Financial Services
($9.7 million pre-tax).
    Sales at CTR stores did begin to show improvement in June, however, and
with more seasonal weather, this momentum has continued into the third
quarter.
    Net earnings also decreased from the respective quarter in the prior year
due to the impact of non-operating items, as noted below.

    Impact of non-operating items

    The following tables show our adjusted consolidated earnings on a pre-tax
and after-tax basis.

    
    Adjusted consolidated earnings before income taxes(1)

    ($ in millions)    Q2 2008 Q2 2007(2) Change  2008 YTD 2007 YTD(2)Change
    -------------------------------------------------------------------------
    Earnings before
     income taxes     $  144.7  $  188.5 (23.2)%  $  243.5  $  274.2 (11.2)%
    Less pre-tax
     adjustment for:
      Gain on disposal
       of shares             -      18.4                 -      18.4
      Former CEO
       retirement
       obligation(3)       0.5      (6.7)              0.9      (6.7)
      Net effect of
       securitization
       activities(4)       3.9       5.5              16.8       2.5
      Gain (loss) on
       disposals of
       property and
       equipment             -       2.2               3.7       1.6
    -------------------------------------------------------------------------
    Adjusted earnings
     before income
     taxes(1)         $  140.3  $  169.1 (17.0)%  $  222.1  $  258.4 (14.0)%
    -------------------------------------------------------------------------
    (1) See section 14.0 on non-GAAP measures.
    (2) 2007 figures have been restated for the implementation, on a
        retrospective basis, of CICA HB 3031 - Inventories. See section
        13.1 for additional information.
    (3) See section 3.3.1 on CTR's performance.
    (4) Includes initial gain/loss on the sale of loans receivable,
        amortization of servicing liability, change in securitization reserve
        and gain/loss on reinvestment.


    Adjusted consolidated net earnings after tax(1)

    ($ in millions
    except per share
    amounts)           Q2 2008 Q2 2007(2) Change  YTD 2008 2007 YTD(2) Change
    -------------------------------------------------------------------------
    Net earnings      $   97.7  $  122.5 (20.3)%  $  164.4  $  178.2  (7.8)%
    Less after-tax
     adjustment for:
      Gain on disposal
       of shares             -      12.0                 -      12.0
      Former CEO
       retirement
       obligation          0.3      (4.4)              0.6      (4.4)
      Net effect of
       securitization
       activities(3)       2.7       3.6              11.4       1.6
      Gain on disposals
       of property and
       equipment             -       1.5               2.5       1.1
    -------------------------------------------------------------------------
    Adjusted net
     earnings after
     tax(1)           $   94.7  $  109.8 (13.8)%  $  149.9  $  167.9 (10.7)%
    -------------------------------------------------------------------------
    Basic earnings
     per share        $   1.20  $   1.50 (20.3)%  $   2.02  $   2.19  (7.8)%
    Adjusted basic
     earnings per
     share(1)         $   1.16  $   1.35 (13.9)%  $   1.84  $   2.06 (10.7)%
    -------------------------------------------------------------------------
    (1) See section 14.0 on non-GAAP measures.
    (2) 2007 figures have been restated for the implementation, on a
        retrospective basis, of CICA HB 3031 - Inventories. See section
        13.1 for additional information.
    (3) Includes initial gain/loss on the sale of loans receivable,
        amortization of servicing liability, change in securitization reserve
        and gain/loss on reinvestment.
    

    Seasonal impact

    The second quarter and fourth quarters of each year are typically when we
experience stronger revenues and earnings in our retail businesses because of
the seasonal nature of some merchandise at CTR and Mark's and the timing of
marketing programs. The following table shows our financial performance by
quarter for the last two years.

    
    Consolidated quarterly results(1)

    ($ in millions except
    per share amounts)                 Q2 2008   Q1 2008   Q4 2007   Q3 2007
    -------------------------------------------------------------------------
    Gross operating revenue           $2,450.7  $1,825.3  $2,503.1  $2,047.2
    Net earnings                          97.7      66.7     131.3     102.1
    Basic earnings per share              1.20      0.82      1.61      1.25
    Diluted earnings per share            1.20      0.82      1.61      1.25
    -------------------------------------------------------------------------

    ($ in millions except
    per share amounts)                 Q2 2007   Q1 2007   Q4 2006   Q3 2006
    -------------------------------------------------------------------------
    Gross operating revenue           $2,314.1  $1,737.7  $2,426.1  $2,023.3
    Net earnings                         122.5      55.7     108.3      95.4
    Basic earnings per share              1.50      0.68      1.33      1.17
    Diluted earnings per share            1.50      0.68      1.32      1.16
    -------------------------------------------------------------------------
    (1) 2007 quarterly results have been restated for the implementation, on
        a retrospective basis, of CICA HB 3031 - Inventories. See section
        13.1 for additional information. 2006 results have not been restated
        as the information required to calculate the restatement on a
        quarterly basis is not readily available.
    

    Earnings guidance

    The Company is revising its earnings guidance for 2008 and expects that
earnings per share for 2008 will now be in the range of $4.75 to $5.05 per
share, excluding non-operating items. This is below Management's initial
guidance of $5.15 to $5.40 per share, excluding non-operating items. The
principal reasons for this change in forecast are: the book to physical
inventory adjustment at Mark's; lower second quarter earnings at CTR and
Mark's; and the higher on-hand CTR inventory at the end of the second quarter
leading to increased carrying and clearance costs for the balance of the year.

    
    3.2 Business unit Q2 2008 performance overview

    -------------------------------------------------------------------------
    Canadian Tire Retail                 Mark's Work Wearhouse
    -------------------------------------------------------------------------
    Q2 2008 Performance highlights       Q2 2008 Performance highlights

    -   continued development of store   -   opened four corporate stores
        network, now with a total of         and relocated two stores, four
        473 stores including 222             of which are co-located with
        Concept 20/20 stores;                a CTR store;
    -   continued development of new     -   store network increased to 364
        store concepts; and                  locations and increased total
    -   replaced three and expanded          retail space by approximately
        two traditional stores to the        10 percent over the second
        Concept 20/20 store format.          quarter of 2007;
                                         -   continued focus on Clothes That
    PartSource Q2 2008 performance           Work campaign, with the
    highlights                               relaunch of two Clothes That
                                             Work technologies and the
    -   converted three stores acquired      introduction of two new
        in Q1 2008 to PartSource             Clothes That Work items during
        banner;                              the quarter.
    -   network growth to 75 stores
        including four hub stores; and
    -   approximately eight percent
        increase in retail square
        footage.
    -------------------------------------------------------------------------
    Canadian Tire Financial Services     Petroleum
    -------------------------------------------------------------------------
    Q2 2008 Performance highlights       Q2 2008 Performance highlights

    -   continued testing of the retail  -   growth of network to 267 gas
        banking initiative;                  bars and 260 convenience
    -   invested $9.7 million in the         stores;
        Canadian Tire Options MasterCard -   refurbishment of one gas bar
        relaunch; and                        as part of the initiative to
    -   continued increases in gross         improve the overall customer
        average receivables for the          experience at Petroleum's
        total managed portfolio.             sites; and
                                         -   improvement in earnings over
                                             the prior year, reflecting
                                             higher gasoline prices and
                                             margins during the quarter
                                             as well as effective expense
                                             management.
    -------------------------------------------------------------------------
    

    The following sections outlining the Company's business segment
performance highlight the respective segments' achievements to date against
key initiatives identified in the 2012 Strategic Plan. The initiatives have
been divided into those contributing to building a "Bigger" Canadian Tire and
those designed to create a "Better" Canadian Tire.
    In this context, "Bigger" is intended to convey the objective of
achieving increased sales and market share primarily through network growth,
new store concepts and new products. "Better" is intended to convey the
objective of improved productivity, service levels and rates of return.

    3.3 Business segment performance

    3.3.1 Canadian Tire Retail

    3.3.1.1 Q2 2008 Strategic Plan performance

    The following outlines CTR's performance for the second quarter of 2008
in the context of our 2012 Strategic Plan.

    
    -------------------------------------------------------------------------
    Initiatives to build a "BIGGER" Canadian Tire
    -------------------------------------------------------------------------
    New store concept program

    Concept 20/20 has been the cornerstone of CTR's growth agenda since 2003.
    Based on the results from the Concept 20/20 stores opened to date, CTR is
    developing the next new store concepts which are designed to build on the
    successes of the Concept 20/20 store with a greater focus on improving
    sales and productivity. Plans for 2008 include opening two of the new
    concept "smart" stores that will have the same focus of improving sales
    and productivity, as well as providing a more exciting customer
    experience, and four new stores with the further goal of expanding our
    presence in smaller markets.
    -------------------------------------------------------------------------
    2008 Key initiatives                 2008 Performance
    -------------------------------------------------------------------------
    CTR's strategy for the continued     Second quarter
    rollout of new concept stores
    including our existing Concept       CTR opened 27 new stores in the
    20/20 stores, new small market       quarter including five replacement
    concept and new "smart" concept      stores, 21 retrofit or expansion
    stores is an important aspect of     projects and one store that is new
    the 2012 Plan.                       to the network. Four of the stores
                                         opened in the quarter incorporate a
                                         full-size Mark's store inside. In
                                         addition, one traditional store was
                                         closed during the quarter.

                                         The store network now totals 473
                                         stores, 37 of which include a Mark's
                                         component.
    -------------------------------------------------------------------------
    Customers for Life

    Canadian Tire is committed to building customer loyalty through fostering
    a positive, consistent and memorable customer experience. During 2007,
    Canadian Tire began working on a new strategic model for the organization
    that will lead to a stronger focus on customer service and improvements
    in generating Customers for Life.
    -------------------------------------------------------------------------
    2008 Key initiatives                 2008 Performance
    -------------------------------------------------------------------------
    CTR is committed to generating       Second quarter
    consistent and coherent customer
    service measures, tracking and       The Customer Satisfaction Index
    performance.                         (CSI) was successfully developed,
                                         piloted and rolled out in 2007.
                                         The collecting of data for 2008
                                         continued as planned completing
                                         approximately half of the data
                                         gathering for the year. The
                                         Dealer relations team has also
                                         continued working with the
                                         Canadian Tire Dealers Association
                                         to address issues that will
                                         improve the overall process and
                                         survey results.
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    PartSource network expansion

    PartSource will continue its expansion into new markets through a
    combination of new stores and small-scale acquisitions. PartSource's
    strategy to buy small local businesses and convert them to the PartSource
    banner has proven successful, with high rates of customer retention after
    conversion.
    -------------------------------------------------------------------------
    2008 Key initiatives                 2008 Performance
    -------------------------------------------------------------------------
    Key initiatives for PartSource       Second quarter
    include building CTR as a new
    commercial account for emergency     During the quarter, PartSource made
    shipments, updating the              significant progress on building
    organizational structure, testing    the CTR commercial account and is
    new operating systems and launching  now used by 148 Canadian Tire
    a new auto parts catalogue.          stores for emergency auto parts.
                                         Progress on this initiative will
                                         continue building throughout the
                                         year.

                                         PartSource opened one new
                                         corporate store and converted
                                         three acquired stores to the
                                         PartSource brand during the
                                         quarter. This brings the network
                                         total to 75 stores,
                                         including four hub stores.
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Initiatives to build a "BETTER" Canadian Tire
    -------------------------------------------------------------------------
    Automotive Infrastructure initiative

    CTR has made revitalizing its cornerstone automotive business a key
    priority over the 2012 Plan period and began to roll out Phase One of
    this project in 2007 through opening two PartSource hub stores. Regional
    hub stores are larger than traditional PartSource stores and are designed
    to provide a broader assortment of automotive parts to service both
    Canadian Tire and PartSource customers on an as needed basis. This
    investment over the next five to seven years will be directed at
    increasing auto parts sales and generating a high rate of return for the
    project, and will benefit the Company and our Dealers.
    -------------------------------------------------------------------------
    2008 Key initiatives                 2008 Performance
    -------------------------------------------------------------------------
    The Automotive Infrastructure        Second quarter
    initiative will be an important
    factor in CTR's future growth and    Progress on Phase One of the
    will involve significant investment  Automotive Infrastructure
    in fixed assets and working capital  initiative continued in the
    and a redesign of key technology     second quarter as follows:
    solutions.
                                         Emergency supply implementation:

                                         -   Opened fourth PartSource hub
                                             store in Kitchener, Ontario;
                                             and
                                         -   363 Canadian Tire stores
                                             have signed up with their
                                             local Uni Select
                                             representative.

                                         Corporate assortment expansion:

                                         -   Enabled activation of
                                             seven digit product numbers
                                             within corporate systems;
                                             and
                                         -   Continued modifications and
                                             integration testing of
                                             warehouse management system
                                             in the Vaughan facility.

                                         Enabling technologies:

                                         -   Continued progress on
                                             business process, system
                                             analysis and design work;
                                             and
                                         -   Signed interim agreements
                                             with software vendors to
                                             secure licenses and
                                             professional services for
                                             analysis and design work.
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    CTR Change program

    During 2007, CTR began to implement its multi-year productivity effort
    with projects designed to overhaul and upgrade internal processes and IT
    systems. As the benefits of these projects begin to unfold, we will be
    able to make faster and better decisions and improve our agility and
    speed to market.
    -------------------------------------------------------------------------
    2008 Key initiatives                 2008 Performance
    -------------------------------------------------------------------------
    CTR will implement productivity/     Second quarter
    control initiatives in the areas
    of pricing and product hierarchy     Progress made on the CTR change
    to streamline and strengthen         program in the second quarter
    operations and improve               included:
    organizational structures and
    efficiencies.                        -   implemented new pricing
                                             system across merchandising
                                             division;
                                         -   implemented Master Data
                                             Management infrastructure
                                             for CTR's core data;
                                         -   finalized scope for new
                                             promotional planning system;
                                             began work on design; and
                                         -   began work on vendor
                                             management capability.
    -------------------------------------------------------------------------

    3.3.1.2 Key performance indicators

    The following are key measures of CTR's sales productivity:

    -   total same store sales growth;
    -   average retail sales per store;
    -   average sales per square foot of retail space; and
    -   average transaction value

    CTR total retail and same store sales

    (year-over-year percentage change) Q2 2008   Q2 2007  2008 YTD  2007 YTD
    -------------------------------------------------------------------------
    Total retail sales(1)                 1.5%      3.8%      0.3%      3.5%

    Same store sales(2)                 (0.5)%      1.7%    (1.8)%      1.5%
    -------------------------------------------------------------------------
    (1) Includes sales from Canadian Tire and PartSource stores, sales from
        CTR's online web store and the labour portion of CTR's auto service
        sales.
    (2) Includes sales from Canadian Tire and PartSource stores, but excludes
        sales from CTR's online web store and the labour portion of CTR's
        auto service sales.

    -------------------------------------------------------------------------
    CTR's retail sales

    Retail sales represent total merchandise sold at retail prices and the
    labour portion of automotive sales to consumers across CTR's network of
    stores, including CTR's online web store and PartSource.
    -------------------------------------------------------------------------

    CTR same store sales by store format

    (year-over-year percentage change) Q2 2008   Q2 2007  2008 YTD  2007 YTD
    -------------------------------------------------------------------------
    Same store sales(1)
      Concept 20/20 stores                0.1%      4.4%    (0.9)%      5.0%
      New-format stores                 (1.2)%    (0.3)%    (2.8)%    (0.8)%
      Traditional stores                (1.1)%    (0.8)%    (2.6)%    (0.9)%
    -------------------------------------------------------------------------
    (1) Excludes sales from PartSource stores, CTR's online web store and the
        labour portion of CTR's auto service sales.


    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    CTR's same store sales

    Same store sales include sales from all stores that have been open for
    more than 53 weeks.
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As our store network continues to evolve, we will be introducing new store
formats into our store class categories. In this 2008 second quarter MD&A, we
continue to report three separate classes of stores, defined as follows:

    -------------------------------------------------------------------------
     Concept 20/20 store        New-format store         Traditional store
           format                    format                    format
     (mid 2003 to 2008)        (1994 to mid 2003)         (1994 and prior)
       Average retail            Average retail            Average retail
       square footage:           square footage:           square footage:
          54,000                     31,000                    16,000
    -------------------------------------------------------------------------
    Larger format launched   Large format, including  Smaller than either the
    in September 2003,       "Class Of" and "Next     new-format or Concept
    ranging in size from     Generation" stores,      20/20 stores on
    24,000 to 89,000         ranging in size from     average. Traditional
    square feet (excluding   16,000 to 66,000         stores are
    the Mark's component of  square feet, most of     characterized by varied
    Mark's-inside-a-CTR      which were opened        sizes and layouts.
    store).                  between 1994 and mid     Traditional stores make
    Concept 20/20 stores     2003. New-format stores  up approximately seven
    make up approximately    make up approximately    percent of the retail
    65 percent of the        28 percent of the        square footage in the
    retail square footage    retail square footage    network.
    of the network.          in the network. This
    See section 3.3.1.1, Q2  format immediately
    2008 Strategic Plan      preceded the Concept
    performance for more     20/20 format.
    information on the
    Concept 20/20 rollout.
    -------------------------------------------------------------------------

    Concept 20/20 stores represented approximately 65 percent of CTR's retail
square footage and 56 percent of total retail sales in the second quarter of
2008.

    CTR store count
                             Q2 2008      2007      2006      2005      2004
    -------------------------------------------------------------------------
    Concept 20/20 stores(1)      222       192       126        53        25
    New-format stores(2)         168       189       237       292       302
    Traditional stores            83        92       105       117       130
    -------------------------------------------------------------------------
    Total new-format,
     traditional and Concept
     20/20 stores                473       473       468       462       457
    PartSource stores             75        71        63        57        47
    -------------------------------------------------------------------------
    (1) Concept 20/20 store total in 2008 count includes six Concept 20/20
        Mark's-inside-a-CTR concept stores which have been opened in pilot
        phase and 28 CTR-Mark's combination Concept 20/20 stores.
    (2) New-format store total in 2008 includes three CTR-Mark's combination
        stores.

    CTR continues to expand and retrofit its' store network with a focus on
converting older format stores to the new formats. The Concept 20/20 store
format will be completed by the end of 2008 and new formats consistent with
the goals of the 2012 Plan will be piloted in 2008 and rolled out in
subsequent years.

    Average retail sales per Canadian Tire store(1),(2)

                                       For the 12 months   For the 12 months
    ($ in millions)                  ended June 28, 2008 ended June 30, 2007
    -------------------------------------------------------------------------
    Concept 20/20 stores                         $  19.2             $  19.8
    New-format stores                               13.5                13.8
    Traditional stores                               7.8                 8.1
    -------------------------------------------------------------------------
    (1) Retail sales are shown on a 52-week basis in each year and exclude
        sales from PartSource stores, CTR's online web store and the labour
        portion of CTR's auto service sales.
    (2) Only includes stores that have been open for a minimum of two years
        as at the end of the quarter.
    

    Concept 20/20 stores experience higher customer traffic and increases in
average transaction value compared to previous store formats as customers
spend more time browsing in these stores.

    
    Average sales per square foot of Canadian Tire retail space(1),(2),(3)

                                              For the 12          For the 12
                                            months ended,       months ended,
                                           June 28, 2008       June 30, 2007
    -------------------------------------------------------------------------
    Retail square footage(1),(3)
     (millions of square feet)                      18.4                17.0
    Concept 20/20 stores(2),(3)                    $ 365               $ 377
    New-format stores(2),(3)                         435                 446
    Traditional stores(2),(3)                        494                 510
    -------------------------------------------------------------------------
    (1) Retail square footage is based on the total retail square footage
        including stores that have not been open for a minimum of two years
        as at the end of the quarter.
    (2) Retail sales are shown on a 52-week basis in each year for those
        stores that have been open for a minimum of two years as at the end
        of the current quarter. Sales from PartSource stores, CTR's online
        web store and the labour portion of CTR's auto service sales are
        excluded.
    (3) Retail space does not include warehouse, garden centre and auto
        service areas.
    

    The two tables above show a year-over-year decrease in retail sales per
store and retail sales per square foot. The decrease is partially due to the
significant number of new-format and Concept 20/20 stores that are excluded
from the calculation as they have not been open, in that format, for a period
of two years. Once the stores have been open for two years, they are included
once again in the average sales metrics.
    Average sales per square foot of retail space in the larger store formats
are lower than in traditional stores because additional space is designed to
display more merchandise, accommodate wider aisles, include more appealing
product displays and provide a more compelling shopping experience overall.
The larger Concept 20/20 stores and new-format stores do however, on average,
generate more total sales and have a lower operating cost for Dealers per
retail square foot.

    CTR retail sales

    Second quarter

    CTR's second quarter retail sales increased 1.5 percent over the same
quarter of 2007. The increase was a result of increased home category sales,
including tools, and promotional strategies utilized during the quarter.
Retail sales were also positively affected by additional shopping days in the
second quarter of 2008 relative to the prior year as the Easter weekend fell
in the first quarter of this year. Retail sales were negatively impacted by
unfavourable spring weather conditions resulting in a decline in sales of
seasonal and weather related categories. Sales trends in June and July have,
however, improved on the strength of the new summer 2008 seasonal programs, a
more competitive pricing strategy and the arrival of warmer weather throughout
Canada.
    PartSource experienced another quarter of year-over-year sales increases
driven by both the continued expansion of the network and growth in the
commercial customer segment.  In addition, PartSource shipments to Dealers
continue to increase as components of the Automotive Infrastructure initiative
project are rolled out.

    
    3.3.1.3 CTR's financial results

    ($ in millions)    Q2 2008 Q2 2007(1) Change  2008 YTD 2007 YTD(1) Change
    -------------------------------------------------------------------------
    Retail sales      $2,174.5  $2,141.9    1.5%  $3,393.3  $3,384.4    0.3%
    Net shipments
     (year-over-year
     % change)            3.2%    (0.5)%              1.8%      3.9%
    Gross operating
     revenue          $1,562.1  $1,514.9    3.1%  $2,633.4  $2,585.8    1.8%
    EBITDA(2)            143.1     139.9    2.3%     245.2     228.2    7.5%
    -------------------------------------------------------------------------
    Earnings before
     income taxes         85.0      88.5  (4.1)%     128.6     126.5    1.7%
    Less adjustment for:
      Gain on disposals
       of property and
       equipment           0.1       3.7               4.0       3.7
      Former CEO
       retirement
       obligation          0.5      (6.7)              0.9      (6.7)
    -------------------------------------------------------------------------
    Adjusted earnings
     before income
     taxes(2)         $   84.4  $   91.5  (7.9)%  $  123.7  $  129.5  (4.5)%
    -------------------------------------------------------------------------
    (1) 2007 earnings figures have been restated for the implementation, on a
        retrospective basis, of CICA HB 3031 - Inventories. Please refer to
        section 13.1 for additional information.
    (2) See section 14.0 on non-GAAP measures.


    CTR's net shipments

    -------------------------------------------------------------------------
    CTR's net shipments are the total value of merchandise shipped to
    Canadian Tire and PartSource stores, and through our online web store,
    less discounts and net of returns. Shipments to stores are recorded at
    the wholesale price that we charge to our Dealers and PartSource
    franchisees.
    -------------------------------------------------------------------------
    

    Explanation of CTR's financial results

    Second quarter

    For the quarter, gross operating revenue increased compared to the second
quarter of 2007, primarily as a result of higher net shipments.
    Despite increased revenues, adjusted pre-tax earnings in CTR decreased
7.9 percent in the second quarter principally due to a decline in product
margins. Margins were affected by aggressive promotional activity and product
mix. Second quarter earnings also included an incremental $5.9 million of pre-
tax net expenses in long-term productivity and growth initiatives, including
the Automotive Infrastructure initiative and Information Technology Renewal,
which will provide long-term benefits.

    3.3.1.4 Business risks

    CTR is exposed to a number of risks in the normal course of its business
that have the potential to affect its operating performance. The following are
some of the business risks specific to CTR's retail and other operations.
Please also refer to section 9.0 of our 2007 Financial Report for a discussion
of some other industry-wide and Company-wide risks affecting the business.

    Supply chain disruption risk

    An increasing portion of CTR's product assortment is being sourced from
foreign suppliers, lengthening the supply chain and extending the time between
order and delivery to CTR's warehouses. Accordingly, CTR is exposed to
potential supply chain disruptions due to foreign supplier failures,
geopolitical risk, labour disruption or insufficient capacity at ports, and
risks of delays or loss of inventory in transit. The Company mitigates this
risk through effective supplier selection and procurement practices, strong
relationships with transportation companies, port and other shipping
authorities, supplemented by marine insurance coverage. CTR has demonstrated
its ability to mitigate this risk in the past.

    Seasonality risk

    CTR derives a significant amount of its revenues from the sale of
seasonal merchandise and, accordingly, bears a degree of risk from
unseasonable weather patterns. CTR mitigates this risk, to the extent
possible, through the breadth of our product mix as well as effective
procurement and inventory management practices.

    Environmental risk

    Environmental risk within CTR is primarily associated with the handling
and recycling of certain materials, such as tires, paint, oil and lawn
chemicals, sold in Canadian Tire and PartSource stores. The Company has
established and follows comprehensive environmental policies and practices to
avoid a negative impact on the environment, protect CTR's reputation and
comply with environmental laws.

    3.3.2 Mark's Work Wearhouse

    3.3.2.1 Q2 2008 Strategic Plan performance

    The following outlines Mark's performance for the second quarter of 2008
in the context of our 2012 Strategic Plan.

    
    -------------------------------------------------------------------------
    Initiatives to build a "BIGGER" Canadian Tire
    -------------------------------------------------------------------------
    Network expansion

    A critical aspect of Mark's growth plan revolves around its objective of
    capturing an increasingly significant share of overall apparel sales in
    each geographic market in which Mark's competes. To increase Mark's
    market presence, the Company plans to continue with its aggressive goal
    of expanding the network of Mark's stores.
    -------------------------------------------------------------------------
    2008 Key initiatives                 Q2 2008 Performance
    -------------------------------------------------------------------------
    Mark's will continue network         Second quarter
    development through opening new
    stores, relocating or expanding      -   opened four new stores,
    existing stores and renovating           three of which are
    older stores to the newest Mark's        co-located inside a CTR
    format.                                  store;
                                         -   expanded one corporate
                                             store; and
                                         -   relocated two corporate
                                             stores, one of which is
                                             co-located inside a
                                             CTR store.

                                         Mark's total retail square
                                         footage at the end of the
                                         quarter was 3.1 million square
                                         feet.
    -------------------------------------------------------------------------
    New store concepts

    In addition to adding incremental stores to the total network, Mark's is
    in the process of developing new store concepts that will be rolled out
    over the Plan period.
    -------------------------------------------------------------------------
    2008 Key initiatives                 Q2 2008 Performance
    -------------------------------------------------------------------------
    Mark's will continue to expand the   Second quarter
    store network by developing new and
    innovative ways to bring Clothes     Mark's relocated one new
    That Work to consumers across the    Mark's-inside-a-CTR store
    country, resulting in an increased   (included in total above).
    physical presence across the
    geographic regions of Canada.
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Initiatives to build a "BETTER" Canadian Tire
    -------------------------------------------------------------------------
    Category expansion

    Mark's has set aggressive growth goals for the 2012 Plan period which
    will be supported by its plans for category expansion in its three major
    product lines. Although growth was modest in 2007 and the first half of
    2008, women's wear is still expected to be the fastest growing segment of
    the business over the plan period as it is the least developed of the
    Mark's main category lines. Improvements in the product assortment in the
    women's wear category are expected to bring continued growth during the
    Plan period.
    -------------------------------------------------------------------------
    2008 Key initiatives                 Q2 2008 Performance
    -------------------------------------------------------------------------
    In 2008, Mark's will continue to     Second quarter - corporate sales
    expand its product assortment in
    the three main categories of         -   sales of industrial wear
    apparel and footwear with a focus        increased by 14.4 percent;
    on the Clothes That Work campaign.   -   sales of women's wear
                                             increased by 4.5 percent;
                                             and
                                         -   sales of men's wear
                                             increased by 2.2 percent.

                                         Mark's continued to focus on
                                         the Clothes That Work campaign
                                         with the relaunch of two Clothes
                                         That Work technologies and the
                                         introduction of two new Clothes
                                         That Work items, including one
                                         new women's wear item.
    -------------------------------------------------------------------------


    3.3.2.2 Key performance indicators

    The following are key performance indicators for Mark's:

    -   retail and same store sales growth;
    -   average sales per corporate store; and
    -   average sales per square foot of retail space

    Mark's retail and same store sales growth

    (year-over-year
    percentage change)                 Q2 2008   Q2 2007  2008 YTD  2007 YTD
    -------------------------------------------------------------------------
    Total retail sales                    5.3%      9.7%      1.5%     13.0%

    Same store sales(1)                   0.9%      6.9%    (2.8)%     10.6%
    -------------------------------------------------------------------------
    (1) Mark's same store sales excludes new stores, stores not open for the
        full period in each year and store closures.

    -------------------------------------------------------------------------
    Mark's retail sales

    Mark's retail sales represent total merchandise sales to consumers and
    business-to-business customers, net of returns, across Mark's entire
    network of stores, fulfillment centres and Mark's online web store
    recorded at retail prices.
    -------------------------------------------------------------------------
    

    Second quarter

    Mark's retail sales during the second quarter of 2008 were impacted by
the continued softening of retail and economic conditions experienced across
many parts of Canada. Despite these factors, retail sales increased 5.3
percent due to expansion in the store network. Same store sales growth
increased a modest 0.9 percent compared to the second quarter of 2007, which
had experienced strong same store sales results at that time, due to more
favourable weather and economic conditions compared to those that prevailed in
the second quarter of 2008. Men's industrial footwear and men's workwear
demonstrated the largest dollar sales increases in corporate store sales in
the second quarter.

    
    Average corporate store sales(1)

                                                 For the   For the   For the
                                               12 months 12 months 12 months
                                                   ended,    ended,    ended,
                                                 June 28,  June 30,   July 1,
                                                    2008      2007      2006
    -------------------------------------------------------------------------
    Average retail sales per store
     ($ thousands)(2)                           $  2,735  $  2,867  $  2,526
    Average sales per square foot ($)(3)             323       347       322
    -------------------------------------------------------------------------
    (1) Calculated on a rolling 12-month basis.
    (2) Average retail sales per corporate store include corporate stores
        that have been open for 12 months or more.
    (3) Average sales per square foot is based on sales from corporate
        stores. We have prorated square footage for corporate stores that
        have been open for less than 12 months.

    Mark's continues to focus on productivity at its stores. Due to the
softening retail environment in Canada during the second quarter of 2008,
there was a decrease in average sales per store and average sales per square
foot, but this followed strong 13.5 percent and 7.8 percent year-over-year
increases in those respective measures in the second quarter of 2007 over the
second quarter of 2006 due to the factors noted above.

    3.3.2.3 Mark's financial results

    ($ in millions)    Q2 2008 Q2 2007(1) Change  2008 YTD 2007 YTD(1) Change
    -------------------------------------------------------------------------
    Retail sales(2)   $  233.1  $  221.3    5.3%  $  405.6  $  399.7    1.5%
    Gross operating
     revenue(3)          200.6     187.2    7.2%     348.1     339.3    2.6%
    EBITDA(4)             14.7      30.2 (51.5)%      17.7      34.7 (49.3)%
    -------------------------------------------------------------------------
    Earnings before
     income taxes          7.9      25.0 (68.4)%       4.5      24.8 (81.9)%
    Less adjustment for:
    Loss on disposals
     of property and
     equipment            (0.1)     (0.3)             (0.1)     (0.6)
    -------------------------------------------------------------------------
    Adjusted earnings
     before income
     taxes(4)         $    8.0  $   25.3 (68.5)%  $    4.6  $   25.4 (82.0)%
    -------------------------------------------------------------------------
    (1) Mark's 2007 results have been restated for the implementation, on a
        retrospective basis, of CICA HB 3031 - inventories. Please refer to
        section 13.1 for additional information.
    (2) Includes retail sales from corporate and franchise stores.
    (3) Gross operating revenue includes retail sales at corporate stores
        only.
    (4) See section 14.0 on non-GAAP measures.
    

    Explanation of Mark's financial results

    Second quarter

    Mark's pre-tax earnings decreased in the second quarter of 2008 primarily
as a result of the decrease in gross margin attributable to a larger than
anticipated book to physical inventory adjustment during the annual store
inventory count ($12.0 million higher than the previous year). Operating
expenses increased by 18.5 percent over the second quarter of 2007, largely
attributable to higher personnel, advertising, occupancy and infrastructure
investments to support the growth in the store network.

    3.3.2.4 Business risks

    Mark's is exposed to a number of risks in the normal course of its
business that have the potential to affect its operating performance. The
following are some of the business risks specific to Mark's. Please also refer
to section 9.0 of our 2007 Financial Report for a discussion of some other
industry and Company-wide risks affecting the business.

    Seasonality risk

    Mark's business remains very seasonal, with the fourth quarter typically
producing the largest share of annual sales and earnings due to the general
increase in consumer spending for winter clothing and Christmas related
purchases. In 2007, for example, the fourth quarter produced about 40 percent
of total annual retail sales and prior to the adoption of CICA HB 3031 -
Inventories, approximately 54 percent of annual pre-tax earnings. With the
adoption of CICA HB 3031 - Inventories, an even higher percentage of Mark's
annual pre-tax earnings are expected to occur in the fourth quarter. Detailed
sales reporting and merchandise planning modules assist Mark's in mitigating
the risks and uncertainties associated with unseasonable weather and consumer
behaviour during the important Christmas selling season, but cannot remove
risks completely because inventory orders, especially for a significant
portion of merchandise purchased off-shore, must be placed well ahead of the
season.

    Market obsolescence risk

    All clothing retailers are exposed, to varying degrees, to the vagaries
of consumers' fashion preferences. Mark's mitigates this risk through its
brand positioning, consumer preference monitoring, demand forecasting and
merchandise selection efforts. Mark's specifically targets consumers of
durable everyday wear and is less exposed to changing fashions than apparel
retailers offering high-fashion apparel and accessories.

    3.3.3 Canadian Tire Petroleum

    3.3.3.1 Q2 2008 Strategic Plan performance

    Petroleum plays a strategic role in increasing customer loyalty and
driving traffic and transactions for CTR and Financial Services. Petroleum
increases Canadian Tire's total value proposition by offering Canadian Tire
'Money' loyalty rewards on gas purchases paid for in cash or by Canadian
Tire's Options MasterCard. Petroleum also supports other cross-marketing
promotions and joint product launches, such as Canadian Tire's Gas Advantage
MasterCard, which has gained wide popularity since its introduction in Ontario
in mid-2006. Customers who have a Canadian Tire MasterCard and purchase gas at
Petroleum are Canadian Tire's most loyal and profitable customers.
    The following outlines Petroleum's performance for the second quarter of
2008 in the context of our 2012 Strategic Plan.

    
    -------------------------------------------------------------------------
    Initiatives to build a "BIGGER" Canadian Tire
    -------------------------------------------------------------------------
    Network renewal and new store concept

    Petroleum's business is an integral part of the Canadian Tire
    organization as customers that use Petroleum's gas bars drive sales and
    traffic to our other business units. Over the 2012 Plan period, Petroleum
    will continue to develop its real estate plan, focusing on introducing
    new store concepts into its existing network of locations, while
    continuing to focus on renewing its current sites.
    -------------------------------------------------------------------------
    2008 Key initiatives                 Q2 2008 Performance
    -------------------------------------------------------------------------
    In 2008, Petroleum will continue to  Second quarter
    strengthen the existing network by
    opening new sites and refurbishing   -   opened one new gas bar; and
    or rebuilding existing sites.        -   refurbished one gas bar.

                                         At the end of the quarter, Petroleum
                                         had 267 gas bars, including 42
                                         re-branded sites.
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Initiatives to build a "BETTER" Canadian Tire
    -------------------------------------------------------------------------
    Enhancing interrelatedness

    Petroleum's business is integrated with CTR and Financial Services
    through Canadian Tire 'Money' and various cross- marketing programs
    designed to build customer loyalty. Petroleum is also in the process of
    enhancing its interrelatedness strategy to further extend its marketing
    leverage across the Company.
    -------------------------------------------------------------------------
    2008 Key initiatives                 Q2 2008 Performance
    -------------------------------------------------------------------------
    In 2008, Petroleum will              Second quarter
    aggressively seek out additional
    cross-marketing opportunities to     -   issued multiplier coupons that
    further leverage its                     increase the Canadian Tire
    interrelatedness strategy to drive       'Money' offered on gas
    customer traffic, transactions,          purchases paid for in cash or
    customer loyalty and earnings across     by Canadian Tire Options
    the enterprise.                          MasterCard;
                                         -   offered discount coupons on
                                             Canadian Tire merchandise with
                                             the purchase of gas; and
                                         -   sold car wash vouchers at CTR
                                             stores.
    -------------------------------------------------------------------------

    3.3.3.2 Key performance indicators

    Gasoline sales volume is a top-line performance indicator for Petroleum,
as measured by the number of gasoline litres sold. Fluctuations in the
wholesale and retail price of gasoline may result in fluctuations in
Petroleum's margin and profitability.


    Gasoline sales volume

                       Q2 2008   Q2 2007  Change  2008 YTD  2007 YTD  Change
    -------------------------------------------------------------------------
    Sales volume
     (millions of
     litres)             429.6     437.4  (1.8)%     843.4     852.7  (1.1)%
    -------------------------------------------------------------------------
    

    Petroleum has continued to grow its market share over the past couple of
years in a mature market where gas prices are at historically high levels,
largely due to our loyalty program, customer service experience at our gas
bars and an increased combined penetration rate on our Canadian Tire Options
MasterCard and the Gas Advantage MasterCard. Gasoline sales volumes during the
quarter were down slightly due to lower same site sales, partially offset by
increases in new site openings. On a same site basis, our gasoline volume
decreased by 2.6 percent in the quarter, which was principally due to a year-
over-year increase in average retail gas prices of approximately 18 percent
and a softening economic environment.

    
    Petroleum's convenience and car wash sales

    (year-over-year percentage change)  Q2 2008   Q2 2007  2008 YTD 2007 YTD
    -------------------------------------------------------------------------
    Total retail sales
      Convenience store sales              5.0%     18.0%      8.0%    17.5%
      Car wash sales                     (8.6)%     20.8%   (17.2)%    20.8%
    -------------------------------------------------------------------------
    Same store sales
      Convenience                          3.5%     13.2%      6.4%    12.9%
      Car wash                           (8.5)%     17.7%   (17.4)%    17.4%
    -------------------------------------------------------------------------

    Convenience store sales in the second quarter of 2008 increased as a
result of new site openings and increases in tobacco and lottery sales. The
decline in car wash sales is largely attributable to the impact of high
gasoline prices and softening economic conditions experienced in the second
quarter of 2008 compared to the previous year.


    3.3.3.3 Petroleum's financial results

    ($ in millions)    Q2 2008   Q2 2007  Change  2008 YTD  2007 YTD  Change
    -------------------------------------------------------------------------
    Retail sales      $  541.9  $  471.9   14.8%  $  990.9  $  857.3   15.6%
    Gross operating
     revenue             514.8     445.6   15.5%     937.6     808.4   16.0%
    EBITDA(1)             12.1      10.5   16.2%      21.1      17.0   24.7%
    -------------------------------------------------------------------------
    Earnings before
     income taxes          8.0       6.4   27.2%      13.0       8.9   47.1%
    Less adjustment for:
      Loss on disposals
       of property and
       equipment             -      (1.1)             (0.2)     (1.3)
    -------------------------------------------------------------------------
    Adjusted earnings
     before income
     taxes(1)         $    8.0  $    7.5    9.8%  $   13.2  $   10.2   30.6%
    -------------------------------------------------------------------------
    (1) See section 14.0 on non-GAAP measures.
    

    -------------------------------------------------------------------------
    Petroleum's retail sales

    Retail sales include the sales of gasoline at Petroleum's entire network
    of petroleum sites recorded at retail pump prices, including re-branded
    sites, and excluding goods and services taxes and provincial sales taxes,
    where applicable. Retail sales also include sales of products sold at our
    convenience stores, car wash sites, propane and Pit Stop sites, all of
    which we record at retail selling prices.
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Gasoline pricing

    Petroleum maintains long-term wholesale agreements with major refiners to
    source competitively priced gasoline across Canada. This fuel is then
    sold through Petroleum retail locations at market prices.
    -------------------------------------------------------------------------

    Explanation of Petroleum's financial results

    Second quarter

    Higher and more stable gasoline margins and an increase in convenience
store sales, partially offset by lower gasoline volumes, contributed to
Petroleum's revenue growth in the second quarter. Average retail gasoline
prices during the second quarter of 2008 increased by approximately 18 percent
over the second quarter of 2007, driving the increased revenue.
    Increased gasoline margins were the major factor that contributed to
Petroleum's positive earnings performance during the quarter combined with
effective expense management. Petroleum incurred $0.6 million in environmental
expenses in the second quarter related to clean-up costs associated with
certain site closures compared to $1.8 million incurred in the second quarter
of 2007.

    3.3.3.4 Business risks

    Petroleum is exposed to a number of risks in the normal course of its
business that have the potential to affect its operating performance. The
following are some of the business risks specific to Petroleum's operations.
Please also refer to section 9.0 of our 2007 Financial Report for a discussion
of some other industry-wide and Company-wide risks.

    Commodity price and disruption risk

    The operating performance of petroleum retailers can be affected by
fluctuations in the commodity cost of oil. The wholesale price of gasoline is
subject to global oil price supply and demand conditions, which are
increasingly a function of rising demand from fast-developing countries such
as India and China, political instability in the Middle East, potential supply
chain disruptions from natural and human-caused disasters, as well as
commodity speculation. To mitigate this risk to profitability, Petroleum
tightly controls its operating costs and enters into long-term gasoline
purchase arrangements with integrated gasoline wholesalers.

    Environmental risk

    Environmental risk within Petroleum is primarily associated with the
handling of gasoline, oil and propane. Environmental contamination, if not
prevented or remediated, could result in fines and sanctions and damage our
reputation. Petroleum mitigates its environmental risks through a
comprehensive regulatory compliance program, which involves environmental
investigations, as required, and the remediation of any contaminated sites in
a timely manner. Petroleum also carries environmental insurance coverage.

    3.3.4 Canadian Tire Financial Services

    3.3.4.1 Q2 2008 Strategic Plan performance

    The following outlines Financial Services' performance for the second
quarter of 2008 in the context of our 2012 Strategic Plan.

    
    -------------------------------------------------------------------------
    Initiatives to build a "BIGGER" Canadian Tire
    -------------------------------------------------------------------------
    Total managed portfolio of loans receivable (credit card, personal and
    line of credit loans)

    Financial Services plans to grow its portfolio through increases in
    average balances, new account acquisition, the introduction of new credit
    cards and continued testing of the personal loan portfolio.
    -------------------------------------------------------------------------
    2008 Key initiatives                 Q2 2008 Performance
    -------------------------------------------------------------------------
    For 2008, Financial Services has     Second quarter
    targeted increasing gross average
    credit card receivables and the      Gross average loans receivable
    number of accounts carrying a        were $3.8 billion in the second
    balance and growing its total        quarter. The growth reflects a
    managed portfolio as key             6.5 percent increase in the
    initiatives.                         average account balance and a
                                         0.3 percent increase in the
    In addition, Financial Services      number of accounts carrying a
    is planning a major relaunch of      balance.
    the Canadian Tire Options
    MasterCard in 2008.                  During the quarter Financial
                                         Services continued the rollout
                                         of new cards for the relaunch
                                         of the Canadian Tire Options
                                         MasterCard.
    -------------------------------------------------------------------------
    Retail banking

    Financial Services began offering retail banking products in two pilot
    markets in October 2006, including high interest savings accounts,
    guaranteed investment certificates and residential mortgages. In 2007,
    the pilot was expanded to include a third market in Ontario along with
    the launch of the Canadian Tire One-and-Only account. The retail banking
    business leverages the trust and credibility Canadian Tire has earned
    over the last 40 years providing financial services to millions of
    customers.
    -------------------------------------------------------------------------
    2008 Key initiatives                 Q2 2008 Performance
    -------------------------------------------------------------------------
    Financial Services' retail banking   Second quarter
    plans include increasing the
    ending mortgage portfolio balance    Financial Services had accumulated
    and deposit balances.                over $180 million in deposits and
                                         approximately $67 million in
    Financial Services will incur        mortgages as at the end of the
    approximately $28 million in net     second quarter of 2008.
    expenses associated with the
    marketing and operations of the      Financial Services incurred
    retail banking initiative in 2008.   $6.6 million in net expenses
                                         associated with the marketing and
                                         operation of the retail banking
                                         initiative during the second
                                         quarter of 2008.
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Initiatives to build a "BETTER" Canadian Tire
    -------------------------------------------------------------------------
    Insurance and other ancillary products

    Financial Services plans to enhance its insurance and warranty product
    offering to credit card customers. Revenues from insurance and warranty
    products have increased significantly in the last five years through
    direct marketing to Canadian Tire's growing base of customers.
    -------------------------------------------------------------------------
    2008 Key initiatives                 Q2 2008 Performance
    -------------------------------------------------------------------------
    Financial Services plans to          Revenues from insurance and
    increase revenues from insurance     warranty products increased
    and warranty products during 2008.   6.6 percent in the second quarter
                                         on a comparable basis
                                         year-over-year.
    -------------------------------------------------------------------------

    3.3.4.2 Key performance indicators

    The following are key indicators of Financial Services' performance:

    -   size of the total managed portfolio
    -   profitability of the portfolio
    -   quality of the portfolio

    Financial Services' total managed portfolio of loans receivable

    ($ in millions,
    except where
    noted)             Q2 2008   Q2 2007  Change  2008 YTD  2007 YTD  Change
    -------------------------------------------------------------------------
    Average number of
     accounts with a
     balance
     (thousands)         1,861     1,855    0.3%     1,855     1,850    0.3%
    Average account
     balance ($)      $  2,066  $  1,940    6.5%  $  2,069  $  1,924    7.5%
    Gross average
     receivables (GAR) 3,844.9   3,599.6    6.8%   3,838.3   3,558.8    7.9%
    Total managed
     portfolio (end of
     period)                                       3,926.7   3,704.3    6.0%
    Net managed
     portfolio
    (end of period)                                3,830.2   3,618.5    5.9%
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Net managed portfolio

    Financial Services' net managed portfolio is the total value, after
    allowances, of loans receivable including credit card, personal, line of
    credit and mortgage loans.
    -------------------------------------------------------------------------
    

    Financial Services' gross average receivables were up in the second
quarter, due primarily to marketing programs designed to increase average
balances and increases in our retail banking accounts. The continued success
of the Gas Advantage MasterCard in Ontario contributed to the increase in
total portfolio growth, offset by a decline in personal loan accounts. During
the quarter, Financial Services announced that it will be expanding the Gas
Advantage MasterCard offering to other provinces in Canada, beginning on July
1, 2008.
    In May 2008, Financial Services re-purchased the securitized portfolio of
personal loan receivables of $43.7 million. The portfolio balance has been
included in our Consolidated Balance Sheet.
    Financial Services' future growth will be driven by increases in average
account balances, modest increases in new accounts and the introduction of new
credit card and insurance products. Management regards new retail banking
products as another high-potential channel for growth in the longer term.
    Approximately 2.6 million cards were issued as part of the Options
MasterCard relaunch resulting in an investment of $9.7 million this quarter.
The relaunch is expected to increase sales by approximately 2.0 percent and
return the net investment in 12 to 18 months.

    
    Gross average receivables

    -------------------------------------------------------------------------
    GAR is the monthly average of Financial Services' loans receivable
    averaged over a specified period of time.
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Securitization of loans receivable

    Securitization is the process by which interests in financial assets are
    sold to a third party. Financial Services routinely securitizes credit
    card loans receivable by selling an interest in those assets to trusts
    involved in the business of handling receivables portfolios. In the case
    of credit card loans, co-ownership interests are sold to Glacier Credit
    Card Trust(R) (GCCT). Financial Services records these securitization
    transactions as a sale, and as a result, these assets are not included on
    the Company's Consolidated Balance Sheet, but are included in our total
    managed portfolio of loans receivable. Financial Services has
    traditionally securitized between 70 percent and 80 percent of loans
    receivable on an ongoing basis.
    -------------------------------------------------------------------------

    Financial Services' portfolio of credit card loans receivable

    ($ in millions,
    except where
    noted)             Q2 2008   Q2 2007  Change  2008 YTD  2007 YTD  Change
    -------------------------------------------------------------------------
    Average number of
     accounts with a
     balance
     (thousands)         1,823     1,816    0.4%     1,816     1,810    0.3%
    Average account
     balance ($)      $  1,994  $  1,872    6.5%  $  1,999  $  1,850    8.0%
    Gross average
     receivables       3,636.0   3,400.4    6.9%   3,630.7   3,349.5    8.4%
    Total managed
     portfolio (end
     of period)                                    3,710.7   3,514.0    5.6%
    -------------------------------------------------------------------------

    Gross average credit card loans receivable grew 6.9 percent to
$3.6 billion at the end of the quarter primarily due to a 6.5 percent increase
in the average account balance during the quarter compared to the previous
year. The increase in average account balances is largely a result of
marketing programs designed to increase average balances.

    Financial Services' profitability

    Financial Services' profitability measures are tracked as a percentage of
GAR, shown in the table below.

    Profitability of total managed portfolio(1)

                                                 Q2 2008   Q2 2007   Q2 2006
    -------------------------------------------------------------------------
    Total revenue as a % of GAR(2)                24.41%    24.88%    25.10%
    Gross margin as a % of GAR(2)                 12.47%    13.13%    13.17%
    Operating expenses as a % of GAR(3)            7.89%     7.77%     8.10%
    Return on average total managed
     portfolio(2),(3),(4)                          4.58%     5.36%     5.07%
    -------------------------------------------------------------------------
    (1) Figures are calculated on a rolling 12-month basis and comprise the
        total managed portfolio of loans receivable.
    (2) Excludes the net effect of securitization activities and gain on
        disposal/redemption of investment.
    (3) Excludes the impact of the modification to the stock option
        agreements in the fourth quarter of 2006.
    (4) Return is calculated as earnings before taxes as a percentage of GAR.

    The decline in the return on the total managed portfolio is principally
due to the expenses incurred for the Options MasterCard relaunch.

    -------------------------------------------------------------------------
    Gross margin

    Gross margin is Financial Services' total revenue less direct expenses
    associated with credit card, personal, line of credit and mortgage loans
    and insurance and warranty products. The most significant direct expenses
    are the provision for credit losses associated with the credit card,
    personal loan and line of credit portfolios, the loyalty program and
    interest expense.
    -------------------------------------------------------------------------
    

    Financial Services' MasterCard accounts provide increased earnings
potential through cross-selling of balance-based insurance products and other
financial services being offered by Financial Services. As Financial Services
introduces lower rate credit cards and other loans receivable, the reduction
in revenue and gross margin as a percentage of gross average receivables will
be offset by continued growth in loans receivable, higher sales of insurance
and warranty products and ongoing improvements in the operating expense ratio.
    As part of the strategic planning process, management set a long-term
goal of managing Financial Services' pre-tax return on the average total
managed portfolio in the target range of 4.5 to 5.0 percent. As shown in the
table above, Financial Services has met or exceeded this target in the second
quarters of 2006, 2007 and 2008.

    
    Portfolio quality
                                                 Q2 2008   Q2 2007   Q2 2006
    -------------------------------------------------------------------------
    Net write-off rate (rolling 12-month basis)    5.98%     5.89%     5.95%
    Account balances less than 30 days overdue at
     end of period                                96.43%    96.57%    96.39%
    Allowance rate                                 2.46%     2.32%     2.47%
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Net write-offs

    Net write-offs represent account balances that have been written off, net
    of collections of amounts previously written off. Net write-off rate is
    the net write-offs expressed as a percentage of gross average receivables
    in a given period.
    -------------------------------------------------------------------------
    

    Financial Services' net write-off rate was 5.98 percent in the second
quarter of 2008, an increase of nine basis points over the same period of the
previous year. Financial Services' net-write-off rate for the credit card
portfolio on a rolling 12-month basis was 5.96 percent compared to
5.79 percent in the 2007 period. Despite more challenging economic conditions,
Financial Services continues to manage the write-off rate within the
previously stated target range of 5.0 to 6.0 percent.

    -------------------------------------------------------------------------
    Allowance

    The allowance is determined using historical loss experience of account
    balances based on the aging and arrears status, with certain adjustments
    for other relevant circumstances influencing the recoverability of the
    loans.
    -------------------------------------------------------------------------

    Periodic fluctuations in write-offs, aging and allowances occur as a
result of a variety of economic influences such as job growth or losses,
personal debt levels and personal bankruptcy rates, as well as changes caused
by adjustments to collection strategies. The increase in the allowance rate
compared to the second quarter of 2007 is due to a modest deterioration in the
credit card portfolio aging, challenging economic conditions and the impact of
changes in collection practices in 2007. Aging of the credit card portfolio,
while above last year's level, is equivalent to the level of aging in the same
period in 2006.

    
    3.3.4.3 Financial Services' financial results

    ($ in millions)    Q2 2008   Q2 2007  Change  2008 YTD  2007 YTD  Change
    -------------------------------------------------------------------------
    Gross operating
     revenue          $  201.5  $  192.3    4.8%  $  410.2  $  368.4   11.4%
    EBITDA(1)             47.1      71.9 (34.6)%     107.5     117.0  (8.1)%
    -------------------------------------------------------------------------
    Earnings before
     income taxes         43.8      68.6 (36.2%)      97.4     114.0 (14.6%)
    Less adjustment for:
      Gain on sale of
       investment            -      18.4                 -      18.4
      Loss on disposals
       of property and
       equipment             -      (0.1)                -      (0.2)
      Net effect of
       securitization
       activities(1)       3.9       5.5              16.8       2.5
    -------------------------------------------------------------------------
    Adjusted earnings
     before income
     taxes(2)         $   39.9  $   44.8  (10.9%) $   80.6  $   93.3  (13.6%)
    -------------------------------------------------------------------------
    (1) Includes initial gain/loss on the sale of loans receivable,
        amortization of servicing liability, change in securitization reserve
        and gain/loss on re-investment.
    (2) See section 14.0 on non-GAAP measures.
    

    Explanation of Financial Services' financial results

    Second quarter

    Financial Services' gross operating revenue increased over the second
quarter of 2007 largely as a result of higher credit sales and an increase in
interest bearing balances which resulted in an increase in credit interest
earned. This was partially offset by a smaller gain from the net effect of
securitization activities.
    Earnings for the quarter were impacted by the investment of $9.7 million
in the Options MasterCard relaunch. Now substantially complete, the relaunch
has been well-received by customers and activity on PayPass(TM) enabled cards
has exceeded initial expectations. Adjusting for the above-mentioned
investment, adjusted earnings were up 10.8 percent year-over-year.

    3.3.4.4 Business risks

    Financial Services is exposed to a number of risks in the normal course
of its business that have the potential to affect its operating performance.
The following are some of the business risks specific to Financial Services'
operations. Please also refer to section 9.0 of our 2007 Financial Report for
a discussion of some other industry-wide and Company-wide risks affecting the
business.

    Consumer credit risk

    Financial Services grants credit to its customers through Canadian Tire
MasterCards, retail credit cards, personal loans, line of credit loans and
residential mortgages. With the granting of credit, Financial Services assumes
certain risks such as the failure to accurately predict the creditworthiness
of its customers or their ability to repay debt. Financial Services minimizes
credit risks to maintain and improve the quality of its consumer lending
portfolio by:

    
    -   employing sophisticated credit-scoring models to constantly monitor
        the creditworthiness of customers;
    -   using the latest technology to make informed credit decisions for
        each customer account;
    -   adopting technology to improve the effectiveness of the collection
        process; and
    -   monitoring the macro-economic environment, especially with respect to
        consumer debt levels, interest rates, employment levels and income
        levels.
    

    Securitization funding risk

    Securitization is an important source of funding for Canadian Tire,
involving the sale of credit card loans to GCCT. Securitization enables
Financial Services to diversify funding sources, and manage risks and capital
requirements. Financial Services' securitization program relies on the
marketability of the asset-backed commercial paper (ABCP) and notes issued by
GCCT as described in section 5.2.4. A decline in the marketability of the
commercial paper and notes would require the Company to find new sources of
funding. Developments in the last half of 2007 in the international credit
markets had an impact on some companies' securitization programs; see sections
5.2.4 and 5.2.5 below.

    Interest rate risk

    The Company's sensitivity to movements in interest rates is substantially
limited to its cash and short-term investments. A one percent change in
interest rates would not materially affect its earnings, cash flow or
financial position.
    Most of Financial Services' revenue is not interest rate sensitive as it
is generated primarily from Canadian Tire MasterCards, which carry a fixed
interest rate appropriate to customer segments with common credit ratings. The
securitization program as described in section 5.2.5 of this MD&A reduces
Financial Services' funding requirements. Canadian Tire constantly monitors
the potential impact of interest rate fluctuations on its fixed versus
floating rate exposure and manages its overall balance to reduce the magnitude
of this exposure.
    As the success of Financial Services is dependent upon its ability to
access capital markets at favourable rates, and given the rapid growth of the
total managed portfolio, maintaining the quality of the total managed
portfolio and securitized loans receivable is a key priority of Financial
Services.  For additional information on Canadian Tire's liquidity and capital
market activity, please refer to section 5.2 below.

    Regulatory risk

    Regulatory risk is the risk of negative impact to business activities,
earnings or capital, regulatory relationships or reputation as a result of
failure to comply with or a failure to adapt to current and changing
regulations or regulatory expectations.
    Financial Services' regulatory compliance strategy is to manage
regulatory risk through the promotion of a strong compliance culture and the
integration of solid controls within the Company. Primary responsibility for
compliance with all applicable regulatory requirements rests with senior
management of the Company and extends to all employees.
    Financial Services' Compliance Department is responsible for the
development and maintenance of a legislative compliance management system and
reports on a quarterly basis to Canadian Tire Bank's Governance and Conduct
Review Committee.
    Specific activities that assist the Company in adhering to regulatory
standards include communication of regulatory requirements, advice, training,
testing, monitoring, reporting and escalation of control deficiencies and
regulatory risks.

    4.0 Capital management

    In order to support our growth agenda and meet the objectives enumerated
in our 2012 Strategic Plan the Company actively manages its capital in the
manner indicated below.

    4.1 Capital management objectives

    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.

    4.2 Definition and management of capital

    In the process of managing the Company's capital, management includes the
following items in its definition of capital:

                          June 28,   % of   June 30,  % of  December    % of
    ($ in millions)          2008   total      2007  total  29, 2007   total
    -------------------------------------------------------------------------
    Capital components
    Current portion of
     long-term debt      $    6.1    0.1%  $  153.2    3.7%  $  156.3    3.4%
    Long-term debt        1,361.9   29.3%   1,013.2   24.6%   1,341.8   28.9%
    Other long-term
     liabilities(1)           0.1    0.0%      11.0    0.3%      10.6    0.2%
    Share capital           704.9   15.2%     701.2   17.0%     700.7   15.0%
    Contributed surplus         -    0.0%       1.3    0.0%       2.3    0.1%
    Components of
     accumulated other
     comprehensive loss(2)  (10.8) (0.2)%      (5.1) (0.1)%      (8.5) (0.2)%
    Retained earnings     2,584.9   55.6%   2,251.8   54.5%   2,455.1   52.6%
    -------------------------------------------------------------------------
    Net capital under
     management          $4,647.1  100.0%  $4,126.6  100.0%  $4,658.3  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 of
Directors 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 of Directors perform periodic reviews of the
policies to ensure they remain consistent with the risk tolerance acceptable
to the Company and the current market trends and conditions.

    4.3 Constraints on managing capital

    The Company manages its capital structure and makes modifications in
response to changes in economic conditions and the risks associated with the
underlying strategic initiatives. In addition, we are required to comply with
regulatory requirements associated with the operations of CTB, our federally
chartered bank, and other regulatory requirements that impact our business
operations.
    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 second
quarter of 2008. Under these covenants, the Company has significant
flexibility to fund business growth and increase dividend rates within our
existing dividend policy.
    In order to maintain or adjust the capital structure, the Company may
adjust the amount of dividends paid to shareholders, purchase shares for
cancellation pursuant to normal course issuer bids (NCIB), issue new shares,
issue new debt, issue new debt to replace existing debt with different
characteristics and/or increase or decrease the amount of sales of loan
receivable to Glacier Credit Card Trust.

    4.3.1 Canadian Tire Bank's regulatory environment

    The Company's wholly-owned subsidiary, Canadian Tire 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. CTB has a
capital management policy, capital plan, and procedures and controls which it
utilizes to achieve its goals and objectives. CTB'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 CTB's
        peers; and
    -   achieving the lowest overall cost of capital consistent with
        preserving the appropriate mix of capital elements to meet target
        capitalization levels.
    

    OSFI's current regulatory capital guidelines classify capital into two
tiers. At the end of the second quarter of 2008, Tier 1 capital included
common shares and retained earnings reduced by net securitization exposures.
CTB currently does not hold any instruments in Tier 2 capital. Risk-weighted
assets, 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.
    CTB's ratios are above internal minimum targets of 12.0 percent 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 percent and 10 percent, respectively. OSFI
will consider applications for authorized assets-to-capital multiples in
excess of 20 times for institutions that meet certain requirements. OSFI has
currently authorized CTB to maintain a maximum assets-to-capital multiple of
12.5.
    During the second quarter of 2008, CTB 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, CTB complied with the capital guidelines issued by OSFI
under the then current Basel I Capital Accord (Basel I).

    4.4 Key performance measures

    Management also monitors capital and measures our capital position
according to certain key performance measures identified in the table below.

    
                                           June 28,     June 30, December 29,
                                              2008       2007(1)      2007(1)
    -------------------------------------------------------------------------
    Debt ratio
      Long-term debt to total
       capitalization(2)                     28.2%        27.3%        31.2%
    Coverage ratio
      Interest coverage(3)               8.6 times   10.9 times   10.7 times
    -------------------------------------------------------------------------
    (1) 2007 results have been restated for the implementation, on a
        retrospective basis, of CICA HB 3031 - inventories. Please refer to
        section 13.1 for additional information.
    (2) Long-term debt includes the current portion of long-term debt.
        Capitalization is based on current and long-term debt, future income
        taxes, long-term liabilities and shareholders' equity.
    (3) Interest coverage is calculated on a rolling 12-month basis after
        annualizing short-term and long-term interest on long-term debt
        issued and retired during the period. See section 14.0 for additional
        information on non-GAAP measures.
    

    5.0 Financing

    5.1 Credit facilities

    At the end of the second quarter of 2008, the Company had committed bank
lines of $1.0 billion in place. The bank lines are provided by nine domestic
and international banks reflecting the strong support for Canadian Tire and
the GCCT commercial paper program.
    Subsequent to the end of the second quarter, the Company increased its
committed bank lines to $1.25 billion. The bank lines are provided by 12
domestic and international banks.
    The committed bank lines provide flexibility to the Company to support
its growing retail and financial services businesses and help the Company to
better manage seasonal cash flow activity. In addition to the above-noted
lines, Canadian Tire has the following sources of financing:

    
    -   A $750.0 million shelf prospectus for its MTN Program, $300.0 million
        of which was issued successfully in an oversubscribed transaction in
        October 2007; and
    -   An $800.0 million Canadian Tire commercial paper program that has
        strong investor demand at cost-effective rates and is fully supported
        by the aforementioned committed bank lines.
    

    As of June 28, 2008, the GCCT commercial paper program has access to
$760.0 million of the total Canadian Tire committed lines and GCCT had
achieved compliance with DBRS(R) Global Liquidity Standards. Subsequent to the
end of the second quarter, the GCCT commercial paper program access was
increased to $1.0 billion of the total Canadian Tire committed bank lines.
    During the current quarter, the market conditions surrounding the
liquidity of ABCP continued to experience some volatility; however, GCCT has
been successful at rolling over its commercial paper, albeit at varying
spreads. There continues to be a constrained amount of ABCP that GCCT is able
to issue, as investor demand remains limited. As of June 28, 2008,
$133.8 million of GCCT's commercial paper was outstanding and backed by the
bank credit lines.

    Debt market conditions

    In August and September of 2007, global debt markets experienced a credit
crisis linked to problems in the U.S. sub-prime mortgage market. This caused a
worldwide reassessment of the financial risks involved with asset-backed
securities and led to market disruptions, constrictions and increased interest
rates for borrowers looking to refinance their short-term debt.
    Canadian Tire participates in the asset-backed security markets through
the use of commercial paper and issuance of Medium Term Notes (MTN). GCCT
issued five-year MTN in the first quarter of 2008 and continues to refinance
its maturing commercial paper, demonstrating that these market challenges have
not affected our ability to access funding.
    In November 2007, Canadian Tire received confirmation from its rating
agencies on its various funding programs, all of which had a stable outlook.
As at June 28, 2008 there has been no change in the ratings.

    
    Credit rating summary                          DBRS           S&P
    -------------------------------------------------------------------------
    Canadian Tire
      Commercial paper                           R-1 (low)     A-1 (low)(Cdn)
      Debentures                                  A (low)          BBB+
      Medium-term notes                           A (low)          BBB+

    Glacier Credit Card Trust(1)
      Asset-backed commercial paper              R-1 (high)        -----
      Asset-backed senior notes                     AAA             AAA
      Asset-backed subordinated notes                A               A

    Trend or outlook                               Stable         Stable
    -------------------------------------------------------------------------
    (1) Asset-backed Series 2002 Senior and Subordinated Notes were
        discontinued on January 2, 2008.

    Overall, Canadian Tire believes it is in a strong position with respect to
its financial flexibility and is well positioned to support its proposed
growth agenda.

    5.2 Funding program

    5.2.1 Funding requirements

    We fund our capital expenditures, working capital needs, dividend payments
and other financing needs, such as debt repayments and Class A Non- Voting
Share purchases under the NCIB, from a combination of sources. In the second
quarter of 2008, the primary sources of funding were:

    -   $ 299 million of cash generated from operating activities; and
    -   $ 33 million of cash arising from an increase in net deposits.

    5.2.2 Cash and cash equivalents

    At June 28, 2008, the Company's cash and cash equivalents totaled
$28.5 million compared to a negative cash position of $16.9 million at June
30, 2007. There was no commercial paper outstanding at the end of the second
quarter of 2008 or 2007. During the second quarter of 2008, we used cash
primarily for the following:

    -   $158 million for commercial paper repayment;
    -   $150 million for the repayment of maturing long-term debt;
    -   $148 million for the investment in loans receivable; and
    -   $116 million for additions to property and equipment.

    5.2.3 Working capital

    Minimizing our working capital requirements continues to be a long-term
priority in order to maximize cash flow for use in the operations of the
Company. The table below shows the change in the value of our working capital
components at the end of the second quarter of 2008 from the second quarter of
2007.

    Comparable working capital components(1)

                                                                   Increase/
                                                                  (decrease)
                                           June 28,     June 30,  in working
    ($ in millions)                           2008         2007      capital
    -------------------------------------------------------------------------
    Accounts receivable                  $   362.5    $   365.6    $    (3.1)
    Loans receivable                         877.0        683.3        193.7
    Merchandise inventories                  996.6        828.8        167.8
    Prepaid expenses and deposits             62.4         59.6          2.8
    Income taxes recoverable                  86.6        102.7        (16.1)
    Accounts payable and other            (1,200.2)    (1,130.7)       (69.5)
    -------------------------------------------------------------------------
                                                                   $   275.6
    -------------------------------------------------------------------------
    (1) 2007 figures have been restated for the implementation, on a
        retrospective basis, of CICA HB 3031 - Inventories. See section 13.1
        for additional information.
    

    The increase in loans receivable is due to increases in the mortgage
portfolio, credit card loans portfolio, line of credit account balances and
the repurchase of the securitized personal loan portfolio in May 2008.
    The increase in merchandise inventories is due to:

    
    -   an increase in the amount of globally sourced product, which has
        longer lead times;
    -   an increase in the lead times on globally sourced product due to lead
        time increases required by certain business partners which comprise
        the global supply chain; and
    -   sales demand forecasts that exceeded actual sales performance.
    

    Plans are in place to manage inventories back to planned levels over the
next several quarters.

    5.2.4 Asset-backed commercial paper

    Background

    The market for Canadian third-party asset-backed commercial paper, which
was greatly impacted by the global disruption in the market experienced in
August 2007, has been addressed in a formal restructuring proposal. On April
25, 2008, the majority of the note holders with investments in the affected
ABCP voted in favour of the restructuring proposal. The restructuring provides
investors with new long-term notes to replace the short-term ABCP that is
currently illiquid. The deal, however, includes a controversial clause that
would give all players in the market immunity from lawsuits. Subsequent court
hearings were held regarding these clauses in the plan and after slight
modifications were made to the plan, the court has permitted the plan to
proceed. Several parties are appealing the court's decision and until the
appeals have been heard and finalized, the plan will not commence. The
Company's $8.9 million of affected ABCP will be converted into notes that will
pay interest at the rate paid on banker's acceptance notes less 50 basis
points until maturity, which is currently expected to be between 2016 and
2017. The committee responsible for the restructuring proposal is working to
ensure that a secondary market in the new notes develops so that investors
will have an opportunity to sell their new notes, should they so choose.

    Valuation and classification

    During 2007, the Company recorded a $1.3 million before-tax provision for
impairment of the ABCP in the Consolidated Statement of Earnings based on
management's best estimate of impairment at the time. Due to additional
information provided to investors who hold ABCP through the formal
restructuring proposal, the Company recorded an additional $1.0 million
before- tax provision for impairment of the ABCP in the first quarter of 2008,
bringing the total charge for impairment to $2.3 million or 25 percent. The
Company's valuation is representative of the expected outcome of the plan, and
as such no further write-down was recorded in the second quarter of 2008.
    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.
    Consistent with the terms of the restructuring proposal, the Company has
classified the remaining balance of this investment in ABCP of $6.6 million as
long-term investments on the Consolidated Balance Sheet.

    Assumptions underlying valuation

    The valuation assumes 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 assumes that the replacement notes
will bear interest rates similar to short-term instruments and that such rates
would be commensurate with the nature of the underlying assets and their
associated cash flows. Assumptions have been made as to the amount of
restructuring and other costs that the Company will bear.
    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 which would
impact the Company's future earnings. 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 June 28, 2008.

    Impact on debt covenants and ratings

    The write-down and reclassification of the Company's investment in ABCP
has 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.
    As referenced in section 5.1, due to the amount of funds we have
available through committed lines of credit and various other forms of
funding, the Company has sufficient credit facilities to satisfy its financial
obligations as they come due and does not expect a material adverse impact on
its business as a result of the current third-party ABCP liquidity issue.

    5.2.5 Loans receivable

    Our loans receivable securitization program is designed to provide a
cost- effective source of funding for Financial Services. Loans receivable
were as follows at the indicated dates:

    
                                                        June 28,     June 30,
    ($ in millions)                                        2008         2007
    -------------------------------------------------------------------------
    Securitized                                       $ 2,848.8    $ 2,862.9
    Unsecuritized                                         981.4        755.5
    -------------------------------------------------------------------------
    Net managed loans receivable                      $ 3,830.2    $ 3,618.5
    -------------------------------------------------------------------------
    

    Net managed loans receivable continued to increase over the last 12
months as customers' use of the Canadian Tire Options MasterCard and Canadian
Tire Gas Advantage MasterCard grew. At the end of the second quarter of 2008,
net managed loans receivable were 5.9 percent higher than at the end of the
second quarter of 2007.
    Canadian Tire Bank sells co-ownership interests in credit card loans to
GCCT. The Company does not have a controlling interest in GCCT, so we do not
include financial results of GCCT in our Consolidated Financial Statements.
    We record the sale of loans receivable in accordance with CICA's
Accounting Guideline 12, "Transfers of Receivables". Please see note 1 in the
Notes to the 2007 Consolidated Financial Statements.
    During the second quarter of 2008, the Company repurchased its portfolio
of personal loans receivable from a third-party Trust. The personal loans
portfolio balance is included in the Consolidated Balance Sheet.
    We expect the continued growth in the number and average balances of
Canadian Tire MasterCard credit card accounts to lead to an increase in total
loans receivable in 2008. Financial Services expects to continue to fund most
of this increase from the sale of co-ownership interests in credit card loans
to GCCT. GCCT is a third party trust that was formed to buy our credit card
loans and also issues debt to third party investors to fund its credit card
loans purchases. The success of the securitization program is mainly due to
GCCT's ability to obtain funds from third parties by issuing debt instruments
with high credit ratings. Please refer to section 5.1 above for a listing of
GCCT's credit ratings.
    The trustee and custodian for GCCT, The Canada Trust Company, manages the
co-ownership interest and acts as agent for, and on behalf of, CTB and GCCT,
as the owners of the co-ownership interests. Computershare Trust Company of
Canada acts as agent for The Canada Trust Company in its capacity as
custodian. Pursuant to an asset purchase agreement dated February 26, 2007,
all rights and obligations of The Canada Trust Company as custodian will be
assigned to Computershare Trust Company of Canada once the legal requirements
have been fulfilled. BNY Trust Company of Canada acts as indenture trustee
with respect to GCCT and manages the security interests of the holders of the
senior and subordinated notes issued by GCCT. We are currently not aware of
any events, commitments, trends or uncertainties that may have a negative
impact on our arrangement with GCCT.

    6.0 Equity

    The book value of Common and Class A Non-Voting Shares at the end of the
second quarter of 2008 was $40.21 per share compared to $35.72 at the end of
the second quarter of 2007.
    We have a policy of repurchasing Class A Non-Voting Shares to offset the
dilutive effect of shares issued to fulfill the Company's obligations under
various employee profit sharing, stock option and share purchase plans and the
dividend reinvestment plan. In the long term, these repurchases are expected
to offset the issuance of new Class A Non-Voting Shares. In addition, the
Company may purchase additional Class A Non-Voting Shares if the Board
determines, after consideration of market conditions and the Company's
financial flexibility and investment opportunities, that a purchase of
additional Class A Non-Voting Shares is an appropriate means of enhancing the
value of the remaining Class A Non-Voting Shares.
    On February 7, 2008, we announced our intention to initiate a NCIB to
purchase up to 3.6 million of the issued and outstanding Class A Non-Voting
Shares over the 12-month period ending February 18, 2009.
    A NCIB is a bid by a listed company to buy back its shares, up to a
prescribed number, on a stock exchange, subject to certain rules that protect
investors. A total of approximately 0.5 million Class A Non-Voting Shares were
purchased in 2007 under the previous NCIB.

    
    Shares outstanding

                                                        June 28,     June 30,
                                                           2008         2007
    -------------------------------------------------------------------------
    Class A Non-Voting Shares (CTC.A)
      Shares outstanding at beginning of year        78,048,062   78,047,456
      Shares issued under plans(1)                      359,610      290,571
      Shares purchased under NCIB                      (350,800)    (287,000)
    -------------------------------------------------------------------------
      Shares outstanding at end of quarter           78,056,872   78,051,027
    Common Shares (CTC)
      Shares outstanding at beginning and end of
       the quarter                                    3,423,366    3,423,366
    -------------------------------------------------------------------------
    (1) We issue shares under various employee profit sharing and share
        purchase plans, and the dividend reinvestment plan.
    

    Dividends

    Dividends of approximately $17.2 million were declared on Common and
Class A Non-Voting Shares in the second quarter of 2008 compared to dividends
of $15.0 million in the second quarter of 2007. The increase in dividends
declared reflected the Board of Directors' decision in February 2008 to
increase the annual dividend rate by 13.5 percent from $0.74 per share to
$0.84 per share. The second quarterly dividend at the 2008 rate was declared
on May 8, 2008 in the amount of $0.21 per share payable on September 2, 2008
to shareholders of record as of July 31, 2008.

    -------------------------------------------------------------------------
    Dividend policy

    Canadian Tire's policy is to maintain dividend payments equal to
    approximately 15 to 20 percent of the prior year's normalized basic net
    earnings per share, after giving consideration to the period-end cash
    position, future cash requirements and investment opportunities.
    Normalized earnings per share for this purpose include gains and losses
    on the ordinary course disposition of property and equipment.
    -------------------------------------------------------------------------

    7.0 Investing activities

    7.1 Q2 2008 Capital expenditures program

    Canadian Tire's capital expenditures totaled $93 million in the second
quarter of 2008 (as disclosed in the Consolidated Financial Statements of Cash
Flows, see note 13), approximately 33 percent lower than the $140 million
spent in the second quarter of 2007. These 2008 capital expenditures were
comprised of:

    
    -   $52 million for real estate projects, including projects associated
        with the rollout of CTR's new store concept projects;
    -   $14 million for the Eastern Canada distribution centre;
    -   $10 million for information technology; and
    -   $17 million for other purposes
    

    Overall, capital investments for real estate projects has slowed as the
Concept 20/20 store rollout nears completion and a large majority of the
investment in the construction of the Eastern Canada distribution centre will
be substantially completed this year. We have also begun to focus on the next
store concept renewals, including our small market stores, which are less
capital-intensive.

    7.2 2008 Capital expenditures plan

    The 2008 capital plan is for net capital expenditures in the range of
$430 million to $455 million (including the impact of $145 million in proceeds
we expect to receive from the sale and leaseback of three CTR urban store
developments during the year). The 2008 gross capital plan is comprised of the
following, which total $588 million:

    
    -   $416 million for real estate projects, including $267 million
        associated with the rollout of CTR's store network;
    -   $ 71 million for the Eastern Canada distribution centre;
    -   $ 78 million for information technology; and
    -   $ 23 million for other purposes
    

    8.0 Foreign operations

    Since the late 1970s, the Company has established operations outside
Canada for a variety of business purposes. This has resulted in a portion of
the Company's capital and accumulated earnings being in wholly-owned foreign
subsidiaries. As there are currently no plans to repatriate the capital and
earnings, Canadian and foreign taxes that might arise upon such repatriation
have not been provided for. These funds have been accumulated in the following
international operations:

    
    -   U.S.-based subsidiaries hold highly rated short-term securities and
        loans to the Company and its wholly-owned Canadian subsidiaries. The
        capital and earnings of these U.S.-based subsidiaries arose from
        investments made to offset net operating losses incurred by U.S.
        retail operations closed in the 1980s and 1990s and from the
        reinsurance of risks relating to certain insurance products marketed
        to customers of Financial Services and other reinsurance activities;
    -   subsidiaries operating in the Pacific Rim have provided the Company
        with a variety of important services related to product sourcing,
        logistics and vendor management. During 2007, several representative
        offices of the Company were created to perform the activities
        formerly provided by the subsidiaries due to changes in local
        regulations and the need to enhance operational efficiencies; and
    -   a Bermuda-based reinsurance company was established in 2004 to
        reinsure the risk of certain insurance products marketed to customers
        of Financial Services. In addition to its reinsurance activities,
        this company invests in highly rated short-term securities and makes
        loans to the Company and its wholly-owned Canadian subsidiaries.
    

    9.0 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 treatments 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 $187.7 million. Although the Company has appealed these
reassessments, current tax legislation requires the Company to remit to the
CRA and its provincial counterparts approximately $116.7 million related to
this matter, of which $112.6 million had been remitted by the end of the
quarter.
    The Company regularly reviews the potential for adverse outcomes in
respect of tax matters. The Company believes that the ultimate disposition of
the settlements, finalization on 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 provisions, the Company's effective tax rate and its earnings could be
affected, positively or negatively, in the period in which the matters are
resolved.

    10.0 Off-balance sheet arrangements

    10.1 Glacier Credit Card Trust

    As noted earlier, GCCT was formed to buy our credit card loans and it
issues debt to third-party investors to fund its credit card loans purchases.
Refer to sections 5.1 and 5.2.5 of this MD&A for additional information on
GCCT.

    10.2 Trust financing for Dealers

    A financing program has been established to provide an efficient and
cost- effective way for Dealers to access the majority of the financing they
require for their store operations. Refer to MD&A section 8.2 of our 2007
Financial Report for additional information on this program.

    10.3 Bank financing for Dealers and PartSource franchisees

    We have guaranteed the bank debt of some Dealers and some PartSource
franchisees. Refer to MD&A section 8.3 of our 2007 Financial Report for
additional information on this program.

    10.4 Derivative financial instruments

    We use derivative financial instruments to manage our exposure to changes
in interest rates and foreign currency exchange rates. We also use equity
derivative contracts to hedge certain future stock-based compensation
expenses. We do not use hedging to speculate, but rather as a risk management
tool. Refer to MD&A section 8.4 of our 2007 Financial Report for additional
information on derivative financial instruments.

    11.0 Enterprise risk management

    To preserve and enhance shareholder value, the Company approaches the
management of risk strategically through its Enterprise Risk Management (ERM)
framework. Introduced in 2003, the ERM framework sets out principles and tools
for identifying, evaluating, prioritizing and managing risk effectively and
consistently across the Company.
    The ERM framework and the identification of principle risks that the
Company manages on an ongoing basis is described in detail in section 9.0 of
the MD&A in our 2007 Financial Report.
    Management reviews risks on an ongoing basis and did not identify any new
principal risks during the second quarter of 2008.

    11.1 Financial instruments

    The following discussion on risks and risk management includes some of
the required disclosures under the CICA Handbook Section 3862 - Financial
Instruments - Disclosures related to the nature and extent of risks arising
from financial instruments, as required by the standard. Further information
is also available in note 11 of the Notes to the Consolidated Financial
Statements.
    The Company is exposed to a number of risks associated with financial
instruments that have the potential to affect its operating and financial
performance. The Company's primary financial instrument risk exposures are
allowances for credit losses and liquidity risk. The Company also has
financial risk exposures to foreign currency risk and interest rate risk which
may be managed through the use of derivative financial instruments to manage
these risks. The Company does not use derivative financial instruments for
trading or speculative purposes.

    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)
                                      ---------------------------------------
                                       June 28,  June 30,  June 28,  June 30,
    (Dollars in millions)                 2008      2007      2008      2007
                                      ---------------------------------------
    Balance, beginning of period      $   51.5  $   30.4  $    2.7  $    2.9
    Provision for credit losses           24.0      22.5       6.2       3.2
    Recoveries                             6.3       4.9       0.3       0.1
    Write-offs                           (40.5)    (28.6)     (4.5)     (3.1)
                                      ---------------------------------------
    Balance, end of period            $   41.3  $   29.2  $    4.7  $    3.1
                                      ---------------------------------------

                                       Accounts receivable      Total(2)
                                      ---------------------------------------
                                       June 28,  June 30,  June 28,  June 30,
    (Dollars in millions)                 2008      2007      2008      2007
                                      ---------------------------------------
    Balance, beginning of period      $    5.0  $    4.6  $   59.2  $   37.9
    Provision for credit losses            0.8       0.1      31.0      25.8
    Recoveries                             0.1      (0.1)      6.7       4.9
    Write-offs                            (2.5)     (0.1)    (47.5)    (31.8)
                                      ---------------------------------------
    Balance, end of period            $    3.4  $    4.5  $   49.4  $   36.8
                                      ---------------------------------------

    (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                $  155.8  $    5.4  $    5.6  $    2.2  $   11.1
    Accounts payable and
     other(1)                1,185.2         -         -         -         -
    Long-term debt               6.9     158.0     307.5      19.5       6.8
    Interest payment            84.7      84.4      58.2      49.4      48.8
    Other                          -       0.1       2.6         -         -
                            -------------------------------------------------
    Total                   $1,432.6  $  247.9  $  373.9  $   71.1  $   66.7
                            -------------------------------------------------

    (Dollars in millions)   Thereafter   Total
                            -------------------

    Deposits                $      -  $  180.1
    Accounts payable and
     other(1)                      -   1,185.2
    Long-term debt             864.5   1,363.2
    Interest payment           689.4   1,014.9
    Other                          -       2.7
                            -------------------
    Total                   $1,553.9  $3,746.1
                            -------------------

    (1) Includes Canadian Tire Bank deposits from customers and commercial
        paper.
    

    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 whereby a
minimum of 75 percent of its long-term debt (term greater than one year) must
be at fixed versus floating interest rates. The Company is in compliance with
the policy.

    11.2 Operational risks

    In addition to the Principal Risks identified above, operational business
risks that may cause actual results or events to differ materially from those
forecasted in this MD&A include:

    
    -   expansion activity planned for Mark's, PartSource, Petroleum and CTR,
        (the retail businesses), as well as the associated supply chain
        infrastructure, could be affected by weather conditions that could
        impact the timing of construction;
    -   the Company's ability to acquire and develop real estate properties,
        obtain municipal and other required government approvals, access
        construction labour and materials at reasonable prices, lease
        suitable properties and access sufficient funds from capital markets
        to finance the development of properties could also impact the timing
        of construction;
    -   expansion activity planned for the retail businesses, the associated
        supply chain infrastructure and Financial Services could be
        negatively affected by the Company's ability to access sufficient
        funds, in a cost-effective manner, to finance the building projects
        due to difficulties experienced in the capital markets;
    -   expansion activity for CTR could also be affected by the ability of
        our Dealers to secure financing through the Trusts referenced in
        section 10.0 or through other means;
    -   unseasonable weather patterns could affect the sales of seasonal
        merchandise at CTR and Mark's throughout the year, particularly in
        the second and fourth quarters, which historically are these
        divisions' largest selling periods;
    -   adverse environmental occurrences could damage the Company's
        reputation or threaten its licences to operate, particularly in the
        Petroleum division;
    -   changes in commodity prices could affect the profitability of
        Petroleum, CTR and Mark's;
    -   fluctuating foreign currency exchange rates could impact cross-
        border shopping patterns and employment levels in the manufacturing
        and export sectors and, consequently, negatively impact consumer
        spending practices;
    -   disruptions in the supply of gasoline could affect Petroleum's
        revenue and earnings;
    -   the earnings of Financial Services could be affected by customers'
        inability to repay their Canadian Tire credit card or loan balances
        or by an unsatisfactory response to the retail banking initiative;
        and
    -   failure to comply with applicable laws and regulations could result
        in sanctions and financial penalties by regulatory bodies that could
        impact our earnings and reputation. Areas of compliance include
        environmental, health and safety, competition law, transportation of
        dangerous goods, customs and excise tax and laws and regulations
        governing financial institutions.
    

    We cannot provide any assurance that forecasted financial or operational
performance will actually be achieved, or if it is, that it will result in an
increase in the price of Canadian Tire shares.

    
    12.0 Contractual obligations

    Contractual obligations due by period

                                        In the
                                     remaining  In years  In years
                                    six months    2009 -    2011 -     After
    ($ in millions)            Total   of 2008      2010      2012      2012
    -------------------------------------------------------------------------
    Long-term debt          $1,321.1  $    1.1  $  454.9  $   15.0  $  850.1
    Capital lease obligations   42.1       3.1      10.5      11.4      17.1
    Operating leases         1,912.1     110.5     397.4     331.5   1,072.7
    Purchase obligations     1,145.3   1,015.5      69.7      36.0      24.1
    Other obligations           41.4       8.6      16.6       7.8       8.4
    -------------------------------------------------------------------------
    Total contractual
     obligations            $4,462.0  $1,138.8  $  949.1  $  401.7  $1,972.4
    -------------------------------------------------------------------------
    (1) The long-term debt number in the Consolidated Balance Sheet has been
        adjusted by $4.8 million due to the implementation of the new
        Financial Instrument standard.
    

    13.0 Changes in accounting policies

    The numbers indicated in this MD&A 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 (contained in our 2007
Annual Report), except as noted below.

    13.1 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
new 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.
    In order to correspond with the new standard, the Company's new policy
states that 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:

    
                                                     Increase/(Decrease)
    -------------------------------------------------------------------------
                                         December 29,  June 30,  December 30,
    ($ in millions)                             2007      2007          2006
    -------------------------------------------------------------------------
    Retained earnings                       $   14.2  $   11.5      $   20.1
    Inventories                                 22.0      18.1          31.5
    Income taxes recoverable                    (5.8)     (0.9)            -
    Future income tax assets                    (2.0)     (5.3)         (5.3)
    Accounts payable and other                     -       0.4           0.6
    Income taxes payable                           -         -           5.5
    -------------------------------------------------------------------------
    

    In addition, the impact of the retrospective impact on net earnings for
the 13 weeks ended June 30, 2007 was an increase of $0.3 million, or $nil per
share and for the 26 weeks ended June 30, 2007 was a reduction of
$8.5 million, or $0.10 per share. See note 2 in the Notes to the Consolidated
Financial Statements for additional information.

    13.2 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. See section 4.0 for additional
information. The adoption of this new standard does not require any changes to
the Company's accounting, but does require additional note disclosure.

    13.3 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 replace
the existing CICA Handbook Section 3861 - Financial Instruments - Disclosure
and Presentation. They also 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
does not require any changes to the Company's accounting, but does require
additional note disclosure (see note 11.1 in this MD&A and note 11 in the
Notes to the Consolidated Financial Statements for additional information).

    13.4 International Financial Reporting Standards

    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, IT systems
and processes as well as certain contractual arrangements. The Company is
currently assessing the impact of the transition to IFRS. Training and
additional resources will be engaged to ensure the timely conversion to IFRS.

    13.5 Goodwill and intangible assets

    In February 2008, the CICA issued CICA Handbook Section 3064 - Goodwill
and Intangible Assets, which replaces CICA Handbook Section 3062 - Goodwill
and Other Intangible Assets and CICA Handbook Section 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, with
the exception of intangible items initially recognized as an expense.
    The Company is currently evaluating the potential impact of this new
standard on the financial statements for 2009 and will adjust its systems and
processes as necessary to comply with this new standard.

    14.0 Non-GAAP measures

    The following measures included in this MD&A do not have a standardized
meaning under Canadian generally accepted accounting principles (GAAP) and may
not be comparable to similar measures presented by other companies:

    
    -   EBITDA (earnings before interest, income taxes, depreciation and
        amortization);
    -   adjusted earnings; and
    -   same store sales
    

    EBITDA

    With the exception of Financial Services, we consider EBITDA to be an
effective measure of the contribution of each of our businesses to our
profitability on an operational basis, before allocating the cost of income
taxes and capital investments. EBITDA is also commonly regarded as an indirect
measure of operating cash flow, a significant indicator of success for many
businesses.
    A reconciliation of EBITDA to the most comparable GAAP measure (earnings
before income taxes) is provided as follows:

    
    Reconciliation of EBITDA to GAAP measures(1)

                                          Q2       Q2         YTD      YTD
    ($ in millions)                      2008    2007(2)     2008     2007(2)
    -------------------------------------------------------------------------
    EBITDA
      CTR                             $  143.1     139.9  $  245.2  $  228.2
      Financial Services                  47.1      71.9     107.5     117.0
      Petroleum                           12.1      10.5      21.1      17.0
      Mark's                              14.7      30.2      17.7      34.7
      Eliminations                           -         -         -         -
    -------------------------------------------------------------------------
      Total EBITDA                    $  217.0  $  252.5  $  391.5  $  396.9
    -------------------------------------------------------------------------
    Less: Depreciation and
     amortization expense
        CTR                           $   42.5  $   38.6  $   84.5  $   75.4
        Financial Services                 3.4       3.0       6.6       6.3
        Petroleum                          4.1       4.1       8.1       8.1
        Mark's                             5.7       4.5      11.1       8.8
    -------------------------------------------------------------------------
        Total depreciation and
         amortization expense         $   55.7  $   50.2  $  110.3  $   98.6
    -------------------------------------------------------------------------
      Interest expense
        CTR                           $   15.6  $   12.8  $   32.1  $   26.3
        Financial Services                (0.1)      0.3       3.5      (3.3)
        Mark's                             1.1       0.7       2.1       1.1
        Eliminations(3)                      -         -         -         -
    -------------------------------------------------------------------------
        Total interest expense        $   16.6  $   13.8  $   37.7  $   24.1
    -------------------------------------------------------------------------
    Earnings (loss) before income
     taxes
      CTR                             $   85.0  $   88.5  $  128.6  $  126.5
      Financial Services                  43.8      68.6      97.4     114.0
      Petroleum                            8.0       6.4      13.0       8.9
      Mark's                               7.9      25.0       4.5      24.8
    -------------------------------------------------------------------------
    Total earnings before income
     taxes                            $  144.7  $  188.5  $  243.5  $  274.2
    -------------------------------------------------------------------------
    (1) Differences may occur due to rounding.
    (2) 2007 figures have been restated for the implementation, on a
        retrospective basis, of CICA HB 3031 - Inventories. See section 13.1
        for additional information.
    (3) Eliminations of inter-company transactions (eg. a loan of funds from
        one business unit to another), previously disclosed as a separate
        line item, are now presented net of these transactions.
    

    References to adjusted earnings

    In several places in this MD&A, we refer to adjusted pre-tax and after-
tax earnings before the impact of non-operating items. Historically, non-
operating items have included the net effect of securitization activities and
dispositions of surplus property and equipment. The timing and amount of gains
and losses from these items are not consistent from quarter to quarter. We
believe the adjusted figures allow for a clearer assessment of earnings for
each of our businesses and provide a more meaningful measure of our
consolidated and segmented operating results.
    From time to time adjusted earnings may also contain additional unusual
and/or non-recurring items which are explained in detail at that time.

    Same store sales

    Same store sales is the metric used by management, and most commonly used
in the retail industry, to compare retail sales growth in a more consistent
manner across the industry. CTR's same store sales includes sales from all
stores that have been open for more than 53 weeks and therefore allows for a
more consistent comparison to other stores open during the period and to
results in the prior year.

    15.0 Subsequent event

    The Company entered into an agreement to sell and leaseback a property in
Ottawa, Ontario to a third party. The transaction closed on July 28, 2008 and
proceeds from the sale are $40 million, which approximates the development
costs.

    16.0 Controls and procedures

    Disclosure controls and procedures

    Management is responsible for establishing and maintaining a system of
controls and procedures over the public disclosure of financial and non-
financial information regarding the Company. Such controls and procedures are
designed to provide reasonable assurance that all relevant information is
gathered and reported, on a timely basis, to senior management, including the
Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), so that
appropriate decisions can be made by them regarding public disclosure.
    Our system of disclosure controls and procedures includes, but is not
limited to, our Disclosure Policy, our Code of Business Conduct, the effective
functioning of our Disclosure Committee, procedures in place to systematically
identify matters warranting consideration of disclosure by the Disclosure
Committee, verification processes for individual financial and non-financial
metrics and information contained in annual and interim filings, including the
financial statements, MD&As, Annual Information Forms and other documents and
external communications.

    Internal control over financial reporting

    Management is also responsible for establishing and maintaining
appropriate internal controls over financial reporting. Our internal controls
over financial reporting include, but are not limited to, detailed policies
and procedures related to financial accounting and reporting, and controls
over systems that process and summarize transactions. Our procedures for
financial reporting also include the active involvement of qualified financial
professionals, senior management and our Audit Committee.
    All internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.
    Management has evaluated whether there were changes in our internal
controls over financial reporting during the interim period ended June 28,
2008 that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting. Management has
determined that no material changes occurred in the second quarter.

    Commitment to disclosure and investor communication

    Canadian Tire strives to maintain a high standard of disclosure and
investor communication and has been recognized as a leader in financial
reporting practices. In many cases, the Company's disclosure practices exceed
the requirements of current legislation. Reflecting our commitment to full and
transparent disclosure, the Investor Relations section of the Company's web
site includes the following documents and information of interest to
investors:

    
    -   Annual Information Form;
    -   Management Information Circular;
    -   quarterly reports;
    -   quarterly fact sheets; and
    -   conference call webcasts (archived for one year)
    

    The Company's Annual Information Form, Management Information Circular
and quarterly reports are also available on the SEDAR (System for Electronic
Disclosure and Retrieval) web site at www.sedar.com.
    If you would like to contact the Investor Relations department directly,
call Karen Meagher (416) 480-8058 or email investor.relations@cantire.com.


    
                             2008 SECOND QUARTER

                          INTERIM REPORT FINANCIALS


    Consolidated Statements of Earnings (Unaudited)

    (Dollars in millions            13 weeks ended,           26 weeks ended,
    except per                June 28,     June 30,     June 28,     June 30,
    share amounts)               2008         2007         2008         2007
    -------------------------------------------------------------------------
                                       (Restated -               (Restated -
                                           Notes 2                   Notes 2
                                            and 16)                   and 16)

    Gross operating
     revenue              $   2,450.7  $   2,314.1  $   4,276.0  $   4,051.8
    -------------------------------------------------------------------------

    Operating expenses
      Cost of merchandise
       sold and all other
       operating expenses
       except for the
       undernoted items       2,226.2      2,052.4      3,870.7      3,639.9
      Net interest expense
       (Note 8)                  16.6         13.8         37.7         24.1
      Depreciation and
       amortization              55.7         50.2        110.3         98.6
      Employee Profit
       Sharing Plan               7.5          9.2         13.8         15.0
    -------------------------------------------------------------------------
    Total operating
     expenses                 2,306.0      2,125.6      4,032.5      3,777.6
    -------------------------------------------------------------------------
    Earnings before income
     taxes                      144.7        188.5        243.5        274.2

    Income taxes                 47.0         66.0         79.1         96.0
    -------------------------------------------------------------------------

    Net earnings          $      97.7  $     122.5  $     164.4  $     178.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic and diluted
     earnings per share   $      1.20  $      1.50  $      2.02  $      2.19
    -------------------------------------------------------------------------

    Weighted average number
     of Common and Class A
     Non-Voting Shares
     outstanding           81,499,525   81,485,464   81,509,066   81,494,477
    -------------------------------------------------------------------------


    Consolidated Statements of Cash Flows (Unaudited)
    -------------------------------------------------------------------------
                                    13 weeks ended,           26 weeks ended,
                              June 28,     June 30,     June 28,     June 30,
    (Dollars in millions)        2008         2007         2008         2007
    -------------------------------------------------------------------------
                                       (Restated -               (Restated -
                                           Notes 2                   Notes 2
                                            and 16)                   and 16)
    Cash generated from (used for):

    Operating activities
      Net earnings        $      97.7  $     122.5  $     164.4  $     178.2
      Items not affecting
       cash
        Depreciation and
         amortization            55.7         50.2        110.3         98.6
        Net provision for
         loans receivable
         (Note 3)                12.9          9.9         30.2         25.7
        Changes in fair
         value of
         derivative
         instruments              8.1         (5.6)        14.8          3.1
        Employee future
         benefits expense
         (Note 4)                 1.6          1.6          3.2          3.3
        Impairment of other
         long-term
         investments
         (Note 12)                  -            -          1.0            -
        Other                     0.1          2.3          0.3          1.8
        Fair market value
         adjustment and
         impairments on
         property and
         equipment                0.3          2.4          0.3          2.4
        Gain on disposals
         of property and
         equipment               (0.2)        (4.6)        (4.0)        (4.0)
        Securitization
         loans receivable       (14.3)       (13.0)       (26.5)       (26.4)
        Gain on sales of
         loans receivable
         (Note 3)               (23.0)       (24.1)       (46.1)       (45.9)
        Gain on disposals/
         redemptions of
         shares                     -        (18.4)           -        (18.4)
    -------------------------------------------------------------------------
                                138.9        123.2        247.9        218.4
    -------------------------------------------------------------------------
    Changes in other working
     capital components         160.3         91.8       (372.6)      (813.6)
    -------------------------------------------------------------------------
    Cash generated from (used
     for) operating activities  299.2        215.0       (124.7)      (595.2)
    -------------------------------------------------------------------------

    Investing activities
      Additions to property
       and equipment           (115.9)      (138.5)      (254.2)      (264.1)
      Purchases of stores        (2.7)        (1.0)       (18.1)        (4.2)
      Long-term receivables
       and other assets          (2.0)         1.9         (8.1)        18.3
      Other                      (1.0)        (1.1)        (1.9)        (1.7)
      Proceeds on disposition
       of property and
       equipment                  1.2          7.9         16.1          8.5
      Investment in loans
       receivable, net         (147.5)      (225.7)        20.9        (67.9)
      Net securitization of
       loans receivable           1.8        152.9        622.4        136.0
      Proceeds on disposals/
       redemptions of shares        -         18.4            -         18.4
    -------------------------------------------------------------------------
    Cash generated from (used
     for) investing activities (266.1)      (185.2)       377.1       (156.7)
    -------------------------------------------------------------------------

    Financing activities
      Net change in deposits
       (Note 16)                 32.7         11.9         64.8         25.2
      Other                       1.2         (1.6)         1.7         (1.6)
      Dividends                 (17.2)       (15.0)       (32.2)       (28.5)
      Repayment of long-term
       debt (Note 5)           (151.7)        (0.6)      (152.7)        (1.4)
      Commercial paper         (158.2)       (21.5)           -            -
    -------------------------------------------------------------------------
    Cash used for financing
     activities                (293.2)       (26.8)      (118.4)        (6.3)
    -------------------------------------------------------------------------
    Cash generated (used) in
     the period                (260.1)         3.0        134.0       (758.2)
    Cash and cash equivalents,
     beginning of period        288.6        (19.9)      (105.5)       741.3
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period
     (Note 9)             $      28.5  $     (16.9) $      28.5  $     (16.9)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated Statements of Comprehensive Income (Unaudited)
    -------------------------------------------------------------------------
                                 13 weeks ended,           26 weeks ended,
                              June 28,     June 30,     June 28,     June 30,
    (Dollars in millions)        2008         2007         2008         2007
    -------------------------------------------------------------------------
                                       (Restated -               (Restated -
                                            Note 2)                   Note 2)

    Net earnings          $      97.7  $     122.5  $     164.4  $     178.2
    Other comprehensive
     income (loss), net
     of taxes
      Gain (loss) on
       derivatives
       designated as cash
       flow hedges, net
       of tax of $5.6 and
       $4.1 (2007 - $21.2
       and $23.0),
       respectively             (11.8)       (38.9)         8.0        (42.3)
      Reclassification to
       non-financial asset
       of loss (gain) on
       derivatives
       designated as cash
       flow hedges, net of
       tax of $4.1 and
       $11.6 (2007 - $0.8
       and $4.0),
       respectively               8.5          1.5         24.0         (7.5)
      Reclassification to
       earnings of loss
       (gain) on
       derivatives
       designated as cash
       flow hedges, net of
       tax of $0.7 and
       $2.2 (2007 - $0.9
       and $1.6),
       respectively               1.7         (1.6)         4.7         (3.0)
    -------------------------------------------------------------------------
    Other comprehensive
     income (loss)               (1.6)       (39.0)        36.7        (52.8)
    -------------------------------------------------------------------------
    Comprehensive income  $      96.1  $      83.5  $     201.1  $     125.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
    -------------------------------------------------------------------------

                                                            26 weeks ended,
                                                        June 28,     June 30,
    (Dollars in millions)                                  2008         2007
    -------------------------------------------------------------------------
                                                                 (Restated -
                                                                      Note 2)

    Share capital
    Balance, beginning of period                    $     700.7  $     702.7
    Transactions, net (Note 6)                              4.2         (1.5)
    -------------------------------------------------------------------------
    Balance, end of period                          $     704.9  $     701.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Contributed surplus
    Balance, beginning of period                    $       2.3  $       0.1
    Transactions, net                                      (2.3)         1.2
    -------------------------------------------------------------------------
    Balance, end of period                          $         -  $       1.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Retained earnings
    Balance, beginning of period as previously
     reported                                       $   2,440.9  $   2,083.7
    Transitional adjustment on adoption of new
     accounting policies - Inventory (Note 2)              14.2         20.1
    -------------------------------------------------------------------------
    Balance, beginning of period as restated            2,455.1      2,103.8
    Net earnings for the period                           164.4        178.2
    Dividends                                             (34.2)       (30.2)
    Repurchase of Class A Non-Voting Shares                (0.4)           -
    -------------------------------------------------------------------------
    Balance, end of period                          $   2,584.9  $   2,251.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other comprehensive income
     (loss)
    Balance, beginning of period                    $     (50.0) $       8.6
    Other comprehensive income (loss) for the
     period                                                36.7        (52.8)
    -------------------------------------------------------------------------
    Balance, end of period                          $     (13.3) $     (44.2)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Retained earnings and accumulated other
     comprehensive income                           $   2,571.6  $   2,207.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated Balance Sheets (Unaudited)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (Dollars in millions)
    As at                                  June 28,     June 30, December 29,
                                              2008         2007         2007
    -------------------------------------------------------------------------
                                                    (Restated -  (Restated -
                                                        Notes 2      Notes 2
                                                         and 16)      and 16)

    ASSETS
    Current assets
      Cash and cash equivalents
       (Note 9)                        $      28.5  $         -  $         -
      Accounts receivable                    362.5        365.6        715.0
      Loans receivable (Note 3)              877.0        683.3      1,486.1
      Merchandise inventories (Note 2)       996.6        828.8        778.7
      Income taxes recoverable                86.6        102.7         53.2
      Prepaid expenses and deposits           62.4         59.6         29.5
      Future income taxes                     58.8         36.5         75.7
    -------------------------------------------------------------------------
      Total current assets                 2,472.4      2,076.5      3,138.2
    -------------------------------------------------------------------------
    Long-term receivables and other
     assets (Note 3)                         237.1        258.7        231.2
    Other long-term investments, net
     (Note 12)                                 6.6            -          7.6
    Goodwill                                  62.8         49.8         51.8
    Intangible assets                         52.4         52.4         52.4
    Property and equipment, net            3,383.3      3,009.9      3,283.6
    -------------------------------------------------------------------------
      Total assets                     $   6,214.6  $   5,447.3  $   6,764.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES
    Current liabilities
      Bank indebtedness (Note 9)       $         -  $      16.9  $     105.5
      Deposits                               155.8         27.1        111.5
      Accounts payable and other           1,200.2      1,130.7      1,740.4
      Current portion of long-term debt        6.1        153.2        156.3
    -------------------------------------------------------------------------
      Total current liabilities            1,362.1      1,327.9      2,113.7
    -------------------------------------------------------------------------
    Long-term debt                         1,361.9      1,013.2      1,341.8
    Future income taxes                       72.2         70.6         71.8
    Long term deposits                        24.3          0.3          3.8
    Other long-term liabilities              117.6        125.2        125.6
    -------------------------------------------------------------------------
      Total liabilities                    2,938.1      2,537.2      3,656.7
    -------------------------------------------------------------------------
    SHAREHOLDERS' EQUITY
    Share capital (Note 6)                   704.9        701.2        700.7
    Contributed surplus                          -          1.3          2.3
    Accumulated other comprehensive loss     (13.3)       (44.2)       (50.0)
    Retained earnings                      2,584.9      2,251.8      2,455.1
    -------------------------------------------------------------------------
      Total shareholders' equity           3,276.5      2,910.1      3,108.1
    -------------------------------------------------------------------------
      Total liabilities and
       shareholders' equity            $   6,214.6  $   5,447.3  $   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.

    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,     June 30, December 30,
                                              2007         2007         2006
                                      ---------------------------------------
        Retained earnings              $      14.2  $      11.5  $      20.1
        Inventories                           22.0         18.1         31.5
        Income taxes recoverable              (5.8)        (0.9)           -
        Future income tax assets              (2.0)        (5.3)        (5.3)
        Accounts payable and other               -          0.4          0.6
        Income taxes payable                     -            -          5.5

        In addition, the retrospective impact on net earnings for the
        13 weeks ended June 30, 2007 was an increase of $0.3 million, or $nil
        per share, and for the 26 weeks ended June 30, 2007 a reduction of
        $8.5 million, or $0.10 per share.

        Included in "cost of merchandise sold and all other operating
        expenses except for the undernoted items" for the 13 weeks and
        26 weeks ended June 28, 2008 is $1,768.7 million (2007 -
        $1,651.7 million) and $3,005.5 million (2007 - $2,852.4),
        respectively, of inventory recognized as an expense, which included
        $16.1 million (2007 - $10.5 million) and $32.9 million (2007 -
        $22.2 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 11.

        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 10.

        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 with the exception of intangible items initially
        recognized as an expense.

        The Company is evaluating the potential impact of this new standard
        on the financial statements for 2009 and will adjust its systems and
        processes as necessary to comply with this new standard.

        International Financial Reporting Standards (IFRS)

        In February 2008, the 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. 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, IT systems and processes as well as certain
        contractual arrangements. The Company is currently assessing the
        impact of the transition to IFRS. Training and additional resources
        will be engaged 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:


                                             Total principal amount
        (Dollars in millions)                of receivables as at(1)
                                      ---------------------------------------
                                           June 28,     June 30, December 29,
                                              2008         2007         2007
                                       ------------ ------------ ------------
        Total net managed credit card
         loans                         $   3,619.4  $   3,435.9  $   3,681.3
        Credit card loans sold            (2,848.8)    (2,779.4)    (2,233.7)
                                       ------------ ------------ ------------
        Credit card loans held               770.6        656.5      1,447.6

        Total net managed personal
         loans(2)                            119.4        172.9        140.2
        Personal loans sold                      -        (83.5)       (56.0)
                                       ------------ ------------ ------------
        Personal loans held                  119.4         89.4         84.2

        Total net managed mortgage
         loans(3)                             66.9          9.6         35.4
                                       ------------ ------------ ------------

        Total net managed line of
         credit loans(4)                      24.5            -            -
                                       ------------ ------------ ------------

        Total loans receivable               981.4        755.5      1,567.2

        Less: long-term portion(5)          (104.4)       (72.2)       (81.1)
                                       ------------ ------------ ------------

        Current portion of loans
         receivable                    $     877.0  $     683.3  $   1,486.1
                                       ------------ ------------ ------------
                                       ------------ ------------ ------------


                                                          Average balances
        (Dollars in millions)                         for the 26 weeks ended
                                                    -------------------------
                                                        June 28,     June 30,
                                                           2008         2007
                                                    ------------ ------------
        Total net managed credit card loans         $   3,539.3  $   3,272.1
        Credit card loans sold                         (2,696.0)    (2,650.7)
                                                    ------------ ------------
        Credit card loans held                            843.3        621.4

        Total net managed personal loans (2)              127.1        197.5
        Personal loans sold                               (35.6)      (100.9)
                                                    ------------ ------------
        Personal loans held                                91.5         96.6

        Total net managed mortgage loans(3)                49.4          3.5
                                                    ------------ ------------

        Total net managed line of credit loans(4)          25.1            -
                                                    ------------ ------------

        Total loans receivable                      $   1,009.3  $     721.5
                                                    ------------ ------------
                                                    ------------ ------------

        (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 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 13 weeks and 26
        weeks ended June 28, 2008 were $12.9 million (2007 - $9.9 million)
        and $30.2 million (2007 - $25.7 million), respectively. Net credit
        losses for the total managed portfolio for the 13 weeks and 26 weeks
        ended June 28, 2008 were $58.7 million (2007 - $51.6 million) and
        $121.0 million (2007 - $101.9 million), respectively.

    4.  Employee Future Benefits

        The net employee future benefit expense for the 13 weeks and 26 weeks
        ended June 28, 2008 was $1.6 million (2007 -$1.6 million) and
        $3.2 million (2007 - $3.3 million), respectively.

    5.  Long-term Debt Repayment

        On June 9, 2008, medium term notes totaling $150.0 million matured
        and were repaid.

    6.  Share Capital

        (Dollars in millions)              June 28,     June 30, December 29,
                                              2008         2007         2007
                                       ------------ ------------ ------------
        Authorized
          3,423,366 Common Shares
          100,000,000 Class A Non-
           Voting Shares

        Issued
          3,423,366 Common Shares
           (June 30, 2007 - 3,423,366) $       0.2  $       0.2  $       0.2
          78,056,872 Class A Non-Voting
           Shares (June 30, 2007 -
           78,051,027)                       704.7        701.0        700.5

                                       ------------ ------------ ------------
                                       $     704.9  $     701.2  $     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             26 weeks ended          26 weeks ended
         millions)              June 28, 2008           June 30, 2007
                          ------------------------- -------------------------
                               Number          $         Number          $
                          ----------------- ------- ----------------- -------
        Shares outstanding
         at the beginning
         of the period          78,048,062   700.5        78,047,456   702.5
        Issued                     359,610    22.8           290,571    22.0
        Repurchased               (350,800)  (21.3)         (287,000)  (22.3)
        Excess of
         repurchase price
         over issue price
           (issue price
            over
            repurchase
            price)                       -     2.7                 -    (1.2)
                          ----------------- ------- ----------------- -------
        Shares outstanding
         at the end of the
         period                 78,056,872   704.7        78,051,027   701.0
                          ----------------- ------- ----------------- -------
                          ----------------- ------- ----------------- -------


    7.  Stock-based Compensation Plan

        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 13 weeks and 26 weeks ended
        June 28, 2008, $0.9 million of compensation expense was recorded for
        the 2008 PSUs.

    8.  Segmented Information - Statement of Earnings

        ---------------------------------------------------------------------
                                            13 weeks                26 weeks
                                               ended                   ended
                                             June 30,                June 30,
                                13 weeks        2007    26 weeks        2007
                                   ended (Restated -       ended (Restated -
                                 June 28,    Notes 2     June 28,    Notes 2
        (Dollars in millions)       2008      and 16)       2008      and 16)
        ---------------------------------------------------------------------
        Gross operating revenue
          CTR                  $ 1,562.1   $ 1,514.9   $ 2,633.4   $ 2,585.8
          Financial Services       201.5       192.3       410.2       368.4
          Petroleum                514.8       445.6       937.6       808.4
          Mark's                   200.6       187.2       348.1       339.3
          Eliminations             (28.3)      (25.9)      (53.3)      (50.1)
                               ----------------------------------------------
          Total gross
           operating
           revenue             $ 2,450.7   $ 2,314.1   $ 4,276.0   $ 4,051.8
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Earnings before income
         taxes
          CTR                  $    85.0   $    88.5   $   128.6   $   126.5
          Financial Services        43.8        68.6        97.4       114.0
          Petroleum                  8.0         6.4        13.0         8.9
          Mark's                     7.9        25.0         4.5        24.8
                               ----------------------------------------------
        Total earnings before
         income taxes              144.7       188.5       243.5       274.2
        Income taxes                47.0        66.0        79.1        96.0
                               ----------------------------------------------
        Net earnings           $    97.7   $   122.5   $   164.4   $   178.2
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Net Interest expense(1)
          CTR                  $    15.6   $    12.8   $    32.1   $    26.3
          Financial Services        (0.1)        0.3         3.5        (3.3)
          Petroleum                    -           -           -           -
          Mark's                     1.1         0.7         2.1         1.1
          Eliminations                 -           -           -           -
                               ----------------------------------------------
          Total interest
           expense             $    16.6   $    13.8   $    37.7   $    24.1
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Depreciation and
         amortization expense
          CTR                  $    42.5   $    38.6   $    84.5   $    75.4
          Financial Services         3.4         3.0         6.6         6.3
          Petroleum                  4.1         4.1         8.1         8.1
          Mark's                     5.7         4.5        11.1         8.8
                               ----------------------------------------------
          Total depreciation
           and amortization
           expense             $    55.7   $    50.2   $   110.3   $    98.6
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (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 13 weeks and 26 weeks ended June 28, 2008 was
            $18.3 million (2007 - $14.3 million) and $39.0 million (2007 -
            $30.0 million), respectively.


        Segmented Information - Total Assets

        ---------------------------------------------------------------------
                                                      June 30,   December 29,
                                                         2007           2007
        (Dollars in millions)          June 28,   (Restated -    (Restated -
                                          2008         Note 2)        Note 2)
        ---------------------------------------------------------------------

        CTR                          $ 5,516.3      $ 4,692.1      $ 5,732.4

        Financial Services             1,662.4        1,306.5        1,852.0

        Petroleum                        274.3          256.8          573.4

        Mark's                           475.8          442.3          464.1

        Eliminations                  (1,714.2)      (1,250.4)      (1,857.1)
                                     ----------------------------------------
        Total                        $ 6,214.6      $ 5,447.3      $ 6,764.8
        ---------------------------------------------------------------------

    9.  Cash and Cash Equivalents (Bank Indebtedness)

        The components of cash and cash equivalents (bank indebtedness) are:

                                       June 28,       June 30,   December 29,
        (Dollars in millions)             2008           2007           2007
                                   ------------   ------------   ------------
        Cash (bank overdraft)        $   (78.6)     $  (146.7)     $    71.8
        Line of credit borrowings            -              -         (316.8)
        Short-term investments           107.1          129.8          139.5
                                   ------------   ------------   ------------
        Cash and cash equivalents
        (bank indebtedness)          $    28.5      $   (16.9)     $  (105.5)
                                   ------------   ------------   ------------
                                   ------------   ------------   ------------

    10. 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      June 28,   % of   June 30,   % of   December    % of
        millions)           2008   total      2007   total   29, 2007   total
                        ----------------- ----------------- -----------------
        Current portion
         of long-term
         debt           $    6.1    0.1% $   153.2    3.7%  $   156.3    3.4%
        Long-term debt   1,361.9   29.3%   1,013.2   24.6%    1,341.8   28.9%
        Other long-term
         liabilities(1)      0.1    0.0%      11.0    0.3%       10.6    0.2%
        Share capital      704.9   15.2%     701.2   17.0%      700.7   15.0%
        Contributed
         surplus               -    0.0%       1.3    0.0%        2.3    0.1%
        Components of
         accumulated
         other
         comprehensive
         loss(2)           (10.8) (0.2)%      (5.1)  (0.1%)      (8.5) (0.2)%
        Retained
         earnings        2,584.9   55.6%   2,251.8   54.5%    2,455.1   52.6%
                        ----------------- ----------------- -----------------
        Net capital
         under
         management     $ 4,647.1 100.0% $ 4,126.6  100.0%  $ 4,658.3  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
        rtain key ratios to ensure they are within targeted ranges.

                                       June 28,       June 30,   December 29,
                                          2008           2007           2007
                                   ------------------------------------------
        Debt ratio
          Long-term debt to total
           capitalization(1)             28.2%          27.3%          31.2%
        Coverage ratio
          Interest coverage(2)       8.6 times     10.9 times     10.7 times
                                   ------------------------------------------
        (1)  Long-term debt includes the current portion of long-term debt.
             Capitalization is based on current and long-term debt, future
             income taxes, long-term liabilities and shareholders' equity.
        (2)  Interest coverage is calculated on a rolling 12-month basis
             after annualizing short-term and long-term interest on debt
             issued and retired during the period.

        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 June 30,
        2008 (the bank's fiscal second 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. OSFI will consider applications for authorized assets-
        to-capital multiples in excess of 20 times for institutions that meet
        certain requirements. CTB is currently restricted to a maximum
        assets-to-capital multiple of 12.5.

        During the six months ended June 28, 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").

    11. 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)
                                 --------------------------------------------
                                 June 28,    June 30,    June 28,    June 30,
        (Dollars in millions)       2008        2007        2008        2007
                                 --------------------------------------------
        Balance, beginning of
         year                     $ 51.5      $ 30.4      $  2.7      $  2.9
        Provision for credit
         losses                     24.0        22.5         6.2         3.2
        Recoveries                   6.3         4.9         0.3         0.1
        Write-offs                 (40.5)      (28.6)       (4.5)       (3.1)
                                 --------------------------------------------
        Balance, end of period    $ 41.3      $ 29.2      $  4.7      $  3.1
                                 --------------------------------------------
                                 --------------------------------------------


                                  Accounts receivable          Total(2)
                                 --------------------------------------------
                                 June 28,    June 30,    June 28,    June 30,
        (Dollars in millions)       2008        2007        2008        2007
                                 --------------------------------------------
        Balance, beginning of
         year                     $  5.0      $  4.6      $ 59.2      $ 37.9
        Provision for credit
         losses                      0.8         0.1        31.0        25.8
        Recoveries                   0.1        (0.1)        6.7         4.9
        Write-offs                  (2.5)       (0.1)      (47.5)      (31.8)
                                 --------------------------------------------
        Balance, end of period    $  3.4      $  4.5      $ 49.4      $ 36.8
                                 --------------------------------------------
                                 --------------------------------------------
        (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        $  155.8   $    5.4   $    5.6   $    2.2   $   11.1
        Accounts
         payable and
         other(1)        1,185.2          -          -          -          -
        Long-term debt       6.9      158.0      307.5       19.5        6.8
        Interest
         payment            84.7       84.4       58.2       49.4       48.8

        Other                  -        0.1        2.6          -          -
                        -----------------------------------------------------
        Total           $1,432.6   $  247.9   $  373.9   $   71.1   $   66.7
                        -----------------------------------------------------
                        -----------------------------------------------------

        (Dollars in
         millions)      Thereafter   Total
                        ---------------------
         Deposits       $       -  $   180.1
         Accounts
          payable and
          other(1)              -    1,185.2
         Long-term debt     864.5    1,363.2
         Interest
          payment           689.4    1,014.9
         Other                  -        2.7
                        ---------------------
         Total          $ 1,553.9  $ 3,746.1
                        ---------------------
                        ---------------------
        (1)  Includes commercial paper.

        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.

    12. Other Long-Term Investments

        The market for Canadian third-party asset-backed commercial paper
        (ABCP), which was greatly impacted by the global disruption in the
        market experienced in August 2007, has been addressed in a formal
        restructuring proposal. On April 25, 2008, the majority of the note
        holders with investments in the affected ABCP voted in favour of the
        restructuring proposal. The restructuring provides investors with new
        long-term notes to replace the short-term ABCP that is currently
        illiquid. The deal, however, includes a controversial clause that
        would give all players in the market immunity from lawsuits.
        Subsequent court hearings were held regarding these clauses in the
        plan and after slight modifications were made to the plan, the court
        has permitted the plan to proceed. Several parties are appealing the
        court's decision and until the appeals have been heard and finalized,
        the plan will not commence. The Company's $8.9 million of affected
        ABCP will be converted into notes that will pay interest at the rate
        paid on banker's acceptance notes less 50 basis points until
        maturity, which is currently expected to be between 2016 and 2017.
        The committee responsible for the restructuring proposal is working
        to ensure that a secondary market in the new notes develops so that
        investors will have an opportunity to sell their new notes, should
        they so choose.

        During 2007, the Company recorded a $1.3 million before-tax provision
        for impairment of the ABCP in the Consolidated Statement of Earnings
        based on management's best estimate of impairment at the time. Due to
        additional information provided to investors who hold ABCP through
        the formal restructuring proposal, the Company recorded an additional
        $1.0 million before-tax provision for impairment of the ABCP during
        the first quarter of 2008. The Company's valuation is representative
        of the expected outcome of the plan, and as such no further write
        down was recorded in the second quarter of 2008. The total charge for
        impairment is $2.3 million or 25 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 assumes 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 assumes that the
        replacement notes will bear interest rates similar to short-term
        instruments and that such rates would be commensurate with the nature
        of the underlying assets and their associated cash flows. Assumptions
        have been made as to the amount of restructuring and other costs that
        the Company will bear.

        Consistent with the terms of the restructuring proposal, the Company
        has classified the remaining balance of this investment in ABCP of
        $6.6 million as long-term investments on the Consolidated Balance
        Sheet.

        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 June 28, 2008.

        The write-down and reclassification of the Company's investment in
        ABCP has 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 has sufficient credit facilities available through
        committed lines of credit and various other forms of funding to
        satisfy its financial obligations as they come due and does not
        expect a material adverse impact on its business as a result of the
        current third-party ABCP liquidity issue.

    13. Supplementary Cash Flow Information

        The Company paid income taxes during the 13 weeks ended June 28, 2008
        of $57.7 million (2007 - $150.8 million) and made interest payments
        of $38.1 million (2007 - $28.5 million). For the 26 weeks ended June
        28, 2008, the Company paid income taxes of $113.5 million (2007 -
        $256.2 million) and made interest payments of $58.4 million (2007 -
        $43.3 million).

        During the 13 weeks ended June 28, 2008, property and equipment were
        acquired at an aggregate cost of $93.0 million (2007 -
        $139.8 million). The amount of property and equipment acquired that
        is included in accounts payable and other at June 28, 2008 was
        $16.6 million (2007 - $28.8 million). During the 26 weeks ended
        June 28, 2008, property and equipment were acquired at an aggregate
        cost of $205.8 million (2007 - $232.8 million). The amount of
        property and equipment acquired that is included in accounts payable
        and other at June 28, 2008 was $16.6 million (2007 - $28.8 million).

    14. 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.

    15. 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 treatments 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 $187.7 million. Although the Company has appealed these
        reassessments, current tax legislation requires the Company to remit
        to the CRA and its provincial counterparts approximately $116.7
        million related to this matter, of which $112.6 million had been
        remitted by the end of the quarter.

        The Company regularly reviews the potential for adverse outcomes in
        respect of tax matters. The Company believes that the ultimate
        disposition of the settlements, finalization on 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 provisions, the Company's effective tax rate and its earnings
        could be affected positively or negatively in the period in which the
        matters are resolved.

    16. Comparative Figures

        Certain of the prior period's figures have been reclassified to
        conform to the current year's presentation, including amounts with
        respect to securitizations and net provision for loans receivable in
        the consolidated statements of cash flows. As a result, cash flow
        from operations has been restated by $73.6 million and $146.0 million
        for the 13 weeks and 26 weeks ended June 30, 2007, respectively with
        a corresponding offset to investing activities. There is no impact on
        cash generated / used in the respective periods. In addition, 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 current quarter 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.

    17. Subsequent Event

        The Company entered into an agreement to sell and leaseback a
        property in Ottawa, Ontario to a third party. The transaction closed
        on July 28, 2008 and proceeds from the sale are $40 million, which
        approximates the development costs.

        Interest Coverage Exhibit to the Consolidated Financial Statements
        (unaudited)
        ---------------------------------------------------------------------
        The Company's long-term interest requirements for the 26 weeks ended
        June 28, 2008, after annualizing interest on long-term debt issued
        and retired during this period, amounted to $87.2 million. The
        Company's earnings before interest on long-term debt and income taxes
        for the 26 weeks then ended were $654.1 million, which is 7.5 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,
lisa.gibson@cantire.com; Investors: Karen Meagher, (416) 480-8058,
karen.meagher@cantire.com

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Canadian Tire Corporation, Limited

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