Canadian Tire releases third quarter earnings - Core retail business remains
resilient despite economic uncertainty and unseasonal weather; Overall
earnings impacted by higher loan losses at financial services

TORONTO, Nov. 12 /CNW/ - Canadian Tire Corporation, Limited (CTC, CTC.a) released its third quarter results today showing resiliency in the core retail business while a significant increase in loan losses in the Financial Services business ultimately contributed to a decrease of 21.6% in adjusted net earnings compared to the same quarter in 2008.

The Company's core retail business, Canadian Tire Retail, posted adjusted earnings results that were effectively unchanged from the same quarter in 2008 while demonstrating year-to-date adjusted earnings before income taxes growth of 1.9%. This resiliency in the core retail business has been achieved despite challenging market conditions and unseasonable cold, wet weather.

"Our core business is resilient in the face of challenging seasonal and economic realities delivering modest shipment growth and a positive EBITDA uplift- although offset by the overall challenges in financial services," said Stephen Wetmore, President and CEO, Canadian Tire. "We are now entering some of the most important weeks for our retail businesses and I am confident that we have the right strategies, people and plans in place."

    
                                   ------------------------------------------
    Consolidated                          2009           2008(1)
    Highlights:                       3rd Quarter     3rd Quarter    Change
    -------------------------------------------------------------------------

    Retail sales(2)                  $ 2.45 billion  $ 2.61 billion    (6.0)%
    Gross operating revenue          $ 2.17 billion  $ 2.26 billion    (4.1)%
    EBITDA(3)                        $218.8 million  $223.9 million    (2.4)%
    Adjusted earnings before income
     taxes (excludes non-operating
     gains and losses)(3)            $127.2 million  $159.2 million   (20.1)%
    Net earnings                     $ 85.4 million  $109.1 million   (21.8)%
    Adjusted net earnings (excludes
     non-operating gains and
     losses)(3)                      $ 91.0 million  $116.0 million   (21.6)%
    Basic earnings per share         $  1.04         $  1.34          (21.9)%
    Adjusted basic earnings per
     share (excludes non-operating
     gains and losses)(3)            $  1.11         $  1.42          (21.8)%

    (1) The 2008 earnings figures have been restated for implementation, on a
        retrospective basis, of the CICA HB 3064 - Goodwill and Intangible
        Assets and the amendments to CICA HB 1000 - Financial Statement
        Concepts. Please refer to Note 2 in the Consolidated Financial
        Statements.
    (2) Represents retail sales at CTR (which includes PartSource), Mark's
        corporate and franchise stores and Petroleum's sites
    (3) Non-GAAP measure. Please refer to section 15.0 of Management's
        Discussion and Analysis.
    

Business Overview

    
    CANADIAN TIRE RETAIL

    ($ in millions)    Q3 2009 Q3 2008(1) Change  2009 YTD 2008 YTD(1) Change
    -------------------------------------------------------------------------

    Retail sales(2)   $1,818.3  $1,860.3  (2.3)%  $5,239.4  $5,253.6   (0.3)%
    Same store
     sales(3) (year
     -over-year %
     change)            (3.8)%      2.0%            (1.9)%    (0.5)%
    Gross operating
     revenue           1,408.5   1,399.3    0.7%   4,057.8   4,032.7     0.6%
    Net shipments
     (year-over-year
     % change)            0.3%      7.6%              0.1%      3.8%
    -------------------------------------------------------------------------
    Earnings before
     income taxes         95.6      94.0    1.6%     223.6     222.7     0.4%
    Less adjustment
     for:
      Amortization
       of interest
       rate swap
       unwind              1.6         -               1.6         -
      Gain (loss) on
       disposals of
       property and
       equipment(4)        0.3      (0.3)             (0.4)      3.7
      Former CEO
       retirement
       obligation          0.0       0.2               0.5       1.1
    -------------------------------------------------------------------------
    Adjusted earnings
     before income
     taxes(5)         $   93.7  $   94.1  (0.4)%  $  221.9  $  217.9     1.9%
    -------------------------------------------------------------------------
    (1) 2008 figures have been restated for implementation, on a
        retrospective basis, of the CICA HB 3064 Goodwill and Intangible
        Assets and the amendments to CICA HB 1000- Financial Statement
        Concepts. Please refer to Note 2 in the Consolidated Financial
        Statements.
    (2) Includes sales from Canadian Tire stores, PartSource stores and the
        labour portion of CTR's auto service sales.
    (3) Same store sales include sales from all 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 15.0 in Management's
        Discussion and Analysis.
    

Canadian Tire Retail's sales decreased 2.3% from the same quarter in 2008 with unseasonable cool, wet weather impacting some seasonal businesses such as backyard living, cycling, gardening and camping and continuing challenging economic conditions impacting discretionary categories such as home décor, electronics and storage and organization. Despite overall softer sales, Canadian Tire Retail did see a healthy increase in sales in growth categories such as exercise equipment, automotive parts, kitchen and pet food.

Canadian Tire Retail's third quarter adjusted earnings before income taxes were $93.7 million, down 0.4% compared to a year ago as increases in operating expenses for the new Eastern Canada Distribution Centre, higher store occupancy costs and continued investments in productivity initiatives were partially offset by effective cost management, particularly in advertising and supply chain.

During the quarter, Canadian Tire Retail expanded one traditional store into a Smart store and opened one incremental Small Market store with a full size Mark's offering, bringing the total number of stores in the network to 476.

Customer reaction to both the Smart store and Small Market store continues to be very positive. Both concepts are generally performing above expectations with higher than projected traffic count and basket size.

PartSource experienced sales increases driven by both the continued expansion of the network and improved product assortment. During the quarter, PartSource opened one new corporate store in Welland, Ontario which was a new store format, expanded one store into a hub store and closed two stores bringing the network total to 87 locations.

    
    CANADIAN TIRE PETROLEUM (Petroleum)

    ($ in millions)    Q3 2009   Q3 2008  Change  2009 YTD  2008 YTD  Change
    -------------------------------------------------------------------------
    Sales volume
     (millions of
     litres)             433.5     414.5    4.6%   1,277.5   1,257.9     1.6%
    Retail sales      $  441.1  $  550.2 (19.8)%  $1,220.2  $1,541.1  (20.8)%
    Gross operating
     revenue             403.6     519.3 (22.3)%   1,116.3   1,456.9  (23.4)%
    -------------------------------------------------------------------------
    Earnings before
     income taxes          8.5       7.5   13.9%      22.3      20.5     9.0%
    Less adjustment for:
      Loss on disposals
       of property
       and equipment(1)   (0.1)     (0.1)             (0.4)     (0.3)
    -------------------------------------------------------------------------
    Adjusted earnings
     before income
     taxes(2)         $    8.6  $    7.6   13.4%  $   22.7  $   20.8     9.1%
    -------------------------------------------------------------------------
    (1) Includes asset impairment losses.
    (2) Non-GAAP measure. Please refer to section 15.0 in Management's
        Discussion and Analysis.
    

While there was a 4.6% increase in gasoline sales volume over the comparable period in 2008 due to lower prices at the pumps, Petroleum experienced declines of 22.3% in gross operating revenues and 19.8% in retail sales due to these significantly lower retail gasoline prices.

Despite the decrease in pump prices, Petroleum had a record quarter with pre-tax adjusted earnings up 13.4% due to strong convenience sales, relatively stable gasoline margins and well managed operating expenses which were held relatively flat in spite of the growth in the Petroleum network.

Petroleum opened one new gas bar, refurbished five existing sites and closed one location during the quarter bringing the total number of gas bars in the network to 273.

    
    MARK'S WORK WEARHOUSE (Mark's)

    ($ in millions)    Q3 2009 Q3 2008(1) Change  2009 YTD 2008 YTD(1) Change
    -------------------------------------------------------------------------
    Total retail
     sales(2)         $  189.6  $  194.5  (2.5)%  $  568.3  $  600.1   (5.3)%
    Same store
     sales(3) (year-
     over-year
     % change)          (3.7)%    (1.0)%            (6.7)%    (2.0)%
    Gross operating
     revenue(4)          164.2     168.7  (2.6)%     493.5     516.8   (4.5)%
    -------------------------------------------------------------------------
    Earnings (loss)
     before income
     taxes                (3.8)     (0.1)    N/A      (1.6)      3.8 (142.7)%
    Less adjustment for:
      Loss on disposals
       of property and
       equipment          (0.5)     (0.3)             (0.8)     (0.4)
    -------------------------------------------------------------------------
    Adjusted earnings
     (loss) before
     income taxes(5)  $   (3.3) $    0.2     N/A  $   (0.8) $    4.2 (120.1)%
    -------------------------------------------------------------------------
    (1) 2008 figures have been restated for implementation, on a
        retrospective basis, of the CICA HB 3064 Goodwill and Intangible
        Assets and the amendments to CICA HB 1000 - Financial Statement
        Concepts. Please refer to Note 2 in the Consolidated Financial
        Statements.
    (2) Includes retail sales from corporate and franchise stores.
    (3) Mark's same store sales exclude new stores, stores not open for the
        full period in each year and store closures.
    (4) Gross operating revenue includes retail sales at corporate stores
        only
    (5) Non-GAAP measure. Please refer to section 15.0 in Management's
        Discussion and Analysis.
    

Mark's third quarter total retail sales were $189.6 million down 2.5% from the $194.5 million recorded a year ago due to softer economic conditions. While there were sales decreases in the resourced-based provinces of British Columbia and Alberta, most of the balance of the country showed modest sales growth. At the category level, ladies wear was least affected by the economic slowdown posting a corporate store sales increase. However, corporate store sales in industrial wear and men's wear were down year over year, with the largest dollar sales decreases occurring in industrial work wear and men's industrial footwear. Mark's continues to be focused on introducing products into its Clothes That Work(R) assortment that are better designed and engineered.

Mark's pre-tax earnings decreased in the third quarter of 2009 primarily as a result of the decrease in gross operating revenue and higher expenses due to network expansion and infrastructure investments in recent years. The gross margin rate on merchandise sold improved this quarter, up 50 basis points due to lower markdowns versus the third quarter of 2008 offset to some degree by lower purchase markup primarily as a result of the foreign exchange hedging activities.

During the quarter, Mark's opened one new combination store, relocated four stores, expanded one franchise store and closed two stores, bringing the total number of stores in the network to 374.

    
    CANADIAN TIRE FINANCIAL SERVICES (Financial Services)

    ($ in millions)    Q3 2009 Q3 2008(1) Change  2009 YTD 2008 YTD(1) Change
    -------------------------------------------------------------------------
    Total managed
     portfolio end
     of period                                    $4,174.4  $4,002.3     4.3%
    Gross operating
     revenue          $  222.0  $  197.8   12.2%  $  672.2  $  608.0    10.6%
    -------------------------------------------------------------------------
    Earnings before
     income taxes         18.7      47.6 (60.8)%      93.5     146.2  (36.1)%
    Less adjustment for:
      Gain (loss) on
       disposal of
       property and
       equipment          (0.5)     (0.6)             (0.7)     (0.6)
      Net effect of
       securitization
       activities(2)      (9.0)     (9.1)             (6.8)      7.7
    -------------------------------------------------------------------------
    Adjusted earnings
     before income
     taxes(3)         $   28.2  $   57.3 (50.9)%  $  101.0  $  139.1  (27.4)%
    -------------------------------------------------------------------------
    (1) 2008 figures have been restated for implementation, on a
        retrospective basis, of the CICA HB 3064 Goodwill and Intangible
        Assets and the amendments to CICA HB 1000 - Financial Statement
        Concepts. Please refer to Note 2 in the Consolidated Financial
        Statements.
    (2) Includes initial gain/loss on the sale of loans receivable,
        amortization of servicing liability, change in securitization reserve
        and gain/loss on reinvestment.
    (3) Non-GAAP measure. Please refer to section 15.0 in Management's
        Discussion and Analysis.
    

Financial Services' total managed portfolio of loans receivable was $4.2 billion at the end of the third quarter, a 4.3% increase over the $4.0 billion portfolio at the end of the comparable 2008 period due to select limit increases, balance transfer offers and a lower customer payment rate.

Financial Services' gross operating revenue was $222.0 million in the quarter, a 12.2% increase over the $197.8 million recorded in the prior year, reflecting an increase in yield resulting from various pricing initiatives and an increase in the total managed portfolio of loans receivable.

Earnings before income taxes for the third quarter decreased significantly compared to the same quarter last year due to the increase in loan loss provisioning resulting from increased bankruptcy and write off rates noted below and an increase in interest expense caused by carrying excess liquidity.

The net write-off rate for the total managed portfolio on a rolling 12- month basis was 7.30%, compared to 6.04% in the comparable 2008 period. While bankruptcy costs increased, analysis of Financial Services' performance versus national statistics indicate that Financial Services continues to experience a lower growth in bankruptcies than the Canadian average due to its effective credit risk strategies. Overall aging of past due accounts deteriorated by 47 basis points from September 2008.

As previously announced, Financial Services' sold its mortgage portfolio, approximately $162 million pre-tax, to National Bank of Canada, but is continuing to invest in its retail and broker deposit products. At quarter end, Financial Services had more than $590 million in retail deposits and $1.7 billion in broker deposits. The average term of maturity for the broker deposits is approximately 30 months.

Looking forward, the government has announced new credit card legislative changes which come into effect at varying times during 2010 and will impact items such as interest charges, payment allocation methodology and credit limit increase approvals. The preliminary estimates on the negative impact to Financial Services coming in 2010 as a result of these changes are in the range of $8 million to $10 million pre-tax.

FUNDING AND LIQUIDITY

Financial Services continues to have access to multiple sources of funding including:

    
    -   Operating cash flow

    -   Broker deposits

    -   Retail deposits in the form of high interest savings accounts and
        GIC's
    

In addition, $1.2 billion of committed bank lines are available to Financial Services.

By the end of the third quarter, Financial Services had pre-funded the majority of the approximately $500 million required during the balance of the year to repay maturing short-term GIC deposits and finance the increase in receivables that will result when Glacier term notes mature. The cost of this conservative approach was approximately $5 million for the quarter.

Overall, Management remains confident that given the various sources of funding available, particularly for Financial Services, the Corporation has more than sufficient cost-effective funding to support its businesses for the foreseeable future.

CAPITAL EXPENDITURES

As a result of adjustments to the timing of projects and lower actual project costs, Management now expects capital expenditures for the 2009 fiscal year to be approximately $300 million, down from the originally planned $390 million and approximately $26 million lower than the capital forecast provided at the end of the second quarter.

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 2008 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, 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 expected performance in 2009 that have the potential to affect the operating performance and financial results of the Company's divisions are outlined in Section 11.0 of the MD&A.

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.

In a simultaneous news release, Canadian Tire also announced organizational changes to focus on business performance and customer-centred growth.

CONFERENCE CALL

Canadian Tire will conduct a conference call to discuss information included in this news release and related matters at 4:30 p.m. EST on November 12, 2009. The conference call will be available simultaneously and in its entirety to all interested investors and the news media through a webcast at http://corp.canadiantire.ca/EN/investors, and will be available through replay at this website for 12 months.

Canadian Tire Corporation, Limited (TSX: CTC.a, CTC), operates more than 1,200 general merchandise and apparel retail stores and gas stations in an inter-related network of businesses engaged in retail, financial services and petroleum. Canadian Tire Retail, one of Canada's most shopped general merchandise retailers, with 476 stores operated by Dealers across Canada offers a unique mix of products and services through three specialty categories in which the organization is the market leader - Automotive, Sports and Leisure, and Home Products. www.canadiantire.ca offers Canadians the opportunity to research more than 25,000 products online. PartSource is an automotive parts specialty chain with 87 stores designed to meet the needs of purchasers of automotive parts - professional automotive installers and serious do-it-yourselfers. Canadian Tire Petroleum is one of the country's largest and most productive independent retailers of gasoline, operating 273 gas bars, 268 convenience stores and kiosks, and 73 car washes. Mark's Work Wearhouse is one of the country's leading apparel retailers operating 374 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 five million Canadian Tire MasterCard credit cards and also markets related financial products and services for retail and petroleum customers. Canadians can also access Financial Services online at www.ctfs.com. More than 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.

Definitions

In this document, the terms "we", "us", "our", "Company" and "Canadian Tire" refer to Canadian Tire Corporation, Limited and its business units and subsidiaries. For commonly used terminology (such as retail sales and same store sales), see section 5.3 (Business segment performance) and the Glossary of Terms (pages 93 to 95) in our 2008 Financial Report, which can be found online on the SEDAR website at www.sedar.com and on our Canadian Tire website in the Investor Relations section at http://corp.canadiantire.ca/en/investors.

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 November 12, 2009.

Quarterly and annual comparisons in this MD&A

Unless otherwise indicated, all comparisons of results for the third quarter (13 weeks ended October 3, 2009) are against results for the third quarter of 2008 (13 weeks ended September 27, 2008).

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. See sections 14.1 and 14.2 of this MD&A and note 2 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. See section 12.0 in this MD&A for further information.

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. See section 19.0 in this MD&A for additional important information and a caution on the use of forward-looking information. This is especially important in view of the current uncertain economic environment.

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, store operators, franchisees and Petroleum agents operate more than 1,200 general merchandise and apparel retail stores and gas bars. Canadian Tire Financial Services Limited and Canadian Tire Bank also offer a variety of financial services to Canadians, including the Canadian Tire Options(R) MasterCard(R), personal loans, lines of credit, insurance and warranty products, guaranteed investment certificates (GICs) offered through third-party brokers and directly to the public, and high-interest and tax-free savings accounts.

Canadian Tire's four main businesses are described below.

Canadian Tire Retail (CTR) is one of Canada's most shopped general merchandise retailer with a network of 476 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 includes PartSource. PartSource is a chain of 87 specialty automotive hard parts stores that cater to serious "do-it-yourselfers" and professional installers of automotive parts. The PartSource network consists of 29 franchise stores and 58 corporate stores.

Mark's Work Wearhouse (Mark's) is one of Canada's leading clothing and footwear retailers, operating 374 stores nationwide, including 331 corporate and 43 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 name "Imagewear, a Division of Mark's Work Wearhouse(TM)".

Canadian Tire Petroleum (Petroleum) is one of Canada's largest independent retailers of gasoline with a network of 273 gas bars, including 268 convenience stores and kiosks, 73 car washes, 12 Pit Stops and 88 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.

Canadian Tire Financial Services Limited (Financial Services) markets a range of Canadian Tire-branded credit cards, including the Canadian Tire Options(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 (CTB), a wholly-owned subsidiary, is a federally regulated bank that manages and finances Canadian Tire's consumer MasterCard and retail credit card portfolios, the personal loan and line of credit portfolios, and is the issuer of GICs offered through third- party brokers. CTB also offers high-interest and tax-free savings accounts and retail GICs in all provinces except Quebec. CTB is a member of Canada Deposit Insurance Corporation (CDIC) and eligible deposit products issued by CTB may qualify for CDIC insurance coverage.

1.2 Store network at a glance

    
                                                    October 3,  September 27,
    Number of stores and retail square footage           2009           2008
    -------------------------------------------------------------------------
    Consolidated store count
      CTR retail stores(1)                                476            473
      PartSource stores                                    87             82
      Mark's retail stores(1)                             374            364
      Petroleum gas bar locations                         273            269
    -------------------------------------------------------------------------
    Total stores                                        1,210          1,188
    Consolidated retail square footage (in millions)
      CTR                                                18.9           18.4
      PartSource                                          0.3            0.3
      Mark's                                              3.3            3.1
    -------------------------------------------------------------------------
    Total retail square footage(2) (in millions)         22.5           21.8
    -------------------------------------------------------------------------
    (1) Store count numbers reflect individual selling locations; therefore,
        both CTR and Mark's totals include stores that are co-located.
    (2) The average retail square footage for Petroleum's convenience stores
        was 453 square feet per store in Q3 2009.  It has not been included
        in the total above.
    

1.3 Business unit performance at a glance

    
    (year-over-year percentage change)                Q3 2009        Q3 2008
    -------------------------------------------------------------------------
    CTR retail sales(1)                                (2.3)%           4.1%
    CTR gross operating revenue                          0.7%           7.3%
    CTR net shipments                                    0.3%           7.6%
    Mark's retail sales(2)                             (2.5)%           2.6%
    Petroleum retail sales                            (19.8)%          21.9%
    Petroleum gasoline volume (litres)                   4.6%         (4.6)%
    Financial Services' credit card sales                0.8%          14.0%
    Financial Services' gross average receivables        4.6%           6.5%
    -------------------------------------------------------------------------
    (1) Includes sales from Canadian Tire stores, PartSource stores and the
        labour portion of CTR's auto service sales.
    (2) Includes retail sales from Mark's corporate and franchise stores.
    

2.0 Our Strategic Plan

2.1 Rolling Five-Year Strategic Plan to 2013 (2013 Plan)

The 2013 Plan outlines our strategy to build Canadian Tire through a continued focus on growth and productivity throughout the 2013 Plan period. The key growth initiatives of the 2013 Plan include network expansion across all of our retail businesses (CTR and PartSource, Petroleum and Mark's), store concept renewals and the continued evolution of products and services at Financial Services. Key productivity initiatives include continued upgrading of our automotive supply chain, renewing our technology infrastructure and streamlining our organizational design.

Specific objectives related to these programs are included in section 3.2 and section 3.3 of this MD&A and section 4.0 of the MD&A contained in the 2008 Financial Report.

2.2 Financial aspirations

The 2013 Plan includes financial aspirations for the Company for the five-year period ending in December 2013. In light of uncertainty caused by the economic downturn, management is currently re-assessing its long-term financial aspirations in the context of its annual review of its Strategic Plan and its ongoing assessment of economic conditions.

3.0 Our performance in 2009

3.1 Consolidated financial results

    
    ($ in millions)
    except per share
    amounts)           Q3 2009 Q3 2008(1) Change  2009 YTD 2008 YTD(1) Change
    -------------------------------------------------------------------------
    Retail sales(2)   $2,449.0  $2,605.0  (6.0)%  $7,027.9  $7,394.8   (5.0)%
    Gross operating
     revenue           2,165.9   2,257.5  (4.1)%   6,248.8   6,533.5   (4.4)%
    EBITDA(3)            218.8     223.9  (2.4)%     625.0     615.0     1.6%
    Earnings before
     income taxes        119.0     149.0 (20.2)%     337.8     393.2  (14.1)%
    Effective tax rate   28.2%     26.8%             29.3%     30.3%
    Net earnings      $   85.4  $  109.1 (21.8)%  $  238.8  $  273.9  (12.8)%
    Basic earnings
     per share        $   1.04  $   1.34 (21.9)%  $   2.92  $   3.36  (13.0)%
    Adjusted basic
     earnings per
     share(3          $   1.11  $   1.42 (21.8)%  $   2.98  $   3.27   (8.7)%
    -------------------------------------------------------------------------
    (1) 2008 figures have been restated for the implementation, on a
        retrospective basis, of CICA HB 3064 - Goodwill and Intangible Assets
        and the amendments to CICA HB 1000 - Financial Statement Concepts.
        See sections 14.1 and 14.2 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 15.0 for non-GAAP measures.
    

Consolidated gross operating revenue

Gross operating revenue for the quarter declined 4.1 percent from the prior year primarily as a result of a 22.3% decline in Petroleum's revenue, due to significantly lower gasoline pump prices compared with the third quarter of 2008. Mark's gross operating revenue declined by 2.6% due to the impact of a softer economy on sales of men's wear and industrial wear. CTR's gross operating revenue, in spite of a softer economy and unseasonably cold and wet weather, grew a modest 0.7 percent. Financial Services' revenue remained strong in the third quarter with gross operating revenue up 12.2% due to a higher yield and the growth in account balances.

Consolidated net earnings

Consolidated net earnings for the quarter decreased from the prior year by 21.8%. The majority of the decrease was caused by higher loan loss provisioning at Financial Services due to the economic environment and higher interest expense attributable to the rapid expansion of broker deposits at Financial Services that are being used to prefund the increase of credit card receivables arising from the maturation of the GCCT (Glacier Credit Card Trust) notes and maturing GICs in late 2009. Partially offsetting the decrease in Financial Services' earnings were modest growth in earnings in our CTR and Petroleum businesses.

Consolidated net earnings were also impacted by non-operating items as noted below.

Impact of non-operating items

The following table shows our adjusted consolidated earnings on a pre-tax and after-tax basis.

Adjusted consolidated earnings before and after income taxes(1)

    
    ($ in millions)
    except per share
    amounts)           Q3 2009 Q3 2008(2) Change  2009 YTD 2008 YTD(2) Change
    -------------------------------------------------------------------------
    Earnings before
     income taxes     $  119.0  $  149.0 (20.2)%  $  337.8  $  393.2  (14.1)%
    Less pre-tax
     adjustment for:
      Former CEO
       retirement
       obligation(3)       0.0       0.2               0.5       1.1
      Amortization of
       interest rate
       swap unwind(3)      1.6         -               1.6         -
      Net effect of
       securitization
       activities(4)      (9.0)     (9.1)             (6.8)      7.7
      Gain (loss) on
       disposals of
       property and
       equipment          (0.8)     (1.3)             (2.3)      2.4
    -------------------------------------------------------------------------
    Adjusted earnings
     before income
     taxes(1)         $  127.2  $  159.2 (20.1)%  $  344.8  $  382.0   (9.7)%
    Income taxes          36.2      43.2             101.2     115.7
    -------------------------------------------------------------------------
    Adjusted earnings
     after income
     taxes(1)         $   91.0  $  116.0 (21.6)%  $  243.6  $  266.3   (8.5)%
    -------------------------------------------------------------------------
    Basic earnings
     per share        $   1.04  $   1.34 (21.9)%  $   2.92  $   3.36  (13.0)%
    Adjusted basic
     earnings per
     share(1)         $   1.11  $   1.42 (21.8)%  $   2.98  $   3.27   (8.7)%
    -------------------------------------------------------------------------
    (1) See section 15.0 on non-GAAP measures.
    (2) 2008 figures have been restated for the implementation, on a
        retrospective basis, of CICA HB 3064 - Goodwill and Intangible Assets
        and the amendments to CICA HB 1000 - Financial Statement Concepts.
        See sections 14.1 and 14.2 for additional information.
    (3) The former CEO retirement obligation and the amortization of the
        interest rate swap unwind has been recorded in CTR. See section
        3.3.1.
    (4) Includes initial gain/loss on the sale of loans receivable,
        amortization of servicing liability, change in securitization reserve
        and gain/loss on reinvestment.
    

Consolidated net earnings in the third quarter were positively affected by $1.6 million, representing the amortized portion of the fair value gain realized from the unwinding of the interest rate swaps related to the early redemption of long-term debentures, as well as a $0.5 million decrease in the loss on disposal of property and equipment compared with the prior year. While the Q3 2009 results benefited primarily from a $4.5 million reduction in the tax provision due to the revisions of the prior year's estimated tax liability to tax filings that normally is reflected in the third quarter, the Q3 2008 provision was favourably impacted primarily by the net tax effect of adjustments to taxes on the sale and leaseback of various proprieties ($6.6 million) and revisions to the estimate of tax provisions.

Seasonal trend analysis

The second 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)                Q3 2009   Q2 2009   Q1 2009   Q4 2008
    -------------------------------------------------------------------------
    Gross operating revenue           $2,165.9  $2,324.8  $1,758.1  $2,587.8
    Net earnings                          85.4     103.7      49.7     101.5
    Basic and diluted earnings
     per share                            1.04      1.27      0.61      1.24
    -------------------------------------------------------------------------


    ($ in millions except
     per share amounts)                Q3 2008   Q2 2008   Q1 2008   Q4 2007
    -------------------------------------------------------------------------
    Gross operating revenue           $2,257.5  $2,450.7  $1,825.3  $2,503.1
    Net earnings                         109.1      97.7      67.1     131.3
    Basic and diluted earnings
     per share                            1.34      1.20      0.82      1.61
    -------------------------------------------------------------------------
    (1) 2008 quarterly results have been restated for the implementation, on
        a retrospective basis, of CICA HB 3064 - Goodwill and Intangible
        Assets and the amendments to CICA HB 1000 - Financial Statement
        Concepts. See sections 14.1 and 14.2 for additional information. 2007
        results have not been restated as the information required to
        calculate the restatement on a quarterly basis is not readily
        available.
    

Items that affected the usual seasonal pattern noted above include:

    
    -   Q2 2008 was negatively impacted by a $12.0 million pre-tax book-to-
        physical inventory adjustment at Mark's;
    -   Q2 2008 was negatively impacted by a $9.7 million pre-tax expense
        related to the Options MasterCard relaunch at Financial Services;
    -   Q3 2008 was positively impacted by an $8.6 million reduction in the
        tax provision, most of which related to the impact of the sale-
        leaseback transactions entered into since 2005;
    -   Q4 2008 was negatively impacted by a $28.7 million pre-tax expense
        related to a delayed-start interest rate swap adjustment;
    -   Q1 2009 was positively impacted by a $4.6 million reduction in the
        tax provision related to the retroactive change in the taxation of
        gains realized from the disposition of shares during 2006 and 2007;
        and
    -   Q3 2009 was positively impacted by a $4.5 million reduction in the
        tax provision, primarily due to the revision of the prior year's
        estimated tax expense.
    

3.2 Business unit Q3 2009 performance overview

    
    -------------------------------------------------------------------------
    Canadian Tire Retail                    Mark's Work Wearhouse
    -------------------------------------------------------------------------
    Q3 2009 Performance highlights           Q3 2009 Performance highlights

     -  continued development of new store     -  opened one new corporate
        formats and  prepared to open 25          Combo store and closed one
        Smart store retrofits in Q4 2009;         Mark's corporate store and
        and                                       one Work World corporate
     -  expanded one traditional store            store
        into a Smart store and opened one      -  increased total retail
        new incremental Small Market store.       space by approximately 5.2
                                                  percent year-over-year;
    PartSource Q3 2009 Performance                store network totals 374
    highlights                                    locations; and
                                               -  improved gross margin by 50
     -  opened one new corporate store            basis points primarily due
        in Welland, Ontario which was a           to improvements in markdown
        new store format, expanded one            management.
        store into a hub store and closed
        two stores; and
     -  increased the retail square
        footage by approximately 7.5
        percent year-over-year as a result
        of ongoing network expansion.
    -------------------------------------------------------------------------
    Canadian Tire Financial Services         Petroleum
    -------------------------------------------------------------------------
    Q3 2009 Performance highlights           Q3 2009 Performance highlights

     -  increased gross average                -  grew store network by four
        receivables by 4.6 percent for            gas bars (since Q3 2008);
        the total managed portfolio;              and
    -   continued growth in the broker         -  grew convenience store
        GIC portfolio; and                        business by 15.4 percent
    -   piloted the "Curve" and "GoPlay"          over the prior year.
        credit cards in test markets,
    -------------------------------------------------------------------------
    

The following sections outlining the Company's business segment performance highlight the respective segment's achievements to date against key initiatives identified in the 2013 Plan. The initiatives have been divided into growth (increase sales primarily through network growth, new stores and new products) and productivity (improve customer service metrics, service levels, cost-effectiveness and rates of return).

3.3 Business segment performance

3.3.1 Canadian Tire Retail

3.3.1.1 Q3 2009 Strategic Plan performance

The following outlines CTR's performance for the third quarter of 2009 in the context of our 2013 Plan.

    
    -------------------------------------------------------------------------
    Canadian Tire Retail Growth Initiatives
    -------------------------------------------------------------------------

    New store program

    20/20 stores have been the cornerstone of CTR's growth agenda since 2003.
    This program is now complete and CTR has developed new store concepts
    which are designed to build on the successes of the 20/20 store program
    with a greater focus on improving sales and productivity at a lower
    capital cost. Plans for 2009 include opening new Smart store retrofits
    that will have the same focus on improving sales and productivity, as
    well as providing a more exciting customer experience, and Small Market
    stores which are designed to expand our presence in smaller markets.
    -------------------------------------------------------------------------
    2009 Key initiatives                     2009 Performance
    -------------------------------------------------------------------------
    With the completion of the 20/20         Third quarter
    program in 2008, CTR's strategy is to
    test/rollout the next versions of the    During the third quarter CTR
    CTR store. This includes the             expanded one traditional store
    building of, and conversion to, the      into a Smart store and opened
    new Smart stores and new Small Market    one new incremental Small Market
    stores which are an important aspect     store with a full Mark's store
    of the 2013 Plan.                        contained therein. At the end
                                             of the third quarter, there were
                                             ten Smart stores and six Small
                                             Market stores.

                                             The store network now totals 476
                                             stores, 49 of which include a
                                             Mark's component.
    -------------------------------------------------------------------------
    Customer Experience

    Canadian Tire is committed to building customer loyalty through fostering
    a positive, consistent and memorable customer experience. In 2008, CTR
    began working on a new strategic model for the organization that will
    lead to a stronger focus on customer service.
    -------------------------------------------------------------------------
    2009 Key initiatives                     2009 Performance
    -------------------------------------------------------------------------
    Improve the customer service             Third quarter
    experience by implementing the
    Customer Service Index to identify our   CTR halted the "store intercept"
    core strengths and opportunities in      (one-on-one interviews) method
    order to grow sales.                     of surveying customers during
                                             the third quarter. Instead, the
                                             Store Support and Dealer
                                             Relations teams worked with the
                                             Canadian Tire Dealers to
                                             implement a new web-based
                                             version of the Customer Service
                                             Index program, which will be
                                             introduced in the fourth
                                             quarter.
    -------------------------------------------------------------------------
    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 resulted in high rates of customer retention after conversion.
    -------------------------------------------------------------------------
    2009 Key initiatives                     2009 Performance
    -------------------------------------------------------------------------
    Key initiatives for PartSource include   Third quarter
    building CTR as a new commercial
    account for emergency shipments,         During the quarter, PartSource
    updating the organizational structure,   continued making progress on
    testing new operating systems and        building the CTR commercial
    developing a new auto parts catalogue.   account. The entire PartSource
                                             network (which consists of hub
                                             stores, corporate stores and
                                             franchise stores) supplies
                                             emergency auto parts to
                                             approximately 210 Canadian Tire
                                             stores.

                                             PartSource opened one new
                                             corporate store in Welland,
                                             Ontario which was a new store
                                             format, converted one franchise
                                             store to a corporate store,
                                             converted one unbranded
                                             corporate store to the
                                             PartSource banner, expanded one
                                             store into a hub store and
                                             closed two PartSource stores
                                             during the quarter. This brings
                                             the network total to 87 stores,
                                             including ten hub stores.
                                             (Details of the hub store are
                                             discussed below in the
                                             "Automotive Infrastructure
                                             initiative" section.)
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    Canadian Tire Retail Productivity Initiatives
    -------------------------------------------------------------------------
    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. The benefits of these projects include the ability to make
    faster and better decisions and improve our agility and speed to market.
    -------------------------------------------------------------------------
    2009 Key initiatives                     2009 Performance
    -------------------------------------------------------------------------
    In 2009, CTR plans to implement          Third quarter
    productivity/control initiatives in
    the area of sales and operational        Progress made on the CTR Change
    planning; and analyze and build          Program included:
    requirements for 2010 implementation
    in the areas of promotional planning       -  completion and
    and vendor relationship management.           implementation of software
                                                  upgrade;
                                               -  build of technology
                                                  solution for promotional
                                                  planning capability;
                                                  commencement of rollout of
                                                  processes and testing of
                                                  technology; and
                                               -  work on new processes and
                                                  technology to improve
                                                  returns desk practices at
                                                  store level and online.
    -------------------------------------------------------------------------
    Automotive Infrastructure initiative

    Revitalizing the cornerstone automotive business is a key priority over
    the 2013 Plan period as CTC continues to expand the network through
    opening 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 CTR and PartSource
    customers. In 2009, CTR plans to open an additional eight hub stores. In
    addition, the Company is investing in infrastructure and technological
    enhancements and is re-engineering customer facing processes.
    -------------------------------------------------------------------------
    2009 Key initiatives                     2009 Performance
    -------------------------------------------------------------------------
    Throughout 2009, CTC plans to open       Third quarter
    eight PartSource hub stores.
                                             Progress on the Automotive
    There will be further investment in      Infrastructure initiative
    the physical retrofit of the             included:
    automotive distribution centres.
                                             Emergency supply implementation:
    Manhattan warehouse management             -  converted a PartSource
    software will be implemented in the           store to a hub store in
    Calgary auto parts distribution               Calgary. Now, ten hub
    centre.                                       stores serve 149 Canadian
                                                  Tire Retail stores.
    The investment in distribution assets
    will support an increase in the number   Assortment deployment processes:
    of auto parts in the assortment by an      -  now stocking approximately
    additional 20%.                               53,000 stock keeping units
                                                  (SKUs) in two auto parts
    Work to implement an industry-leading         distribution centres; and
    automotive hard parts catalogue will       -  implementing the warehouse
    begin in 2009.                                management system in the
                                                  Calgary auto parts
                                                  distribution centre.

                                             Customer Experience processes:
                                               -  finalized Master Services
                                                  Agreement with our chosen
                                                  vendor and completed one
                                                  half of the functional
                                                  design specifications
                                                  needed to support the
                                                  customer experience
                                                  processes; and
                                               -  the detailed design of
                                                  parts data management is
                                                  underway.
    -------------------------------------------------------------------------
    

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; and
        -   average sales per square foot of retail space
    

CTR total retail and same store sales

    
    (year-over-year percentage change) Q3 2009   Q3 2008  YTD 2009   YTD 2008
    -------------------------------------------------------------------------
    Total retail sales(1)               (2.3)%      4.1%    (0.3)%       1.6%
    Same store sales(2)                 (3.8)%      2.0%    (1.9)%     (0.5)%
    -------------------------------------------------------------------------
    (1) Includes sales from Canadian Tire and PartSource stores and the
        labour portion of CTR's auto service sales.
    (2) Includes sales from Canadian Tire and PartSource stores, but excludes
        sales from the labour portion of CTR's auto service sales.
    

CTR retail sales

Third quarter

Our retail sales continue to be influenced by the challenging economic conditions that are currently affecting Canada and were impacted by unseasonably cool summer weather in Ontario and Quebec with a 2.3% decline in retail sales during the third quarter. Same store sales were down 3.8% compared to the third quarter of 2008.

The unseasonably cool summer weather impacted some seasonal businesses such as backyard living, cycling, gardening and camping, and challenging economic conditions impacted some of our high-ticket discretionary categories such as home décor, electronics and storage and organization. Despite overall softer sales, Canadian Tire Retail did see a healthy increase in sales in growth categories such as exercise equipment, automotive parts, kitchen and pet food.

PartSource experienced another quarter of year-over-year sales increases driven by both the continued expansion of the network and improved product assortment. The nature of PartSource's business also makes it somewhat resilient during economic downturns as consumers will tend to repair rather than replace their vehicles at such times, especially in view of the uncertainty in the North American auto sector. In addition, PartSource shipments to CTR Dealers continue to increase as components of the Automotive Infrastructure initiative project are rolled out.

CTR store network definitions

Our store network has evolved as we have introduced new store formats into our store categories, which we define as follows:

    
    -------------------------------------------------------------------------
    Smart store format       Small Market store       Updated & Expanded
    (late 2008) Average      format (mid-2008)        store format (1994 to
    retail square            Average retail square    mid-2008) Average
    footage: 61,000          footage: 18,000          retail square footage:
                                                      44,000
    -------------------------------------------------------------------------
    Next store concept       Smaller format launched  A combination of our
    renewal, building off    in July 2008, ranging    newer format stores,
    the 20/20 store with a   in size from 14,000 to   including "20/20",
    focus on growth and      19,000 square feet.      "Class-of" and "Next
    improving productivity   Small Market stores      Generation" stores.
    through inspiring        meet the needs of        These stores,
    layouts, refreshed       underserved rural        previously referred to
    assortments and more     markets and include      as "standard stores",
    environmentally          customized product       range in size from
    responsible options.     selection to serve a     16,000 to 89,000 square
    Stores range in size     particular region,       feet, most of which
    from 41,000 to 83,000    easy-to navigate         were opened or
    square feet. There are   signage and walkways,    converted to these
    currently ten Smart      prominent heritage       formats between 1994
    stores in the network,   departments (e.g.:       and mid-2008. "Updated
    the first of which       hockey) and generously   and expanded" format
    opened in November       sized outdoor areas      stores make up
    2008.                    that "expand" the store  approximately 90.2
                             in peak periods.         percent of the retail
                             There are currently six  square footage in the
                             Small Market stores in   CTR network (excluding
                             the network.             PartSource).
    -------------------------------------------------------------------------

    ----------------------------------------------------
    Traditional store        PartSource stores
    format (1994 and prior)  (2008 and prior)
    Average retail square    Average retail square
    footage: 16,000          footage: 7,000
    ----------------------------------------------------
    Smaller than the         PartSource is an
    "updated and expanded"   automotive parts
    store format on average. specialty store designed
    Traditional stores have  to meet the needs of major
    various sizes and        purchasers of auto parts,
    layouts ranging in size  professional automotive
    from 3,000 to 36,000     installers and serious
    square feet.             do-it-yourselfers.
    Traditional stores make  Stores carry a tailored
    up approximately 6.0     product assortment based
    percent of the retail    on local vehicle needs
    square footage in the    and are easily recognizable
    CTR network (excluding   with the checkerboard
    PartSource).             flooring design. Beginning
                             in 2007, new larger
                             warehouse locations
                             (hub stores) were opened
                             to help bring more parts
                             inventory closer to
                             customers at both CTR
                             and PartSource stores.
    ----------------------------------------------------
    

CTR store count

    
                               Q3 2009(1) 2008(2)   2007(2)   2006(2) 2005(2)
    -------------------------------------------------------------------------
    Updated and expanded
     stores(3)                       388     393       381       363     345
    Traditional stores                72      76        92       105     117
    Small Market stores                6       4         -         -       -
    Smart stores                      10       2         -         -       -
    -------------------------------------------------------------------------
    Total updated and expanded,
     traditional, Small Market
     and Smart stores                476     475       473       468     462
    PartSource stores                 87      86        71        63      57
    -------------------------------------------------------------------------
    (1) Store count at the end of Q3 2009.
    (2) Store count at the end of the year.
    (3) "Updated and expanded" stores decreased by 5 in 2009. They were
        converted into five Smart stores (one Smart store in Q1 and four
        Smart stores in Q2).
    

CTR continues to retrofit its store network with a focus on converting selected traditional and "updated and expanded" existing stores to the latest formats. The 20/20 store format program was completed by the end of 2008 and two new formats (Small Market and Smart stores) were tested in late 2008 and in early 2009. These latest formats have been well received by customers to date. For example, the first nine new or replacement Smart stores experienced a sales uplift of over 25% with average transactions up 15%. There have been significant increases in sales in key categories such as pet food and accessories, exercise equipment, hockey equipment and kitchen. We are pleased with the results to date of our food test, and are extending it into 5 more stores this fall. We intend to draw conclusions from our tests and decide on future directions sometime in 2010.

For the remainder of 2009 and in subsequent years, we will continue to roll out the two new formats, consistent with the goals of the 2013 Plan. During the Fall of 2009, we will open 25 retrofit Smart stores for which we expect an annualized sales uplift of 6% to 8%.

Average retail sales per CTR store(1),(2)

    
                                                   For the 12     For the 12
                                                 months ended   months ended
                                                    October 3,  September 27,
    ($ in millions)                                      2009           2008
    -------------------------------------------------------------------------
    Updated and expanded stores                       $  15.9        $  16.0
    Traditional stores                                    7.7            7.8
    -------------------------------------------------------------------------
    (1) Retail sales are shown on a 52-week basis in each year and exclude
        sales from PartSource stores 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.
    

The "updated and expanded" stores typically experience higher customer traffic and increases in average transaction value compared to traditional store formats. For the rolling 12-month period, the average retail sales for the "updated and expanded" stores, as well as the traditional stores, experienced a slight decline.

The decline in sales per store is partially attributable to a weaker economy as consumers focused on 'needs' versus 'wants'.

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

    
                                                   For the 12     For the 12
                                                 months ended   months ended
                                                    October 3,  September 27,
                                                         2009           2008
    -------------------------------------------------------------------------
    Retail square footage(1),(3) (millions of
     square feet)                                        18.9           18.4
    Updated and expanded stores(2),(3)
     ($ sales per square foot)                        $   377        $   382
    Traditional stores(2),(3)                             492            497
    -------------------------------------------------------------------------
    (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.
        It represents a point in time (instead of a rolling 12-month period)
        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 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.
    

Retail square footage increased by approximately 0.5 million square feet, year-over-year as noted above.

Average sales per square foot of retail space in the larger "updated and expanded" 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 "updated and expanded" stores do however, on average, generate more total sales.

3.3.1.3 CTR's financial results

    
    ($ in millions)    Q3 2009 Q3 2008(1) Change  2009 YTD 2008 YTD(1) Change
    -------------------------------------------------------------------------
    Retail sales      $1,818.3  $1,860.3  (2.3)%  $5,239.4  $5,253.6   (0.3)%
    Net shipments
     (year-over-
     year %
     change)              0.3%      7.6%              0.1%      3.8%
    Gross operating
     revenue           1,408.5   1,399.3    0.7%   4,057.8   4,032.7     0.6%
    EBITDA(2)            161.2     152.6    5.6%     421.1     397.9     5.8%
    -------------------------------------------------------------------------
    Earnings before
     income taxes         95.6      94.0    1.6%     223.6     222.7     0.4%
    Less adjustment
     for:
      Amortization of
       interest rate
       swap unwind         1.6         -               1.6         -
      Gain (loss) on
       disposals of
       property and
       equipment           0.3      (0.3)             (0.4)      3.7
      Former CEO
       retirement
       obligation          0.0       0.2               0.5       1.1
    -------------------------------------------------------------------------
    Adjusted earnings
     before income
     taxes(2)         $   93.7  $   94.1  (0.4)%  $  221.9  $  217.9     1.9%
    -------------------------------------------------------------------------
    (1) 2008 figures have been restated for the implementation, on a
        retrospective basis, of CICA HB 3064 - Goodwill and Intangible Assets
        and the amendments to CICA HB 1000 - Financial Statement Concepts.
        See sections 14.1 and 14.2 for additional information.
    (2) See section 15.0 on non-GAAP measures.
    

Explanation of CTR's financial results

Third quarter

Shipments and gross operating revenue experienced modest increases in the third quarter, outpacing retail sales, as Dealers began their inventory build toward the end of the quarter in anticipation of the winter and holiday sales requirements and also adjusted upward their inventory levels that had been reduced in previous quarters due to the economic environment.

Earnings before taxes improved 1.6% over the prior year, partially due to the $1.6 million amortized portion of the fair value gain realized from the unwinding of the interest rate swaps related to the early redemption of the $150 million debentures (see section 16.1 of this MD&A). Adjusted earnings before taxes decreased by 0.4% in comparison to the third quarter of 2008. Product margins declined partially due to a slight increase in the percentage of sales derived from items on promotion. Operating expenses increased modestly as increased expenses for the new Eastern Canada Distribution Centre, higher store occupancy costs and continued investments in major initiatives (Automotive Infrastructure, CTR Change Program and IT Renewal as well as ongoing expansion of the PartSource store network) were partially offset by effective cost management in other areas, such as advertising and supply chain.

3.3.1.4 CTR's 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. These include, but are not limited to, supply chain disruption, seasonality and environmental risks. Please see section 5.3.1.6 of our 2008 Financial Report for an explanation of these business-specific risks. See also section 11.0 of this MD&A for a discussion on Enterprise risk management and section 14.0 of our 2008 Financial Report for a discussion of some other industry-wide and Company- wide risks affecting the business.

3.3.2 Mark's Work Wearhouse

3.3.2.1 Q3 2009 Strategic Plan performance

The following outlines Mark's performance for the third quarter of 2009 in the context of our 2013 Plan.

    
    -------------------------------------------------------------------------
    Mark's Work Wearhouse Growth Initiatives
    -------------------------------------------------------------------------
    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 goal of expanding
    the network of Mark's stores.
    -------------------------------------------------------------------------
    2009 Key initiatives                     Q3 2009 Performance
    -------------------------------------------------------------------------
    Mark's will continue network             Third quarter
    development through opening new stores,
    relocating or expanding existing           -  opened one new corporate
    stores and renovating older stores to         Combo store;
    the newest Mark's format. For 2009,        -  relocated four corporate
    we originally planned to:                     stores;
                                               -  expanded one franchise
     -  open 14 new stores;                       store; and
     -  relocate 10 stores;                    -  closed one Mark's store and
     -  expand 3 stores; and                      one Work World corporate
     -  grow the retail square                    store.
        footage by 5%.
                                             Mark's total retail square
                                             footage at the end of the
                                             quarter was 3.3 million square
                                             feet, an increase of 5.2% vs. Q3
                                             2008.

                                             In light of current economic
                                             conditions, we have reduced our
                                             expected store build activity
                                             for 2009 as follows:

                                               -  open 10 new stores;
                                               -  relocate 9 stores;
                                               -  expand 2 stores; and
                                               -  grow the retail square
                                                  footage by 2.9%.
    -------------------------------------------------------------------------
    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.
    -------------------------------------------------------------------------
    2009 Key initiatives                     Q3 2009 Performance
    -------------------------------------------------------------------------
    While participating in the Mark's        Third quarter
    portion of the newly-developed
    concepts for CTR/Mark's Combo stores,    The Combo store opened in the
    such as Smart stores and Small Market    third quarter was a new format
    stores, Mark's is developing a new,      Smart store. Mark's opened its
    stand-alone "CLOTHES THAT WORK(R)"       first "CLOTHES THAT WORK(R)"
    store that will be tested in 2009.       prototype store during the
                                             quarter. Our new Edmonton store
                                             includes a "product-testing
                                             freezer" where customers can
                                             plunge into a deep-freeze cold
                                             to try out our latest winter
                                             fashions. Customers have
                                             responded positively to this
                                             innovation.
    -------------------------------------------------------------------------
    Category expansion

    Mark's growth goals for the 2013 Plan period will be supported by
    category expansion in its three major product lines. Although growth in
    women's wear was modest in 2007, 2008 and 2009 to date, 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 is expected to bring continued growth during the Plan period.
    -------------------------------------------------------------------------
    2009 Key initiatives                     Q3 2009 Performance
    -------------------------------------------------------------------------
    In 2009, Mark's will continue to         Third quarter - corporate sales
    expand its product assortment in the
    three main categories of apparel and       -  sales of women's wear
    footwear with a focus on the Clothes          increased by 6.1 percent;
    That Work campaign.                        -  sales of industrial wear
                                                  decreased by 5.0 percent;
                                                  and
                                               -  sales of men's wear
                                                  decreased by 5.7 percent.

                                             In the third quarter of 2009,
                                             Mark's launched its fall 2009 TV
                                             advertising campaign, with most
                                             advertisements geared towards
                                             advancing "Clothes That Work"
                                             such as DH Soft women's
                                             sweaters, DH U35(TM) underwear
                                             and the Perfect Fit Panty. dri-
                                             WEAR(R) is technology now used
                                             in Mark's underwear, socks, T-
                                             shirts polo shirts and the
                                             lining of some outerwear.
                                             CURVETECH(TM) shape-enhancing
                                             technology is used in Mark's
                                             women's wear category. QUAD
                                             COMFORT(R) technology is found
                                             in both men and women's footwear
                                             at Mark's.
    -------------------------------------------------------------------------
    

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) Q3 2009   Q3 2008  2009 YTD   2008 YTD
    -------------------------------------------------------------------------
    Total retail sales(1)               (2.5)%      2.6%    (5.3)%       1.9%
    Same store sales(2)                 (3.7)%    (1.0)%    (6.7)%     (2.0)%
    -------------------------------------------------------------------------
    (1) Includes retail sales from corporate and franchise stores.
    (2) Mark's same store sales excludes new stores, stores not open for the
        full period in each year and store closures.
    

Third quarter

Mark's retail sales during the third quarter of 2009 continued to be impacted by fragile economic conditions across Canada, with significant sales decreases noted in British Columbia and Alberta while most of the balance of the country showed modest sales growth. Ladies' wear was least affected by the economic slowdown in the third quarter with corporate store sales posting a growth of 6.1%. The largest dollar corporate store sales increases were in ladies' accessories, knit tops and healthwear. Corporate store sales in industrial wear were down 5.0% with the largest dollar decreases occurring in men's industrial work wear and men's industrial footwear. This is reflective of weakness in the labour market conditions in the resource-based provinces of British Columbia and Alberta. Corporate store sales of men's casual clothing declined 5.7% with categories such as jeans, outerwear, T-shirts, casual bottoms and shorts leading the decline.

Mark's continues to focus on its "CLOTHES THAT WORK" strategy and has maintained its pricing to support the brand and to focus on optimizing margins rather than driving unprofitable sales volumes.

Average corporate store sales(1)

    
                                       For the        For the        For the
                                     12 months      12 months      12 months
                                         ended,         ended,         ended,
                                     October 3,  September 27,  September 29,
                                          2009           2008           2007
    -------------------------------------------------------------------------
    Average retail sales per store
     ($ thousands)(2)                  $ 2,589        $ 2,712        $ 2,862
    Average sales per square
     foot ($)(3)                           296            318            341
    -------------------------------------------------------------------------
    (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 average retail sales per store and average sales per square foot have been declining since the end of the second quarter of 2007, primarily due to the economic slowdown which began then, combined with the fact that Mark's has, through new stores, store relocations, store expansions and franchise repatriations, increased its corporate store retail square footage by 21.4% over that time frame.

According to a market research company that tracks the clothing industry retail trends, Mark's continued to increase its market share of the total Canadian apparel market in 2008 and maintained or slightly increased its market share through the first half of 2009, the latest data available. Mark's believes that with its continued network expansion, it will be well positioned to increase its market share and resume improving its average retail sales per store and average sales per square foot when the Canadian apparel market recovers from the current recession.

3.3.2.3 Mark's financial results

    
    ($ in millions)    Q3 2009 Q3 2008(1) Change  2009 YTD 2008 YTD(1) Change
    -------------------------------------------------------------------------
    Retail sales(2)   $  189.6  $  194.5  (2.5)%  $  568.3  $  600.1   (5.3)%
    Gross operating
     revenue(3)          164.2     168.7  (2.6)%     493.5     516.8   (4.5)%
    EBITDA(4)              3.8       6.9 (47.1)%      20.0      24.1  (17.1)%
    -------------------------------------------------------------------------
    Earnings (loss)
     before income
     taxes                (3.8)     (0.1)    N/A      (1.6)      3.8 (142.7)%
    Less adjustment
     for:
      Loss on
       disposals of
       property and
       equipment          (0.5)     (0.3)             (0.8)     (0.4)
    -------------------------------------------------------------------------
    Adjusted earnings
     (loss) before
     income taxes(4)  $   (3.3) $    0.2     N/A  $   (0.8) $    4.2 (120.1)%
    -------------------------------------------------------------------------
    (1) 2008 figures have been restated for the implementation, on a
        retrospective basis, of CICA HB 3064 - Goodwill and Intangible Assets
        and the amendments to CICA HB 1000 - Financial Statement Concepts.
        See sections 14.1 and 14.2 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 15.0 on non-GAAP measures.
    

Explanation of Mark's financial results

Third quarter

Gross operating revenue declined 2.6% in the third quarter compared to the prior year, in line with the decline in retail sales as referenced above.

Mark's pre-tax earnings decreased in the third quarter of 2009 primarily as a result of the decrease in gross operating revenue and higher expenses due to network expansion and infrastructure investments in recent years.

The gross margin rate on merchandise sold improved this quarter, up 50 basis points due to lower markdowns versus the third quarter of 2008, offset to some degree by the effect of foreign exchange hedging activities. The year- to-date gross margin rate was up 280 basis points as it was favourably impacted by reduced inventory shrinkage during Mark's annual inventory count in the second quarter and lower markdowns through the application of a new advanced integrated merchandising planning system, again offset to some degree by lower purchase markup primarily as a result of the foreign exchange hedging activities.

Total expenses increased by $2.5 million, or 3.3%, during the third quarter of 2009. Occupancy, depreciation and system costs increased as a result of having 10 more corporate stores in the network versus the third quarter of 2008 and increased systems-related costs associated with new systems and Mark's transition to an outsourced systems operation with an offshore service provider. Partially offsetting the increases in store network costs and system costs were expense savings in payroll, advertising and interest. Store payroll costs continued to be managed aggressively in the third quarter in light of the lower customer traffic.

3.3.2.4 Mark's 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. These include, but are not limited to, seasonality and market obsolescence risks. Please see section 5.3.2.5 of our 2008 Financial Report for an explanation of these business-specific risks. See also section 11.0 of this MD&A for a discussion on Enterprise risk management and section 14.0 of our 2008 Financial Report for a discussion of some other industry-wide and Company-wide risks affecting the business.

3.3.3 Canadian Tire Petroleum

3.3.3.1 Q3 2009 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 third quarter of 2009 in the context of our 2013 Plan.

    
    -------------------------------------------------------------------------
    Canadian Tire Petroleum Growth Initiatives
    -------------------------------------------------------------------------
    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 2013 Plan period, Petroleum
    will continue to develop its real estate plan, focusing on introducing
    new site concepts into its existing network of locations, while
    continuing to focus on renewing its current sites to enhance the customer
    experience.
    -------------------------------------------------------------------------
    2009 Key initiatives                     Q3 2009 Performance
    -------------------------------------------------------------------------
    In 2009, Petroleum will continue to      Third quarter
    strengthen the existing network by
    opening new sites and refurbishing or      -  opened one new convenience
    rebuilding existing sites.                    store;
                                               -  opened one gas bar and
                                                  refurbished five existing
                                                  sites; and
                                               -  closed one gas bar.

                                             At the end of the quarter,
                                             Petroleum had 273 gas bars,
                                             including 37 re-branded sites.
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    Canadian Tire Petroleum Productivity Initiatives
    -------------------------------------------------------------------------
    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 in the process of
    enhancing its interrelatedness strategy to further extend its marketing
    leverage across the Company.
    -------------------------------------------------------------------------
    2009 Key initiatives                     Q3 2009 Performance
    -------------------------------------------------------------------------
    In 2009, Petroleum will aggressively     Third quarter
    seek out additional cross-marketing
    opportunities to further leverage its      -  executed cross-marketing
    interrelatedness strategy to drive            national contest at gas
    customer traffic, transactions,               bars driving traffic to CTR
    customer loyalty and earnings across          and Mark's stores and
    the enterprise.                               Financial Services'
                                                  Canadian Tire Options(R)
                                                  MasterCard(R); and
                                               -  issued multiplier coupons
                                                  that increase the Canadian
                                                  Tire 'Money' offered on gas
                                                  purchases paid for in cash
                                                  or by Canadian Tire Options
                                                  MasterCard.
    -------------------------------------------------------------------------
    

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

    
                       Q3 2009   Q3 2008  Change  2009 YTD  2008 YTD   Change
    -------------------------------------------------------------------------
    Sales volume
     (millions of
     litres)             433.5     414.5    4.6%   1,277.5   1,257.9     1.6%
    -------------------------------------------------------------------------
    

Gasoline sales volumes in the third quarter were up 4.6% due to consumers benefiting from lower and more stable pump prices in comparison to the third quarter of 2008.

Petroleum's convenience and car wash sales

    
    (year-over-year percentage change) Q3 2009   Q3 2008  2009 YTD   2008 YTD
    -------------------------------------------------------------------------
    Total retail sales
      Convenience store sales            15.4%     10.7%     17.0%       9.0%
      Car wash sales                      7.7%   (14.3)%      8.3%    (16.5)%
    -------------------------------------------------------------------------
    Same store sales
      Convenience                        13.3%      9.1%     14.5%       7.3%
      Car wash                           16.5%   (14.1)%      8.5%    (16.5)%
    

Convenience store sales were very strong in the third quarter of 2009 especially in the confectionary, tobacco and lottery categories, which are more resilient during economic downturns. Car wash sales were very strong compared to the third quarter of the prior year. With lower pump prices in the third quarter of 2009, consumers had more room for discretionary purchases, such as car washes.

3.3.3.3 Petroleum's financial results

    
    ($ in millions)    Q3 2009   Q3 2008  Change  2009 YTD  2008 YTD   Change
    -------------------------------------------------------------------------
    Retail sales      $  441.1  $  550.2 (19.8)%  $1,220.2  $1,541.1  (20.8)%
    Gross operating
     revenue             403.6     519.3 (22.3)%   1,116.3   1,456.9  (23.4)%
    EBITDA(1)             13.1      11.7   12.7%      35.6      32.8     8.6%
    -------------------------------------------------------------------------
    Earnings before
     income taxes          8.5       7.5   13.9%      22.3      20.5     9.0%
    Less adjustment
     for:
      Loss on
       disposals of
       property and
       equipment          (0.1)     (0.1)             (0.4)     (0.3)
    -------------------------------------------------------------------------
    Adjusted earnings
     before income
     taxes(1)         $    8.6  $    7.6   13.4%  $   22.7  $   20.8     9.1%
    -------------------------------------------------------------------------
    (1) See section 15.0 on non-GAAP measures.
    

Explanation of Petroleum's financial results

Third quarter

Retail sales and gross operating revenue declined more than 19% in the third quarter of 2009, due to a 26.1 percent decrease in retail gasoline prices year-over-year. Despite the decrease in pump-prices, Petroleum's pre- tax earnings were up 13.9 percent due to strong convenience sales, relatively stable gasoline margins and well managed operating expenses which were held relatively flat in spite of the growth in the Petroleum network.

3.3.3.4 Petroleum's 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. These include, but are not limited to, environmental and commodity price and disruption risks. Please see section 5.3.3.5 of our 2008 Financial Report for an explanation of these business-specific risks. See also section 11.0 of this MD&A for a discussion on Enterprise risk management and section 14.0 of our 2008 Financial Report for a discussion of some other industry-wide and Company-wide risks affecting the business.

3.3.4 Canadian Tire Financial Services

3.3.4.1 Q3 2009 Strategic Plan performance

The following outlines Financial Services' performance for the third quarter of 2009 in the context of our 2013 Plan.

    
    -------------------------------------------------------------------------
    Canadian Tire Financial Services Growth Initiatives
    -------------------------------------------------------------------------
    Total managed portfolio of loans receivable (credit card, personal, line
    of credit and mortgage loans)

    Financial Services plans to grow its portfolio through increases in
    average balances, new account acquisition and the introduction of new
    credit cards.
    -------------------------------------------------------------------------
    2009 Key initiatives                     Q3 2009 Performance
    -------------------------------------------------------------------------
    For 2009, Financial Services has         Third quarter
    targeted the increase of gross average
    receivables mainly through increases     Gross average loans receivable
    in the average account balances.         were $4.1 billion in the third
                                             quarter. The growth reflects an
                                             8.7 percent increase in the
                                             average account balance,
                                             partially offset by a decrease
                                             in the number of accounts
                                             carrying a balance versus the
                                             same period last year.
    -------------------------------------------------------------------------
    Retail banking

    Financial Services began offering retail banking products, including
    high-interest savings accounts, retail GICs and residential mortgages, in
    two pilot markets in October 2006. In 2007, the pilot was expanded to
    include a third market in Ontario along with the launch of the Canadian
    Tire One-and-Only(TM) account. The retail banking business leverages the
    trust and credibility that Canadian Tire Financial Services has earned
    over the last 40 years providing financial services to millions of
    customers.
    -------------------------------------------------------------------------
    2009 Key initiatives                     Q3 2009 Performance
    -------------------------------------------------------------------------
    Financial Services' retail banking       Third quarter
    plans include increasing the ending
    mortgage portfolio balance and retail    Financial Services had
    deposit balances.                        accumulated over $590 million in
                                             retail deposits and over $164
    Financial Services will incur            million in mortgages as at the
    approximately $17 million in net         end of the third quarter of
    expenses associated with the marketing   2009. Financial Services
    and operations of the retail banking     subsequently sold its mortgage
    initiative in 2009.                      portfolio to National Bank of
                                             Canada (see section 16.2 of this
                                             MD&A for more details). Retail
                                             deposits is a cost effective
                                             funding source for credit card
                                             receivables.

                                             Financial Services incurred $4.2
                                             million in net expenses
                                             associated with the marketing
                                             and operation of the retail
                                             banking initiative during the
                                             third quarter of 2009.
    -------------------------------------------------------------------------
    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.
    -------------------------------------------------------------------------
    2009 Key initiatives                     Q3 2009 Performance
    -------------------------------------------------------------------------
    Financial Services plans to increase     Revenues from insurance and
    revenues from insurance and warranty     warranty products decreased 4.8
    products during 2009.                    percent in the third quarter
                                             versus the same period last
                                             year, however revenues increased
                                             2.6 percent on a year-to-date
                                             basis versus the same period
                                             last 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)            Q3 2009   Q3 2008  Change  2009 YTD  2008 YTD  Change
    -------------------------------------------------------------------------
    Average number
     of accounts
     with a balance
     (thousands)         1,791     1,862  (3.8)%     1,798     1,857  (3.2)%
    Average account
     balance ($)      $  2,308  $  2,123    8.7%  $  2,260  $  2,087    8.3%
    Gross average
     receivables (GAR) 4,132.6   3,951.8    4.6%   4,063.2   3,876.1    4.8%
    Total managed
     portfolio (end
     of period)                                    4,174.4   4,002.3    4.3%
    Net managed
     portfolio (end
     of period)                                    4,052.2   3,903.2    3.8%
    -------------------------------------------------------------------------
    

As management believes that the full picture of trends in Financial Services' business can best be derived by evaluating the performance of both securitized and non-securitized loans receivable portfolios, the portfolios have been presented to include all securitized loans receivable. Financial Services presents loans receivable information on a managed basis to evaluate the credit performance and overall financial performance of the underlying loans.

Financial Services' gross average receivables were up 4.6% in the third quarter, due primarily to select limit increases, balance transfer offers and a lower customer payment rate.

Financial Services believes that its 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 retail banking deposit products as a cost effective source of financing credit card receivables.

Financial Services' portfolio of credit card loans receivable

    
    ($ in millions,
     except where
     noted)            Q3 2009   Q3 2008  Change  2009 YTD  2008 YTD  Change
    -------------------------------------------------------------------------
    Average number
     of accounts
     with a balance
     (thousands)         1,767     1,826  (3.2)%     1,771     1,820  (2.7)%
    Average account
     balance ($)      $  2,204  $  2,041    8.0%  $  2,156  $  2,013    7.1%
    Gross average
     receivables       3,896.0   3,727.9    4.5%   3,818.1   3,663.1    4.2%
    Total managed
     portfolio (end
     of period)                                    3,945.8   3,772.5    4.6%
    -------------------------------------------------------------------------
    

Gross average credit card loans receivable grew 4.5 percent to $3.9 billion at the end of the quarter primarily due to an 8.0 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 achieve this objective, but is also due to a slight deterioration in aging, due to slowing customer payments.

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)

    
                             Q3 2009   Q3 2008   Q3 2007   Q3 2006   Q3 2005
    -------------------------------------------------------------------------
    Total revenue as a %
     of GAR(2)                25.05%    24.30%    24.88%    25.01%    25.81%
    Gross margin as a %
     of GAR(2)                10.86%    12.40%    13.19%    13.06%    13.30%
    Operating expenses as
     a % of GAR(3)             6.98%     7.65%     7.75%     8.12%     8.68%
    Return on average
     total managed
     portfolio(2,3,4)          3.88%     4.75%     5.45%     4.93%     4.61%
    -------------------------------------------------------------------------
    (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) Figures have been restated for the implementation, on a retrospective
        basis, of CICA HB 3064 - Goodwill and Intangible Assets and the
        amendments to CICA HB 1000 - Financial Statement Concepts. See
        sections 14.1 and 14.2 for additional information.
    (4) Return is calculated as adjusted earnings before taxes as a
        percentage of GAR.
    

The return on the total managed portfolio has decreased in comparison to the third quarter of 2008. The Canadian economy continues to be challenged with rising consumer bankruptcies and a deterioration of the aging of receivables, resulting in increased write-offs. Other variable costs were also up, such as an increase in interest expense caused by an increase in broker deposits to prefund GCCT term notes and GIC maturities in the fourth quarter.

Financial Services' credit card accounts (MasterCard and proprietary store cards) 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 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 third quarters over four of the last five years, but missed the target in 2009 for the reasons noted above. Management believes the pre-tax return on the average total managed portfolio will fall within the target range in the longer term, once unemployment levels and consumer spending behaviour return to historical norms.

Portfolio quality

    
                             Q3 2009   Q3 2008   Q3 2007   Q3 2006   Q3 2005
    -------------------------------------------------------------------------
    Net write-off rate
     (rolling 12-month basis)  7.30%     6.04%     5.87%     5.94%     5.95%
    Account balances less
     than 30 days overdue
     at end of period         95.85%    96.32%    96.26%    96.14%    96.31%
    Allowance rate             2.93%     2.48%     2.44%     2.60%     2.56%
    -------------------------------------------------------------------------
    

The target range for the net write-off rate is between 5.0 percent and 6.0 percent. With the exception of 2009, the five-year historic trend illustrates our successful ability to manage the write-off rates through initiatives such as improving collections and selecting credit-worthy customers. The 2009 rolling 12-month net write-off rate on the total loans portfolio has been negatively impacted by an increase in write-offs and consumer bankruptcies as a result of a significantly more challenging economic environment and rising unemployment rates.

While bankruptcy costs increased, analysis of the business segment's performance versus national statistics indicates that Financial Services continues to experience lower costs than would be expected by a number of its peers due to its effective credit risk strategies which improved the quality of the loan portfolio.

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 third quarter of 2008 is due to an increase in the credit card portfolio aging. However a number of actions have already been taken to manage the quality of the portfolio and write-off rates are expected to return to acceptable levels over the longer term.

3.3.4.3 Financial Services' financial results

    
    ($ in millions)    Q3 2009 Q3 2008(1) Change  2009 YTD 2008 YTD(1) Change
    -------------------------------------------------------------------------
    Gross operating
     revenue          $  222.0  $  197.8   12.2%  $  672.2  $  608.0   10.6%
    EBITDA(2)             40.7      52.7 (23.0)%     148.3     160.2  (7.5)%
    -------------------------------------------------------------------------
    Earnings before
     income taxes         18.7      47.6 (60.8)%      93.5     146.2  (36.1)%
    Less adjustment
     for:
      Loss on disposals
       of property and
       equipment          (0.5)     (0.6)             (0.7)     (0.6)
      Net effect of
       securitization
       activities(3)      (9.0)     (9.1)             (6.8)      7.7
    -------------------------------------------------------------------------
    Adjusted earnings
     before income
     taxes(2)         $   28.2  $   57.3 (50.9)%  $  101.0  $  139.1 (27.4)%
    -------------------------------------------------------------------------
    (1) 2008 figures have been restated for the implementation, on a
        retrospective basis, of CICA HB 3064 - Goodwill and Intangible Assets
        and the amendments to CICA HB 1000 - Financial Statement Concepts.
        See sections 14.1 and 14.2 for additional information.
    (2) See section 15.0 on non-GAAP measures.
    (3) Includes initial gain/loss on the sale of loans receivable,
        amortization of servicing liability, change in securitization reserve
        and gain/loss on re-investment.
    

Explanation of Financial Services' financial results

Third quarter

Financial Services' gross operating revenue increased by 12.2% over the third quarter of 2008 largely as a result of an increase in credit interest earned due to an increase in yield and an overall growth in the gross average receivable balance. This was partially offset by a modest decrease in revenue from insurance services.

Earnings before income taxes for the third quarter decreased significantly in comparison to the same quarter last year. The primary reason for the decline in earnings growth during the quarter was the increase in loan loss provisioning resulting from a softening economy and credit market conditions and its consequent impact on consumer bankruptcy and write-off rates, as noted above. It was also attributable to a substantial increase in interest expense caused by the rapid expansion of broker deposits at Financial Services, which are being used to prefund the maturation of the GCCT notes and GICs in late 2009. The cost of this conservative approach was approximately $5 million for the quarter (referred to as "negative carry"). These increased funding and bankruptcy costs were partially offset by a continued effort to reduce ongoing operating costs, in particular personnel costs. The operating expense ratio as a percentage of GAR was 6.98% versus 7.65% at the end of the third quarter of 2008. The excess liquidity funding costs will be reduced in Q4 2009 as funds are applied towards the maturing GICs and repayment of the maturing GCCT notes.

3.3.4.4 Financial Services' 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. These include, but are not limited to, consumer credit, securitization funding, interest rate and regulatory risk. Please see section 5.3.4.8 of our 2008 Financial Report for an explanation of these business-specific risks as well as section 5.1.4 of this MD&A for a description of the securitization program and Canadian Tire's liquidity and capital market activity. Also see section 11.0 of this MD&A for a discussion on Enterprise risk management and section 14.0 of our 2008 Financial Report for a discussion of some other industry-wide and Company-wide risks affecting the business.

4.0 Capital management

In order to support our growth agenda and meet the objectives enumerated in our 2013 Plan, the Company actively manages its capital. The Company's objectives are:

    
    -   minimizing the after-tax cost of capital;
    -   maintaining healthy liquidity reserves and access to capital; and
    -   maintaining flexibility in capital structure to ensure the ongoing
        ability to execute the 2013 Plan.
    

The current economic environment has not changed the Company's objectives in managing capital.

The definition of capital varies from company to company and from industry to industry. Our definition of capital includes the current-portion of long-term debt, long-term debt, long-term deposits, long-term liabilities that are derivative or hedge instruments related to capital items only, share capital, contributed surplus, components of accumulated other comprehensive income (loss) related to capital items only, and retained earnings. For a full listing of these amounts and further information, please refer to note 11 in the Notes to the Consolidated Financial Statements.

Under existing debt agreements, key financial covenants are monitored on an on-going basis by management to ensure compliance with the agreements. The Company was in compliance with these covenants during the third quarter of 2009.

The Company's wholly-owned subsidiary, CTB, 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.
    

During the third quarter of 2009 and for the comparative period, 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 further information on capital management, see note 11 in the Notes to the Consolidated Financial Statements and section 7.0 (Capital Management) in our 2008 Financial Report.

5.0 Financing

Credit markets have shown marked improvement in recent months and Canadian Tire's financing capabilities remain strong as evidenced by a $200 million, 7-year debt transaction completed in May 2009 and the execution of a two year committed credit facility in June 2009. We have a number of alternative financing sources in order to ensure that the appropriate level of liquidity is available to meet our strategic objectives. These sources may be summarized as follows:

Summary of Canadian Tire's financing sources

    
    -------------------------------------------------------------------------
                                 Amount
        Financing Source        Available              Description
    -------------------------------------------------------------------------

    Committed bank lines      $1.17 billion   Provided by 10 domestic and
     of credit                                international financial
                                              institutions and includes
                                              support for the $800 million
                                              commercial paper program noted
                                              below, which is covered by the
                                              bank lines on a dollar for
                                              dollar basis. No amounts were
                                              drawn on the bank lines as at
                                              October 3, 2009 and the full
                                              amount was available.

    Commercial paper program   $800 million   Canadian Tire had no commercial
                                              paper outstanding as at
                                              October 3, 2009.

    Medium Term Notes          $750 million   A new Shelf Prospectus was
     (MTN) program                            completed as of April 8, 2009,
                                              providing the Company with
                                              access of up to $750 million
                                              for the next 25 months.
                                              $200 million was drawn upon as
                                              an MTN issuance in June 2009.

    Securitization of           Transaction   Securitization transactions
     receivables                 specific     handled through Glacier Credit
                                              Card Trust ("GCCT") have
                                              historically proved to be a
                                              relatively cost-effective form
                                              of financing. Financial
                                              Services has not securitized
                                              any credit card receivables in
                                              2009 to date.

    Broker GIC deposits        No specified   This funding source ramped up
                                  limit       in the second half of 2008 and
                                              funds continue to be readily
                                              available through broker
                                              networks. As at the end of Q3
                                              2009, Financial Services held
                                              $1.7 billion in broker GIC
                                              deposits.

    High Interest Savings      No specified   This funding source increased
     Accounts and Tax-Free        limit       in the third quarter of 2009.
     Savings Accounts                         At the end of Q3 2009,
                                              Financial Services held
                                              $541 million in High Interest
                                              Savings and Tax-Free Savings
                                              deposits.

    Sale/leaseback              Transaction   Additional sources of funding
     transactions                specific     available on strategic
                                              transactions involving
                                              Company-owned properties as
                                              appropriate.
    

Broker GIC deposits and High Interest Savings accounts are available to provide liquidity to CTB.

As indicated in the table above, as of October 3, 2009, the Company had $1.17 billion in committed bank lines of credit, of which $800 million pertains to a two year syndicated credit facility committed to June 2011, which can be extended for an additional year on each anniversary. The balance of credit lines, pertaining to bilateral credit facilities executed in June 2009, have an initial term of one year and can be extended quarterly for an additional quarter.

As of October 3, 2009, the GCCT commercial paper program has access of up to $800 million of the total Canadian Tire committed lines. GCCT has achieved compliance with DBRS(R) Global Liquidity Standards.

Debt market conditions

Credit markets have shown signs of marked improvement over the course of 2009 to date as evidenced by reduced credit spreads and higher investor demand for bond transactions. Although few public asset-backed securities transactions have been completed in 2009, credit spreads in this market have also tightened and investor demand is improving. Canadian Tire participates in the asset-backed security markets through the use of commercial paper and issuance of MTNs. Throughout 2008 and 2009, GCCT has continued to refinance its maturing commercial paper and had $63 million of commercial paper outstanding as of October 3, 2009, fully backed by the bank credit lines. For 2009, no corporate debt maturities are scheduled. In November 2009, a five- year $625 million GCCT-issued MTN series will be maturing. As per the Series Purchase Agreement, GCCT is required to accumulate the principal liquidation amounts for these notes from credit card collections over the three months preceding maturity into the Liquidation Principal Funding account. By the end of the third quarter, approximately $417 million of principal repayments had been accumulated in GCCT from credit card collections and within one week of quarter-end, the total required funding for the repayment of the notes had been accumulated and will be repaid to the noteholders on November 20, 2009.

Should the Company not seek to complete a credit card securitization transaction in the near-to-medium term, the Company has access to other sufficient sources of financing as indicated in the table above.

In December 2008, Canadian Tire received confirmation from both of its rating agencies on its various funding programs, all of which had a stable outlook. As at October 3, 2009 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.
    

Long-term debt

On June 1, 2009, the Company issued $200 million, 7 year medium term notes, which mature and are repayable on June 1, 2016, and bear interest at 5.65 percent, payable semi-annually.

Redemption of debentures

Subsequent to quarter-end, the Company redeemed all $150 million of debentures on October 22, 2009 (see section 16.1 for more details).

Broker deposits

CTB has been very successful in issuing broker GICs since the fourth quarter of 2007. CTB broker deposits raise cash through sales of GICs through brokers rather than directly to the retail customer. CTB broker GICs are offered for varying terms ranging from 30 days to five years, and all issued broker GICs are non-redeemable prior to maturity (except in certain rare circumstances). Given that the overall size of the broker GIC market is estimated to be $66 billion in Canada, CTB believes that there is ample room in the market to take advantage of CTB broker GIC deposits as a cost-effective alternative funding source to the securitization of credit card receivables.

As at the end of the third quarter of 2009, CTB had approximately $1.7 billion in total short-term and long-term CTB broker GIC deposits outstanding.

High Interest Savings and Tax-Free Savings deposits

More recently, CTB has been successful in generating deposits from High Interest Savings (HIS) and Tax-Free Savings (TFSA) accounts and at the end of the third quarter, CTB had $541 million in HIS and TFSA deposits. HIS and TFSA deposits provide another cost effective alternative funding source to credit card securitization and broker deposits.

Sale of mortgage portfolio

Subsequent to quarter-end, CTB sold its portfolio of mortgages to the National Bank of Canada, effective November 6, 2009 (see section 16.2 for more details).

5.1 Funding program

5.1.1 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 normal course issuer bid (NCIB) (as described in section 6.0 below), from a combination of sources. In the third quarter of 2009, the primary sources of funding were:

    
    -   $159 million of cash arising from an increase in net deposits; and
    -   $9 million of cash arising from proceeds on disposition of property
        and equipment.
    

5.1.2 Cash and cash equivalents

At October 3, 2009, the Company's cash and cash equivalents totaled $875.8 million versus $2.1 million at September 27, 2008. This change in cash balance was positively impacted by the increase in net deposits. This cash balance is being used, in part, to fund the receivables financed by GCCT upon maturity of the 2004-1 series in the third and fourth quarters of 2009. There was no commercial paper outstanding at the end of the third quarter of 2009 compared with $367.2 million at the end of the third quarter of 2008. During the third quarter of 2009, we used cash primarily for the following:

    
    -   $75 million for the investment in loans receivable;
    -   $49 million for additions to property and equipment;
    -   $17 million in dividends paid; and
    -   $11 million for additions to intangible assets, primarily computer
        software.
    

5.1.3 Working capital

Optimizing our working capital 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 third quarter of 2009 from the third quarter of 2008.

Comparable working capital components

    
                                                                   Increase/
                                                                  (decrease)
                                       October 3,  September 27,  in working
    ($ in millions)                      2009         2008(1)      capital
    -------------------------------------------------------------------------
    Short-term investments            $    190.9    $        -    $    190.9
    Accounts receivable                    682.5         584.1          98.4
    Merchandise inventories              1,216.9       1,301.2         (84.3)
    Income taxes recoverable               116.1          83.7          32.4
    Prepaid expenses and deposits           70.1          56.3          13.8
    Accounts payable and other          (1,396.8)     (1,417.5)         20.7
    -------------------------------------------------------------------------
                                                                  $    271.9
    -------------------------------------------------------------------------
    (1) 2008 figures have been restated for the implementation, on a
        retrospective basis, of CICA HB 3064 - Goodwill and Intangible Assets
        and the amendments to CICA HB 1000 - Financial Statement Concepts.
        See sections 14.1 and 14.2 for additional information.
    

The increase in short-term investments was due to cash raised from an increase in CTB deposits that will subsequently be used to fund the increase of credit card loans receivable upon the maturity of GCCT asset-backed notes in November 2009 (see below) and fourth quarter GIC maturities. The cost of this conservative approach (referred to as "negative carry") was approximately $5 million for the quarter.

The increase in accounts receivable was due to a temporary extension of payment terms with our Dealers under a program designed to rebuild Dealer inventories to optimal levels which had previously been drawn down in light of a softer economy.

The decrease in merchandise inventories was primarily at CTR and reflected aggressive downward management of inventory levels in line with working capital management objectives.

5.1.4 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:

    
                                                    October 3,  September 27,
    ($ in millions)                                   2009          2008
    -------------------------------------------------------------------------
    Securitized                                     $  1,798.6    $  2,471.3
    Non-securitized                                    2,253.6       1,431.9
    -------------------------------------------------------------------------
    Net managed loans receivable                    $  4,052.2    $  3,903.2
    -------------------------------------------------------------------------
    

Net managed loans receivable continued to increase over the last 12 months as customers' use of the Canadian Tire Options(R) MasterCard(R) and Gas Advantage(R) MasterCard(R) grew and mortgage volumes increased. At the end of the third quarter of 2009, net managed loans receivable were 3.8 percent higher than at the end of the third quarter of 2008.

CTB sells co-ownership interests in credit card loans to GCCT. Since the Company does not have a controlling interest in GCCT, 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". See note 1 in the Notes to the 2008 Consolidated Financial Statements.

We expect the continued growth in the average balances of Canadian Tire- branded credit card accounts to lead to an increase in total loans receivable in 2009. Financial Services expects to continue to fund this increase over the long term from the sale of co-ownership interests in credit card loans to GCCT and raising deposits by CTB. 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 dependent on GCCT's ability to obtain funds from third parties by issuing debt instruments with high credit ratings. Refer to section 5.0 above for a listing of GCCT's credit ratings and prevailing market conditions.

The trustee and custodian for GCCT, Computershare Trust Company of Canada, 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. 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 third quarter of 2009 was $44.33 per share compared to $41.41 at the end of the third quarter of 2008.

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 12, 2009, we announced our intention to initiate a NCIB to purchase up to 3.4 million of the issued and outstanding Class A Non-Voting Shares over the 12-month period ending February 18, 2010. In the prior year, a total of approximately 0.5 million Class A Non-Voting Shares were purchased under the previous NCIB.

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.

Shares outstanding

    
                                                    October 3,  September 27,
                                                      2009          2008
    -------------------------------------------------------------------------
    Class A Non-Voting Shares (CTC.A)
      Shares outstanding at beginning of year       78,178,066    78,048,062
      Shares issued under plans(1)                     622,612       495,043
      Shares purchased under NCIB                     (480,800)     (494,800)
    -------------------------------------------------------------------------
      Shares outstanding at end of quarter          78,319,878    78,048,305
    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 third quarter of 2009 compared to dividends of approximately $17.0 million in the third quarter of 2008, reflecting the Board of Directors' decision in February 2009 to maintain the annual dividend rate at $0.84 per share.

The following chart summarizes our quarterly dividend distribution in 2009, payable to the shareholders as of the record date:

    
                                                                     Amount
    Quarterly      Date of                                           Payable
    Dividend     Declaration       Record Date       Date Payable   Per Share
    -------------------------------------------------------------------------
    First
     Quarter  February 12, 2009  April 30, 2009    June 1, 2009       $ 0.21
    Second
     Quarter  May 14, 2009       July 31, 2009     September 1, 2009  $ 0.21
    Third
     Quarter  August 13, 2009    October 30, 2009  December 1, 2009   $ 0.21
    -------------------------------------------------------------------------
    

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, capital market conditions and investment opportunities. Normalized earnings per share for this purpose excludes gains and losses on the sale of credit card and loans receivable and non-recurring items but includes gains and losses on the ordinary course disposition of property and equipment.

7.0 Investing activities

7.1 Q3 2009 Capital expenditures program

Canadian Tire's capital expenditures, on an accrual basis, totaled $64 million in the third quarter of 2009 (including intangible assets such as software acquisitions), approximately 51 percent lower than the $131 million spent in the third quarter of 2008. These capital expenditures were comprised of:

    
    -   $35 million for real estate projects, including projects associated
        with the rollout of CTR's new store formats;
    -   $14 million for information technology;
    -   $4 million for CTR distribution centres;
    -   $3 million for Automotive Infrastructure; and
    -   $8 million for other purposes.
    

Overall, capital investment has slowed since the third quarter of 2008, as construction of the Eastern Canada Distribution Centre is complete, as is the Concept 20/20 store rollout program. We have begun to focus on the next store concept renewals, such as our Smart and Small Market stores, which are less capital-intensive than the Concept 20/20 store format.

7.2 2009 Capital expenditures plan

In light of current market conditions, the 2009 capital expenditure plan has been reduced. Originally set at $390 million, the capital plan was lowered to $360 million at the end of the first quarter and further decreased to $326 million by the end of the second quarter. By the end of the third quarter, our capital plan was reduced to approximately $300 million. Our revised capital plan includes the following expenditures:

    
    -   $155 million for real estate projects, including $122 million
        associated with the rollout of CTR's new store formats;
    -   $59 million for information technology;
    -   $25 million for CTR distribution centres;
    -   $15 million for Automotive Infrastructure;
    -   $14 million for energy management and lighting; and
    -   $32 million for other purposes.
    

8.0 Foreign operations

The Company has established operations outside of Canada including offshore activities in Bermuda and the Pacific Rim. For an overview of our foreign operations, see section 11.0 of the MD&A contained in the 2008 Financial Report.

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 $192.8 million. Although the Company has appealed these reassessments, current tax legislation requires the Company to remit to the CRA and its provincial counterparts approximately $119.7 million related to this matter, all of which 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.

The year to date tax provision has been reduced by $9.1 million due to the retroactive change in legislation relating to the taxation of gains realized from the disposition of shares during 2006 and 2007 and revision to the prior year's estimated tax expense.

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 section 5.1.4 of this MD&A for additional information on GCCT.

10.2 Trust financing for Dealers

A financing program is in place to provide an efficient and cost- effective way for Dealers to access the majority of the financing they require for their store operations. The agreement with the Trust and the participating banks for the Trust financing program for Dealers has been amended and extended until December 31, 2010.

Refer to MD&A section 13.2 of our 2008 Financial Report for additional information on this program.

10.3 Bank financing for Dealers

We have guaranteed the bank debt of some Dealers. The total is approximately $37 million. Refer to MD&A section 13.3 of our 2008 Financial Report for additional information on this program.

11.0 Enterprise risk management

The Company approaches the management of risk strategically through its Enterprise Risk Management (ERM) framework in order to mitigate the impact of principal risks on its business and operations. Introduced in 2003, the ERM framework sets out principles and tools for identifying, evaluating, prioritizing, monitoring and managing risk effectively and consistently across the Company.

The ERM framework and the principal risks that the Company manages on an ongoing basis are described in detail in sections 14.0 and 14.2, respectively, of the MD&A in our 2008 Financial Report.

Management reviews risks on an ongoing basis and did not identify any new principal risks during the third quarter of 2009. In 2009 there has been an outbreak of the H1N1 flu virus with confirmed cases in Canada. The Company's crisis management and emergency response structures and protocols are in place to address these and other types of hazards and business interruptions. These practices are being applied during this outbreak to protect our employees, customers and suppliers and the Company has been also taking the opportunity to review and enhance our existing practices.

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 12 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 uses derivative financial instruments to manage its financial risk exposures to foreign currency risk and to a lesser extent interest rate risk. The Company may also use equity derivative contracts to hedge certain future stock-based compensation expenses. The Company does not use derivative financial instruments for trading or speculative purposes, but rather as a risk management tool. Refer to MD&A section 13.4 of our 2008 Financial Report for additional information on derivative financial instruments.

Allowance for credit losses

The Company's allowances for receivables are maintained at levels which are considered adequate to provide for future credit losses. A continuity of the Company's allowances for credit losses is as follows:

    
                                    Credit card loans       Other loans(1)
                                  -------------------------------------------
                                    October  September    October  September
    ($ in millions)                 3, 2009   27, 2008    3, 2009   27, 2008
                                  -------------------------------------------

    Balance, beginning of year     $   51.8   $   51.5   $    3.5   $    2.7
    Provision for credit losses       124.5       47.1        4.3        8.2
    Recoveries                         13.7       10.7        0.6        0.4
    Write-offs                       (110.9)     (59.3)      (5.8)      (7.5)
                                  -------------------------------------------
    Balance, end of period         $   79.1   $   50.0   $    2.6   $    3.8
                                  -------------------------------------------


                                   Accounts receivable          Total
                                  -------------------------------------------
                                    October  September    October  September
    ($ in millions)                 3, 2009   27, 2008    3, 2009   27, 2008
                                  -------------------------------------------

    Balance, beginning of year     $    3.3   $    5.0   $   58.6   $   59.2
    Provision for credit losses         0.9        0.8      129.7       56.1
    Recoveries                          0.2        0.3       14.5       11.4
    Write-offs                         (2.2)      (2.5)    (118.9)     (69.3)
                                  -------------------------------------------
    Balance, end of period         $    2.2   $    3.6   $   83.9   $   57.4
                                  -------------------------------------------
    (1) Other loans include personal loans, mortgages loans and lines of
        credit loans.
    

Foreign currency risk

The Company has significant demand for U.S. dollars, due to global sourcing. To mitigate the impact of fluctuating foreign exchange rates on the cost of our globally sourced merchandise and, consequently, earnings, the Company has a comprehensive foreign exchange risk management policy in place which establishes ranges for the proportion of forecast U.S. dollar purchases that must be hedged for various time periods. Consequently, when dramatic swings in foreign currency rates occur the Company has already hedged a significant portion of its near term U.S. dollar-denominated forecast purchases. The foreign currency hedge portfolio has allowed the Company to achieve some margin stability for 2009 year to date as a significant amount of the U.S. dollars required for U.S. dollar-denominated purchases were available at hedge rates more favourable than the average year to date spot reference rate. The outcome of the Company's hedge portfolio for the balance of 2009 will be dependent on the volatility of the currency markets and the directional move of the Canadian dollar. It is likely that the hedge rate achieved will be less favourable than the spot reference rate for the remainder of the year. The Company may be able to pass on changes in foreign currency exchange rates through pricing, subject to competitive conditions.

Liquidity risk

The following table summarizes the Company's contractual maturity for its financial liabilities. The table includes both interest and principal cash flows.

    
    ($ in millions)                  1 year    2 years    3 years    4 years
                                 --------------------------------------------

    Deposits                      $ 1,015.1  $   219.9  $   280.8  $   296.1
    Accounts payable and other      1,373.6          -          -          -
    Long-term debt                    453.9        9.0       21.0        8.2
    Interest payment(1)               143.7      102.2       99.6       98.2
    Other                                 -        0.8          -          -
                                 --------------------------------------------
    Total                         $ 2,986.3  $   331.9  $   401.4  $   402.5
                                 --------------------------------------------
                                 --------------------------------------------


                                                 There-
    ($ in millions)                 5 years      after      Total
                                 ---------------------------------

    Deposits                      $   521.9  $       -  $ 2,333.8
    Accounts payable and other            -          -    1,373.6
    Long-term debt                      6.9    1,063.1    1,562.1
    Interest payment(1)               110.7      651.5    1,205.9
    Other                               5.2          -        6.0
                                 ---------------------------------
    Total                         $   644.7  $ 1,714.6  $ 6,481.4
                                 ---------------------------------
                                 ---------------------------------
    (1) Includes interest payments on deposits and long-term debt.
    

Interest rate risk

The Company is exposed to interest rate risk, which it manages through the use of interest rate swaps. The Company has a policy in place 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 Legal risk

The Company and certain of its subsidiaries are party to a number of legal proceedings. The Company believes that each such proceeding constitutes a routine legal matter incidental to the business conducted by the Company and that the ultimate disposition of the proceedings will not have a material effect on its consolidated earnings, cash flows, or financial position.

In October 2004, a motion for authorization to proceed with a class action against CTB and a number of other banks was filed by Option Consommateurs, a Quebec-based consumers' group. The class action alleges that the cash advance transaction fees charged by CTB (and other banks) are not permitted under the Consumer Protection Act (Quebec). The claim seeks a return of all fees assessed against cardholders for cash advances, plus interest and punitive damages of $200 per class member. The class action was certified against CTB on November 1, 2006. The class is comprised of all persons in Quebec who have a credit card agreement with CTB and who have paid CTB fees for cash advances in Canada or abroad since October 1, 2001. CTB believes it has a solid defense to the claim on the basis that banks are not required to comply with provincial legislation because banking and cost of borrowing disclosure is a matter of exclusive federal jurisdiction. Accordingly, no provision has been made for amounts, if any, that would be payable in the event of an adverse outcome. If adversely decided, the present total aggregate exposure to CTB is expected to be approximately $15 million.

In June 2009, a similar lawsuit against another financial institution was heard by the Quebec Supreme Court questioning the legality of foreign exchange fees on credit cards transactions. The Court ruled in favour of the plaintiff, although the decision is being appealed to the Quebec Court of Appeal. One consequence of this decision is that it may affect other outstanding lawsuits, including the action filed by Option Consommateurs against CTB noted in the preceding paragraph.

11.3 Regulatory risk

On September 30, 2009 the Federal government enacted new regulations focused on credit cards and other lending products. The regulations impose additional disclosure obligations in credit card applications, on credit card monthly statements and in credit agreements. They also impose rules related to payment allocation, calculation of interest charges, credit limit increases and debt collection practices. These regulations will have a negative impact on all federally regulated financial institutions that issue credit cards in Canada. The implementation of the regulations is to be phased in over time with the first set of changes required for January 1, 2010 and the second set for September 1, 2010. The January changes relate to debt collection practices and disclosure obligations in applications and credit agreements and prohibit credit limit increases without consent. The September changes relate to interest calculation, payment allocation and disclosure obligations on monthly statements. Financial Services has assembled a project team that is working towards ensuring compliance with the regulations by the respective deadlines and is exploring any mitigating actions that can be taken. The preliminary estimate on the negative impact to Financial Services in 2010 as a result of these regulatory changes is in the range of approximately $8 million to $10 million pre-tax.

11.4 Other risks

In addition to the Principal Risks noted in section 11.0 above, and the business-specific risks identified in section 3.3.1.4 for CTR, section 3.3.2.4 for Mark's, section 3.3.3.4 for Petroleum and section 3.3.4.4 for Financial Services, other risks may also have a significant impact on earnings, business operations, and our reputation. These other risks include, but are not limited to, the Company's ability to acquire and develop real estate properties, disruptions in the capital markets to finance the expansion of the retail network, the ability of our Dealers to secure financing through the aforementioned third-party Trusts (see section 10.2) or through other means, changes in commodity prices that could affect the Company's profitability, fluctuating foreign currency exchange rates that could impact cross-border shopping patterns and the purchase price of our goods, disruptions in the global supply of gasoline and customers' inability to repay their Canadian Tire credit card or loan balances.

12.0 Critical accounting estimates

The Company estimates certain amounts reflected in its financial statements 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, the accounting policies and estimates detailed in note 1 of the Notes to the Consolidated Financial Statements for the quarter ended October 3, 2009 do not require us to make assumptions about matters that are highly uncertain and accordingly none of the estimates is considered a "critical accounting estimate" as defined in Form 51-102F1 published by the Ontario Securities Commission, except as noted below.

In view of the recent turmoil in credit markets and economic recession being experienced in Canada, the Company reviewed the allowance for credit losses at Financial Services and considers it to be a "critical accounting estimate". The allowance for credit losses adjusts the value of the Financial Services loan portfolio to reflect its estimated realizable value. Financial Services' allowance for impaired loans receivable for each of credit card, personal, mortgage and line of credit loans 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 receivables. A robust model is used and is based on economic conditions and trends specific to Financial Services. The allowance for impaired credit card loans (the largest portfolio) is comprised of general, bankruptcy and fraud risk components. Changes in circumstances including, but not limited to, changes in the aging of accounts and changes in the bankruptcies experienced may cause future assessments of credit risk to be materially different from current assessments, which could require an increase or decrease in the allowance for credit losses. The impairment provisions for personal loans, line of credit loans and mortgages operate in similar fashion.

Further details on consumer credit risk may be found in section 5.3.4.8 (Financial Services' business risk) of our 2008 Financial Report.

13.0 Contractual obligations

    
    Contractual obligations due by period

                                     In the
                                  remaining
                                      three   In years   In years
                                     months     2010 -     2012 -      After
    ($ in millions)        Total    of 2009       2011       2013       2013
    -------------------------------------------------------------------------
    Long-term debt(1)  $ 1,517.2  $   150.1  $   316.0  $     1.1  $ 1,050.0
    Capital lease
     obligations            44.9        1.9       15.0       15.1       12.9
    Operating leases     2,120.8       59.5      438.6      374.6    1,248.1
    Purchase obligations   848.8      428.1      346.8       59.1       14.8
    Financial Services'
     deposits            2,333.8      865.5      453.9      701.5      312.9
    Other obligations       30.8        2.7       12.4        6.4        9.3
    -------------------------------------------------------------------------
    Total contractual
     obligations       $ 6,896.3  $ 1,507.8  $ 1,582.7  $ 1,157.8  $ 2,648.0
    -------------------------------------------------------------------------
    (1) Interest obligations are not included.
    

14.0 Changes in accounting policies

The numbers reflected in this MD&A have been calculated using the same accounting policies and methods of their application as the most recently issued annual financial statements for the 53 weeks ended January 3, 2009 (contained in our 2008 Annual Report), except as noted below.

14.1 Financial Statement Concepts

Effective, January 4, 2009 (the first day of the Company's 2009 fiscal year), the Company applied the amendments issued by the CICA to HB 1000 - Financial Statement Concepts, which clarify the criteria for recognition of an asset and the timing of expense recognition, specifically, deleting the guidance permitting the deferral of costs. The new requirements are effective for interim and annual financial statements for fiscal years beginning on or after October 1, 2008. The Company applied the amendments to CICA HB 1000 in conjunction with CICA HB 3064 - Goodwill and Intangible Assets.

14.2 Goodwill and Intangible Assets

Effective, January 4, 2009, the Company implemented, on a retrospective basis with restatement, the CICA HB 3064 - Goodwill and Intangible Assets, which was effective for interim and annual financial statements for fiscal years beginning on or after October 1, 2008.

This new standard provides guidance on the recognition, measurement, presentation and disclosure of goodwill and intangible assets, including internally developed intangibles, and is consistent with the revised asset definition and recognition criteria in CICA HB 1000 - Financial Statement Concepts. Under the new standard, costs related to development projects can be recorded as assets only if they meet the definition of an intangible asset.

Additionally, the new standard requires that internally developed computer software that is not an integral part of the related hardware (previously included in property and equipment) be included in intangible assets. As these costs have a limited useful life, they continue to be amortized over a five year period.

As a result of the retrospective implementation of these standards, the cumulative impact on previously reported balances on the following dates is as follows:

    
                                                Increase / (Decrease)
    -------------------------------------------------------------------------
                                       January 3, September 27,  December 29,
    ($ in millions)                         2009          2008          2007
    -------------------------------------------------------------------------
    Retained earnings                 $     (3.1)   $     (3.4)   $     (4.3)
    Long-term receivables and other
     assets                                 (3.3)         (4.0)         (4.6)
    Intangible assets                      189.5         180.2         174.0
    Property and equipment                (190.9)       (181.3)       (175.8)
    Income taxes recoverable                 0.4           0.0           0.4
    Future income tax liabilities           (1.2)         (1.7)         (1.7)
    -------------------------------------------------------------------------
    

In addition, the retrospective impact on depreciation and amortization for the 13 weeks and 39 weeks ended September 27, 2008 was a decrease of $0.8 million and $1.9 million, respectively. The retrospective impact on net earnings for the 13 weeks ended September 27, 2008 was an increase of $0.5 million, or $0.01 per share, and for the 39 weeks ended September 27, 2008 was an increase of $0.9 million, or $0.01 per share. See note 2 in the Notes to the Consolidated Financial Statements for additional information.

    
    14.3 Credit Risk and the Fair Value of Financial Assets and Financial
         Liabilities
    

Effective, January 4, 2009, the Company implemented, on a retrospective basis without restatement of prior periods, the CICA Emerging Issues Committee (EIC) 173 - Credit Risk and the Fair Value of Financial Assets and Financial Liabilities, which is effective for interim and annual financial statements for periods ending on or after January 20, 2009.

This EIC clarifies that an entity's own credit risk and the credit risk of the counterparty should be taken into account in determining the fair value of financial assets and financial liabilities, including derivative instruments, rather than using a risk free rate.

Entities are required to re-measure the financial assets and liabilities, including derivative instruments, as at the beginning of period of adoption (i.e. the beginning of fiscal 2009) to take into account its own credit risk and counterparty credit risk. Any resulting difference would be recorded as an adjustment to retained earnings, except a) derivatives in a fair value hedging relationship accounted for by the "shortcut method", in which case the resulting difference would adjust the basis of the hedged item; and b) derivatives in cash flow hedging relationships, in which case the resulting difference would be recorded in accumulated Other Comprehensive Income (OCI).

As a result of the retrospective implementation of this new standard, opening accumulated other comprehensive income decreased by $2.5 million and opening retained earnings increased by $1.1 million.

14.4 Business Combinations

In January 2009, the CICA issued CICA HB 1582 - Business Combinations, which will replace CICA HB 1581 - Business Combinations. The CICA also issued CICA HB 1601 - Consolidated Financial Statements and CICA HB 1602 - Non- Controlling Interests, which will replace CICA HB 1600 - Consolidated Financial Statements. The new standards are effective for fiscal years beginning on or after January 1, 2011, with early adoption permitted. The objective of the new standards is to harmonize Canadian GAAP for business combinations and consolidated financial statements with the International and U.S. accounting standards. The new standards are to be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2011, with earlier application permitted. Assets and liabilities that arose from business combinations whose acquisition dates preceded the application of the new standards will not be adjusted upon application of these new standards.

14.5 Financial Instruments - Recognition and Measurement

In April 2009, the CICA amended CICA HB 3855 - Financial Instruments - Recognition and Measurement. The amendment included a paragraph relating to embedded prepayment options. This amendment is effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011 with early adoption permitted. The Company is assessing the potential impact of the amendments to this standard.

14.6 Financial Instruments - Disclosures

In June 2009, the CICA amended CICA HB 3862 - Financial Instruments - Disclosures, which adopted the amendments recently issued by the IASB to IFRS 7 - Financial Instruments: Disclosures, which was issued in March 2009. These amendments are applicable to publicly accountable enterprises and those private enterprises, co-operative business enterprises, rate-regulated enterprises and not-for-profit organizations that choose to apply Section 3862.

The amendments enhance disclosures about fair value measurements, including the relative reliability of the inputs used in those measurements, and about the liquidity risk, of financial instruments. The amendments are effective for annual financial statements for fiscal years ending after September 30, 2009, with early adoption permitted. To provide relief for financial statement preparers, and consistent with IFRS 7, the CICA decided that an entity need not provide comparative information for the disclosures required by the amendments in the first year of application. The Company is assessing the potential impact of the amendments to this standard.

14.7 Financial Instruments - Impairment on Debt Instruments

In August 2009, the CICA amended CICA HB 3855 - Financial Instruments - Recognition and Measurement and concurrently CICA HB 3025 - Impaired Loans. These amendments affect the classifications that are required or allowed for debt instruments, as well as the impairment model for held-to-maturity financial assets. The amendments are effective for annual financial statements relating to fiscal years beginning on or after November 1, 2008. The Company is assessing the potential impact of the amendments to this standard.

14.8 International Financial Reporting Standards

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. Accordingly, the conversion from Canadian GAAP to IFRS will be applicable to the Company's reporting for the first quarter of 2011, for which the current and comparative information will be prepared under IFRS. The Company expects the transition to IFRS to impact accounting, financial reporting, internal control over financial reporting, taxes, information systems and processes as well as certain contractual arrangements.

Given the magnitude of the effort involved in this conversion, the project (which employs formal project management practices) has been developed in three main phases.

Phase One: Preliminary Scoping and Diagnostic Impact Assessment

This phase consisted of a high-level assessment to identify key areas of Canadian GAAP - IFRS differences that were most likely to impact the Company. The assessment was completed over the period 2007-2008 and was integral in prioritizing and resourcing the work streams identified below to enable the subsequent steps in the process. Activities in this phase also included the recruitment and training of core internal technical resources to be deployed on the conversion project and retained afterwards to support ongoing training of other finance personnel dealing with the more complex technical accounting requirements of IFRS.

Phase Two: Detailed Analysis and Design

This phase, commenced in Q4 2008, involves the detailed assessment, from an accounting, reporting and business perspective, of the changes that will be caused by the conversion to IFRS. This phase initiated the launch of 13 accounting topic - specific "work streams" that are most relevant to the Company and 4 general work streams. This phase also included the standardization of criteria used to assess the appropriateness of accounting policy choices in cases where choices are permissible under IFRS.

Accounting specific work streams include revenue recognition, tangible assets (including leases), impairments, provisions, contingent liabilities and contingent assets, business combinations, consolidations, securitization transactions, borrowing costs, compensation and benefits, financial instruments, income taxes, software and intangibles and financial statement presentation and disclosure. General work streams include contracts review, employee education and training, information systems and communication. The design deliverables coming out of these accounting specific work streams include the documentation of the rationale supporting accounting policy choices, new disclosure requirements and their sources and implementation guidance for business units and corporate groups as they undertake the execution phase noted below. The deliverables for 10 accounting specific work streams were completed by the end of Q3 2009. The deliverables for the remaining 3 accounting specific work streams will be completed in Q4 2009. These will include the selection of accounting policies under IFRS as currently enacted, including transitional elections. Some of the general work streams, such as the education and training and communication work streams will continue throughout the duration of the conversion project. The latter will involve not only key finance employees but also other staff and management as well as the Audit Committee, Board and external parties such as investors and analysts.

Phase Three: Execution

This phase involves executing the work completed in phase two by making changes to business and accounting processes and supporting information systems within each business unit and corporate group as well as the formal documentation of the final approved accounting policies and procedures compliant with IFRS. A quantification of anticipated business impacts is being undertaken as well as a drafting of the pro-forma financial statement formats and notes thereto that will be existent under IFRS. Details surrounding the collection of comparative financial and other data in 2010 is also being finalized during this stage. This stage also involves the cascading of the training plan to all staff having key accounting and reporting and investor relations functions.

This phase is expected to be completed by the end of Q4 2010.

The following table summarizes our progress to date against the milestones contained in the key elements of the transition plan:

IFRS transition progress

    
    -------------------------------------------------------------------------
                                                        Progress to
    Key Activity             Milestones/Target Dates    October 31, 2009
    -------------------------------------------------------------------------
    Project governance       December 31, 2008        - governance practices
    - steering committee                                established
      formation                                       - program office,
    - project resourcing                                steering committee
    - progress reporting                                and working committee
      protocols                                         formed
    - project management                              - project status
      practices                                         reporting developed
                                                        and implemented
    -------------------------------------------------------------------------
    Financial statement      Ready for commencement   - fundamental Canadian/
     preparation             for 2011 financial         IFRS differences
    - identification of      year; quantification of    identified
      differences in         effects of change for    - criteria for
      Canadian GAAP/IFRS     IFRS 1 disclosures and     accounting policy
      accounting policies    comparative 2010           choice selection
      and choices            financial statements       established
    - selection of           including note           - critical work stream
      entity's continuing    disclosure by the end      teams dealing with
      accounting IFRS        of Q1 2011                 individual policy
      policies                                          selection
    - selection of IFRS 1                               recommendations in
      accounting policy                                 progress
      choices
    - financial statement
      format, including
      alternative
      performance measures
    - changes in note
      disclosure
    - quantification of
      IFRS 1 disclosures
      for 2010
    -------------------------------------------------------------------------
    Infrastructure:          Internal education and   - resource requirements
     IFRS expertise          communication ready for    identified
    - retraining of key      issuance in Q2 2010      - internal and
      finance and                                       recruited resources
      operational staff      External education and     deployed
    - education of           communication ready for  - additional consulting
      management, Audit      issuance in Q4 2010        support identified
      Committee and                                   - initial training
      external                                          completed for core
      constituents                                      project staff, senior
      regarding IFRS                                    management, Board of
      implications                                      Directors, Audit
                                                        Committee and work
                                                        stream members
    -------------------------------------------------------------------------
    Infrastructure:          Ready for capturing      - assessment of impact
    - information systems    2010 comparative data      on systems is
      changes to support     in Q4 2010 and ready       on-going as
      IFRS requirements      for capturing 2011 data    requirements are
                             by the end of Q4 2010      still being developed
    -------------------------------------------------------------------------
    Business implications    GAAP-based clauses       - process to review
     assessment: financial   to be identified for       contracts has been
     covenants and           renegotiation with         established
     practices (including    counterparties by Q2
     securitization)         2010. Renegotiation is
    - business contract      a business matter that
      review/renegotiation   is outside the scope of
    - financial debt         the conversion project.
      covenant assessments
    - off-balance sheet
      Trust assessments
    -------------------------------------------------------------------------
    Control environment:     Approval and sign-off    - not yet commenced
     Internal control        of all accounting
     over financial          changes and CEO/CFO
     reporting (ICFR)        certification process
                             complete by end of
                             Q4 2010
    -------------------------------------------------------------------------
    

15.0 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)

    
    ($ in millions)                 Q3 2009  Q3 2008(2)  2009 YTD 2008 YTD(2)
    -------------------------------------------------------------------------
    EBITDA(3)
      CTR                         $   161.2  $   152.6  $   421.1  $   397.9
      Financial Services               40.7       52.7      148.3      160.2
      Petroleum                        13.1       11.7       35.6       32.8
      Mark's                            3.8        6.9       20.0       24.1
    -------------------------------------------------------------------------
      Total EBITDA                $   218.8  $   223.9  $   625.0  $   615.0
    -------------------------------------------------------------------------
    Less:
      Depreciation and
       amortization expense
        CTR                       $    47.8  $    43.0  $   140.8  $   127.5
        Financial Services              3.0        2.8        8.6        8.2
        Petroleum                       4.6        4.2       13.3       12.3
        Mark's                          7.1        5.9       20.2       17.1
    -------------------------------------------------------------------------
        Total depreciation and
         amortization expense     $    62.5  $    55.9  $   182.9  $   165.1
    -------------------------------------------------------------------------
      Interest expense(3)
        CTR                       $    17.8  $    15.6  $    56.7  $    47.7
        Financial Services             19.0        2.3       46.2        5.8
        Mark's                          0.5        1.1        1.4        3.2
    -------------------------------------------------------------------------
        Total interest expense    $    37.3  $    19.0  $   104.3  $    56.7
    -------------------------------------------------------------------------
    Earnings (loss) before income
     taxes
      CTR                         $    95.6  $    94.0  $   223.6  $   222.7
      Financial Services               18.7       47.6       93.5      146.2
      Petroleum                         8.5        7.5       22.3       20.5
      Mark's                           (3.8)      (0.1)      (1.6)       3.8
    -------------------------------------------------------------------------
    Total earnings before income
     taxes                        $   119.0  $   149.0  $   337.8  $   393.2
    -------------------------------------------------------------------------
    (1) Differences may occur due to rounding.
    (2) 2008 figures have been restated for the implementation, on a
        retrospective basis, of CICA HB 3064 - Goodwill and Intangible Assets
        and the amendments to CICA HB 1000 - Financial Statement Concepts.
        See sections 14.1 and 14.2 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 CTR and PartSource stores that have been open for more than 53 weeks (in a 52-week fiscal year) or 54 weeks (in a 53-week fiscal year, such as in the case of the fiscal year ended January 3, 2009) and therefore allows for a more consistent comparison to other stores open during the period and to results in the prior year. CTR's same store sales exclude the sales from the labour portion of CTR's auto service sales.

16.0 Subsequent events

16.1 Redemption of debentures

On September 21, 2009, the Company announced that it exercised its right to redeem all $150 million of outstanding 12.10% debentures (the debentures), which were to mature on May 10, 2010. The debentures were redeemed on October 22, 2009 (the redemption date).

As a result of this redemption, the Company paid a redemption premium of $9.4 million on the redemption date. This will be included in long-term interest expense in the quarter ending January 2, 2010.

The debentures were hedged by interest rate swaps that were to mature on May 10, 2010. Hedge accounting for these swaps ceased upon the redemption announcement. As a result, $3.3 million of cumulative hedge accounting adjustment that was previously included in the carrying value of the debentures was amortized to earnings over the debentures' remaining term to maturity. As a result, a $1.6 million benefit is included in long-term interest expense in the quarter ended October 3, 2009 and a $1.7 million benefit will be recorded in the quarter ending January 2, 2010.

16.2 Sale of mortgage portfolio

Effective November 6, 2009, the Company sold its mortgage portfolio, totaling approximately $162 million, to the National Bank of Canada, essentially at book value. The transition of customer accounts will be completed by early 2010. The Company estimates it will incur a pre-tax loss of approximately $6 million in the quarter ending January 2, 2010 in relation to wind down and other costs, which will be included in cost of merchandise sold and other operating expenses.

17.0 Controls and procedures

Changes in internal control over financial reporting

During the third quarter of 2009, there have been no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's financial reporting.

18.0 Jumpstart

Canadian Tire's charitable efforts are reflected in the work of Canadian Tire Jumpstart charities. The Jumpstart organization, formerly the Canadian Tire Foundation for Families, underwent a name change this year to reflect the success of the Jumpstart program, which is a community-based organization that helps financially disadvantaged children participate in organized sports and recreation so they can develop important life skills, including self-esteem and self-confidence. National in scope but local in focus, Canadian Tire Jumpstart has delivered support since 2005 to children through a Canada-wide network of local chapters. To date, 279 Jumpstart chapters have been created in communities across the country and have contributed to help over 184,000 children.

During the first nine months of 2009, Jumpstart has raised over $7.5 million across Canada ($6.2 million during the first nine months of 2008), helping 33,150 children participate in sports and recreation programs (26,108 children helped during the first nine months of 2008). Jumpstart is on track to help over 65,000 children in 2009.

19.0 Other Investor Communication

Caution regarding forward-looking information

This MD&A contains forward-looking information that reflects management's expectations related to expected future events, financial performance and operating results of the Company. All statements other than statements of historical facts included in this MD&A, including statements regarding the prospects of the industries in which the Company operates, future plans, expected financial position and business strategy of the Company, may constitute forward-looking information. Forward-looking information and statements include, but are not limited to, statements concerning possible or assumed future results set out herein, our strategic goals and our priorities, and the economic and business outlook for us, for each of our business segments and for the Canadian economy. Often, but not always, forward-looking information can be identified by the use of forward-looking terminology such as "may", "will", "expect", "believe", "estimate", "plan", "could", "should", "would", "outlook", "forecast", "anticipate", "foresee", "continue" or the negative of these terms or variations of them or similar terminology. Forward- looking information is based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable at the date that such statements are made. The forward-looking information contained in this MD&A is presented for the purpose of assisting the Company's security holders in understanding its financial position and results of operation as at and for the periods ended on the dates presented and the Company's strategic priorities and objectives and may not be appropriate for other purposes. By its very nature, forward-looking information requires the Company to make assumptions and is subject to inherent risks and uncertainties, which give rise to the possibility that the Company's predictions, forecasts, projections, expectations or conclusions will not prove to be accurate, that the Company's assumptions may not be correct and that the Company's objectives, strategic goals and priorities will not be achieved. Although the Company believes that the predictions, forecasts, projections, expectations or conclusions reflected in the forward-looking information are reasonable, it can give no assurance that such matters will prove to have been correct. Such forward-looking information is not fact but only a reflection of management's estimates and expectations. Although the Company believes that this forward- looking information is based on information and assumptions which are current, reasonable and complete, this information is necessarily subject to a number of factors that could cause actual results to differ materially from management's predictions, forecasts, projections, expectations or conclusions as set forth in such forward-looking information for a variety of reasons. These factors include (a) credit, market, operational, liquidity and funding risks, including changes in interest rates or tax rates; (b) the ability of Canadian Tire to attract and retain quality employees, Dealers, Petroleum agents and PartSource and Mark's store operators and franchisees; (c) the willingness of customers to shop at our stores or acquire our financial products and services; (d) risks and uncertainties relating to information management, technology, product safety, competition, seasonality, commodity price and business disruption, consumer credit, securitization funding, and foreign currency; and (e) the risks and uncertainties that could cause actual results or the material factors and assumptions applied in preparing forward- looking information to differ materially from predictions, forecasts, projections, expectations or conclusions, which risks and uncertainties are discussed in section 11.0 (Enterprise risk management) of this MD&A. Additional risks related to specific business segments can be found in section 3.3.1.4 (CTR's business risks), section 3.3.2.4 (Mark's business risks), section 3.3.3.4 (Petroleum's business risks) and section 3.3.4.4 (Financial Services' business risks).

For more information on the risks, uncertainties and assumptions that could cause the Company's actual results to differ from current expectations, please also refer to the Company's public filings available at www.sedar.com and at http://corp.canadiantire.ca/en/investors. We caution that the foregoing list of important factors is not exhaustive and other factors could also adversely affect our results. Investors and other readers are urged to consider the foregoing risks, uncertainties and assumptions carefully in evaluating the forward-looking information and are cautioned not to place undue reliance on such forward-looking information. Statements that include forward-looking statements do not take into account the effect that transactions or non-recurring or other special items announced or occurring after the statements are made have on the Company's business. For example, they do not include the effect of dispositions, acquisitions, other business transactions, asset write-downs or other charges announced or occurring after such statements are made. The forward-looking information in this MD&A reflects the Company's assumptions and expectations as of November 12, 2009, and is subject to change after that date. The Company does not undertake to update any forward-looking information, whether written or oral, that may be made from time to time by or on its behalf, to reflect new information, future events or otherwise, unless required by applicable securities laws.

Information contained in or otherwise accessible through the websites referenced above does not form part of this MD&A. All references in this MD&A to websites are inactive textual references and are for your information only.

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 at (416) 480-8058 or email investor.relations@cantire.com.

    
                             2009 THIRD QUARTER

                          INTERIM REPORT FINANCIALS



    Consolidated Statements of Earnings (Unaudited)
    -------------------------------------------------------------------------

    (Dollars in millions            13 weeks ended,           39 weeks ended,
     except per             October 3,   September    October 3,   September
     share amounts)              2009     27, 2008         2009     27, 2008
    -------------------------------------------------------------------------
                                       (Restated -               (Restated -
                                            Note 2)                   Note 2)

    Gross operating
     revenue              $   2,165.9  $   2,257.5  $   6,248.8  $   6,533.5
    -------------------------------------------------------------------------

    Operating expenses
      Cost of merchandise
       sold and all other
       operating expenses
       except for the
       undernoted items
       (Note 14)              1,939.8      2,024.3      5,603.5      5,895.4
      Net interest
       expense (Note 8)          37.3         19.0        104.3         56.7
      Depreciation and
       amortization              62.5         55.9        182.9        165.1
      Employee profit
       sharing plan               7.3          9.3         20.3         23.1
    -------------------------------------------------------------------------
    Total operating
     expenses                 2,046.9      2,108.5      5,911.0      6,140.3

    Earnings before income
     taxes                      119.0        149.0        337.8        393.2

    Income taxes
      Current                    29.3         61.9         85.4        141.3
      Future                      4.3        (22.0)        13.6        (22.0)
    -------------------------------------------------------------------------

    Income taxes                 33.6         39.9         99.0        119.3
    -------------------------------------------------------------------------

    Net earnings          $      85.4  $     109.1  $     238.8  $     273.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted
     earnings per share   $      1.04  $      1.34  $      2.92  $      3.36
    -------------------------------------------------------------------------

    Weighted average number
     of Common and Class A
     Non-Voting Shares
     outstanding           81,706,279   81,512,981   81,674,281   81,510,371
    -------------------------------------------------------------------------



    Consolidated Statements of Cash Flows (Unaudited)
    -------------------------------------------------------------------------

                                    13 weeks ended,           39 weeks ended,
                            October 3,   September    October 3,   September
    (Dollars in millions)        2009     27, 2008         2009     27, 2008
    -------------------------------------------------------------------------
                                       (Restated -               (Restated -
                                            Note 2)                   Note 2)
    Cash generated from (used for):

    Operating activities
      Net earnings        $      85.4  $     109.1  $     238.8  $     273.9
      Items not affecting
       cash
        Depreciation             48.5         41.6        143.0        123.4
        Net provision for
         loans receivable
         (Note 3)                55.5         25.1        128.9         55.3
        Amortization of
         intangible assets       14.0         14.3         39.9         41.8
        Future income taxes       4.3        (22.0)        13.6        (22.0)
        Employee future
         benefits expense
         (Note 5)                 1.5          1.6          4.5          4.8
        Impairments on
         property and equipment   0.7          1.4          1.5          1.7
        Loss (Gain) on
         disposals of property
         and equipment              -         (0.1)         0.6         (4.1)
        Impairment of other
         long-term investments
         (Note 13)                  -            -          0.5          1.0
        Other                    (4.7)        (1.8)        (3.7)        (1.5)
        Changes in fair
         value of derivative
         instruments            (18.7)         1.7        (23.1)        16.5
        Securitization
         loans receivable       (10.2)       (13.8)       (31.3)       (40.3)
        Gain on sales of
         loans receivable
         (Note 3)                (8.7)       (17.4)       (31.8)       (63.5)
    -------------------------------------------------------------------------
                                167.6        139.7        481.4        387.0
    -------------------------------------------------------------------------
    Changes in other
     working capital
     components                (227.6)      (287.2)      (420.9)      (659.6)
    -------------------------------------------------------------------------
    Cash (used for)
     generated from
     operating activities       (60.0)      (147.5)        60.5       (272.6)
    -------------------------------------------------------------------------

    Investing activities
      Net securitization
       of loans receivable     (422.2)      (382.1)      (420.7)       240.3
      Short-term investments      3.6            -       (168.0)           -
      Additions to property
       and equipment            (49.4)       (99.7)      (168.0)      (325.1)
      Investment in loans
       receivable, net          (75.1)       (56.3)       (82.8)       (35.4)
      Other long-term
       investments               (0.2)           -        (50.6)           -
      Additions to
       intangible assets        (11.2)       (21.8)       (48.8)       (50.2)
      Other                      (4.2)        (1.6)        (5.9)        (3.5)
      Purchases of stores        (1.1)       (10.4)        (3.8)       (28.5)
      Long-term receivables
       and other assets           1.1          9.6         (1.6)         1.5
      Proceeds on disposition
       of property and equipment  9.1        215.0         12.3        231.1
      Proceeds on disposition
       of intangible assets         -         (0.5)           -         (0.5)
    -------------------------------------------------------------------------
    Cash (used for) generated
     from investing activities (549.6)      (347.8)      (937.9)        29.7
    -------------------------------------------------------------------------

    Financing activities
      Net change in deposits    158.6        120.9      1,182.3        185.7
      Issuance of long-term
       debt (Note 4)                -            -        200.1          0.2
      Class A Non-Voting Share
       transactions               4.4         (0.5)         6.9          1.0
      Repayment of
       long-term debt            (6.4)        (1.6)       (13.5)      (154.3)
      Dividends                 (17.2)       (17.1)       (51.6)       (49.3)
      Commercial paper              -        367.2            -        367.2
    -------------------------------------------------------------------------
    Cash generated from
     financing activities       139.4        468.9      1,324.2        350.5
    -------------------------------------------------------------------------

    Cash (used) generated
     in the period             (470.2)       (26.4)       446.8        107.6
    Cash and cash equivalents,
     beginning of period      1,346.0         28.5        429.0       (105.5)
    -------------------------------------------------------------------------
    Cash and cash
     equivalents, end of
     period (Note 9)      $     875.8  $       2.1  $     875.8  $       2.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Statements of Comprehensive Income (Unaudited)
    -------------------------------------------------------------------------

                                    13 weeks ended,           39 weeks ended,
                            October 3,   September    October 3,   September
    (Dollars in millions)        2009     27, 2008         2009     27, 2008
    -------------------------------------------------------------------------
                                       (Restated -               (Restated -
                                            Note 2)                   Note 2)

    Net earnings          $      85.4  $     109.1  $     238.8  $     273.9
    Other comprehensive
     income (loss), net of
     taxes
      Gain (loss) on
       derivatives
       designated as cash
       flow hedges, net of
       tax of $18.3 and
       $23.5 (2008 - $8.1
       and $12.2),
       respectively             (39.1)        14.3        (57.1)        22.3
      Reclassification to
       non-financial asset
       of loss (gain) on
       derivatives designated
       as cash flow hedges,
       net of tax of $2.0 and
       $39.0 (2008 - $3.3 and
       $8.4), respectively        4.1         (6.1)       (75.0)        17.9
      Reclassification to
       earnings of loss (gain)
       on derivatives
       designated as cash
       flow hedges, net of
       tax of $0.3 and $1.0
       (2008 - $0.6 and $2.8),
       respectively              (0.7)         1.3         (2.0)         6.0
    -------------------------------------------------------------------------
    Other comprehensive
     (loss) income              (35.7)         9.5       (134.1)        46.2
    -------------------------------------------------------------------------
    Comprehensive income  $      49.7  $     118.6  $     104.7  $     320.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

                                                              39 weeks ended,
                                                      October 3,   September
    (Dollars in millions)                                  2009     27, 2008
    -------------------------------------------------------------------------
                                                                 (Restated -
                                                                      Note 2)
    Share capital
    Balance, beginning of period                     $    715.4  $     700.7
    Transactions, net (Note 6)                             12.9          5.8
    -------------------------------------------------------------------------
    Balance, end of period                           $    728.3  $     706.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    Retained earnings
    Balance, beginning of period as previously
     reported                                        $  2,755.5  $   2,455.1
    Transitional adjustment on adoption of new
     accounting policies - HB 1000/3064 (Note 2)           (3.1)        (4.3)
    -------------------------------------------------------------------------
    Balance, beginning of period as restated            2,752.4      2,450.8
    Transitional adjustment on adoption of new
     accounting policies - EIC 173 (Note 2)                 1.1            -
    Net earnings for the period                           238.8        273.9
    Dividends                                             (51.6)       (51.3)
    Repurchase of Class A Non-Voting Shares                (6.1)        (2.5)
    -------------------------------------------------------------------------
    Balance, end of period                           $  2,934.6  $   2,670.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other comprehensive income
     (loss)
    Balance, beginning of period                     $     97.2  $     (50.0)
    Transitional adjustment on adoption of new
     accounting policies - EIC 173 (Note 2)                (2.5)           -
    Other comprehensive (loss) income for the period     (134.1)        46.2
    -------------------------------------------------------------------------
    Balance, end of period                           $    (39.4) $      (3.8)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Retained earnings and accumulated other
     comprehensive income (loss)                     $  2,895.2  $   2,667.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    (Dollars in millions)                October 3,   September    January 3,
    As at                                     2009     27, 2008         2009
    -------------------------------------------------------------------------
                                                    (Restated -  (Restated -
                                                         Note 2)      Note 2)
    ASSETS
    Current assets
      Cash and cash equivalents
       (Note 9)                        $     875.8  $       2.1  $     429.0
      Short-term investments (Note 9)        190.9            -            -
      Accounts receivable                    682.5        584.1        824.1
      Loans receivable (Note 3)            2,164.1      1,314.6      1,683.4
      Merchandise inventories              1,216.9      1,301.2        917.5
      Income taxes recoverable               116.1         83.7         64.6
      Prepaid expenses and deposits           70.1         56.3         40.2
      Future income taxes                     75.6         53.6         20.2
    -------------------------------------------------------------------------
      Total current assets                 5,392.0      3,395.6      3,979.0
    -------------------------------------------------------------------------
    Long-term receivables and other
     assets (Note 3)                         184.6        231.5        262.1
    Other long-term investments, net
     (Note 13)                                52.4          6.6         25.2
    Goodwill                                  71.6         72.2         70.7
    Intangible assets                        262.2        232.7        247.9
    Property and equipment, net            3,184.0      3,138.7      3,198.9
    -------------------------------------------------------------------------
    Total assets                       $   9,146.8  $   7,077.3  $   7,783.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES
    Current liabilities
      Commercial paper                 $         -  $     367.2  $         -
      Deposits (Note 10)                   1,005.7        186.5        540.7
      Accounts payable and other           1,396.8      1,417.5      1,444.2
      Current portion of long-term debt      453.9         10.5         14.8
    -------------------------------------------------------------------------
      Total current liabilities            2,856.4      1,981.7      1,999.7
    -------------------------------------------------------------------------
    Long-term debt                         1,116.1      1,370.3      1,373.5
    Future income taxes                       49.5         49.6         44.7
    Long-term deposits (Note 10)           1,318.7        114.5        598.7
    Other long-term liabilities              182.5        187.6        202.2
    -------------------------------------------------------------------------
    Total liabilities                      5,523.2      3,703.7      4,218.8
    -------------------------------------------------------------------------
    SHAREHOLDERS' EQUITY
    Share capital (Note 6)                   728.3        706.5        715.4
    Contributed surplus                        0.1            -            -
    Accumulated other comprehensive
     income (loss)                           (39.4)        (3.8)        97.2
    Retained earnings                      2,934.6      2,670.9      2,752.4
    -------------------------------------------------------------------------
      Total shareholders' equity           3,623.6      3,373.6      3,565.0
    -------------------------------------------------------------------------
      Total liabilities and
       shareholders' equity            $   9,146.8  $   7,077.3  $   7,783.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    
    

    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 53 weeks ended
        January 3, 2009 contained in our 2008 Annual Report.

        The preparation of the financial statements in conformity with
        Canadian GAAP requires Management to make estimates and assumptions
        that affect the reported amounts of assets and liabilities and
        disclosures of contingent assets and liabilities at the date of the
        financial statements and the reported amounts of revenue and expenses
        during the reporting period. Actual results could differ from these
        estimates. Estimates are used when accounting for a number of items
        including, but not limited to, income taxes, impairment of assets
        (including goodwill), employee benefits, product warranties,
        inventory 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 53 weeks ended January 3, 2009, except
        as noted below.

        Financial Statement Concepts

        Effective, January 4, 2009 (the first day of the Company's 2009
        fiscal year), the Company applied the amendments issued by the
        Canadian Institute of Chartered Accountants (CICA) to HB 1000 -
        Financial Statement Concepts, which clarify the criteria for
        recognition of an asset and the timing of expense recognition,
        specifically, deleting the guidance permitting the deferral of costs.
        The new requirements are effective for interim and annual financial
        statements for fiscal years beginning on or after October 1, 2008.
        The Company applied the amendments to CICA HB 1000 in conjunction
        with CICA HB 3064 - Goodwill and Intangible Assets.

        Goodwill and Intangible Assets

        Effective, January 4, 2009, the Company implemented, on a
        retrospective basis with restatement, the CICA HB 3064 - Goodwill and
        Intangible Assets, which was effective for interim and annual
        financial statements for fiscal years beginning on or after October
        1, 2008.

        This new standard provides guidance on the recognition, measurement,
        presentation and disclosure of goodwill and intangible assets,
        including internally developed intangibles, and is consistent with
        the revised asset definition and recognition criteria in CICA HB 1000
        - Financial Statement Concepts. Under the new standard, costs related
        to development projects can be recorded as assets only if they meet
        the definition of an intangible asset.

        Additionally, internally developed computer software that is not an
        integral part of the related hardware was previously included in
        property and equipment. The new standard requires these costs to be
        included in intangible assets. As these costs have a limited useful
        life, they continue to be amortized over a 5 year period.

        As a result of the retrospective implementation of these standards,
        the cumulative impact on previously reported balances on the
        following dates is as follows:

        ($ in millions)                           Increase/(Decrease)
                                       --------------------------------------
                                         January 3,   September  December 29,
                                              2009     27, 2008         2007
                                       --------------------------------------
        Retained earnings              $      (3.1) $      (3.4) $      (4.3)
        Long-term receivables and other
         assets                               (3.3)        (4.0)        (4.6)
        Intangible assets                    189.5        180.2        174.0
        Property and equipment              (190.9)      (181.3)      (175.8)
        Income taxes recoverable               0.4          0.0          0.4
        Future income tax liabilities         (1.2)        (1.7)        (1.7)


        In addition, the retrospective impact on depreciation and
        amortization for the 13 weeks and 39 weeks ended September 27, 2008
        was a decrease of $0.8 million and $1.9 million, respectively. The
        retrospective impact of the write-off of deferred development costs
        on cost of merchandise sold and all other operating expenses for the
        13 weeks and 39 weeks ended September 27, 2008 was an increase of
        $nil and $0.4 million, respectively. The retrospective impact on net
        earnings for the 13 weeks ended September 27, 2008 was an increase of
        $0.5 million, or $0.01 per share, and for the 39 weeks ended
        September 27, 2008 was an increase of $0.9 million, or $0.01 per
        share.

        Credit Risk and the Fair Value of Financial Assets and Financial
        Liabilities

        Effective, January 4, 2009, the Company implemented, on a
        retrospective basis without restatement of prior periods, the CICA
        Emerging Issues Committee (EIC) 173 - Credit Risk and the Fair Value
        of Financial Assets and Financial Liabilities, which is effective for
        interim and annual financial statements for periods ending on or
        after January 20, 2009.

        This EIC clarifies that an entity's own credit risk and the credit
        risk of the counterparty should be taken into account in determining
        the fair value of financial assets and financial liabilities,
        including derivative instruments, rather than using a risk free rate.

        Entities are required to re-measure the financial assets and
        liabilities, including derivative instruments, as at the beginning of
        period of adoption (i.e. the beginning of fiscal 2009) to take into
        account its own credit risk and counterparty's credit risk. Any
        resulting difference would be recorded as an adjustment to retained
        earnings, except a) derivatives in a fair value hedging relationship
        accounted for by the "shortcut method", in which case the resulting
        difference would adjust the basis of the hedged item; and b)
        derivatives in cash flow hedging relationships, in which case the
        resulting difference would be recorded in accumulated other
        comprehensive income (AOCI).

        As a result of the retrospective implementation of this new standard,
        opening accumulated other comprehensive income decreased by
        $2.5 million and opening retained earnings increased by $1.1 million.

        Future Accounting Changes

        International Financial Reporting Standards

        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. Accordingly, the conversion from Canadian GAAP to
        IFRS will be applicable to the Company's reporting for the first
        quarter of 2011, for which the current and comparative 2010
        information will be prepared under IFRS. The Company expects the
        transition to IFRS to impact accounting, financial reporting,
        internal control over financial reporting, taxes, information systems
        and processes as well as certain contractual arrangements. The
        Company is currently assessing the impact of the transition to IFRS
        in the above areas and has deployed additional trained resources and
        formal project Management practices and governance to ensure the
        timely conversion to IFRS.

        Business Combinations

        In January 2009, the CICA issued CICA HB 1582 - Business
        Combinations, which will replace CICA HB 1581 - Business
        Combinations. The CICA also issued CICA HB 1601 - Consolidated
        Financial Statements and CICA HB 1602 - Non-Controlling Interests,
        which will replace CICA HB 1600 - Consolidated Financial Statements.
        The new standards are effective for fiscal years beginning on or
        after January 1, 2011, with early adoption permitted. The objective
        of the new standards is to harmonize Canadian GAAP for business
        combinations and consolidated financial statements with the
        International and U.S. accounting standards. The new standards are to
        be applied prospectively to business combinations for which the
        acquisition date is on or after the beginning of the first annual
        reporting period, commencing January 1, 2011, with earlier
        application permitted. Assets and liabilities that arose from
        business combinations whose acquisition dates preceded the
        application of the new standards will not be adjusted upon
        application of these new standards.

        Financial Instruments - Recognition and Measurement

        In April 2009, the CICA amended CICA HB 3855 - Financial Instruments
        - Recognition and Measurement. The amendment included a paragraph
        relating to embedded prepayment options. This amendment is effective
        for interim and annual financial statements relating to fiscal years
        beginning on or after January 1, 2011 with early adoption permitted.
        The Company is assessing the potential impact of the amendments to
        this standard.

        Financial Instruments - Disclosures

        In June 2009, the CICA amended CICA HB 3862 - Financial Instruments -
        Disclosures, which adopted the amendments recently issued by the
        International Accounting Standards Boards (IASB) to IFRS 7 -
        Financial Instruments: Disclosures, which was issued in March 2009.
        These amendments are applicable to publicly accountable enterprises
        and those private enterprises, co-operative business enterprises,
        rate-regulated enterprises and not-for-profit organizations that
        choose to apply Section 3862.

        The amendments enhance disclosures about fair value measurements,
        including the relative reliability of the inputs used in those
        measurements, and about the liquidity risk, of financial instruments.
        The amendments are effective for annual financial statements for
        fiscal years ending after September 30, 2009, with early adoption
        permitted. To provide relief for financial statement preparers, and
        consistent with IFRS 7, the CICA decided that an entity need not
        provide comparative information for the disclosures required by the
        amendments in the first year of application. The Company is assessing
        the potential impact of the amendments to this standard.

        Financial Instruments - Impairment of Debt Instruments

        In August 2009, the CICA amended CICA HB 3855 - Financial Instruments
        - Recognition and Measurement and concurrently CICA HB 3025 -
        Impaired Loans. These amendments affect the classifications that are
        required or allowed for debt instruments, as well as the impairment
        model for held-to-maturity financial assets. The amendments are
        effective for annual financial statements relating to fiscal years
        beginning on or after November 1, 2008. The Company is assessing the
        potential impact of the amendments to this standard.

    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. For personal loan securitization, 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
        ($ in millions)                          of receivables as at(1)
                                       --------------------------------------
                                         October 3,   September    January 3,
                                              2009     27, 2008         2009
                                       ------------ ------------ ------------
        Total net managed credit card
         loans                         $   3,826.8  $   3,677.6  $   3,780.4
        Credit card loans sold            (1,798.6)    (2,471.2)    (2,216.0)
                                       ------------ ------------ ------------
        Credit card loans held             2,028.2      1,206.4      1,564.4

        Total net managed personal
         loans(2)                             43.8        101.1         83.8
        Personal loans sold                      -            -            -
                                       ------------ ------------ ------------
        Personal loans held                   43.8        101.1         83.8

        Total net managed mortgage
         loans(3)                            164.7        102.3        138.8
                                       ------------ ------------ ------------

        Total net managed line of
         credit loans                         16.9         22.1         20.6
                                       ------------ ------------ ------------
        Total loans receivable             2,253.6      1,431.9      1,807.6
        Less: long-term portion(4)           (89.5)      (117.3)      (124.2)
                                       ------------ ------------ ------------
        Current portion of loans
         receivable                    $   2,164.1  $   1,314.6  $   1,683.4
                                       ------------ ------------ ------------
                                       ------------ ------------ ------------


                                             Average balances
        ($ in millions)                  for the 39 weeks ended
                                       -------------------------
                                         October 3,   September
                                              2009     27, 2008
                                       ------------ ------------
        Total net managed credit card
         loans                         $   3,711.4  $   3,571.1
        Credit card loans sold            (2,166.0)    (2,704.6)
                                       ------------ ------------
        Credit card loans held             1,545.4        866.5

        Total net managed personal
         loans(2)                             62.0        121.5
        Personal loans sold                      -        (23.7)
                                       ------------ ------------
        Personal loans held                   62.0         97.8

        Total net managed mortgage
         loans(3)                            160.7         61.4
                                       ------------ ------------

        Total net managed line of
         credit loans                         18.7         24.5
                                       ------------ ------------
        Total loans receivable         $   1,786.8  $   1,050.2
        Less: long-term portion(4)     ------------ ------------
                                       ------------ ------------

        (1) Amounts shown are net of allowance for credit losses.
        (2) Personal loans are unsecured loans that are provided to qualified
            existing credit card holders for terms of three to five years.
            Personal loans have fixed monthly payments of principal and
            interest; however, the personal loans can be repaid at any time
            without penalty.
        (3) Mortgage loans are issued for terms of up to ten years, have
            fixed or variable interest rates, are secured and include a mix
            of both high and low ratio loans. High ratio loans are fully
            insured and low ratio loans are partially insured.
        (4) The long-term portion of loans is included in long-term
            receivables and other assets.

        Net credit losses for the owned portfolio for the 13 weeks and 39
        weeks ended October 3, 2009 were $55.5 million (2008 - $25.1 million)
        and $128.9 million (2008 - $55.3 million), respectively. Net credit
        losses for the total managed portfolio for the 13 weeks and 39 weeks
        ended October 3, 2009 were $89.9 million (2008 - $60.6 million) and
        $251.5 million (2008 - $181.6 million), respectively. Net credit
        losses consist of total write-offs (including regular and bankruptcy
        write-offs and consumer proposals), net of recoveries and any changes
        in allowances.

    4.  Long-Term Debt

        On June 1, 2009, the Company issued $200.0 million of 7 year medium
        term notes, which mature and are repayable on June 1, 2016, and bear
        interest at 5.65 percent, payable semi-annually.

    5.  Employee Future Benefits

        The net employee future benefit expense for the 13 weeks and 39 weeks
        ended October 3, 2009 was $1.5 million (2008 - $1.6 million) and
        $4.5 million (2008 - $4.8 million), respectively.

    6.  Share Capital


        ($ in millions)                  October 3,   September    January 3,
                                              2009     27, 2008         2009
                                       ------------ ------------ ------------
        Authorized
          3,423,366 Common Shares
          100,000,000 Class A Non-Voting
           Shares
        Issued
          3,423,366 Common Shares
           (September 27, 2008 -
           3,423,366)                   $     0.2   $       0.2  $       0.2
          78,319,878 Class A Non-Voting
           Shares (September 27, 2008  -
           78,048,305)                      728.1         706.3        715.2
                                       ------------ ------------ ------------
                                        $   728.3   $     706.5  $     715.4
                                       ------------ ------------ ------------
                                       ------------ ------------ ------------

        The Company issues and repurchases Class A Non-Voting Shares. The net
        excess of the issue price over the repurchase price results in
        contributed surplus. The net excess of the repurchase price over the
        issue price is allocated first to contributed surplus, 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:


                              39 weeks ended             39 weeks ended
        ($ in millions)       October 3, 2009         September 27, 2008
                          ------------------------- -------------------------
                             Number         $          Number         $
                          ------------ ------------ ------------ ------------
        Shares outstanding
         at the beginning
         of the period     78,178,066        715.2   78,048,062        700.5
        Issued                622,612         29.8      495,043         29.8
        Repurchased          (480,800)       (22.9)    (494,800)       (28.8)
        Excess of repurchase
         price over issue
         price                      -          6.0            -          4.8
                          ------------ ------------ ------------ ------------
        Shares outstanding
         at the end of the
         period            78,319,878        728.1   78,048,305        706.3
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------

    7.  Stock-based Compensation Plans

        All stock-based compensation plans are as disclosed in the most
        recently issued annual financial statements for the 53 weeks ended
        January 3, 2009, except as follows:

        2009 Performance Share Unit Plan

        The Company has granted 2009 Performance Share Units (2009 PSUs) to
        certain employees. Each 2009 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 2009 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 39 weeks ended October
        3, 2009, $1.7 million and $3.7 million of compensation expense was
        recorded for the 2009 PSUs, respectively.

    8.  Segmented Information - Statement of Earnings

        ---------------------------------------------------------------------
                                          13 weeks                  39 weeks
                                             ended                     ended
                             13 weeks    September     39 weeks    September
                                ended     27, 2008        ended     27, 2008
                            October 3, (Restated -    October 3, (Restated -
        ($ in millions)          2009       Note 2)        2009       Note 2)
        ---------------------------------------------------------------------

        Gross operating
         revenue
          CTR             $   1,408.5  $   1,399.3  $   4,057.8  $   4,032.7
          Financial Services    222.0        197.8        672.2        608.0
          Petroleum             403.6        519.3      1,116.3      1,456.9
          Mark's                164.2        168.7        493.5        516.8
          Eliminations          (32.4)       (27.6)       (91.0)       (80.9)
                          ---------------------------------------------------
          Total gross
           operating
           revenue        $   2,165.9  $   2,257.5  $   6,248.8  $   6,533.5
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Earnings (loss)
         before income
         taxes
          CTR             $      95.6  $      94.0  $     223.6  $     222.7
          Financial
           Services              18.7         47.6         93.5        146.2
          Petroleum               8.5          7.5         22.3         20.5
          Mark's                 (3.8)        (0.1)        (1.6)         3.8
                          ---------------------------------------------------
          Total earnings
           before income
           taxes                119.0        149.0        337.8        393.2
        Income taxes             33.6         39.9         99.0        119.3
                          ---------------------------------------------------
        Net earnings      $      85.4  $     109.1  $     238.8  $     273.9
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Net Interest
         expense(1)
          CTR             $      17.8  $      15.6  $      56.7  $      47.7
          Financial
           Services              19.0          2.3         46.2          5.8
          Mark's                  0.5          1.1          1.4          3.2
                          ---------------------------------------------------
          Total interest
           expense        $      37.3  $      19.0  $     104.3  $      56.7
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Depreciation and
         amortization
         expense
          CTR             $      47.8  $      43.0  $     140.8  $     127.5
          Financial
           Services               3.0          2.8          8.6          8.2
          Petroleum               4.6          4.2         13.3         12.3
          Mark's                  7.1          5.9         20.2         17.1
                          ---------------------------------------------------
          Total depreciation
           and amortization
           expense        $      62.5  $      55.9  $     182.9  $     165.1
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (1) Net interest expense includes interest on short-term and long-
            term debts, offset by passive interest income (includes interest
            income earned on bank deposits, ancillary investments and all
            inter-company interest income). Interest on long-term debt for
            the 13 weeks and 39 weeks ended October 3, 2009 was $32.0 million
            (2008 - $18.6 million) and $90.5 million (2008 - $57.6 million),
            respectively.


        Segmented Information - Total Assets

        ---------------------------------------------------------------------
                                                      September    January 3,
                                                       27, 2008         2009
                                         October 3, (Restated -  (Restated -
        ($ in millions)                       2009       Note 2)      Note 2)
        ---------------------------------------------------------------------
        CTR                            $   6,248.7  $   6,208.1  $   5,801.8
        Financial Services                 3,804.5      2,143.8      2,550.6
        Petroleum                            274.5        281.5        352.9
        Mark's                               613.5        567.7        509.0
        Eliminations                      (1,794.4)    (2,123.8)    (1,430.5)
        ---------------------------------------------------------------------
        Total                          $   9,146.8  $   7,077.3  $   7,783.8
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    9.  Cash and Cash Equivalents

        The components of cash and cash equivalents are:

                                         October 3,   September    January 3,
        ($ in millions)                       2009     27, 2008         2009
                                       ------------ ------------ ------------
        Cash (bank overdraft)          $     (59.7) $     (58.0) $      59.2
        Line of credit borrowings                -        (49.8)           -
        Cash equivalents                     935.5        109.9        369.8
                                       ------------ ------------ ------------
        Cash and cash equivalents      $     875.8  $       2.1  $     429.0
                                       ------------ ------------ ------------
                                       ------------ ------------ ------------

        Cash equivalents are highly liquid and rated certificates of deposit
        or commercial paper with a maturity of 3 months or less.

        Investments in highly liquid and rated certificates of deposits or
        commercial paper with a maturity of more than 3 months and less than
        one year are classified as short-term investments.

    10. Deposits

        Deposits consist of broker deposits and retail deposits.

        Cash from broker deposits is raised through sales of guaranteed
        investment certificates (GICs) through brokers rather than directly
        to the retail customer and are typically offered at a higher interest
        rate compared to retail GICs. Individual balances up to $100,000 are
        Canada Deposit Insurance Corporation (CDIC) insured. Broker deposits
        are offered for varying terms ranging from 30 days to five years, and
        all issued GICs are non-redeemable prior to maturity (except in
        certain rare circumstances). Total short-term and long-term broker
        deposits outstanding at October 3, 2009 were $1,733.5 million (2008 -
        $142.5 million).

        Retail deposits consist of high interest savings deposits, retail
        GICs and tax-free savings deposits. Total retail deposits outstanding
        at October 3, 2009 were $590.9 million (2008 - $158.5 million).

    11. Capital Management Disclosures

        The Company's objectives when managing capital are:

        -  minimizing the after-tax cost of capital;
        -  maintaining healthy liquidity reserves and access to capital; and
        -  maintaining flexibility in capital structure to ensure the ongoing
           ability to execute the Strategic Plan.

        The current economic environment has not changed the Company's
        objectives in managing capital.

        Management includes the following items in its definition of capital:


                      October 3,   % of September    % of  January 3,   % of
        ($ in millions)    2009   total  27, 2008   total       2009   total
                       ------------------ ----------------- -----------------
        Current portion
         of long-term
         debt          $  453.9    6.9%  $   10.5    0.2%   $   14.8    0.3%
        Long-term debt  1,116.1   17.0%   1,370.3   28.2%    1,373.5   25.2%
        Long-term
         deposits       1,318.7   20.1%     114.5    2.4%      598.7   11.0%
        Other long-term
         liabilities(1)       -     - %       0.3    0.0%        3.2    0.1%
        Share capital     728.3   11.1%     706.5   14.5%      715.4   13.1%
        Contributed
         surplus            0.1     - %         -     - %          -     - %
        Components of
         accumulated
         other
         comprehensive
         loss(2)              -     - %     (12.1) (0.3)%          -     - %
        Retained
         earnings       2,934.6   44.9%   2,670.9   55.0%    2,752.4   50.3%
                       ------------------ ----------------- -----------------

        Net capital
         under
         management    $6,551.7  100.0%  $4,860.9  100.0%   $5,458.0  100.0%
                       ------------------ ----------------- -----------------
                       ------------------ ----------------- -----------------

        (1) Long-term liabilities that are derivative or hedge instruments
            relating 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
        historically monitored certain key ratios to ensure they are within
        targeted ranges. As a result of growth in our Financial Services
        business, changes in how Financial Services is funded and the pending
        impact of IFRS, these previously disclosed ratios are no longer
        considered relevant by Management. Management is currently
        undertaking a review to identify the most relevant key ratios.

        Under the existing debt agreements, key financial covenants are
        monitored on an on-going basis by Management to ensure compliance
        with the agreements. The key covenants are as follows:

        -  maintaining a specified minimum net tangible assets coverage,
           which is 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
           whereby 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 key 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; and

        -  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 September
        30, 2009 (the Bank's fiscal quarter end), 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 percent
        for Tier 1 and Total capital ratios. The Bank is within its internal
        maximum target 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. During the 3 months ended September 30,
        2009 and the comparative period, the Bank complied with the capital
        guidelines issued by OSFI under the "International Convergence of
        Capital Measurement and Capital Standards - A Revised Framework"
        (Basel II).

    12. 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)
                          ---------------------------------------------------
                            October 3,   September    October 3,   September
        ($ in millions)          2009     27, 2008         2009     27, 2008
                          ---------------------------------------------------

        Balance, beginning
         of year          $      51.8  $      51.5  $       3.5  $       2.7
        Provision for
         credit losses          124.5         47.1          4.3          8.2
        Recoveries               13.7         10.7          0.6          0.4
        Write-offs             (110.9)       (59.3)        (5.8)        (7.5)
                          ---------------------------------------------------
        Balance, end of
         period           $      79.1  $      50.0  $       2.6  $       3.8
                          ---------------------------------------------------
                          ---------------------------------------------------


                             Accounts receivable              Total
                          ---------------------------------------------------
                            October 3,   September    October 3,   September
        ($ in millions)          2009     27, 2008         2009     27, 2008
                          ---------------------------------------------------

        Balance, beginning
         of year          $       3.3  $       5.0  $      58.6  $      59.2
        Provision for
         credit losses            0.9          0.8        129.7         56.1
        Recoveries                0.2          0.3         14.5         11.4
        Write-offs               (2.2)        (2.5)      (118.9)       (69.3)
                          ---------------------------------------------------
        Balance, end of
         period           $       2.2  $       3.6  $      83.9  $      57.4
                          ---------------------------------------------------
                          ---------------------------------------------------

        (1) Other Loans include personal loans, mortgages loans and lines of
            credit loans.


        Foreign currency risk

        The Company has significant demand for foreign currencies, primarily
        United States dollars, due to global sourcing. However, it manages
        its exposure to foreign exchange rate risk through a comprehensive
        Foreign Exchange Risk Management Policy that sets forth specific
        guidelines and parameters, including monthly hedge percentage
        guidelines, for entering into foreign exchange hedge transactions for
        anticipated U.S. dollar-denominated purchases. The Company's
        exposure, however, to a sustained movement in the currency markets,
        is impacted by competitive forces and future prevailing market
        conditions.

        Liquidity risk

        The following table summarizes the Company's contractual maturity for
        its financial liabilities. The table includes both interest and
        principal cash flows.


        ($ in millions)        1 year      2 years      3 years      4 years
                          ---------------------------------------------------
        Deposits          $   1,015.1  $     219.9  $     280.8  $     296.1
        Accounts payable
         and other            1,373.6            -            -            -
        Long-term debt          453.9          9.0         21.0          8.2
        Interest
         payment(1)             143.7        102.2         99.6         98.2
        Other                       -          0.8            -            -
                          ---------------------------------------------------
        Total             $   2,986.3  $     331.9  $     401.4  $     402.5
                          ---------------------------------------------------
                          ---------------------------------------------------


        ($ in millions)       5 years   Thereafter        Total
                          --------------------------------------
        Deposits          $     521.9  $         -  $   2,333.8
        Accounts payable
         and other                  -            -      1,373.6
        Long-term debt            6.9      1,063.1      1,562.1
        Interest
         payment(1)             110.7        651.5      1,205.9
        Other                     5.2            -          6.0
                          --------------------------------------
        Total             $     644.7  $   1,714.6  $   6,481.4
                          --------------------------------------
                          --------------------------------------

        (1) Includes interest payments on deposits and long-term debt.

        Interest rate risk

        The Company is exposed to interest rate risk, which it manages
        through the use of interest rate swaps. The Company has a policy in
        place 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 this policy.

    13. Other Long-Term Investments

        Included in other long-term investments is the Company's investment
        of $5.1 million (2008 - $6.6 million) in Canadian third-party asset-
        backed commercial paper (ABCP) issued by a number of trusts with an
        original cost of $8.9 million.

        The market for Canadian third-party ABCP was addressed in a formal
        restructuring proposal, and on January 21, 2009, the Bank's custodian
        received restructured ABCP as designed in the Montreal Accord. The
        Company received Class A notes with a face value of $7.7 million
        which have floating interest rates estimated at BA less 50bps. The
        Class A notes received an "A" credit rating from the rating agency
        DBRS. The Company also received $1.2 million in various lower grade
        notes as a part of the restructuring.

        The value of these notes is adjusted to fair market value on a
        quarterly basis, as the notes are financial instruments held for
        trading. There were two transactions of the notes to date in the open
        market in Canada in 2009 which Management did not consider to be
        representative of market value. As a result, a valuation model is
        used to determine fair value. The discount rate used in the valuation
        model was updated with more current information in the quarter.

    14. Merchandise Inventory

        Included in "cost of merchandise sold and all other operating
        expenses except for the undernoted items" for the 13 weeks and 39
        weeks ended October 3, 2009 is $1,473.6 million (2008 -
        $1,604.6 million) and $4,185.1 million (2008 - $4,610.1 million),
        respectively, of inventory recognized as an expense, which included
        $16.0 million (2008 - $16.0 million) and $41.4 million (2008 -
        $48.9 million), respectively, of write-downs of inventory as a result
        of net realizable value being lower than cost. Inventory write-downs
        recognized in previous years and reversed in the current quarter and
        the comparative quarter were insignificant.

    15. Supplementary Cash Flow Information

        The Company paid income taxes during the 13 weeks ended October 3,
        2009 of $32.4 million (2008 - $57.1 million) and made interest
        payments of $28.4 million (2008 - $14.8 million). For the 39 weeks
        ended October 3, 2009, the Company paid income taxes of
        $136.6 million (2008 - $170.6 million) and made interest payments of
        $110.8 million (2008 - $73.2 million), including $31.8 million
        related to the settlement of delayed start swaps.

        During the 13 weeks and 39 weeks ended October 3, 2009, property and
        equipment were acquired at an aggregate cost of $50.5 million (2008 -
        $109.5 million) and $140.2 million (2008 - $286.7 million),
        respectively. The amount of property and equipment acquired that is
        included in accounts payable and other at October 3, 2009 was
        $11.8 million (2008 - $27.1 million).

        During the 13 weeks and 39 weeks ended October 3, 2009, intangible
        software was acquired at an aggregate cost of $13.7 million (2008 -
        $21.7 million) and $51.7 million (2008 - $50.3 million),
        respectively. The amount of intangible software acquired that is
        included in accounts payable and other at October 3, 2009 was
        $3.0 million (2008 - $0.6 million).

    16. 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 routine legal matters incidental to the business
        conducted by the Company and that the ultimate disposition of the
        proceedings will not have a material effect on its consolidated
        earnings, cash flows, or financial position.

        In October 2004, a motion for authorization to proceed with a class
        action against the Company's wholly-owned subsidiary, Canadian Tire
        Bank (the Bank), and a number of other banks was filed by a Quebec-
        based consumers' group. The class action alleges that the cash
        advance transaction fees charged by the Bank are not permitted under
        the Consumer Protection Act (Quebec). The claim seeks a return of all
        fees assessed against cardholders for cash advances, plus interest
        and punitive damages per class member. The class action was certified
        against the Bank on November 1, 2006. The class is comprised of all
        persons in Quebec who have a credit card agreement with the Bank and
        who have paid fees for cash advances in Canada or abroad since
        October 1, 2001. The Company believes it has a solid defense to the
        claim on the basis that banks are not required to comply with
        provincial legislation because banking and cost of borrowing
        disclosure is a matter of exclusive federal jurisdiction.
        Accordingly, no provision has been made for amounts, if any, that
        would be payable in the event of an adverse outcome. If adversely
        decided, the present total aggregate exposure to CTB is expected to
        be approximately $15.0 million.

        In June 2009, a similar lawsuit against another financial institution
        was heard by the Quebec Supreme Court questioning the legality of
        foreign exchange fees on credit cards transactions. The Court ruled
        in favour of the plaintiff, although the decision is being appealed
        to the Quebec Court of Appeal. One consequence of this decision is
        that it may affect other outstanding lawsuits, including the action
        filed against the Bank noted in the preceding paragraph.

    17. Tax Matters

        In the ordinary course of business, the Company is subject to ongoing
        audits by tax authorities. While the Company believes that its tax
        filing positions are appropriate and supportable, from time to time,
        certain matters are reviewed and challenged by the tax authorities.

        The main issues challenged by the Canada Revenue Agency (CRA) relate
        to the tax treatment of commissions paid to foreign subsidiaries of
        the Company (covering periods from 1995 to 2007), and dividends
        received on an investment made by a wholly-owned subsidiary of the
        Company related to reinsurance (covering periods from 1999 to 2003).

        The applicable provincial tax authorities have reassessed and are
        also expected to issue further reassessments on these matters for the
        corresponding periods.

        The Company has agreed with the CRA to settle the commissions issue
        for the period 1995-2003, although the determination of the final tax
        liability pursuant to the settlement is subject to the verification
        by the CRA of certain information provided by the Company. The
        Company believes the provincial tax authorities will also reassess on
        the same basis. The Company does not have a significant exposure on
        this issue subsequent to the 2003 taxation year.

        The reassessments with respect to the dividends received issue are
        based on multiple grounds, some of which are highly unusual. The
        Company has appealed the reassessments and the matter is currently
        pending before the Tax Court of Canada. If the CRA (and applicable
        provincial tax authorities) were entirely successful in their
        reassessments - an outcome that the Company and its tax advisors
        believe to be unlikely - it is estimated that the total liability of
        the Company for additional taxes, interest and penalties could be
        approximately $192.8 million. Although the Company has appealed these
        reassessments, current tax legislation requires the Company to remit
        to the CRA and its provincial counterparts approximately
        $119.7 million related to this matter, all of which had been remitted
        by the end of the quarter.

        The Company regularly reviews the potential for adverse outcomes in
        respect of tax matters. The Company believes that the ultimate
        disposition of the settlements, finalization of the commissions
        issue, resolution of the dividends received issue and other tax
        matters, will not have a material adverse effect on its liquidity,
        consolidated financial position or results of operations because the
        Company believes that it has adequate provision for these tax
        matters. Should the ultimate tax liability materially differ from the
        provision, the Company's effective tax rate and its earnings could be
        affected positively or negatively in the period in which the matters
        are resolved.

        The year to date tax provision has been reduced by $9.1 million due
        to the retroactive change in legislation relating to the taxation of
        gains realized from the disposition of shares during 2006 and 2007
        and revision to the prior year's estimated tax expense.

    18. Subsequent Events

        On September 21, 2009, the Company announced that it exercised its
        right to redeem all $150 million of outstanding 12.10% debentures
        (the debentures), which were to mature on May 10, 2010. The
        debentures were redeemed on October 22, 2009 (the redemption date).

        As a result of this redemption, the Company paid a redemption premium
        of $9.4 million on the redemption date. This will be included in
        long-term interest expense in the quarter ending January 2, 2010.

        The debentures were hedged by interest rate swaps that were to mature
        on May 10, 2010. Hedge accounting for these swaps ceased upon the
        redemption announcement. As a result, $3.3 million of cumulative
        hedge accounting adjustment that was previously included in the
        carrying value of the debentures was amortized to earnings over the
        debentures' remaining term to maturity. As a result, a $1.6 million
        benefit is included in long-term interest expense in the quarter
        ended October 3, 2009 and a $1.7 million benefit will be recorded in
        the quarter ending January 2, 2010.

        Effective November 6, 2009, the Company sold its mortgage portfolio,
        totaling approximately $162 million, to the National Bank of Canada.
        The transition of customer accounts will be completed by early 2010.
        The Company estimates it will incur a pre-tax loss of approximately
        $6 million in the quarter ending January 2, 2010 in relation to wind
        down and other costs, which will be included in cost of merchandise
        sold and other operating expenses.


    Interest Coverage Exhibit to the Consolidated Financial Statements
    (unaudited)
    -------------------------------------------------------------------------
    

The Company's long-term interest requirements for the 53 weeks ended October 3, 2009, after annualizing interest on long-term debt issued and retired during this period, amounted to $145.7 million. The Company's earnings before interest on long-term debt and income taxes for the 53 weeks ended October 3, 2009 were $637.3 million, which is 4.4 times the Company's long- term interest requirements for this period.

SOURCE Canadian Tire Corporation, Limited

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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