The Road Ahead Canadian Tire Corporation, Limited

Canadian Tire 1999 Annual Report

THE ROAD AHEAD CANADIAN TIRE CORPORATION, LIMITED

Canadian Tire offers a unique mix of products and services through three distinct yet interrelated businesses, as outlined below. Together, these businesses form a very competitive package of location, price, service and assortment that meets the needs of our customers for total value. The 38,000 employees of Canadian Tire and its Associate Dealers share a common vision: To be the best at what our customers value most.

CANADIAN TIRE CANADIAN TIRE CANADIAN TIRE RETAIL PETROLEUM FINANCIAL SERVICES (“CTR”) (“PETROLEUM”) (“FINANCIAL SERVICES”)

CTR is Canada’s leading Petroleum is one of Canada’s Financial Services is en- hardgoods retailer, offering largest independent gaso- gaged primarily in financing consumers approximately line retailers; it also mar- and managing credit card 104,000 stock-keeping units kets related products such accounts for CTR and Petro- of automotive parts and as oil changes, car washes leum customers. Financial accessories, sports and leisure and propane. Petroleum Services operates an emer- products, and home prod- enhances Canadian Tire’s gency roadside service and ucts, primarily through a competitive offering to cus- markets other financial and network of stores operated tomers with merchandise telecommunication prod- by Associate Dealers. promotions and discounts. ucts to our customers.

2 Financial Highlights 3 Message from the President and Chief Executive Officer 7 Message from the Chairman 8 Growth 22 Performance 24 Management’s Discussion and Analysis of Operations 36 Consolidated Financial Statements 40 Notes to Consolidated Financial Statements 52 Ten-Year Financial Review 54 Directors and Officers 56 Environmental, Health and Safety Stewardship 57 Quarterly Information 58 Shareholder and Corporate Information 59 Canadian Tire in the Community THE ROAD AHEAD At Canadian Tire, the road ahead has a single signpost that points the way to continuing growth. Our commitment to growth is why we’re building a network of Canada’s best and most convenient retail stores. It’s why we’re rolling out new merchandising strategies that offer an outstanding shopping experience. It’s why we’re launching innovative ways to enhance our dominance in auto parts and take advantage of the rapid acceptance of e-commerce. Like the road we have travelled successfully for the past seven years, the road ahead will require investment. But the road to growth is the only road that provides long-term value to everyone on the journey.

1999 annual report 1 FINANCIAL HIGHLIGHTS

Consolidated

Percent (Dollars in thousands except per share amounts) 1999 1998 Change*

Gross operating revenue $ 4,728,259 $ 4,347,283 8.8% Earnings before income taxes 227,099 249,712 (9.1) Income taxes 81,170 82,732 (1.9) Net earnings 145,929 166,980 (12.6) Cash generated from operations 326,141 316,170 3.2 Cash generated from operating activities 323,467 369,448 (12.4) Dividends 30,845 31,299 (1.5)

Per Share Net earnings $ 1.89 $ 2.09 (9.6%) Cash generated from operations 4.22 3.96 6.6 Cash generated from operating activities 4.19 4.63 (9.5) Dividends 0.40 0.40 – Shareholders’ equity 17.21 16.20 6.3

* Percent change calculated from unrounded amounts

Business Units

CTR Financial Services Petroleum Consolidated

(Dollars in thousands) 1999 1998 1999 1998 1999 1998 1999 1998

Gross operating revenue $3,800,288 $ 3,511,695 $ 305,997 $ 305,391 $ 621,974 $ 530,197 $4,728,259 $4,347,283 Earnings before income taxes 155,912 189,468 55,989 51,860 15,198 8,384 227,099 249,712

2 canadian tire MESSAGE FROM THE PRESIDENT AND CHIEF EXECUTIVE OFFICER

During 1999, we continued our trend of strong operating performance. Consolidated gross revenue rose 8.8 percent to a record $4.7 billion. Consolidated net earnings per share, however, declined to $1.89 in 1999 from $2.09 in 1998 due to the expensing of a variety of substantial project costs. The major portion of the expensed costs related to the development of the Corporation’s capabilities in information technology and electronic commerce. At an operating level, all of our divisions made very strong contributions to the 1999 operating earnings before the above noted expenses. Canadian Tire Retail operating earnings before these expenses were up 13.2 percent while Financial Services and Petroleum operating earnings increased 8.0 percent and 81.3 percent respectively. A more detailed discussion of the expensed costs and the Corp- oration’s many accomplishments during 1999 can be found in Management’s Discussion and Analysis of Operations, which begins on page 24. Canadian Tire’s strong operating performance during the past seven years has its roots in the success of our strategies and investments for growth. Those strategies and investments will continue because, as this Report details, our prospects for ongoing growth are excellent.

RENEWING THE FOUNDATION In 1993, Canadian Tire had a strong foundation of competitive advantages: an almost universal brand awareness, a unique offering of three specialty stores under one roof, a network of entrepreneurial Associate Dealers and a sound financial position. It was a solid foundation that could be made even stronger. Our stores needed to be more responsive to new competitive formats. Our organization needed to be energized by the common objective of providing what our customers value most. During the past seven years we have strengthened Canadian Tire’s foundation for profitable growth. By opening 188 new-format stores, and refining and expanding our offering under three primary product groups, we have increased sales by 1.2 billion dollars. By eliminating expenses that do not add value for customers, we have significantly improved the Corporation’s cost structure. By keeping our eyes on the road ahead, we have launched an exciting new opportunity to build on our market dominance in auto parts and accessories. Our job is to continue to execute our winning strategy on this revitalized foundation. We made excellent progress on that task in 1999 and honed the strategy that will deliver more gains in the future.

DRIVING REVENUES Canadian Tire’s new-format stores have exceeded our expectations since we opened the first one in 1994. In their first year of operation, these stores are delivering average sales gains in excess of 50 percent over the previous store in the same market. What’s more, their comparable sales growth in subsequent years is well above the performance of traditional Canadian Tire stores. On the strength of these sales gains, we decided to expand and accelerate the roll-out of our new-format stores. Our original estimate was 240 stores; we now expect to build 350 by the end of 2003. We opened 51 in 1999 – up from 34 in 1998 – for a total of 188 new-format stores. The Corporation is currently just half way through its building program, which suggests our sales momentum will continue its strong upward trend.

1999 annual report 3 4 canadian tire MESSAGE FROM THE CHIEF EXECUTIVE OFFICER

We are also enhancing the customer experience inside these new stores in order to drive more sales. The “Next Generation” design of Canadian Tire stores builds on our accumulated learning to provide an even better experience for our customers. These stores feature more closely related groupings of products and departments, expanded assortments in key categories such as kitchen and hardware, an improved navigational system and more open sight lines throughout the store. Given the immediate sales uplift we have seen in test stores already outfitted with these improvements, we are excited about the potential of Next Generation. The concept will be incorporated in every new store we build and is easily transferable to all existing new-format stores opened since 1994. Canadian Tire Financial Services and Canadian Tire Petroleum remain important elements of our plans for growth. Financial Services’ Options® MasterCard® loyalty program, like Canadian Tire ‘Money’, is an important driver of incremental sales in our stores, and will be even more so in the years ahead. Similarly, Petroleum’s cross-merchandising programs and competitive pricing are substantial components of the total value proposition that is our unique offering to Canadian consumers. Both of these divisions also contribute meaningfully to the Corporation’s overall growth in profitability.

NEW ROADS TO GROWTH For the past three years, we have been testing a concept called PartSource®, a chain of stand-alone specialty auto parts stores. Last year we announced plans for a national roll-out of the chain that will see us open up to 200 of these stores over the next four to five years. Canadian Tire is already the dominant provider of automotive parts and service in Canada. With PartSource, we are going after new customers who do not typically frequent a Canadian Tire store for their automotive needs – the passionate “do-it-yourselfer” and professional installer. These customers represent a sales opportunity of $400 million annually to Canadian Tire. We intend to turn this opportunity into real growth as quickly as possible by leveraging our marketing resources, strong vendor partnerships, supply-chain capabilities and real estate and construction expertise. Like PartSource, electronic commerce is also an exciting opportunity to drive new growth. Our e-FlyerTM, the electronic version of our weekly flyer, is already one of the most-visited Internet web sites in Canada. During the coming year, we will build on that considerable potential by launching a new consumer e-commerce web site that will provide customers with broader access to merchandise and a range of customer services. We know that customers value the shopping experience that Canadian Tire offers and we intend to be the best at providing it through e-commerce. The strategies for incremental growth that I’ve highlighted will put greater demands on our supply chain. We will be ready: making improvements to our supply chain has been an ongoing journey of accomplishment for Canadian Tire. Over the past five years, we have moved service levels by vendors from less than 70 percent to more than 90 percent, which in turn has enabled us to boost Gilbert S. Bennett Chairman of the Board our service levels to Associate Stores to more than 90 percent. We have also decreased supply-chain costs, increased capacity, reduced average inventory Stephen E. Bachand President and levels and doubled inventory turns. All of this has been achieved while shipping Chief Executive Officer an additional $1 billion in product.

1999 annual report 5 MESSAGE FROM THE CHIEF EXECUTIVE OFFICER

These are terrific accomplishments, but there is always more to do in taking our supply-chain capabilities to the next level of efficiency. During 1999, we began the implementation of an extensive, multi-year upgrade to our system. This will enable Canadian Tire to take the initial steps in multi-channel distribution during 2000 that will ultimately give us increased inventory turns, reduced product handling and lower transportation costs – in other words, a more profitable enterprise with better service to our customers.

THE STRENGTH OF OUR FOUNDATION The strategies for growth outlined here are ambitious, but I am confident Canadian Tire has the strength of foundation to ensure continuing success in a highly competitive business. We have one of the strongest balance sheets in North American retailing. We have a powerful competitive advantage in our entrepreneurial Associate Dealers. And we have an expanding network of Canada’s best retail stores. It cannot be over-emphasized that the strengthening of the Corporation’s foundation is directly attributable to the quality and perseverance of the entire Canadian Tire team. Their diligent work in executing a multi-faceted, multi- year strategy is responsible for the strong financial performance, and increased shareholder value, that are the primary objectives of Canadian Tire’s renewal. This renewal is not limited to stores and performance. In January 2000, the Report on Business Magazine and the consulting firm of Hewitt Associates released the results of the first annual ranking of the 35 Best Companies to Work For in Canada. Employees were surveyed, human resources programs detailed and chief executives interviewed. We are very proud to say that of the 62 final- ists chosen from more than 500 large businesses, Canadian Tire was selected as the number one company to work for in Canada.

ON A PERSONAL NOTE Working with the bright and talented people of Canadian Tire has been the highlight of my career. That is one of the many reasons why my decision to retire as CEO, which was announced in January of this year, was such a diffi- cult choice. I will miss the many friends I have made, but it is the right decision for me, my family and Canadian Tire. The Corporation’s operational and competitive position has never been stronger; our strategy is proven and has several years of continued growth. This is a good time for this transition. A new leader has the opportunity to develop and execute long-term growth strategies on a strong foundation. To ensure a smooth transition, I am participating in the selection process and will continue to oversee the Corporation’s day-to- day operations. The revitalization of Canadian Tire’s foundation of competitive advantage has been fitting work for the close of the century. The execution of our current strategies for growth will be a fitting start to the new century. I know that Canadian Tire’s new leadership, supported by the best management team in retailing, will extend the Corporation’s long record of success.

Stephen E. Bachand President and Chief Executive Officer March 2, 2000

6 canadian tire MESSAGE FROM THE CHAIRMAN OF THE BOARD

In early January of this year, Steve Bachand informed the Board of his inten- tion to retire. We reluctantly accepted his decision. Steve has made an outstanding contribution to Canadian Tire during his seven years as President and Chief Executive Officer. The revitalization of Canadian Tire’s store network and the other growth initiatives introduced by Steve will continue for several more years, so the Corporation is well positioned to undertake the transition to a new chief executive who can develop and lead the Corporation’s next phase of growth. While that transition is taking place, shareholders may rest assured that the business of Canadian Tire will be business as usual. In other words, we will continue to pursue the aggressive implementation of the strategies that to date have generated a $1.2 billion increase in sales during Steve’s tenure. Steve continues in his full capacity as President and Chief Executive Officer. He also serves as a member of the Search Committee charged with finding a new president. I act as Chairman of that Committee. We are conducting a search of both internal and external candidates, and are limited only by the requirement of having the very best executive for the job of leading Canadian Tire. Under Steve Bachand’s leadership and the strong management team he helped build, the Corporation has secured its dominant position in Canadian hardgoods retailing. He also made a significant contribution to the community. Steve was the driving force behind the creation of the Canadian Tire Foundation for Families. The Foundation is dedicated to lending a helping hand to families when they need it most. On behalf of the Board, Canadian Tire employees and the Associate Dealers, I thank Steve for his tireless efforts on our behalf. We wish him a satisfying retirement in the company of his family.

Gilbert S. Bennett Chairman of the Board March 2, 2000

1999 annual report 7 GROWTH THEG ROAD AHEAD

8 canadian tire There is a common objective behind every strategic program at Canadian Tire, and that is to drive or support growth. We’re driving growth by building Canada’s best network of new stores. We’re driving growth by enhancing the customer experience with our Next Generation merchandising, exciting new loyalty program and e-commerce. We’re driving growth by serving new customers with our specialty PartSource stores. And we’re supporting all this growth by forging stronger bonds with our vendors and creating a more flexible supply-chain system. More growth, more profitably. That’s the road ahead for Canadian Tire.

1999 annual report 9 CANADA’S LEADING BRAND Through signage, flyers, catalogs and advertising, the familiar red triangle with the green maple leaf has become a true Canadian icon. Our logo is recognized by 99 percent of Canada’s population; 93 percent of all adult Canadians shopped at Canadian Tire last year. In a 1999 survey by the Angus Reid polling organization, we were proud to rank among the top five major Canadian companies on measures such as reputation, customer service, long-term success and our contribution to Canada.

10 canadian tire What has made Canadian Tire one of Canada’s great brands for nearly 80 years? We believe it’s our unique offering of three outstanding specialty stores under one roof. It’s our long-standing reputation for delivering competitive prices and great sales with unmatched convenience. It’s our passion to be the best at what our customers value most by discovering what they do value most. It’s because four generations of Canadians, from all walks of life, have put their trust in the name Canadian Tire.

1999 annual report 11 GROWING WITH OUR NEW-FORMAT STORES At Canadian Tire, we’re not only driving growth, we’re accelerating the momentum of growth. Because our new-format stores are exceeding our expectations for sales growth, we’ve sped up our construction of stores and expanded the number of markets that will receive a new-format store. Last year, we increased our store openings to 51 from 34 in 1998, bringing the total to 188. By the end of 2003, we will have opened 350 new-format stores across the country, with up to 40 of those in new markets.

12 canadian tire We’re also leveraging the information we’ve gathered about our stores’ productivity and customer experience to create an enhanced “Next Generation” of Canadian Tire stores. The concept includes more closely related groupings of products and departments, expanded assortments in key categories and more open sight lines and easier navigation throughout the store. Most stores built during 2000 and in subsequent years will offer the Next Generation experience, and it is easily transferable to the new-format stores we’ve opened since 1994.

1999 annual report 13 GROWING WITH PARTSOURCE In 1999, we officially launched PartSource, a stand-alone specialty store and brand for automotive parts and accessories. PartSource appeals to new customer segments for Canadian Tire – the passionate ‘do-it-yourselfer’ and the commercial installer – who together represent a $400 million annual opportunity for growth. We will turn this opportunity into real growth by leveraging our market-dominant skills and infrastructure in the acquisition, distribution and marketing of automotive products.

14 canadian tire GROWING WITH E-COMMERCE With a subscriber base of more than 200,000, Canadian Tire’s e-Flyer – the electronic version of our weekly flyer – has become one of Canada’s most-visited e-commerce web sites, even without a single on-line transaction. By the end of 2000, Canadian Tire’s new web site will provide customers with broader access to our wide assortment of products and a range of customer services.

1999 annual report 15 GROWING OUR BRANDS Our goal is to deliver what our customers value most. That’s why Canadian Tire stores now offer more well-known national brands like those pictured here. Customers also tell us they want exceptional value – which means top quality products at better than competitive prices. During the past two years, we have made a substantial commitment to our Motomaster® and Mastercraft® heritage brands to ensure they deliver “national brand quality for less” to consumers, and incremental sales to our stores.

16 canadian tire Customers have responded enthusiastically to a superior combination of quality and value offered by Motomaster and Mastercraft products. During 1999, we successfully introduced our Yardworks® brand of outdoor gardening tools. We also expanded our offering of secondary and licensed brands that are exclusive to Canadian Tire – brands such as Garrison® home safety and security products, Northern Escape® outdoor recreational products and Simoniz® automotive care products. Great brands at better prices are one more thing customers value most about shopping at Canadian Tire.

1999 annual report 17 GROWING THROUGH CUSTOMERLINK CustomerLink is the process and technology enhancements that will lead us to multi-channel, regional distribution. This will ultimately give Canadian Tire a significant increase in supply-chain capacity, higher inventory turns, reduced product handling and lower transportation costs. That will mean lower costs and improved margins for the enterprise and even better in-stock positions for regular and promotional merchandise in our stores.

18 canadian tire GROWING WITH OUR VENDORS Ensuring that our 1,700 vendors are informed members of the team is critical to our success in serving customers. At Canadian Tire, we have developed a sophisticated system of collaborative forecasting that gives vendors a 26-week advance view of our anticipated order flow, which in turn enables them to improve service levels. During 2000, we will begin to share detailed point-of-sale data with vendors so we can jointly exploit new opportunities for sales growth and supply-chain management.

Mario Roger, Senior Merchandise Director, Lawn and Garden Department (centre), Trent Coleman, Buyer, Lawn and Garden Department (right), Debbie Lambert, National Sales Manager, Dayco Swan Products Limited (left) 1999 annual report 19 GROWING THROUGH LOYALTY Customers are experiencing first-hand why It Pays to Buy Gas HereTM. Thanks to Petroleum’s aggressive pricing, promotions and deep-discount coupons, customers bought a record volume of gasoline last year. Financial Services reached the one million mark in its portfolio of Options MasterCards, which enable holders to earn reward points each time they use their cards. During 2000, we will re-launch our credit cards and loyalty program to make an even more compelling promise of total value to customers.

20 canadian tire GROWING THROUGH SERVICE Canadian Tire and its Associate Dealers are committed to becoming Canada’s leading retailer on measures of customer service. Dealers have made a significant investment already. More than 11,500 of their employees have taken Customer Experience System training programs, resulting in better service to customers and sales uplifts at their stores. We have also refocused our hiring and training practices to ensure that all employees of Canadian Tire share our passion for serving customers.

Clockwise from top left: Dave McMahon, Logistics Manager, Gilles Dubreuil, Associate Dealer, Roland Campsall, Store Manager, Ayub Khan, Service Advisor, Auto Centre, Al Acheson, Associate Dealer, Lola Markwick, Assistant Head Cashier 1999 annual report 21 PERFORMANCE THEP YEAR IN REVIEW

24 Management’s Discussion and Analysis of Operations 36 Consolidated Financial Statements 52 Ten-Year Financial Review 57 Quarterly Information

22 canadian tire CONSOLIDATED CONSOLIDATED CONSOLIDATED GROSS NET EARNINGS NET EARNINGS OPERATING FROM CONTINUING PER SHARE REVENUE OPERATIONS FROM CONTINUING ($ billions) ($ millions) OPERATIONS ($)

3.80 3.93 4.09 4.35 4.73 1.38 1.51 1.79 2.09 1.89 5.0 175 121.8 131.9 148.6 167.0 145.9 2.5

4.0 140 2.0

3.0 105 1.5

2.0 70 1.0

1.0 35 0.5

0 0 0 95 96 97 98 99 95 96 97 98 99 95 96 97 98 99

1999 annual report 23 MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS

OVERVIEW OF THE BUSINESS Canadian Tire Corporation, Limited and its subsidiaries (“Canadian Tire” or the “Corporation”) comprise three distinct but inter-related businesses: Canadian Tire Retail (“CTR”), Canadian Tire Financial Services (“Financial Services”) and Canadian Tire Petroleum (“Petroleum”). CTR is Canada’s leading hardgoods retailer, offering consumers approximately 104,000 stock-keeping units of automotive parts and accessories, sports and leisure products, and home products, through a network of stores operated by Associate Dealers. CTR also operates Canada’s largest after-market auto service business and manages the marketing and operations of the petroleum business. Financial Services is engaged in financing and managing customer credit accounts that arise from customers’ use of their Canadian Tire credit cards and Options MasterCard. Financial Services also performs third-party transaction processing, operates an emergency roadside service and markets a variety of insurance, warranty and telecommunications products to Canadian Tire customers. Canadian Tire Petroleum, one of the largest independent retailers of gasoline in Canada, markets petroleum and related products as well as convenience items through its network of agent-operated outlets. It also supports CTR merchandise sales through special promotions and the issuance of Canadian Tire ‘Money’, which is redeemable for goods at Associate Stores across Canada. Together, CTR, Financial Services and Petroleum offer Canadians a very competitive package of total value that includes conveniently located retail outlets with three specialty stores under one roof, a variety of payment options and competitively priced petroleum and related products. Canadian Tire is unique among Canadian retailers in offering such a range of goods and services. CONSOLIDATED Canadian Tire Associate Dealers make a major contribution to the success EARNINGS FROM CON- TINUING OPERATIONS of the combined business. They have a substantial personal financial investment BEFORE INCOME TAXES ($ millions) in their business, which they operate in accordance with the Corporation’s overall strategy and marketing programs. 275 189.6 195.9 209.5 249.7 227.1 The Corporation and Associate Dealers provide employment to over 38,000 Canadians. They also give generously of their time and resources through their 220 support for the Canadian Tire Foundation for Families and other organizations. Involvement in the daily life of communities across Canada helps Canadian Tire

165 forge stronger links with customers.

110 CONSOLIDATED RESULTS Canadian Tire continued its trend of strong operating performance during 1999.

55 Consolidated gross operating revenue totaled $4.73 billion for 1999, a 52-week period ending January 1, 2000. This was an increase of 8.8 percent over gross operating revenue of $4.35 billion in 1998, a 52-week period ending January 2, 1999. 0 95 96 97 98 99 Consolidated earnings, however, were $145.9 million in 1999 compared with $167.0 million in 1998 due, in part, to the fourth-quarter expensing of $58.5 million of costs as discussed below. Earnings per share were $1.89, a 9.6 percent decrease from the $2.09 per share earned in the prior year. The majority of the $58.5 million of expensed costs referred to above arose from three significant initiatives. First, there were costs associated with improving Canadian Tire’s information technology capabilities. In addition, during the

24 canadian tire latter part of 1999, significant expenditures for the development of e-commerce were made in order to bring commercial applications on stream later in 2000. A third initiative was the development of new business strategies. At year end, the Corporation expensed many costs related to these initiatives which had been orig- inally planned for capitalization. The balance of the costs included expenses to cover certain contractual obligations to the CEO upon his retirement.

Other Key Factors Affecting Consolidated Results Continuing strength in consumer spending, aggressive merchandising and advertising by CTR and excellent revenue gains attributable to the new-format stores helped boost Associate Dealer total retail sales by 7.7 percent during 1999. Year- over-year shipments to Dealers increased by 8.0 percent and were the primary factor in an 8.2 percent gain in gross operating revenue for CTR. CTR operating earnings totaled $155.9 million compared to the $189.5 million earned in 1998. CTR operating earnings prior to the above noted expenses were up 13.2 percent to $214.4 million, reﬂecting strong operating performance. Petroleum gross operating revenue rose 17.3 percent to $622.0 million. A 9.1 percent increase in gasoline sales volume, improved margins and lower operating expenses attributable to a full year of agent-operated sites all contributed to 1999 operating earnings of $15.2 million – an 81.3 percent increase over the $8.4 million earned in 1998. Financial Services’ gross operating revenue for the year totaled $306.0 million compared to $305.4 million a year earlier. Operating earnings rose to $56.0 million in 1999 from $51.9 million in the prior year. The major portion of the 8.0 percent increase in earnings was due to the lower write-offs that resulted from improved quality in the credit charge receivables portfolio. Depreciation and amortization of property and equipment, which is primarily related to expenditures on new-format stores by CTR, totaled $106.3 million in 1999, up 33 percent from the $79.9 million recorded in the prior year.

ANNUAL RETAIL Finally, the weighted average number of shares outstanding decreased from SALES ($ billions) 79.8 million in 1998 to 77.2 million in 1999; the shares purchased under the Corporation’s Normal Course Issuer Bid Program offset the issuance of shares under various stock compensation and dividend reinvestment programs. 3.69 3.87 4.11 4.42 4.77 5.0 Segmented information of key financial data for Canadian Tire’s three business segments can be found in Note 13 to the Consolidated Financial Statements.

4.0

REVIEW OF OPERATIONS 3.0 This discussion of the Corporation’s business units reviews their operational and financial performance in 1999 compared to 1998 and provides their outlook for

2.0 2000. In addition, this section reviews Canadian Tire’s financial condition and risk-management practices.

1.0 CANADIAN TIRE RETAIL 1999 Operating Highlights 0 95 96 97 98 99 Gross operating revenue for CTR rose 8.2 percent to $3.8 billion in 1999; this compared to gross operating revenue of $3.5 billion in 1998. Competitive pricing, aggressive merchandising by Associate Dealers and a repositioned flyer program resulted in a 7.7 percent increase in retail sales compared to a 7.5 percent increase in 1998. All three merchandise divisions – Automotive, Sports and Leisure, and Home Products – contributed to the sales increase in 1999. Revenue gains in Sports and Leisure categories were exceptionally strong due

1999 annual report 25 to the effective implementation of new merchandising strategies derived from consumer research conducted during 1997 and 1998. The major portion of the growth in CTR’s gross operating revenue during 1999 related to increased shipments to the new-format stores. In their first year of operation these stores are continuing, on average, to deliver sales gains

CTR in excess of 50 percent over the previous store in the same market. In addition, GROSS OPERATING their comparable sales growth in subsequent years is 4.2 percent in 1999, well REVENUE ($ billions) above the network average of 2.9 percent. The network average is expected to increase as more new-format stores mature and are counted in the comparable 2.91 3.03 3.18 3.51 3.78 4.0 store performance. The strength of these sales gains, and the desire to grow comparable store

3.2 sales more quickly, were the primary reasons underlying CTR’s decision to accelerate the roll-out of its new-format stores; 51 stores were opened in 1999 compared to 34 in 1998 – a 50 percent increase. By the end of 1999, Real Estate had opened 2.4 a total of 188 new-format stores since the program began in 1994. Operating earnings were $155.9 million, a 17.7 percent decrease from the 1.6 $189.5 million earned in 1998. Higher revenue, and improved margins due to lower product acquisition costs and favourable exchange rates in 1999, have resulted in

0.8 a 13.2 percent increase in CTR operating earnings before expenses noted on page 24. Supply Chain costs as a percentage of net shipments decreased by 10 basis points despite an 8.0 percent increase in shipments to Associate Stores. 0 95 96 97 98 99 Inventory levels in 1999 were consistently lower than 1998 levels, despite increased shipments to Associate Stores, and would have ended the year flat as compared with inventory levels of $412 million in 1998. However, in the latter part of the year the Corporation received, in advance, $62 million of merchandise from foreign and domestic suppliers to bring total year-end inventory to $473 million. These advance shipments ensured that the stores could meet the Year 2000 needs of Canadian Tire’s customers.

2000 Outlook CTR OPERATING CTR is implementing a variety of strategic initiatives to increase both revenues EARNINGS BEFORE INCOME TAXES and profitability in the years ahead. The primary initiative is the ongoing renew- ($ millions) al of Canadian Tire’s store network. 143.6 150.3 161.2 189.5 155.9 200 The success of CTR’s new-format stores in delivering substantially increased sales over previous stores in their first year of operation, and their comparable-

160 store sales growth in subsequent years, has encouraged the Corporation to expand and accelerate its roll-out of these new stores. CTR intends to have built approximately 350 new stores by 2004, up from the original estimate of 240 stores. The 120 ﬂexibility of five models of these new-format stores enables CTR to locate the appropriately-sized facility to meet customers’ needs in a wide variety of trade 80 areas. CTR plans to open 45 new-format stores in 2000 and 40 more in 2001. With just over half of the store building program currently completed, CTR expects

40 strong future revenue growth as the network continues to expand and mature. In early 1999, CTR conducted a complete review of its new-format store concept, the accumulated learning about productivity and what customers value 0 95 96 97 98 99 most. The result was a new version of the new-format store, called “Next Generation”. This format was enthusiastically endorsed by the Associate Dealers in limited tests conducted during 1999. The concept includes more closely related groupings of products and departments, expanded assortments in key categories such as kitchen, a major emphasis on hardware and more open sight lines and easier navigation throughout the store. All stores built in 2000 and subsequent

26 canadian tire years will be fitted with Next Generation improvements. In addition, the concept is easily transferable to new-format stores opened since 1994, all of which will be retrofitted with the improvements over the next three years. When fully imple- mented the Next Generation concept is expected to increase comparable store sales in the existing new-format stores.

TOTAL CUBIC VOLUME CTR is Canada’s dominant provider of automotive parts and service and SHIPPED TO ASSOCIATE DEALERS intends to accelerate the growth of the business. Following three years of successful (millions of cubic feet) testing, CTR announced during 1999 that it will begin a national roll-out of up to 200 PartSource stores. PartSource stores are designed to appeal to seri- 77 82 87 99 107 125 ous “do-it-yourself” customers and professional installers who do not typically frequent a Canadian Tire Associate Store for their automotive needs. Three of 100 these stand-alone, specialty automotive parts and accessories stores were opened in 1999 for a total of eight; 20 stores are planned to open during 2000. Importantly, PartSource will enable CTR to leverage its extensive infrastructure 75 in product acquisition, distribution and real estate to make a very competitive proposition to this new market segment. 50 CTR will also seek to drive revenue growth by building on the success of its e-Flyer, the electronic version of Canadian Tire’s weekly promotional flyer. 25 By the end of 2000, CTR will launch a new consumer e-commerce web site that will provide customers with broader access to merchandise and a range of customer services. 0 95 96 97 98 99 A central theme in all of CTR’s efforts to improve comparable store sales growth is the continuing development of a customer-driven culture throughout the enterprise. Associate Dealers are actively involved in this effort. To date, more than 11,500 of their store employees have completed the Customer Experience System, a training program that began in 1998. Importantly, recent customer experience measurement surveys show a rising trend of satisfaction with the total shopping experience at Canadian Tire. In 1999, CTR began the implementation of CustomerLink, an extensive, multi-year upgrade to its supply-chain capabilities. These phased improvements PETROLEUM GASOLINE will enable the Supply Chain to efficiently handle the increased volume of prod- SALES VOLUME (millions of litres) ucts its growth strategies are expected to generate while improving service to customers. During 2000, CTR intends to take the initial steps in multi-channel 1,250 1,126 1,076 1,035 1,070 1,168 distribution that will ultimately increase inventory turns, reduce product handling expense and lower transportation costs.

1,000 Economic growth is expected to continue its upward trend during 2000, though at a somewhat slower rate than 1999. All merchandise categories will remain highly competitive. Nevertheless, CTR believes that it can improve its 750 comparable store sales and financial contribution during 2000 with its accelerated program of new-format store openings, the effective implementation of customer- 500 derived merchandising strategies such as Next Generation and attractive opportunities for new revenue growth in PartSource and e-commerce.

250

CANADIAN TIRE PETROLEUM

0 Petroleum is one of Canada’s largest independent retailers of gasoline, with sales 95 96 97 98 99 volume of 1.2 billion litres in 1999. The division also markets related products and services such as oil changes, car washes and propane, and offers customers an assortment of convenience items. All of Petroleum’s 202 sites across Canada are operated by independent agents, an industry-standard structure that provides direct incentives to the agents to increase gasoline and ancillary sales while reducing the expense of site-level support and head-office administration.

1999 annual report 27 1999 Operating Highlights Petroleum’s gross operating revenue was $622.0 million in 1999, a 17.3 percent increase over 1998 gross operating revenue of $530.2 million. Gasoline volume growth and higher average pump prices were the key factors in the increase. Gasoline sales volume grew by 9.1 percent, with strong performance in every area of the country. The increase in volume was primarily due to an aggressive PETROLEUM GROSS OPERATING REVENUE* marketing campaign, based on the theme, It Pays to Buy Gas Here, which provides ($ millions) customers with compelling incentives to buy gasoline and use discount coupons for merchandise purchases in Associate Stores. Also as anticipated, Petroleum’s 650 602.1 609.8 596.6 530.2 622.0 multi-year program to upgrade its sites to larger, high-capacity facilities with the quality and look of CTR’s new-format stores began to have a positive impact on

520 volume. A total of 20 sites were upgraded or rebuilt in 1999, bringing to 62 the number of sites that have enhanced the quality of experience that Canadian Tire customers have come to expect. 390 Operating earnings showed dramatic improvement in 1999, increasing 81.3 percent to $15.2 million from the $8.4 million earned in the prior year. 260 Improved margins, higher gasoline sales volume and lower operating expenses all contributed to the gain.

130 2000 Outlook For the past two years, Petroleum has been successfully executing a strategic 0 95 96 97 98 99 program to reduce network and head-office expenses, upgrade its image in the mar- * Gross Operating Revenue ketplace and be more aggressive in promoting the total value of its offering to includes provincial gasoline taxes consumers. During that time, operating earnings have increased by over 180 percent. In 2000, Petroleum will continue to fine-tune these strategies in order to increase revenues and income. The It Pays to Buy Gas Here proposition will be enhanced to get better alignment and integration with in-store advertising. In addition, 20 to 25 new or upgraded sites will be completed in locations where new-format stores are either open or approved. The division expects that the maturing of these

PETROLEUM marketing and renewal strategies will lead to increased gasoline sales volumes. OPERATING EARNINGS BEFORE INCOME TAXES ($ millions) CANADIAN TIRE FINANCIAL SERVICES

20 1.5 (3.1) 5.4 8.4 15.2 Financial Services is engaged primarily in financing and managing customer credit accounts that arise from customers’ use of their Canadian Tire credit cards and Options MasterCard. Financial Services serves a broad geographic mix of 15 cardholders, thereby diversifying its economic risk as a supplier of credit. In addition, Financial Services earns revenue from third-party credit card portfolios and 10 transaction processing. Financial Services also operates an emergency roadside service and markets a variety of insurance, warranty and telecommunications

5 products to Canadian Tire customers.

1999 Operating Highlights 0 Financial Services’ 1999 gross operating revenue was $306.0 million compared to $305.4 million in 1998. Growth in credit charge receivables was offset by the -5 transfer of Financial Services’ long-distance telephone business to AT&T Canada 95 96 97 98 99 as part of a long-term licensing agreement that began in August 1998. The alliance with AT&T Canada enables Financial Services to offer more programs and better savings to Canadian Tire customers while earning a licensing fee and retaining marketing control. Operating earnings increased 8.0 percent to $56.0 million from $51.9 million in 1998. The major portion of the increase was due to the lower write-offs that resulted from improved quality in the credit charge receivables portfolio. The

28 canadian tire earnings improvement was partially offset by higher marketing expenses to support the vigorous expansion of the Options MasterCard business and costs associated with upgrading information systems for Year 2000 and beyond. During 1999, Financial Services continued to refine its Options MasterCard offering, enabling it to double the number of cards outstanding to approximate-

FINANCIAL SERVICES ly one million. The card, which is offered exclusively to holders of the Canadian GROSS OPERATING REVENUE Tire retail credit card, offers consumers a competitive rate of interest on out- ($ millions) standing balances as well as Options loyalty reward points on all purchases. Improved credit scoring and aggressive in-store marketing also led to the acqui- 286.8 294.6 310.2 305.4 306.0 350 sition of nearly 500,000 new Canadian Tire retail cards during the year. Credit and warranty insurance products related to purchases or balances on both cards 280 continued to be attractive as well to Canadian Tire customers, with penetration rates rising over the previous year. During the past three years, Financial Services has significantly enhanced 210 three key areas of the business: the efficiency and flexibility of its credit card operating platforms; the quality of its credit portfolio; and the total customer 140 experience it provides. These enhancements, together with the division’s strong competitive advantages – such as the Canadian Tire brand, Options loyalty 70 rewards and low-cost cardholder acquisition programs – position Financial Services to be a strong competitor in the Canadian retail credit card marketplace.

0 95 96 97 98 99 2000 Outlook Financial Services will launch a number of programs in 2000 that are expected to generate revenue growth. The number of outstanding Options MasterCard accounts will be increased by continuing to convert qualified retail cardholders. The division will also step up its in-store acquisition program, which is expected to add more than one million retail cards over the next two years. In addition, Financial Services plans to undertake a large-scale campaign to re-launch its loyalty reward program and retail card with an even more compelling proposition for

FINANCIAL SERVICES Canadian Tire customers. OPERATING EARNINGS BEFORE These initiatives will require two investments in future growth: marketing INCOME TAXES ($ millions) costs associated with card acquisition and the re-launch program, as well as required provisions against higher credit charge receivables. These investments are 44.6 48.6 43.0 51.9 56.0 60 expected to make a major contribution to Financial Services’ future profitability. Financial Services has embarked on a joint venture with ING Direct. 48 Under the alliance, ING Direct is installing co-branded automated banking machines (“ABMs”) in the majority of Canadian Tire stores across Canada. The

36 machines not only enable customer access to their ING Direct accounts and the Interac network, but also provide cash advances, loyalty reward point balances and statement balances on the Canadian Tire retail credit card. Tests showed that 24 customers who use their credit card with the new ABMs also increase their shopping at Canadian Tire and their purchases charged to the card. Installation was 12 completed in selected Ontario stores during 1999; the roll-out will be finished by the fourth quarter of 2000.

0 95 96 97 98 99 FINANCIAL CONDITION A primary objective of Canadian Tire is to maintain consistently strong earnings and cash flows, as well as a strong capital structure. This is essential to ensure that the Corporation maintains its ability to fund future growth at competitive rates and to continue to build long-term shareholder value. Management and the Board of Directors review the Corporation’s funding requirements on an ongoing basis.

1999 annual report 29 CAPITAL STRUCTURE One of Canadian Tire’s objectives in selecting appropriate funding alternatives is to manage its capital structure in such a way as to diversify funding sources, minimize risk and optimize its credit rating. Canadian Tire continues to rank as one of the highest-rated Canadian retailers and has ready access to debt markets

SHAREHOLDERS’ at competitive interest rates. At year end, the Corporation’s capital structure was EQUITY as follows: PER SHARE* ($)

1999 20 14.00 15.04 15.79 16.20 17.21 1998

Shareholders’ equity 47.1% 55.0%

16 Short-term debt 8.2 7.9 Long-term debt* 43.8 35.6 Deferred taxes 0.9 1.5 12 100.0% 100.0%

8 * Includes current portion of long-term debt

Equity The year-end book value of Common and Class A Non-Voting 4 Shares was $17.21 per share compared to $16.20 at the end of 1998. Total shareholders’ equity increased to $1,345 million from $1,262 million in the prior year. 0 During 1999, the Corporation issued 2.5 million Class A Non-Voting Shares 95 96 97 98 99

* Total shareholders’ equity divided by under various corporate and Dealer employee profit-sharing programs as well as actual number of shares outstanding under the Corporation’s stock-purchase, stock-option and dividend-reinvestment plans. In 1998, 1.6 million shares were issued under these plans. The issuance of Class A Non-Voting Shares was offset by the purchase during 1999 of 2.3 million of these shares under the Corporation’s Normal Course Issuer Bid Program (“Issuer Bid Program”) on the Toronto and Montreal stock exchanges. During 1998, 5.9 million shares were purchased under that year’s Issuer Bid Program. During 2000, the Corporation intends to purchase up to 2.3 million Class A Non-Voting Shares through its Issuer Bid Program to offset the expected dilutive effect on earnings per share of various programs. A further 4.1 million of these shares may be purchased through the Issuer Bid Program if the purchases can be made on terms that serve the best interests of the Corporation and its shareholders. Shares Outstanding At January 1, 2000, there were 74,716,081 Class A Non-Voting Shares and 3,423,366 Common Shares outstanding; this compares to 74,469,278 Class A Non-Voting Shares and 3,423,366 Common Shares outstanding at January 2, 1999. Dividends Dividends declared on Common and Class A Non-Voting Shares were $30.8 million in 1999 compared to $31.3 million in 1998. The annual dividend on both classes of shares remained constant at $0.40 per share. Short-term Debt The Corporation has a Commercial Paper program with an $800 million authorized limit. At year-end, $234.0 million in commercial paper was outstanding compared to $181.8 million at January 2, 1999. Credit ratings for the Corporation’s commercial paper at year end were “A-1” from CBRS Inc. (“CBRS”) and “R-1(low)” from Dominion Bond Rating Service (“DBRS”). The Corporation also has committed lines of credit that are equal to or greater than the maximum projected amount of outstanding commercial paper balances; none of these lines have been drawn upon. Undrawn lines of credit remained in excess of $800 million at the end of 1999.

30 canadian tire Long-term Debt In order to gain access to debt markets in a timely manner as required, Canadian Tire has filed a shelf prospectus with provincial securities commissions for the issuance of $750 million of debt securities and debt warrants; $500 million of this limit has been allocated to the Medium Term Note program. This program is evaluated every two years. The last renewal was com-

SHAREHOLDERS’ pleted in December 1998. EQUITY AND LONG-TERM DEBT* The Corporation’s long-term debt had ratings at year end of “A (high)” ($ millions) from CBRS and “A” from DBRS. Like most issuers, Canadian Tire has provided covenants to certain of its 1,239 1,299 1,299 1,262 1,345 lenders. All of the covenants were complied with during 1999 and 1998. 1,500 509 420 380 815 1,050

1,200 FUNDING PROGRAM

900 Funding Requirements The Corporation’s capital expenditures, working capital needs, dividend pay- 600 ments and other financing needs, such as debt repayments and share purchases under the Issuer Bid Program, are funded from a combination of sources. In

300 1999, this pool of funds comprised $436 million of proceeds from the issuance of long-term debt, $323 million of cash generated from operating activities and $136 million from the Corporation’s sale of credit charge receivables, 0 95 96 97 98 99 described below.

* Excludes current portion of long-term debt. Capital Expenditures Canadian Tire spent a total of $377.3 million on capital projects in 1999, a 24.5 percent increase over the $303.1 million spent in 1998. Real Estate expenditures totaled $301.4 million, substantially all of which was for construction of new-format Associate Stores; this was a 49.9 percent increase over the $201.0 million spent in 1998. In addition, CTR spent $41.3 million, with the major portion of the expenditures allocated to systems development. Capital expenditures by Financial Services were $18.8 million compared to $21.0 million in 1998; 1999 expenditures were primarily for improved information technology. Capital projects by Petroleum totaled $15.8 million in 1999 compared to $11.2 million in the prior year. The 1999 expenditures represent the second year of a program to upgrade Petroleum sites to the quality and look of the new-format stores, as well as a new point-of-sale infrastructure including offering customers the opportunity to pay at the pump at 70 locations.

2000 Capital Program Canadian Tire’s 2000 capital expenditures, which are determined on a consolidated basis, are expected to total just over $430 million. Real Estate projects are planned at $346 million. Petroleum plans to spend $15 million for site upgrades and maintenance. The balance of planned capital expenditures are for CTR, Financial Services and the continuing upgrade of the information technology infrastructure across the Corporation.

Sources of Liquidity The primary sources of Canadian Tire’s liquidity include cash and short-term investments, sales of credit charge receivables and other sources of funding such as the Corporation’s Commercial Paper program and Medium Term Note program.

1999 annual report 31 Cash and Short-term Investments At year end, Canadian Tire’s cash and short-term investments totaled $539.0 million, a 74.8 percent increase from the $308.4 million held at January 2, 1999. Short-term investments held at year end 1999 included Canadian and United States’ government-guaranteed securities and high-quality commercial paper.

FINANCIAL SERVICES During 1999, cash generated from operations totaled $326.1 million; this NET CREDIT CHARGE RECEIVABLES* was a 3.2 percent increase from $316.2 million in 1998. The 1999 amount repre- ($ millions) sents cash flow from operations of $4.22 per share versus $3.96 in the prior year. Canadian Tire Financial Services Receivables The objective of the 628 450 405 373 389 700 Corporation’s credit charge receivables securitization program is to provide Financial Services, and the Corporation, with a cost-effective, alternative source 560 of funding. The securitization of credit charge receivables is an integral part of the program for funding growth. In 1999, gross credit charge receivables grew to $1,130 million, up from 420 $977 million in 1998. Financial Services owned $389 million of net credit charge receivables at the end of 1999 and $373 million at the end of 1998. The balance of 280 these credit charge receivables is securitized through the sale of co-ownership interests of the credit charge receivables to Canadian Tire Receivables Trust® (the 140 “Trust”). During 2000, the Corporation expects its credit charge receivables to grow by approximately $166 million. The majority of this growth will be funded from the sale of additional receivables. 0 95 96 97 98 99 Details of the outstanding asset-backed Notes issued by the Trust are listed * 1999 Net Credit Charge Receivables exclude in the table below. As the Trust is not controlled by the Corporation, its financial $741 million of securitized receivables (1998 – $604 million, 1997 – $573 million, statements have not been consolidated with those of Canadian Tire. 1996 – $470 million, 1995 – $300 million)

Canadian Tire Receivables Trust Asset-Backed Notes Outstanding

(Dollars in millions) 1999 1998

Series 1997-1 Commercial Paper Notes1 $ 228 $ 134 7.48% Series 1995-1 Senior Notes2 198 198 7.83% Series 1995-2 Senior Notes2 99 99 7.10% Series 1996-1 Senior Notes2 – 160 6.26% Series 1999-1 Senior Notes2 200 – 7.94% Series 1995-1 Subordinated Notes3 2 2 8.46% Series 1995-2 Subordinated Notes3 1 1 7.71% Series 1996-1 Subordinated Notes3 – 2 Floating Rate Series 1999-1 Subordinated Notes3, 4 4 –

Total $ 732 $ 596

1 The notes will mature on a business day 364 days or less from the date of issuance. 2 On December 1, 2000, December 1, 2002 and January 5, 2004, respectively, for the Series 1995-1, Series 1995-2, and Series 1999-1 Notes, the process for repayment of principal will commence, subject to earlier prepayment in certain events, from allocations to the Trust in the previous month. The final payment dates of June 1, 2001, June 1, 2003 and August 5, 2004, respectively, are estimated based upon certain assumptions regarding the performance of the credit charge receivables pool and other factors. 3 Repayment of the principal amount of the Subordinated Notes will not begin until all principal and interest owing under the related series of Senior Notes have been fully repaid. 4 Interest on the Series 1999-1 Subordinated Notes is payable at Bankers’ Acceptance rates plus 1.25%.

The success of these programs is due primarily to the Trust’s ability to obtain funds by issuing debt instruments of the highest credit rating. The Trust’s asset-backed Commercial Paper program has a rating of “A-1+” from CBRS and “R-1(high)” from DBRS. The Senior Notes received a rating of “A++” from CBRS and “AAA” from DBRS. In all cases, these are the rating services’ highest categories. The Subordinated Notes have a rating of “A+” from CBRS and “AA(low)” from DBRS.

32 canadian tire Capital Assets Capital assets are another source of liquidity for Canadian Tire. Substantially all of the corporately-owned land and buildings are unencumbered.

FINANCIAL RATIOS Canadian Tire continues to have a strong balance sheet and strong financial ratios. These allow the Corporation relatively easy access to funding from financial markets. It is the Corporation’s long-standing policy that the ratio of long-term debt to total capitalization not exceed 50 percent. Long-term debt as a percentage of total capital increased to 43.8 percent from 35.6 percent in 1998, primarily reflect- ing increased use of long-term debt to fund the construction of new-format stores. The current ratio at year end was 1.3:1 compared to 1.4:1 at January 2, 1999. Interest coverage in 1999 on a cash-flow basis, after adjusting earnings from operations for depreciation and amortization, was 4.7 times compared to 5.5 times in 1998.

FUNDING COSTS The following table summarizes the Corporation’s total funding costs (excluding those of the Trust), including the impact of Canadian Tire’s risk management program, which is discussed below.

(Dollars in thousands) 1999 1998

Interest Expense1 Long-term interest expense $ 84,542 $ 59,544 Short-term interest expense 12,039 14,913

$ 96,581 $ 74,457

Effective blended cost of debt 6.9% 7.7%

1 Interest expense is increased or decreased by the interest-rate differentials paid on interest rate swap contracts.

The effective average blended cost of debt decreased between 1999 and 1998 as long-term debt issuances during 1999 were at more favourable interest rates.

RISK MANAGEMENT Canadian Tire is exposed to a number of risks in the normal course of its business that have the potential to affect the operating performance of the Corporation. These risks, and the actions taken to minimize them, are discussed below. Retail Competitive Risk While Canadian Tire competes against national and regional retailers in all major markets across Canada, there is no one organization or type of business that competes directly with all product lines available at Associate Stores. However, several of these retailers, such as department stores, mass merchandisers, home-improvement warehouse operators and specialty marketers are currently in one or more of the business segments in which Associate Stores compete. CTR actively monitors competitive developments in its markets, particularly its performance relative to competitors. This analysis enables it to determine the degree of competitiveness within a market or business segment and take the necessary steps to both protect and build market share. Canadian Tire also has numerous core strengths that reduce its competitive risk. Foremost is the network of Associate Dealers whose investment and commitment to their Associate Stores provide a significant competitive advantage and reduction in risk. In addition, a primary strength is the convenience of location of their Associate Stores. Management estimates that, with 432 Associate Stores

1999 annual report 33 across Canada, approximately 90 percent of the Canadian population is within a 15-minute drive of at least one Associate Store. Canadian Tire is enhancing this advantage with the ongoing roll-out and refinement of new-format stores. These stores are proving to be very effective at competing with different types of retailers and formats in the same market. Since 1994, the Corporation has committed a total of approximately $975 million to this very successful program. Internal and independent consumer surveys indicate that customers have very high awareness of, and loyalty to, Canadian Tire. In the most recent survey, 58 percent of those interviewed had shopped at an Associate Store within the last 30 days. In addition, Associate Stores hold strong market-share positions in many of the product categories in which they do business. This is particularly evident in automotive and hardware lines and in selected seasonal and sporting goods categories. These core strengths are reinforced by continuous strategic and operational reviews of core product categories providing a comprehensive and up-to-date awareness of CTR’s market position, opportunities and threats. This commitment results in ongoing innovations at Canadian Tire, such as new-format stores, Next Generation merchandising and PartSource, all of which will contribute long-term growth in revenues, market share and profitability. Specific initiatives designed to enhance CTR’s competitive position, and thus reduce the Corporation’s retail competitive risk, are described in the CTR section earlier in this Discussion. Environmental Risk Canadian Tire’s environmental policy affirms management’s belief that environmental protection is an essential part of Canadian Tire’s corporate mission. Environmental programs are intended to be in the fore- front of the retail industry in protecting the environment. In addition, the Corporation’s forward-looking procedures for the identification and mitigation of environmental risk, as well as the Corporation’s record of accomplishment in this area, have enabled it to purchase environmental insurance coverage at very favourable premiums. During 1999, the Corporation continued to ensure that management systems were in place to address environmental issues, policies and procedures. Quarterly and annual reports on environmental and health and safety issues, policies and procedures are submitted to the Canadian Tire Board of Directors and its Audit and Social Responsibility Committees. Canadian Tire carries out regular assessments of facilities and procedures to ensure that its operations meet regulatory and corporate requirements. In addition, the Corporation has initiated many proactive programs that set new standards of environmental management. These programs are discussed in more detail under “Environmental, Health and Safety Stewardship” on page 56. Concentration Risk Canadian Tire, by the national nature of its operations, is relatively well diversified across Canada’s regional economies. Management believes this makes the Corporation’s financial condition relatively insensitive to adverse economic conditions in a specific region of the country. With regard to credit privileges extended to Canadian Tire customers by Financial Services, the card base comprises more than four million holders across Canada. Approximately half reside in Ontario and Quebec, with the balance distributed across Canada. Financial Services’ Private Label customers are similarly dispersed across Canada. In addition, concentration risk is limited with regard to receivables due from Associate Dealers, whose businesses are geographically dispersed. The largest trade receivable balance owed during 1999 to the Corporation by any one Associate Dealer is less than three percent of total Associate Dealer receivables.

34 canadian tire Commodity Price Risk The operating performance of Petroleum is very sensitive to the pricing actions of major competitors in the retail gasoline market. During the past three years, Petroleum has been reducing its operating costs to become more competitive with the “best-in-class” gasoline retailers. This gives the division greater resilience during periods of extreme competition. In addition, Petroleum has a very competitive contract with a major supplier for the acquisition of gasoline that helps offset the potential impact of foreign exchange and commodity price fluctuations.

CAPITAL MANAGEMENT RISK It is important to note that, in implementing financial strategies to reduce risk, Canadian Tire’s Treasury department does not operate as a profit centre. Controls are in place to detect and prevent speculative activity. Financial Products Risk It is the Corporation’s policy to identify and manage currency, interest-rate and commodity-price risk proactively and conservatively. There are typically two parties to a financial transaction. The successful com- pletion of the transaction, and thus the mitigation of risk, depends on the ability of both parties to meet their financial commitments under the contract. In the case of Canadian Tire, counterparty credit risk is considered to be negligible as the Corporation restricts the counterparties that it deals with to highly-rated financial institutions. A minimum rating of “A+” by CBRS and “AA” by DBRS is required. Foreign-Exchange Risk The Corporation’s guideline is to hedge a minimum of 75 percent of purchases of foreign-denominated goods and services that are expected to be completed within a four- to six-month period. Interest Rate Risk This risk reflects the sensitivity of Canadian Tire’s financial condition to movements in interest rates. The Corporation’s exposure is limited to the impact of interest rate fluctuations on cash and short-term investments and commercial paper. The Corporation’s net balance sheet interest rate sensitivity in 1999 and 1998 was offset by interest rate swap contracts, as discussed in Note 12 to the Consolidated Financial Statements. As a result, Canadian Tire’s exposure to interest rate fluctuations is limited. A one percent change in interest rates would not materially affect the Corporation’s earnings, cash flow or financial position; this is discussed in Note 12 to the Consolidated Financial Statements. As described in Note 12 to the Consolidated Financial Statements, consolidated interest rate sensitivity was minimized at the end of 1999 and 1998 as all of the Corporation’s long-term debt has been issued at fixed rates and is thus not sensitive to interest rate movements. Further details are provided in the “Funding Costs” section on page 33. Although interest rate sensitivity is primarily managed on a consolidated basis, the Corporation also reviews interest rate sensitivity by business unit. Most of Financial Services’ revenue is not interest rate sensitive as it is generated from Canadian Tire’s retail cards and the Options MasterCard, which each carry a fixed interest rate. Financial Services’ funding requirements were met during 1999 and 1998 primarily through the sale of credit charge receivables using the securitization program described on page 32. The balance of Financial Services’ funding requirements in 1999 and 1998, however, was met with the issuance of floating- rate debt, which makes Financial Services’ results somewhat sensitive to changes in interest rates. This impact has been mitigated at a consolidated level to reduce the amount of the interest rate exposure. Canadian Tire monitors market conditions and the impact of interest rate fluctuations on the Corporation’s fixed/floating rate exposure on an ongoing basis.

1999 annual report 35 MANAGEMENT’ S RESPONSIBILITY FOR FINANCIAL STATEMENTS

The management of Canadian Tire Corporation, Limited is responsible for the integrity of the accompanying Consolidated Financial Statements and all other information in the annual report. The financial statements have been prepared by management in accordance with generally accepted accounting principles, which recognize the necessity of relying on some best estimates and informed judgements. All financial information in the annual report is consistent with the Consolidated Financial Statements. To discharge its responsibilities for financial reporting and safeguarding of assets, management depends on the Corporation’s systems of internal accounting control. These systems are designed to provide reasonable assurance that the financial records are reliable and form a proper basis for the timely and accurate preparation of financial statements. Management meets the objectives of internal accounting control on a cost-effective basis through: the prudent selection and training of personnel, adoption and communication of appropriate policies, and employment of an internal audit program. The Board of Directors oversees management’s responsibilities for financial statements primarily through the activities of its Audit Committee, which is composed solely of Directors who are neither officers nor employees of the Corporation. This Committee meets with management and the Corporation’s independent auditors, Deloitte & Touche LLP, to review the financial statements and recommend approval by the Board of Directors. The Audit Committee is also responsible for making recommendations with respect to the appointment and remuneration of the Corporation’s auditors. The Audit Committee also meets with the auditors, without the presence of management, to discuss the results of their audit, their opinion on internal accounting controls, and the quality of financial reporting. The financial statements have been audited by Deloitte & Touche LLP, whose appointment was ratified by shareholder vote at the annual shareholders’ meeting. Their report is presented below.

Stephen E. Bachand Gerald S. Kishner President and Executive Vice-President, Finance and Administration Chief Executive Officer and Chief Financial Officer March 2, 2000

AUDITORS’ REPORT

To the Shareholders, Canadian Tire Corporation, Limited

We have audited the Consolidated Balance Sheets of Canadian Tire Corporation, Limited as at January 1, 2000 and January 2, 1999 and the Consolidated Statements of Earnings, Retained Earnings and Cash Flows for the years then ended. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in Canada. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these Consolidated Financial Statements present fairly, in all material respects, the financial position of the Corporation as at January 1, 2000 and January 2, 1999 and the results of its operations and its cash flows for the years then ended in accordance with generally accepted accounting principles in Canada.

Chartered Accountants Toronto, Ontario March 2, 2000

36 canadian tire CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS

For the years ended January 1, 2000 January 2, 1999 (Dollars in thousands except per share amounts)

Gross operating revenue $ 4,728,259 $ 4,347,283 Operating expenses Cost of merchandise sold and all expenses except for the undernoted items 4,254,798 3,914,678 Interest Long-term debt 84,542 59,544 Short-term debt 12,039 14,913 Depreciation and amortization 128,342 86,720 Employee profit sharing plans (Note 7) 21,439 21,716

Total operating expenses 4,501,160 4,097,571

Earnings before income taxes 227,099 249,712

Income taxes (Note 8) Current 89,314 76,752 Deferred (8,144) 5,980

Total income taxes 81,170 82,732

Net earnings $ 145,929 $ 166,980

Net earnings per share $ 1.89 $ 2.09

Weighted average number of Common and Class A Non-Voting Shares outstanding 77,211,467 79,792,682

Retained earnings as restated, beginning of year (Note 6) $ 734,042 $ 776,382 Net earnings 145,929 166,980 Dividends (30,845) (31,299) Repurchase of Class A Non-Voting Shares (Note 6) (75,604) (178,021)

Retained earnings as restated, end of year (Note 6) $ 773,522 $ 734,042

1999 annual report 37 CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended January 1, 2000 January 2, 1999 (Dollars in thousands)

Cash generated from (used for):

Operating activities Net earnings $ 145,929 $ 166,980 Items not affecting cash Depreciation and amortization of property and equipment 106,257 79,910 Net provision for credit charge receivables 53,946 56,332 Amortization of other assets 22,085 6,810 Loss on disposals of property and equipment 6,068 158 Deferred income taxes (8,144) 5,980

Cash generated from operations 326,141 316,170 Changes in other working capital components (Note 9) (2,674) 53,278

Cash generated from operating activities 323,467 369,448

Investing activities Additions to property and equipment (377,349) (303,058) Investment in credit charge receivables (206,954) (56,006) Long-term receivables and other assets (90,927) (14,547) Proceeds on disposition of property and equipment 19,457 7,882

(655,773) (365,729)

Financing activities Issuance of long-term debt 435,634 435,550 Securitization of credit charge receivables 136,268 31,858 Commercial paper 52,257 (181,137) Dividends (30,845) (31,299) Class A Non-Voting Share transactions (Note 6) (29,429) (173,721) Repayment of long-term debt (951) (40,000)

562,934 41,251

Cash generated in the year 230,628 44,970 Cash position, beginning of year 308,392 263,422

Cash position, end of year (Note 9) $ 539,020 $ 308,392

38 canadian tire CONSOLIDATED BALANCE SHEETS

As at January 1, 2000 January 2, 1999 (Dollars in thousands)

ASSETS Current assets Cash and short-term investments $ 539,020 $ 308,392 Accounts receivable 478,991 403,083 Credit charge receivables (Note 2) 389,251 372,511 Merchandise inventories 473,052 411,696 Prepaid expenses and deposits 16,952 10,589

Total current assets 1,897,266 1,506,271

Long-term receivables and other assets (Note 3) 109,930 41,088 Property and equipment (Note 4) 1,864,088 1,618,521

Total assets $ 3,871,284 $ 3,165,880

LIABILITIES Current liabilities Commercial paper $ 234,025 $ 181,768 Accounts payable and other 925,821 801,182 Income taxes payable 89,480 70,713 Current portion of long-term debt (Note 5) 200,292 951

Total current liabilities 1,449,618 1,054,614

Long-term debt (Note 5) 1,050,342 815,000 Deferred income taxes 26,570 34,714

Total liabilities 2,526,530 1,904,328

SHAREHOLDERS’ EQUITY Share capital as restated (Note 6) 568,901 522,726 Accumulated foreign currency translation adjustment 2,331 4,784 Retained earnings as restated (Note 6) 773,522 734,042

Total shareholders’ equity 1,344,754 1,261,552

Total liabilities and shareholders’ equity $ 3,871,284 $ 3,165,880

Gilbert S. Bennett Maureen J. Sabia Director Director

1999 annual report 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation The Consolidated Financial Statements include the accounts of Canadian Tire Corporation, Limited and its subsidiaries.

Fiscal year The fiscal year of the Corporation consists of a fifty-two or fifty-three week period ending on the Saturday closest to December 31. The results of certain subsidiaries which have different year-ends from the Corporation have been included in the financial statements for the twelve months ended December 31.

Revenue recognition The Corporation’s shipments of merchandise to Associate Dealers (retail store owner-operators) are recorded as revenue when delivered. Revenue on the sale of petroleum products is recorded upon sale to the consumer. Merchant fees on credit charge receivables are taken into revenue at the time new receivables are recorded. Service charges are accrued each month on balances outstanding at each account’s billing date.

Cash and short-term investments For purposes of the Consolidated Financial Statements, cash is defined as cash and short-term investments less bank indebtedness. Short-term investments held include Canadian and United States government securities and notes of other creditworthy parties due within three months.

Merchandise inventories Merchandise inventories are valued at the lower of cost and estimated net realiz- able value, with cost being determined on a first-in, first-out basis.

Property and equipment Property and equipment are stated at cost. The cost of real estate includes all direct costs, financing costs on specific and general corporate debt relating to major projects, and certain pre-development costs. Depreciation is provided for using the declining balance method commencing in the month that the equipment or facilities are placed into service. Amortization of leasehold improvements is provided for on a straight-line basis over the terms of the respective leases. Purchased computer software, including direct implementation costs, is amortized on a straight-line basis over a period of up to five years. If property and equipment is subject to permanent impairment, additional depreciation or a writedown is provided.

Debt discount and other issue expenses Debt discount and other issue expenses are included as other assets on the Consolidated Balance Sheets and are amortized over the term of the respective debt issues.

40 canadian tire 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Deferred expenses The Corporation capitalizes both direct and indirect costs with respect to ventures which are in the development stage. Capitalization of costs continues until for- mal operations have commenced, at which time the deferred costs are amortized over a three-year period. Should a venture be abandoned during the development stage, all capitalized costs will be immediately expensed. Canadian Tire Financial Services defers costs pertaining to the acquisition of most new businesses. These acquisition costs are amortized over the terms of the related contracts. All of the above costs are included as other assets on the Consolidated Balance Sheets.

Translation of foreign currencies The components of the Consolidated Statements of Earnings related to foreign subsidiaries are translated to Canadian dollars using average currency exchange rates in effect during the period and assets and liabilities are translated at the exchange rates in effect at the end of the accounting period. Gains and losses on translation are included in net earnings, except for the exchange gains or losses related to investments in self-sustaining foreign operations. Translation adjustments on self-sustaining foreign operations are included in a separate component of shareholders’ equity.

Stock-based compensation plans The Corporation has four stock-based compensation plans, which are described in Note 7. No compensation expense is recognized when stock options are issued to employees. Any consideration paid by employees on exercise of stock options or purchase of shares is credited to share capital. Compensation expense is recognized for the Corporation’s contributions to the Employee Profit Sharing Plans, the Employee Stock Purchase Plan and the Deferred Share Unit Plan.

Post-employment benefits other than pensions The Corporation provides certain health care, life insurance and other benefits, but not pensions, for certain retired employees pursuant to Corporate policy. The Corporation estimates the liability for the benefits to be provided at the time an employee retires and accrues the future estimated liability.

Financial instruments Interest rate swap contracts are used to hedge current and anticipated interest rate risks. Interest to be paid or received under such swap contracts is recognized over the life of the contracts as adjustments to interest expense. Unrealized gains or losses resulting from market movements are not recognized. Foreign currency risks related to certain purchased goods and services are hedged. Any costs associated with these purchases are included in the Canadian dollar cost of these products.

Use of estimates The preparation of the Consolidated Financial Statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclo- sure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amount of revenue and expenses during the reporting period. Actual results could differ from these estimates.

1999 annual report 41 2. CREDIT CHARGE RECEIVABLES

The Corporation sells undivided co-ownership interests in a pool of credit charge receivables to an independent trust (the “Trust”). No gain or loss has been recorded on these sales by the Corporation. As at January 1, 2000, the Trust’s undivided co-ownership interest in the pool of credit charge receivables was $741 million (1998 – $604 million). Any income generated on the sold co-ownership interest in excess of the Trust’s stipulated share of service charges is retained by the Corporation. The Trust’s recourse to the Corporation is limited and is based on income earned on the receivables. As the Trust is not controlled by the Corporation, it has not been consolidated in these financial statements.

3. LONG-TERM RECEIVABLES AND OTHER ASSETS

(Dollars in thousands) 1999 1998

Long-term portfolio investment, at cost $ 75,000 $– Other assets 16,455 23,350 Long-term debt issue costs 7,869 6,336 Loans receivable 5,605 5,868 Mortgages receivable 5,001 5,534

$109,930 $ 41,088

Long-term portfolio investment Long-term portfolio investment is an investment in preferred shares of a creditworthy third party.

Loans receivable Loans receivable include interest-free loans that have been provided to certain senior executives. These loans have various maturity dates extending to 2009.

4. PROPERTY AND EQUIPMENT

1999 1998 Accumulated Accumulated Depreciation Depreciation Depreciation and Net Book and Net Book Amortization (Dollars in thousands) Cost Amortization Value Cost Amortization Value Rate/Term

Land $ 472,108 $ – $ 472,108 $ 410,347 $ – $ 410,347 Buildings 1,484,560 451,565 1,032,995 1,325,445 412,758912,6874% – 10% Fixtures and equipment 322,642 219,012 103,630 328,899 213,277 115,622 10% – 33% Leasehold improvements 122,418 35,047 87,371 61,157 30,897 30,260 Term of lease Computer software 119,327 41,200 78,127 64,679 24,747 39,932 Up to 5 years Work in progress 89,857 – 89,857 109,673 – 109,673

$ 2,610,912 $ 746,824 $1,864,088 $2,300,200 $ 681,679 $ 1,618,521

Included in property and equipment is property held for disposal with a cost of $145,690,000 (1998 – $102,279,000) and accumulated depreciation of $53,917,000 (1998 – $36,746,000). The Corporation capitalized interest of $4,474,000 (1998 – $2,200,000) for property and equipment under construction. The interest capitalized related to the Corporation’s new-format store program.

42 canadian tire 5. LONG-TERM DEBT

(Dollars in thousands) 1999 1998

Obligation under mortgage payable $ 342 $– Unsecured debt Medium Term Notes at rates from 5.25% to 8.20% maturing at various dates to 2028 900,000 515,000 12.10% Debentures, maturing May 10, 2010 (2010 Debentures) 150,000 150,000 10.40% Series 1 Debentures, maturing January 14, 2000 (Series 1 Debentures) – 150,000

Total – net of current portion $1,050,342 $ 815,000

Medium Term Notes Certain of the Medium Term Notes are redeemable by the Corporation, in whole or in part, at any time, at the greater of par and a formula price based upon interest rates at the time of redemption.

2010 Debentures The 2010 Debentures are redeemable by the Corporation, in whole or in part, at any time, at the greater of par and a formula price based upon interest rates at the time of redemption. Commencing with the quarter ended October 1, 1994 and for each subsequent quarter, the Corporation may (subject to availability and pricing) be required to purchase up to 1.15 percent of the 2010 Debentures outstanding at the beginning of such quarter. To date, no such purchases have been made.

Series 1 Debentures The Series 1 Debentures were redeemable by the Corporation, in whole or in part, at any time, at the greater of par and a formula price based upon interest rates at the time of redemption. These Debentures matured on January 14, 2000.

Debt Covenants The Corporation has provided covenants to certain of its lenders. All of the covenants were complied with during 1999 and 1998.

Repayment Requirements

(Dollars in thousands) 2000 2001 2002 2003 2004 Thereafter Total

Mortgage payable $ 292 $ 315 $ 27 $ – $ – $ – $ 634 Medium Term Notes 50,000 – 30,000 135,000 235,000 500,000 950,000 2010 Debentures –––––150,000150,000 Series 1 Debentures 150,000–––––150,000

$ 200,292 $ 315 $ 30,027 $ 135,000 $ 235,000 $ 650,000 $ 1,250,634

1999 annual report 43 6. SHARE CAPITAL

(Dollars in thousands) 1999 1998

Authorized 3,423,366 Common Shares (1998 – 3,423,366) 100,000,000 Class A Non-Voting Shares Issued 3,423,366 Common Shares (1998 – 3,423,366) $ 177 $ 177 74,716,081 Class A Non-Voting Shares (1998 – 74,469,278) 568,724 522,549

$568,901 $ 522,726

During 1999 and 1998, the Corporation reissued and repurchased Class A Non- Voting Shares. The Corporation changed its accounting policy whereby repurchases are charged to share capital at the average cost per share outstanding and the excess is charged to retained earnings. Reissuances are recorded at the fair value of shares issued. In prior years, for accounting purposes, shares repurchased were considered to be held in treasury at cost and available for reissue. The net excess of the reissue price over the average cost per share held in treasury was added to retained earnings. As a result, opening share capital for 1999 was increased by $204.2 million (1998 – $199.9 million), opening retained earnings for 1999 was decreased by $584.2 million (1998 – $400.5 million), and treasury shares of $380.0 million in 1999 (1998 – $200.6 million) are no longer reported as a separate line item. The effect of the above noted change in accounting policy on total shareholders’ equity is nil. The following transactions occurred with respect to Class A Non-Voting Shares during 1999 and 1998:

1999 1998 (Dollars in thousands) Number $ Number $

Shares outstanding at the beginning of the year 74,469,278 522,549 78,791,271 518,249 Issued 2,546,803 62,475 1,578,007 44,280 Repurchased (2,300,000) (91,904) (5,900,000) (218,001) Excess of repurchase price over average cost – 75,604 – 178,021

Shares outstanding at the end of the year 74,716,081 568,724 74,469,278522,549

From January 2, 2000 to March 2, 2000, the Corporation issued 121,734 Class A Non-Voting Shares for total proceeds of $3,152,000.

Conditions of Class A Non-Voting Shares and Common Shares The holders of Class A Non-Voting Shares are entitled to receive a preferential cumulative dividend at the rate of 1¢ per share per annum. After payment of a dividend on each of the Common Shares at the same rate, the holders of the Class A Non-Voting Shares and the Common Shares are entitled to further dividends declared and paid in each year in equal amounts per share. In the event of liqui- dation, dissolution or winding-up of the Corporation, the Class A Non-Voting Shares and Common Shares rank equally with each other on a share-for-share basis.

44 canadian tire 6. SHARE CAPITAL (CONTINUED)

The holders of Class A Non-Voting Shares are entitled to receive notice of and to attend all meetings of the shareholders but, except as provided by the Business Corporations Act (Ontario) and as hereinafter noted, are not entitled to vote there- at. Holders of Class A Non-Voting Shares, voting separately as a class, are entitled to elect the greater of: i. three Directors or ii. one-fifth of the total number of the Corporation’s Directors. Common Shares can be converted, at any time, into Class A Non-Voting Shares on a share-for-share basis. The authorized number of Common Shares cannot be increased without the approval of the holders of Class A Non-Voting Shares. Neither the Class A Non-Voting Shares nor the Common Shares can be changed by way of subdivision, consolidation, reclassification, exchange or otherwise unless at the same time the other class of shares is also changed in the same manner and in the same proportion. Should an offer to purchase Common Shares be made to all or substantially all of the holders of Common Shares (other than an offer to purchase both Class A Non-Voting Shares and Common Shares at the same price and on the same terms and conditions) and should a majority of the Common Shares then issued and outstanding be tendered and taken up pursuant to such offer, the Class A Non-Voting Shares shall thereupon be entitled to one vote per share at all meetings of the shareholders. The foregoing is a summary of certain of the conditions attached to the Class A Non-Voting Shares of the Corporation and reference should be made to the Corporation’s articles for a full statement of such conditions. As at January 1, 2000, the Corporation had dividends payable to Class A Non-Voting and Common shareholders of $7.8 million (1998 – $7.8 million).

7. STOCK-BASED COMPENSATION PLANS

The Corporation has four stock-based compensation plans, which are described below.

Employee Profit Sharing Plans The Corporation offers its employees a Deferred Profit Sharing Plan (DPSP) and an Employee Profit Sharing Plan (EPSP). The amount of the award is contingent on the Corporation’s profitability. The amount available is based on 6.75 percent of pre-tax profits, after certain adjustments, and is contributed to a Trustee-managed investment portfolio. The DPSP and the EPSP are required to invest and maintain 10 percent of its holdings in the Corporation’s Class A Non-Voting Shares. In 1999, the Corporation contributed $21.4 million (1998 – $21.7 million) under the terms of the DPSP and the EPSP, towards the Trustee-managed investment portfolio. As at January 1, 2000, the DPSP and the EPSP held 419,280 Common Shares (1998 – 419,280) and 3,213,660 Class A Non-Voting Shares (1998 – 3,133,618) of the Corporation.

Employee Stock Purchase Plan The Corporation offers an Employee Stock Purchase Plan (ESPP) to its employees, whereby employees can choose to have up to 10 percent of their annual base earnings withheld to purchase Class A Non-Voting Shares of the Corporation. The purchase price of the shares is calculated monthly and is equal to the weighted average share price at which Class A Non-Voting Shares of the Corporation trade on the Toronto Stock Exchange for a given month. The Corporation may elect to match up to 50 percent of employee contributions to the ESPP.

1999 annual report 45 7. STOCK-BASED COMPENSATION PLANS (CONTINUED)

The Corporation contributed $7.4 million in 1999 (1998 – $6.8 million), under the terms of the ESPP, towards the purchase of Class A Non-Voting Shares. These shares were purchased on the Toronto Stock Exchange. Under the Plan, the Corporation issued 404,201 Class A Non-Voting Shares in 1999 (1998 – 400,593) to employees.

Deferred Share Unit Plan The Corporation offers a Deferred Share Unit Plan (DSUP) for members of the Board of Directors. Under the DSUP each director may elect to receive all or a percentage of his or her annual compensation in the form of notional Class A Non-Voting Shares of the Corporation called deferred share units (DSUs). The issue price of each DSU is equal to the weighted average share price at which Class A Non-Voting Shares of the Corporation trade on the Toronto Stock Exchange during the 10-day period prior to the last day of the quarter in which the DSU is issued. A director must elect to participate or change his or her participation in the DSUP prior to the beginning of a fiscal quarter. The DSU account of each director includes the value of dividends, if any, as if reinvested in additional DSUs. The director is not permitted to convert DSUs into cash until retirement from the Board. The value of the DSUs, when converted to cash, will be equivalent to the market value of the Class A Non-Voting Shares at the time the conversion takes place. The value of the outstanding DSUs as at January 1, 2000, was $90,594.

Stock options The Corporation has granted options to certain employees for the purchase of Class A Non-Voting Shares, with vesting occurring on a graduated basis over a four-year period. The exercise price of each option equals the weighted average closing price of Class A Non-Voting Shares on the Toronto Stock Exchange for the 10-day period preceding the date of grant. Options may be exercisable over a term of 10 years. The Corporation is authorized to grant options to its employees up to 8.4 million shares of Class A Non-Voting Shares. These options were granted at prices between $11.06 and $40.82, and expire between February 2000 and December 2009. Stock option transactions during 1999 and 1998 were as follows:

1999 1998 Weighted Weighted Number of Average Number Average Shares Exercise Price of Shares Exercise Price

Outstanding at beginning of year 3,037,999 $ 19.22 3,232,525 $ 16.59 Granted 703,750 39.49 507,126 31.96 Exercised (1,554,922) 15.08 (579,337) 16.23 Forfeited and expired (117,950) 28.65 (122,315) 16.55

Outstanding at end of year 2,068,877 $ 28.70 3,037,999 $ 19.22

46 canadian tire 7. STOCK-BASED COMPENSATION PLANS (CONTINUED)

The following table summarizes information about stock options outstanding at January 1, 2000:

Options Outstanding Options Exercisable Weighted Weighted Weighted Number of Average Average Number Average Outstanding Remaining Exercise Exercisable Exercise Range of Exercise Prices Shares Contractual Life Price at 1/1/2000 Price

$ 37.72 to 40.82 583,750 9.13 $ 40.45 5,750 $ 38.57 31.61 to 36.61 511,540 8.51 32.29 74,051 31.69 21.41 to 28.92 429,482 7.44 26.14 166,789 25.97 11.06 to 18.41 544,105 5.65 14.72 395,475 14.38

$ 11.06 to 40.82 2,068,877 7.71 $ 28.70 642,065 $ 19.61

Since 1988 the Corporation has followed a no dilution policy.

8. INCOME TAXES

(Dollars in thousands) 1999 1998

Income taxes based on a combined Canadian federal and provincial income tax rate of 43.6% (1998 – 43.7%) $ 98,993 $ 109,124 Adjustment to income taxes resulting from: Large corporations tax 6,372 4,670 Lower income tax rate on earnings of foreign subsidiaries (23,017) (31,632) Other (1,178) 570

$ 81,170 $ 82,732

9. NOTES TO THE CASH FLOW STATEMENT

Working Capital Components

(Dollars in thousands) 1999 1998

Cash generated from (used for):

Accounts receivable $ (75,908) $ (55,876) Merchandise inventories (61,356) (2,638) Prepaid expenses and deposits (6,363) 3,305 Accounts payable and other 124,639 99,734 Income taxes payable 18,767 7,736 Other (2,453) 1,017

Change in other working capital components $ (2,674) $ 53,278

1999 annual report 47 9. NOTES TO THE CASH FLOW STATEMENT (CONTINUED)

Cash and short-term investments Cash and short-term investments consist of cash on hand and balances with banks, and investments in money market instruments. Cash and short-term investments included in the cash flow statement comprise the following balance sheet amounts:

(Dollars in thousands) 1999 1998

Cash $ (32,549) $ (20,864) Short-term investments 571,569 329,256

Cash and short-term investments $ 539,020 $ 308,392

Supplementary information The Corporation paid during fiscal 1999 income taxes amounting to $83 million (1998 – $57 million) and interest payments of $90 million (1998 – $74 million).

10. OPERATING LEASES

The Corporation is committed to minimum annual rentals (exclusive of taxes, insurance, and other occupancy charges) for equipment and properties under leases with termination dates extending to 2039. Under sublease arrangements with Associate Dealers, the majority of these properties are income-producing. The minimum annual rental payments required in each of the next five years and thereafter are approximately $64 million for each of the years 2000 to 2004 and approximately $347 million cumulatively from 2005 to 2039.

11. COMMITMENTS AND CONTINGENCIES

As at January 1, 2000, the Corporation had commitments of approximately $61 million for the acquisition of property and equipment and the expansion of retail store facilities, as well as a minimum of $25 million for the acquisition of processing services. The Corporation has committed to letters of credit and guarantees of letters of credit aggregating approximately $139 million. These commitments relate to the financing of its merchandise operations and construction projects. The Corporation and certain of its subsidiaries are party to a number of legal proceedings. The Corporation believes that each such proceeding constitutes rou- tine litigation incident to the business conducted by the Corporation and that the ultimate disposition of the matters will not have a material adverse effect on its consolidated earnings, cash flow or financial position. A significant challenge to all businesses was the need to address the impact of the century date change on information systems. Many information systems have been designed to identify years only by the last two digits rather than four, a situation that could cause business disruptions if not addressed. Although the change in date has occurred, it is not possible to conclude that all aspects of the Year 2000 issue that may affect the Corporation, including those related to customers, suppliers, or other third parties, have been fully resolved.

48 canadian tire 12. FINANCIAL INSTRUMENTS

The purpose of this note is to disclose the Corporation’s exposure related to financial instruments.

Off-balance sheet financial instruments The Corporation enters into interest rate swap contracts with approved creditworthy counterparties, to manage the Corporation’s current and anticipated exposure to interest rate risks. The Corporation also enters into foreign exchange contracts, primarily in U.S. dollars, to hedge purchases of foreign-denominated goods and services that are expected to be completed within a four- to six-month period. The Corporation does not hold or issue derivative financial instruments for trading or speculative purposes, and controls are in place to detect and prevent these activities. Neither the notional principal amounts nor the current replacement value of these outstanding financial instruments is carried on the Consolidated Balance Sheets. As at January 1, 2000, outstanding off-balance sheet financial instruments of the Corporation are summarized as follows:

Notional amounts maturing in Less than Over 1 to Over 5 to Over 10 1999 1998 (Dollars in thousands) 1 year 5 years 10 years years Total Total

Interest rate swap contracts $ 270,000 $ 450,000 $ 50,000 $ 100,000 $ 870,000 $ 876,000 Foreign exchange contracts1 $ 383,058 $ – $ – $ – $ 383,058 $ 448,819

1 May include both forward contracts and options.

For the year ended January 1, 2000, interest expense included approximately $3.1 million (1998 – $3.3 million) relating to interest rate swaps. Any unsettled interest differentials outstanding at year-end were accrued for and included in accounts payable and other. The estimated fair values of financial instruments as at January 1, 2000 and January 2, 1999 are based on relevant market prices and information available at that time. The fair value estimates below are not necessarily indicative of the amounts that the Corporation might receive or pay in actual market transactions. For financial instruments which are short-term in nature, carrying value approx- imates fair value. The fair values of other financial instruments are as follows:

1999 1998

(Dollars in thousands) Book Value Fair Value Book Value Fair Value

Financial assets and liabilities Loans and mortgages receivable $ 10,606 $ 10,706 $ 11,402 $ 11,766 Long-term debt $ (1,050,342) $ (1,050,962) $ (815,000) $ (902,753) Off-Balance sheet financial instruments Interest rate swap contracts $ – $ 5,884 $ – $ (11,809) Foreign exchange contracts $ – $ (38) $ – $ 469

The fair values of loans and mortgages receivable, long-term debt and interest rate swap contracts were estimated based on quoted market prices (when available) or discounted cash flows, using discount rates based on market interest rates and the Corporation’s credit rating. The foreign exchange contracts were valued based on the differential between contract rates and year-end spot rates. For the long- term portfolio investment (see Note 3), fair value information is not readily available. For both interest rate swap and foreign exchange contracts, the fair values reflect the estimated amounts that the Corporation would receive or pay if it was to unwind the contracts at the reporting date.

1999 annual report 49 12. FINANCIAL INSTRUMENTS (CONTINUED)

Interest rate risk The following table identifies the Corporation’s financial assets and liabilities which are sensitive to interest rate movements and those which are non-interest rate sensitive as they are either non-interest bearing or bear interest at fixed rates.

1999 1998 Interest Non-Interest Interest Non-Interest (Dollars in thousands) Sensitive Sensitive Sensitive Sensitive

Cash and short-term investments $ 539,020 $ – $ 308,392 $ – Credit charge receivables – 389,251 – 372,511 Loans and mortgages receivable – 10,606 – 11,402 Commercial paper (234,025) – (181,768) – Long-term debt (including current portion) – (1,250,634) – (815,951)

Net position $ 304,995 $ (850,777) $ 126,624 $ (432,038)

The Corporation enters into interest rate swap contracts to manage its exposure to interest rate risk. As at January 1, 2000, the Corporation had entered into contracts that fixed interest rates on a net notional amount of $120 million of floating rate debt (1998 – $214 million). These contracts hedged both the Corporation’s net balance sheet interest rate sensitivity position and the interest rate exposure related to anticipated net funding requirements as at both January 1, 2000 and January 2, 1999. As a result, a one percent change in interest rates would not materially affect the Corporation’s earnings, cash flow or financial position.

Credit risk The Corporation’s exposure to concentrations of credit risk is limited. Accounts receivable are primarily from Associate Dealers who individually comprise less than three percent of the total balance outstanding and are spread across Canada. Similarly, credit charge receivables are generated by credit card customers, a large and geographically dispersed group. Current credit exposure is limited to the loss that would be incurred if all of the Corporation’s counterparties were to default at the same time. It is the current replacement value of only those contracts which are in a gain position. The credit exposure due to interest rate swap and foreign exchange contracts as at January 1, 2000 was $16 million (1998 – $28 million). The Corporation believes that its exposure to credit and market risks for these instruments is negligible.

50 canadian tire 13. SEGMENTED INFORMATION

The Corporation’s reportable operating segments are strategic business units that offer different products and services. The Corporation has three reportable operating segments: Canadian Tire Retail (“CTR”), Canadian Tire Financial Services (“Financial Services”) and Canadian Tire Petroleum (“Petroleum”). CTR derives its revenue primarily from shipments of merchandise to the Associate Dealers. Financial Services is primarily engaged in financing and managing customer credit accounts that arise from customers’ use of their Canadian Tire credit cards and Options MasterCard. Petroleum revenue arises from the sale of petroleum products through its outlets. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1. The Corporation eval- uates performance based on earnings before income taxes. The only significant non-cash item included in segment earnings before income taxes is depreciation and amortization.

CTR Financial Services Petroleum Eliminations Total (Dollars in thousands) 1999 1998 1999 1998 1999 1998 1999 1998 1999 1998

Gross operating revenue1 $3,800,288 $ 3,511,695 $ 305,997 $ 305,391 $ 621,974 $ 530,197 $–$–$4,728,259 $ 4,347,283 Earnings before income taxes $ 155,912 $ 189,468 $ 55,989 $ 51,860 $ 15,198 $ 8,384 $–$–$ 227,099 $ 249,712 Income taxes (81,170) (82,732)

Net earnings $ 145,929 $ 166,980

Interest revenue2 $ 24,787 $ 19,803 $ 4,376 $ 5,442 $–$–$ (9,272) $ (11,022) $ 19,891 $ 14,223 Interest expense2 $ 94,202 $ 76,873 $ 11,651 $ 8,606 – $–$ (9,272) $ (11,022) $ 96,581 $ 74,457 Depreciation and amortization $ 108,306 $ 66,614 $ 14,010 $ 13,659 $ 6,026 $ 6,447 $–$–$ 128,342 $ 86,720 Total assets $3,617,003 $2,882,046 $ 518,767 $ 516,605 $ 303,312 $ 218,410 $ (567,798) $ (451,181) $3,871,284 $ 3,165,880 Capital expenditures $ 342,747 $ 270,909 $ 18,764 $ 20,964 $ 15,838 $ 11,185 $–$–$ 377,349 $ 303,058

1 Gross operating revenue includes dividend and interest income. 2Interest revenue and expense are not allocated to Petroleum for performance evaluation purposes.

14. COMPARATIVE FIGURES

Certain of the prior year’s figures have been reclassified to conform to the current year’s presentation.

1999 annual report 51 TEN-YEAR FINANCIAL REVIEW

(Dollars in thousands except per share amounts) 1999 1998 1997*

Consolidated Statements of Earnings Gross operating revenue $ 4,728,259 $ 4,347,283 $ 4,087,802 Operating earnings before depreciation and applicable financing charges 429,937 404,079 345,179 Earnings from continuing operations before income taxes 227,099 249,712 209,498 Income taxes 81,170 82,732 60,927 Net earnings from continuing operations 145,929 166,980 148,571 Discontinued operations – –– Net earnings 145,929 166,980 148,571 Cash generated from operations 326,141 316,170 308,686 Cash generated from operating activities 323,467 369,448 274,036 Earnings retained and reinvested 115,084 134,928 115,240 Capital expenditures 377,349 303,058 253,488

Consolidated Balance Sheets Current Assets $ 1,897,266 $ 1,506,271 $ 1,438,276 Long-term receivables and other assets 109,930 41,088 33,351 Property and equipment 1,864,088 1,618,521 1,403,413 Total assets 3,871,284 3,165,880 2,875,040 Current liabilities 1,449,618 1,054,614 1,167,330 Long-term debt (excludes current portion) 1,050,342 815,000 380,401 Deferred income taxes 26,570 34,714 28,734 Shareholders’ equity 1,344,754 1,261,552 1,298,575

Consolidated Per Share Net earnings from continuing operations $ 1.89 $ 2.09 $ 1.79 Net earnings 1.89 2.09 1.79 Cash generated from operations 4.22 3.96 3.71 Cash generated from operating activities 4.19 4.63 3.30 Dividends paid 0.40 0.40 0.40 Shareholders’ equity 17.21 16.20 15.79

Statistics at year-end Number of Associate Stores 432 430 430 Number of petroleum outlets 202 195 193 Number of registered Class A Non-Voting shareholders 6,568 7,354 6,999 Number of registered Common shareholders 463 494 519

*53-week period

52 canadian tire 1996 1995 1994 1993 1992* 1991 1990

$ 3,930,400 $ 3,795,641 $ 3,618,530 $ 3,432,024 $ 3,209,477 $ 3,009,566 $ 3,095,973

320,930 319,174 305,575 281,660 249,835 297,955 311,652 195,914 189,622 185,615 162,980 131,062 219,889 246,109 64,018 67,872 70,846 62,596 44,622 87,832 101,743 131,896 121,750 114,769 100,384 86,440 132,057 144,366 – – (109,277) (18,979) (14,147) (4,981) – 131,896 121,750 5,492 81,405 72,293 127,076 144,366 274,230 254,639 199,566 194,391 213,036 223,894 214,457 302,702 123,895 161,141 285,258 194,546 255,245 260,193 96,978 86,557 (29,946) 45,129 36,417 90,981 109,942 220,728 195,045 90,567 42,362 87,603 177,826 249,698

$ 1,339,790 $ 1,558,584 $ 1,655,445 $ 1,388,091 $ 1,308,082 $ 1,225,266 $ 1,148,711 34,131 30,035 28,669 21,862 28,102 24,169 14,484 1,230,135 1,085,887 984,749 990,326 1,009,046 970,680 821,723 2,604,056 2,674,506 2,668,863 2,400,279 2,345,230 2,220,115 1,984,918 863,636 911,009 1,044,418 691,610 698,755 653,298 522,881 420,401 509,241 465,027 474,555 449,331 428,447 421,123 20,632 14,914 7,312 25,782 41,404 24,180 13,657 1,299,387 1,239,342 1,152,106 1,208,332 1,155,740 1,114,190 1,027,257

$ 1.51 $ 1.38 $ 1.30 $ 1.11 $ 0.96 $ 1.46 $ 1.60 1.51 1.38 0.06 0.90 0.80 1.41 1.60 3.15 2.89 2.26 2.14 2.36 2.48 2.37 3.48 1.41 1.82 3.15 2.16 2.83 2.88 0.40 0.40 0.40 0.40 0.40 0.40 0.38 15.04 14.00 13.03 13.40 12.87 12.40 11.44

426 424 423 425 424 420 418 197 199 202 208 213 207 192 8,297 8,308 9,294 10,525 10,871 11,012 11,795 569 571 602 640 674 694 721

1999 annual report 53 DIRECTORS AND OFFICERS

DIRECTORS Austin E. Curtin 2, 3 Frank Potter2, 3 President, Chairman, Stephen E. Bachand Austin Curtin Sales Ltd., Emerging Market Advisors President and which operates Canadian Inc., a consulting firm Chief Executive Officer Tire Associate Stores dealing with foreign of the Corporation and Petroleum Outlets direct investment

Gilbert S. Bennett James D. Fisher 2, 3 Maureen J. Sabia1, 2 Chairman of the Board Associate Dean, President, Maureen of the Corporation, Executive Programs, Sabia International, Consultant and Adjunct Professor, a consulting firm Corporate Director Joseph L. Rotman School of Management Graham W. Savage2, 4 1, 4 Martha G. Billes University of Toronto Managing Director, Chairman, Savage Walker Capital Inc., Governance Committee H. Earl Joudrie1, 4 a merchant banking company President of Tire ‘N’ Me Chairman of the Board, Pty. Ltd., an investment Gulf Canada Resources John M. Stransman1, 4 holding company Limited, a major Partner, international, independent Stikeman Elliott, 3, 4 Adam Bucci oil and gas exploration a Canadian law firm President, Adam Bucci Ltée, and production company which operates a Canadian Tire Associate Store Donald C. Lowe1, 3 BOARD COMMITTEES Corporate Director Gordon F. Cheesbrough2, 4 1 Management Resources President and Rémi Marcoux, FCA1, 3 and Compensation Chief Executive Officer, Chairman of the Board, Committee Altamira Investment President and Chairman, H. Earl Joudrie Services Inc., an investment Chief Executive Officer, management company GTC Transcontinental 2 Audit Committee Group Ltd., a company Chairman, Maureen J. Sabia 2, 3 Lilia C. Clemente holding interests in printing Chairman and and publishing companies 3 Social Responsibility Chief Executive Officer, Committee Clemente Capital, Inc., Ronald Y. Oberlander1, 4 Chairman, Frank Potter a New York-based invest- Chairman of the Board, ment management company Abitibi-Consolidated Inc., 4 Governance Committee a producer of newsprint and Chairman, Martha G. Billes uncoated groundwood papers

54 canadian tire OFFICERS Alan B. Goddard Cameron D. Stewart Vice-President, Vice-President, Gilbert S. Bennett Corporate Affairs Secretary and Chairman of the Board General Counsel Stanley W. Pasternak Stephen E. Bachand Vice-President and J. Huw Thomas President and Chief Treasurer Vice-President, Executive Officer Canadian Tire Retail John J. Rankin Finance and Administration Gerald S. Kishner Senior Vice-President, Executive Vice-President, Dealer Relations Ralph E. Trott Finance and Administration Senior Vice-President, and Chief Financial Officer Joseph P. Riordon New Business Development Senior Vice-President, Wayne C. Sales Human Resources Andrew T. Wnek Executive Vice-President, Senior Vice-President, Canadian Tire Retail Patrick R. Sinnott Information Technology and Vice President, Chief Information Officer A. Mark Foote Supply Chain Senior Vice-President, Candace A. MacLean Marketing Assistant Treasurer

Thomas K. Gauld President, Canadian Tire Acceptance, Limited

1999 annual report 55 ENVIRONMENTAL, HEALTH AND SAFETY STEWARDSHIP

For many years, Canadian Tire has been a leader among Canadian retailers on proactive waste management, product recycling and environmental stewardship. During 1999, our Supply Chain team dramatically improved its management of waste such as cardboard, scrap metal and stretch film. Supply Chain recycled nearly 4,000 tonnes of materials in 1999 that would otherwise have been sent to landfill sites – a 55 percent increase over 1998. Our lead-acid battery recycling program completed its ninth successful year. Nearly 22 million pounds of scrap automotive and marine batteries were collected by Associate Stores and recycled in partnership with our battery vendor, Exide Canada. About 20 million pounds were recycled in 1998. Canadian Tire is also a strong advocate for new recycling programs. We are working closely with other brand owners in Quebec to develop a consumer-focused program for the safe collection and recovery of leftover paints, used oil and oil filters. We are an active participant in industry discussions with government offi- cials in Ontario and Quebec in the development of sustainable funding programs for product and packaging waste; we expect initial implementation of new programs before the end of 2000. And in British Columbia, Canadian Tire is a retail member of the Consumer Product Care Association, one of the organizations responsible for a provincial program that operates collection depots for consumers to return a variety of leftover chemical products for recycling or safe disposal. The Canadian Tire Community Environmental Awards enjoyed a third successful year in 1999. Under this program, employees of Associate Stores can request financial support for non-profit projects that make a significant contribution to the environment in their local community. We funded 15 projects with awards totalling nearly $14,000. Among the projects receiving grants were a beach cleanup and pub- lic awareness program by high-school students in Tusket, Nova Scotia; restoration of a cycle path and environmental awareness education in Granby, Quebec; construction of a portion of the Trans-Canada Trail near Sudbury, Ontario; the development of a school environmental garden in Dundas, Ontario for use as an outdoor classroom; and, planting indigenous plant species to help restore Mill Creek in Kelowna, B.C. During 2000, ten special Millennium Awards of up to $2,000 each will be made available to worthy projects across the country.

Health and Safety The Health and Safety team continued its active management of Canadian Tire’s due diligence program. The program is intended to reduce the risk of workplace accidents and to ensure that our business units are in compliance with both internal and regulatory guidelines for environment, health and safety. Canadian Tire’s Material Safety Data Sheet Faxback program is a free service that enables employees and customers to request automated health and safety information on chemical products sold in Associate Stores. Last year, the team improved its customer service by upgrading the fax-back system that provides 24-hour access to information. The upgrade includes the capability for dedicated telephone lines at our Distribution Centres that will enable us to provide faster responses to inquiries.

56 canadian tire QUARTERLY INFORMATION

(Dollars in thousands except per share amounts) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total

Fiscal 1999 Gross operating revenue $ 950,228 $1,282,269 $1,209,897 $1,285,865 $4,728,259 Operating expenses 901,925 1,207,148 1,127,704 1,264,383 4,501,160

Earnings before income taxes 48,303 75,121 82,193 21,482 227,099 Income taxes 16,477 26,443 29,739 8,511 81,170

Net earnings $ 31,826 $ 48,678 $ 52,454 $ 12,971 $ 145,929

Net earnings per share $ 0.41 $ 0.63 $ 0.69 $ 0.16 $ 1.89

Fiscal 1998 Gross operating revenue $ 855,507 $ 1,244,036 $ 1,110,648 $ 1,137,092 $ 4,347,283 Operating expenses 814,078 1,179,401 1,036,461 1,067,631 4,097,571

Earnings before income taxes 41,429 64,635 74,187 69,461 249,712 Income taxes 12,615 20,363 24,309 25,445 82,732

Net earnings $ 28,814 $ 44,272 $ 49,878 $ 44,016 $ 166,980

Net earnings per share $ 0.35 $ 0.55 $ 0.63 $ 0.56 $ 2.09

Stock Trading Activity on the Toronto Stock Exchange*

1999 1998 (Share prices in dollars, 1st 2nd 3rd 4th 1st 2nd 3rd 4th volume in thousands) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter

Class A Non-Voting Shares (CTR.A) High $43.55 $46.00 $43.40 $37.75 $38.15 $44.10 $45.00 $44.00 Low 37.50 39.05 33.30 32.50 29.10 35.15 30.10 29.00 Close 40.00 42.30 35.00 34.40 36.35 43.50 31.20 40.25

Volume 16,723.7 15,007.9 11,680.3 16,180.1 19,761.2 15,339.2 19,199.9 14,075.7

Common Shares (CTR) High $55.00 $53.00 $61.00 $55.00 $44.00 $47.00 $60.00 $50.25 Low 48.05 46.25 47.00 50.00 29.50 41.00 40.00 41.00 Close 53.00 48.50 51.25 52.50 41.00 46.00 43.00 50.25

Volume 14.3 17.7 29.5 19.1 31.2 32.5 16.5 12.5

* Source: Toronto Stock Exchange

1999 annual report 57 SHAREHOLDER AND CORPORATE INFORMATION

HOME OFFICE SOLICITORS TRADEMARKS IN THIS Canadian Tire Cassels Brock & Blackwell LLP ANNUAL REPORT Corporation, Limited Canadian Tire® 2180 Yonge Street Canadian Tire Receivables AUDITORS P.O. Box 770, Station K Trust® Deloitte & Touche LLP Toronto, Ontario M4P 2V8 e-FlyerTM Chartered Accountants Telephone (416) 480-3000 Garrison® Fax (416) 544-7715 It Pays to Buy Gas HereTM ® Web site: BANKERS MasterCard www.canadiantire.ca Canadian Imperial Bank Mastercraft® of Commerce Motomaster® Bank of Montreal Northern Escape® CORPORATE AND ® SHAREHOLDER Royal Bank of Canada Options ® INFORMATION The Toronto-Dominion Bank PartSource Alan B. Goddard Simoniz® Yardworks® Vice-President, REGISTRAR AND Corporate Affairs TRANSFER AGENT Telephone (416) 480-3660 Montreal Trust RECYCLING Company of Canada This report has been printed Robert J. Tait Head Office on recyclable acid-free papers. Director, Investor Relations 151 Front Street West, Telephone (416) 480-3207 8th Floor VERSION FRANÇAISE Toronto, Ontario M5J 2N1 DU RAPPORT Telephone (416) 981-9633 ANNUAL MEETING Pour obtenir la version OF SHAREHOLDERS française du rapport annuel Metro Toronto To change your address, de Canadian Tire, veuillez Convention Centre eliminate multiple mailings, vous adresser au Service Constitution Hall transfer Canadian Tire des relations extérieures 255 Front Street shares, inquire about our en composant le Toronto, Ontario M5C 2W6 Dividend Reinvestment (416) 480-3660 ou écrire à : Thursday, May 4, 2000 Program or for other share- La Société Canadian Tire at 10:00 a.m. holder account inquiries, C.P. 770, succursale K please contact the principal Toronto (Ontario) M4P 2V8 offices of Montreal Trust EXCHANGE LISTINGS in Halifax, Montreal, The Toronto Stock Exchange Toronto, Winnipeg, Common Shares (CTR) Calgary or Vancouver. Class A Non-Voting Shares (CTR.A)

58 canadian tire INTERBRAND TUDHOPE, TORONTO Associate Dealer (middle), Dealer Associate McKelvey Janet response. crisis local and initiatives community for fundraising and clothing, shelter, food, with tance hand tofamiliesandcommunities whentheyneeditmost.TheFoundation’sprogramsprovide assis- helping a lends Foundation the Dealers, Associate our with partnership active Through giving. table chari- Tire’s Canadian for focus primary a as community Families for Foundation the and of launch the with citizenship service corporate of history proud our in chapter new a began we 1999, In TIREINTHECOMMUNITY CANADIAN , Executive Director, Foundation for Families (right), Families for Foundation Director, Executive , Larry McFadden, Larry Associate Dealer (left) Dealer Associate John Mara John , Director, Foundation for Families, for Foundation Director, ,