Canadian Tire Corporation ANNUAL REPORT 2014 For more than 90 years, Canadian Tire Corporation has been providing customers with everything they need for life in Canada. We are a Family of Companies that includes Canadian Tire, FGL Sports (Sport Chek, Hockey Experts, Sports Experts, National Sports, Intersport, Pro Hockey Life and Atmosphere), Mark’s, Canadian Tire Financial Services, CT REIT, PartSource, Gas+ and Canadian Tire Jumpstart. We offer a broad range of retail products, home and financial services, a robust web presence as well as in-store and online technologies that keep us connected to our customers. With tens of thousands of employees across the enterprise, we are committed to delivering on our strategic initiatives and creating value for shareholders over the long term. Table of Contents On the cover: “Canadian Tire” 2012 acrylic painting by leading contemporary Canadian artist Charles Pachter. Message from the Chairman 2 In 1980, Mr. Pachter began painting what is now Message from the President and CEO 3 known as his famous Canadian flag image at his farm Board of Directors 4 near Orillia, Ontario, using a flag he purchased from Executive Leadership Team 4 a local Canadian Tire store as a model. His recent “Canadian Tire” painting is a tribute to our Company’s Management’s Discussion and Analysis 5 iconic place in Canadian culture. Consolidated Financial Statements 63 www.cpachter.com 2014 was a banner year for Canadian Tire Corporation, with strong sales growth across all retail businesses and a record year for the Financial Services business. A full compilation of 2014 business highlights and video messages from the executive team and an overview of our significant community investments can all be found online at 2014.CanadianTireCorporation.ca. Visit 2014.CanadianTireCorporation.ca for all our 2014 highlights. Diluted EPS ($ per share) Dividends declared ($ per share) Stock price ($) • +4.8%: Consolidated retail $1.1 $10 $140 $120 sales growth for 2014 $1.1 $8 $100 $6 • $5 billion: Financial Services $80 $1.9 $60 achieved a record in gross $6.3 $4 ending accounts receivable $40 $2 $20 $2.1 • +9.8%: Diluted earnings $0 $0 per share for the year 2012 2013 2014 REVENUE BY BANNER* (C$ millions) EARNINGS, STOCK PRICE AND increased to $7.59 Canadian Tire Petroleum FGL Sports DIVIDENDS PER SHARE (C$) Mark’s Financial Services Dividends declared per share *Does not include CT REIT Diluted EPS Stock price (CTC.A) CANADIAN TIRE CORPORATION ANNUAL REPORT 2014 1 Message from the Chairman Maureen J. Sabia For 92 years, Canadian Tire has responded to the needs of the times in which it has lived. The Billes brothers responded to the needs of the new motoring public in 1923 when the motor car was just coming into fashion by creating the precursor to the first Canadian Tire store in a tiny garage in downtown Toronto. Reinventing itself to respond to its customers But the beat goes on as we enter 2015. title of Deputy Chairman in recognition of has become the mantra of Canadian Tire the leadership he will give to some projects Our newly minted CEO, Michael Medline, ever since. The journey is never-ending. both Michael and the Board have asked him has some ambitious plans to build on to undertake. We were among the first to introduce the Stephen’s foundation which will take the Tire idea of a structured loyalty program with our even further into the new digital, data-driven This past year has proved to be a very hard- iconic Canadian Tire ‘Money’® and we have world of retailing. The expectations of our working one for our Board. I cannot tell you continued to reinvent that program with our customers are changing rapidly and so how proud I am of the insight, wisdom and launch last year of our new digital loyalty must our responses to those expectations. commitment shown by the members of the program, My Canadian Tire ‘Money’™. Moreover, the Board of Directors agrees with Board this past year. Succession planning We have reinvented the in-store experience Michael’s commitment to both organic and and the effective transition of CEOs is an dozens of times. We have evolved from IBM inorganic growth. The many advantages of important function of a board of directors, punch cards in the 1950s to world-class scale are obvious and critically important for and your Board has done an excellent job. digital signage and RFID technology in our future strength and continued success. I would be remiss if I did not thank them for 2015. We were among the first to install new the constructive advice and guidance they Stephen and Michael have put in place a “super computers” to digitize our invoicing have given both to management and to me high-performing, highly skilled, younger and inventory management systems in the during this challenging time. executive team. Together, they have made 1960s and have recently opened our cloud Canadian Tire a very attractive place to work After 17 years of committed and valuable computing centre in Winnipeg and Innovation for dynamic, high-potential leaders. And service to the Tire, Graham Savage has Lab at Communitech in Waterloo. Indeed, that will be a competitive strength for the decided not to stand for re-election to at Canadian Tire, the journey of innovation is Company as it continues its long tradition of the Board at the AGM. Graham has been never-ending. responding positively and creatively to the a stalwart on the Board and has always In 2009 when he became CEO, challenges of its times. been generous with his time and his Stephen Wetmore began to put in place advice. Similarly, Peter Saunders, who has The Board of Directors must also be the building blocks for a very significant contributed much to our deliberations, will responsive to the challenges of 21st century transformation of the Company. Focusing not stand for re-election. Peter has been retail. And that is why we are working on on our brand, Stephen made sure that a valuable and committed director and we Board renewal, with some prudent and the Company in 2014 was a very different will miss him. His broad and eclectic retail carefully thought out changes to it over the company in both perception and reality experience has benefited all of us. next two years. The challenges of the digital, than it was in 2009. Canadian Tire is a data-driven and social media world require Growth, innovation and continued more nimble, creative, brand-focused, some different skills on our Board, as does reinvention of Canadian Tire will be our high-performing organization, thanks to the world of risk management. mantra for 2015. We have successfully the legacy that Stephen has left us. He begun the journey to redefine what has positioned the Company for a very This year, subject to the approval of the Canadian Tire means to Canadians and exciting and sustainable future, marked by shareholders at our AGM, we will welcome we will continue on that journey. innovation, performance and a highly Michael Medline to the Board and also skilled management. Diana Chant, a respected and experienced Sincerely, Fellow of the Chartered Accountants of All of us on the Board, our management, Ontario. Diana has had extensive audit our employees and our shareholders greatly experience and has spent many years admire the legacy Stephen has left us leading PwC’s risk management practice. and we are grateful to him for the superb Maureen J. Sabia We have been fortunate in persuading leadership he has given the Tire. Chairman of the Board Stephen to continue as a director with the 2 CANADIAN TIRE CORPORATION ANNUAL REPORT 2014 Message from the President and CEO Michael B. Medline I am fortunate to lead Canadian Tire – especially at a time when we have a brand that is strong and trusted by our customers and we have the financial flexibility as a Company to have choices in where and how we grow. I believe that the Tire is on a roll – and has main reasons we have succeeded where significant shareholder value through such more momentum today than at any time in others have failed. We perform better when initiatives as the successful acquisitions my own 14-year history with the Company. Dealers and the Corporation work together of the Forzani Group and Mark’s Work 2014 was a record year for Canadian Tire (as we are now) to excite our customers Wearhouse. At the same time, we have Corporation on all fronts. and hammer the competition. Put plainly, shown a proclivity to return money to if you don’t like our Dealers’ method of shareholders in dividends and share In today’s real-time and increasingly digital business, you shouldn’t be working at buybacks. I want to be very clear: we will world, it feels anachronistic to be issuing the Tire. continue to be very picky when it comes to a paper annual report. By the time you possible acquisitions. read this letter, we will be a third of the way • Embrace the new world of retail. We through 2015. We are a forward-looking are an innovative organization that has So, that’s what I’m thinking about every Company, but the annual report is – by always embraced change and adapted single day. It is a big list, and we have the necessity – backward looking. to a shifting retail landscape. I am very talent to accomplish our goals. And when proud of our digital achievements to date, we need to change or supplement our talent I thought it would be useful for me to set especially our core digital infrastructure to attain our targets, we will do so.