Canadian Tire Corp. Ltd.

(CTC-CNAA) Forensic Research (FR)

CAD 132.35 KM - JLT – 6/9/2015

Company Description

Canadian Tire (CTC-CNAA) is a retailer/distributor of general merchandise (Canadian Tire brand: automotive, fixing,
playing, living), gasoline (Gas+ banner), apparel (Mark’s) and sporting goods (Sport Check). CTC also operates a REIT (CT
REIT) and offers a range of Canadian Tire-branded credit cards, insurance and warranty products and credit card
transaction processing services in its Financial Services segment.

Summary

We think that CTC’s operating margins are materially lower than reported, as the actual deterioration is masked by a
higher capitalization of development costs, a material reduction in shrinkage expenses, inadequate provisioning of the
Company’s growing credit card past due obligations and potentially also by an increase in prepaid expenses. We
estimate that these items helped CTC’s EBT by at least 10% in FY14. Also, the recent increase in inventory may have
allowed the Company to continue to purchase merchandise and benefit from vendor rebates despite an apparent slow
down in demand.

In Q1’15, the combined increase in credit card loans expressed as a percentage of sales and accounts receivables
expressed in days of sales suggest that the Company may have be driving sales (directly through its store network or
indirectly through its customer loyalty program) by extending short term credit to customers and/or extending payment
terms to dealers or wholesale customers. These trends could result in future revenue growth pressure.

Questionable same store sales calculation

CTC’s same store calculation does not in our opinion provide an accurate assessment of the Company’s organic retail
store growth. The Company’s same store sales calculation excludes both sales of new stores (i.e. stores included under a
given retail banner for less than 12 months) and sales that have been “retrofitted, replaced or expanded, where the
percentage change in square footage exceeds 25% of the original size). This calculation provides an artificial boost to the
Company’s reported growth both when the stores are excluded (as the company is more likely to revamp store where it
is experiencing stale growth) and when the stores are re-introduced in CTC’s same store sales basis.

Not surprisingly, the Company’s same store sales has been trailing its revenue per square feet sales in the last XXX
quarters.

Apr- Jan- Sep- Jun- Mar- Sep- Jun- Sep- Jun- Mar-
04- 03- 27- 28- 29- Dec-28- 28- 29- Mar-30- Dec-29- 29- 30- 31-
  2015 2015 2014 2014 2014 2013 2013 2013 2013 2012 2012 2012 2012

Canadian Tire
1217. 1826. 1705. 1479. 1668. 1395. 1651.
Revenue 9 3 1518 4 1218.9 1593.4 6 2 1174.3 1548.2 4 3 1184.8
Revenue / sq ft 400 398 391 388 388 389 387 386 386 385 389 385 389
Same store sales 4.70 2.80 3.20 2.80 -0.50% 4% 2% 2% -2.40% -1.10% - 0.40 3.30%
Canadian Tire Corp. Ltd. (CTC-CNAA) Forensic Research (FR)
CAD 132.35 KM - JLT – 6/9/2015

0.20
growth % % % % % %
-
3.09 2.31 1.03 0.52 0.51 0.26 0.78 0.00
Revenue / sq ft growth % % % % 0.52% 1.04% % % -0.77% -0.52% % %

FGL
Revenue 405 618.5 508.8 398.8 379.4 519.2 432.8 337.4 367.4 444.2 429.1 335.2 341.8
Revenue / sq ft 292 291 284 282 282 285 275 272 268 257
Same store sales 8.60 4.90 8.50 8.20 12.50 6.30 7.40 4.40 4.80
growth % % % % 6.40% % % % 8.80% 2.90% % % 7.30%
3.55 2.11 3.27 3.68
Revenue / sq ft growth % % % % 5.22%

Mark's
Revenue 209.6 450.1 222.5 244.7 204.3 419.3 210.4 237 194.1 402.5 200.2 222.4 191.5
Revenue / sq ft 337 335 329 325 324 318 317 315 311 309 305 304 302
Same store sales 5.50 1.10 6.80 3.20 4.30 6.40 1.70 4.20
growth % % % % 2.90% 5.20% % % 1.50% 3.50% % % 5.80%
-
4.01 5.35 3.79 3.17 3.93 3.62 2.69 23.43
Revenue / sq ft growth % % % % 4.18% 2.91% % % 2.98% 3.69% % %

Petroleum
- -
2.40 4.40 1.90 0.60 0.90 1.10 3.30
Gas volume growth % % -3% % 0% -0.60% % % 2.70% 2.70% % % -1.90%
-
Same store gasoline 1.90 1.60
volume growth % % -1.60% -2.60%
- - -
3.60 0.40 5.30 3.10 2.30 2.40 3.70
Retail sales growth -18% % % % 3.30% 1.90% % % 3.70% 5% % % 5.20%
Revenue 394.8 489.8 552.4 538 499.1 519.8 558.3 511.4 485.5 509.8 543.4 526.7 469.7

II - Sales Growth Driven by Credit and Payment Terms Extension

Credit cards loan portfolio increased in the last three years and may have driven sales growth

Receivables grew to an all time high in Q1’15 and suggest that the Company may have extended payment terms
to dealers to bolster sales

III – At least 10% of EBT driven by Unsustainable Items

Higher capitalization of software development costs

Decline in shrinkage expenses

Canadian Tire Corp. Ltd. (CTC-CNAA) Forensic Research (FR)
CAD 132.35 KM - JLT – 6/9/2015

Lower provisioning of past due receivables

Increase in prepaid expenses

Increase in DSI