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Canadian Tire
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Capital Management

 The current economic, operating, and capital market environment continues to support an increased emphasis on liquidity and capital management. 

Canadian Tire Corporation’s (CTC's) objectives when managing capital are: 

  • ensuring sufficient liquidity to support its financial obligations when due and to execute its operating and strategic plans
  • maintaining healthy liquidity reserves and the ability to access additional capital from multiple sources, if required; and 
  • minimizing the after-tax cost of capital while taking into consideration its key risks including current and future industry, market, and economic risks and conditions, and the uncertainty in duration and severity of the COVID-19 pandemic and its long-term impact on CTC

The definition of capital varies from company to company, industry to industry and for different purposes. CTC manages its capital structure over the long term to optimize the balance among capital efficiency, financial flexibility, and risk mitigation. Management calculates ratios to approximate the methodologies of credit rating agencies and other market participants on a current and prospective basis. To assess its effectiveness in managing capital, Management monitors these ratios against targeted ranges.

The Company has a policy in place to manage capital. As part of the overall management of capital, Management and the Audit Committee of the Board of Directors review the Company’s compliance with and performance against, the policy. In addition, periodic review of the policy is performed to ensure consistency with risk tolerances.

In order to maintain or adjust the capital structure, the Company has the flexibility to adjust discretionary capital spending, adjust the amount of credit card loans receivables outstanding, issue debt or equity, early redeem outstanding debt, purchase the Company’s Class A Non-Voting Shares, adjust the amount of dividends paid to shareholders, monetize various assets, and engage in additional sale and leaseback transactions of real estate properties. 

Financial covenants are reviewed by Management on an ongoing basis to monitor compliance. 

The key financial covenant for Canadian Tire Corporation, Limited is a requirement for the Retail segment to maintain a ratio of total indebtedness to total capitalization equal to or lower than a specified maximum percentage (as defined in the Canadian Tire Corporation, Limited’s bank credit agreements, but which excludes consideration of CTFS Holdings Limited, CT REIT, Franchise Trust and their respective subsidiaries).

Canadian Tire Corporation, Limited was in compliance with all financial covenants under its bank credit agreements as at July 2, 2022.

Helly Hansen is required to comply with covenants established under its bank credit agreements and was in compliance with all financial covenants thereunder as at July 2, 2022.

CT REIT is required to comply with covenants established under its Declaration of Trust, Trust Indenture and bank credit agreement and was in compliance with all financial covenants thereunder as at July 2, 2022.

Canadian Tire Bank's Regulatory Environment

Canadian Tire Bank (“CTB” or the "Bank”), a federally chartered Schedule I bank, is required to comply with regulatory requirements for capital, other regulatory requirements that have an impact on its business operations and certain financial covenants established under its bank credit agreements.

CTB manages its capital under guidelines established by the Office of the Superintendent of Financial Institutions of Canada (“OSFI”). OSFI’s regulatory capital guidelines are based on the international Basel Committee on Banking Supervision framework entitled Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems (“Basel III”), which came into effect in Canada on January 1, 2013, and measures capital in relation to credit, market and operational risks. The Bank has various capital policies, procedures, and controls in place, including an annual Internal Capital Adequacy Assessment Process (“ICAAP”), which it utilizes to achieve its goals and objectives.

The Bank’s objectives include:

• maintaining strong capital ratios, as measured by regulatory guidelines and internal targets

• holding sufficient capital to maintain the confidence of investors and depositors

OSFI’s regulatory capital guidelines under Basel III allow for two tiers of capital. Common Equity Tier 1 (“CET1”) capital includes common shares, retained earnings, and accumulated other comprehensive income, less regulatory adjustments which are deducted from capital. The Bank currently does not hold any additional Tier 1 capital instruments. Tier 2 capital consists of the eligible portion of general allowances. Risk-weighted assets (“RWAs”) include a credit risk component for all on-balance sheet assets weighted for the risk inherent in each type of asset, off-balance sheet financial instruments, an operational risk component based on a percentage of average risk-weighted revenues and a market-risk component for assets held for trade. For the purposes of calculating RWAs, securitization transactions are considered off-balance sheet transactions and, therefore, with the exception of CTB’s retained exposures, are not included in the RWAs calculation. 

The leverage ratio prescribed by OSFI’s Leverage Requirements Guideline provides an overall measure of the adequacy of an institution’s capital and is defined as the all-in Tier 1 capital divided by the leverage ratio exposure. The leverage ratio exposure is the sum of on-balance sheet exposures, derivative exposures, securities financing transaction exposures and a portion of unused credit limits. As at December 31, 2021 and 2020, CTB complied with all regulatory capital guidelines established by OSFI and its internal targets as determined by its ICAAP.