AutoCanada Income Fund
Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit
amounts),
PricewaterhouseCoopers LLP
Chartered Accountants
Bell Tower
10104 103 Avenue NW, Suite 2201
Edmonton, Alberta
Canada T5J 0H8
Telephone +1 780 441 6700
Facsimile +1 780 441 6776
March 23, 2009
Auditors’ Report
To the Unitholders of
AutoCanada Income Fund
We have audited the consolidated balance sheets of AutoCanada Income Fund as at December 31,
2008 and 2007 and the consolidated statements of operations, comprehensive loss and deficit and cash
flows for the years ended December 31, 2008 and 2007. These financial statements are the
responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. 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 Fund as at December 31, 2008 and 2007 and the results of its operations and
its cash flows for the years ended December 31, 2008 and 2007 in accordance with Canadian generally
accepted accounting principles.
Chartered Accountants
“PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, or, as the context requires, the
PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.
AutoCanada Income Fund
Consolidated Balance Sheet
As at December 31, 2008
(expressed in Canadian dollar thousands)
ASSETS
Current assets
Cash and cash equivalents
Restricted cash (note 5)
Accounts receivable
Inventories (note 6)
Prepaid expenses
Property & equipment (note 7)
Intangible assets (note 8)
Goodwill (note 9)
Future income taxes (note 2(d) & 17)
Other assets
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities
Revolving floorplan facilities (note 10)
Distributions payable (note 15)
Current portion of long-term debt (note 11)
Long-term debt (note 11)
Future income taxes (note 2(d) & 17)
Economic dependence (note 1)
Contingencies (note 13)
UNITHOLDERS' EQUITY
Fund units (note 14(a) and (c))
Exchangeable units (note 14(d))
Contributed surplus (note 14(e))
Deficit
2008
$
19,592
3,238
31,195
139,948
1,565
195,538
17,227
43,700
-
585
54
257,104
21,990
137,453
1,656
570
161,669
25,522
-
187,191
101,588
88,847
3,822
(124,344)
69,913
257,104
2007
(Restated
- Note 2(d))
$
18,014
4,384
34,274
142,128
1,561
200,361
11,445
79,956
82,501
-
78
374,341
22,488
143,655
1,687
322
168,152
10,789
9,385
188,326
105,200
88,847
957
(8,989)
186,015
374,341
Approved on behalf of the Fund:
(Signed) "Gordon R. Barefoot"
Trustee
(Signed) "Robin Salmon"
Trustee
The accompanying notes are an integral part of these consolidated financial statements.
2
AutoCanada Income Fund
Consolidated Statement of Operations, Comprehensive Income (Loss) and Deficit
For the years ended December 31, 2008 and December 31, 2007
(expressed in Canadian dollar thousands except unit and per unit amounts)
Revenue
Vehicles
Parts, service and collision repair
Other
Cost of sales (note 6)
Gross profit
Expenses
Selling, general and administrative
Interest (note 18)
Amortization
Asset impairments (notes 8 & 9)
Earnings (loss) before income taxes
Future income taxes (recovery)
(note 2(d) & 17)
Net earnings (loss) & comprehensive
income (loss) for the year
Deficit, beginning of year –
as previously stated
Change in accounting policy related to future
income taxes (note 2(d))
Deficit, beginning of year –
as restated
Distributions declared (note 15)
Deficit, end of year
Earnings (loss) per unit
Basic
Diluted
Weighted average units
Basic
Diluted
Year ended
December 31,
2008
$
720,541
103,743
2,210
826,494
679,442
147,052
114,881
8,615
3,319
125,382
252,197
(105,145)
(9,970)
(95,175)
(16,968)
7,979
(8,989)
(20,180)
(124,344)
(4.711)
(4.711)
20,201,744
20,201,744
The accompanying notes are an integral part of these consolidated financial statements.
Year ended
December 31,
2007
(Restated
- Note 2(d))
$
740,385
92,140
2,290
834,815
695,923
138,892
103,715
10,844
3,210
-
117,769
21,123
9,385
11,738
(478)
-
(478)
(20,249)
(8,989)
0.579
0.578
20,257,000
20,295,943
3
AutoCanada Income Fund
Consolidated Statement of Cash Flows
For the years ended December 31, 2008 and December 31, 2007
(expressed in Canadian dollar thousands)
Cash provided by (used in)
Operating activities
Net earnings (loss) for the period
Items not affecting cash
Future income taxes (recovery) (note 17)
Unit-based compensation (note 14(e))
Amortization
Gain on disposal of property & equipment
Asset impairments (notes 8 & 9)
Net change in non-cash working capital balances
Investing activities
Business acquisitions (note 3)
Investment in variable interest entity (note 4)
Purchase of property & equipment
Disposal (purchase) of other assets
Proceeds on sale of property & equipment
Restricted cash
Financing activities
Proceeds from long-term debt
Repayment of long-term debt
Repurchase of Fund units
Distributions paid to unitholders
Increase (decrease) in cash
Cash and cash equivalents, beginning
of period
Cash and cash equivalents, end of period
Supplementary information
Cash interest paid
Transfer of inventory to property & equipment
Transfer of property & equipment to inventory
Year ended
December 31,
2008
$
(95,175)
(9,970)
169
3,319
(1)
125,382
23,724
10,590
34,314
(23,705)
-
(3,938)
24
117
1,118
(26,384)
15,496
(750)
(918)
(20,180)
(6,352)
1,578
18,014
19,592
8,775
1,416
851
The accompanying notes are an integral part of these consolidated financial statements.
Year ended
December 31,
2007
(Restated
Note 2(d))
$
11,738
9,385
502
3,210
(9)
-
24,826
(3,806)
21,020
-
(4,727)
(3,107)
-
200
(880)
(8,514)
7,293
(2,416)
-
(20,249)
(15,372)
(2,866)
20,880
18,014
10,912
1,495
1,904
4
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
1 Nature of operations and economic dependence
Nature of operations
AutoCanada Income Fund (the ‘‘Fund’’) is an unincorporated, open-ended trust governed by the laws of the
Province of Alberta and a Declaration of Trust dated January 4, 2006 and amended May 10, 2006. The Fund has
been created to invest in the franchised automobile dealership industry through an indirect acquisition of
substantially all of the assets and undertakings of Canada One Auto Group (‘‘CAG’’) and such other
investments as the Trustees may determine.
The Fund is engaged in the operation of franchised automobile dealerships in British Columbia, Alberta,
Manitoba, Ontario, Nova Scotia and New Brunswick. The Fund offers a diversified range of automotive
products and services, including new vehicles, used vehicles, vehicle parts, vehicle maintenance and collision
repair services, extended service contracts, vehicle protection products and other after market products. The
Fund also arranges financing and insurance for vehicle purchases through third party finance and insurance
sources.
Economic dependence
The Fund has significant commercial and economic dependence on Chrysler Canada Inc. (“Chrysler Canada”).
As a result, the Fund is subject to significant risk in the event of financial distress, including potential
bankruptcy of this major vehicle manufacturer.
The Fund’s consolidated financial statements include the operations of 22 franchised automobile dealerships,
representing the product lines of seven global automobile manufacturers. The Fund’s Chrysler, Jeep, Dodge
dealerships, which generated 78% of the Fund’s revenue in 2008, purchase all new vehicles, a significant
portion of parts and accessories, and certain used vehicles from Chrysler Canada. In addition to these inventory
purchases, the Fund is eligible to receive monetary incentives from Chrysler Canada if certain sales volume
targets are met and is also eligible to receive payment for warranty service work that is performed for eligible
vehicles.
At December 31, 2008, the Fund had recorded the following assets that relate to transactions it has entered into
with Chrysler Canada:
Accounts receivable
New vehicle inventory
Demonstrator vehicle inventory
Parts and accessories inventory
$ 3,156
$78,019
$ 4,827
$ 4,171
The Fund also maintains its Revolving Floorplan Facility (Note 10), Revolving Term Facility (Note 11), and
certain Lease Contracts (Note 11) from Chrysler Financial Canada (“CFC”). At December 31, 2008, the
balances of these liabilities are:
Revolving Floorplan Facility
Revolving Term Facility
Lease contracts
$131,965
$ 21,600
$ 946
Chrysler Canada is a subsidiary of Chrysler LLC (“Chrysler”) in the United States. As well, CFC is a
5
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
subsidiary of Chrysler Financial, a company related to Chrysler. The viability of the Canadian subsidiaries is
directly dependent on the viability of their respective U.S. parents.
On December 2, 2008, Chrysler submitted its Plan for Short-Term and Long-Term Viability to U.S. Congress as
part of its request for a $7 billion working capital loan from the U.S. government to support its short term
restructuring and long term viability. On January 2, 2009, Chrysler received an initial $4 billion from the US
Department of Treasury, the terms of which require Chrysler to submit a restructuring plan to achieve and
sustain long-term viability, international competitiveness and energy efficiency. An update of Chrysler’s Plan
was submitted on February 17, 2009.
On January 16, 2009, the U.S. Department of Treasury’s Troubled Asset Relief Program (“TARP”) gave
Chrysler Financial access to $1.5 billion in funds under the Emergency Economic Stabilization Act of 2008 to
provide the necessary liquidity to support Chrysler Financial’s retail finance program.
On February 17, 2009, Chrysler released a long-term strategic plan titled “Chrysler Restructuring Plan for Long-
Term Viability” to U.S. Treasury Secretary Geithner. Due to continued deterioration in the economy which has
led to an unprecedented decline in the automotive sector, Chrysler requested an additional $2 billion, on top of
the original $7 billion ($4 billion of which was received on January 2, 2009) it requested on December 2, 2008.
Chrysler is required to display the progress it has made on its restructuring efforts to the US Government on
March 31, 2009, at which time the U.S. Government will make its decision on whether to give any further
funding.
The Canadian and Ontario Governments have also been asked by Chrysler’s Canadian subsidiaries for similar
long-term financial support and are scheduled to make their decisions to grant additional funding after the US
Government has made these commitments to Chrysler in the U.S.
Although the Fund has reduced its exposure to Chrysler Canada since its IPO in 2006, the Fund has significant
commercial and economic dependence on Chrysler Canada as noted above. The event of a bankruptcy of
Chrysler Canada or a bankruptcy of Chrysler Canada’s parent Chrysler may result in the manufacturer seeking
protection from its creditors and commencing an orderly wind-down of operations. The impact of a liquidation
would likely have a material adverse effect on the Fund’s results from operations, cash flows and financial
condition. A reorganization of Chrysler may result in the termination of certain makes of vehicles and/or the
termination of all or any of the Fund’s franchises. It may also impair the Fund’s ability to collect significant
receivables from the manufacturer and/or obtain financing for new vehicle inventory. The effect of either a
bankruptcy or reorganization would be the reduction in consumer demand for Chrysler products, thus adversely
affecting the revenue of the Fund. As a result, a potential bankruptcy, restructuring, merger or other major
event impacting Chrysler Canada or Chrysler could have a significant adverse effect on the Fund’s future
operations.
2 Basis of presentation and significant accounting policies
Basis of presentation
These consolidated financial statements include the accounts of the Fund, AutoCanada Operating Trust,
AutoCanada LP, AutoCanada GP Inc., and several subsidiaries thereof. Also included are Durham Motors LP,
operating as Grande Prairie Nissan, and Northern Motors LP, operating as Northland Nissan, both variable
interest entities (note 4). All inter-entity balances and transactions have been eliminated on consolidation.
6
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
Significant accounting policies
These consolidated financial statements have been prepared by management in accordance with accounting
principles generally accepted in Canada. The preparation of consolidated financial statements in conformity
with Canadian generally accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. In preparing these consolidated financial statements, management has made its best estimates
and judgments of certain amounts included in the financial statements, giving due consideration to materiality.
We base our estimates and judgments on historical experience and other assumptions that we believe are
reasonable. However, application of these accounting policies involves the exercise of judgment and use of
assumptions as to future uncertainties and, as a result, actual results could differ materially from these estimates.
We periodically evaluate estimates and assumptions used in the preparation of the financial statements and make
changes on a prospective basis when adjustments are necessary. Significant estimates made by the Fund in the
accompanying consolidated financial statements include certain assumptions related to inventory, goodwill,
intangible assets, allowances for doubtful accounts, accruals for chargebacks against revenue recognized from
the sale of finance and insurance products, and contingencies.
These financial statements have, in management’s opinion, been properly prepared within reasonable limits of
materiality and within the framework of the accounting policies summarized below.
(a) Revenue recognition
Vehicles, Parts, Service and Collision Repair
Revenue from the sale of new and used vehicles is recognized upon delivery, passage of title, signing of
the sales contract and approval of financing or receipt of payment. Revenue from the sale of parts,
service and collision repair is recognized upon delivery of parts to the customer or at the time vehicle
service or repair work is completed. Manufacturer vehicle incentives and rebates are recognized as a
component of new vehicle cost of sales when earned, generally at the time the related vehicles are sold.
Dealer trades are recognized on a net basis upon delivery. Net revenue associated with dealer trades is
nominal.
Finance and Insurance
The Fund arranges financing for customers through various financial institutions and receives a
commission from the lender based on the difference between the interest rate charged to the customer and
the interest rate set by the financing institution, or a flat fee. This revenue is included in vehicles revenue
on the statement of operations.
The Fund also receives commissions for facilitating the sale of third-party insurance products to
customers, including credit and life insurance policies and extended service contracts. These
commissions are recorded as revenue at the time the customer enters into the contract and the Fund is
entitled to the commission. The Fund is not the obligor under any of these contracts. In the case of
finance contracts, a customer may prepay or fail to pay their contract, thereby terminating the contract.
Customers may also terminate extended service contracts, which are fully paid at purchase, and become
eligible for refunds of unused premiums. In these circumstances, a portion of the commissions the Fund
receives may be charged back to the Fund based on the terms of the contracts. The revenue the Fund
records relating to commissions is net of an estimate of the amount of chargebacks the Fund will be
7
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
required to pay. This estimate is based upon historical chargeback experience arising from similar
contracts, including the impact of refinance and default rates on retail finance contracts and cancellation
rates on extended service contracts and other insurance products.
Lease Revenue
Lease revenue is recognized on a straight-line basis over the term of the related lease agreement as
amounts become due.
(b) Business combinations
Business combinations are accounted for using the purchase method of accounting. The purchase price
for an acquisition is allocated to the related net identifiable assets based on their estimated fair market
values at the date of acquisition.
(c) Cash and cash equivalents
Cash and cash equivalents include amounts on deposit with financial institutions and amounts with
Chrysler Financial Canada (“CFC”) with a term to maturity of 90 days or less at the date of acquisition.
(d) Accounts receivable
Accounts receivable includes amounts due from contracts-in-transit, commercial service and parts, fleet
vehicle and warranty and rebate receivables. Contracts-in-transit are amounts due from financing
institutions, usually within ten days, on retail finance contracts from vehicle sales. Commercial service
and parts receivables are due from customers that maintain fleets of vehicles. Fleet vehicle receivables
are due on sales of vehicles to commercial customers. Warranty and rebate amounts are due from the
manufacturer or the warranty company. The Fund evaluates receivables for collectability based on the age
of the receivable, the credit history of the customer and past collection experience.
(e)
Inventories
New, used and demonstrator vehicle inventories are recorded at the lower of cost and net realizable value
with cost determined on a specific item basis. Parts and accessories inventories are valued at the lower of
cost and net realizable value. Inventories of parts and accessories are accounted for using the “first-in,
first-out” method.
In determining net realizable value for new vehicles, the Fund primarily considers the age of the vehicles
along with the timing of annual and model changeovers. For used vehicles, the Fund considers recent
market data and trends such as loss histories along with the current age of the inventory. Parts inventories
are primarily assessed considering excess quantity and continued usefulness of the part. The risk of loss in
value related to parts inventories is minimized since excess or obsolete parts can generally be returned to
the manufacturer.
(f)
Property and equipment
Property and equipment are initially recorded at cost. Other than as noted below, amortization on the
property and equipment is provided for over the estimated useful life of the assets on the declining
balance basis at the following annual rates:
8
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
Buildings
Machinery and equipment
Furniture and fixtures
Company vehicles
Lease vehicles
Computer equipment
4%
20%
20%
30%
30%
30%
Leasehold improvements are amortized using the straight-line method over the lease term. The cost of
lease vehicles less their estimated net realizable value at the end of the lease term is amortized on a
straight-line basis over the term of the individual lease contracts.
Leases that transfer substantially all of the benefits and risks of ownership of the property to the Fund are
accounted for as capital leases. At the time a capital lease is entered into an asset is recorded together
with its related long-term obligation. Equipment under capital lease is recorded at cost and is amortized
using the same rates as purchased equipment.
(g) Accounting for the impairment of long-lived assets
Long-lived assets, including property and equipment are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is assessed by a comparison of the carrying amount of an
asset to future undiscounted cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed by sale are
reported at the lower of carrying amount or fair value less costs to sell.
(h) Goodwill
Goodwill is the residual amount that results when the purchase price of an acquired business exceeds the
sum of the amounts allocated to the identifiable assets acquired, less liabilities assumed, based on their
fair values at the date of acquisition. Goodwill is allocated as of the date of the business combination to
the Fund’s reporting units that are expected to benefit from the business combination.
Goodwill is not amortized but is tested for impairment annually, or more frequently, if events or changes
in circumstances indicate that the asset might be impaired. The impairment test is carried out in two
steps. In the first step, the carrying amount of the reporting unit is compared with its fair value. When the
fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not
to be impaired and the second step of the impairment test is unnecessary. The second step is carried out
when the carrying amount of a reporting unit exceeds its fair value, in which case the implied fair value of
the reporting unit’s goodwill is compared with its carrying amount to measure the amount of the
impairment loss, if any. The implied fair value of goodwill is determined in the same manner as the value
of goodwill is determined in a business combination as described in the preceding paragraph, using the
fair value of the reporting unit as if it was the purchase price.
(i)
Intangible assets
The identifiable intangible assets are rights under franchise agreements with automobile manufacturers.
Franchise agreements are expected to continue for an indefinite period. Where these agreements do not
9
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
have indefinite terms, the Fund anticipates and has generally experienced routine renewals without
substantial cost and material modifications. As the franchise agreements will contribute to cash flows for
an indefinite period, the carrying amount of franchise rights is not amortized. The Fund assesses the
carrying value of these unlimited life intangible assets for impairment annually, or more frequently, if
events or changes in circumstances indicate that their carrying value may not be recoverable. An
impairment loss is recorded when it is determined that the carrying amount is not recoverable and exceeds
its fair value.
(j)
Future income taxes
Prior to June 12, 2007, income tax obligations relating to distributions from the Fund were obligations of
the Unitholders and, accordingly, no provision for income taxes had been made in respect of the income
of the Fund. As described in Note 17, the Fund has recognized future income taxes in the year ended
December 31, 2007 as a result of new tax legislation substantively enacted on June 12, 2007. Current
income tax will not be recognized until a new tax on the Fund is effective on January 1, 2011.
Future income tax assets and liabilities are recorded on the temporary differences that exist between the
accounting and the tax values of our assets and liabilities based on substantively enacted tax rates and
regulations for those differences that are expected to be realized after January 1, 2011.
The Fund reviews the value of its future income tax assets and liabilities quarterly and records
adjustments, as necessary, to reflect the realizable amounts of its future income tax assets and liabilities.
The Fund expects that it will realize its future income tax assets and liabilities in the normal course of
operations.
(k) Variable interest entities
The Fund follows CICA Accounting Guideline 15, Consolidation of Variable Interest Entities (AcG-15).
AcG-15 defines a VIE as an entity which either does not have sufficient equity at risk to finance its
activities without additional subordinated financial support or where the holders of equity at risk lack the
characteristics of a controlling financial interest. AcG-15 defines the Primary Beneficiary as the entity
that is exposed to a majority of the VIE’s expected losses or is entitled to a majority of the VIE’s expected
residual returns, or both. The Primary Beneficiary is required to consolidate the VIE. In addition, AcG-15
prescribes certain disclosures for VIEs that are not consolidated but in which the Fund has a significant
variable interest. As disclosed in Note 4, the Fund has two VIEs as at December 31, 2008 for which it
has been determined to be the Primary Beneficiary.
(l) Unit-based compensation
The Fund uses the fair value method of accounting for unit options. The fair value of option grants are
calculated using the Black-Scholes option pricing model and recognized as compensation expense over
the vesting period of those grants. A corresponding adjustment is recorded through a separate account in
Unitholders' Equity. On the exercise of options, the consideration paid by the employee and the related
amounts in the separate account in Unitholders' Equity are credited to Fund Units.
(m) Pre-opening costs
Costs incurred to develop and start up new dealership locations are expensed as incurred.
10
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
Changes in accounting policies and recent Canadian accounting pronouncements
In 2008, the Fund adopted new accounting standards that were issued by the Canadian Institute of Chartered
Accountants (“CICA”). The new standards and accounting policy changes are as follows:
a)
Financial Instruments – presentation and disclosure (CICA Handbook Section 3862 and 3863)
On January 1, 2008, the Fund adopted Section 3862, “Financial Instruments – Disclosures”, replacing
Section 3861, “Financial Instruments – Disclosure and Presentation." This Section describes the required
disclosures related to the significance of financial instruments on the entity’s financial position and
performance and the nature and extent of risks arising from financial instruments to which the entity is
exposed and how the entity manages those risks.
These disclosures have been made in Note 19 of these consolidated financial statements. Comparative
information about the nature and extent of risks arising from financial instruments is not required in the
year Section 3862 is adopted.
On January 1, 2008, the Fund adopted Section 3863, “Financial Instruments – Presentation,” replacing
Section 3861, “Financial Instruments – Disclosure and Presentation.” This Section establishes standards
for presentation of financial instruments. The adoption of this Section had no impact on the presentation
of the Fund’s financial instruments.
b)
Capital disclosures (CICA Handbook Section 1535)
On January 1, 2008, the Fund adopted Section 1535, “Capital Disclosures.” This Section requires that an
entity disclose information that enables users of its financial statements to evaluate an entity’s objectives,
policies and processes for managing capital, including disclosures of any externally imposed capital
requirements and the consequences of non-compliance. This disclosure has been made in Note 20,
Capital Disclosures.
c)
Inventories (CICA Handbook Section 3031)
On January 1, 2008, the Fund adopted Section 3031, “Inventories.” This standard requires the
measurement of inventories at the lower of cost and net realizable value and includes guidance on the
determination of cost, including allocation of overheads and other costs to inventory. The standard also
requires the consistent use of either first-in, first out (FIFO) or weighted average cost formula to measure
the cost of inventories and requires the reversal of previous write-downs to net realizable value when
there is a subsequent increase in the value of inventories. The adoption of this Section did not have any
impact on our financial position or results in operations.
d)
Future Income Taxes (Emerging Issues Committee (“EIC”) Abstract No 171)
On September 1, 2008, the Fund adopted EIC-171, “Future Income Tax Consequences of Exchangeable
Interests in an Income Trust or Specified Investment Flow-Through.” This abstract requires that future
income taxes related to temporary differences associated with the assets and liabilities attributable to
exchangeable interest is presented as part of unitholders’ equity, the future income taxes should be
accounted for as a capital transaction at the time of conversion. Application should be retrospective with
restatement of prior periods commencing with the period that includes the date of substantive enactment
of the changes to the Income Tax Act (June 30, 2007). The adoption of this abstract resulted in the
11
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
following adjustments to the consolidated balance sheet and income statement {increase (decrease)}:
Long-term future income tax liability
Future income tax expense
Opening retained earnings (deficit)
e)
Goodwill and intangible assets
Year ended
December 31,
2008
Year ended
December 31,
2007
-
-
(7,979)
(7,979)
(7,979)
-
In February, 2008, the CICA issued Handbook Section 3064, “Goodwill and Intangible Assets”, replacing
Handbook Section 3062, “Goodwill and Other Intangible Assets” and Handbook Section 3450, “Research
and Development Costs”. The new pronouncement establishes standards for the recognition,
measurement, presentation, and disclosure of goodwill subsequent to its initial recognition and of
intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the
standards included in previous Handbook Section 3062. The new standard applies to interim and annual
financial statements relating to fiscal years beginning on or after October 1, 2008, specifically January 1,
2009 for the Fund. The Fund is currently evaluating the impact of adopting this standard.
f)
Convergence with International Financial Reporting Standards (“IFRS”)
In February 2008, the Canadian Accounting Standards Board confirmed the mandatory changeover date
from GAAP to IFRS. The change will take effect January 1, 2011. The Fund will prepare IFRS
compliant financial information beginning January 1, 2010 to produce comparable information for the
first IFRS consolidated financial statements published in 2011.
The Fund has completed the diagnostic phase of its transition plan and major differences identified which
may have the most significant impact on the Fund are property and equipment, intangible assets, and
unitholders’ equity. The impact of these differences and the complete conversion to IFRS are currently
being evaluated by the Fund.
12
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
3 Business acquisitions
(a) On April 1, 2008 the Fund purchased substantially all of the net operating assets of 833676 Ontario Ltd.
Operating as Doner Infiniti Nissan (“Doner Infiniti Nissan”) for total cash consideration of $12,504. The
acquisition was funded by drawing on the Fund’s Revolving Floorplan Facility (note 10) in the amount of
$7,695 and on the Revolving Term Facility (note 11) in the amount of $4,809. The acquisition has been
accounted for using the purchase method and the consolidated financial statements include operating
results of Doner Infiniti Nissan subsequent to April 1, 2008.
The purchase price allocated to the assets acquired and the liabilities assumed, based on their fair values,
is as follows:
Current assets
Property and equipment
Intangible assets
Current liabilities
Net identifiable assets acquired
Goodwill
$
7,530
47
2,053
(73)
9,557
2,947
12,504
(b) On July 7, 2008, the Fund purchased substantially all of the net operating and fixed assets of Cambridge
Motors Inc. operating as Cambridge Hyundai (“Cambridge Hyundai”) for total cash consideration of
$8,447. The acquisition was funded by drawing on the Fund’s Revolving Floorplan Facility (note 10) in
the amount of $2,572, a Fixed Rate Term Facility (note 11) in the amount of $3,024, a draw on the
Revolving Term Facility (note 11) in the amount $1,650 and the remaining $1,201 financed with cash
from operations. The acquisition has been accounted for using the purchase method and the consolidated
financial statements include operating results of Cambridge Hyundai subsequent to July 7, 2008.
The purchase price allocated to the assets acquired and the liabilities assumed, based on their fair values,
is as follows:
Current assets
Property and equipment
Intangible assets
Current liabilities
Net identifiable assets acquired
Goodwill
$
2,557
4,297
812
(32)
7,634
813
8,447
13
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
(c) On December 3, 2008, the Fund purchased substantially all of the net operating and fixed assets of
101063658 Saskatchewan Inc. operating as Sport Volkswagen (“Maple Ridge Volkswagen”) for total
cash consideration of $2,754. The acquisition was funded by drawing on the Fund’s Revolving Floorplan
Facility (note 10) in the amount of $1,838 and a draw on the Revolving Term Facility (note 11) in the
amount $916. The acquisition has been accounted for using the purchase method and the consolidated
financial statements include operating results of Maple Ridge Volkswagen subsequent to December 1,
2008.
The purchase price allocated to the assets acquired and the liabilities assumed, based on their fair values,
is as follows:
Current assets
Property and equipment
Current liabilities
Net identifiable assets acquired
4 Variable interest entities
$
2,626
133
(5)
2,754
On February 7, 2007, the Fund entered into a credit agreement with CAG to finance the acquisition of
substantially all of the net operating assets of a Nissan dealership (the "Nissan Dealership") by CAG for total
cash consideration of $4,727. In addition, the Fund entered into a management agreement to provide the Nissan
Dealership with management services. The Nissan Dealership is owned and operated by a subsidiary of CAG
which owns 46% of the Fund on a fully diluted basis. The Fund obtained the funds to finance the acquisition of
the Nissan dealership through its existing Revolving Term Facility (note 11) in the amount of $4,727. In
connection with this arrangement, the Fund has granted consents to CAG and its subsidiary under the terms of
the non-competition agreements entered into at the time of the Fund’s Initial Public Offering.
As a result of the Fund's financing of the purchase and the related agreements, management has determined that
the Nissan Dealership is a variable interest entity [VIE] and the Fund is the primary beneficiary, as defined by
AcG-15. Accordingly, the Fund has consolidated the operating results of the Nissan Dealership subsequent to
February 7, 2007.
On July 13, 2007, the Fund entered into a credit agreement with CAG to finance the opening of a Nissan
Dealership Open Point by CAG and enter into a management agreement to provide it with management services.
The Nissan Dealership Open Point is located in Prince George, British Columbia, and commenced operations on
August 31, 2007 under the name Northland Nissan, and will be owned and operated by a subsidiary of CAG
which owns 46% of the Fund on a fully diluted basis. In connection with this arrangement, the Fund obtained
Board approval to grant consents to CAG and its subsidiary under the terms of the non-competition agreements
entered into at the time of the Fund’s IPO.
As a result of the Fund’s financing of the purchase and the related agreements, management has determined that
the Nissan Dealership Open Point is a VIE and the Fund is the primary beneficiary. Accordingly, the Fund has
consolidated the operating results of the Nissan Dealership Open Point subsequent to July 13, 2007.
The purchase price allocated to the assets acquired and the liabilities assumed, based on their fair values,
is as follows:
$
14
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
Current assets
Property and equipment
Intangible assets
Current liabilities
Net identifiable assets acquired
Goodwill
3,546
18
922
(3,203)
1,283
3,444
4,727
5 Restricted cash
Restricted cash must be maintained with CFC by the Fund to be sufficient to remit the Goods and Services Tax
and Harmonized Sales Tax ("GST/HST”) associated with the new vehicle inventory financed by CFC.
6
Inventories
New vehicles
Demonstrator vehicles
Used vehicles
Parts and accessories
December 31,
2008
$
December 31,
2007
$
107,379
7,305
17,946
7,318
107,472
6,484
20,917
7,255
139,948
142,128
During the year ended December 31, 2008, $679,442 of inventory was expensed as cost of goods sold which
included a net increase of inventory write downs on used vehicles of $46.
During the year ended December 31, 2008, $1,110 of demonstrator expense was included in selling, general, and
administration expense.
As at December 31, 2008 and December 31, 2007, the Fund had recorded reserves for inventory write downs of
$1,282 and $1,424 respectively.
15
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
7 Property and equipment
Land
Buildings
Leasehold improvements
Machinery and equipment
Furniture and fixtures
Company vehicles
Lease vehicles
Computer equipment
Other property and equipment
Land
Buildings
Leasehold improvements
Machinery and equipment
Furniture and fixtures
Company vehicles
Lease vehicles
Computer equipment
Other property and equipment
December 31, 2008
Cost
$
1,262
2,875
4,920
7,629
2,885
1,678
1,543
2,408
36
25,236
Accumulated
Amortization
$
-
57
2,843
2,216
913
601
375
1,004
-
8,009
Net
$
1,262
2,818
2,077
5,413
1,972
1,077
1,168
1,404
36
17,227
December 31, 2007
Cost
$
-
-
4,686
5,096
2,188
1,430
1,628
1,717
36
16,781
Accumulated
Amortization
$
-
-
2,174
1,310
550
347
425
530
-
5,336
Net
$
-
-
2,512
3,786
1,638
1,083
1,203
1,187
36
11,445
During the year, excluding property and equipment acquired as part of the variable interest entities (note 4) and
business acquisitions (note 3), property and equipment was acquired at an aggregate cost of $4,167 (2007 -
$3,397). Of this total, $229 (2007 - $291) of property and equipment was acquired by means of capital leases,
and the remaining $3,938 (2007 - $3,107) was paid in cash.
Included in lease vehicles above are vehicles earning rental income. Rental income for the period ended
December 31, 2008 totaled $551 (2007 - $782).
16
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
8
Intangible assets
Opening balance
Acquired in business acquisitions (note 3)
Impairment charges
Closing balance
December 31,
2008
$
December 31,
2007
$
79,956
2,865
(39,121)
43,700
79,034
922
-
79,956
Intangible assets are individual store rights under franchise agreements with vehicle manufacturers (“dealer
agreements”), which have indefinite lives and are tested at least annually for impairment.
In the third quarter of 2008 we performed our annual test for impairment and at that time intangible assets were
determined not to be impaired.
In the fourth quarter of 2008, as a result of the continuing challenging automotive retail environment and the
decline in our unit price, we tested our dealer agreements for impairment ahead of the annual impairment test
scheduled for the third quarter of 2009. As a result of the test for impairment, we recorded non-cash impairment
charges of $39,121. These impairment charges were recorded in order to reduce the carrying value of the dealer
agreements to estimated fair value.
9 Goodwill
Opening balance
Acquired in business acquisitions (note 3)
Impairment charges
Closing balance
December 31,
2008
$
December 31,
2007
$
82,501
3,760
(86,261)
-
78,744
3,757
-
82,501
Goodwill is the residual amount that results when the purchase price of an acquired business exceeds the sum of
the amounts allocated to the identifiable assets acquired, less liabilities assumed, based on their fair values at the
date of acquisition. The Fund’s accounting policy with respect to goodwill is described in Note 2(h) in these
consolidated financial statements.
During the third quarter of 2008, we performed our scheduled annual test for impairment of goodwill. As a
result of completing the first step of the annual test for impairment, we determined that the carrying value of our
single reporting unit exceeded the fair value, which required us to perform the second step of the goodwill
impairment test. As a result of performing the second step of the test, it was determined that an impairment had
17
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
occurred which resulted in a non-cash impairment charge of $47,000 for the period.
During the fourth quarter of 2008, as a result of the continuing challenging automotive retail environment and
the decline in our unit price, we determined that the carrying value of our single reporting unit more likely than
not exceeded its fair value. Due to this change in circumstances, we were required to conduct an interim test of
our single reporting unit’s goodwill. The second step of the goodwill impairment test indicated that goodwill
was fully impaired and as a result we recorded a non-cash goodwill impairment charge of $39,261 which
represented a write down of our remaining balance of goodwill.
10 Revolving floorplan facilities
New vehicles
Demonstrator vehicles
Used vehicles
December 31,
2008
$
December 31,
2007
$
127,796
5,267
4,390
133,622
5,451
4,582
137,453
143,655
The Revolving Floorplan Facility available to the Fund from Chrysler Financial Canada (“CFC”) to finance
new, demonstrator and used vehicles is $183,125, bears interest at Royal Bank of Canada ("RBC") prime rate
less 0.25%, (3.25% at December 31, 2008) and is payable monthly in arrears. The CFC Revolving Floorplan
Facility requires maintenance of certain financial covenants and is collateralized by a general security agreement
consisting of a first security interest on all present and future property, the Fund's accounts receivable, and new,
used and demonstrator vehicle inventory. The individual notes payable of the CFC Revolving Floorplan are due
when the related vehicle is sold or according to an aging based repayment policy as mandated by CFC. The
CFC Revolving Floorplan Facility may in certain circumstances restrict the ability of AutoCanada LP and the
Fund to pay distributions if the payment would result in a default under the CFC Revolving Floorplan Facility.
A separate Revolving Floorplan Facility from the Bank of Nova Scotia (“BNS”) is available to the two
dealerships managed by the Fund. This Facility is available to finance new, used and demonstrator vehicles, is
$9,250, bears interest at Bank of Nova Scotia prime rate plus 0.75% (4.25% at December 31, 2008) for new and
demonstrator vehicles and bears interest at Bank of Nova Scotia prime rate plus 1.75% (5.25% at December 31,
2008) for used vehicles and is payable monthly in arrears. The BNS Revolving Floorplan Facility requires
maintenance of certain financial covenants and is collateralized by a general security agreement consisting of
first security interest on all present and future property of the managed dealerships, a $1,000 guarantee from the
Fund, and the managed dealerships’ new, used and demonstrator vehicle inventory. The individual notes
payable of the BNS Revolving Floorplan are due when the related vehicle is sold. The balance outstanding on
the BNS Revolving Floorplan Facility as of December 31, 2008 is $5,432 included in the “New vehicles”
balance above, $36 included in the “Demonstrator vehicles” balance above and $20 included in the “Used
vehicles” balance above.
18
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
11 Long-term debt
Revolving Term Facility, due May 10, 2010 bearing interest from
RBC prime to RBC prime plus 0.75% (i)
Fixed Rate Term Facility, due September 30, 2012 bearing interest
at 5.11% per annum (ii)
CFC lease contracts, repayable over 24 months bearing interest
from 7.20% to 15.95% (iii)
Obligations under capital lease
Less: Current portion
December 31,
2008
$
December 31,
2007
$
21,600
10,000
2,977
946
569
26,092
(570)
25,522
-
604
507
11,111
(322)
10,789
(i)
CFC provides the Fund a Revolving Term Facility. The amount of the Revolving Term Facility available
is based on certain assets (the ‘‘borrowing base’’) and a percentage of earnings before interest expense
(other than interest expense on floorplan financing and other interest), income taxes, depreciation and
amortization (“EBITDA”) of AutoCanada LP, up to a maximum amount of $50,000, and is available to
finance working capital and the acquisition of automobile dealerships. The Revolving Term Facility
matures May 10, 2010 and bears interest at RBC prime rate for amounts borrowed not exceeding the
borrowing base and RBC prime rate plus 0.75% for amounts borrowed in excess of the borrowing base.
RBC prime as at December 31, 2008 was 3.50%. This Revolving Term Facility provides for a
commitment fee of 0.30% of any unused portion payable quarterly in arrears, requires maintenance of
certain financial covenants and is collateralized by a general security agreement consisting of a first
security interest on all present and future property. The Revolving Term Facility may in certain
circumstances restrict the ability of AutoCanada LP and the Fund to pay distributions if the payment
would result in a default.
(ii) Bank of Montreal provides the Fund a Fixed Rate Term Loan (the “Term Loan”). The Term Loan
matures September 30, 2012 and bears interest at a fixed rate of 5.11%. Repayments consist of fixed
monthly payments totaling $20 per month. The Term Loan requires maintenance of certain financial
covenants and is collateralized by a general security agreement consisting of a first fixed charge in the
amount of $3,450 registered over the Cambridge Hyundai property. At December 31, 2008, the carrying
amount of the Cambridge Hyundai property was $4,080.
(iii) CFC lease contracts are collateralized by the related lease contract and lease vehicles with a carrying
value of $900.
Principal payments for the next four years are as follows:
2009
2010
2011
2012
$
570
22,482
255
2,785
26,092
19
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
12 Commitments
The Fund leases the majority of the lands and buildings used in its franchised automobile dealership operations
from related parties (note 16), Chrysler Canada Inc. and other third parties. The Fund also leases various office
equipment. The minimum annual lease payments for the next five years and thereafter are as follows:
2009
2010
2011
2012
2013
Thereafter
Total
$
7,650
7,315
6,004
3,816
2,357
22,164
49,306
13 Contingencies
(a)
The Fund is party to a number of disputes and lawsuits in the normal course of business. Management
believes that the ultimate liability arising from these matters will not have a material impact on the
financial statements.
(b) The Fund’s operations are subject to federal, provincial and local environmental laws and regulations in
Canada. While the Fund has not identified any costs likely to be incurred in the next several years, based
on known information for environmental matters, the Fund’s ongoing efforts to identify potential
environmental concerns in connection with the properties it leases may result in the identification of
additional environmental costs and liabilities. The magnitude of such additional liabilities and the costs
of complying with environmental laws or remediating contamination cannot be reasonably estimated at
the balance sheet date due to lack of technical information, absence of third party claims, the potential for
new or revised laws and regulations and the ability to recover costs from any third parties. Thus the
likelihood of any such costs or whether such costs would be material cannot be determined at this time.
(c) As of December 31, 2008, the Fund had $200 outstanding in letters of credit with financial institutions.
These letters expire at different points in 2009. These letters of credit are being maintained as security for
premium payments to an insurance company and to fulfill legislative requirements of the Motor Dealer
Act in the province of British Columbia.
20
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
14 Unitholders' equity
(a) Authorized
An unlimited number of Fund Units may be created and issued pursuant to the Declaration of Trust. Each
Fund unit is transferable and represents an equal undivided beneficial interest in any distributions from the
Fund, whether of net earnings, net realized capital gains or other amounts and in the net assets of the Fund
in the event of a termination or winding up of the Fund. All Fund Units entitle the holder thereof to one
vote and each Fund Unit has equal voting rights and privileges.
(b) Normal course issuer bid
On August 19, 2008, the Fund received approval from the Toronto Stock Exchange (“TSX”) on its notice
of intention to make a normal course issuer bid for its units from August 21, 2008 to August 20, 2009, in
accordance with the applicable rules of the TSX.
Under its normal course issuer bid, the Fund intends to repurchase for cancellation up to 547,475 of its
outstanding units. As at December 31, 2008, the Fund has repurchased 376,070 units for a total cost of
$926, including brokerage commissions, and has returned all repurchased Units to treasury. The difference
between the repurchase price and the carrying value of the Units returned to treasury has been credited to
Contributed Surplus.
(c) Issued
Balance at December 31, 2006 and 2007
Repurchase of units returned to treasury
Balance at December 31, 2008
Units
#
Amount
$
10,949,500
(376,070)
105,200
(3,612)
10,573,430
101,588
21
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
(d) Exchangeable LP units
The Exchangeable LP Units issued by AutoCanada LP have economic and voting rights equivalent to the
Fund Units except in connection with the exchangeability terms as described below. They are
exchangeable, directly or indirectly, on a one-for-one basis for Fund Units at the option of the holder, under
the terms of the Exchange Agreement. The Exchangeable LP Units are required to be exchanged for Fund
Units before transferring to third parties. As a result, they have been treated as equity in accordance with
the CICA Emerging Issues Committee Abstract #151. Each Exchangeable LP Unit entitles the holder to
receive distributions from AutoCanada LP pro rata with distributions made by AutoCanada LP on Fund
Units.
Units
#
Amount
$
Balance at December 31, 2006, 2007 and 2008
9,307,500
88,847
Fund Special Voting Units
Fund Special Voting Units are non-participating and are used solely for providing voting rights to persons
holding Exchangeable LP Units. Fund Special Voting Units are not transferable separately from
Exchangeable LP Units to which they relate. Fund Special Voting Units will automatically be cancelled
upon the exchange and cancellation of the Exchangeable LP Units to which they relate. The Fund Special
Voting Units are not entitled to any beneficial interest in any distribution from the Fund or in the net assets
of the Fund in the event of a termination or winding up of the Fund. Each Fund Special Voting Unit
entitles the holder thereof to one vote at all meetings of Unitholders. If the Exchangeable LP Units are
purchased in accordance with the Exchange Agreement, a like number of Fund Special Voting Units will
be redeemed by the Fund for a nominal amount.
22
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
(e) Contributed surplus
The Fund has an Incentive Unit Option Plan (the "Plan") for certain employees, officers, directors and
trustees. Options issued under the Plan vest at a rate of one third on the three subsequent award date
anniversaries. All the options must be exercised over specified periods not to exceed five years from the
date granted. The options may be exercised by purchasing the Fund Units for the exercise price or the Plan
also provides that an optionee may, at their discretion, elect, subject to the approval of the Trustees, in lieu
of exercising any options, to surrender the options to the Fund, which will pay the optionee the difference
between the current market price of the Fund Units on the date of surrender and the exercise price for the
Units under the options being surrendered. In addition, the options may be exercised by an optionee only if,
at the time of exercise, the total amount of the cash available for distributions per Unit for the 12 month
period ended immediately preceding the time of exercise is at least $1.20 per Unit on a fully-diluted basis,
subject to adjustment in the event of any increase or decrease in the number of issued Units and
Exchangeable Units resulting from a subdivision, consolidation, reclassification, capital reorganization or
similar change in Units (other than a consolidation of our Units immediately following a distribution in
Units in lieu of a cash distribution).
At December 31, 2008, 1,519,275 units remained reserved for issuance under the option plan. During the
year ended December 31, 2008, 30,000 options (2007 – 374,340) were granted to purchase Fund Units and
125,894 options (2007 – 199,989) were cancelled. At December 31, 2008, 467,599 options were
exercisable at a weighted average exercise price of $10.05.
Balance, December 31, 2007
Granted
Cancelled
Options outstanding, December 31, 2008
Balance, December 31, 2006
Granted
Cancelled
Options outstanding, December 31, 2007
Weighted
average
remaining
contractual life
Yrs
3.61
4.22
2.81
2.54
Weighted
average
remaining
contractual life
Yrs
3.35
4.51
4.20
3.61
Units
#
894,318
30,000
(125,894)
798,424
Units
#
719,967
374,340
(199,989)
894,318
Weighted
average
exercise
price
$
10.03
8.17
10.20
9.95
Weighted
average
exercise
price
$
10.00
10.37
10.29
10.03
23
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
On March 21, 2008, the Fund granted 30,000 options to employees of the Fund. The exercise price of the
units was equal to the fair value as at the grant date. The fair value of the options granted was estimated as
at the grant date using the Black-Scholes option pricing model, using the following assumptions:
Risk free interest rate
Expected life in years
Expected volatility
Expected dividends
Fair value per option
Opening balance
Cancellation of repurchased units
Unit-based compensation expense
Closing balance
2.91 %
5.0 years
35.3 %
$1
$0.65
Contributed surplus
Year ended
December
31, 2008
$
957
2,696
169
Year ended
December
31, 2007
$
455
-
502
3,822
957
The impact of expensing the unit options for the year ended December 31, 2008 was $169 (2007 - $502),
with a corresponding increase to contributed surplus.
15 Distributions
Distributions are discretionary and are determined based on earnings, before amortization, but reduced by
capital expenditures, subject to approval of the Trustees. Distributions totaling $1.00 were declared per Fund
Unit and Exchangeable LP Unit by the Fund for the year ended December 31, 2008.
Fund Units
Exchangeable Units
Declared
$
10,876
9,304
20,180
Paid
$
9,996
8,528
18,524
Distributions payable to all Unitholders in the amount of $1,656 as at December 31, 2008 were paid in January
2009 (2007 - $1,687).
24
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
16 Related party transactions and balances
The following summarizes the Fund’s related party transactions not disclosed elsewhere:
Management fees and non-competition fees received from a
director and companies with common directors
Rent paid to companies with common directors
Consulting fees paid to company controlled by a trustee
Year ended
December
31, 2008
$
Period ended
December
31, 2007
$
600
4,898
64
586
3,604
32
These transactions are in the normal course of operations and are measured at the exchange amount, which is
the amount of consideration established and agreed to by the related parties.
25
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
17 Future income taxes
On October 31, 2006, the Department of Finance Canada announced proposed legislation in connection with the
taxation of income trusts and other flow-through entities (“trust legislation”) that will apply beginning with the
taxation year ended December 31, 2011 for those income trusts that are already publicly traded. In 2011, when
the Fund becomes a taxable entity, current income taxes payable will reduce net earnings and will affect
distributable cash by an equal amount.
The October 31, 2006 trust legislation was substantively enacted into law on June 12, 2007, at which time the
Fund gave accounting recognition to these new taxation rules.
While the Fund will not be liable for current taxes until January 1, 2011, it provides for future income taxes
arising from those temporary tax differences expected to reverse after January 1, 2011, at the 25% to 31% tax
rate applicable to the Fund.
In August 2008, the CICA issued Emerging Issues Committee Abstract No. 171, “Future Income Tax
Consequences of Exchangeable Interests in an Income Trust or Specified Investment Flow-Through” (EIC-171).
This abstract requires that future income taxes related to temporary differences associated with the assets and
liabilities attributable to the exchangeable interests should not be recorded prior to the conversion of the
exchangeable interest.
Future income tax assets and (liabilities) are recognized on temporary differences between the accounting and
tax bases of existing assets and liabilities, and not attributable to the exchangeable interests, as follows:
Property and equipment
Intangible assets
Goodwill
December 31,
2008
$
December 31,
2007
$
(Restated
-note 2(d))
(38)
(3,092)
3,715
585
(225)
(8,679)
(481)
(9,385)
26
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
18 Interest
Revolving floorplan facility
Long-term debt
Other
19 Financial instruments
December 31,
2008
$
December 31,
2007
$
7,065
930
620
8,615
9,594
744
506
10,844
The Fund’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable
and accrued liabilities, revolving floorplan facilities, distributions payable, and long-term debt.
The Fund has made the following classifications:
• Cash and cash equivalents and restricted cash are classified as financial assets held for trading
and are measured at fair value. Gains and losses related to subsequent revaluations are recorded
in net earnings;
• Accounts receivable are classified as loans and receivables and are initially measured at fair
value with subsequent measurement at amortized cost. All accounts receivable bad debts are
charged to selling, general and administrative expenses;
• Accounts payable and accrued liabilities, revolving floorplan facilities, distributions payable, and
long-term debt are classified as other liabilities and are initially measured at fair value with
subsequent measurement at amortized cost;
• Transaction costs are expensed as incurred for financial instruments; and,
•
Interest expense is recorded in net earnings.
Financial risk management
The Fund’s activities are exposed to a variety of financial risks of varying degrees of significance which
could affect the Fund’s ability to achieve its strategic objectives. The Fund’s overall risk management
program focuses on the unpredictability of financial and economic markets and seeks to reduce potential
adverse effects on the Fund’s financial performance. Risk management is carried out by financial
management in conjunction with overall Fund governance. The principal financial risks to which the Fund
is exposed are described below.
(a) Foreign currency risk
Foreign currency risk arises from fluctuations in foreign exchange rates and the degree of volatility of these
rates relative to the Canadian dollar. The Fund is not significantly exposed to foreign currency risk.
27
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
(b) Interest rate risk
The Fund’s Revolving Floorplan Facilities and Revolving Term Facility are subject to interest rate
fluctuations and the degree of volatility in these rates. The Fund does not currently hold any financial
instruments that mitigate this risk. At December 31, 2008, a change in the annual interest on floating rate
debt of one percent would result in a change in annual interest expense of approximately $1,557.
(c) Market risk
Exposure to financial market risk is limited since there are no significant financial instruments which will
fluctuate as a result of changes in market prices.
(d) Credit risk
The Fund’s exposure to credit risk associated with its accounts receivable is the risk that a customer will be
unable to pay amounts due to the Fund or its subsidiaries. Concentration of credit risk with respect to
contracts-in-transit and accounts receivable is limited primarily to automobile manufacturers and financial
institutions (see Note 1 – Nature of operations and economic dependence for further discussion of the
Fund’s economic dependence on Chrysler and associated credit risk). Credit risk arising from receivables
from commercial customers is not significant due to the large number of customers dispersed across various
geographic locations comprising our customer base.
Accounts receivable are aged at December 31, 2008 by the following approximate percentages:
Current 86%
31 to 60 days 8%
61 to 90 days 3%
91 to 120 days 1%
Over 120 days 2%
The Fund evaluates receivables for collectability based on the age of the receivable, the credit history of the
customers and past collection experience. The allowance for doubtful accounts amounted to $541 as of
December 31, 2008 ($965 as of December 31, 2007). Allowances are provided for potential losses that
have been incurred at the balance sheet date. The amounts disclosed on the balance sheet for accounts
receivable are net of the allowance for bad debts. Concentration of cash and cash equivalents exist due to
the significant amount of cash held with CFC.
(e) Liquidity risk
Liquidity risk is the risk that the Fund is not able to meet its financial obligations as they become due or can
do so only at excessive cost. The Fund’s growth is financed through a combination of the cash flows from
operations, borrowing under existing credit facilities and the issuance of equity. Prudent liquidity risk
management implies maintaining sufficient cash and cash equivalents and the availability of funding
through adequate amount of committed credit facilities. One of management’s primary goals is to maintain
an optimal level of liquidity through the active management of the assets and liabilities as well as cash
flows. Due to the dynamic nature of the business, the Fund aims to maintain flexibility in funding by
keeping committed credit facilities available (notes 10 & 11).
28
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
The Fund is exposed to liquidity risk as a result of its economic dependence on automobile manufacturers.
Refer to Note 1 – Nature of operations and economic dependence for further information regarding the
Fund’s economic dependence on Chrysler and its effect on the Fund’s liquidity.
The Fund’s financial liabilities have contractual maturities which are summarized below:
Accounts payable and accrued liabilities
Revolving floorplan facility
Distributions payable
Long-term debt
(f) Fair value
Current within
12 months
$
21,990
137,453
1,656
1,501
162,600
Non-current
1-5 years
$
-
-
-
26,217
26,217
The estimated fair value of accounts receivable, accounts payable and accrued liabilities, revolving
floorplan facilities and distributions payable approximate carrying value due to the relatively short-term
nature of the instruments. The estimated fair value of long-term debt approximates the carrying value
because interest rates are floating and approximate market rates at the period end.
20 Capital disclosures
The Fund's objective when managing its capital is to safeguard the Fund’s assets and its ability to continue as a
going concern while at the same time maximize the growth of the business, returns to unitholders, and benefits
for other stakeholders. The Fund views its capital as the combination of long-term debt and Unitholders’ equity.
The calculation of the Fund’s capital as of December 31, 2008 is summarized below:
Long-term debt
Unitholders’ equity
Total capital
25,522
69,913
95,435
The Fund manages its capital structure in accordance with changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain or adjust its capital structure, the Fund may assume
additional debt, refinance existing debt with different characteristics, sell assets to reduce debt, issue new units,
adjust the amount of distributions paid to its unitholders, or return capital to its unitholders.
The Fund has externally imposed capital requirements as governed through its credit facilities and dealership
agreements with manufacturers. These requirements are to ensure the Fund continues to operate in the normal
course of business and to ensure that the Fund manages its working capital. The Fund is subject to certain
covenants on its credit facilities which include a current ratio, debt to equity ratio and a fixed charge coverage
ratio. The Fund met all externally imposed capital requirements for year ending December 31, 2008.
29
AutoCanada Income Fund
Notes to the Consolidated Financial Statements
December 31, 2008
(expressed in Canadian dollar thousands except unit and per unit amounts)
21 Segment information
The Fund's management evaluates performance and allocates resources based on the operating results of the
individual dealerships. All of the individual dealerships sell new and used vehicles, arrange financing, vehicle
service, and insurance contracts, provide maintenance and repair services and sell replacement parts. The
dealerships are similar in that they deliver the same products and services to a common customer group, their
customers are generally individuals, they follow the same procedures and methods in managing their operations,
and they operate in similar regulatory environments. Each dealership has sufficiently similar economic
characteristics to allow the Fund to aggregate dealerships into one reportable segment.
22 Subsequent events
On March 4, 2009 tax legislation in Bill C-10 and Bill C-50 was subsequently enacted. The result of these
enactments repeals the proposed “Provincial Specified Investment Flow-Through (“SIFT”) Tax Factor” of 13%
and implements the “Provincial SIFT Tax Rate” which will be equal to the general corporate income tax rate for
each province in which the SIFT has a permanent establishment and 10% for SIFT’s that do not have a
permanent establishment in a province. The impact of this legislation change is not significant and does not
impact the financial statements of the Fund.
On March 13, 2009, a commitment to purchase the land on which Doner Infiniti Nissan operates from, was
transferred from a related party to the Fund, thereby committing the Fund to purchase the above land for
$6,000,000 (which is equal to its appraised value as of February 7, 2008) less a $500,000 deposit made by the
Fund, on or before October 1, 2010.
30