AutoCanada Inc.
Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per
share amounts)
PricewaterhouseCoopers LLP
Chartered Accountants
TD Tower
10088 102 Avenue NW, Suite 1501
Edmonton, Alberta
Canada T5J 3N5
Telephone +1 780 441 6700
Facsimile +1 780 441 6776
March 17, 2011
Independent Auditor’s Report
To the Shareholders of
AutoCanada Inc.
We have audited the accompanying consolidated financial statements of AutoCanada Inc., and its subsidiaries,
which comprise the consolidated balance sheets as at December 31, 2010 and December 31, 2009 and the
consolidated statements of operations, comprehensive income and deficit and cash flows for the years then ended,
and the related notes including a summary of significant accounting policies.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with Canadian generally accepted accounting principles, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the consolidated financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis
for our audit opinion.
“PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, which is a member firm of
PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of AutoCanada Inc. and its subsidiaries as at December 31, 2010 and December 31, 2009 and the results of their
operations and their cash flows for the years then ended in accordance with Canadian generally accepted
accounting principles.
Chartered Accountants
Edmonton, Alberta
AutoCanada Inc.
Consolidated Balance Sheet
As at December 31, 2010
(expressed in Canadian dollar thousands)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable
Inventories (note 6)
Prepaid expenses
Property & equipment (note 7)
Intangible assets (note 8)
Goodwill
Future income taxes (note 18)
Prepaid rent (note 17)
Other assets
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities
Revolving floorplan facilities (note 9)
Current portion of lease obligations (note 11)
Current portion of long-term debt (note 10)
Future income taxes (note 18)
Lease obligations (note 11)
Long-term debt (note 10)
Economic dependence (note 2)
Contingencies (note 13)
SHAREHOLDERS' EQUITY
Share capital (note 14)
Contributed surplus (note 15)
Deficit
2010
$
37,541
32,853
118,365
1,148
189,907
25,935
45,059
309
930
5,850
59
268,049
26,920
124,609
907
277
3,855
156,568
120
24,974
181,662
190,435
3,918
(107,966)
86,387
268,049
2009
$
22,465
35,388
108,324
1,649
167,826
17,794
43,700
-
1,647
2,142
56
233,165
25,556
102,650
175
96
1,512
129,989
289
22,785
153,063
190,435
3,918
(114,251)
80,102
233,165
Approved on behalf of the Company:
(Signed) "Gordon R. Barefoot"
Director
(Signed) "Robin Salmon"
Director
The accompanying notes are an integral part of these consolidated financial statements.
2
AutoCanada Inc.
Consolidated Statement of Operations, Comprehensive Income and Deficit
For the years ended December 31, 2010 and December 31, 2009
(expressed in Canadian dollar thousands except share and per share amounts)
Year ended
December 31,
2010
Year ended
December 31,
2009
Revenue
Vehicles
Parts, service and collision repair
Other
Cost of sales (note 6)
Gross profit
Expenses
Selling, general and administrative
Interest (note 19)
Amortization
Earnings before income taxes
Income taxes (note 18)
Net earnings & comprehensive
Income for the year
Deficit, beginning of year
Dividends declared (note 16)
Deficit, end of year
Earnings per share/unit
Basic
Diluted
Weighted average shares/units
Basic
Diluted
$
762,920
111,742
1,446
876,108
725,171
150,937
126,056
9,217
4,021
139,294
11,643
2,972
8,671
(114,251)
(2,386)
(107,966)
0.436
0.436
19,880,930
19,880,930
The accompanying notes are an integral part of these consolidated financial statements.
$
666,718
108,164
954
775,836
633,860
141,976
118,141
7,136
3,672
128,949
13,027
449
12,578
(124,344)
(2,485)
(114,251)
0.633
0.633
19,880,930
19,880,930
3
AutoCanada Inc.
Consolidated Statement of Cash Flows
For the years ended December 31, 2010 and December 31, 2009
(expressed in Canadian dollar thousands)
Year ended
December 31,
2010
Year ended
December 31,
2009
Cash provided by (used in)
Operating activities
Net earnings for the period
Items not affecting cash
Future income taxes (note 18)
Unit-based compensation (note 15)
Amortization of property and equipment
Amortization of prepaid rent (note 17)
(Gain) loss on disposal of property & equipment
Net change in non-cash working capital balances
Investing activities
Business acquisitions (note 5)
Purchase of property & equipment
Proceeds on sale of property & equipment
Prepayment of rent (note 17)
Restricted cash
Financing activities
Proceeds from long-term debt
Repayment of long-term debt
Repayment of lease obligations
Dividends paid
Increase 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
$
8,671
2,972
-
4,021
452
(6)
16,110
17,298
33,408
(3,550)
(10,487)
60
(4,160)
-
(18,137)
6,510
(4,141)
(178)
(2,386)
(195)
15,076
22,465
37,541
9,348
2,385
1,052
The accompanying notes are an integral part of these consolidated financial statements.
$
12,578
449
96
3,672
38
308
17,141
(5,767)
11,374
-
(4,312)
88
(2,180)
3,238
(3,166)
20,286
(22,901)
(235)
(2,485)
(5,335)
2,873
19,592
22,465
7,047
1,362
1,140
4
AutoCanada Inc.
Notes to the Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per share amounts)
1 Nature of operations and basis of presentation
AutoCanada Inc. (“AutoCanada” or “The Company”) was incorporated on October 29, 2009 under the laws of
the Province of Alberta. The business of AutoCanada, held in its subsidiaries and limited partnerships, is the
operation of franchised automobile dealerships in British Columbia, Alberta, Manitoba, Ontario, Nova Scotia
and New Brunswick. The Company 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 Company also arranges financing
and insurance for vehicle purchases by its customers through third-party finance and insurance sources.
Following changes in tax rules for specified investment flow-through entities, AutoCanada Income Fund (the
“Fund”) undertook steps to convert the Fund’s income trust structure into a corporate structure. On December
17, 2009, Unitholders of the Fund voted in favour of converting the Fund into a corporation, AutoCanada,
pursuant to a plan of arrangement (the “Conversion”). The Conversion was completed on December 31, 2009.
As a result of the Conversion, Unitholders of the Fund received one common share (“share”) of AutoCanada for
each one Unit of the Fund.
AutoCanada holds all the assets and liabilities, previously held, directly or indirectly, by the Fund. The
Conversion had been accounted for as a continuity of interests of the Fund since there had been no change of
control and since AutoCanada continued to operate the business of the Fund. Accordingly, these consolidated
financial statements reflect AutoCanada as a corporation on and subsequent to December 31, 2009 and as
AutoCanada Income Fund prior thereto. All references to “shares” refer collectively to AutoCanada’s common
shares on and subsequent to December 31, 2009 and to the Fund Units prior to the Conversion. All references
to “shareholders” refer collectively to holders of AutoCanada’s shares on and subsequent to December 31, 2009
and to Fund Unitholders prior to the Conversion.
These consolidated financial statements have been prepared by management in accordance with Canadian
generally accepted accounting principles (“Canadian GAAP”) and are presented in Canadian dollars rounded to
the nearest thousand ($000), except share and per share amounts or where otherwise indicated.
Included in these consolidated financial statements are the accounts of AutoCanada and its predecessor, the
Fund, (collectively hereinafter referred to as “AutoCanada” or the “Company”) and all of its subsidiary limited
partnerships and incorporated companies. The results of acquired business operations are included in these
consolidated financial statements from their effective dates of acquisition. All significant inter-entity balances
and transactions have been eliminated.
2 Economic dependence, use of estimates and measurement uncertainty
The Company has significant commercial and economic dependence on Chrysler Canada and Ally Credit
Canada Limited (“Ally Credit”), formerly known as GMAC Canada. As a result, the Company is subject to
significant risk in the event of the financial distress of Chrysler Canada, one of the Company’s major vehicle
manufacturers and parts suppliers, and Ally Credit, which provides the Company with revolving floorplan
facilities for all of its dealerships.
The Company’s consolidated financial statements include the operations of twenty-three franchised automobile
dealerships, representing the product lines of eight global automobile manufacturers. The Company’s Chrysler,
Dodge, Jeep, Ram (“CDJR”) dealerships, which generated 73% of the Company’s revenue in the year-ended
December 31, 2010 (2009 – 72%), purchase all new vehicles and a significant portion of parts and accessories
5
AutoCanada Inc.
Notes to the Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per share amounts)
from Chrysler Canada. In addition to these inventory purchases, the Company 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, 2010 and 2009, the Company 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
December 31,
2010
$
December 31,
2009
$
4,040
61,790
4,847
4,929
3,196
51,743
3,574
4,484
The Company maintains revolving floorplan facilities for all of its dealerships with Ally Credit. The Company
also maintains cash balances with Ally Credit which it uses to offset interest charges on its various revolving
floorplan facilities.
At December 31, 2010 and 2009, the Company had recorded the following assets and liabilities that relate to
transactions it has entered into with Ally Credit:
Cash and cash equivalents
Revolving floorplan facilities
December 31,
2010
$
December 31,
2009
$
24,575
124,609
9,580
102,650
Chrysler Canada is a subsidiary of Chrysler Group LLC (“Chrysler Group”) in the United States. Ally Credit is
a subsidiary of Ally Financial Inc. (formerly GMAC Financial Services Inc.) in the United States. The viability
of Chrysler Canada is directly dependent on the viability of Chrysler Group.
Use of estimates and measurement uncertainty
These consolidated financial statements have been prepared by management in accordance with Canadian
GAAP. The preparation of consolidated financial statements in conformity with Canadian GAAP 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.
6
AutoCanada Inc.
Notes to the Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per share amounts)
The following significant estimates have been made by the Company in the accompanying consolidated
financial statements, which given the economically dependent relationships described above or other factors,
could require a material change in future periods.
Inventories
Inventories are recorded at the lower of cost and net realizable value with cost determined on a specific item
basis. In determining net realizable value for new vehicles, the Company primarily considers the age of the
vehicles along with the timing of annual and model changeovers. For used vehicles, the Company considers
recent market data and trends such as loss histories along with the current age of the inventory.
Intangible assets
The Company’s identifiable intangible assets are rights under franchise agreements with automobile
manufacturers. The Company assesses the carrying value of these indefinite life intangible assets for
impairment annually, or more frequently, if events or changes in circumstances indicate that their carrying value
may not be recoverable.
Allowance for doubtful accounts
The Company evaluates receivables for collectability based on the age of the receivable, the credit history of the
customer and past collection experience.
3 Summary of significant accounting policies
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 basis revenue is equal to gross margin on
the transfer associated with dealer trade and is generally a nominal amount.
Finance and Insurance
The Company 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 Company 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
7
AutoCanada Inc.
Notes to the Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per share amounts)
commissions are recorded as revenue at the time the customer enters into the contract and the Company is
entitled to the commission. The Company 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
Company receives may be charged back to the Company based on the terms of the contracts. The
revenue the Company records relating to commissions is net of an estimate of the amount of chargebacks
the Company will be 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.
(b) Cash and cash equivalents
Cash and cash equivalents include amounts on deposit with financial institutions and amounts with Ally
Credit that are readily available to the Company (see Note 20(ii) – Financial Instruments – Credit Risk for
an explanation of credit risk associated with amounts held with Ally Credit).
(c) Accounts receivable
Accounts receivable includes amounts due from contracts in transit, commercial service and parts, fleet
vehicle, warranty and rebate receivables and other 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 Company evaluates receivables for collectability
based on the age of the receivable, the credit history of the customer and past collection experience.
(d)
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 Company primarily considers the age of the
vehicles along with the timing of annual and model changeovers. For used vehicles, the Company
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.
8
AutoCanada Inc.
Notes to the Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per share amounts)
(e)
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:
Buildings
Machinery and equipment
Furniture and fixtures
Company vehicles
Computer equipment
4%
20%
20%
30%
30%
The useful life of leasehold improvements is determined to be the lesser of the lease term or the estimated
useful life of the improvement. Leasehold improvements are amortized using the straight-line method if
useful life is determined to be the lease term and declining balance method if other than the lease term is
used. 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 Company
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.
(f) Accounting for the impairment of depreciable long-lived assets
Depreciable 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.
(g) 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 the 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 Company’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, using the fair value of the reporting unit as if it was
the purchase price.
9
AutoCanada Inc.
Notes to the Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per share amounts)
(h)
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
have indefinite terms, the Company 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 Company assesses the
carrying value of these unlimited life intangible assets for impairment annually, or more frequently, if
events or changes in circumstances indicate the asset might be impaired. An impairment loss is recorded
when it is determined that the carrying amount exceeds its fair value and is not reversed for subsequent
increases in fair value.
(i)
Income taxes
The Company follows the liability method of accounting for income taxes. Under this method,
AutoCanada recognizes both the current and future income tax consequences of all transactions that have
been recognized in the financial statements. Future income tax assets and liabilities are determined based
on differences between the financial reporting and the tax bases of assets and liabilities and are measured
using the substantively enacted tax rates and laws that are expected to be in effect when these differences
are expected to reverse.
(j)
Financial instruments
AutoCanada’s cash and cash equivalents 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 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.
The Company reviews all assets, including financial instruments, for impairment when events or changes
in circumstances indicate that the carrying amount of the asset may not be recoverable.
(k)
Pre-opening costs
Costs incurred to develop and start up new dealership locations are expensed as incurred.
10
AutoCanada Inc.
Notes to the Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per share amounts)
4 New accounting policies
In January 2009, the CICA issued three new accounting standards: Section 1582 – Business combinations,
Section 1601 Consolidated Financial Statements, and Section 1602 – Non-controlling interest.
In 2010, the Company early adopted Section 1582 - Business Combinations that was issued by the Canadian
Institute of Chartered Accountants (“CICA”). This section replaces the former Section 1581 - Business
combinations and provides the Canadian equivalent to International Financial Reporting Standard IFRS 3R -
Business Combinations (January 2008). The new standard requires the acquiring entity in a business
combination to recognize most of the assets acquired and liabilities assumed in the transaction at fair value
including contingent assets and liabilities; and recognize and measure the goodwill acquired in the business
combination or a gain from a bargain purchase. Acquisition related costs are also to be expensed. The
Company applied the new standard to the acquisition of Future Hyundai as described in Note 5 of these
consolidated financial statements. The new standard is to be applied prospectively; therefore acquisitions prior
to January 1, 2010 are not affected by the change in accounting policy. The adoption of this Section did not
have a material impact on the financial position or results of operations.
In 2010, the Company also early adopted Sections 1601 and 1602 which together replace the former Section
1600 – Consolidated financial statements. Section 1601 establishes standards for the preparation of
consolidated financial statements. Section 1602, which converges with the requirements of International
Accounting Standards 27 (IAS 27), Consolidated and Separate Financial Statements, establishes standards for
accounting of a non-controlling interest resulting from a business acquisition, recognized as a distinct
component of shareholders’ equity. Net income will present the allocation between the controlling and non-
controlling interest. The adoption of this Section did not have any impact on the financial position or results of
operations.
5 Business acquisitions
On April 12, 2010, the Company purchased substantially all of the net operating and fixed assets of 1192038
Ontario Inc. operating as Future Hyundai (“401 Dixie Hyundai”) for total cash consideration of $3,550. The
acquisition was funded by drawing on the Company’s revolving floorplan facilities (note 9) in the amount of
$1,312 and the remaining $2,238 was financed with cash from operations. The acquisition has been accounted
for using the acquisition method and the consolidated financial statements include operating results of 401 Dixie
Hyundai subsequent to April 12, 2010.
The purchase of this business complements the Company’s other Hyundai dealerships across Canada and is
expected to contribute to the Company’s reputation as providing excellent service in the communities within
which it operates.
The revenue of 401 Dixie Hyundai since the date of acquisition that is included in the consolidated statement of
comprehensive income for the reporting period is $15,934.
11
AutoCanada Inc.
Notes to the Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per share amounts)
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
Total consideration
$
1,648
400
1,359
(166)
3,241
309
3,550
All tangible and intangible assets were recognized at their respective fair values. The residual excess of the total
cost over the fair value of the net assets acquired is recognized as goodwill in the financial statements. Goodwill
represents the premium paid in anticipation of future economic benefits from assets that are not capable of being
separately identified and separately recognized. The total amount of goodwill that is expected to be deductible
for tax purposes is $221.
6
Inventories
New vehicles
Demonstrator vehicles
Used vehicles
Parts and accessories
December 31,
2010
$
December 31,
2009
$
84,954
7,261
17,991
8,159
73,264
5,816
22,197
7,047
118,365
108,324
During the year ended December 31, 2010, $725,171 of inventory (2009 - $633,860) was expensed as cost of
goods sold which included inventory write downs on used vehicles of $151 (2009 - $469). During the year
ended December 31, 2010, $1,414 of demonstrator expense (2009 - $1,377) was included in selling, general, and
administration expense. As at December 31, 2010 and December 31, 2009, the Company had recorded reserves
for inventory write downs of $1,545 and $1,512 respectively.
12
AutoCanada Inc.
Notes to the Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per share 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, 2010
Cost
$
2,666
7,560
6,894
10,537
4,408
1,924
1,827
3,074
36
38,926
Accumulated
Amortization
$
-
333
3,413
4,561
1,773
771
307
1,833
-
Net
$
2,666
7,227
3,020
5,976
2,635
1,153
1,520
1,241
36
12,991
25,935
December 31, 2009
Cost
$
1,262
2,875
4,180
9,866
3,836
1,941
907
2,639
36
27,542
Accumulated
Amortization
$
-
170
2,731
3,167
1,254
741
242
1,443
-
9,748
Net
$
1,262
2,705
1,449
6,699
2,582
1,200
665
1,196
36
17,794
During the year, property and equipment was acquired at an aggregate cost of $10,487 (2009 - $4,414). Of this
total, $6,088 related to the purchase of the Newmarket Infiniti Nissan facility, $1,251 related to leasehold
improvements at a relocated body shop and the remaining $3,148 related to purchases of capital assets for the
remaining dealerships.
Included in lease vehicles above are vehicles earning rental income. Rental income for the period ended
December 31, 2010 totaled $475 (2009 - $446).
13
AutoCanada Inc.
Notes to the Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per share amounts)
8
Intangible assets
Opening balance
Acquired in business acquisitions (note 5)
Closing balance
December 31,
2010
$
December 31,
2009
$
43,700
1,359
45,059
43,700
-
43,700
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.
9 Revolving floorplan facilities
New and demonstrator vehicles
Used vehicles
December 31,
2010
$
December 31,
2009
$
110,356
14,253
92,253
10,397
124,609
102,650
The revolving floorplan facilities (“Ally Facilities”) available to the Company from Ally Credit to finance new,
demonstrator and used vehicles bears interest at the Prime Rate plus 0.20% (4.20% at December 31, 2010) and is
payable monthly in arrears. Prime Rate is defined as the greater of the Royal Bank of Canada (“RBC”) prime rate
(3.00% at December 31, 2010) or 4.00%. The maximum amounts of financing provided by the Ally Facilities are
based on a maximum number of new, used and demonstrator vehicles to be financed on an individual dealership basis.
The Ally Facilities are collateralized by all of the dealerships’ new, used and demonstrator inventory financed by the
Ally Facilities and a general security agreement and cross guarantee from each of the Company’s dealerships. The
individual notes payable of the Ally Facilities are due when the related vehicle is sold or according to an aging based
repayment policy as mandated by Ally Credit.
14
AutoCanada Inc.
Notes to the Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per share amounts)
10 Long-term debt
December 31,
2010
December 31,
2009
$
$
Revolving Term Loan, due June 30, 2013 bearing interest at HSBC Prime
Rate plus 1.25% (i)
19,000
20,000
Non-Revolving Term Loan, due June 30, 2012 bearing interest at HSBC
Prime Rate plus 1.75% (ii)
Fixed Rate Term Loan, due September 30, 2012 bearing interest at 5.11%
per annum (iii)
Less: Current portion
3,466
2,785
25,251
(277)
24,974
-
2,881
22,881
(96)
22,785
(i) HSBC Bank Canada (“HSBC”) provides the Company with a fully committed, extendible Revolving
Term Loan (the “HSBC Revolver”) in the amount of $30,000. The HSBC Revolver’s maturity date is
June 30, 2012, however the facility may be extended for an additional 365 days prior to the maturity of
the HSBC Revolver at the request of the Company and upon approval by HSBC. If the HSBC Revolver
is not extended by HSBC, repayment of the outstanding amount is not due until June 30, 2013. The
HSBC Revolver bears interest at HSBC’s Prime Rate plus 1.25% (4.25% at December 31, 2010). The
HSBC Facility is collateralized by all of the present and future assets of the subsidiaries of AutoCanada
Inc, the various Limited Partnerships and the General Partners of each dealership within the Company.
As part of a priority agreement signed by HSBC, Ally Credit and the Company, the collateral for the
HSBC Facility excludes all new, used and demonstrator inventory financed with the Revolving floorplan
facilities provided by Ally Credit.
(ii) HSBC provides the Company with a committed, extendible Non-Revolving Term Loan (the “HSBC Term
Loan”). The HSBC Term Loan’s maturity date is June 30, 2011, however the facility may be extended at
the request of the Company and upon approval by HSBC. If the HSBC Term Loan is not extended by
HSBC, repayment of the outstanding amount is not due until June 30, 2012. The HSBC Term Loan bears
interest at HSBC’s Prime Rate plus 1.75% (4.75% at December 31, 2010). Repayments are based on a 20
year amortization of the original loan amount; consisting of fixed monthly principal repayments of $15
plus applicable interest. The HSBC Term Loan requires maintenance of certain financial covenants and is
collateralized by a first fixed charge in the amount of $3,510 registered over the Newmarket Infiniti
Nissan property. At December 31, 2010, the carrying amount of the Newmarket Infiniti Nissan property
was $6,081.
(iii) Bank of Montreal provides the Company a Fixed Rate Term Loan (the “BMO Term Loan”). The BMO
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 BMO 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, 2010, the
carrying amount of the Cambridge Hyundai property was $3,967.
15
AutoCanada Inc.
Notes to the Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per share amounts)
Principal payments as at December 31, 2010 for the next three years are as follows:
2011
2012
2013
$
277
5,974
19,000
25,251
11 Lease obligations
Outstanding vehicle repurchase obligations (i)
Capital lease obligations
Less: Current portion
December 31,
2010
December 31,
2009
$
742
285
1,027
(907)
120
$
-
464
464
(175)
289
(i) During the year, the Company committed to provide a corporate fleet customer with vehicles for
individual terms not to exceed six months, at which time the Company has an obligation to repurchase
each vehicle at a predetermined amount. The Company has determined that the transactions shall be
treated as operating leases, whereby the Company acts as lessor. As a result, the Company has recorded
the contractual repurchase amounts as outstanding vehicle repurchase obligations and have classified the
liability as current due to the short term nature of the instruments.
Principal payments as at December 31, 2010 for the next three years are as follows:
2011
2012
2013
$
907
93
27
1,027
16
AutoCanada Inc.
Notes to the Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per share amounts)
12 Commitments
(a) AIR MILES Promotional Partnership Program
On May 20, 2010, the Company signed an agreement for exclusive partnership rights in the AIR MILES
Promotional Partnership Program (“the Program”). The Program grants AutoCanada’s dealerships with
exclusive rights to issue AIR MILES reward miles to customers in conjunction with the sale of new or
used vehicles and accessories to our customers. As part of the program, AutoCanada has committed to
purchase a minimum of $2 million in AIR MILES reward miles over the first 12 months of the program in
exchange for certain sole-exclusivities for the term of the program. At December 31, 2010 the Company
had a remaining commitment of $0.93 million associated with this program which will mature in 2011.
(b) Obligations under leases
The Company has operating lease commitments, with varying terms through 2029, to lease premises and
equipment used for business purposes. The Company leases the majority of the lands and buildings used
in its franchised automobile dealership operations from related parties (note 17) and other third parties.
The minimum lease payments over the upcoming fiscal years will be as follows:
2011
2012
2013
2014
2015
Thereafter
Total
$
11,447
8,066
5,551
5,212
4,917
50,489
85,682
13 Contingencies
(a)
The Company 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 Company’s operations are subject to federal, provincial and local environmental laws and regulations
in Canada. While the Company has not identified any costs likely to be incurred in the next several years,
based on known information for environmental matters, the Company’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.
17
AutoCanada Inc.
Notes to the Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per share amounts)
14 Share capital
(a) Shareholders’ capital
Authorized
The Company has authorized an unlimited number of voting common shares without nominal or par value
and an unlimited number of preferred shares without nominal or par value.
Issued
Shares outstanding as at October 29, 2009
Shares issued pursuant to the Conversion (note 1)
Exchange of Fund Units
Exchange of Exchangeable Units
Shares
#
Amount
$
-
-
10,573,430
9,307,500
101,588
88,847
Shares outstanding as at December 31, 2009 and December 31, 2010
19,880,930
190,435
(b) Unitholders’ capital
Units outstanding as at January 1, 2009
Units exchanged for AutoCanada shares (note 1)
Units
#
Amount
$
19,880,930
(19,880,930)
190,435
(190,435)
Units outstanding as at December 31, 2009 and December 31, 2010
-
-
18
AutoCanada Inc.
Notes to the Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per share amounts)
15 Contributed surplus
Stock Option Plan
On December 17, 2009, Unitholders of AutoCanada Income Fund approved the AutoCanada Inc. Stock Option
Plan (the "Stock Option Plan") for certain employees, officers, directors and trustees. Options issued under the
Stock Option 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 ten years from the date granted. The options may be
exercised by purchasing the shares for the exercise price or the Stock Option Plan also provides that an optionee
may, at their discretion, elect, in lieu of exercising any options, to surrender the options to the Company, which
will pay the optionee the difference between the current market price of the shares on the date of surrender and
the exercise price for the shares under the options being surrendered.
At December 31, 2010, 1,988,093 shares remained reserved for issuance under the Stock Option Plan. Since the
inception of the Stock Option Plan, no options have yet to be granted.
Contributed surplus
Year Ended
December 31,
2010
$
Year Ended
December 31,
2009
$
3,918
-
-
3,918
3,822
23
73
3,918
Opening balance
Cancellation of Unit Options – accelerated expense
Unit-based compensation expense
Closing balance
16 Dividends
Dividends are discretionary and are determined based on a number of factors. Dividends are subject to approval
of the Board of Directors. During the year ended December 31, 2010, eligible dividends totaling $0.12 per
common share were declared and paid. The total amount of dividends paid to shareholders during the year was
$2,386 (2009 - $2,485).
19
AutoCanada Inc.
Notes to the Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per share amounts)
17 Related party transactions and balances
The following summarizes the Company’s related party transactions not disclosed elsewhere:
Management fees received from companies with common
directors
Rent paid to companies with common directors
Consulting fees paid to company controlled by a trustee
Year ended
December 31,
2010
$
Year ended
December 31,
2009
$
276
8,171
-
305
7,484
25
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.
During the year, the Company prepaid rent amounts to a company with common directors as part of an
agreement for a long term rent reduction which was entered into in 2009. Total prepayments of rent for the year
ended December 31, 2010 was $4,160 (2009 - $2,180) of which $452 (2009 - $38) has been amortized as a
reduction in rent. The prepayment of rent is measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties.
18 Income taxes
(a) Income tax expense reconciliation
Income tax expense differs from the amount computed by applying the statutory provincial and federal
income tax rates to the respective years’ earnings before income taxes. These differences result from the
following items:
Year ended
December 31,
2010
Year ended
December 31,
2009
Net income before income taxes
Statutory income tax rates
Income taxes at statutory rates
Increase (decrease) resulting from:
Impact of corporate conversion (note 1)
Difference between future and current rate
Non-deductible expenses
Change in valuation allowance
Income distributed to unitholders prior to corporate conversion
Income tax expense
11,643
29%
3,376
-
(260)
95
(239)
-
2,972
13,027
29%
3,778
(2,696)
(199)
48
239
(721)
449
20
AutoCanada Inc.
Notes to the Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per share amounts)
Provision for income taxes:
Current
Future
(b) Future income tax assets/liabilities
-
2,972
-
449
The tax effects of the temporary differences that give rise to significant portions of the future income tax
assets and future income tax liabilities are presented below:
Future income tax assets
Cumulative eligible capital
Property and equipment
Restricted partnership losses
Valuation allowance
Unused tax loss carry-forwards
Other
Future income tax liabilities
Deferred income from partnership
Net future income tax asset (liability)
Presented on the balance sheet as follows:
Non-current assets
Current liabilities
19 Interest
Revolving floorplan facilities
Long-term debt
Other
Year ended
December
31, 2010
Year ended
December
31, 2009
364
566
-
-
394
24
1,348
4,273
(2,925)
930
3,855
1,386
261
239
(239)
-
500
2,147
2,012
135
1,647
1,512
December 31,
2010
$
December 31,
2009
$
7,437
1,079
701
9,217
4,855
1,653
628
7,136
21
AutoCanada Inc.
Notes to the Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per share amounts)
20 Financial instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities, revolving floorplan facilities and long-term debt.
Financial risk management
The Company’s activities are exposed to a variety of financial risks of varying degrees of significance which
could affect the Company’s ability to achieve its strategic objectives. AutoCanada’s overall risk management
program focuses on the unpredictability of financial and economic markets and seeks to reduce potential
adverse effects on the Company’s financial performance. Risk management is carried out by financial
management in conjunction with overall Corporate Governance. The principal financial risks to which the
Company is exposed are described below.
(i) Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in foreign currency and interest rates.
(i) 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 Company is not significantly exposed to foreign
currency risk.
(ii) Interest rate risk
The Ally Facilities (note 9) are subject to interest rate fluctuations and the degree of volatility in
these rates. The Company does not currently hold any financial instruments that mitigate this risk.
The Ally Facilities bear interest at Prime Rate plus 0.20%. The Ally Facilities define Prime Rate as
the greater of the Royal Bank of Canada Prime Rate (“RBC Prime”) or 4.00%. Since the RBC Prime
Rate is currently 3.00%, the Company is not exposed to interest rate fluctuations until the RBC
Prime Rate is equal to 4.00% (increase of 1.00% from the present rate). Based on the outstanding
balance at December 31, 2010 if the RBC Prime Rate was equal to 4.00%, an additional increase in
the RBC Prime Rate of one percent would result in an increase in annual interest expense of
approximately $1,246.
The HSBC Revolver and the HSBC Term Loan (the “HSBC Facilities”) are also subject to interest
rate fluctuations and the degree of volatility in these rates. The Company does not currently hold
any financial instruments that mitigate this risk. The HSBC Revolver bears interest at the HSBC
Prime Rate plus 1.25% and the HSBC Term Loan bears interest at the HSBC Prime Rate plus 1.75%.
Based on the outstanding balances at December 31, 2010, an additional increase in the HSBC Prime
Rate of one percent would result in an increase in annual interest expense of approximately $225.
The BMO Term Loan is a fixed rate term loan and is not subject to interest rate fluctuations until its
maturity date at September 30, 2012, at which time, will be subject to market rates of interest when
the amount is refinanced.
22
AutoCanada Inc.
Notes to the Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per share amounts)
(ii)
Credit risk
The Company’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 Company 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 2 for further discussion of the Company’s economic dependence on
Chrysler Canada and associated credit risk). Credit risk arising from receivables with 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, 2010 by the following approximate percentages:
Current 83.5%
31 to 60 days 10.3%
61 to 90 days 2.3%
91 to 120 days 1.9%
Over 120 days 2.0%
The Company evaluates receivables for collectability based on the age of the receivable, the credit
history of the customer and past collection experience. The allowance for doubtful accounts amounted to
$364 as of December 31, 2010 (2009 - $332). 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 Ally
Credit (see Note 2 for further discussion of the Company’s concentration of cash held on deposit with
Ally Credit). The Ally Facilities allow our dealerships to hold excess cash (used to satisfy working
capital requirements of our various OEM partners) in an account with Ally Credit which bears interest
equal to the interest rates of the Ally Facilities (4.20% at December 31, 2010). These cash balances are
fully accessible by our dealerships at any time, however in the event of a default by a dealership in its
floorplan obligation; the cash may be used to offset unpaid balances under the Ally Facilities. As a
result, there is a concentration of cash balances risk to the Company in the event of a default under the
Ally Facilities.
(iii) Liquidity risk
Liquidity risk is the risk that the Company is not able to meet its financial obligations as they become
due or can do so only at excessive cost. The Company’s activity 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 amounts 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.
23
AutoCanada Inc.
Notes to the Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per share amounts)
The Company is exposed to liquidity risk as a result of its economic dependence on suppliers and
lenders. (See Note 2 for further information regarding the Company’s economic dependence on Chrysler
Canada and Ally Credit and the potential effect on the Company’s liquidity). The Company’s financial
liabilities have contractual maturities which are summarized below:
Accounts payable and accrued liabilities
Revolving floorplan facilities
Long-term debt and lease obligations
(iv)
Fair value
Current within
12 months
$
26,920
124,609
2,304
153,833
Non-current
1-5 years
$
-
-
26,495
26,495
The estimated fair value of cash and cash equivalents, accounts receivable, accounts payable and accrued
liabilities and revolving floorplan facilities 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
due to the relatively short time period between the original signing or subsequent amendments of the
debt agreements and balance sheet date for the current reporting period. Management has determined
that any difference between fair value and carrying value of long-term debt would be insignificant.
Outstanding vehicle repurchase obligations included in lease obligations have individual terms not to
exceed six months. Management has determined that the fair value approximates the carrying value of
these instruments due to the short term nature of the contracts and that the historical resale values of the
vehicles to be repurchased approximate the repurchase obligations.
21 Capital disclosures
The Company's objective when managing its capital is to safeguard the Company’s assets and its ability to
continue as a going concern while at the same time maximize the growth of the business, returns to
shareholders, and benefits for other stakeholders. The Company views its capital as the combination of long-
term debt and shareholders’ equity.
The calculation of the Company’s capital is summarized below:
Long-term debt and lease obligations
Shareholders’ equity
Total Capital
December 31,
2010
$
25,094
86,387
111,481
December 31,
2009
$
23,074
80,102
103,176
The Company 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 Company may
assume additional debt, refinance existing debt with different characteristics, sell assets to reduce debt, issue
new shares or adjust the amount of dividends paid to its shareholders.
24
AutoCanada Inc.
Notes to the Consolidated Financial Statements
December 31, 2010
(expressed in Canadian dollar thousands except share and per share amounts)
The Company has externally imposed capital requirements as governed through its credit facilities and
dealership agreements with manufacturers. These requirements are to ensure the Company continues to operate
in the normal course of business and to ensure that the Company manages its working capital. The Company is
also subject to certain covenants on its credit facilities which include a current ratio, debt to tangible net worth
(including floorplan), debt to tangible net worth (excluding floorplan) and a minimum cash balance requirement.
The Company met all externally imposed capital requirements for the year ended December 31, 2010.
22 Segment information
The Company'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 Company to aggregate dealerships into one reportable segment.
23 Comparative Figures
Certain 2009 comparative figures have been reclassified to conform with the financial statement presentation
adopted for 2010.
25