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AutoCanada Inc.
Management’s Discussion & Analysis
Consolidated Finacial Statements
Corporate Information
1
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80
AutoCanada Inc.
Management’s Discussion & Analysis of
Financial Conditions and Results of
Operations
For the year ended December 31, 2011
As of March 22, 2012
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6 » AutoCanada 2011
READER ADVISORIES
The Management’s Discussion & Analysis (“MD&A”) was prepared as of March 22, 2012 to assist readers in understanding
AutoCanada Inc.’s (the “Company” or “AutoCanada”) consolidated financial performance for the year ended December 31, 2011
and significant trends that may affect AutoCanada’s future performance. The following discussion and analysis should be read in
conjunction with the audited annual consolidated financial statements and accompanying notes (the “Consolidated Financial
Statements”) of AutoCanada for the year ended December 31, 2011. Results are reported in Canadian dollars. Certain dollar
amounts have been rounded to the nearest thousand dollars. References to notes are to the Notes of the Consolidated Financial
Statements of the Company unless otherwise stated.
To provide more meaningful information, this MD&A typically refers to the operating results for the three-month period and year
ended December 31, 2011 of the Company, and compares these to the operating results of the Company for the three-month period
and year ended December 31, 2010.
This MD&A contains forward-looking statements. Please see the section “FORWARD-LOOKING STATEMENTS” for a
discussion of the risks, uncertainties and assumptions used to develop our forward-looking information. This MD&A also makes
reference to certain non-GAAP measures to assist users in assessing AutoCanada’s performance. Non-GAAP measures do not
have any standard meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by
other issuers. These measures are identified and described under the section “NON-GAAP MEASURES”.
OVERVIEW OF THE COMPANY
Corporate Structure
AutoCanada Inc. (“ACI”, “AutoCanada”, or the “Company”) was incorporated under the CBCA on October 29, 2009 in
connection with participating in an arrangement with AutoCanada Income Fund and the conversion to a corporate structure on
December 31, 2009. The principal and head office of ACI is located at 200 - 15505 Yellowhead Trail, Edmonton, Alberta, T5V
1E5. AutoCanada Inc. holds interests in a number of limited partnerships that each carry on the business of a franchised
automobile dealership. AutoCanada is a reporting issuer in each of the provinces of Canada. AutoCanada’s shares trade on the
Toronto Stock Exchange under the symbol “ACQ”.
Additional information relating to AutoCanada, including our 2011 Annual Information Form dated March 22, 2012, is available
on the System for Electronic Document Analysis and Retrieval (“SEDAR”) website at www.sedar.com.
The Business of the Company
AutoCanada is one of Canada’s largest multi-location automobile dealership groups, currently operating 24 franchised dealerships
in British Columbia, Alberta, Manitoba, Ontario, New Brunswick and Nova Scotia. In 2011, our dealerships sold approximately
28,000 vehicles and processed approximately 300,000 service and collision repair orders in our 333 service bays during that time.
Our dealerships derive their revenue from the following four inter-related business operations: new vehicle sales; used vehicle
sales; parts, service and collision repair; and finance and insurance. While new vehicle sales are the most important source of
revenue, they generally result in lower gross profits than used vehicle sales, parts, service and collision repair operations and
finance and insurance sales. Overall gross profit margins increase as revenues from higher margin operations increase relative to
revenues from lower margin operations.
2
The Company’s geographical profile is illustrated below by number of dealerships and revenues by province for the year ended
December 31, 2011 and December 31, 2010.
December 31, 2011
December 31, 2010
(In thousands of dollars except
% of total and number of
dealerships)
Number
of
Dealerships
British Columbia
Alberta
Ontario
All other
Total
9
9
3
3
Revenue
% of Total
359,725
35%
411,024
41%
107,704
130,405
11%
13%
100%
24
1,008,858
Number
of
Dealerships
Revenue
% of Total
7
9
4
3
23
310,314
345,877
111,367
101,949
869,507
35%
40%
13%
12%
100%
The following table sets forth the dealerships that we currently own and operate and the date opened or acquired by the Company
or its predecessors, organized by location.
Location of Dealerships
Operating Name
Franchise
Dealerships as of December 31, 2011:
Year
Opened or
Acquired
Edmonton, Alberta
Edmonton, Alberta
Grande Prairie, Alberta
Grande Prairie, Alberta
Grande Prairie, Alberta
Grande Prairie, Alberta
Grande Prairie, Alberta
Ponoka, Alberta
Sherwood Park, Alberta
Abbotsford, British Columbia
Chilliwack, British Columbia
Kelowna, British Columbia
Maple Ridge, British Columbia
Maple Ridge, British Columbia
Prince George, British Columbia
Prince George, British Columbia
Prince George, British Columbia
Victoria, British Columbia
Thompson, Manitoba
Moncton, New Brunswick
Dartmouth, Nova Scotia
Cambridge, Ontario
Mississauga, Ontario
Newmarket, Ontario
Dealerships sold during 2011:
Crosstown Chrysler Jeep Dodge FIAT
Capital Chrysler Jeep Dodge FIAT
Grande Prairie Chrysler Jeep Dodge
Grande Prairie Hyundai
Grande Prairie Subaru
Grande Prairie Mitsubishi
Grande Prairie Nissan
Ponoka Chrysler Jeep Dodge
Sherwood Park Hyundai
Abbotsford Volkswagen(2)
Chilliwack Volkswagen(2)
Okanagan Chrysler Jeep Dodge
Maple Ridge Chrysler Jeep Dodge FIAT
Maple Ridge Volkswagen
Northland Chrysler Jeep Dodge
Northland Hyundai
Northland Nissan
Victoria Hyundai
Thompson Chrysler Jeep Dodge
Moncton Chrysler Jeep Dodge
Dartmouth Chrysler Jeep Dodge
Cambridge Hyundai
401/Dixie Hyundai
Newmarket Infiniti Nissan
Chrysler
Chrysler
Chrysler
Hyundai
Subaru
Mitsubishi
Nissan
Chrysler
Hyundai
Volkswagen
Volkswagen
Chrysler
Chrysler
Volkswagen
Chrysler
Hyundai
Nissan
Hyundai
Chrysler
Chrysler
Chrysler
Hyundai
Hyundai
Nissan / Infiniti
1994
2003
1998
2005
1998
2007
2007
1998
2006
2011
2011
2003
2005
2008
2002
2005
2007
2006
2003
2001
2006
2008
2010
2008
Woodbridge, Ontario
Colombo Chrysler Jeep Dodge (1)
Chrysler
2005
1 On June 21, 2011 the Company sold its Colombo Chrysler Jeep Dodge dealership, located in Woodbridge, Ontario.
2 On November 4, 2011 the Company acquired Abbotsford Volkswagen and Chilliwack Volkswagen.
3
OUR PERFORMANCE
New light vehicle sales in Canada in 2011 were up 1.8% when compared to 2010. Annual sales of new light vehicles in Alberta
and British Columbia, our primary markets, were up by 8.7% and 1.4% respectively. The Company’s same store sales of new
vehicles have increased by 26.6% during this period. The Company’s manufacturer partners all outperformed the market this year
and our dealerships performed particularly well, picking up market share in most sales regions. Management is pleased with the
Company’s ability to outperform the market in new vehicle sales during the period.
The following table summarizes Canadian new light vehicle sales for 2011 by Province:
December Year to Date Canadian New Vehicle Sales by Province1
December Year to Date
2011
2010
Percentage Change
Units Change
Province
British Columbia
Alberta
Saskatchewan
Manitoba
Ontario
Quebec
New Brunswick
PEI
Nova Scotia
Newfoundland
Total
156,515
217,425
49,607
46,681
588,402
406,996
38,309
5,970
45,015
30,599
1,585,519
154,373
200,088
46,517
44,025
576,629
413,635
37,740
6,112
46,422
31,580
1,557,121
1.4%
8.7%
6.6%
6.0%
2.0%
-1.6%
1.5%
-2.3%
-3.0%
-3.1%
1.8%
2,142
17,337
3,090
2,656
11,773
-6,639
569
-142
-1,407
-981
28,398
1 DesRosiers Automotive Consultants Inc.
AutoCanada’s success in 2011 is largely driven by the increase in new vehicle sales. The Company’s manufacturer partners have
performed well in Canada in 2011; led by Volkswagen (sales up 15.9% in 2011), Chrysler (sales up 12.5% in 2011), Hyundai
(sales up 9.1% in 2011), Nissan (sales up 3.9% in 2011) and an increase from Mitsubishi (sales up 5.2% in 2011). Various
manufacturers also provide our dealerships with performance based incentives for meeting and exceeding monthly new vehicle
sales targets. These performance based incentives have increased significantly in 2011 as compared to the prior year. As a result,
we have seen a shift in focus at our dealerships to selling higher volumes of new vehicles as opposed to used vehicles. We cannot
project the duration of these performance based incentives; the decrease or loss of such incentives would make it difficult for the
Company to maintain its current level of profitability in its new vehicle department. In addition, the Company experienced
inventory shortages in 2011 with respect to some of its brands and we expect these shortages to continue into the 2012 fiscal year.
The improvement in the new vehicle market during 2011 has also positively impacted the Company’s finance and insurance
business. The Company realized an increase in finance and insurance revenue of 18.6% during 2011. The sales increase translated
into a $7.5 million or 19.1% increase in finance and insurance gross profit over the prior year. Consumer credit also continued to
improve as more of our customers were able to finance the purchase of their vehicle, accessories and other products.
Due to a very aggressive used vehicle market in Canada in 2011, our used vehicle sales volumes decreased by 1% in 2011. In spite
of this reduction in unit sales, used vehicle gross profits increased by $0.5 million or 2.9% over 2010. We continue to see a
decrease in supply of quality one to five year old used vehicles as vehicle leasing essentially ended in 2009. AutoCanada continues
to focus on sourcing quality one to five year old vehicles through customer trade-ins and vehicle auctions.
Our parts and service departments posted modest gains in revenue and gross margins mainly due to an increase in the average
revenue per repair order completed over the prior year. The Company continues to invest in new technology to improve the
customer experience in our service departments. We expect that the impact the technology will have on customer satisfaction and
improvement in customer awareness of maintenance requirements will lead to increased sales and higher margins in our parts,
service and collision repair departments.
Operating expenses decreased to 80.9% of gross margin in 2011 compared to 86.8% in 2010 as a result of a number of initiatives
undertaken by Management to decrease overhead and semi-variable costs.
4
SELECTED ANNUAL FINANCIAL INFORMATION
The following table shows the audited results of the Company for the years ended December 31, 2009, December 31, 2010 and
December 31, 2011. The results of operations for these periods are not necessarily indicative of the results of operations to be
expected in any given comparable period. The column below marked “CGAAP” represents financial information which has not
been restated for the Company’s adoption of IFRS and readers are cautioned that this column may not provide appropriate
comparative information.
(In thousands of dollars except Operating
Data and gross profit %)
The Company
CGAAP
The Company
IFRS
The Company
IFRS
(Audited)
(Audited)
(Audited)
2009
2010
2011
Income Statement Data
Revenue
New vehicles
Used vehicles
Parts, service & collision repair
Finance, insurance & other
Gross profit
New vehicles
Used vehicles
Parts, service & collision repair
Finance, insurance & other
Gross profit %
Operating expenses
Operating expenses as % of gross profit
Finance costs - floorplan
Finance costs – long term debt
(Reversal of) Impairment of intangible assets
Income taxes
Net earnings
EBITDA 1
Cash dividends per share
Basic earnings (loss) per share
Diluted earnings (loss) per share
Operating Data
Vehicles (new and used) sold
New retail vehicles sold
New fleet vehicles sold
Used retail vehicles sold
Number of service & collision repair orders
completed
Absorption rate 2
# of dealerships
# of same store dealerships 3
# of service bays at period end
Same store revenue growth 3
Same store gross profit growth 3
775,836
412,203
212,234
108,164
43,235
141,976
29,308
19,913
53,338
39,417
18.3%
121,813
85.8%
4,855
1.647
-
449
12,578
18,352
0.062
0.633
0.633
23,083
11,117
2,233
9,733
301,282
89%
22
19
331
(10.5)%
(7.8)%
869,507
514,676
202,552
108,558
43,721
150,020
38,164
16,885
55,888
39,083
17.3%
130,237
86.8%
7,536
1,076
(8,059)
4,956
14,596
16,740
0.120
0.734
0.734
24,239
12,767
2,717
8,755
309,705
86%
23
21
339
10.5%
4.1%
1,008,858
640,721
206,030
110,262
51,845
169,124
47,705
17,381
57,480
46,558
16.8%
136,846
80.9%
8,057
1,136
(25,543)
12,509
36,784
29,131
0.310
1.850
1.850
27,998
14,499
4,832
8,667
305,298
88%
24
21
333
17.3%
13.9%
1
2
3
EBITDA has been calculated as described under “NON-GAAP MEASURES”.
Absorption has been calculated as described under “NON-GAAP MEASURES”.
Same store revenue growth & same store gross profit growth is calculated using franchised automobile dealerships that we have owned for at least 2 full years.
5
SELECTED QUARTERLY FINANCIAL INFORMATION
The following table shows the unaudited results of the Company for each of the eight most recently completed quarters. The
results of operations for these periods are not necessarily indicative of the results of operations to be expected in any given
comparable period.
(In thousands of dollars except Operating
Data and gross profit %)
Income Statement Data
New vehicles
Used vehicles
Parts, service & collision repair
Finance, insurance & other
Revenue
New vehicles
Used vehicles
Parts, service & collision repair
Finance, insurance & other
Gross profit
Gross profit %
Operating expenses
Operating exp. as % of gross profit
Finance costs – floorplan
Finance costs – long-term debt
Reversal of impairment of intangibles
Income taxes
Net earnings 4
EBITDA 1, 4
Basic earnings (loss) per share
Diluted earnings (loss) per share
Operating Data
Vehicles (new and used) sold
New retail vehicles sold
New fleet vehicles sold
Used retail vehicles sold
Number of service & collision repair
orders completed
Absorption rate 2
# of dealerships at period end
# of same store dealerships 3
# of service bays at period end
Same store revenue growth 3
Same store gross profit growth 3
Balance Sheet Data
Cash and cash equivalents
Accounts receivable
Inventories
Revolving floorplan facilities
Q1
2010
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
114,520
49,034
26,168
10,067
199,789
144,655
57,181
27,501
12,442
241,779
141,533
50,922
26,540
11,060
230,055
113,967
45,414
28,351
10,151
197,883
128,303
44,906
26,462
11,113
210,784
196,850
52,054
28,256
13,577
290,737
172,688
55,351
26,871
14,109
269,019
8,128
4,099
13,252
9,082
34,561
17.3%
30,740
88.9%
1,670
236
-
516
1,414
3,096
0.071
0.071
5,676
2,787
661
2,228
75,311
85%
22
19
331
16.9%
11.1%
11,030
4,906
14,612
11,107
41,655
17.2%
34,280
82.3%
2,230
230
-
1,330
3,624
6,164
0.182
0.182
6,994
3,614
919
2,461
80,072
87%
23
19
339
19.4%
7.5%
9,983
4,221
14,031
9,843
38,078
16.6%
33,207
87.2%
2,042
278
-
692
1,983
4,011
0.100
0.100
6,350
3,358
831
2,161
77,285
85%
23
19
339
6.7%
(4.0)%
9,023
3,659
13,994
9,050
35,725
18.1%
32,010
89.6%
1,594
332
(8,059)
2,418
7,575
3,469
0.381
0.381
5,219
3,008
306
1,905
77,037
86%
23
21
339
2.4%
2.9%
9,724
3,486
13,277
9,947
36,434
17.3%
31,891
87.5%
1,685
283
-
690
1,995
4,047
0.100
0.100
5,826
3,050
796
1,980
72,360
80%
23
22
339
2.7%
2.9%
13,974
4,302
15,159
12,117
45,552
15.7%
35,127
77.1%
2,311
323
-
2,029
5,951
9,321
0.299
0.299
8,210
4,158
1,900
2,152
80,851
91%
22
21
322
19.3%
8.2%
12,740
5,020
14,493
12,641
44,894
16.7%
35,742
79.6%
2,190
296
-
1,646
5,230
8,216
0.263
0.263
7,649
3,907
1,340
2,402
76,176
90%
22
21
322
21.6%
22.9%
142,880
53,719
28,673
13,046
238,318
11,267
4,573
14,551
11,853
42,244
17.7%
34,086
80.7%
1,871
234
(25,543)
8,144
23,608
7,547
1.187
1.187
6,313
3,405
775
2,133
75,911
91%
24
21
333
24.8%
20.6%
23,615
40,701
153,847
160,590
31,880
46,787
177,294
194,388
34,329
37,149
137,507
145,652
37,541
32,832
118,088
124,609
39,337
42,260
134,865
152,075
43,837
51,539
149,481
172,600
49,366
44,172
159,732
175,291
53,641
42,448
136,869
150,816
1
2
3
4
EBITDA has been calculated as described under “NON-GAAP MEASURES”.
Absorption has been calculated as described under “NON-GAAP MEASURES”.
Same store revenue growth & same store gross profit growth is calculated using franchised automobile dealerships that we have owned for at least 2 full years.
The results from operations have been lower in the first and fourth quarters of each year, largely due to consumer purchasing patterns during the holiday
season, inclement weather and the reduced number of business days during the holiday season. As a result, our financial performance is generally not as
strong during the first and fourth quarters than during the other quarters of each fiscal year. The timing of acquisitions may have also caused substantial
fluctuations in operating results from quarter to quarter.
6
RESULTS FROM OPERATIONS
Annual Operating Results
EBITDA for the year ended December 31, 2011 increased by 74.0% to $29.1 million, from $16.7 million when compared to the
results of the Company for the prior year. The increase in EBITDA for the year can be mainly attributed to the improvement in
new vehicle sales which is a main driver of our business and tends to provide additional sales opportunities in our finance and
insurance and parts, service and collision repair departments.
The following table illustrates EBITDA for the year ended December 31, for the last three years of operations.
Period from January 1
to December 31th
2009
2010
2011
EBITDA
(In thousands of dollars)
18,352
16,740
29,131
Pre-tax earnings before other items (reversal of impairment of intangible assets) increased by $12.3 million to $23.8 million in
2011 from $11.5 million in the prior year. Net earnings before other items (reversal of impairment of intangible assets and its
related tax effect) increased by $9.0 million to $17.6 million in 2011 from $8.6 million in the prior year. The percentage increase
in results not including other items represents a 107% increase in pre-tax earnings and a 105% increase in net earnings over 2010
annual results.
Not including other items, pre-tax earnings increased by $29.7 million to $49.3 million in 2011 from $19.6 million in 2010. Net
earnings increased by $22.2 million to $36.8 million in 2011 from a $14.6 million when compared to the prior year. Income tax
expense increased to $12.5 million in 2011 from $5.0 million in 2010 due to higher pre-tax earnings and future income tax expense
related to the reversal of impairment of intangible assets.
Revenues
Revenues for the year ended December 31, 2011 increased by $139.4 million or 16.0% as compared to the prior year. This
increase was mainly driven by increases in new vehicle sales with modest increases in the finance and insurance and parts, service
and collision repair business. In 2011, new vehicle sales increased by $126.0 million or 24.5% to $640.7 million from $514.7
million in the prior year. The increase in new vehicle sales was a key driver of the increase in finance and insurance revenue of
$8.1 million or 18.6% for the year ended December 31, 2011. Used vehicle sales also increased by $3.5 million or 1.7% during
2011. Parts, service and collision repair revenue posted a modest increase of $1.7 million or 1.6% for the year ended December 31,
2011.
The tables in the “Same-Store Analysis” sections below summarize the results for the year ended December 31, 2011 on a same
store basis by revenue source and compare these results to the same period in 2010. An acquired or open point dealership may take
as long as two years in order to reach normalized operating results. As a result, in order for an acquired or open point dealership to
be included in our same store analysis, the dealership must be owned and operated by us for eight complete quarters. For example,
if a dealership was acquired on December 1, 2008, the results of the acquired entity would be included in quarterly same store
comparisons beginning with the quarter ended March 31, 2011 and in annual same store comparisons beginning with the year
ended December 31, 2011. As a result, only dealerships opened or acquired prior to January 1, 2010 are included in this same store
analysis. In addition, dealership divestitures are also not included in same store operating results. As a result, the current and
historical operating results of Colombo Chrysler Jeep Dodge (divested in the second quarter of 2011) are not included in same
store analysis.
7
Revenues - Same Store Analysis
Company management considers same store gross profit and sales information to be an important operating metric when
comparing the results of the Company to other industry participants.
Same Store Revenue and Vehicles Sold
For the Year Ended
(In thousands of dollars except % change
and vehicle data)
December
31, 2011
December
31, 2010
%
Change
Revenue Source
New vehicles
Used vehicles
605,547
479,978
26.2%
199,254
194,973
2.2%
Finance, insurance and other
49,627
41,605
19.3%
Subtotal
854,428
716,556
19.3%
Parts, service and collision repair
104,630
100,858
3.7%
Total
959,058
817,413
17.3%
New vehicles - retail sold
New vehicles – fleet sold
Used vehicles sold
Total
13,415
11,737
14.3%
4,706
2,572
83.0%
8,284
8,405
(1.4)%
26,405
22,714
16.2%
Total vehicles retailed
21,699
20,142
7.7%
Same store revenue increased by $141.6 million or 17.3% in the year ended December 31, 2011 when compared to 2010. New
vehicle revenues increased by $125.6 million or 26.2% for the year ended December 31, 2011 over the prior year due in part to a
net increase in new vehicle sales of 3,809 units consisting of an increase of 1,678 retail units and 2,134 low margin fleet unit sales.
This increase was partially offset by a decrease in the average selling price per new vehicle retailed (“PNVR”) of $120 over the
prior year largely as a result of the higher volume of fleet units which typically sell for less than retail vehicles.
Same store used vehicle revenues increased by $4.3 million or 2.2% for the year ended December 31, 2011 over the prior year.
This increase was due to an increase in the average selling price per used vehicle retailed of $856, partially offset by a decrease in
the number of used vehicles retailed of 121 units.
Same store parts, service and collision repair revenue experienced a modest gain of $3.8 million or 3.7% for the year ended
December 31, 2011 compared to the prior year and was primarily a result of an increase in the average selling price per repair order
of $9 and an increase in the number of repair orders performed of 2,866 or 1.0%.
Same store finance, insurance and other revenue increased by $8.0 million or 19.3% for the year ended December 31, 2011 over
the prior year. This was due to an increase in the average revenue per unit retailed of 10.7% along with a modest increase in the
number of new and used vehicles retailed of 1,557 units. Credit conditions have continued to improve in 2011 which has allowed
our finance and insurance departments to earn higher commissions on the increased ability of our customers to finance vehicles,
parts, accessories and other insurance products.
8
Gross profit
Gross profit increased by $19.1 million or 12.7% for the year ended December 31, 2011 when compared to the prior year. Similar
to revenues, gross profit increased due to increases in new vehicle sales, finance and insurance and parts, service and collision
repair revenue. Gross profit on the sale of new vehicles increased by $9.5 million or 25.0% for the year ended December 31, 2011.
The increase in new vehicle gross can be mainly attributed to an increase in new vehicle unit sales of 3,847 units or 24.8%. The
Company’s finance and insurance gross profit increased by $7.5 million or 19.1% during 2011. This increase can be mainly
attributed to an increase in the average gross profit per unit retailed of $194. The increase in overall gross profit of the Company
for the year was supplemented by an increase in used vehicle gross profit of $0.5 million or 2.9%. Parts, service and collision
repair gross profit increased by $1.6 million or 2.9% in 2011.
Gross Profit - Same Store Analysis
The following table summarizes the results for the year ended December 31, 2011, on a same store basis by revenue source, and
compares these results to the same periods in 2010.
Same Store Gross Profit and Gross Profit Percentage
For the Year Ended
Gross Profit
Gross Profit %
(In thousands of dollars except %
change and gross profit %)
Dec. 31,
2011
Dec. 31,
2010
%
Change
Dec. 31,
2011
Dec. 31,
2010
Change
Revenue Source
New vehicles
Used vehicles
45,772
36,389
25.8%
16,897
16,772
0.7%
7.6%
8.5%
7.6%
0.0%
8.6%
(0.1)%
Finance, insurance and other
44,941
37,407
20.1%
90.6%
89.9%
0.6%
Subtotal
107,610
90,568
19.4%
Parts, service and collision repair
54,609
51,886
5.2%
52.2%
51.4%
0.7%
Total
162,219
142,454
13.9%
16.9%
17.4%
(0.5)%
Same store gross profit increased by $19.8 million or 13.9% for the year ended December 31, 2011 when compared to the prior
year. New vehicle gross profit increased by $9.4 million or 25.8% in the year ended December 31, 2011 when compared to 2010
as a result of the previously discussed increase in new vehicle sales of 3,809 units.
Used vehicle gross profit increased by $0.1 million or 0.7% in the year ended December 31, 2011 over the prior year. This was
primarily due to a decrease in the number of used vehicles sold of 121 units or 1.4%, more than offset by an increase in the average
gross profit per vehicle retailed of $44 or 2.2%.
Parts, service and collision repair gross profit increased by $2.7 million or 5.2% in the year ended December 31, 2011 when
compared to the same period in the prior year as a result of an increase of $8 in the average gross profit earned per repair order and
an increase of 2,866 in the number of repair orders completed during the year.
Finance and insurance gross profit increased by 20.1% or $7.5 million in the year ended December 31, 2011 when compared to the
prior year as a result of an increase in the average gross profit per unit sold of $214 and an increase in units retailed of 1,557.
9
Operating expenses
Operating expenses increased by 5.1% or $6.6 million during the year ended December 31, 2011 as compared to the prior year.
Since many operating expenses are variable in nature, management considers operating expenses as a percentage of gross profit to
be a good indicator of expense control. Operating expenses as a percentage of gross profit decreased to 80.9% in 2011 from 86.8%
in the prior year. Operating expenses consist of four major categories; employee costs, selling and administrative costs, facility
lease costs, and amortization.
Employee costs
During the year ended December 31, 2011, employee costs increased by $6.4 million to $82.3 million from $75.9 million in the
prior year. Employee costs as a percentage of gross profit decreased to 48.7% in 2011from 50.6% in 2010. Management attributes
the decrease to lower termination and employee benefit costs realized in the year ended December 31, 2011.
Selling and administrative costs
During the year ended December 31, 2011, selling and administrative costs increased by $1.0 million or 2.6% due to an increase in
advertising and other administrative expenses. Selling and administrative expenses as a percentage of gross profit decreased to
22.9% in 2011 from 25.1% in 2010. This decrease is due to less advertising and fixed costs as a percentage of gross profit. The
Company has focused over the past year on decreasing its advertising expense through more effective use of the internet. These
efforts have resulted in a decrease in advertising expense per vehicle retailed.
Facility lease costs
During the year ended December 31, 2011, facility lease costs decreased by 7.0% to $11.6 million from $12.5 million. The
Company sold its Colombo Chrysler Jeep Dodge location in June of 2011 and purchased one of its previously leased facilities in
late 2010 which has attributed to this decrease.
Amortization
During the year ended December 31, 2011, amortization remained relatively flat at $4.2 million. The 1.8% increase in amortization
over the prior year is mainly due to the purchase of the Newmarket Infiniti Nissan facility in late 2010.
Reversal of impairment of intangible assets
The Company has a number of franchise agreements for its individual dealerships which it classifies as intangible assets. These
intangible assets are tested for impairment at least annually as they are considered to be indefinite-lived intangible assets. Under
IFRS, previously recognized impairment charges, with the exception of impairment charges related to goodwill, may potentially be
reversed if the circumstances causing the impairment have improved or are no longer present. If such circumstances change, a new
recoverable amount should be calculated and all or part of the impairment charge should be reversed to the extent the recoverable
amount exceeds carrying value. The financial results of many of the Company’s cash generating units (“CGUs”) have significantly
improved in 2011, which led to a reversal of previously recorded impairments to intangible assets. During the year ended
December 31, 2011, the Company recorded a reversal of impairment of $25,543 (2010 - $8,059).
Finance costs
The Company incurs finance costs on its revolving floorplan facilities, long term indebtedness and banking arrangements. During
the year ended December 31, 2011, finance costs on our revolving floorplan facilities increased to $8.1 million from $7.5 million
in 2010. Finance costs on long term indebtedness remained steady at $1.1 million in 2011. Finance costs, net of finance income
has remained relatively flat year over year due to the Company holding cash in its Ally account which is used to offset floorplan
costs at the current rate of 4.20%.
The following table summarizes the interest rates at the end of the last eight quarters on our revolving floorplan facilities.
Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011
Interest Rate
4.20%
4.20%
4.20%
4.20%
4.20%
4.20%
4.20%
4.20%
As of the date of this MD&A our floorplan interest rate is 4.20%.
Some of our manufacturers provide non-refundable credits on the finance costs for our revolving floorplan facilities to offset the
10
dealership’s cost of inventory that, on average, effectively provide the dealerships with interest-free floorplan financing for the first
45 to 60 days of ownership of each financed vehicle. During the year ended December 31, 2011, the net floorplan credits were
$5,501 (2010 - $4,223). The increase in floorplan credits is a result of higher turnover in new vehicle inventory. Accounting
standards require the floorplan credits to be accounted for as a reduction in the cost of new vehicle inventory and subsequently a
reduction in the cost of sales as vehicles are sold.
The following table summarizes the net floorplan credits that were received in 2011.
(In thousands of dollars)
Q1 2011
Q2 2011
Q3 2011
Q4 2011
For the year ended
December 31, 2011
Net floorplan credits
1,185
1,593
1,423
1,300
5,501
Management believes that a comparison of floorplan financing costs to floorplan credits can be used to evaluate the efficiency of
our new vehicle sales relative to stocking levels. The following table details the carrying cost of vehicles based on floorplan
interest net of floorplan assistance earned:
Floorplan financing costs
Floorplan credits earned
Net carrying cost of vehicle inventory
Income taxes
Year ended
December 31,
2011
Year ended
December 31,
2010
8,057
(5,501)
7,536
(4,223)
2,556
3,313
Income tax expense for the year ended December 31, 2011 increased by $7.5 million to $12.5 million from $5.0 million in 2010.
As a result of the reversal of impairments of intangible assets, the Company recorded deferred tax expense in the amount of $6.4
million (2010 - $2.1 million) as a result of the revised temporary differences between the tax basis and carrying value of these
assets.
Until December 31, 2009, our previous trust structure was such that current income taxes were passed on to our unitholders. In
conjunction with our conversion from a trust to a corporation, we became subject to normal corporate tax rates starting in 2010.
The corporate income tax rate applicable to 2010 was approximately 29.0%; however, we did not pay any corporate income tax in
2010 due to the tax deductions available to us and the effect of the deferral of our partnership income.
In December 2011, legislation was passed implementing tax measures outlined in the 2011 budget (Bill C-13), which included the
elimination of the ability of a corporation to defer income as a result of timing differences in the year-end of the corporation and of
any partnership of which it is a member, subject to transitional relief over five years. AutoCanada’s deferred tax liability includes
deferred partnership income of $6.7 million that will be reduced over the transition relief period of five years. Although the
amounts below can change based on our future taxable income, the Company estimates the following amounts to be recorded as
current income tax payable over the next five years in conjunction with the payment of the deferral. The Company notes that these
amounts paid will be in addition to the normal current income tax payable of future years:
(In thousands of dollars)
Increase to current tax payable
2012
3,555
2013
557
2014
794
2015
784
2016
980
The Company expects income tax to have a more significant effect on our free cash flow and adjusted free cash flow as the
Company will now be required to pay current income taxes, as well as, income tax instalments for the anticipated current tax
expense for the fiscal year.
Until 2012, the Company has yet to pay any corporate tax or installments for corporate tax. In 2012, the Company expects to pay
approximately $4.2 million of cash taxes which relates to the fiscal 2011 taxation year and installments toward the 2012 taxation
year. The payment of cash taxes will have an impact on adjusted free cash flow. As seen in the chart located in “Adjusted Free
11
Cash Flow”, adjusted free cash flow for the 2011 fiscal year was $27.7 million, which was not impacted by cash taxes. If the
Company maintained the same results in the 2012 fiscal year, adjusted free cash flow would be $23.5 million due to the payment of
$4.2 million of cash taxes in 2012. Investors are cautioned that income taxes will have a more significant effect on the Company’s
cash flow in the future, and as a result, the current level of adjusted free cash flow will inherently be lowered by cash taxes in the
future.
Fourth Quarter Operating Results
EBITDA for the three month period ended December 31, 2011 increased by 117.6% to $7.5 million, from $3.5 million when
compared to the results of the Company for the same period in the prior year. The increase in EBITDA for the fourth quarter can be
attributed to the improvement in new vehicle sales and the resulting finance and insurance product sales. As explained below, the
Company’s parts, service and collision repair department and its used vehicle department also had strong gains in revenue and
gross profit which contributed to strong EBITDA in the fourth quarter of 2011.
The following table illustrates EBITDA for the three month period ended December 31, for the last 3 years of operations:
Period from October 1st
to December 31th
2009
2010
2011
EBITDA
(In thousands of dollars)
3,271
3,469
7,547
Pre-tax earnings before other items (reversal of impairment of intangible assets) increased by $4.3 million to $6.2 million in the
fourth quarter of 2011 from $1.9 million in the same period of the prior year. Net earnings before other items (reversal of
impairment of intangible assets and its related tax effect) increased by $3.0 million to $4.5 million in the fourth quarter of 2011
from $1.5 million in the prior year.
Not including other items, pre-tax earnings increased by $21.8 million to $31.8 million for the three month period ended December
31, 2011 from $10.0 million in the same period of 2010. Net earnings increased by $16.0 million to $23.6 million from $7.6
million when compared to the same period of the prior year. Income tax expense increased to $8.1 million in the fourth quarter of
2011 from $2.4 million in the same period of 2010 due to higher pre-tax earnings and future income tax expense related to the
reversal of impairment of intangible assets.
Revenues
Revenues for the three month period ended December 31, 2011 increased by $40.4 million or 20.4% as compared to the same
period of the prior year. This increase was mainly driven by increases in new and used vehicle sales with modest increases in the
finance and insurance and parts, service and collision repair business. In the fourth quarter of 2011, new vehicle sales increased by
$28.9 million or 25.4% to $142.9 million from $114.0 million in the prior period. Used vehicle sales also increased by $8.3
million or 18.3% in the fourth quarter of 2011 as compared to 2010. The increase in new and used vehicle sales contributed to the
increase in finance and insurance revenue of $2.9 million or 28.5% for the three month period ended December 31, 2011. Parts,
service and collision repair revenue remained relatively flat quarter over quarter.
12
Revenue - Same Store Analysis
The following table summarizes the results for the three-month period ended December 31, 2011 on a same store basis by revenue
source and compares these results to the same period in 2010.
Same Store Revenue and Vehicles Sold
For the Three-Month Period Ended
(In thousands of dollars except %
change and vehicle data)
December 31,
2011
December 31,
2010
% Change
Revenue Source
New vehicles
Used vehicles
Finance, insurance and other
Subtotal
Parts, service and collision repair
Total
New vehicles - retail sold
New vehicles – fleet sold
Used vehicles sold
Total
Total vehicles retailed
136,761
103,981
52,121
12,575
201,457
27,452
228,909
3,226
775
2,056
6,057
5,282
43,499
9,518
156,998
26,368
183,366
2,687
279
1,798
4,764
4,485
31.5%
19.8%
32.1%
28.3%
4.1%
25.0%
20.1%
177.8%
14.3%
27.1%
17.8%
Same store revenue increased by $45.5 million or 24.8% in the three month period ended December 31, 2011 when compared to
the same period in 2010. New vehicle revenues increased by $32.8 million or 31.5% for the fourth quarter of 2011 over the prior
period due in part to a net increase in new vehicle sales of 1,005 units consisting of an increase of 539 retail units and 496 low
margin fleet unit sales. This increase was partially offset by a decrease in the average selling price per new vehicle retailed
(“PNVR”) of $524 over the prior year largely as a result of the higher volume of fleet units which typically sell for less than retail
vehicles.
Same store used vehicle revenues increased by $8.6 million or 19.8% for the three month period ended December 31, 2011 over
the same period in the prior year. This increase was due to an additional 258 units sold in the quarter over 2010 and an increase in
the average selling price per used vehicle retailed of $1,158.
Same store parts, service and collision repair revenue experienced a modest gain of $1.1 million or 4.2% for the fourth quarter of
2011 compared to the prior period and was primarily a result of an increase in the number of repair orders performed of 2,932 or
4.2%.
Same store finance, insurance and other revenue increased by $3.1 million or 32.1% for the three month period ended December
31, 2011 over the prior period. This was due to an increase in the average revenue per unit retailed of 12.2% along with an
increase in the number of new and used vehicles retailed of 797 units. The increases we experienced in both new and used retail
sales reflected positively in our finance and insurance revenue for the quarter.
13
Gross profit
Gross profit increased by $6.5 million or 18.2% for the three month period ended December 31, 2011 when compared to the same
period in the prior year. Similar to revenues, gross profit increased due to increases in all four of our major revenue streams.
Gross profit earned on the sale of new vehicles increased by $2.2 million or 24.9% for the fourth quarter of 2011. The increase in
new vehicle gross can be mainly attributed to an increase in new vehicle unit sales of 866 units or 26.1%. The Company’s finance
and insurance gross profit increased by $2.8 million or 31.0% during the fourth quarter of 2011. This increase can be mainly
attributed to an increase in the average gross profit per unit retailed of $298 and increases in new and used vehicle sales. The
increase in overall gross profit of the Company for the quarter was supplemented by an increase in used vehicle gross profit of $0.9
million or 25.0%. Parts, service and collision repair gross profit increased by $0.6 million or 4.0% in the fourth quarter of 2011.
Gross Profit - Same Store Analysis
The following table summarizes the results for the three-month period ended December 31, 2011 on a same store basis by revenue
source and compares these results to the same period in 2010.
Same Store Gross Profit and Gross Profit Percentage
For the Three-Month Period Ended
Gross Profit
Gross Profit %
(In thousands of dollars except %
change and gross profit %)
Revenue Source
New vehicles
Used vehicles
Dec. 31,
2011
Dec. 31,
2010
%
Change
Dec. 31,
2011
Dec. 31,
2010
Change
10,835
8,554
26.7%
4,398
3,620
21.5%
7.9%
8.4%
8.2%
(0.3)%
8.3%
0.1%
Finance, insurance and other
11,507
8,558
34.5%
91.5%
89.9%
1.6%
Subtotal
26,740
20,732
29.0%
Parts, service and collision repair
13,923
12,981
7.3%
50.7%
49.2%
1.5%
Total
40,663
33,713
20.6%
17.8%
18.4%
(0.6)%
Same store gross profit increased by $7.0 million or 20.6% for the three month period ended December 31, 2011 when compared
to the same period in the prior year. The Company’s gross profit on new vehicles increased by $2.3 million or 26.7% in the fourth
quarter of 2011, when compared to 2010, as a result of an increase in new vehicle sales of 1,005 units.
Used vehicle gross profit increased by $0.8 million or 21.5% in the fourth quarter of 2011 over the prior period. This was
primarily due to an increase in the number of used vehicles sold of 258 units or 14.3% and an increase in the average gross profit
per vehicle retailed of $126 or 6.3%.
Parts, service and collision repair gross profit increased by $0.9 million or 7.3% in the three months ended December 31, 2011
when compared to the same period in the prior year as a result of an increase of $6 in the average gross profit earned per repair
order and an increase of 2,932 in repair orders completed during the quarter.
Finance and insurance gross profit increased by 34.5% or $2.9 million in the three month period ended December 31, 2011 when
compared to the prior period as a result of an increase in the average gross profit per unit sold of $271 and an increase in new and
used vehicle units retailed of 797.
14
Operating expenses
Operating expenses increased by 6.5% or $2.1 million during the three month period ended December 31, 2011 as compared to the
prior period. Since many operating expenses are variable in nature, management considers operating expenses as a percentage of
gross profit to be a good indicator of expense control. Operating expenses as a percentage of gross profit decreased to 80.7% in the
fourth quarter of 2011 from 89.6% in the prior year. Operating expenses consist of four major categories; employee costs, selling
and administrative costs, facility lease costs, and amortization.
Employee costs
During the three month period ended December 31, 2011, employee costs increased by $2.0 million to $20.3 million from $18.3
million in the prior year. Employee costs as a percentage of gross profit decreased to 48.1% from 51.3% in the fourth quarter of
2010. Although commissioned wages generally increase as a percentage of gross profit, salaried wages do not increase with sales
which will generally decrease employee costs as a percentage of gross profit during times of increased sales, as was the case in the
fourth quarter of 2011.
Selling and administrative costs
During the three month period ended December 31, 2011, selling and administrative costs increased by $0.3 million or 3.0% due to
an increase in advertising and other administrative expenses. Selling and administrative expenses as a percentage of gross profit
decreased to 23.1% in the fourth quarter of 2011 from 26.5% in 2010. This decrease is due to less advertising and fixed costs as a
percentage of gross profit.
Facility lease costs
During the three month period ended December 31, 2011, facility lease costs decreased by 3.2% to $3.0 million from $3.1 million
in the fourth quarter of 2010.
Amortization
During the three month period ended December 31, 2011, amortization decreased slightly by $0.1 million.
Finance costs
The Company incurs finance costs on its revolving floorplan facilities, long term indebtedness and banking arrangements. During
the three month period ended December 31, 2011, finance costs on our revolving floorplan facilities increased to $1.9 million from
$1.6 million in 2010. Finance costs on long term indebtedness decreased by $0.1 million in the fourth quarter of 2011. Finance
costs, net of finance income has remained relatively flat quarter over quarter due to the Company holding cash in its Ally account
which is used to offset floorplan costs at the current rate of 4.20%.
Sensitivity
Based on our historical financial data, management estimates that an increase or decrease of one new retail vehicle sold (and the
associated finance and insurance income on the sale) would have resulted in a corresponding increase or decrease in our estimated
free cash flow of approximately $1,500 - $2,000 per vehicle. The net earnings achieved per new vehicle retailed can fluctuate
between individual dealerships due to differences between the manufacturers, geographical locations of our dealerships and the
demographic of which our various dealerships’ marketing efforts are directed. The above sensitivity analysis represents an average
of our dealerships as a group and may vary depending on increases or decreases in new vehicles retailed at our various locations.
15
GROWTH, ACQUISITIONS, AND RELOCATIONS
The Company currently owns 24 franchised automotive dealerships. At the time of AutoCanada’s initial public offering (“IPO”) in
May of 2006, AutoCanada owned 14 franchised automotive dealerships. Since this time the Company has acquired or opened
eleven additional dealerships and has sold one of its dealerships.
On June 20, 2011, the Company sold its Colombo Chrysler Jeep Dodge dealership. Although the Company is pleased with the
performance of its Chrysler Jeep Dodge Ram dealerships generally, profitability at Colombo had been a challenge for the
Company. As the current facility lease was due to expire within 12 months, a relocation with its attendant costs was likely, and as
it was expected that the incremental impact of this sale on the Company’s net income would be positive for 2011, it was
determined that shareholder value would be best served by the sale of the dealership, allowing Management to better focus its
efforts and resources on its other dealerships.
On November 4, 2011, the Company purchased substantially all of the net operating and fixed assets of Valley Autohouse (1984)
Ltd. operating two dealerships as Valley Autohouse (“Abbotsford and Chilliwack Volkswagen”) for total cash consideration of
$1,753. The acquisition was financed with cash from operations. The Abbotsford facility is an approximately 9,300 sq. ft. leased
facility which includes eight service bays and a six car showroom. The dealership has been in operation since 1986 and in 2010
retailed approximately 210 new and 190 used vehicles. The Chilliwack facility is an approximately 4,500 sq. ft. leased facility
which includes 3 service bays and a single car showroom. The dealership has been in operation since 2002 and in 2010 retailed
approximately 30 new and 40 used vehicles.
With respect to FIAT franchises, the Company has substantially completed the facility improvements at the three locations that
were awarded FIAT franchises. For the year ended December 31, 2011, the Company incurred $0.6 million in renovations to its
showrooms to accommodate FIAT franchises. Management does not expect a significant incremental increase in earnings as a
result of the three new franchises (Crosstown FIAT, Capital FIAT and Maple Ridge FIAT) during the first two years due to limited
product availability and costs associated with operating the additional franchises.
Management is currently developing a capital plan which includes the possible relocation of four of its dealerships. Management
estimates the potential capital requirement of the relocations to be in the range of $20 – 25 million over a two to three year period.
Management expects to finance the relocations with a combination of mortgage debt, revolver debt and cash from operations.
Management expects the non-mortgage debt financing requirement related to these relocations to be in the range of $6 – 8 million
over the same period. Management will provide further guidance as to the timing and costs associated with relocations as the plans
develop. Relocation of dealerships provides long-term earnings sustainability and is necessary to meet Manufacturer facility
requirements.
On June 22, 2011, the Company had announced that in view of the continued resistance of some manufacturers to the public
ownership model, shareholder value could be best achieved by aligning its business model with a strategy that contemplated
modest growth, with an emphasis on returning to shareholders a fair share of earnings by way of dividends. Since that time,
Management has continued to seek opportunities to work with both new and current Manufacturers, and is currently pursuing a
number of growth opportunities, some of which are open points. Management will consider only those open points which it
determines provide long term shareholder value. If Management is successful in respect to one or more of these opportunities, the
likelihood of which cannot at this juncture be determined, the growth opportunities of the Company will have improved beyond
what the Company had previously determined.
16
LIQUIDITY AND CAPITAL RESOURCES
Our principal uses of funds are for capital expenditures, repayment of debt, funding the future growth of the Company and
dividends to Shareholders. We have historically met these requirements by using cash generated from operating activities and
through short term and long term indebtedness. A significant decline in sales as a result of the inability to procure adequate supply
of vehicles and/or lower consumer demand may reduce our cash flows from operations and limit our ability to fund capital
expenditures, repay our debt obligations, fund future growth internally and/or fund future dividends.
On June 22, 2011 the Company announced that following an independent Board review of its business plan, it has revised its
dividend policy such that it shall target quarterly dividends between 70% and 80% of fully diluted earnings per share. This
dividend policy shall be reviewed on a quarterly basis and adjusted, as required, to meet market conditions. As such, the Company
expects the new dividend policy to place some constraints on its ability to fund future growth through cash from operations. If the
acquisition landscape changes in the future whereby significant growth opportunities are available, the Company may fund
acquisitions through the issuance of debt or equity, or revise the dividend policy to fund future acquisitions through cash from
operations.
Cash Flow from Operating Activities
Cash flow from operating activities (including changes in non-cash working capital) of the Company for the year ended December
31, 2011 was $30.0 million (cash provided by operating activities of $28.8 million plus net change in non-cash working capital of
$1.2 million) compared to $34.3 million (cash provided by operating activities of $16.2 million plus net change in non-cash
working capital of $18.2 million) in the prior year.
Cash flow from operating activities of the Company for the three month period ended December 31, 2011 was $9.7 million (cash
provided by operating activities of $7.8 million plus net change in non-cash working capital of $1.9 million) compared to $7.8
million (cash provided by operating activities of $3.3 million plus net change in non-cash working capital of $4.5 million) in the
fourth quarter of 2010.
Cash Flow from Investing Activities
Cash flow from investing activities of the Company for the year ended December 31, 2011 was a net outflow of $5.3 million
compared to $18.1 million in the prior year. In 2010, the Company purchased the land and building at its Newmarket Nissan
Infiniti location for $6.0 million and purchased the assets of 401 Dixie Hyundai in the second quarter of 2010 for $3.6 million.
These two factors were main contributors to the decrease in cash flow from investing activities in 2011.
For the three month period ended December 31, 2011, cash flow from investing activities of the Company was a net outflow of
$2.9 million as compared to a net outflow of $4.7 million in the same period of the prior year. In the fourth quarter of 2010 the
Company prepaid an additional $2.0 million in rent which is the main contributor to the decrease in 2011.
Cash Flow from Financing Activities
Cash flow from financing activities of the Company for the year ended December 31, 2011 was a net outflow of $8.6 million
compared to $0.2 million in the prior year. In third quarter of 2010, the Company financed the purchase of the land and building at
its Newmarket Nissan Infiniti location and made a draw on its revolving term facility for the purchase of 401 Dixie Hyundai for
total proceeds of $5.5 million. In 2011, the Company repaid $2.4 million of its long term debt and increased its dividends paid
during the year by $3.8 million when compared to the same period in the prior year.
For the three month period ended December 31, 2011, cash flow from financing activities was a net outflow of $2.5 million as
compared to a net inflow of $0.1 million in the same period of 2010. In the fourth quarter of 2011, the Company paid $2.4 million
in dividends which is the main contributor to this decrease in cash flow.
Economic Dependence
As stated in Note 7 of the annual audited consolidated financial statements, the Company has significant commercial and economic
dependence on Chrysler Canada and Ally Credit Canada Limited (“Ally Credit”). As a result, the Company is subject to
significant risk in the event of the financial distress of Chrysler Canada, one of our major vehicle manufacturers and parts
17
suppliers, and Ally Credit, which provides the Company with revolving floorplan facilities for 22 of its 24 dealerships. Details of
these relationships and balances of assets with Chrysler Canada and Ally Credit are described in Note 7 of the annual consolidated
financial statements for the year ended December 31, 2011.
Credit Facilities
HSBC Bank Canada (“HSBC”) provides AutoCanada with a $30 million revolving term loan (the “HSBC Revolver”). The HSBC
Revolver is a 365 day fully committed, extendible revolving term loan. 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 facility at the request of AutoCanada
and upon approval by HSBC. The HSBC Revolver contains an annual renewal fee of $15. 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 0.75% (currently 3.75% at the date of this MD&A).
The HSBC Revolver is secured by all of the present and future assets of the Company, the various Limited Partnerships and the
General Partners of each dealership within AutoCanada. As part of priority agreements signed by HSBC, Ally Credit, VW Credit
Canada Inc. and the Company, the collateral for the HSBC Revolver excludes all new, used, and demonstrator inventory financed
with the Revolving Floorplan Facilities (discussed further below in Floor Plan Financing section).
The HSBC Revolver requires maintenance of certain financial covenants as indicated below:
(i)
(ii)
(iii)
(iv)
The Debt to Tangible Net Worth ratio, including floorplan, must not exceed 7.50:1. Intangible assets to be
deducted from Tangible Net Worth, and shareholder loans to be added to tangible net worth and deducted from
debt, if postponed to HSBC; tested quarterly
The Debt to Tangible Net Worth ratio, excluding floorplan, must not exceed 2.50:1. Intangible assets to be
deducted from Tangible Net Worth, and shareholder loans to be added to tangible net worth and deducted from
debt, if postponed to HSBC; tested quarterly
The Current Ratio, net of flooring, shall not be less than 1.20:1 at any time; tested quarterly
The Company must maintain a minimum cash deposit balance with HSBC Bank Canada of $10,000,000.
Additional information relating to the HSBC Revolver including a copy of the agreement can be found on SEDAR
(www.sedar.com).
HSBC provided AutoCanada with a $3.5 million non-revolving term loan (the “HSBC Term Loan”) which was used to purchase
the Newmarket Infiniti Nissan facility located in Newmarket, Ontario in 2010. The facility was purchased in the third quarter of
2010. The HSBC Term Loan is a committed, extendible non-revolving term loan. The HSBC Term Loan’s maturity date is June
30, 2012, 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, 2013. The HSBC Term Loan bears
interest at HSBC’s Prime Rate plus 1.75% (4.75% at December 31, 2011).
The HSBC Term Loan is secured by a first fixed charge in the amount of $3.5 million registered over the Newmarket Infiniti
Nissan property and is guaranteed by AutoCanada Holdings Inc. (“ACHI”), a subsidiary of AutoCanada Inc. The HSBC Term
Loan requires maintenance of certain financial covenants as indicated below:
(i)
AutoCanada Inc. must not permit its debt service coverage ratio at any time to be below 1.25. The debt service
coverage ratio shall utilize a payment based on a 3 year cost of funds rate.
The Bank of Montreal (“BMO”) provided the Company with a $3.5 million fixed rate term loan (the “BMO Term Loan”) which
was used to purchase the Cambridge Hyundai facility located in Cambridge, Ontario in 2008. The BMO Term Loan matures on
September 30, 2012 and bears interest at a fixed rate of 5.11%. 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 $3.5 million
registered over the Cambridge Hyundai property.
18
Floor Plan Financing
Franchised automobile dealerships finance their new vehicle inventory (and in some instances a portion of their used vehicle
inventory) by way of floor plan financing, which is offered by the automobile manufacturers’ captive finance companies, banks
and specialty lenders. Although the structures used in floor plan financing vary, a floor plan lender typically finances 100% of the
purchase price of a new vehicle from the time of purchase by the dealership (which occurs when production of the new vehicle is
completed).
Ally Credit provides AutoCanada with revolving floorplan facilities (“Ally Facilities”) for twenty-two of its dealerships. The Ally
Facilities provide each of our dealerships with financing for new, used and demonstrator inventory, subject to a maximum of new,
used and demonstrator units to be financed based on the financing needs of each of our individual dealerships. The Ally Facilities
are due on demand and bear interest at the Prime Rate plus 0.2% (4.20% at December 31, 2011) and is payable monthly in arrears.
Prime rate is defined as the greater of the Royal Bank of Canada Prime Rate (3.00% at December 31, 2011) or 4.00%.
The Ally Facilities are collateralized by the respective 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 twenty-two dealerships provided with
the Ally Facilities. 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.
In conjunction with the purchase of Abbotsford and Chilliwack Volkswagen in the fourth quarter of 2011, the Company arranged
revolving floorplan facilities with VW Credit Canada Inc. (“VCCI Facilities”) for these two dealerships. The VCCI Facilities
consist of a $5.25 million revolving floorplan facility to finance new and demonstrator vehicles from Volkswagen Canada (“VW
Canada”). The new and demonstrator vehicle facilities are due on demand and bear interest at Royal Bank of Canada prime rate
plus 0.75% per annum (3.75% at December 31, 2011) and is payable monthly in arrears. The VCCI Facilities also provide the two
dealerships with used vehicle floorplan financing to a maximum of $2.05 million during peak selling season. The used vehicle
facilities are due on demand and bear interest between Royal Bank of Canada prime plus 1.00% - 1.25% depending on the type of
used vehicles financed (4.00% - 4.25% at December 31, 2011).
The VCCI Facilities are collateralized by the all new, used and demonstrator inventory financed by VCCI and a general security
agreement with each of the two dealerships. The individual notes payable of the VCCI Facilities are due when the related vehicle
is sold or according to an aging based repayment policy as mandated by VCCI.
The VCCI Facilities require maintenance of financial covenants which require both dealerships to maintain minimum cash and
equity balances. At December 31, 2011 the financial covenants had been met.
Our ability to finance our new, used and demonstrator inventory is a significant factor in the Company’s liquidity management.
The Company is generally able to increase or decrease the number of vehicles it finances, subject to limits imposed by floorplan
lenders, as part of its treasury management function. If floorplan limits are reduced, the Company may not be able to maintain its
current level of inventories which may impact our results.
Financial Instruments
Details of the Company’s financial instruments, including risks and uncertainties are included in Note 21 of the annual
consolidated financial statements for the year ended December 31, 2011.
Growth vs. Non-growth Capital Expenditures
Non-growth capital expenditures are capital expenditures incurred during the period to maintain existing levels of service. These
include capital expenditures to replace property and equipment and any costs incurred to enhance the operational life of existing
property and equipment. Non-growth capital expenditures can fluctuate from period to period depending on our needs to upgrade
or replace existing property and equipment. Over time, we expect to incur annual non-growth capital expenditures in an amount
approximating our amortization of property and equipment reported in each period.
19
Additional details on the components of non-growth property and equipment purchases are as follows:
(In thousands of dollars)
Leasehold improvements
Machinery and equipment
Furniture and fixtures
Computer equipment
Company & lease vehicles
October 1, 2011 to
December 31, 2011
January 1, 2011 to
December 31, 2011
$
32
116
67
193
-
408
143
265
198
413
52
1,071
Amounts relating to the expansion of sales and service capacity are considered growth expenditures. Growth expenditures are
discretionary, represent cash outlays intended to provide additional future cash flows and are expected to provide benefit in future
periods. During the year ended December 31, 2011 growth capital expenditures of $1.9 million were incurred. These expenditures
related primarily to leasehold improvements and purchases of equipment for our Crosstown body shop relocation and the
renovation of three dealerships to accommodate newly appointed FIAT franchises. Dealership relocations are included as growth
expenditures if they contribute to the expansion of sales and service capacity of the dealership.
The following table provides a reconciliation of the purchase of property and equipment as reported on the Statement of Cash
Flows to the purchase of non-growth property and equipment as calculated in the free cash flow section below.
(In thousands of dollars)
Purchase of property and equipment from the Statement of Cash Flows
Less: Amounts related to the expansion of sales and service capacity
Purchase of non-growth property and equipment
October 1, 2011 to
December 31, 2011
January 1, 2011 to
December 31, 2011
$
718
(310)
408
$
2,954
(1,883)
1,071
Repairs and maintenance expenditures are expensed as incurred and have been deducted from earnings for the period. Repairs and
maintenance expense incurred during the three-month period and year ended December 31, 2011, were $0.5 million and $2.1
million, respectively (2010 - $0.5 million and $2.0 million).
Planned Capital Expenditures
Our capital expenditures consist primarily of leasehold improvements, the purchase of furniture and fixtures, machinery and
equipment, service vehicles, computer hardware and computer software. Management expects that our annual capital expenditures
will increase in the future, as a function of increases in the number of locations requiring maintenance capital expenditures, the cost
of opening new locations and increased spending on information systems.
Management is also considering the purchase of real estate for some of the properties in which it currently leases. Based on current
lease rates, our estimates of appraisal values and current market financing rates, Management believes that the purchase of certain
properties may provide value and will continue to evaluate this option if opportunities arise in which a property is available to
purchase. If a significant real estate purchase is undertaken, the Company may seek additional debt and/or equity financing to fund
the purchase.
For further information regarding planned capital expenditures, see “GROWTH, ACQUISITIONS, AND RELOCATIONS” above.
20
Contractual Obligations
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 and other third parties.
The minimum lease payments over the upcoming fiscal years will be as follows:
2012
2013
2014
2015
2016
Thereafter
Total
$
10,109
8,611
8,307
7,984
6,881
56,481
98,373
Information regarding our contractual obligations with respect to long-term debt, capital lease obligations and other long-term
obligations is included in the Liquidity Risk section of Note 21 – Financial Instruments of the Company’s annual consolidated
financial statements.
Financial Position
The following table shows selected audited balances of the Company (in thousands) for December 31, 2011 and December 31,
2010 as well as unaudited balances of the Company at September 30, 2011, June 30, 2011, March 31, 2011, September 30, 2010,
June 30, 2010 and March 31, 2010.
Balance Sheet
Data
Cash and cash
equivalents
Accounts
receivable
Inventories
Total assets
Revolving
floorplan
facilities
December
31, 2011
September
30, 2011
June
30, 2011
March
31, 2011
December
31, 2010
September
30, 2010
June
30, 2010
March
31, 2010
53,641
49,366
43,837
39,337
37,541
34,329
31,880
23,615
42,448
44,172
51,539
42,260
32,832
37,149
46,787
40,701
136,869
159,732
149,481
134,865
118,088
137,326
177,294
153,847
334,223
327,568
318,956
291,291
261,435
271,635
314,662
274,657
150,816
175,291
172,600
152,075
124,609
145,652
194,388
160,590
Non-current debt
and lease
obligations
Net Working Capital
20,115
20,210
24,895
24,989
25,094
24,200
18,942
19,010
The automobile manufacturers represented by the Company require the Company to maintain net working capital for each
individual dealership. At December 31, 2011, the aggregate of net working capital requirements was approximately $31.4 million.
At December 31, 2011, all working capital requirements had been met by each dealership. The working capital requirements
imposed by the automobile manufacturers’ may limit our ability to fund capital expenditures, acquisitions, dividends, or other
commitments in the future if sufficient funds are not generated by the Company. Net working capital, as defined by automobile
manufacturers, may not reflect net working capital as determined using GAAP measures. As a result, it is possible that the
Company may meet automobile manufacturers’ net working capital requirements without having sufficient aggregate working
capital using GAAP measures. The Company defines net working capital amounts as current assets less current liabilities as
21
presented in the annual consolidated financial statements. At December 31, 2011, the Company had aggregate working capital of
approximately $45.0 million.
The net working capital requirements above restrict the Company’s ability to transfer funds up from its subsidiary’s as each
subsidiary dealership is required to be appropriately capitalized as explained above. In addition, our VCCI Facilities required the
two VW dealerships to maintain minimum cash and equity, which also restricts our ability to transfer up funds.
Off Balance Sheet Arrangements
The Company has not entered into any material off balance sheet arrangements.
Related Party Transactions
Note 30 of the annual consolidated financial statements of the Company summarize the transactions between the Company and its
related parties. These transactions are prepayments of rent and rents paid to companies with common ownership, management and
directors.
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 and have been reviewed and approved by the independent members
of our Board of Directors and where considered necessary are supported by independent appraisals.
DIVIDENDS
Dividends to Shareholders
Management reviews the Company’s financial results on a monthly basis. The Board of Directors review the financial results on a
quarterly basis, or as requested by Management, and determine whether a dividend shall be paid based on a number of factors.
The following table summarizes the dividends declared by the Company in 2011:
(In thousands of dollars)
Record date
Payment date
February 28, 2011
May 31, 2011
August 31, 2011
November 30, 2011
March 15, 2011
June 15, 2011
September 15, 2011
December 15, 2011
Total
Declared
$
795
995
1,988
2,385
Paid
$
795
995
1,988
2,385
On February 15, 2012, the Board declared a quarterly eligible dividend of $0.14 per common share on AutoCanada’s outstanding
Class A common shares, payable on March 15, 2012 to shareholders of record at the close of business on February 29, 2012. The
quarterly eligible dividend of $0.14 represents an annual dividend rate of $0.56 per share or a 17% increase in the dividend from
the prior quarter. The next scheduled dividend review will be in May of 2012.
AutoCanada’s dividend policy is to target quarterly dividends between 70% and 80% of fully diluted earnings per share. This
dividend policy shall be reviewed on a quarterly basis and adjusted, as required, to address changing market conditions. Our
ability to pay dividends and the actual amount of such dividends will be dependent upon, among other things, our financial
performance, our debt covenants and obligations, our ability to refinance our debt obligations on similar terms and at similar
interest rates, our working capital requirements, our future tax obligations, our future capital requirements, and the Company’s
growth prospects. The impact of items such as asset impairments, the future income tax effect of impairments and other unusual
items are typically removed from the calculation of diluted earnings per share used in calculating the target dividend level of 70% -
80% of fully diluted earnings per share. The current dividend level set by Management and the Board of Directors is 63% of fully
diluted earnings per share, normalized for factors noted above.
As per the terms of the HSBC facility, we are restricted from declaring dividends and distributing cash if we are in breach of our
financial covenants or our available margin and facility limits or if such dividend would result in a breach of our covenants or our
available margin and facility limits. At this time, the Company is well within its covenants, as such, Management does not believe
that a restriction from declaring dividends is likely in the foreseeable future.
22
Free Cash Flow
The Company has defined free cash flow to be cash flows provided by operating activities (including changes in non-cash
operating working capital) less capital expenditures (excluding capital assets acquired by acquisitions or purchases of real estate).
(In thousands of $ except unit
and per unit amounts)
Cash provided by operating
activities
Deduct:
Purchase of property and equipment
Free Cash Flow 1
Weighted average shares
outstanding at end of period
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
7,169
14,382
4,983
7,810
4,166
5,292
10,851
9,718
(541)
6,628
(1,156)
13,226
(572)
4,411
(2,130)
5,680
(930)
3,236
(612)
4,680
(694)
10,157
(718)
9,000
19,880,930
19,880,930
19,880,930
19,880,930
19,880,930
19,880,930
19,880,930
19,880,930
Free cash flow per share
0.333
0.665
0.222
0.286
0.163
0.235
0.511
0.453
Free cash flow – 12 month trailing
17,968
30,758
25,970
29,945
26,553
18,007
23,753
27,073
1 These financial measures are identified and defined under the section “NON-GAAP MEASURES”.
Management believes that the free cash flow (see “NON-GAAP MEASURES”) can fluctuate significantly as a result of historical
fluctuations in our business operations that occur on a quarterly basis as well as the resulting fluctuations in our trade receivables
and inventory levels and the timing of the payments of trade payables and revolving floorplan facilities.
Changes in non-cash working capital consist of fluctuations in the balances of trade and other receivables, inventories, other
current assets, trade and other payables and revolving floorplan facilities. Factors that can affect these items include seasonal sales
trends, strategic decisions regarding inventory levels, the addition of new dealerships, and the day of the week on which period end
cutoffs occur.
The following table summarizes the net increase in cash due to changes in non-cash working capital for the years ended December
31, 2011 and December 31, 2010.
(In thousands of dollars)
Accounts receivable
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Leased vehicle repurchase obligations
Revolving floorplan facility
January 1, 2011 to
December 31, 2011
$
January 1, 2010 to
December 31, 2010
$
(9,808)
(25,933)
33
5,165
340
31,441
1,238
2,510
(9,499)
529
1,656
742
22,239
18,177
23
Adjusted Free Cash Flow
The Company has defined adjusted free cash flow to be cash flows provided by operating activities (before changes in non-cash
operating working capital) less non-growth capital expenditures. Columns marked “IFRS” represent financial information which
has been restated for the Company’s adoption of International Financial Reporting Standards (“IFRS”) on January 1, 2010.
(In thousands of $ except unit and
per unit amounts)
Cash provided by operating
activities before changes in non-
cash working capital
Deduct:
Purchase of non-growth property and
equipment
Adjusted Free Cash Flow1
Weighted average shares outstanding
at end of period
Q1 2010
IFRS
2,971
Q2 2010
IFRS
6,047
Q3 2010
IFRS
Q4 2010
IFRS
Q1 2011
IFRS
Q2 2011
IFRS
Q3 2011
IFRS
Q4 2011
IFRS
3,836
3,313
3,882
9,076
8,032
7,799
(409)
(819)
(365)
(565)
(232)
(188)
(244)
(407)
2,562
5,228
3,471
2,748
3,650
8,888
7,788
7,392
19,880,930
19,880,930
19,880,930
19,880,930
19,880,930
19,880,930
19,880,930
19,880,930
Adjusted Free Cash Flow / Share
0.129
0.263
0.175
0.138
0.184
0.447
0.392
0.372
Adjusted Free Cash flow – 12
Month Trailing
17,073
16,710
14,267
14,009
15,097
18,757
23,074
27,718
1 These financial measures are identified and defined under the section “NON-GAAP MEASURES”.
Management believes that non-growth property and equipment is necessary to maintain and sustain the current productive capacity
of the Company’s operations and cash available for growth. Management believes that maintenance capital expenditures should be
funded by cash flow provided by operating activities. Capital spending for the expansion of sales and service capacity is expected
to improve future free cash and as such is not deducted from cash flow provided by operating activities before changes in non-cash
working capital in arriving at adjusted free cash flow. Adjusted free cash flow is a measure used by management in forecasting
and determining the Company’s available resources for future capital expenditure, repayment of debt, funding the future growth of
the Company and dividends to Shareholders.
The Company expects the payment of corporate income taxes to have a more significant negative affect on free cash flow and
adjusted free cash flow. See “RESULTS FROM OPERATIONS – Annual Operating Results – Income Taxes” for further detail
regarding the impact of corporate income taxes on cash flow.
24
Adjusted Return on Capital Employed
The Company has defined Adjusted Return on Capital Employed to be EBIT (EBITDA, as defined in “NON-GAAP
MEASURES”, less depreciation and amortization) divided by Average Capital Employed in the Company (average of
shareholders’ equity and interest bearing debt, excluding floorplan financing, for the period, less the comparative adjustment
defined below). Calculations below represent the results on a quarterly basis, except for the adjusted return on capital employed –
12 month trailing which incorporates the results based on the trailing 12 months for the periods presented.
(In thousands of $ except share and
per share amounts)
EBITDA1
Add (deduct):
Amortization
EBIT1
Average long-term debt
Average shareholders’ equity
Average capital employed1
Return on capital employed1
Comparative adjustment2
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
3,096
6,164
4,011
3,469
4,047
9,321
8,216
7,547
(931)
2,165
21,314
70,872
(961)
5,203
19,244
72,991
(1,058)
2,953
21,924
75,000
(1,207)
2,262
25,461
78,985
(1,079)
2,967
26,201
82,973
(1,018)
8,303
26,071
86,056
(1,044)
7,172
(1,104)
6,443
25,201
89,156
24,282
102,383
92,185
92,235
96,924
104,445
109,174
111,127
114,357
126,665
2.3%
5.6%
3.0%
2.2%
2.7%
7.5%
6.3%
5.1%
9,301
9,301
9,301
3,579
3,579
3,579
3,579
(15,376)
Adjusted average capital employed2
101,486
101,536
106,225
110,885
112,753
114,706
117,936
120,766
Adjusted return on capital employed2
2.1%
5.1%
2.8%
2.0%
2.6%
7.2%
6.1%
5.3%
Adjusted return on capital employed -
12 month trailing
11.7%
21.3%
1These financial measures are identified and defined under the section “NON-GAAP MEASURES
2A comparative adjustment has been made in order to adjust for impairments and reversals of impairments of intangible assets. Due to the increased frequency of
impairments and reversals of impairments, management has provided an adjustment in order to freeze intangible assets at the pre-IFRS amount of $43,700. As a
result, all differences from January 1, 2010 forward under IFRS have been adjusted at the post-tax rate at the time the adjustment to the intangible asset carrying
amount was made. Management believes that the adjusted return on capital employed provides more useful information about the return on capital employed.
Management believes that Adjusted Return on Capital Employed (see “NON-GAAP MEASURES”) is a good measure to evaluate
the profitability of our invested capital. As a corporation, management of AutoCanada may use this measure to compare potential
acquisitions and other capital investments against our internally computed cost of capital to determine whether the investment shall
create value for our shareholders. Management may also use this measure to look at past acquisitions, capital investments and the
Company as a whole in order to ensure shareholder value is being achieved by these capital investments.
25
CRITICAL ACCOUNTING ESTIMATES AND ACCOUNTING POLICY DEVELOPMENTS
A complete listing of critical accounting policies, estimates, judgments and measurement uncertainty can be found in Note 3 of the
annual consolidated financial statements for the year ended December 31, 2011.
Certain new standards, interpretations, amendments and improvements to existing standards were issued by the IASB or
International Financial Reporting Interpretations Committee (“IFRIC”) that are not yet effective for the financial year ended
December 31, 2011. The standards impacted that are applicable to the Company are as follows:
•
•
•
•
•
•
IFRS 9, Financial Instruments - The new standard will ultimately replace IAS 39, Financial Instruments:
Recognition and Measurement. The replacement of IAS 39 is a multi-phase project with the objective of improving
and simplifying the reporting for financial instruments and the issuance of IFRS 9 is part of the first phase. This
standard becomes effective on January 1, 2013.
IFRS 10, Consolidated Financial Statements, requires an entity to consolidate an investee when it has power over the
investee, is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to
affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an
entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its
activities. IFRS 10 replaces SIC-12, Consolidation—Special Purpose Entities and parts of IAS 27, Consolidated and
Separate Financial Statements.
IFRS 13, Fair Value Measurement, is a comprehensive standard for fair value measurement and disclosure for use
across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an
asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date.
Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards
requiring fair value measurements and does not always reflect a clear measurement basis or consistent disclosures.
IAS 1, Presentation of Financial Statements, has been amended to require entities to separate items presented in OCI
into two groups, based on whether or not items may be recycled in the future. Entities that choose to present OCI
items before tax will be required to show the amount of tax related to the two groups separately. The amendment is
effective for annual periods beginning on or after July 1, 2012 with earlier application permitted.
IFRS 7, Financial Instruments: Disclosures, has been amended to include additional disclosure requirements in the
reporting of transfer transactions and risk exposures relating to transfers of financial assets and the effect of those
risks on an entity’s financial position, particularly those involving securitization of financial assets. The amendment
is applicable for annual periods beginning on or after July 1, 2011, with earlier application permitted.
IAS 12, Income Taxes, was amended to introduce an exception to the existing principle for the measurement of
deferred tax assets or liabilities arising on investment property measured at fair value. As a result of the amendment,
there is a rebuttable presumption that the carrying amount of the investment property will be recovered through sale
when considering the expected manner or recovery or settlement. SIC 21, Income Taxes - Recovery of Revalued Non-
Depreciable Assets, will no longer apply to investment properties carried at fair value. The amendment also
incorporates into IAS 12 the remaining guidance previously contained in SIC 21, which is withdrawn. The
amendment is effective for annual periods beginning on or after July 1, 2012 with earlier application permitted.
The Company is currently assessing the impact of new standards affecting its 2012 fiscal year. The Company has yet to assess the
impact of the new standards on its results of operations, financial position and disclosures for the 2013 fiscal year.
DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
Disclosure Controls & Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports
filed with securities regulatory authorities is recorded, processed, summarized and reported on a timely basis, and is accumulated
and communicated to the Company’s management, including the CEO and CFO, as appropriate, to allow timely decisions
regarding required disclosure.
As of December 31, 2011, the Company’s management, with the participation of the CEO and CFO, evaluated the effectiveness of
the design and operation of its disclosure controls and procedures, as defined in Multilateral Instrument 52-109 of the Canadian
Securities Administrators, and have concluded that the Company's disclosure controls and procedures are effective.
26
Internal Controls over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal controls over financial reporting.
These controls include policies and procedures that (l) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and
expenditures are being made only in accordance with authorizations of management and directors of the Company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's
assets that could have a material effect on the financial statements.
All control systems contain inherent limitations, no matter how well designed. As a result, the Company's management
acknowledges that its internal controls over financial reporting will not prevent or detect all misstatements due to error or fraud. In
addition, management's evaluation of controls can provide only reasonable, not absolute, assurance that all control issues that may
result in material misstatements, if any, have been detected.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011, based
on the framework established in Internal Control – Integrated Framework issued by the Committee Of Sponsoring Organizations
of the Treadway Commission (COSO). Based on this assessment, management concluded that the company maintained effective
internal control over financial reporting as of December 31, 2011.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company's internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over financial reporting during the year ended December 31,
2011.
OUTLOOK
The outlook regarding vehicle sales in Canada is difficult to predict. New light vehicle unit sales in Canada are expected to
increase by 1.1 percent in 2012 as compared to the prior year.
New Vehicle Sales Outlook by Province*
(thousands of units, annual rates)
Canada
Atlantic
Central
Quebec
Ontario
West
Manitoba
Saskatchewan
Alberta
British Columbia
1994-2005
Average
1,446
2006-08
Average
1,637
2009
2010
2011
2012f
1,461
1,557
1,589
1,605
102
936
366
570
408
42
36
166
164
119
1,002
411
591
516
45
43
239
189
115
927
392
535
419
43
44
182
150
122
990
414
576
445
44
46
200
155
119
997
408
589
473
47
50
218
158
120
1,002
409
593
483
48
51
224
160
* Includes cars and light trucks
Source: Scotia Economics - Global Auto Report, February 27, 2012
AutoCanada continued to benefit from the general improvement in the economy in Canada in 2011. This improvement was
evident by the increase in new vehicle sales and the improvement in finance and insurance revenues (an indicator of improved
27
credit conditions). Canadian new vehicle sales over the first two months of 2012 continue to be strong and sales in January and
February are estimated to be running at an annualized rate of 1.70 million. Management believes that as a result of both the
number of variables and the volatility of these variables that it is difficult to predict the direction of new and used vehicle sales with
any certainty. With respect to macroeconomic factors, Management does not expect inflationary or vehicle pricing concerns to
have a significant impact on our business. We do believe that higher gasoline prices may impact our sales of light trucks which
may have a significant impact on our operations if sales volumes of light trucks decrease. Both unemployment rates and consumer
confidence indexes are macroeconomic factors that we believe are good indicators of the health of the retail automotive industry in
Canada and we have seen improvement in these two factors over the past two years. Due to the unpredictability of the economy,
Management believes that the best approach is to continue its emphasis on existing operations for continued earnings and cash flow
growth and, in particular, those aspects of its operations which are most impacted by same. In view of the number of brands which
to date have accepted public ownership in Canada, and the need to ensure that acquisitions are priced to be accretive, profitable
acquisitions remain challenging and their timing is uncertain.
RISK FACTORS
We face a number of business risks that could cause our actual results to differ materially from those disclosed in this MD&A (See
“FORWARD LOOKING STATEMENTS”) Investors and the public should carefully consider our business risks, other
uncertainties and potential events as well as the inherent uncertainty of forward looking statements when making investment
decisions with respect to AutoCanada. If any of the business risks identified by AutoCanada were to occur, our business, financial
condition, results of operations, cash flows or prospects could be materially adversely affected. In such case, the trading price of
our shares could decline. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may
also adversely affect our business and operations. A comprehensive discussion of the known risk factors of AutoCanada and
additional business risks is available in our 2011 Annual Information Form dated March 22, 2012 available on the SEDAR website
at www.sedar.com.
Additional information
Additional information relating to the Company, including all public filings, is available on SEDAR (www.sedar.com). The
Company’s shares trade on the Toronto Stock Exchange under the symbol ACQ.
FORWARD LOOKING STATEMENTS
Certain statements contained in management’s discussion and analysis are forward-looking statements and information
(collectively “forward-looking statements”), within the meaning of the applicable Canadian securities legislation. We hereby
provide cautionary statements identifying important factors that could cause our actual results to differ materially from those
projected in these forward-looking statements. Any statements that express, or involve discussions as to, expectations, beliefs,
plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as
“will likely result”, “are expected to”, “will continue”, “is anticipated”, “projection”, “vision”, “goals”, “objective”, “target”,
“schedules”, “outlook”, “anticipate”, “expect”, “estimate”, “could”, “should”, “expect”, “plan”, “seek”, “may”, “intend”, “likely”,
“will”, “believe” and similar expressions are not historical facts and are forward-looking and may involve estimates and
assumptions and are subject to risks, uncertainties and other factors some of which are beyond our control and difficult to predict.
Accordingly, these factors could cause actual results or outcomes to differ materially from those expressed in the forward-looking
statements. Therefore, any such forward-looking statements are qualified in their entirety by reference to the factors discussed
throughout this document.
In particular, material forward-looking statements in management’s discussion and analysis include:
the future level of performance based incentives and its effect on our profitability;
the impact of investments in technology on customer satisfaction, sales and profitability;
•
•
• whether permitting senior management to privately purchase dealerships will better ensure the retention of such
•
•
•
•
employees and allow for cost savings synergies;
our expectation that if the business landscape changes and new brands consider the acceptance of the public ownership
model, that Management and the Board may revise the dividend policy to better align the Company’s capital structure to
fund future growth expectations;
guidance with respect to future acquisition and open point opportunities;
our assessment of the addition of FIAT franchises and its effect on earnings;
our belief that relocation of certain dealerships may provide incremental long-term earnings growth and better align some
of our dealerships with the growth expectations of our manufacturer partners;
28
• management’s assessment of our dividend policy and its effect on liquidity;
•
•
our expectation to incur annual non-growth capital expenditures;
the impact of dealership real estate relocations and purchases and its impact on liquidity, financial performance and the
Company’s capital requirements;
the impact of working capital requirements and its impact on future liquidity;
•
• Our assumptions regarding financial covenants and our ability to meet covenants in the future;
•
•
•
•
• management’s assumptions and expectations over the future economic and general outlook.
our assumption on the amount of time it may take for an acquisition or open point to achieve normal operating results;
expectations and assumptions regarding the Company’s ability to pay future dividends and growth;
expectations and estimates regarding income taxes and their effect on cash flow and dividends;
assumptions over non-GAAP measures and their impact on the Company;
Although we believe that the expectations reflected by the forward-looking statements presented in this release are reasonable, our
forward-looking statements have been based on assumptions and factors concerning future events that may prove to be inaccurate.
Those assumptions and factors are based on information currently available to us about ourselves and the businesses in which we
operate. Information used in developing forward-looking statements has been acquired from various sources including third-party
consultants, suppliers, regulators, and other sources. In some instances, material assumptions are disclosed elsewhere in this
release in respect of forward-looking statements. We caution the reader that the following list of assumptions is not exhaustive.
The material factors and assumptions used to develop the forward-looking statements include but are not limited to:
no significant adverse changes to the automotive market, competitive conditions, the supply and demand of vehicles, parts
and service, and finance and insurance products or the political, economic and social stability of the jurisdictions in which
we operate;
no significant construction delays that may adversely affect the timing of dealership relocations and open points;
no significant disruption of our operations such as may result from harsh weather, natural disaster, accident, civil unrest,
or other calamitous event;
no significant unexpected technological event or commercial difficulties that adversely affect our operations;
continuing availability of economical capital resources; demand for our products and our cost of operations;
no significant adverse legislative and regulatory changes; and
stability of general domestic economic, market, and business conditions
Because actual results or outcomes could differ materially from those expressed in any forward-looking statements, investors
should not place undue reliance on any such forward-looking statements. By their nature, forward-looking statements involve
numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the
predicted outcomes will not occur. The risks, uncertainties and other factors, many of which are beyond our control, that could
influence actual results include, but are not limited to:
rapid appreciation or depreciation of the Canadian dollar relative to the U.S. dollar;
a sustained downturn in consumer demand and economic conditions in key geographic markets;
adverse conditions affecting one or more of our automobile manufacturers;
the ability of consumers to access automotive loans and leases;
competitive actions of other companies and generally within the automotive industry;
our dependence on sales of new vehicles to achieve sustained profitability;
our suppliers ability to provide a desirable mix of popular new vehicles;
the ability to continue financing inventory under similar interest rates;
our suppliers ability to continue to provide manufacturer incentive programs;
the loss of key personnel and limited management and personnel resources;
the ability to refinance credit agreements in the future;
changes in applicable environmental, taxation and other laws and regulations as well as how such laws and regulations are
interpreted and enforced
risks inherent in the ability to generate sufficient cash flow from operations to meet current and future obligations
the ability to obtain automotive manufacturers’ approval for acquisitions;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
The Company’s Annual Information Form and other documents filed with securities regulatory authorities (accessible through the
SEDAR website www.sedar.com describe the risks, material assumptions and other factors that could influence actual results and
which are incorporated herein by reference.
29
Further, any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by
applicable law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the
date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time,
and it is not possible for management to predict all of such factors and to assess in advance the impact of each such factor on our
business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statement.
NON-GAAP MEASURES
Our MD&A contains certain financial measures that do not have any standardized meaning prescribed by Canadian GAAP.
Therefore, these financial measures may not be comparable to similar measures presented by other issuers. Investors are cautioned
these measures should not be construed as an alternative to net earnings (loss) or to cash provided by (used in) operating, investing,
and financing activities determined in accordance with Canadian GAAP, as indicators of our performance. We provide these
measures to assist investors in determining our ability to generate earnings and cash provided by (used in) operating activities and
to provide additional information on how these cash resources are used. We list and define these “NON-GAAP MEASURES”
below:
EBITDA
EBITDA is a measure commonly reported and widely used by investors as an indicator of a company’s operating performance and
ability to incur and service debt, and as a valuation metric. The Company believes EBITDA assists investors in comparing a
company’s performance on a consistent basis without regard to depreciation and amortization and asset impairment charges which
are non-cash in nature and can vary significantly depending upon accounting methods or non-operating factors such as historical
cost. References to “EBITDA” are to earnings before interest expense (other than interest expense on floorplan financing and
other interest), income taxes, depreciation, amortization and asset impairment charges.
EBIT
EBIT is a measure used by management in the calculation of Return on capital employed (defined below). Management’s
calculation of EBIT is EBITDA (calculated above) less depreciation and amortization.
Free Cash Flow
Free cash flow is a measure used by management to evaluate its performance. While the closest Canadian GAAP measure is cash
provided by operating activities, free cash flow is considered relevant because it provides an indication of how much cash
generated by operations is available after capital expenditures. It shall be noted that although we consider this measure to be free
cash flow, financial and non-financial covenants in our credit facilities and dealer agreements may restrict cash from being
available for distributions, re-investment in the Company, potential acquisitions, or other purposes. Investors should be cautioned
that free cash flow may not actually be available for growth or distribution of the Company. References to “Free cash flow” are to
cash provided by (used in) operating activities (including the net change in non-cash working capital balances) less capital
expenditure (not including acquisitions of dealerships and dealership facilities).
Adjusted Free Cash Flow
Adjusted free cash flow is a measure used by management to evaluate its performance. Free cash flow is considered relevant
because it provides an indication of how much cash generated by operations before changes in non-cash working capital is
available after deducting expenditures for non-growth capital assets. It shall be noted that although we consider this measure to be
adjusted free cash flow, financial and non-financial covenants in our credit facilities and dealer agreements may restrict cash from
being available for distributions, re-investment in the Company, potential acquisitions, or other purposes. Investors should be
cautioned that adjusted free cash flow may not actually be available for growth or distribution of the Company. References to
“Adjusted free cash flow” are to cash provided by (used in) operating activities (before changes in non-cash working capital
balances) less non-growth capital expenditures.
Absorption Rate
Absorption rate is an operating measure commonly used in the retail automotive industry as an indicator of the performance of the
30
parts, service and collision repair operations of a franchised automobile dealership. Absorption rate is not a measure recognized by
GAAP and does not have a standardized meaning prescribed by GAAP. Therefore, absorption rate may not be comparable to
similar measures presented by other issuers that operate in the retail automotive industry. References to ‘‘absorption rate’’ are to
the extent to which the gross profits of a franchised automobile dealership from parts, service and collision repair cover the costs of
these departments plus the fixed costs of operating the dealership, but does not include expenses pertaining to our head office. For
this purpose, fixed operating costs include fixed salaries and benefits, administration costs, occupancy costs, insurance expense,
utilities expense and interest expense (other than interest expense relating to floor plan financing) of the dealerships only.
Average Capital Employed
Average capital employed is a measure used by management to determine the amount of capital invested in AutoCanada and is
used in the measure of Return on Capital Employed (described below). Average capital employed is calculated as the average
balance of interest bearing debt for the period (including current portion of long term debt, excluding revolving floorplan facilities)
and the average balance of shareholders equity for the period. Management does not include future income tax, non-interest
bearing debt, or revolving floorplan facilities in the calculation of average capital employed as it does not consider these items to
be capital, but rather debt incurred to finance the operating activities of the Company.
Adjusted Average Capital Employed
Adjusted average capital employed is a measure used by management to determine the amount of capital invested in AutoCanada
and is used in the measure of Adjusted Return on Capital Employed (described below). Adjusted average capital employed is
calculated as the average balance of interest bearing debt for the period (including current portion of long term debt, excluding
revolving floorplan facilities) and the average balance of shareholders equity for the period, adjusted for impairments of intangible
assets, net of deferred tax. Management does not include future income tax, non-interest bearing debt, or revolving floorplan
facilities in the calculation of adjusted average capital employed as it does not consider these items to be capital, but rather debt
incurred to finance the operating activities of the Company.
Return on Capital Employed
Return on capital employed is a measure used by management to evaluate the profitability of our invested capital. As a
corporation, management of AutoCanada may use this measure to compare potential acquisitions and other capital investments
against our internally computed cost of capital to determine whether the investment shall create value for our shareholders.
Management may also use this measure to look at past acquisitions, capital investments and the Company as a whole in order to
ensure shareholder value is being achieved by these capital investments. Return on capital employed is calculated as EBIT
(defined above) divided by Average Capital Employed (defined above).
Adjusted Return on Capital Employed
Adjusted return on capital employed is a measure used by management to evaluate the profitability of our invested capital. As a
corporation, management of AutoCanada may use this measure to compare potential acquisitions and other capital investments
against our internally computed cost of capital to determine whether the investment shall create value for our shareholders.
Management may also use this measure to look at past acquisitions, capital investments and the Company as a whole in order to
ensure shareholder value is being achieved by these capital investments. Adjusted return on capital employed is calculated as
EBIT (defined above) divided by Adjusted Average Capital Employed (defined above).
Cautionary Note Regarding Non-GAAP Measures
EBITDA, EBIT, Free Cash Flow, Absorption Rate, Average Capital Employed, Return on Capital Employed, Adjusted Average
Capital Employed and Adjusted Return on Capital Employed are not earnings measures recognized by GAAP and do not have
standardized meanings prescribed by GAAP. Investors are cautioned that these non-GAAP measures should not replace net
earnings or loss (as determined in accordance with GAAP) as an indicator of the Company's performance, of its cash flows from
operating, investing and financing activities or as a measure of its liquidity and cash flows. The Company's methods of calculating
EBITDA, EBIT, Free Cash Flow, Absorption Rate, Average Capital Employed, Return on Capital Employed. Adjusted Average
Capital Employed and Adjusted Return on Capital Employed may differ from the methods used by other issuers. Therefore, the
Company's EBITDA, EBIT, Free Cash Flow, Absorption Rate, Average Capital Employed, Return on Capital Employed, Adjusted
Average Capital Employed and Adjusted Return on Capital Employed may not be comparable to similar measures presented by
other issuers.
31
AutoCanada Inc.
Consolidated Financial Statements
December 31, 2011
S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
I
F
D
E
T
A
D
I
L
O
S
N
O
C
March 22, 2012
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 statements of financial position as at December 31, 2011,
December 31, 2010, and January 1, 2010, and the consolidated statements of comprehensive income,
statement of changes in equity, and statements of cash flow for the years ended December 31, 2011 and
December 31, 2010, and the related notes, which comprise a summary of significant accounting policies
and other explanatory information.
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 International Financial Reporting Standards, 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 audits 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 LLP, Chartered Accountants
TD Tower, 10088 102 Avenue NW, Suite 1501, Edmonton, Alberta, Canada T5J 3N5
T: +1 780 441 6700, F: +1 780 441 6776
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
33
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, 2011, December 31, 2010 and January
1, 2010 and their financial performance and their cash flows for the years ended December 31, 2011 and
December 31, 2010 in accordance with International Financial Reporting Standards.
Chartered Accountants
34
AutoCanada Inc.
Consolidated Statements of Comprehensive Income
For the Years Ended
(in thousands of Canadian dollars except for share and per share amounts)
Revenue (Note 8)
Cost of sales (Note 9)
Gross profit
Operating expenses (Note 10)
Operating profit before other income
Gain (loss) on disposal of assets
Reversal of impairment of assets (Note 20)
Operating profit
Finance costs (Note 12)
Finance income (Note 12)
Net comprehensive income for the year before taxation
Income tax (Note 13)
Net comprehensive income for the year
Earnings per share
Basic
Diluted
Weighted average shares
Basic
Diluted
December 31,
2011
$
December 31,
2010
$
1,008,858
(839,734)
169,124
(136,846)
869,507
(719,487)
150,020
(130,237)
32,278
19,783
(41)
25,543
57,780
(9,848)
1,361
49,293
12,509
36,784
6
8,059
27,848
(9,217)
921
19,552
4,956
14,596
1.850
1.850
0.734
0.734
19,880,930
19,880,930
19,880,930
19,880,930
The accompanying notes are an integral part of these consolidated financial statements.
Approved on behalf of the Company:
(Signed) "Gordon R. Barefoot", Director
(Signed) "Robin Salmon", Director
35
AutoCanada Inc.
Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
ASSETS
Current assets
Cash and cash equivalents (Note 16)
Trade and other receivables (Note 17)
Inventories (Note 18)
Other current assets
Property and equipment (Note 19)
Intangible assets (Note 20)
Goodwill
Other long-term assets (Note 22)
Deferred tax
LIABILITIES
Current liabilities
Trade and other payables (Note 23)
Revolving floorplan facilities (Note 24)
Current tax payable (Note 13)
Current lease obligations (Note 25)
Current indebtedness (Note 24)
Long-term lease obligations (Note 25)
Long-term indebtedness (Note 24)
Deferred tax (Note 13)
EQUITY
Share capital (Note 28)
Contributed surplus
Accumulated deficit
December 31,
2011
$
December 31,
2010
$
January 1,
2010
$
53,641
42,448
136,869
1,120
234,078
25,975
66,181
380
7,609
-
334,223
32,132
150,816
2,046
1,204
2,859
189,057
-
20,115
12,056
221,228
190,435
3,918
(81,358)
112,995
334,223
37,541
32,832
118,088
1,148
189,609
25,590
40,018
309
5,909
-
261,435
26,622
124,609
-
907
277
152,415
120
24,974
1,552
179,061
21,528
35,323
108,324
1,646
166,821
17,600
30,600
-
2,198
3,492
220,711
24,831
102,370
-
175
96
127,472
289
22,785
-
150,546
190,435
3,918
(111,979)
82,374
261,435
190,435
3,918
(124,188)
70,165
220,711
The accompanying notes are an integral part of these consolidated financial statements.
36
AutoCanada Inc.
Consolidated Statements of Changes in Equity
For the Years Ended
(in thousands of Canadian dollars)
Balance, January 1, 2011
Net comprehensive income
Dividends declared on common shares
Balance, December 31, 2011
Share
capital
$
190,435
-
-
Contributed
surplus
$
3,918
-
-
Total
capital
$
194,353
-
-
Accumulated
deficit
$
(111,979)
36,784
(6,163)
Equity
$
82,374
36,784
(6,163)
190,435
3,918
194,353
(81,358)
112,995
Balance, January 1, 2010
Net comprehensive income
Dividends declared on common shares
Balance, December 31, 2010
Share
capital
$
190,435
-
-
Contributed
surplus
$
3,918
-
-
Total
capital
$
194,353
-
-
Accumulated
deficit
$
(124,188)
14,596
(2,387)
190,435
3,918
194,353
(111,979)
Equity
$
70,165
14,596
(2,387)
82,374
The accompanying notes are an integral part of these consolidated financial statements.
37
AutoCanada Inc.
Consolidated Statements of Cash Flows
For the Years Ended
(in thousands of Canadian dollars)
Cash provided by (used in)
Operating activities
Net comprehensive income
Income taxes (Note 13)
Shared-based payments
Amortization of property and equipment (Note 10)
Amortization of prepaid rent
Loss (gain) on disposal of property and equipment
Reversal of impairment of assets
Net change in non-cash working capital
Investing activities
Business acquisitions (Note 14)
Purchases of property and equipment (Note 19)
Proceeds on sale of property and equipment
Prepayments of rent
Proceeds on divestiture of dealership (Note 15)
Financing activities
Repayment of long term indebtedness
Proceeds from long term indebtedness
Dividends paid
Increase in cash
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
The accompanying notes are an integral part of these consolidated financial statements.
38
December 31,
2011
$
December 31,
2010
$
36,784
12,509
302
4,245
452
40
(25,543)
1,238
30,027
(1,753)
(2,954)
79
(2,160)
1,464
(5,324)
(2,440)
-
(6,163)
(8,603)
14,596
4,956
57
4,171
452
(6)
(8,059)
18,177
34,344
(3,550)
(10,487)
64
(4,163)
-
(18,136)
(4,318)
6,510
(2,387)
(195)
16,100
16,013
37,541
53,641
21,528
37,541
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
1 General Information
AutoCanada Inc. (“AutoCanada” or “The Company”) is a corporation from Alberta, Canada with common
shares listed on the Toronto Stock Exchange ("TSX") under the symbol of "ACQ". The business of
AutoCanada, held in its subsidiaries, 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. The address of its registered office is 200, 15505
Yellowhead Trail, Edmonton, Alberta, Canada, T5V 1E5.
2 Basis of presentation and adoption of IFRS
These consolidated financial statements have been prepared in accordance with Canadian generally accepted
accounting principles ("GAAP") as issued by the Canadian Institute of Chartered Accountants. In 2010,
Canadian GAAP was revised to incorporate International Financial Reporting Standards ("IFRS") as issued by
the International Accounting Standards Board ("IASB"). The Company adopted IFRS in accordance with
IFRS 1, First-time Adoption of International Financial Reporting Standards. The first date at which IFRS
was applied was January 1, 2010. In accordance with IFRS, the Company has:
!
!
!
!
provided comparative financial information;
applied the same accounting policies throughout all periods presented;
retrospectively applied all effective IFRS standards as of December 31, 2011, as required; and
applied certain optional exemptions and certain mandatory exceptions as applicable for first
time IFRS adopters.
The Company's consolidated financial statements were previously prepared in accordance with accounting
principles generally accepted in Canada ("Canadian GAAP"). Canadian GAAP differs in certain areas from
IFRS. In preparing these financial statements, management has amended certain accounting and measurement
methods previously applied in the Canadian GAAP financial statements to comply with IFRS. Note 32
contains reconciliations and descriptions of the effect of the transition from Canadian GAAP to IFRS on
equity, earnings and comprehensive income along with line-by-line reconciliations of the statement of
financial position as at December 31, 2010 and January 1, 2010, and the statement of comprehensive income
for the year ended December 31, 2010.
The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise judgment in applying the Company’s accounting policies.
The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are
significant to the financial statements are described in Note 5.
These financial statements were approved by the Board of Directors for issue on March 22, 2012.
39
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
3
Significant Accounting Policies
The significant accounting policies used in the preparation of these consolidated financial statements are as
follows:
Basis of measurement
The consolidated financial statements have been prepared under the historical cost convention, except for the
revaluation of certain financial assets and financial liabilities to fair value, including liabilities for cash-settled
share-based payment arrangements.
Principles of consolidation
The consolidated financial statements comprise the financial statements of AutoCanada and all of its
subsidiaries. Subsidiaries are all entities over which the Company has control, where control is defined as the
power to govern financial and operating policies. The Company has a shareholding of 100% of the voting
rights in its subsidiaries. Subsidiaries are fully consolidated from the date control is transferred to the
Company, and are no longer consolidated on the date control ceases.
Intercompany transactions, balances, income and expenses, and gains or losses on transactions are eliminated.
Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the
accounting policies adopted by the Company.
Business combinations
Business combinations are accounted for using the acquisition method of accounting. This involves
recognizing identifiable assets (including intangible assets not previously recognised by the acquiree) and
liabilities (including contingent liabilities) of acquired businesses at fair value at the acquisition date. The
excess of acquisition cost over the fair value of the identifiable net assets acquired is recorded as goodwill. If
the acquisition cost is less than the fair value of the net assets acquired, the fair value of the net assets is re-
assessed and any remaining difference is recognized directly in the statement of operations. Transaction costs
are expensed as incurred.
Revenue recognition
(a) Vehicles, parts, service and collision repair
Revenue from the sale of goods and services is measured at the fair value of the consideration
receivable, net of rebates and any discounts and includes finance and insurance commissions. It
excludes sales related taxes and intercompany transactions.
Revenue is recognized when the risks and rewards of ownership have been transferred to the customer
and the revenue and costs can be reliably measured and it is probable that economic benefits will flow
to the Company. In practice, this means that revenue is recognized when vehicles are invoiced and
physically delivered to the customer and payment has been received or credit approval has been
obtained by the customer. Revenue for parts, service and collision repair is recognized when the service
has been performed.
40
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
3
Significant Accounting Policies continued
Revenue recognition continued
(b)
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 vehicle
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
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.
Taxation
(a) Deferred tax
Deferred tax is recognized, using the liability method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the statement of financial position. Deferred
tax is calculated using tax rates and laws that have been enacted or substantively enacted at the end of
the reporting period, and which are expected to apply when the related deferred income tax asset is
realized or the deferred income tax liability is settled.
Deferred tax liabilities:
!
!
are generally recognized for all taxable temporary differences; and
are not recognized on temporary differences that arise from goodwill which is not deductible for
tax purposes.
Deferred tax assets:
!
!
are recognized to the extent it is probable that taxable profits will be available against which the
deductible temporary differences can be utilized; and
are reviewed at the end of the reporting period and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax assets and liabilities are not recognized in respect of temporary differences that arise on
initial recognition of assets and liabilities acquired other than in a business combination.
41
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
3
Significant Accounting Policies continued
Taxation continued
(b)
Current tax
Current tax expense is based on the results for the period as adjusted for items that are not taxable or not
deductible. Current tax is calculated using tax rates and laws that were enacted or substantively enacted
at the end of the reporting period. Management periodically evaluates positions taken in tax returns with
respect to situations in which applicable tax regulation is subject to interpretation. Provisions are
established where appropriate on the basis of amounts expected to be paid to the tax authorities.
Financial instruments
Financial assets are recognized on the settlement date, which is the date on which the asset is delivered to or
by the Company. Financial assets are derecognized when the rights to receive cash flows from the investments
have expired or were transferred and the Company has transferred substantially all risks and rewards of
ownership. The Company's financial assets, including cash and cash equivalents and trade and other
receivables, are classified as loans and receivables at the time of initial recognition. Loans and receivables are
non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
Loans and receivables are initially recognized at fair value plus transaction costs and subsequently carried at
amortized cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents include amounts on deposit with financial institutions and amounts with Ally Credit
Canada ("Ally Credit") that are readily available to the Company (See Note 21 - Financial instruments -
Credit risk for explanation of credit risk associated with amounts held with Ally Credit).
Trade and other receivables
Trade and other receivables are amounts due from customers, financial institutions and suppliers from
providing services or sale of goods in the ordinary course of business. Trade and other receivables are
recognized initially at fair value and subsequently measured at amortized cost using the effective interest
method, less provision for impairment. A provision for impairment of trade and other receivables is
established when there is objective evidence that the Company will not be able to collect all amounts due
according to the original terms of the receivables. Significant financial difficulties of the debtor, probability
that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments (more
than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the
provision is the difference between the asset’s carrying amount and the present value of estimated future cash
flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the
use of an allowance account, and the amount of the loss is recognized in the income statement within
operating expenses.
When a trade and other receivable is uncollectible, it is written off against the allowance account for trade and
other receivables. Subsequent recoveries of amounts previously written off are credited against operating
expenses in the income statement.
42
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
3
Significant Accounting Policies continued
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 “weighted-average cost”
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.
Property and equipment
Property and equipment are stated at cost less accumulated amortization and any accumulated impairment
losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. Residual values,
useful lives and methods of amortization are reviewed, and adjusted if appropriate, at each financial year end.
Land is not amortized. Other than as noted below, amortization of 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, fixtures and other
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.
Amortization of leased vehicles is based on a straight line amortization of the difference between the cost and
the estimated residual value at the end of the lease over the term of the lease. Leased vehicle residual values
are regularly reviewed to determined whether amortization rates are reasonable.
Goodwill and intangible assets
(a) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Company's share
of the identifiable net assets of the acquired subsidiary at the date of acquisition. Goodwill is tested
annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on
the disposal of a cash-generating unit ("CGU") include the carrying amount of goodwill relating to the
CGU sold.
43
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
3
Significant Accounting Policies continued
Goodwill and intangible assets continued
(b)
Intangible assets
Intangible assets consist of rights under franchise agreements with automobile manufacturers (“dealer
agreements”). The Company has determined that dealer agreements will continue to contribute to cash
flows indefinitely and, therefore, have indefinite lives due to the following reasons:
!
!
Certain of our dealer agreements continue indefinitely by their terms; and
Certain of our dealer agreements have limited terms, but are routinely renewed without
substantial cost to the Company.
Intangible assets are carried at cost less impairment losses. When acquired in a business combination,
the cost is determined in connection with the purchase price allocation based on their respective fair
values at the acquisition date. When market value is not readily determinable, cost is determined using
generally accepted valuation methods based on revenues, costs or other appropriate criteria.
Impairment
Impairments are recorded when the recoverable amount of assets are less than their carrying amounts. The
recoverable amount is the higher of an asset’s fair value less cost to sell or its value in use. Impairment losses,
other than those relating to goodwill, are evaluated for potential reversals of impairment when events or
changes in circumstances warrant such consideration.
(a) Non-financial assets
The carrying values of non-financial assets with finite lives, such as property and equipment are
assessed for impairment whenever events or changes in circumstances indicate that their carrying
amounts may not be recoverable. For the purposes of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash flows.
(b)
Intangible assets and goodwill
The carrying values of all intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that their carrying amounts may not be recoverable. Additionally, the carrying
values of identifiable intangible assets with indefinite lives and goodwill are tested annually for
impairment. Specifically:
!
!
Our dealership franchise agreements with indefinite lives are subject to an annual impairment
assessment. For purposes of impairment testing, the fair value of our franchise agreements is
determined using a combination of a discounted cash flow approach and earnings multiple
approach.
For the purpose of impairment testing, goodwill is allocated to cash-generating units (“CGU”)
based on the level at which management monitors it, which is not higher than an operating
segment. Goodwill is allocated to those CGU's that are expected to benefit from the business
combination in which the goodwill arose.
44
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
3
Significant Accounting Policies continued
Trade Payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of
business. Trade payables are recognized initially at fair value and subsequently measured at amortized cost,
and are classified as current liabilities if payment is due within one year or less.
Provisions
Provisions represent liabilities to the Company for which the amount or timing is uncertain. Provisions are
recognized when the Company has a present legal or constructive obligation as a result of past events, it is
probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably
estimated. Provisions are not recognized for future operating losses. Provisions are measured at the present
value of the expected expenditures to settle the obligation using a discount rate that reflects current market
assessments of the time value of money and the risks specific to the obligation. The increase in provision due
to passage of time is recognized as interest expense.
Leases
Leases are classified as either operating or finance, based on the substance of the transaction at inception of
the lease. Classification is re-assessed if the terms of the lease are changed.
(a)
Finance lease
Leases in which substantially all the risks and rewards of ownership are transferred to the Company are
classified as finance leases. Assets meeting finance lease criteria are capitalized at the lower of the
present value of the related lease payments or the fair value of the leased asset at the inception of the
lease. Minimum lease payments are apportioned between the finance charge and the liability. The
finance charge is allocated to each period during the lease term so as to produce a constant periodic rate
of interest on the remaining balance of the liability.
(b) Operating lease
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are
classified as operating leases. Payments under an operating lease (net of any incentives received from
the lessor) are recognized in the income statement on a straight-line basis over the period of the lease.
45
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
4 Accounting standards and amendments issued but not yet adopted
Certain new standards, interpretations, amendments and improvements to existing standards were issued by
the IASB or International Financial Reporting Interpretations Committee (“IFRIC”) that are not yet effective
for the financial year ended December 31, 2011. The standards impacted that are applicable to the Company
are as follows:
•
•
•
•
•
•
IFRS 9, Financial Instruments - The new standard will ultimately replace IAS 39, Financial
Instruments: Recognition and Measurement. The replacement of IAS 39 is a multi-phase project
with the objective of improving and simplifying the reporting for financial instruments and the
issuance of IFRS 9 is part of the first phase. This standard becomes effective on January 1, 2013.
IFRS 10, Consolidated Financial Statements, requires an entity to consolidate an investee when it
has power over the investee, is exposed, or has rights, to variable returns from its involvement with
the investee and has the ability to affect those returns through its power over the investee. Under
existing IFRS, consolidation is required when an entity has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC-12,
Consolidation—Special Purpose Entities and parts of IAS 27, Consolidated and Separate
Financial Statements.
IFRS 13, Fair Value Measurement, is a comprehensive standard for fair value measurement and
disclosure for use across all IFRS standards. The new standard clarifies that fair value is the price
that would be received to sell an asset, or paid to transfer a liability in an orderly transaction
between market participants, at the measurement date. Under existing IFRS, guidance on
measuring and disclosing fair value is dispersed among the specific standards requiring fair value
measurements and does not always reflect a clear measurement basis or consistent disclosures.
IAS 1, Presentation of Financial Statements, has been amended to require entities to separate
items presented in OCI into two groups, based on whether or not items may be recycled in the
future. Entities that choose to present OCI items before tax will be required to show the amount of
tax related to the two groups separately. The amendment is effective for annual periods beginning
on or after July 1, 2012 with earlier application permitted.
IFRS 7, Financial Instruments: Disclosures, has been amended to include additional disclosure
requirements in the reporting of transfer transactions and risk exposures relating to transfers of
financial assets and the effect of those risks on an entity’s financial position, particularly those
involving securitization of financial assets. The amendment is applicable for annual periods
beginning on or after July 1, 2011, with earlier application permitted.
IAS 12, Income Taxes, was amended to introduce an exception to the existing principle for the
measurement of deferred tax assets or liabilities arising on investment property measured at fair
value. As a result of the amendment, there is a rebuttable presumption that the carrying amount of
the investment property will be recovered through sale when considering the expected manner or
recovery or settlement. SIC 21, Income Taxes - Recovery of Revalued Non-Depreciable Assets,
will no longer apply to investment properties carried at fair value. The amendment also
incorporates into IAS 12 the remaining guidance previously contained in SIC 21, which is
withdrawn. The amendment is effective for annual periods beginning on or after July 1, 2012 with
earlier application permitted.
The Company is currently assessing the impact of new standards affecting its 2012 fiscal year. The Company
has yet to assess the impact of the new standards on its results of operations, financial position and disclosures
for the 2013 fiscal year.
46
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
5 Critical accounting estimates, judgments & measurement uncertainty
The preparation of financial statements requires management to make estimates and judgments about the
future. Estimates and judgments are continuously evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the circumstances.
Actual results may differ from these estimates. The following discussion sets forth management’s:
!
!
most critical estimates and assumptions in determining the value of assets and liabilities; and
most critical judgments in applying accounting policies.
Intangible assets and goodwill
Intangible assets and goodwill arise out of business combinations. The Company applies the acquisition
method of accounting to these transactions, which involves the allocation of the cost of an acquisition to the
underlying net assets acquired based on their respective estimated fair values. As part of this allocation
process, the Company must identify and attribute values to the intangible assets acquired. These
determinations involve significant estimates and assumptions regarding cash flow projections, economic risk
and weighted average cost of capital.
These estimates and assumptions determine the amount allocated to intangible assets and goodwill. If future
events or results differ significantly from these estimates and assumptions, the Company could record
impairment charges in the future.
The Company tests at least annually whether intangible assets and goodwill has suffered impairment, in
accordance with its accounting policies. The recoverable amounts of CGU's have been estimated based on the
greater of fair value less costs to sell and value-in-use calculations.
Inventories
Inventories are recorded at the lower of cost and net realizable value with cost determined on a specific item
basis for new and used vehicles. 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. The determination of net realizable value for inventories involves the use of estimates.
Income taxes
The Company computes an income tax provision in each of the jurisdictions in which it operates using an
annualized effective tax rate for the interim period. However, actual amounts of income tax expense only
become final upon filing and acceptance of the tax return by the relevant authorities, which occurs subsequent
to the issuance of the financial statements. Additionally, estimation of income taxes includes evaluating the
recoverability of deferred tax assets based on an assessment of the ability to use the underlying future tax
deductions before they expire against future taxable income. The assessment is based upon existing tax laws
and estimates of future taxable income. To the extent estimates differ from the final tax return, earnings would
be affected in a subsequent period.
In interim periods, the income tax provision is based on an estimate of how much earnings will be in a full
year by jurisdiction. The estimated average annual effective income tax rates are re-estimated at each interim
reporting date, based on full year projections of earnings by jurisdiction. To the extent that forecasts differ
from actual results, true-ups are recorded in subsequent periods.
47
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
5 Critical accounting estimates, judgments & measurement uncertainty continued
Allowance for doubtful accounts
The Company must make an assessment of whether accounts receivable are collectible from customers.
Accordingly, management establishes an allowance for estimated losses arising from non-payment and other
sales adjustments, taking into consideration customer creditworthiness, current economic trends and past
experience. If future collections differ from estimates, future earnings would be affected.
Estimated useful life of property and equipment
The Company estimates the useful life and residual values of property and equipment and reviews these
estimates at each financial year end. The Company also tests for impairment when a trigger event occurs.
6
Segment information
Operating segments are reported in a manner consistent with the internal reporting provided to the Chief
Operating Decision Maker (“CODM”), the Company's Chief Executive Officer, who is responsible for
allocating resources and assessing performance of the operating segment. The Company has identified one
reportable business segment since the Company is operated and managed on a dealership basis. Dealerships
operate a number of business streams such as new and used vehicle sales, parts, service and collision repair
and finance and insurance products. Management is organized based on the dealership operations as a whole
rather than the specific business streams.
These dealerships are considered to have similar economic characteristics and offer similar products and
services which appeal to a similar customer base. As such, the results of each dealership have been
aggregated to form one reportable business segment. The CODM assesses the performance of the operating
segment based on a measure of both revenue and gross profit.
48
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
7 Economic dependence
The Company has significant commercial and economic dependence on Chrysler Canada and 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 22 of its 24 dealerships.
The Company’s consolidated financial statements include the operations of franchised automobile
dealerships, representing the product lines of eight global automobile manufacturers. The Company’s
Chrysler, Jeep, Dodge, Ram (“CJDR”) dealerships, which generated 74% of the Company’s revenue in the
period-ended December 31, 2011 (2010 – 73%), 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
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, 2011, December 31, 2010 and January 1, 2010 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,
2011
$
5,032
72,749
4,338
6,081
December 31,
2010
$
4,040
61,790
4,847
4,929
January 1,
2010
$
3,196
51,743
3,574
4,484
The Company maintains revolving floorplan facilities for 22 of its 24 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, 2011, December 31, 2010 and January 1, 2010, 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 facility - Ally Credit
December 31,
2011
$
38,730
148,587
December 31,
2010
$
24,575
124,609
January 1,
2010
$
9,580
102,370
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.
49
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
8 Revenue
New vehicles
Used vehicles
Finance and insurance
Parts, service and collision repair
9 Cost of sales
New vehicles
Used vehicles
Finance and insurance
Parts, service and collision repair
10 Operating expenses
Employee costs (Note 11)
Administrative costs (1)
Facility lease costs
Depreciation
2011
$
640,721
206,030
51,845
110,262
2010
$
514,676
202,552
43,721
108,558
1,008,858
869,507
2011
$
593,017
188,649
5,286
52,782
2010
$
476,511
185,667
4,638
52,671
839,734
719,487
2011
$
82,362
38,680
11,559
4,245
2010
$
75,850
37,709
12,507
4,171
136,846
130,237
(1) Administrative costs include professional fees, consulting services, technology-related expenses, selling and
marketing, and other general and administrative costs.
50
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
11 Employees
The average number of people employed by the Company in the following areas was:
Sales
Service
Administration
Operating expenses incurred in respect of employees were:
Wages, salaries and commissions
Withholding taxes and insurance
Employee benefits
Termination benefits
12 Finance costs
Finance costs:
Long term debt
Floorplan financing
Other interest expense
Finance income:
Short term bank deposits
2011
442
605
123
2010
403
621
132
1,170
1,156
2011
$
75,997
3,652
2,585
128
82,362
2011
$
1,136
8,057
655
9,848
2010
$
68,495
3,674
2,695
986
75,850
2010
$
1,076
7,536
605
9,217
(1,361)
(921)
Cash interest paid during the year ended December 31, 2011 was $9,812 (2010 - $9,348).
13 Taxation
Components of income tax expense are as follows:
Current
Deferred tax
Total income tax expense
51
2011
$
2,046
10,463
12,509
2010
$
-
4,956
4,956
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
13 Taxation continued
Factors affecting tax expense for the year:
Income before taxes
Income before tax multiplied by the standard rate of Canadian
corporate tax of 27.0% (2010 - 29.0%)
Effects of:
Change in deferred tax rate
Difference between future and current rate
Non-deductible expenses
Change in items for which no deferred asset was recognized
Other
2011
$
49,293
2010
$
19,552
13,309
5,670
(200)
(717)
74
-
43
(86)
(473)
59
(239)
25
Total income tax expense
12,509
4,956
The movements of deferred tax assets and liabilities are shown below:
Deferred tax assets (liabilities)
January 1, 2010
(Expense) benefit to income
statement
Deferred tax acquired on
acquisition
December 31, 2010
Benefit (expense) to income
statement
Deferred tax acquired on
acquisition
Deferred
income from
partnerships
$
(2,012)
Property and
equipment
$
309
Goodwill and
intangible
assets
$
4,694
Other
$
501
Total
$
3,492
(2,248)
-
(4,260)
334
-
643
(3,023)
(19)
(4,956)
-
1,671
(88)
394
(88)
(1,552)
(2,419)
(198)
(7,490)
(356)
(10,463)
-
-
-
(41)
(41)
December 31, 2011
(6,679)
445
(5,819)
(3)
(12,056)
Changes in the deferred income tax components are adjusted through deferred tax expense. Of the above
components of deferred income taxes, $6,679 of the deferred tax liabilities are expected to be recovered within
12 months. The decrease in standard rate of Canadian corporate tax is due to general decreases in the
corporate tax rate in the jurisdictions in which the Company operates. The Company applies a blended rate in
determining its overal income tax expense.
52
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
14 Business acquisitions
Valley Autohouse
On November 4, 2011, the Company purchased substantially all of the net operating and fixed assets of Valley
Autohouse (1984) Ltd. operating two dealerships as Valley Autohouse (“Abbotsford and Chilliwack
Volkswagen”) for total cash consideration of $1,753. The acquisition 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 Abbotsford and Chilliwack Volkswagen subsequent to November 3, 2011. The
purchase of this business complements the Company’s other Volkswagen dealership in that area.
The purchase price allocated to the assets acquired and the liabilities assumed, based on their fair values, is as
follows:
Carrying
amount
$
Fair value
adjustments
$
Fair value
$
Current assets
Trade and other receivables
Inventories
Other current assets
Long term assets
Property and equipment
Intangible assets
Total assets
Current liabilities
Trade and other payables
Long term liabilities
Deferred tax liabilities
Total liabilities
Net assets acquired
Goodwill
Total net assets acquired
44
312
6
362
801
-
1,163
59
59
-
59
1,104
-
1,104
-
-
-
-
-
620
620
-
-
42
42
578
71
649
44
312
6
362
801
620
1,783
59
59
42
101
1,682
71
1,753
The revenue of Abbotsford and Chilliwack Volkswagen from date of acquisition that was included in the
consolidated statement of operations for the year ended December 31, 2011 was $2,541.
53
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
14 Business acquisitions continued
Future Hyundai
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 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
dealerships in the Greater Toronto Area.
Purchase price allocation
The purchase price allocated to the assets acquired and the liabilities assumed, based on their fair values, is as
follows:
Carrying
amount
$
Fair value
adjustments
$
Fair value
$
Current assets
Trade and other receivables
Inventories
Other current assets
Long term assets
Property and equipment
Intangible assets
Total assets
Current liabilities
Trade and other payables
Long term liabilities
Deferred tax liabilities
Total liabilities
Net assets acquired
Goodwill
Total net assets acquired
19
1,598
31
1,648
400
-
2,048
78
78
-
78
1,970
-
1,970
-
-
-
-
-
1,359
1,359
-
-
88
88
1,271
309
1,580
19
1,598
31
1,648
400
1,359
3,407
78
78
88
166
3,241
309
3,550
The revenue of 401 Dixie Hyundai from date of acquisition that was included in the consolidated statement of
operations for the year ended December 31, 2011 was $29,244 (2010 - $15,934).
54
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
15 Business divestiture
On June 21, 2011, the Company sold the operating assets of its Colombo Chrysler Jeep Dodge dealership
located in Woodbridge, Ontario. Total cash proceeds of $1,464 resulted in a gain on divestiture of $86, which
is included in gain on disposal of assets in the statement of comprehensive income. The break-down of the
transaction was as follows:
Current assets
Property and equipment
Current liabilities
Net assets disposed of
Net gain on divestiture
Net cash inflow on divestiture
16 Cash and cash equivalents
Cash at bank and on hand
Short-term deposits
$
6,124
503
(5,249)
1,378
86
1,464
December 31,
2011
$
14,911
38,730
December 31,
2010
$
12,966
24,575
January 1,
2010
$
11,948
9,580
53,641
37,541
21,528
Short-term deposits consists of cash held with Ally Credit. The Company's revolving floorplan facility
agreements allow the Company to hold excess cash in accounts with Ally Credit which is used to offset our
finance costs on our revolving floorplan facilities. The Company has immediate access to this cash unless we
are in default of our facilities, in which case the cash may be used by Ally Credit in repayment of our
facilities. If a default were to occur, the cash would be reclassified as restricted cash. See Note 21 for further
detail regarding cash balances held with Ally Credit.
17 Trade and other receivables
Trade receivables
Less: Allowance for doubtful accounts
Net trade receivables
Other receivables
Trade and other receivables
December 31,
2011
$
41,293
(359)
December 31,
2010
$
32,343
(364)
January 1,
2010
$
33,948
(332)
40,934
1,514
42,448
31,979
853
32,832
33,616
1,707
35,323
55
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
17 Trade and other receivables continued
The aging of trade and other receivables at each reporting date was at follows:
Current
Past due 31 - 60 days
Past due 61 - 90 days
Past due 91 - 120 days
Past due > 120 days
December 31,
2011
$
36,741
3,165
613
602
1,327
December 31,
2010
$
27,412
3,375
751
613
681
January 1,
2010
$
30,683
3,250
916
250
224
42,448
32,832
35,323
Included in amounts greater than 120 days are $559 (2010 - $nil) of receivables related to corporate fleet
leasing arrangements.
The Company is exposed to normal credit risk with respect to its accounts receivable and maintains provisions
for potential credit losses. Potential for such losses is mitigated because there is limited exposure to any single
customer and because customer creditworthiness is evaluated before credit is extended.
18 Inventories
New vehicles
Demonstrator vehicles
Used vehicles
Parts and accessories
December 31,
2011
$
101,135
6,302
21,531
7,901
December 31,
2010
$
84,870
7,261
18,084
7,873
January 1,
2010
$
73,264
5,816
22,197
7,047
136,869
118,088
108,324
During the period ended December 31, 2011, $839,734 of inventory (2010 - $719,487) was expensed as cost
of goods sold which included net write-downs on used vehicles of $85 (2010 - $151). During the period ended
December 31, 2011, $1,219 of demonstrator expense (2010 - $1,414) was included in selling, general, and
administration expense. As at December 31, 2011, the Company had recorded reserves for inventory write
downs of $1,440 (2010 - $1,581).
56
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
19 Property and equipment
Company
& lease
vehicles
$
Leasehold
Improvements
$
Machinery
&
Equipment
$
Land &
buildings
$
Furniture,
fixtures &
other
$
Computer
hardware
$
Total
$
Cost:
January 1, 2010
Capital expenditures
Acquisitions of dealership assets
Acquisitions of real estate
Disposals
Transfer in (out) of inventory, net
December 31, 2010
Capital expenditures
Acquisitions of dealership assets
Disposals
Transfer in (out) of inventory, net
December 31, 2011
Accumulated depreciation:
January 1, 2010
Current year depreciation
Disposals
Transfers out of inventory
December 31, 2010
Current year depreciation
Disposals
Transfers out of inventory
2,766
222
-
-
(18)
781
3,751
-
546
-
768
5,065
(962)
(694)
26
552
(1,078)
(961)
-
822
4,170
2,394
336
-
-
-
6,900
1,124
9
(2,100)
-
9,878
782
41
-
(96)
-
4,138
-
-
6,088
-
-
10,605
811
10,226
-
117
(387)
-
-
-
-
3,929
574
21
-
(27)
-
4,497
539
102
(13)
-
2,710
27,591
427
2
-
(13)
-
3,126
480
27
(24)
-
4,399
400
6,088
(154)
781
39,105
2,954
801
(2,524)
768
5,933
11,146
10,226
5,125
3,609
41,104
(2,755)
(664)
-
-
(3,419)
(543)
1,958
-
(3,183)
(1,493)
53
-
(4,623)
(1,258)
89
-
(365)
(313)
-
-
(678)
(527)
-
-
14
-
(1,833)
(562)
(148)
-
(1,271)
(1,455)
(576)
(431)
(9,991)
(4,171)
95
552
2
-
(1,884)
(394)
(13,515)
(4,245)
(90)
-
1,809
822
December 31, 2011
(1,217)
(2,004)
(5,792)
(1,205)
(2,543)
(2,368)
(15,129)
Carrying amount:
January 1, 2010
December 31, 2010
December 31, 2011
1,804
2,673
3,848
1,415
3,481
3,929
6,695
5,982
5,354
3,773
9,548
9,021
2,658
2,664
2,582
1,255
1,242
1,241
17,600
25,590
25,975
Fully depreciated assets are retained in cost and accumulated depreciation accounts until such assets are
removed from service. Proceeds from disposals are netted against the related assets and the accumulated
depreciation and included in the statement of operations and comprehensive income.
57
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
20 Intangible assets
Intangible assets consist of rights under franchise agreements with automobile manufacturers ("dealer
agreements").
Cost:
Opening balance
Acquisitions (Note 14)
Divestitures (Note 15)
Closing balance
Accumulated impairment:
Opening balance
Reversals of impairments
Divestitures (Note 15)
Closing balance
December 31,
2011
$
December 31,
2010
$
January 1,
2010
$
77,130
620
(3,747)
74,003
37,112
(25,543)
(3,747)
7,822
75,771
1,359
-
77,130
45,171
(8,059)
-
37,112
75,771
-
-
75,771
45,171
-
-
45,171
Carrying amount
66,181
40,018
30,600
Cash generating units have been determined to be individual dealerships. The following table shows the
carrying amount of indefinite-lived identifiable intangible assets by cash generating unit:
December 31,
2010
$
10,375
7,035
3,181
9,626
3,785
-
863
-
346
2,053
1,726
1,028
Cash Generating Unit
A
B
C
D
E
F
G
H
I
J
K
Other L - T combined
December 31,
2011
$
21,687
9,431
3,303
9,626
8,497
3,258
1,234
1,102
1,359
2,053
1,726
2,905
January 1,
2010
$
5,825
2,762
2,372
9,626
3,652
-
1,234
9
-
2,053
188
2,879
66,181
40,018
30,600
58
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
20 Intangible assets continued
The following table shows the impairments (recoveries of impairment) of indefinite-lived identifiable
intangible assets by cash generating unit:
Cash Generating Unit
A
B
C
E
F
G
H
I
K
Other L - T combined
December 31,
2011
$
(11,313)
(2,397)
(122)
(4,712)
(3,258)
(371)
(1,102)
(1,013)
-
(1,255)
December 31,
2010
$
(4,550)
(4,273)
(809)
(133)
-
371
9
1,013
(1,538)
1,851
(25,543)
(8,059)
Impairment test of indefinite life intangible assets
The Company performed a test for impairment as of January 1, 2010 (the "Transition date") upon transition to
IFRS for intangible assets, which compares the recoverable amount to the carrying value of each CGU. As a
result of the test performed, the Company recorded an impairment in the amount of $13,100.
The Company performed its annual test for impairment at December 31, 2010. As a result of the test
performed, the Company recorded a reversal of impairment in the amount of $8,059 for the year ended
December 31, 2010.
The Company performed its annual test for impairment at December 31, 2011. As a result of the test
performed, the Company recorded a reversal of impairment in the amount of $25,543 for the year ended
December 31, 2011.
The carrying value of intangible assets for each significant CGU is identified separately in the table above. “L
- T combined” comprises intangible assets allocated to the remaining CGUs.
The valuation techniques, significant assumptions and sensitivities applied in the intangible assets impairment
test are described below:
Valuation Techniques
The Company did not make any changes to the valuation methodology used to assess impairment since the
impairment test on transition to IFRS. The recoverable amount of each CGU was based on the greater of fair
value less cost to sell and value in use.
59
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
20 Intangible assets continued
Value in Use
Value in use ("VIU") is predicated upon the value of the future cash flows that a business will generate
going forward. The discounted cash flow (“DCF”) method was used which involves projecting cash
flows and converting them into a present value equivalent through discounting. The discounting process
uses a rate of return that is commensurate with the risk associated with the business or asset and the
time value of money. This approach requires assumptions about revenue growth rates, operating
margins, and discount rates.
Fair value less costs to sell
Fair value less costs to sell ("FVLCS") assumes that companies operating in the same industry will
share similar characteristics and that company values will correlate to those characteristics. Therefore, a
comparison of a CGU to similar companies may provide a reasonable basis to estimate fair value. Under
this approach, fair value is calculated based on EBITDA ("Earnings before interest, taxes, depreciation
and amortization") multiples comparable to the businesses in each CGU. Data for EBITDA multiples
was based on recent comparable transactions and management estimates. Multiples used in the test for
impairment for each CGU were in the range of 4.0 to 6.0 times forecasted EBITDA.
Significant Assumptions for Value in Use
Growth
The assumptions used were based on the Company’s internal budget which is approved by the Board of
Directors. The Company projected revenue, gross margins and cash flows for a period of one year, and
applied growth rates for years thereafter commensurate with industry forecasts. Management applied a
2% terminal growth rate in its projections. In arriving at its forecasts, the Company considered past
experience, economic trends and inflation as well as industry and market trends.
Discount Rate
The Company assumed a discount rate in order to calculate the present value of its projected cash flows.
The discount rate represented the Company's internally computed weighted average cost of capital
(“WACC”) for each CGU with appropriate adjustments for the risks associated with the CGU's in which
intangible assets are allocated. The WACC is an estimate of the overall required rate of return on an
investment for both debt and equity owners and serves as the basis for developing an appropriate
discount rate. Determination of the discount rate requires separate analysis of the cost of equity and
debt, and considers a risk premium based on an assessment of risks related to the projected cash flows
of each CGU.
60
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
20 Intangible assets continued
Significant Assumptions for Fair Value Less Costs to Sell
EBITDA
The Company's assumptions for EBITDA were based on the Company's internal budget which is
approved by the Board of Directors. The Company projected EBITDA for a period of one year and
reduced the amount for allocation of corporate overhead based on a percentage of gross profit for each
CGU as compared to the gross profit of the Company. As noted above, data for EBITDA multiples was
based on recent comparable transactions and management estimates.
Costs to sell
Management applied a percentage of 5% of the estimated purchase price in developing an estimate of
costs to sell, based on historical transactions.
Additional Assumptions
The key assumptions used in performing the impairment test, by CGU, were as follows:
Basis of Recoverable
A
B
C
D
E
F
G
H
I
J
K
L - T combined
Sensitivity
Amount Discount Rate
%
%
%
%
%
%
%
%
%
%
%
VIU/ FVLCS 15.3% - 18.5%
16.63
18.51
16.63
18.51
18.51
15.88
15.88
18.69
15.51
14.57
18.13
VIU
VIU
VIU
VIU
VIU
VIU
VIU
VIU
VIU
VIU
VIU
Perpetual
Growth Rate
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
The recoverable amount for each CGU that was in excess of its carrying value ranged from 104% to 1,224%
of the carrying value of the applicable CGU. The fair value for each CGU that was below its carrying value
ranged from 11% to 97% of the carrying value of the applicable CGU. As a result, the Company expects
future impairments and reversals of impairments to occur as market conditions change and risk premiums used
in developing the discount rate change.
61
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
20 Intangible assets continued
Based on sensitivity analysis, no reasonably possible change in growth rate assumptions would cause the
recoverable amount of any CGU to have a significant change from its current valuation. A 1% change in the
discount rate would not have a significant impact on the recoverable amounts of CGUs. The recoverable
amount of each CGU is sensitive to changes in market conditions and could result in material changes in the
carrying value of intangible assets in the future.
21 Financial instruments
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the
basis of measurement and the basis on which income and expenses are recognised, in respect of each class of
financial asset and financial liability are disclosed in the accounting policies. The Company's financial assets
have been classified as loans and receivables. The Company's financial liabilities have been classified as other
financial liabilities. Details of the Company's financial assets and financial liabilities are disclosed below:
Financial assets
Cash and cash equivalents
Trade and other receivables
Financial liabilities
Current indebtedness
Long-term indebtedness
Revolving floorplan facilities
Trade and other payables
December 31,
2011
$
December 31,
2010
$
January 1,
2010
$
53,641
42,448
2,859
20,115
150,816
32,132
37,541
32,832
21,528
35,323
277
24,974
124,609
26,622
96
22,785
102,370
32,132
Financial Risk Management Objectives
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.
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.
62
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
21 Financial instruments continued
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 directly exposed to significant foreign
currency risk with respect to its financial instruments.
Interest Rate Risk
The Ally Credit revolving floorplan facilities ("Ally facilities") 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%. These
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).
The VW Credit Canada, Inc. revolving floorplan facilities ("VCCI facilities") 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 VCCI facilities bear interest at Prime Rate plus 0.75%
for new vehicles and Prime Rate plus 1.00%-1.25% for used vehicles. These facilities define Prime Rate
as the Royal Bank of Canada Prime Rate (3.00% as at December 31, 2011).
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% (HSBC Prime
Rate as at December 31, 2011 is 3.00%).
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.
The Company’s exposures to interest rates on financial assets and financial liabilities are detailed in the
liquidity risk management section of this note. The sensitivity analysis below has been determined
based on the exposure to interest rates at the reporting date and stipulated change taking place at the
beginning of the financial year and held constant throughout the reporting period. The amounts below
represent an increase to the reported account if positive and a decrease to the reported account if
negative. A 100 basis point change and 200 basis point change is used when reporting interest risk
internally to key management personnel and represents management’s assessment of the possible
change in interest rates.
+ 200 Basis Point
2010
$
1,695
246
2011
$
1,936
387
- 200 Basis Point
2010
$
(449)
-
2011
$
(450)
-
+ 100 Basis Point
2010
$
225
-
2011
$
225
-
- 100 Basis Point
2010
$
(225)
-
2011
$
(225)
-
Finance costs
Finance income
63
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
21 Financial instruments continued
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 7 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. Details of the aging of the Company's trade and other receivables is located in Note 17.
The Company evaluates receivables for collectability based on the age of the receivable, the credit history of
the customer and past collection experience. 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. Details of the allowances for doubtful accounts are located in Note 17.
Concentration of cash and cash equivalents exist due to the significant amount of cash held with Ally Credit
(see Note 7 for further discussion of the Company’s concentration of cash held on deposit with Ally Credit).
The Revolving floorplan 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, 2011). 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.
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.
The Company is exposed to liquidity risk as a result of its economic dependence on suppliers and lenders.
(See Note 7 for further information regarding the Company’s economic dependence on Chrysler Canada and
Ally Credit and the potential effect on the Company’s liquidity).
64
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
21 Financial instruments continued
Liquidity Risk continued
The following table details the Company’s remaining contractual maturity for its financial liabilities. The
tables below have been drawn up based on the undiscounted contractual maturities of the financial liabilities.
Contractual interest payable includes interest that will accrue to these liabilities except where the Company is
entitled and intends to repay the liability before its maturity.
Trade and other payables
Revolving floorplan facilities
HSBC revolving term facility
HSBC fixed term loan
BMO fixed rate term loan
Lease obligations
Contractual interest payable
22 Other long-term assets
Prepaid rent (Note 30)
Other assets
23 Payables, accruals and provisions
Trade payables
Accruals and provisions
Sales tax payable
Wages and witholding taxes payable
2012
$
32,132
150,816
-
176
2,683
1,204
890
Total
2013
$
$
32,132
-
- 150,816
17,000
3,291
2,683
1,204
1,274
17,000
3,115
-
-
384
187,901
20,499 208,400
December 31,
2011
$
7,558
51
December 31,
2010
$
5,850
59
January 1,
2010
$
2,142
56
7,609
5,909
2,198
December 31,
2011
$
15,085
5,156
2,239
9,652
December 31,
2010
$
13,106
4,909
2,132
6,475
January 1,
2010
$
16,796
1,154
1,832
5,049
32,132
26,622
24,831
65
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
24 Indebtedness
This note provides information about the contractual terms of the Company's interest-bearing debt, which are
measured at amortized cost. For more information about the Company's exposure to interest rate, foreign
currency and liquidity risk, see Note 21.
Current indebtedness
Current portion of indebtedness
Revolving floorplan facilities - Ally Credit (i)
Revolving floorplan facilities - VCCI (ii)
Non-current indebtedness
HSBC revolving term loan (iii)
HSBC non-revolving fixed term loan (iv)
BMO fixed rate term facility (v)
December 31,
2011
$
December 31,
2010
$
January 1,
2010
$
2,859
148,587
2,228
153,674
17,000
3,115
-
20,115
277
124,609
-
124,886
19,000
3,291
2,683
24,974
96
102,370
-
102,466
20,000
-
2,785
22,785
Total indebtedness
173,789
149,860
125,251
Terms and conditions of outstanding loans are as follows:
i
ii
The Revolving floorplan facilities - Ally Credit (“Ally facilities”) are available to the Company
to finance new, demonstrator and used vehicles bears interest at the Prime Rate plus 0.20%
(4.20% at December 31, 2011) 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, 2011) 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 financed by Ally Credit. 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.
The Revolving floorplan facilities - VCCI (“VCCI facilities”) are available to the Company
from VW Credit Canada, Inc. ("VCCI") to finance new and used vehicles for the Abbotsford
and Chilliwack Volkswagen dealerships. The VCCI facilities bear interest at the Royal Bank of
Canada ("RBC") prime rate plus 0.75% for new vehicles and 1.00%-1.25% for used vehicles
(RBC prime rate = 3.00% at December 31, 2011). The maximum amount of financing provided
by the VCCI facilities is $7,300. The VCCI facilities are collateralized by all of the dealerships'
new, used and demonstrator inventory financed by VCCI and a general security agreement from
the two dealerships. The individual notes payable of the VCCI facilities are due when the
related vehicle is sold, as outlined in the agreement with VCCI.
66
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
24 Indebtedness continued
iii
iv
v
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
0.75% (3.75% at December 31, 2011). The HSBC Revolver 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, VCCI and the Company, the collateral for the
HSBC Revolver excludes all new, used and demonstrator inventory financed with the Ally
facilities and VCCI facilities.
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, 2012, 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, 2013. The HSBC Term Loan bears interest at HSBC’s Prime Rate plus 1.75%
(4.75% at December 31, 2011). 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, 2011, the carrying amount of the Newmarket Infiniti Nissan
property was $5,646.
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, 2011, the carrying amount of the Cambridge
Hyundai property was $3,375.
67
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
25 Leases
This note provides information about the contractual terms of the Company's lease obligations.
Current
Vehicle repurchase obligations (i)
Current finance lease obligations (ii)
Non-current
Long-term finance lease obligations (ii)
Total lease obligations
December 31,
2011
$
December 31,
2010
$
January 1,
2010
$
1,082
122
1,204
-
1,204
742
165
907
120
1,027
-
175
175
289
464
Terms and conditions of lease obligations were as follows:
i
ii
The Company provides 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.
A number of equipment leases are classified as a finance leases. At inception of the leases, the
Company recognized an asset and a liability at an amount equal to the estimated fair value of the
equipment. The imputed finance costs on the liability were determined based on the lower of the
Company's incremental borrowing rate and the rates implicit in each lease.
Other leasing arrangements:
In conjunction with the acquisition of Valley Autohouse (note 14), the Company acquired an in-house leased
vehicle portfolio in which the Company acts as lessor. The vehicles are leased to third parties pursuant to
non-cancellable operating lease agreements. As at December 31, 2011, the lease terms for the remaining
vehicle leases range from 36 to 48 months. The future aggregate minimum lease payments receivable under
the non-cancellable operating leases are $65 within 1 year and $52 thereafter. The Company intends to wind-
down the in-house lease program at this location over the next 48 months.
68
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
26 Commitments and Contingencies
Commitments
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 30) and other third parties. The future
aggregate minimum lease payments under non-cancellable operating leases are as follows:
2010
2011
2012
2013
2014
2015
2016
Thereafter
December 31,
2011
$
-
-
10,109
8,611
8,307
7,984
6,881
56,481
December 31,
2010
$
-
11,447
8,066
5,551
5,212
4,917
4,872
45,617
January 1,
2010
$
19,555
10,322
7,310
5,328
4,657
4,488
4,439
49,487
98,373
85,682
105,586
Lawsuits and legal claims
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.
In addition to the matters described above, the Company is engaged in various legal proceedings and claims
that have arisen in the ordinary course of business. The outcome of all of the proceedings and claims against
the Company, including those described above, is subject to future resolution, including the uncertainties of
litigation. Based on information currently known to the Company and after consultation with outside legal
counsel, management believes that the probable ultimate resolution of any such proceedings and claims,
individually or in the aggregate, will not have a material adverse effect on the financial condition of the
Company, taken as a whole.
69
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
27 Share-based payments
The Company operates a combination of cash and equity-settled compensation plan under which it receives
services from employees as consideration for cash payments. The plan is described below:
Restricted Share Units (RSUs)
The Company granted 11,752 RSUs in 2011 to designated management employees entitling them to
receive a combination of cash and common shares based on the Company's share price at each vesting
date. The RSUs are also entitled to earn additional units based on dividend payments made by the
Company and the share price on date of payment. With respect to the above granted RSUs, an
additional 493 were earned during the year. The RSUs granted are scheduled to vest evenly over three
years conditional upon continued employment with the Company. During the year ended December 31,
2011, $302 was expensed relating to the RSU plan (2010 - $57).
28 Share capital
Common shares of the Company are voting shares and have no par value. The authorized common share
capital is an unlimited number of shares.
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, 2011, eligible dividends totaling
$6,163 (2010 - $2,387) were declared and paid. On February 15, 2012, the Board of Directors of the
Company declared a quarterly eligible dividend of $0.14 per common share on the Company's outstanding
Class A common shares, payable on March 15, 2012 to shareholders of record at the close of business on
February 29, 2012.
Earnings per share
Basic earnings per share was calculated by dividing earnings attributable to common shares by the sum of the
weighted-average number of shares outstanding during the period. The Company does not have any dilutive
stock options or other securities. Earnings used in determining earnings per share from continuing operations
are presented below:
Earnings attributable to common shares
The weighted-average number of shares outstanding is presented below:
Weighted-average number of shares outstanding
2011
$
36,784
2010
$
14,596
2011
19,880,930
2010
19,880,930
70
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
29 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 indebtedness, long-term lease obligations and equity.
The calculation of the Company's capital is summarized below:
Long-term indebtedness
Long-term lease obligations
Equity
December 31,
2011
$
20,115
-
112,995
December 31,
2010
$
24,974
120
82,374
January 1,
2010
$
22,785
289
70,165
133,110
107,468
93,239
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.
30 Related party transactions
Transactions with COAG and affiliates
As of December 31, 2011, Canada One Auto Group ("COAG") and affiliates beneficially owned
approximately 42.3% of the Company's shares. In the normal course of business, COAG and certain of its
affiliates had transactions with the Company. These transactions are measured at the exchange amount, which
is the amount of consideration established and agreed to by the related parties. Details of these transactions
are noted below:
1
Prepaid rent
During the year ended December 31, 2011, 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, 2011 was $2,160 (2010 - $4,163) of
which $452 (2010 - $452) has been amortized as a reduction in current period facilities lease costs. On
March 1, 2012, the final prepayment was made with respect to this agreement.
71
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
30 Related party transactions continued
2
Rent paid to companies with common directors
During the year ended December 31, 2011, total rent paid to companies with common directors
amounted to $7,906 (2010 - $8,171). The Company currently leases thirteen of twenty-four properties
from affiliates of COAG. The Company's independent board of directors has received advice from a
national real estate appraisal company that the market rents at each of the COAG properties were at fair
market value rates when the leases were entered into.
3
Management fees and non-competition fees
During the period ended December 31, 2011 total management fees received from companies with
common directors amounted to $201 (2010 - $276).
Key management personnel compensation
Key management personnel consists of the Company's executive officers and directors. Key management
personnel compensation is as follows:
Short-term employee benefits
Employee costs (including directors)
Termination benefits
Share-based payments
31 Comparative figures
2011
$
117
3,106
(265)
302
3,260
2010
$
160
2,377
978
57
3,572
In addition to reclassifications identified in Note 32, certain comparative figures have been reclassified to
conform with the current year's consolidated financial statements presentation.
32 Transition to IFRS
These consolidated financial statements represent the first consolidated financial statements of the Company
prepared in accordance with IFRS, as issued by the IASB. The Company's consolidated financial statements
were previously prepared in accordance with Canadian GAAP. The Company adopted IFRS in accordance
with IFRS 1, First-time Adoption of International Financial Reporting Standards. The first date at which IFRS
was applied was January 1, 2010 (“Transition Date”). In accordance with IFRS, the Company has:
!
!
!
!
provided comparative financial information;
applied the same accounting policies throughout all periods presented;
retrospectively applied all effective IFRS standards as of January 1, 2010, as required; and
applied certain optional exemptions and certain mandatory exceptions as applicable for first
time IFRS adopters.
72
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
32 Transition to IFRS continued
Exemption options
Set forth below are the IFRS 1 applicable exemptions applied in the conversion from Canadian GAAP to
IFRS:
1. Business combinations - IFRS 1 provides the option to apply IFRS 3, Business Combinations,
retrospectively or prospectively from January 1, 2010 (the "Transition Date"). The retrospective basis would
require restatement of all business combinations that occurred prior to the Transition Date. The Company
elected not to retrospectively apply IFRS 3 to business combinations that occurred prior to its Transition Date
and such business combinations have not been restated. Any goodwill arising on such business combinations
before the Transition Date has not been adjusted from the carrying value previously determined under
Canadian GAAP as a result of applying these exemptions. Further, the Company did not early adopt IFRS 3
Revised and instead has adopted that standard upon its effective date which, for the Company, was January 1,
2010.
Mandatory exceptions
Set forth below are the applicable mandatory exceptions in IFRS 1 applied in the conversion from Canadian
GAAP to IFRS.
1. Estimates - Hindsight is not used to create or revise estimates. The estimates previously made by the
Company under Canadian GAAP were not revised for application of IFRS except where necessary to reflect
any difference in accounting policies.
Reconciliations of Canadian GAAP to IFRS
IFRS 1 requires an entity to reconcile equity, comprehensive income and cash flows for prior periods. The
Company’s first time adoption of IFRS did not have an impact on the total operating, investing or financing
cash flows. The following represents the reconciliations from Canadian GAAP to IFRS for the respective
periods noted for the retained deficit:
Reconciliation of accumulated deficit
Accumulated deficit as reported under Canadian GAAP
IFRS adjustments:
1. Property and equipment
2. Impairments
3. Income taxes
Accumulated deficit as reported under IFRS
73
December 31,
2010
$
(107,966)
January 1,
2010
$
(114,251)
(345)
(5,041)
1,373
(194)
(13,100)
3,357
(111,979)
(124,188)
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
32 Transition to IFRS continued
Reconciliation of comprehensive income
Net comprehensive income under Canadian GAAP
Differences in GAAP increasing (decreasing) reported earnings:
1. Property and equipment
2. Reversal of impairments
3. Income taxes
Net comprehensive income under IFRS
Changes in accounting policies
Year ended
December 31,
2010
$
8,670
(150)
8,059
(1,983)
14,596
In addition to the exemptions and exceptions discussed above, the following narratives explain the significant
differences between the previous historical Canadian GAAP accounting policies and the current IFRS
accounting policies applied by the Company. Only the differences having an impact on AutoCanada Inc. are
described below. The following is not a complete summary of all of the differences between Canadian GAAP
and IFRS. Relative to the impacts on AutoCanada Inc., the descriptive caption next to each numbered item
below corresponds to the same numbered and descriptive caption in the tables above, which reflect the
quantitative impacts from each change. Unless a quantitative impact was noted below, the impact from the
change was not material to AutoCanada Inc.
1
Property and equipment
The objective of amortization under Section 3061 of the CICA Handbook is to provide a rational and
systematic basis for allocating the amortizable amount of an item of property and equipment over its
estimated life and useful life. Under Canadian GAAP, the components of the Company's buildings were
determined to operate in combination and were amortized at the declining balance rate of 4% annual
amortization. Under IFRS, accounting for components of property and equipment is required at a more
detailed level than under Canadian GAAP. IAS 16 requires separate amortization for those components
with a distinct rate of amortization. As a result of applying the componentization requirements of IAS
16, the net book value of property and equipment decreased by $194 and $345, reflecting increased
amortization of the components of the Company's buildings at at January 1, 2010 and December 31,
2010 respectively.
2
Impairments and reversals of impairments
IAS 36 requires that impairment testing be done on a CGU level, which is the smallest identifiable
group of assets that generates cash inflows. For AutoCanada Inc., the CGU's consist of each individual
dealership, which resulted in more CGU's subject to impairment testing under IFRS than under
Canadian GAAP in which impairment testing for intangible assets was performed at the single reporting
unit level.
74
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
32 Transition to IFRS continued
2
Impairments and reversals of impairments continued
IAS 36 also requires a one-step approach to determine the recoverable amount of a CGU. Canadian
GAAP's two-step approach required the application of discounted cash flow techniques to measure the
impairment amount, but only after the use of undiscounted cash flow analysis indicated the existence of
an impairment. The adoption of IAS 36 is expected to result in more frequent impairments or reversals
of impairments since the carrying amount of assets which are supported by undiscounted cash flows
may be determined to be impaired when the future cash flows are discounted in accordance with IFRS
requirements. Unlike Canadian GAAP, previous impairments of intangible assets and property and
equipment may be reversed or reduced if the circumstances which lead to the impairment change.
In accordance with IAS 36, the Company reviewed the recoverable amount for its CGU's at both the
Transition Date and as at December 31, 2010. The key assumptions and methodology used in those
reviews are disclosed in Note 20.
At the Transition Date, as a result of the impairment test performed, the Company determined that
certain of the Company's CGU's were impaired. The impairment resulted in a decrease to the carrying
value of intangible assets at the Transition Date of $13,100. In accordance with the provisions of IFRS
1, this difference was recognized in the opening accumulated deficit at the Transition Date. The change
in carrying value noted above resulted in an adjustment to deferred taxes, which is discussed below.
At December 31, 2010, in accordance with IAS 36, an annual test for impairment was performed. The
Company determined that certain of the Company's CGU's were impaired and certain of the Company's
CGU's previously recorded impairments were reduced. The impairment test resulted in an overall
increase in the carrying value of intangible assets at December 31, 2010 in the amount of $8,059. In
accordance with IAS 36, the overall reversal of impairment of intangible assets was recorded in the
statement of operations as an increase to net comprehensive income of $8,059 for the year ended
December 31, 2011. The change in carrying value noted above resulted in an adjustment to deferred
taxes, which is discussed below.
Given the volatility of the retail automotive industry in Canada, the Company expects to incur more
frequent impairments or reversals of impairments of intangible assets in future reporting periods.
3
Income taxes
As a result of the differences identified above between Canadian GAAP and IFRS, the revised carrying
values of intangible assets and property and equipment resulted in revised temporary differences
between the accounting basis and tax basis of these assets.
At the Transition Date, the Company recorded a net increase in deferred tax assets of $3,357. In
accordance with the provisions of IFRS 1, this difference was recognized in the opening accumulated
deficit at the Transition Date.
At December 31, 2010, the Company recorded a net decrease in deferred tax liabilities of $1,373. This
difference reflects the reversal of impairment of intangible assets recorded during the year ended
December 31, 2010 which resulted in revised temporary differences from the amounts at the Transition
Date. For the year ended December 31, 2010, the Company recorded a net increase in income tax
expense of $1,983 relating to the increased carrying values of intangible assets due to the reversal of
impairments during the year.
75
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
32 Transition to IFRS continued
3
Income taxes continued
Due to the expectation of more frequent impairments or reversals of impairments of intangible assets
and property and equipment, the Company expects to incur more volatility in its deferred tax and
resulting income tax expense in the future.
Presentation reclassifications - Statement of Financial Position
Deferred tax - Under Canadian GAAP, deferred tax assets and liabilities were presented as current or
long-term on the consolidated balance sheets in accordance with the assets or liabilities that gave rise to
the deferred tax balances. Under IFRS, deferred tax assets and liabilities are required to be presented as
non-current. The Company has reclassified the deferred taxes into non-current assets and liabilities
based on the net asset and liability positions at each reporting date.
Other - All other reclassifications have been made to simplify the presentation of the statement of
financial position and are not as a result of the adoption of IFRS standards.
Presentation reclassifications - Statement of Comprehensive Income
Finance costs / Finance income - Under Canadian GAAP, finance income was not required to be
separated from revenue. Under IFRS, finance income is required to be presented separately from
revenue and presented after operating profit. Previously under Canadian GAAP, the Company
disclosed finance costs as "interest costs". This amount was included in operating profit. Under IFRS,
finance costs is required to be presented after operating profit.
Other - All other reclassifications have been made to simplify the presentation of the statement of
financial position and are not as a result of the adoption of IFRS standards.
76
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
32 Transition to IFRS continued
Reconciliation of Consolidated Statement of Financial Position as of January 1, 2010
Canadian GAAP accounts
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Prepaid expenses
Current assets
Property and equipment
Intangible assets
Future income tax
Prepaid rent
Other assets
Total assets
Liabilities
Accounts payable
Revolving floorplan facilities
Current portion of long term debt
Future income taxes
Current liabilities
Long term debt
Total liabilities
Shareholders' equity
Share capital
Contributed surplus
Deficit
Total shareholders' equity
Total liabilities and equity
CGAAP
Balance
$
IFRS
Adjustments
$
IFRS
Reclassifications
$
IFRS
Balance
$ IFRS accounts
21,528
35,323
108,324
1,646
166,821
17,794
43,700
1,647
2,142
56
-
-
-
-
-
-
(194)
(13,100)
3,357
-
-
-
-
-
-
-
-
-
-
(1,512)
(2,142)
(56)
2,198
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Current assets
Property and equipment
Intangible assets
Deferred tax
21,528
35,323
108,324
1,646
166,821
17,600
30,600
3,492
-
-
2,198
Other long-term assets
232,160
(9,937)
(1,512)
220,711
Total assets
-
-
(96)
96
(1,512)
24,831
Equity and liabilities
Trade and other payables
102,370
Revolving floorplan facilities
175
96
-
Current lease obligations
Current indebtedness
(1,512)
(22,785)
127,472
289
Current liabilities
Long-term lease obligations
22,785
22,785
Long-term indebtedness
(1,512)
-
-
-
-
-
150,546
-
190,435
3,918
Total liabilities
Equity
Share capital
Contributed surplus
(124,188)
Accumulated deficit
70,165
Total equity
(1,512)
220,711
Total liabilities and equity
24,831
102,370
271
-
1,512
128,984
23,074
-
152,058
-
190,435
3,918
(114,251)
80,102
232,160
-
-
-
-
-
-
-
-
-
-
-
-
(9,937)
(9,937)
(9,937)
77
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
32 Transition to IFRS continued
Reconciliation of Consolidated Statement of Financial Position as of December 31, 2010
Canadian GAAP accounts
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Prepaid expenses
Current assets
Property & equipment
Intangible assets
Goodwill
Future income tax
Prepaid rent
Other assets
CGAAP
Balance
$
IFRS
Adjustments
$
IFRS
Reclassifications
$
IFRS
Balance
$ IFRS accounts
37,541
32,832
118,088
1,148
189,609
25,935
45,059
309
930
5,850
59
-
-
-
-
-
-
(345)
(5,041)
-
-
-
-
-
-
-
-
-
-
-
-
-
(930)
(5,850)
(59)
5,909
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Current assets
Property and equipment
Intangible assets
Goodwill
37,541
32,832
118,088
1,148
189,609
25,590
40,018
309
-
-
-
5,909
Other long-term assets
Total assets
267,751
(5,386)
(930)
261,435
Total assets
Liabilities
Trade and other payables
Revolving floorplan facilities
Current lease obligations
Current indebtedness
Future income taxes
Current liabilities
Lease obligations
Long-term debt
Total liabilities
Shareholders' equity
Share capital
Contributed surplus
Deficit
Total shareholders' equity
Total liabilities and equity
26,622
124,609
907
277
3,855
156,270
120
24,974
-
181,364
-
190,435
3,918
(107,966)
86,387
267,751
-
-
-
-
-
-
-
-
(1,373)
(1,373)
-
-
-
(4,013)
(4,013)
(5,386)
78
-
-
-
-
(3,855)
(3,855)
-
-
2,925
(930)
-
-
-
-
-
26,622
Equity and Liabilities
Trade and other payables
124,609
Revolving floorplan facilities
907
277
-
152,415
120
24,974
1,552
179,061
-
190,435
3,918
Current lease obligations
Current indebtedness
Current Liabilities
Long-term lease obligations
Long-term indebtedness
Deferred tax
Total liabilities
Equity
Share capital
Contributed surplus
(111,979)
Accumulated deficit
82,374
Total equity
(930)
261,435
Total equity and liabilities
AutoCanada Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2011 and 2010
(in thousands of Canadian dollars except for share and per share amounts)
32 Transition to IFRS continued
Reconciliation of Consolidated Statement of Comprehensive Income for the year ended December 31, 2010
Canadian GAAP accounts
Vehicles
Parts, service and collision
repair
Other
Revenue
Cost of sales
Gross Profit
Selling, general and
administrative
Interest
Amortization
CGAAP
Balance
$
760,527
108,558
1,446
870,531
(719,594)
150,937
126,056
9,217
4,021
IFRS
Adjustments
$
-
IFRS
Reclassifications
$
108,980
IFRS Balance
$ IFRS accounts
Revenue
869,507
-
-
-
-
-
150
-
-
(108,558)
(1,446)
(1,024)
107
-
-
869,507
(719,487)
Revenue
Cost of sales
(917)
150,020
Gross profit
4,025
(9,217)
(4,021)
130,231
Operating expenses
-
-
Earnings before income taxes
11,643
(150)
8,296
19,789
Earnings before income taxes
Earnings before income taxes
Income tax
-
11,643
-
-
11,643
2,972
8,059
7,909
-
-
7,909
1,984
Net earnings
8,671
5,925
-
8,296
(9,217)
921
-
-
-
8,059
27,848
(9,217)
921
19,552
4,956
14,596
Operating profit before
other income
Reversal of impairment
of intangible assets
Operating profit
Finance costs
Finance income
Net income for the
period before
taxation
Income tax
Net income and
comprehensive income
for the period
79
CORPORATE INFORMATION
AUTOCANADA INC.
Shareholder Information
Head Office
AutoCanada Inc.
Senior Management
Patrick Priestner,
Chief Executive Officer
Thomas Orysiuk,
President and Chief Financial Officer
#200 – 15505 Yellowhead Trail
Edmonton, Alberta
T5V 1E5
www.autocan.ca
Investor Relations
Jeffery Christie
780-732-7164
jchristie@autocan.ca
Stephen Rose,
Executive Vice-President, Corporate Services
Auditors
Jeffery Christie,
Vice-President, Finance
PricewaterhouseCoopers, LLP
Edmonton, Alberta
Board of Directors
Shares Listed
Gordon Barefoot – Chairman
Michael Ross
Robin Salmon
Dennis DesRosiers
Christopher Cumming
Patrick Priestner
Thomas Orysiuk
Toronto Stock Exchange
Trading Symbol: ACQ
Transfer Agent
Valiant Trust Company
Annual General Meeting
Wednesday, May 9, 2012
10:00 a.m. Mountain Time
AutoCanada Inc. Corporate Head Office
200 – 15505 Yellowhead Trail
Edmonton, Alberta
80
#200 - 15505 Yellowhead Trail • Edmonton, AB • T5V 1E5
www.autocan.ca
8 » AutoCanada 2011