AutoCanada Inc.
Annual Report
2014
2014 Annual Report
(cid:2) Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
CONSOLIDATED FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
1
47
95
AutoCanada Inc.
Management's Discussion and
Analysis of Financial Condition and
Results of Operations
For the year ended December 31, 2014
READER ADVISORIES
The Management’s Discussion & Analysis (“MD&A”)
was prepared as of March 19, 2015 to assist readers
in understanding AutoCanada Inc.‘s (the
“Company” or “AutoCanada”) consolidated
financial performance for the year ended
December 31, 2014 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 as at and for the year ended
December 31, 2014. 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, 2014 of the
Company, and compares these to the operating
results of the Company for the three month period
and year ended December 31, 2013. Until July 11,
2014, the Company had investments in associates
comprised of six General Motors dealerships and
accounted for the investments utilizing the equity
method, whereby the operating results of these
investments were included in one line item on the
statement of comprehensive income known as
Income from investments in associates. As a result,
the Company did not incorporate the consolidated
results of its investments in associates in its
discussion and analysis as at June 30, 2014. On
July 11, 2014, the Company completed a business
combination under common control, resulting in
the accounting consolidation of the results of its
investments in associates using the predecessor
values method. Management has provided
comparative information and discussion of this
business combination in “BUSINESS
COMBINATION UNDER COMMON CONTROL”.
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
Page 2 Š AutoCanada Š 2014 Annual Report
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 Canada
Business Corporations Act on October 29, 2009 in
connection with 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 holds interests and investments in a
number of limited partnerships, and corporations,
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 common shares (“shares”) trade on
the Toronto Stock Exchange under the symbol
“ACQ”.
Additional information relating to AutoCanada,
including our 2014 Annual Information Form dated
March 19, 2015, is available on the System for
Electronic Document Analysis and Retrieval
(“SEDAR”) website at www.sedar.com, or on the
Company’s website at www.autocan.ca.
The Business of the Company
AutoCanada is one of Canada’s largest
multi-location automobile dealership groups,
currently operating 48 dealerships, comprised of
56 franchises, (see “GROWTH, ACQUISITIONS,
RELOCATIONS AND REAL ESTATE”) in British
Columbia, Alberta, Saskatchewan, Manitoba,
Ontario, Quebec, New Brunswick and Nova Scotia.
In 2014, our dealerships sold approximately 57,000
vehicles and processed approximately 786,000
service and collision repair orders in our 822
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 will
increase as revenues from higher margin
operations increase relative to revenues from lower
margin operations.
The Company’s geographical profile is illustrated below by number of franchises, number of dealerships,
and revenues by province for the years ended December 31, 2014 and December 31, 2013.
Location
British Columbia
Alberta
Saskatchewan
Manitoba
Ontario
Other
Total
December 31, 2014
December 31, 20131
Number of
Franchises
Number of
Dealerships
Revenue
% of
Total
Number of
Franchises
Number of
Dealerships
Revenue
% of
Total
12
25
4
4
5
6
56
10 507,574 23%
22 1,080,632 49%
5%
118,692
7%
156,263
5%
108,404
11%
243,213
4
4
4
4
48 2,214,778 100%
11
14
–
3
4
2
34
9
11
–
3
3
2
431,519
31%
637,414 45%
–%
–
6%
78,912
7%
105,594
11%
155,601
28 1,409,040 100%
1
The results of three GM stores operated by the Company during 2013 have not been consolidated or included in the
number of dealerships, as the stores were accounted for as investments in associates as at December 31, 2013.
Commencing July 11, 2014, General Motors dealerships have been consolidated for accounting purposes and have
been included in the total number of dealerships.
In the fourth quarter of 2014, the Company augmented its disclosure on dealership counts. Historically, the
Company counted the number of dealerships based on the number of physical storefronts. The Company
has added disclosure on the number of franchises based on the number of separate franchise agreements.
The following table sets forth the dealerships and franchises that we currently own and operate and the
date opened or acquired by the Company or its predecessors, organized by location.
Location
Operating Name
Franchise
Year Opened
or Acquired
Wholly-Owned Dealerships:
Abbotsford, British Columbia
Chilliwack, British Columbia
Kelowna, British Columbia
Maple Ridge, British Columbia
Abbotsford Volkswagen
Chilliwack Volkswagen
Okanagan Chrysler Jeep Dodge
FIAT
Maple Ridge Chrysler Jeep Dodge
FIAT
Maple Ridge Volkswagen
Maple Ridge, British Columbia
Prince George, British Columbia Northland Chrysler Jeep Dodge
Prince George, British Columbia Northland Hyundai
Prince George, British Columbia Northland Nissan
Victoria Hyundai
Victoria, British Columbia
Courtesy Chrysler Dodge
Calgary, Alberta
Calgary Hyundai
Calgary, Alberta
Crowfoot Hyundai
Calgary, Alberta
Hyatt Mitsubishi
Calgary, Alberta
Northland Volkswagen
Calgary, Alberta
Fish Creek Nissan
Calgary, Alberta
Hyatt Infiniti
Calgary, Alberta
Volkswagen
Volkswagen
FIAT / Chrysler
FIAT / Chrysler
Volkswagen
Chrysler
Hyundai
Nissan
Hyundai
Chrysler
Hyundai
Hyundai
Mitsubishi
Volkswagen
Nissan
Infiniti
2011
2011
2003
2005
2008
2002
2005
2007
2006
2013
2014
2014
2014
2014
2014
2014
AutoCanada Š 2014 Annual Report Š Page 3
Location
Operating Name
Calgary, Alberta
Edmonton, Alberta
Edmonton, Alberta
Edmonton, Alberta
Grande Prairie, Alberta
Grande Prairie, Alberta
Grande Prairie, Alberta
Grande Prairie, Alberta
Grande Prairie, Alberta
Grande Prairie, Alberta
Ponoka, Alberta
Sherwood Park, Alberta
Saskatoon, Saskatchewan
Winnipeg, Manitoba
Winnipeg, Manitoba
Winnipeg, Manitoba
Cambridge, Ontario
Mississauga, Ontario
Newmarket, Ontario
Toronto, Ontario
Moncton, New Brunswick
Dartmouth, Nova Scotia
Tower Chrysler Jeep Dodge Ram
Crosstown Chrysler Jeep Dodge
FIAT
Capital Chrysler Jeep Dodge FIAT
North Edmonton Kia
Grande Prairie Chrysler Jeep Dodge
FIAT
Grande Prairie Hyundai
Grande Prairie Subaru
Grande Prairie Mitsubishi
Grande Prairie Nissan
Grande Prairie Volkswagen
Ponoka Chrysler Jeep Dodge
Sherwood Park Hyundai
Dodge City Chrysler Jeep Dodge
RAM
St. James Audi
St. James Volkswagen
Eastern Chrysler Jeep Dodge
Cambridge Hyundai
401 Dixie Hyundai
Newmarket Infiniti Nissan
Toronto Chrysler Jeep Dodge Ram
Moncton Chrysler Jeep Dodge
Dartmouth Chrysler Jeep Dodge
Dealership Investments:
Peter Baljet Chevrolet GMC Buick
Lakewood Chevrolet
Sherwood Park Chevrolet
Sherwood Buick GMC
Duncan, British Columbia
Edmonton, Alberta
Sherwood Park, Alberta
Sherwood Park, Alberta
North Battleford, Saskatchewan Bridges Chevrolet Buick GMC
Mann-Northway Auto Source
Prince Albert, Saskatchewan
Saskatoon Motor Products
Saskatoon, Saskatchewan
McNaught Cadillac Buick GMC
Winnipeg, Manitoba
BMW Laval and MINI Laval
Laval, Quebec
BMW Canbec and MINI Mont Royal
Montreal, Quebec
Franchise
Chrysler
FIAT / Chrysler
FIAT / Chrysler
Kia
FIAT / Chrysler
Hyundai
Subaru
Mitsubishi
Nissan
Volkswagen
Chrysler
Hyundai
Chrysler
Audi
Volkswagen
Chrysler
Hyundai
Hyundai
Nissan / Infiniti
Chrysler
Chrysler
Chrysler
General Motors
General Motors
General Motors
General Motors
General Motors
General Motors
General Motors
General Motors
BMW / MINI
BMW / MINI
Year Opened
or Acquired
2014
1994
2003
2014
1998
2005
1998
2007
2007
2013
1998
2006
2014
2013
2013
2013
2008
2008
2008
2014
2001
2006
2013
2014
2012
2012
2014
2014
2014
2014
2014
2014
Seasonality
Dealer Support Services
The results from operations historically 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 operating results
are 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.
During the year, the Company re-organized the
corporate head office to form Dealer Support
Services (“DSS”) in order to more fully direct the
attention and efforts of corporate head office staff
to those initiatives which drive profit or
improvements to dealership operations, or which
enhance customer service or our relationships with
our key partners. This aligns corporate head office
and our dealerships in providing long term
shareholder value.
Page 4 Š AutoCanada Š 2014 Annual Report
As part of this reorganization, the Company
expanded its senior leadership team to further
support the growing number of dealerships owned
and managed by AutoCanada and additional
manufacturer partners. Additions to the team
included financial expertise to enhance treasury
management, investor relations and capital market
relationships and provide oversight to a growing
portfolio of real estate assets. The Company also
added a general counsel department to provide
assistance with acquisitions, human resources and
motor vehicle regulatory matters.
A significant and vitally important focus of any
reporting issuer is regulatory compliance. For
AutoCanada, this includes compliance and
communications with various securities
commissions and motor vehicles regulatory
councils. The Company takes its responsibilities
seriously in these areas and has specialists
dedicated to ensuring the Company’s adherence to
the ever increasing regulatory environment is
maintained. As a result, we have added a
regulatory compliance position. We have also
added staff in the areas of marketing, legal, finance
and accounting.
Management Realignment
Having grown to 48 dealerships and 12
manufacturer partners from the original 16 and 3,
respectively, the Company determined that a
realignment of senior management duties was an
appropriate step to take in order to best assure
continued above average dealership operational
performance while simultaneously executing a
growth plan.
In response to the rapid growth of the Company,
and the addition of dealerships, franchises, and
manufacturer partners, the Company announced
effective 1 January 2015, the following:
Š Patrick Priestner’s five year employment
agreement expiring 31 May 2019, has been
amended to focus Mr. Priestner’s time and
attention on key drivers of long-term
shareholder value including strategic
initiatives, acquisitions, Manufacturer and
Dealer relations, in the capacity of
Executive Chair;
Š Thomas Orysiuk was appointed as the
Chief Executive Officer in addition to
President, with a focus on assisting the
Executive Chair with strategy,
Manufacturer and Dealer relations, and
with responsibility for overall operational
direction and performance;
Š Steve Rose was appointed as the Chief
Operating Officer, assisting the President
and CEO with a focus on operational
direction and execution;
Š Erin Oor was appointed as the
Vice-President Corporate Development
and Administration, with a focus on
corporate development initiatives and
oversight of certain administrative
aspects of the business, and general
counsel duties.
These changes formalize the evolution of the
management team which began earlier this year
with the appointment of Erin Oor as General
Counsel and Vice-President Administration in
June, 2014, Chris Burrows as Vice-President & Chief
Financial Officer in September 2014, and Jeff
Christie, formerly Vice-President Finance, as
Vice-President Operations, in September 2014, and
which has culminated in the further appointments
noted and which management believes shall
enhance long term shareholder value.
OUR PERFORMANCE
Performance vs. the Canadian New Vehicle
Market
The Canadian automotive retail sector performed
very well in 2014. A combination of a strong
performing economy, demand for new vehicles,
attractive financing rates and strong manufacturer
incentives on new vehicles resulted in record new
vehicle sales volumes during the year. New light
vehicle sales in Canada in the year ended
December 31, 2014 were up 6.1% when compared
to the same period in 2013 and surpassed
1.85 million in unit sales. Figures reported as new
light vehicle sales in Canada include all types of
vehicle sales including retail, fleet, and daily rentals,
the break out of which is not provided by the
manufacturers. The manufacturers do not publicly
report retail sales by brand. Fleet and daily rental
sales are not nearly as profitable as retail sales;
AutoCanada Š 2014 Annual Report Š Page 5
hence, the Company’s strategy has been and
continues to be focused on retail sales with the
result that our dealerships do not fully participate
in fleet and daily rental sales channels. Of the
Company’s total same store unit sales, 81.8% are
retail unit sales. The Company’s same store new
retail sales increased by 3.4% during 2014. As the
manufacturers do not publicly report their retail
sales separately, the Company is not able to
compare its same store performance with new unit
retail sales to industry new unit retail sales.
New vehicle sales were particularly strong in our
primary markets including Alberta and British
Columbia, which were up by 4.4% and 7.5%,
respectively. The relatively strong economy in
Western Canada in 2014 contributed to our ability
to perform well in this market and, in particular, in
the light truck market in these two provinces. Our
unit sales increased in Alberta and British Columbia
by 5,075 units or 57.1%, and 771 units or 11.7%,
respectively.
Regardless of the strength of the particular
markets in which we operate, our dealerships have
been increasing market share in many sales
regions. We attribute the improvement in market
share of many of our dealerships to their
management teams and their ability to leverage
best practices from operating within a dealer
group. We closely monitor retail sales by brand
and by region using internal, non-publicly disclosed
reports provided to us by our OEM partners and
are pleased with our performance in comparison to
other competitors in the markets we operate. We
believe that the advances our dealership
management teams have made in integrating
technology, leveraging marketing expertise, and
sharing best practices have contributed greatly to
their ability to outperform the market in new
vehicle sales.
The combination, of new unit retail sales, and
increases in new unit retail gross and revenue, has
made for a very positive year for the Company’s
new unit retail sales.
The following table summarizes Canadian new light vehicle unit sales for the year ended December 31,
2014 by province:
December Year to Date Canadian New Vehicle Sales by Province1
British Columbia
Alberta
Saskatchewan
Manitoba
Ontario
Quebec
New Brunswick
PEI
Nova Scotia
Newfoundland
Total
2014
2013
193,798
268,419
56,467
55,916
718,523
420,757
41,417
7,418
53,441
35,217
180,305
257,139
57,566
54,492
645,534
414,728
40,311
7,328
51,839
35,325
Percent
Change
7.5%
4.4%
(1.9)%
2.6%
11.3%
1.5%
2.7%
1.2%
3.1%
(0.3)%
Unit
Change
13,493
11,280
(1,099)
1,424
72,989
6,029
1,106
90
1,602
(108)
1,851,373 1,744,567
6.1% 106,806
1
Source: DesRosiers Automotive Consultants Inc.
Performance vs. the Prior Year
AutoCanada’s higher sales and earnings results in
fiscal 2014 are a direct result of its acquisitions
completed during the year and same store sales
and gross profit gains.
Management typically uses gross profit as its most
important measure of overall corporate
performance. Overall revenues can vary
significantly year over year as a result of
fluctuations in sales mix, as well as fluctuations in
Page 6 Š AutoCanada Š 2014 Annual Report
lower margin fleet sales and used vehicle wholesale
sales. As such, Management believes that gross
profit growth is a better indicator of overall
corporate performance. Overall gross profit
increased by 51.7% as a result of strong same store
gross profit and recently completed acquisitions.
The Company added 17 dealerships, including one
open point. Additionally, the Company achieved
same store sales and gross profit increases of 8.9%
and 7.9%, respectively, all of which contributed to
an adjusted earnings before tax (see “NON-GAAP
MEASURES”) increase of $13.6 million or 35.8%
over the prior year. Further, notwithstanding that
the Company issued shares during the year to
finance the increased acquisition activity, it
improved adjusted earnings per share by $0.42 per
share or 23.1% over the prior year.
Same store gross profit increased by 7.9% in 2014
as compared to the prior year, which was
comprised of gross profit increases across three of
our business lines. The Company has made
improvements in technology and processes in its
parts and service departments, and we believe that
these changes will continue to result in improved
profitability.
Management is also pleased with the 11.7% increase
in its parts, service and collision repair same store
gross profit during the year. This department is a
very important source of revenue for the Company,
as it helps to provide greater earnings stability
over the long term.
Company sales were $2.2 billion in 2014 as
compared to $1.4 billion in 2013, representing an
increase of $805.7 million or 57.2%. The increase is
a result of same store sales increases of $113.5
million or 8.9% over 2013 and $279.7 million from
the consolidation of General Motors dealerships.
The remaining increase relates to revenue from
acquired dealerships.
Many of our operating expenses are variable in
nature, mainly consisting of employee costs. Our
dealership employee pay structures are tied to
meeting sales objectives, maintaining customer
satisfaction indices, as well as improving gross
profit and net income. Approximately 33.0% of the
Company’s wages and salaries are variable based.
Although variable in nature, typically there is a time
lag between business contraction and staff
reduction as dealerships will not want to lose their
high performing variable paid employees and thus
will not make a meaningful reduction to their
compensation in the short term. The Company
regularly reviews the operating performance of its
dealerships and utilizes the leverage of a large
dealer group to reduce its overall operating
expenses. The Company operates a centralized
marketing department and information technology
department both of which provide services to the
dealerships in order to leverage the size of the
group as a means to lower the operating costs of
the dealerships. As a result of pay structures tied
to dealership performance and the ability to
leverage the group operating structure, the
Company has maintained its overall operating
expenses as a percentage of gross profit to 78.0%
in fiscal 2014 as compared to 76.6% in the prior
year. The Company did, however, incur additional
expense with respect to the 16 acquisitions that it
completed during the year. Management estimates
additional legal and administration expense of
approximately $0.2 million for each acquisition that
it completes, therefore, we estimate that we
incurred approximately $3.2 million in acquisition
costs in 2014. Overall, management is very pleased
with 2014 financial results.
The Company is focused on integrating the
dealerships it acquired during the year. Due to the
degree of acquisition activity, integration of
individual dealerships is proceeding at a somewhat
slower pace than in the past as the Company
intends to provide a level of integration assistance
that best delivers long term shareholder value
while prudently managing staff expense.
AutoCanada Š 2014 Annual Report Š Page 7
OUTLOOK
The outlook regarding 2015 vehicle sales in Canada is difficult to predict, especially with respect to new
retail sales which manufacturers do not publicly disclose separately from fleet and rental sales. Canadian
new light vehicle unit sales of all types are currently forecasted to increase by 0.2 percent in 2015 as
compared to the prior year.
New Vehicle Sales Outlook by Province*
Canada
Atlantic
Central
Quebec
Ontario
West
Manitoba
Saskatchewan
Alberta
British Columbia
1994 - 2005
(Average)
2006 - 2011
(Average)
1,446
102
936
366
570
408
42
36
166
164
1,587
119
987
408
579
481
45
45
220
171
2012
2013
2014 2015F
1,677
126
1,034
416
618
517
50
55
239
173
1,745
135
1,061
415
646
549
54
58
257
180
1,851
137
1,139
420
719
575
56
56
269
194
1,855
137
1,149
423
726
569
56
55
263
195
*
Includes cars and light trucks (units presented above are in thousands). Source: Scotia Economics – Global Auto
Report, March 6, 2015
The outlook for the Canadian economy has
softened with economists revising their previous
estimates downward, especially affecting the West
in general and Alberta in particular, much as a
result of falling oil prices. Revised GDP growth
forecasts for Canada presently sit at 1.9 percent for
2015, down from 2.4 percent in previous forecasts
from November 2014. As a result, the economy,
especially in Alberta, has observed a slowdown in
capital spending and a reduction in employment
levels. More importantly, there has been a
significant reduction in consumer confidence with
a recent study showing that 40% of Albertans are
deferring major purchases of homes and
automobiles (Source: ATB Financial, Economics
and Research, Alberta Economic Outlook, Q1
2015, January 5, 2015). Although there has been a
slowdown, Management does not, from a
macroeconomic perspective, equate this situation
to the economic turbulence experienced in the late
2000s, the latter of which was due primarily to the
unavailability of credit for the retail consumer and
for wholesale floorplan financing, combined with a
concern over the solvency of certain automotive
manufacturers, none of which is applicable today.
The first two months of 2015 and the latter half of
December 2014 have, however, proved very
Page 8 Š AutoCanada Š 2014 Annual Report
challenging for the Company. We note, for
example, R.L. Polk reported a 9.4% decline in retail
volumes in January 2015 compared to January
2014 in the Calgary area. Relating to brands which
the Company operates in Calgary, this decline
includes decreases in retail sales of 17.5%, 10.2%,
and 33.3%, for FCA Canada (formerly Chrysler
Canada), Japanese, and Korean manufacturers,
respectively. Edmonton and Grande Prairie,
markets where the Company also has significant
market presence, have likewise proved challenging.
Additionally, the Company has experienced volume
and/or margin challenges at a number of its
dealerships elsewhere in Canada. Consequently,
the Company has experienced a significantly lower
than forecasted vehicle sales and margins with a
corresponding decline in dealership profitability in
early fiscal 2015, resulting in weak performance
relative to the comparative results of 2014.
To the extent the challenges are related to the
price of oil and its impact on consumer confidence,
the Company is taking the necessary steps to
reduce variable costs to mitigate the impact. The
Company’s ability to moderate the effect of
reduced sales activity is encompassed in the
variable cost structure. However, such reductions
are not immediate for several reasons, including:
(i) the acceptance of lower vehicle sales margins to
stimulate unit sales to achieve manufacturer
sales-based performance targets; (ii) higher than
normal per unit advertising cost due to reduced
volume; (iii) inventory carrying costs incurred to
support forecasted stronger sales volumes in
excess of actual sales volumes; and (iv) the
industry practice of paying advances to top-up the
incomes of front line key sales staff in order to
retain key individuals. Other operational challenges
incurred to date with respect to the first two
months of 2015 would include record snowfall in
the Maritimes and a more pronounced seasonality
impact experienced by certain recently purchased
dealerships compared to the Company’s
experience. The Company is aggressively taking
the necessary steps to address these challenges at
the individual dealership level.
Management remains fully confident in its model
and that it can take full advantage of its variable
cost structure should the period of reduced
economic activity continue. Furthermore, the
Company believes that the West and Alberta in
particular shall continue to provide superior
long-term shareholder returns. Further, should the
Western economy continue for a period at a slower
pace, Management anticipates that acquisition
multiples for Western dealerships shall decline,
thus providing more attractive buying
opportunities, further enhancing long term
shareholder value. Additionally, the Company shall
continue to seek opportunities elsewhere in
Canada so as to provide continued diversity where
appropriate. With a strong balance sheet, available
liquidity and cash flow, the Company has
maintained the current quarterly dividend rate at
$0.25, to allow it to be in a position to patiently
pursue its acquisition strategy thereby maximizing
its ability to take advantage of anticipated buying
opportunities that times of economic uncertainty
generally provide.
Management believes the current acquisition
guidance of 3-5 additional dealerships to be
announced by the end of May 2015 is accurate and
we are presently monitoring the impact current
market conditions are having on acquisition
multiples so that we can continue to grow the
Company through acquisitions at reasonable
multiples.
During the second half of fiscal 2014, the Company
was pleased to open its first Kia Canada store, an
open point in Edmonton, Alberta. Although the
store’s performance is typical for most open points
where losses in the first one or two years are
common, the Company is pleased with its most
recent progress and is very confident in its future.
During fiscal 2015 and 2016, the Company also
plans to open additional open points including a
Nissan dealership in Calgary, a Volkswagen
dealership in Sherwood Park (Edmonton), and a
second Kia dealership in North Winnipeg.
Management believes these stores will provide
long term shareholder value.
The decline in the exchange rate of the Canadian
dollar to the US dollar should have a limited impact
on AutoCanada. All of its vehicle purchases and
predominantly all of its automotive parts purchases
are denominated in Canadian currency resulting in
limited foreign exchange risk. Furthermore, the
price of vehicles from the manufacturers are
determined annually, in the first quarter, and
typically do not move in close correlation with the
spot market foreign exchange rates.
Finally, in early 2015, the Company filed for a
normal course issuer bid in order to
opportunistically repurchase our shares. Share
purchases will only be conducted if, based on the
Company’s share price, Management believes it is
the best use of its capital at that time to drive long
term shareholder value.
AutoCanada Š 2014 Annual Report Š Page 9
SELECTED ANNUAL FINANCIAL INFORMATION
The following table shows the results of the Company for the years ended December 31, 2014, 2013, and
2012. 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 Gross Profit %,
Earnings per share, and Operating Data)
Income Statement Data
New vehicles
Used vehicles
Parts, service and collision repair
Finance, insurance and other
Revenue
New vehicles
Used vehicles
Parts, service and collision repair
Finance, insurance and other
Gross profit
Gross Profit %
Operating expenses
Operating expenses as a % of gross profit
Income from investments in associates
Net earnings attributable to AutoCanada shareholders
EBITDA(2)
Basic earnings per share
Diluted earnings per share
Operating Data
Vehicles (new and used) sold excluding GM
Vehicles (new and used) sold including GM(3)
New vehicles sold including GM(3)
New retail vehicles sold
New fleet vehicles sold
Used retail vehicles sold
Number of service & collision repair orders completed(4)
Absorption rate(2)
# of dealerships at year end(4)
# of same store dealerships
# of service bays at year end(4)
Same store revenue growth(5)
Same store gross profit growth(5)
Balance Sheet Data
Cash and cash equivalents
Restricted cash
Trade and other receivables
Inventories
Revolving floorplan facilities
2014(1)
2013
2012
1,342,346
495,352
255,707
121,373
2,214,778
106,002
29,501
128,566
109,080
373,149
16.8%
290,904
78.0%
3,490
53,132
89,434
2.31
2.30
46,393
52,147
36,422
30,346
6,076
15,725
601,597
85%
48
23
822
8.9%
7.9%
72,462
–
92,138
563,277
527,780
882,858
300,881
142,343
82,958
1,409,040
75,835
20,273
73,755
76,172
246,035
17.5%
188,519
76.6%
2,241
38,166
58,469
1.83
1.83
35,774
40,136
28,024
20,523
4,876
10,375
364,361
87%
28
21
406
17.2%
17.5%
35,113
–
57,771
278,091
264,178
683,375
243,351
114,600
62,587
1,103,913
57,575
16,311
59,643
56,836
190,365
17.2%
149,140
78.3%
468
24,236
37,885
1.22
1.22
29,780
31,554
21,501
16,226
4,096
9,458
309,488
86%
24
22
333
8.6%
10.9%
34,472
10,000
47,944
199,226
203,525
1
2
3
4
5
In conjunction with the business combination under common control completed on July 11, 2014, the Selected Annual
Financial Information for 2014 includes the consolidated results of the Company’s GM stores from July 11, 2014. All
2014 financial information includes 100% of the results of the GM stores, except for Net earnings, EBITDA, and EPS
amounts, which are presented net of non-controlling interests. Had the consolidation been effected for fiscal 2013,
additional revenues of $205.6 million and gross profit of $33.1 million would have been recognized.
EBITDA and absorption rate have been calculated as described under “NON-GAAP MEASURES”.
Until July 10, 2014, the Company had investments in General Motors dealerships that were not consolidated. In Q3
2014, these GM dealerships were consolidated. This number includes 100% of vehicles sold by these dealerships in
which we have less than 100% investment.
The results presented for 2013 and 2012 do not include the GM stores and their associated service bays or repair
orders.
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, excluding the GM stores, as these stores have been treated as
acquisitions as at July 11, 2014.
Page 10 Š AutoCanada Š 2014 Annual Report
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 Gross Profit %, Earnings
per share, and Operating Data)
Q4
2014(1)
Q3
2014(1)
Q2
2014
Q1
2014
Q4
2013
Q3
2013
Q2
2013
Q1
2013
Income Statement Data
New vehicles
Used vehicles
Parts, service and collision repair
Finance, insurance and other
Revenue(7)
New vehicles
Used vehicles
Parts, service and collision repair
Finance, insurance and other
Gross profit(7)
Gross Profit %
Operating expenses
Operating expenses as a % of gross profit
Income from investments in associates
Net earnings attributable to AutoCanada shareholders(6)
EBITDA(2,6,7)
Basic earnings per share
Diluted earnings per share
Operating Data
Vehicles (new and used) sold excluding GM
Vehicles (new and used) sold including GM(3)
New vehicles sold including GM(3)
New retail vehicles sold
New fleet vehicles sold
Used retail vehicles sold
Number of service & collision repair orders completed(4)
Absorption rate(2)
# of dealerships at period end(4)
# of same store dealerships
# of service bays at period end(4)
Same store revenue growth(5)
Same store gross profit growth(5)
Balance Sheet Data
Cash and cash equivalents
Restricted cash
Trade and other receivables
Inventories
Revolving floorplan facilities
78,371
39,002
85,975
37,341
22,676
35,711
9,637
38,942
35,615
119,905
379,094
148,579
91,045
34,749
653,467
28,390
7,817
45,631
30,606
112,444
197,097
75,137
41,268
20,271
333,773
18,326
4,450
20,822
18,734
62,332
457,198 289,918 216,524
85,969
158,779 102,025
40,724
46,078
27,304
21,047
733,350 465,325 364,264
17,813
23,822
5,551
6,506
20,593
23,373
19,514
24,342
63,471
78,043
257,543 254,403 174,410
62,656
77,113
29,667
34,629
17,529
22,620
403,535 388,765 284,262
15,947
20,664
3,789
5,795
15,232
17,586
16,157
20,783
51,125
64,828
17.2% 16.4% 16.8% 17.4% 18.7% 16.8% 16.7% 18.0%
89,482
40,353
79.6% 74.8% 75.5% 79.4% 77.7% 75.5% 75.0% 78.9%
201
6,822
10,511
0.35
0.35
20,510
6,242
20,113
20,831
67,696
2,238
12,831
21,702
0.59
0.59
–
14,918
24,527
0.60
0.59
359
17,765
28,674
0.74
0.74
893
8,296
14,453
0.38
0.38
837
9,553
14,754
0.44
0.44
648
10,823
16,463
0.53
0.53
555
10,968
16,607
0.51
0.51
58,920
48,639
89,713
50,400
51,080
48,447
12,774
15,415
10,570
8,907
1,663
4,845
214,077
85%
48
23
822
10.9%
14,966
18,079
12,821
10,686
2,135
5,258
198,612
93%
45
23
734
8,766
9,887
9,945
12,414
6,570
8,658
4,773
5,980
1,132
1,146
2,861
2,761
91,999
97,559
85%
92%
28
34
23
23
406
516
8.9% 4.1% 13.0%
5.7% 11.4% 5.4% 8.1%
8,046
9,209
6,090
4,932
552
2,562
95,958
90%
28
21
406
10,325
11,405
8,023
5,986
1,365
2,974
97,074
88%
29
22
413
7,341
8,123
5,665
4,118
1,036
2,187
77,977
82%
25
22
341
8.9% 19.9% 26.2% 12.9%
9.2% 18.5% 25.8% 16.9%
10,062
11,399
8,246
5,487
1,923
2,652
93,352
90%
27
22
368
72,462
–
92,138
563,277
527,780
41,541
91,622
64,559
–
–
–
115,074
69,747
85,837
471,664 324,077 261,764
437,935 313,752 261,263
35,113
–
57,771
278,091
264,178
37,940
–
62,105
41,991
35,058
10,000
10,000
57,663
69,656
236,351 232,319 217,268
228,526 246,325 225,387
1
2
3
4
5
6
7
In conjunction with the business combination under common control completed on July 11, 2014, the Selected Quarterly
Financial Information for Q3 2014 and Q4 2014 includes the consolidated results of the Company’s GM stores from July 11,
2014. All Q3 2014 and Q4 2014 financial information includes 100% of the results of the GM stores, except for Net earnings,
EBITDA, and EPS amounts, which are presented net of non-controlling interests.
EBITDA and absorption rate have been calculated as described under “NON-GAAP MEASURES”.
Until July 10, 2014, the Company had investments in General Motors dealerships that were not consolidated. In Q3 2014,
these GM dealerships were consolidated. This number includes 100% of vehicles sold by these dealerships in which we have
less than 100% investment.
The results presented for all quarters prior to Q3 2014 do not include the GM stores and their associated service bays or
repair orders.
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, excluding the GM stores, as these stores have been treated as acquisitions as at July 11,
2014.
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 significant fluctuations in operating results from
quarter to quarter.
Due to the impact of rounding throughout the interim periods, the aggregate quarterly results may not equal the annual total
for the corresponding year.
AutoCanada Š 2014 Annual Report Š Page 11
BUSINESS COMBINATION UNDER COMMON CONTROL
On July 11, 2014, the Company completed a business combination under common control, resulting in the
consolidation of the financial results of the Company’s investments in associates as further described in
Notes 14 and 15 of the annual audited consolidated financial statements for the year ended December 31,
2014. The Company has provided a reconciliation below of its consolidated Statement of Comprehensive
Income for the year ended December 31, 2014 to its financial results had the results from its investments in
associates not been consolidated as at December 31, 2014.
(in thousands of dollars)
Revenue
Cost of sales
Gross Profit
Operating expenses
Operating income before other income (expenses)
Lease and other income, net
Loss on disposal of assets, net
Income from investments in associates
Recovery of impairment of intangible assets
Operating profit
Finance costs
Finance income
Net income for the period before taxation
Income tax
Net and comprehensive income for the period
Net and comprehensive income attributable to:
AutoCanada shareholders
Non-controlling interests
Earnings per share
Basic
Diluted
Weighted average shares
Basic
Diluted
For the twelve
months ended
December 31,
2014
(including GM)
2,214,778
(1,841,629)
373,149
(290,904)
82,245
5,524
(183)
3,490
1,767
92,843
(20,363)
2,147
74,627
18,335
56,292
53,132
3,160
56,292
2.31
2.30
23,018,588
23,139,403
Effects of GM
Consolidation
(280,715)
232,838
(47,877)
44,092
(3,785)
(5,524)
126
5,007
–
(4,176)
1,092
107
(2,977)
167
(3,144)
–
(3,144)
(3,144)
–
–
–
–
For the twelve
months ended
December 31,
2014
(excluding GM)
1,934,063
(1,608,791)
325,272
(246,812)
78,460
–
(57)
8,497
1,767
88,667
(19,271)
2,254
71,650
18,502
53,148
53,132
16
53,148
2.31
2.30
23,018,588
23,139,403
Page 12 Š AutoCanada Š 2014 Annual Report
The Company has provided a reconciliation below of the Statement of Financial Position as at
December 31, 2013 assuming the GM stores had been consolidated at that date.
(in thousands of dollars)
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Current finance lease receivables
Other current assets
Property and equipment
Investments in associates
Intangible assets
Goodwill
Long-term portion of finance lease receivables
Other long-term assets
Total assets
Liabilities
Bank indebtedness
Trade and other payables
Revolving floorplan facilities
Current tax payable
Current lease obligations
Current indebtedness
Long-term indebtedness
Deferred income tax
Total liabilities
Equity
AutoCanada shareholders
Non-controlling interests
Total equity
Total liabilities and equity
December 31,
2013
(excluding GM)
Effects of GM
Consolidation
December 31,
2013
(including GM)
35,113
57,771
278,091
–
1,603
372,578
122,915
13,131
96,985
6,672
–
6,797
619,078
(1)
50,429
264,178
4,906
1,398
2,866
323,776
83,580
21,480
428,836
190,242
–
190,242
619,078
6,703
10,450
41,792
4,511
242
63,698
5,703
(13,131)
13,608
1,999
1,998
14
73,889
1,521
13,402
41,895
(701)
17
2,270
58,404
2,433
1,137
61,974
194
11,721
11,915
73,889
41,816
68,221
319,883
4,511
1,845
436,276
128,618
–
110,593
8,671
1,998
6,811
692,967
1,520
63,831
306,073
4,205
1,415
5,136
382,180
86,013
22,617
490,810
190,436
11,721
202,157
692,967
AutoCanada Š 2014 Annual Report Š Page 13
RESULTS FROM
OPERATIONS
Annual Operating Results
EBITDA for the year ended December 31, 2014
increased by 52.8% to $89.4 million, from
$58.5 million when compared to the results of the
Company for the same period in the prior year. The
increase in EBITDA for the year can be mainly
attributed to improvements in all four business
streams and the dealership acquisitions completed
during 2014. The Company also purchased a
number of properties at the end of 2013 that have
contributed to the increase in EBITDA due to the
decrease in lease payments exceeding the
associated increase in amortization. The
Company’s EBITDA was positively impacted by
$0.3 million, included in share-based
compensation, as a result of a 43.7% decrease in
the Company’s share price during the last half of
the year that was partially offset by a 72.2%
increase in the Company’s share price during the
first six months of the year. Adjusted EBITDA for
the year ended December 31, 2014 increased by
50.5% to $89.1 million from $59.2 million when
compared to the results of the Company in the
prior year.
The following table reconciles EBITDA to net earnings for the years ended December 31:
(in thousands of dollars)
Net earnings attributable to AutoCanada shareholders
Recovery of impairment of intangible assets
Income tax
Amortization of property and equipment
Interest on long-term indebtedness
EBITDA attributable to AutoCanada shareholders
Share-based compensation attributed to changes in share price
Adjusted EBITDA attributable to AutoCanada shareholders
2014
2013
2012
53,132 38,166 24,236
(222)
(746)
(1,767)
8,576
17,162 13,696
4,311
6,346
13,072
960
1,007
7,835
89,434 58,469 37,861
(291)
727
73
89,143 59,196 37,934
Pre-tax earnings attributable to AutoCanada
shareholders for the year ended December 31, 2014
increased by $19.7 million or 38.0% to $71.6 million
from $51.9 million in 2013. Net earnings attributable
to AutoCanada shareholders increased by
$14.9 million or 39.0% to $53.1 million in 2014 from
$38.2 million in 2013. Modest improvements in
same store sales and gross profit, as well as the
impact of acquisitions completed during 2014,
contributed to the increase in net earnings
attributable to AutoCanada shareholders. Income
tax expense attributable to AutoCanada
shareholders increased by $3.5 million to
$17.2 million in 2014 from $13.7 million in 2013 due
to the increase in pre-tax earnings attributable to
AutoCanada shareholders.
Adjusted net earnings attributable to AutoCanada
shareholders for the year ended December 31, 2014
increased by $13.6 million or 35.8% to $51.6 million
in 2014 from $38.0 million in the prior year.
Page 14 Š AutoCanada Š 2014 Annual Report
The following table reconciles net earnings attributable to AutoCanada shareholders to adjusted net
earnings attributable to AutoCanada shareholders for years ended December 31:
(in thousands of dollars)
Net earnings attributable to AutoCanada shareholders
Recovery of impairment of intangible assets, net of tax
Share-based compensation attributed to changes in share price, net of tax
Adjusted net earnings attributable to AutoCanada shareholders
2014
53,132
(1,310)
(216)
51,606
2013
38,166
(746)
540
37,960
2012
24,236
(222)
54
24,068
Weighted average number of shares – Basic
23,018,588 20,868,723 19,840,802
Adjusted net earnings per share attributable to AutoCanada
shareholders – Basic
Adjusted net earnings per share attributable to AutoCanada
shareholders – Diluted
2.24
2.23
1.82
1.82
1.21
1.21
Revenues
Revenues for the year ended December 31, 2014
increased by $805.7 million or 57.2% compared to
the prior year. This increase was driven by
increases in same store sales across all four
revenue streams and additional revenues from
dealerships acquired during the year. In 2014 new
vehicle sales increased by $459.5 million or 52.0%
to $1.34 billion from $882.9 million in the prior year,
mainly due to a 43.4% increase in the number of
new vehicles sold. Used vehicle sales increased by
$194.5 million or 64.6% to $495.4 million from
$300.9 million in the prior year. Finance and
insurance revenue increased by $38.4 million or
46.3% for the year ended December 31, 2014. Parts,
service and collision repair revenue increased by
$113.4 million or 79.7% for the year ended
December 31, 2014.
The tables in the “Same-Store Analysis” sections
below summarize the results for the year ended
December 31, 2014 on a same store basis by
revenue source and compare these results to the
same period in 2013. An acquired or open point
dealership may take as long as two years in order
to reach normal 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, 2011, the
results of the acquired entity would be included in
quarterly same store comparisons beginning with
the quarter ended March 31, 2014 and in annual
same store comparisons beginning with the year
ended December 31, 2014. As a result, only
dealerships opened or acquired prior to January 1,
2012 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 Grande Prairie Volkwsagen (acquired in the first
quarter of 2013), St. James Audi and Volkswagen
(acquired in the second quarter of 2013), Courtesy
Chrysler (acquired in the third quarter of 2013),
Eastern Chrysler (acquired in the third quarter of
2013), BMW Canbec/MINI Mont Royal (acquired in
June 2014), Dodge City (acquired in June 2014),
the Hyatt Group (acquired in June/July 2014),
North Edmonton Kia (opened in August 2014),
Tower Chrysler (acquired in August 2014), Toronto
Dodge (acquired in October 2014), and Laval
BMW/MINI (acquired in December 2014) are not
included in same store analysis. The GM stores are
excluded from same store analysis as Lakewood
Chevrolet was acquired in September 2014,
Bridges Chevrolet was acquired in November 2014,
and the remaining GM stores were treated as
acquisitions as at July 11, 2014. For further
information about acquisitions completed in 2014,
please refer to “GROWTH, ACQUISITIONS,
RELOCATIONS AND REAL ESTATE”.
AutoCanada Š 2014 Annual Report Š Page 15
Revenues – Same Store Analysis
Company management considers same store sales and gross profit information to be an important
operating metric when comparing the results of the Company to other industry competitors. The following
table summarizes the results for the year ended December 31, 2014 on a same store basis by revenue
source and compares these results to the same period in 2013.
Same Store Revenue and Vehicles Sold
(in thousands of dollars)
Revenue Source
New vehicles – Retail
New vehicles – Fleet
New vehicles
Used vehicles – Retail
Used vehicles – Wholesale
Used Vehicles
Finance, insurance and other
Subtotal
Parts, service and collision repair
Total
(in number of units)
New retail vehicles sold
New fleet vehicles sold
Used retail vehicles sold
Total
Total vehicles retailed
For the Year Ended
December 31,
2014
December 31,
2013 % Change
711,924
134,973
846,897
228,327
97,180
325,507
81,867
1,254,271
135,116
1,389,387
19,229
4,264
9,888
33,381
29,117
663,665
139,005
802,670
205,384
69,961
275,345
75,561
1,153,576
122,298
1,275,874
7.3%
(2.9)%
5.5%
11.2%
38.9%
18.2%
8.3%
8.7%
10.5%
8.9%
18,591
4,756
9,457
32,804
28,048
3.4%
(10.3)%
4.6%
1.8%
3.7%
Same store total revenue increased by $113.5
million or 8.9% in the year ended December 31,
2014 when compared to 2013. New vehicle
revenues increased by $44.2 million or 5.5% over
the prior year due to an increase in new vehicle
sales and an increase in the average revenue per
new vehicle sold of $1,669 or 4.9%.
Same store used vehicle revenues increased by
$50.2 million or 18.2% due to an increase in used
vehicle sales of 431 units or 4.6% and an increase in
the average revenue per used vehicle sold of
$3,804 or 13.1%.
Same store finance, insurance and other revenue
increased by $6.3 million or 8.3% due to an
decrease in the number of new and used vehicles
retailed of 1,069 units or 3.8%.
Same store parts, service and collision repair
revenue increased by $12.8 million or 10.5%, due to
an increase in overall repair orders completed of
16,020 and a $20 or 5.3% increase in the average
revenue per repair order completed.
Gross Profit
Gross profit increased by $127.1 million or 51.7% for
the year ended December 31, 2014 when compared
to the prior year due primarily to increases in gross
profit across all four revenue streams. Gross profit
on the sale of new vehicles increased by $30.2
million or 39.8% for the year ended December 31,
2014. The increase in new vehicles gross profit can
be attributed to an increase in new vehicle unit
sales of 11,023 units or 43.4%, offset by a decrease
in the average gross profit per new vehicle retailed
of $75. Gross profit from the sale of used vehicles
Page 16 Š AutoCanada Š 2014 Annual Report
sold increased by $9.2 million or 45.4%. This
increase can be attributed to an increase in the
number of used vehicles sold of 5,350 or 51.6%,
offset by a reduction in the average gross profit
per used vehicle retailed of $78. The Company’s
finance and insurance gross profit increased by
$32.9 million or 43.2% in 2014 due to an increase in
the number of units retailed of 15,173 offset by a
decrease in the average gross profit per vehicle
retailed of $98. Parts, service and collision repair
gross profit increased by $54.8 million or 74.3% in
2014 due to an increase of 237,236 in the number
of repair orders completed.
Gross Profit – Same Store Analysis
The following table summarizes the results for the year ended December 31, 2014, on a same store basis by
revenue source, and compares these results to the same periods in 2013.
Same Store Gross Profit and Gross Profit Percentage
(in thousands of dollars)
Revenue Source
New vehicles – Retail
New vehicles – Fleet
New vehicles
Used vehicles – Retail
Used vehicles – Wholesale
Used Vehicles
Finance, insurance and other
Subtotal
Parts, service and collision
repair
Total
For the Year Ended
Gross Profit
Gross Profit %
December 31,
2014
December 31,
2013 % Change
December 31,
2014
December 31,
2013 % Change
71,869
1,272
73,141
17,569
1,288
18,857
75,267
68,037
1,171
69,208
16,044
2,830
18,874
69,115
167,265
157,197
5.6%
8.6%
5.7%
9.5%
(54.5)%
(0.1)%
8.9%
6.4%
71,536
238,801
64,020
221,217
11.7%
7.9%
10.1%
0.9%
8.6%
7.7%
1.3%
5.8%
91.9%
13.3%
52.9%
17.2%
10.3%
0.8%
8.6%
7.8%
4.0%
6.9%
91.5%
13.6%
52.3%
17.3%
(0.2)%
0.1%
–%
(0.1)%
(2.7)%
(1.1)%
0.4%
(0.3)%
0.6%
(0.1)%
Total same store gross profit increased by
$17.6 million or 7.9% for the year ended
December 31, 2014 when compared to the prior
year. New vehicle gross profit increased by
$3.9 million or 5.7% for the year ended
December 31, 2014 when compared to the prior
year which can be mainly attributed to an increase
in the average gross profit per new vehicle sold of
$149 or 5.0%.
Used vehicle gross profit remained constant for the
year ended December 31, 2014 when compared to
the prior year which was mainly due to a decrease
in the average gross profit per vehicle retailed of
$89 or 4.5%, partially offset by an increase in the
number of vehicles retailed of 431 units.
Finance and insurance gross profit increased by
$6.2 million or 8.9% for the year ended
December 31, 2014 when compared to the prior
year and can be attributed to an increase in the
average gross profit per unit sold of $121 and an
increase in units retailed of 1,069.
Parts, service and collision repair gross profit
increased by $7.5 million or 11.7% for the year
ended December 31, 2014 when compared to the
prior year which can be mainly attributed to an
increase in the number of repair orders completed
of 16,020 and an increase in the average gross
profit per repair order completed of $13 or 6.6%.
AutoCanada Š 2014 Annual Report Š Page 17
Operating expenses
Depreciation
Operating expenses increased by 54.3% or $102.4
million during the year ended December 31, 2014 as
compared to the prior year due mainly to the
acquisition of new stores. 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 remained relatively stable at 78.0% in
2014 from 76.6% in the prior year. Operating
expenses consist of four major categories:
employee costs, selling and administrative costs,
facility lease costs and depreciation of property
and equipment.
Employee costs
During the year ended December 31, 2014,
employee costs increased by $64.3 million to
$186.2 million from $121.9 million in the prior year
period. Employee costs as a percentage of gross
profit remained relatively constant at 49.9% in 2014
from 49.5% in 2013.
Selling and administrative costs
During the year ended December 31, 2014, selling
and administrative costs increased by $28.9 million
or 59.5% primarily due to the dealership
acquisitions completed during 2014. Selling and
administrative expenses as a percentage of gross
profit remained a relatively constant 20.8% from
19.7% in the same period of the prior year. During
the year, the Company incurred $1.4 million in
professional fees related to acquisitions compared
to $0.4 million in the prior year. These costs will
vary based on the number of acquisitions
completed each year.
Facility lease costs
During the year ended December 31, 2014, facility
lease costs increased by $1.9 million or 16.2% to
$13.6 million from $11.7 million due to the
acquisitions completed during 2014, partially offset
by the cost savings from the purchase of the real
estate properties at the end of 2013.
Page 18 Š AutoCanada Š 2014 Annual Report
During the year ended December 31, 2014,
depreciation increased by $7.3 million or 114.7% to
$13.6 million from $6.3 million in the prior year due
to the purchase of real estate properties
throughout 2014, including buildings acquired in
the Lakewood Chevrolet, BMW/MINI Laval, and
Bridges Chevrolet, the accounting consolidation of
the General Motors stores on July 11, 2014, and the
full year impact of owning additional 11 real estate
properties purchased at the end of 2013.
Reversal of impairment of intangible assets
The Company performed its annual test for
impairment of its cash generating units (“CGUs”) in
the fourth quarter of 2014. As a result of the tests
performed, the Company determined that although
the financial results improved in many of the
Company’s CGUs, in most cases, the value of its
intangible assets had been fully recovered in 2011.
Since impairments of intangible assets cannot be
reversed to an amount greater than the intangible
asset’s original cost, the improved financial results
of many of the Company’s CGUs has limited impact
on the value of the Company’s intangible assets.
As a result of the tests performed, the Company
recorded a net reversal of impairment of intangible
assets in the amount of $1.8 million (2013 – $0.7
million).
Income from investments in associates
During the period from January 1, 2014 to July 10,
2014, the Company earned $3.5 million, net of
acquisition costs, as a result of its investments in
Dealer Holdings Ltd. (“DHL”), Green Isle G Auto
Holdings Inc. (“Green Isle”), Prairie Auto Holdings
Ltd. (“PAH”), and Waverley BG Holdings Inc.
(“WBG”). On July 11, 2014, the Company completed
a business combination under common control,
resulting in the accounting consolidation of the
General Motors dealerships. In addition to the
income from investments in associates, the
Company also earned $0.2 million in management
services revenue from these subsidiaries from
January 1, 2014 to July 10, 2014. The management
services agreements provide for fixed monthly fees
charged to the General Motors dealerships from
AutoCanada in return for marketing, training,
technological, and accounting support.
AutoCanada provides support services to all
dealerships in which it owns and operates, however
since the three dealerships are not wholly-owned
by AutoCanada, the Company charges a
management services fee in order to recover the
costs of resources provided.
Related party transactions are measured based on
the proportionate allocation of actual costs incurred
multiplied by the number of resources and/or hours
provided to or used by the related party. There are
no ongoing or continuing obligations of the
Company to provide these services or for the
related parties to utilize these services.
See “GROWTH, ACQUISITIONS, RELOCATIONS
AND REAL ESTATE” for more information related
to the investments.
Finance costs
The Company incurs finance costs on its revolving
floorplan facilities, long term indebtedness and
banking arrangements. During the year ended
December 31, 2014, finance costs on our revolving
floorplan facilities increased by 41.9% to
$10.5 million from $7.4 million in 2013, mainly due
to the acquisitions completed during the year.
Finance costs on long term indebtedness increased
by $6.84 million or 678.9% over the prior year due
primarily to finance costs related to the
$150 million bond offering completed in May 2014.
Some of our manufacturers provide
non-refundable credits on the finance costs for our
revolving floorplan facilities to offset the
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, 2014, the
floorplan credits earned were $12.2 million
(2013 – $7.0 million). Floorplan credits are
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 2014.
(in thousands of dollars)
Net floorplan credits
Q1 2014 Q2 2014 Q3 2014 Q4 2014 TOTAL
2,020
2,448
3,920
3,858
12,246
Management believes that a comparison of floorplan financing costs to floorplan credits earned 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:
(in thousands of dollars)
Floorplan financing costs
Floorplan credits earned
Net carrying cost of vehicle inventory
For the Year Ended
December 31,
2014
December 31,
2013
10,452
(12,246)
(1,794)
7,353
(7,043)
310
Income Taxes
For the year ended December 31, 2014, income tax
expense increased by $4.6 million from
$13.7 million to $18.3 million. As a result of the
reversal of impairments of intangible assets, the
Company recorded deferred tax expense in the
amount of $0.5 million (2013 – $0.2 million) due to
the revised temporary differences between the tax
basis and carrying value of these assets.
As a result of its improved earnings over the past
three years, the Company recorded $21.6 million in
current tax expense in 2014, as compared to
$11.5 million in fiscal 2013. As described in further
detail below, the Company effectively maintains a
one year deferral of its partnership income (income
earned by wholly-owned dealerships). As such, the
current income tax expense for 2014 is mainly
calculated based on our dealerships’ income from
2013. The income earned by our dealerships in
AutoCanada Š 2014 Annual Report Š Page 19
fiscal 2014 will be substantially deferred until next
year; however, as described in further detail below,
the Company’s current tax payable contains the
second instalment payment of its tax deferral,
expected to be fully repaid over the next 3 years.
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
partner, subject to transitional relief over five years.
The Company estimates the following amounts to
be recorded as current income tax payable over
the next three years in conjunction with the
payment of the deferral. The Company notes that
these estimated amounts will be paid in addition to
the normal current income tax payable of future
years:
(in thousands of dollars)
2015 2016 2017
Increase to current tax payable
1,366 1,366 1,707
The Company expects income tax to have a more
significant effect on our free cash flow and
adjusted free cash flow, as in fiscal 2012, the
Company began to pay current income taxes and
income tax instalments for the anticipated current
tax expense for the fiscal year.
Prior to 2012, the Company had not paid any
corporate tax or instalments for corporate tax. In
2014, the Company paid $16.7 million of cash taxes,
which relates to the fiscal 2013 taxation year and
instalments toward the 2014 taxation year. The
payment of cash taxes will have an impact on
adjusted free cash flow. Due to the tax deferral and
subsequent addition of deferred tax to future
years’ taxes payable, investors are cautioned that
the effective tax rate may exceed the historical
rates experiences by the Company, and future cash
flow from operating activities will be reduced due
to this treatment.
RESULTS FROM
OPERATIONS
Fourth Quarter Operating Results
EBITDA for the three month period ended
December 31, 2014 increased by 65.5% to
$24.5 million, from $14.8 million when compared to
the results of the Company for the same period in
the prior year. The increase in EBITDA for the
quarter can be mainly attributed to the dealership
acquisitions completed during 2014. The Company
also purchased a number of real estate properties
at the end of 2013 that have contributed to the
increase in EBITDA. The Company’s EBITDA was
positively impacted by $0.4 million, included in
share-based compensation, as a result of an 18.3%
decrease in the Company’s share price during the
last quarter of the year. Adjusted EBITDA
attributable to AutoCanada shareholders for the
quarter ended December 31, 2014 increased by
60.7% to $24.1 million from $15.0 million when
compared to the results of the Company in the
prior year.
The following table illustrates EBITDA for the three month periods ended December 31, for the last three
years of operations.
(in thousands of dollars)
Period from October 1, 2014 to December 31, 2014
Net earnings attributable to AutoCanada shareholders
Recovery of impairment of intangible assets
Income tax
Amortization of property and equipment
Interest on long-term indebtedness
EBITDA attributable to AutoCanada shareholders
Share-based compensation attributed to changes in share price
Adjusted EBITDA attributable to AutoCanada shareholders
2014
14,918
(1,767)
4,316
4,153
2,907
2013
9,553
(746)
3,490
2,069
388
2012
6,606
(222)
2,540
1,118
257
24,527
14,754
10,299
(447)
248
28
24,080
15,002
10,327
Page 20 Š AutoCanada Š 2014 Annual Report
Pre-tax earnings attributable to AutoCanada
shareholders for the quarter ended December 31,
2014 increased by $7.1 million or 54.6% to
$20.1 million from $13.0 million in 2013. Net
earnings attributable to AutoCanada shareholders
increased by $5.3 million or 55.2% to $14.9 million
in 2014 from $9.6 million in 2013. Income tax
expense attributable to AutoCanada shareholders
increased by $1.7 million to $5.2 million in 2014
from $3.5 million in 2013 due to an increase in
pre-tax earnings during the last quarter of 2014.
As the pre-tax net effects of recoveries of
impairment of intangible assets for the year ended
December 31, 2014 was $1.8 million, as compared to
total recoveries of $0.7 million before taxes in 2013,
the variances in the preceding paragraph include
the effects of reversals of impairments, which
resulted in an increase in overall net earnings in
2014 due to the increase in recoveries of
impairment of intangible assets compared to the
prior year.
Adjusted net earnings attributable to AutoCanada
shareholders for the quarter ended December 31,
2014 increased by $4.3 million or 47.8% to
$13.3 million in 2014 from $9.0 million in the
prior year.
The following table reconciles net earnings to adjusted net earnings for the quarters ended December 31:
(in thousands of dollars)
Net earnings attributable to AutoCanada shareholders
Recovery of impairment of intangible assets, net of tax
Share-based compensation attributed to changes in share price, net of tax
Adjusted net earnings attributable to AutoCanada shareholders
2014
14,918
(1,310)
(332)
13,276
2013
9,553
(746)
184
8,991
2012
6,606
(222)
21
6,405
Weighted average number of shares – Basic
24,410,169 21,638,433 19,802,947
Adjusted net earnings per share attributable to AutoCanada
shareholders – Basic
Adjusted net earnings per share attributable to AutoCanada
shareholders – Diluted
0.54
0.53
0.42
0.42
0.32
0.32
Revenues
Revenues for the three months ended
December 31, 2014 increased by $319.7 million or
95.8%, as compared to the same period of the prior
year. This increase was mainly driven by increases
in all four revenue streams. New vehicle sales
increased by $182.0 million or 92.3% for the three
month period ended December 31, 2014 to
$379.1 million from $197.1 million in the same period
of the prior year, mainly due to an increase in new
vehicles sold of 5,086 or 92.7%. The various
manufacturer incentives offered on new vehicles,
combined with low interest rates, have made
purchasing a new vehicle more affordable for our
customers, which we believe to be a critical driver
of new vehicle sales in the industry. Used vehicle
sales increased by $73.4 million or 97.7% for the
three month period ended December 31, 2014. The
increase in new and used vehicle retail sales greatly
contributed to the increase in finance and
insurance revenue, which increased by $14.5 million
or 71.4% in the three month period ended
December 31, 2014. Parts, service and collision
repair revenue increased by $49.8 million or 120.7%
for the three month period ended December 31,
2014.
AutoCanada Š 2014 Annual Report Š Page 21
Revenues – Same Store Analysis
The following table summarizes the results for the three month period ended December 31, 2014 on a same
store basis by revenue source and compares these results to the same period in 2013.
Same Store Revenue and Vehicles Sold
(in thousands of dollars)
Revenue Source
New vehicles – Retail
New vehicles – Fleet
New vehicles
Used vehicles – Retail
Used vehicles – Wholesale
Used vehicles
Finance, insurance and other
Subtotal
Parts, service and collision repair
Total
New retail vehicles sold
New fleet vehicles sold
Used retail vehicles sold
Total
Total vehicles retailed
For the Three Months Ended
December 31,
2014
December 31,
2013 % Change
156,602
24,748
181,350
53,225
23,410
76,635
18,781
276,766
35,889
312,655
4,307
896
2,329
7,532
6,636
150,463
16,767
167,230
47,655
17,031
64,686
17,754
249,670
32,271
281,941
4,191
515
2,177
6,883
6,368
4.1%
47.6%
8.4%
11.7%
37.5%
18.5%
5.8%
10.9%
11.2%
10.9%
2.8%
74.0%
7.0%
9.4%
4.2%
Total same store revenue increased by
$30.7 million or 10.9% in the three month period
ended December 31, 2014 when compared to the
same period in 2013. New vehicle revenues
increased by $14.1 million or 8.4% for the fourth
quarter of 2014 over the prior year due to an
increase in new vehicle sales of 497 units or 10.6%.
Same store parts, service and collision repair
revenue increased by $3.6 million or 11.2% for the
fourth quarter of 2014 compared to the prior
period and was primarily a result of an increase in
overall repair orders completed of 9,913 or 12.6%
and a $5 or 1.2% decrease in the average revenue
per repair order completed.
Same store used vehicle revenues increased by
$11.9 million or 18.5% for the three month period
ended December 31, 2014 over the same period in
the prior year due to an increase in the average
revenue per used vehicle sold of $3,192 or 10.7%,
and an increase in used vehicle sales of 152 units or
7.0%.
Same store finance, insurance and other revenue
increased by $1.0 million or 5.8% for the three
month period ended December 31, 2014 over the
same period in 2013. This was due to an increase in
the average revenue per unit retailed of $42 or
1.5% and an increase in the number of new and
used vehicles retailed of 268 units.
Gross Profit
Gross profit increased by $50.1 million or 80.4% for
the three month period ended December 31, 2014
when compared to the same period in the prior
year. As with revenues, gross profit increased due
to increases across all four revenue streams. Gross
profit on the sale of new vehicles increased by
$10.1 million or 54.9% for the three month period
ended December 31, 2014. The increase in new
vehicle gross profit can be attributed to an
increase in the number of new vehicles sold of
5,086 or 92.7%, offset by a decrease in average
gross profit per new vehicle sold of $660 or 19.7%.
During the three month period ended December 31,
2014, gross profit from used vehicles increased by
Page 22 Š AutoCanada Š 2014 Annual Report
$3.4 million or 75.7% over the same period in the
prior year due to an increase in the number of used
vehicles sold of 2,283 or 89.1% and a decrease in
the average gross profit per used vehicle sold of
$123 or 7.1%. The Company’s finance and insurance
gross profit increased by $11.9 million or 63.4%
during the fourth quarter of 2014. This increase can
mainly be attributed to an increase in the total
number of vehicles retailed of 6,251 or 83.4% and a
decrease in the average gross profit per unit
retailed of $297 or 11.8%. Parts, service and collision
repair gross profit increased by $24.8 million or
119.1% in the fourth quarter of 2014, due primarily to
an increase in the number of repair orders
completed of 118,119 or 123.1%.
Gross Profit – Same Store Analysis
The following table summarizes the results for the three month period ended December 31, 2014, on a
same store basis by revenue source, and compares these results to the same periods in 2013.
Same Store Gross Profit and Gross Profit Percentage
(in thousands of dollars)
Revenue Source
New vehicles – Retail
New vehicles – Fleet
New vehicles
Used vehicles – Retail
Used vehicles – Wholesale
Used vehicles
Finance, insurance and other
Subtotal
Parts, service and collision repair
Total
For the Three Months Ended
Gross Profit
Gross Profit %
December 31,
2014
December 31,
2013 % Change
December 31,
2014
December 31,
2013 Change
14,626
550
15,176
3,759
63
3,822
17,283
36,281
19,069
55,350
15,563
(6.0)%
49 1,022.4%
15,612
2,230
1,970
4,200
16,017
35,829
16,550
52,379
(2.8)%
68.6%
(96.8)%
(9.0)%
7.9%
1.3%
15.2%
5.7%
9.3%
2.2%
8.4%
7.1%
0.3%
5.0%
92.0%
13.1%
53.1%
17.7%
10.3% (1.0)%
0.3% 1.9%
9.3% (0.9)%
4.7% 2.4%
11.6% (11.3)%
6.5% (1.5)%
90.2% 1.8%
14.4% (1.3)%
51.3% 1.8%
18.6% (0.9)%
Total same store gross profit increased by
$3.0 million or 5.7% for the three month period
ended December 31, 2014 when compared to the
same period in the prior year. New vehicle gross
profit decreased by $0.4 million or 2.8% in the
three month period ended December 31, 2014
when compared to 2013 as a result of a decrease in
the average gross profit per new vehicle sold of
$401 or 12.1%, partially offset by an increase in new
vehicle sales of 497 units or 10.6%.
Used vehicle gross profit decreased by $0.4 million
or 9.0% in the three month period ended
December 31, 2014 over the prior year. This was
due to a decrease of $288 in the average gross
profit per used vehicle retailed, partially offset by
an increase in the number of used vehicles sold of
152 units.
Finance and insurance gross profit increased by
7.9% or $1.3 million in the three month period
ended December 31, 2014 when compared to the
prior year as a result of an increase in the average
gross profit per unit sold of $89 and an increase in
units retailed of 268.
Parts, service and collision repair gross profit
increased by $2.5 million or 15.2% in the three
month period ended December 31, 2014 when
compared to the same period in the prior year as a
result of an increase in the number of repair orders
completed of 9,913 and an increase in the average
gross profit per repair order completed of $5 or
2.4%.
AutoCanada Š 2014 Annual Report Š Page 23
Operating expenses
Facility lease costs
Operating expenses increased by 84.7% or
$41.0 million during the three month period ended
December 31, 2014 as compared to the same period
in 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 increased
to 79.6% in the fourth quarter of 2014 from 77.7% in
the same period of 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,
2014, employee costs increased by $24.8 million to
$55.3 million from $30.5 million in the prior year
period due to the number of dealerships acquired
during the year. Employee costs as a percentage of
gross profit for the quarter ended December 31,
2014 remained constant at 49.2% from 49.0% in
the prior year.
Selling and administrative costs
During the three month period ended December 31,
2014, selling and administrative costs increased by
$11.6 million or 87.1% primarily due to the acquisitions
completed in 2014. Selling and administrative
expenses as a percentage of gross profit remained
relatively constant at 22.2% in the fourth quarter of
2014 from 21.4% in the comparable period of 2013.
During the three month period ended December 31,
2014, the Company incurred $0.4 million in
professional fees related to acquisitions compared to
$0.05 million in comparable period of 2013. These
costs will vary based on the number of acquisitions
completed each quarter.
During the three month period ended December 31,
2014, facility lease costs increased by 92.0% to
$4.8 million from $2.5 million primarily due to the
acquisitions completed during 2014, partially offset
by the cost savings from the real estate purchases
completed at the end of 2013.
Depreciation
During the three month period ended December 31,
2014, depreciation increased to $4.4 million from
$2.1 million in the same period of the prior year.
This increase is a result of the real estate purchase
in the fourth quarter of 2013 and the dealership
acquisitions that occurred during 2014 for which
real estate was purchased.
Finance costs
During the three month period ended December 31,
2014, finance costs on our revolving floorplan
facilities increased by 73.7% to $3.3 million from
$1.9 million during the fourth quarter of 2013,
mainly due to the increased number of dealerships
compared to the same quarter in the prior year.
Finance costs on long term indebtedness increased
by $2.5 million in the fourth quarter of 2014 due
primarily to finance costs related to the notes
offering completed in May 2014.
During the three month period ended December 31,
2014, the floorplan credits earned were $3.9 million
(2013 – $1.6 million). 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 details the carrying cost of vehicles based on floorplan interest net of floorplan
assistance earned:
(in thousands of dollars)
Floorplan financing costs
Floorplan credits earned
Net carrying cost of vehicle inventory
Page 24 Š AutoCanada Š 2014 Annual Report
For the Three Months Ended
December 31,
December 31,
2013
2014
3,293
(3,858)
(565)
1,887
(1,569)
318
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.
and Mann-Northway Auto Source (“MNAS”), a
Chevrolet Buick GMC Cadillac dealership in Prince
Albert, Saskatchewan.
McNaught Buick Cadillac GMC
On April 1, 2014, the Company invested a total of
$11.3 to acquire an 80.0% participating, non-voting
common share interest in Waverley BG Holdings
Inc. (“WBG”). WBG is an entity formed between a
subsidiary of AutoCanada and Priestner. WBG was
formed to acquire General Motors of Canada (“GM
Canada”) franchised dealerships, whereby
Priestner is required to maintain voting control of
the dealerships, in accordance with the agreement
with GM Canada. WBG acquired 100% of the
operating assets of McNaught Buick Cadillac GMC
(“McNaught”) in Winnipeg, Manitoba.
GROWTH, ACQUISITIONS,
RELOCATIONS AND REAL
ESTATE
The Company operates 48 automotive dealerships
(56 franchises), 38 of which are wholly owned and
8 General Motors dealerships and 2 BMW
dealerships which the Company controls and
consolidates for accounting purposes.
BMW Canbec and MINI Mont Royal
On June 1, 2014, the Company purchased 100% of
the shares of Automobile Canbec Inc. (“BMW
Canbec”), which owns and operates a BMW
franchise and a MINI franchise, both located in
Montreal, Quebec, for cash consideration of
$27.0 million. The purchase of this business was
the Company’s first BMW and MINI franchises and
first dealership in Quebec.
Acquisitions
Dodge City
The Company acquired 17 dealerships
(19 franchises) in 2014, five of which were
investments in General Motors dealerships. All
wholly-owned acquisitions have been accounted
for using the acquisition method. Acquisitions
completed during the year are as follows:
Saskatoon Motor Products and Mann-Northway
Auto Source
On March 10, 2014, the Company invested a total of
$41.7 million, consisting of $32.6 million in cash and
205,000 common shares of AutoCanada issued (at
a value of $9.1 million) to acquire an 82.353%
equity interest in Prairie Auto Holdings Ltd.
(“PAH”). PAH is an entity formed between a
subsidiary of AutoCanada and Priestner. PAH
acquired an 85% equity interest in the shares of
Saskatoon Motor Products Ltd. (“SMP”), a
Chevrolet dealership in Saskatoon, Saskatchewan,
On June 16, 2014, the Company purchased
substantially all of the operating and fixed assets of
Dodge City Auto 1984 Ltd. (“Dodge City”), in
Saskatoon, Saskatchewan, for total cash
consideration of $34.2 million. The purchase of this
business complemented the Company’s other
Chrysler dealerships and further expanded its
presence in Saskatoon, Saskatchewan.
Hyatt Group of Dealerships
Between the period of June 23, 2014 and July 1,
2014, the Company purchased all of the operating
and fixed assets of 678938 Alberta Ltd. (“Calgary
Hyundai”), 1446691 Alberta Ltd. (“Crowfoot
Hyundai”), 998699 Alberta Ltd. (“Hyatt
Mitsubishi”), 588338 Alberta Ltd. (“Northland
Volkswagen”), 969642 Alberta Ltd. (“Fish Creek
Nissan”), and 1791109 Alberta Ltd. (“Hyatt Infiniti”),
herein referred to as (the “Hyatt Group”), located
AutoCanada Š 2014 Annual Report Š Page 25
in Calgary, Alberta, for total cash consideration of
$91.4 million. In addition, the Company acquired
the exclusive right to build and operate a Nissan
motor vehicle dealership on a designated property
in southeast Calgary. The purchase of the Hyatt
Group complemented the Company’s existing and
open point brands and expanded its presence in
Calgary, Alberta.
Tower Chrysler
On August 18, 2014, the Company purchased
substantially all of the operating and fixed assets of
Tower Chrysler Plymouth Ltd. (“Tower Chrysler”),
in Calgary, Alberta, for total cash consideration of
$20.4 million. The purchase of this business
complemented the Company’s other Chrysler
dealerships and further expanded its presence in
Calgary, Alberta.
Lakewood Chevrolet
On September 2, 2014, the Company purchased a
75% non-voting equity interest in the shares of
Lakewood Chevrolet (“Lakewood”), a Chevrolet
dealership located in Edmonton, Alberta, for total
cash consideration of $19.8 million. The Company
also purchased the dealership land and facility
through a wholly-owned subsidiary, Lakewood
Properties Inc., for $19.0 million.
Toronto Chrysler
On October 20, 2014, the Company purchased
substantially all of the operating and fixed assets of
Toronto Dodge Chrysler Ltd. (“Toronto Chrysler”),
in Toronto, Ontario, for total cash consideration of
$2.2 million. The purchase of this business
complemented the Company’s other Chrysler
dealerships and further expanded its presence in
the greater Toronto area.
Bridges Chevrolet
On November 24, 2014, the Company purchased
an 80% non-voting equity interest in the assets of
Bridges Chevrolet Buick GMC Ltd. (“Bridges
Chevrolet”), a Chevrolet dealership located in
North Battleford, Saskatchewan, for total cash
consideration of $4.6 million. The acquisition was
financed with cash from operations. The Company
also purchased the dealership land and facility
Page 26 Š AutoCanada Š 2014 Annual Report
through a wholly-owned subsidiary, NBFG
Properties Inc., for $3.0 million. Of the $4.0 million
goodwill purchased on the acquisition of the land
and building, 15% was purchased by Mr. Priestner.
BMW Laval and MINI Laval
On December 15, 2014, the Company purchased an
85% interest in the assets of Auto Boulevard St.
Martin Inc. (“BMW Laval”) which owns and
operates a BMW franchise and a MINI franchise,
both located in Laval, Quebec, for total cash
consideration of $22.5 million and contingent
consideration with a present value of $2.4 million.
The purchase of this business complemented the
Company’s other BMW/MINI franchises and further
expanded its presence in Quebec.
As part of the transaction, the Company entered
into an agreement with the former majority owner
of BMW Laval, whereby he retained the remaining
ownership interest in the two Laval dealerships as
well as acquired a 15% ownership interest in BMW
Canbec from the Company as part of the
transaction. The non-controlling interest in BMW
Canbec at the date of the transaction was equal to
$2.7 million.
In addition to the business, the Company also
purchased the land and a building used for
business operations for $31.2 million.
Integration of New Dealerships and
Investments
Over the past year, the Company has opened and
acquired a number of dealerships and has been
dedicating resources to ensure a successful
integration of its newly acquired dealerships. As
noted in our same store analysis, experience has
shown that it takes a minimum of two full years in
order to successfully integrate a store and achieve
its anticipated performance objectives; however,
the Company endeavours to reduce this
integration time.
The dealerships acquired in 2014 appear to be
integrating well into their respective platforms and
within the Company. The newly acquired
dealerships are currently meeting Management’s
expectations with respect to sales and financial
performance and the Company’s integration team
at DSS continues to work with newly acquired
dealerships on sales process, marketing initiatives,
and other important aspects associated with a
successful integration.
The investments in dealerships that we made in the
third and fourth quarters are fairly recent. As a
result, there is very little tangible evidence of our
progress made with respect to integration of these
investments. The Company intends to provide
further insight into the integration of these
investments in future quarterly reports.
We will continue to dedicate significant resources
to newly acquired dealerships in order to
successfully integrate acquisitions in an efficient
manner. As a result, we expect to incur additional
selling and administrative costs in the future in
order to successfully integrate new dealerships
under our model.
Volkswagen – Sherwood Park, Alberta
In February 2014, the Company announced that it
had been awarded the right to a Volkswagen open
point dealership in Sherwood Park, Alberta. The
Company intends to construct an approximately
45,000 square foot facility in Sherwood Park,
designed to Volkswagen Canada image standards,
with construction anticipated to be completed in
the first quarter of 2016. The Volkswagen open
point has a planning potential of 800 new vehicles
annually which the Company anticipates achieving
in two to three years of operation.
Nissan – Calgary, Alberta
On July 1, 2014, as part of the Company’s purchase
of the Hyatt Group, the Company acquired the
exclusive right to build and operate a Nissan
dealership on a designated property in southeast
Calgary. The purchase price for transfer of the right
was $1.5 million, which was satisfied by the
issuance of 18,753 common shares of AutoCanada
at a deemed price of $79.99. The dealership will
begin construction in 2015 with anticipated
opening in 2016. The dealership will be constructed
by a third party and subsequently leased by the
Company.
North Edmonton Kia
During the third quarter of 2014, the Company
opened its North Edmonton Kia open point
dealership. The Company expects to incur
operating losses over the first year of operations as
the dealership builds its customer base and, in
particular, its service customer base. Management
is very pleased to have opened its first Kia
dealership and expects the dealership to continue
to drive higher volume over the coming months.
North Winnipeg Kia
In March 2015, the Company announced that it has
signed a Letter of Intent with Kia Canada Inc.
(“Kia”) which, subject to the completion of
requirements contained in the Letter of Intent, will
award AutoCanada an open point Kia dealership in
North Winnipeg, Manitoba. AutoCanada intends to
operate the dealership out of a new facility,
designed to Kia image standards, with construction
anticipated to commence in late Q4, 2015 or Q1,
2016.
Capital Plan
The Company maintains a capital plan for
contemplated future capital projects. Details of the
capital plan are described below:
Dealership Relocations
Management estimates the total capital
requirements of additional potential planned
dealership relocations to be approximately
$142.3 million by the beginning of fiscal 2017. As
noted above, the Company expects dealership
relocations to provide long term earnings
sustainability and result in significant
improvements in revenues and overall profitability.
Management continually updates its capital plan
and as such the estimates provided may vary as
delays occur or projects are added or removed.
Current Dealership Expansion and Imaging
Requirements
The Company has identified approximately
$35.1 million in capital costs that it may incur in
order to expand or renovate various current
locations by the beginning of fiscal 2018. The
Company is required by its Manufacturers to
AutoCanada Š 2014 Annual Report Š Page 27
undertake periodic imaging upgrades to its
facilities. Included above are the estimated costs
and timing related to the re-imaging requirements
by Hyundai Canada. The Company expects
re-imaging to attract more customers to its
dealerships.
Open Point Opportunities
Management regularly reviews potential open
point opportunities. If successful in being awarded
these opportunities, Management would then
estimate additional capital costs in order to
construct suitable facilities for open points. The
Company estimates approximately $29.4 million in
capital costs that it may incur by the middle of
fiscal 2016 related to currently awarded open
points. If awarded in the future, Management will
provide additional cost estimates and timing of
construction. In order to be successful in some
opportunities, Management may be required to
secure appropriate land for the potential open
points, in which case, additional land purchase
costs may be incurred in the future.
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. Due to the significant
increase in acquisition activity, the Company
completed an offering of senior unsecured notes
during the second quarter of 2014 in order to
replenish its capital and execute on acquisitions
during the year. On July 11, 2014, the Company also
completed an equity offering which was used to
pay down its revolving credit facility and replenish
its capital in order to execute on future
acquisitions.
The Company maintains working capital in excess
of manufacturer requirements which may be used
for capital expenditures. The Company’s analysis of
its available capital based on the balance sheet at
December 31, 2014 is as follows:
Š The Company had approximately $100.4
million in working capital. At
December 31, 2014, the Company’s
aggregate net manufacturer working
capital requirements were $84.1 million.
As such, the Company had approximately
$16.3 million in cash available for growth
expenditures.
Š The Company had drawn $38.9 million on
its $200.0 million revolving term facility,
leaving approximately $161.1 million
available for further growth expenditures.
As a result of the above initiatives, as at
December 31, 2014, the Company currently has
approximately $177.4 million in readily available
liquidity, not including future retained cash from
operations, that it may deploy for growth
expenditures including acquisitions.
Page 28 Š AutoCanada Š 2014 Annual Report
The following tables detail the Company’s remaining contractual maturity for its financial liabilities. The
amounts below have been determined 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.
December 31, 2014
Trade and other payables
Revolving floorplan facilities
Redemption liabilities
Senior unsecured notes
HSBC revolving term facility
Vehicle repurchase obligations
RBC lease financing
Scotiabank lease financing
BMO lease financing
Servus mortgage
VCCI mortgage
BMW mortgage
Other long-term debt
Contractual interest payable
December 31, 2013
Trade and other payables
Revolving floorplan facilities
HSBC revolving term facility
HSBC ATB syndicated facility
HSBC fixed rate term loan
BMO fixed rate term loan
Vehicle repurchase obligations
Servus mortgage
Contractual interest payable
2015
$
2016
$
2017
$
2018
$
Thereafter
$
Total
$
82,670
527,780
7,665
–
–
1,539
2,690
422
352
230
56
742
159
11,739
–
–
–
–
–
–
2,690
364
352
239
56
737
1,556
11,614
–
–
34,133
–
–
–
2,690
197
352
248
56
768
1,439
11,491
–
–
–
–
38,925
–
2,454
63
45
258
56
797
16
10,240
–
–
–
149,739
–
–
–
–
–
4,811
869
17,879
–
34,306
82,670
527,780
41,798
149,739
38,925
1,539
10,524
1,046
1,101
5,786
1,093
20,923
3,170
79,390
636,044
17,608
51,374
52,854
207,604
965,484
2014
$
2015
$
2016
$
2017
$
Thereafter
$
Total
$
50,428
264,178
–
–
176
2,469
1,398
221
2,649
–
–
40,124
35,251
2,764
–
–
230
1,696
–
–
–
–
–
–
–
239
830
–
–
–
–
–
–
–
248
785
–
–
–
–
–
–
–
5,068
6,133
50,428
264,178
40,124
35,251
2,940
2,469
1,398
6,006
12,093
321,519
80,065
1,069
1,033
11,201
414,887
Use of proceeds
The following table details the Company’s use of
proceeds from the notes offering:
(in thousands of dollars)
Proceeds from notes offering
Issuance fees
Repayment of long-term indebtedness
General corporate purposes
Amount
150,000
(3,638)
(118,600)
(27,762)
–
The following table details the Company’s use of
proceeds from the equity offering:
(in thousands of dollars)
Proceeds from equity offering
Issuance fees
Repayment of long-term indebtedness
General corporate purposes
Amount
200,070
(8,808)
(143,000)
(48,262)
–
AutoCanada Š 2014 Annual Report Š Page 29
Funds allocated to general corporate purposes (as
noted in the tables above) were used in various
acquisitions throughout the year. See “GROWTH,
ACQUISITIONS, RELOCATIONS AND REAL
ESTATE.”
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, 2014
was $71.1 million (cash provided by operating
activities of $66.8 million plus net increase in non-
cash working capital of $4.3 million) compared to
$38.0 million (cash provided by operating activities
of $48.0 million less net decrease in non-cash
working capital of $10.0 million) in the same period
of the prior year.
Cash Flow from Investing Activities
For the year ended December 31, 2014, cash flow
from investing activities of the Company was a net
outflow of $331.1 million as compared to a net
outflow of $124.0 million in the same period of the
prior year. During 2014, the Company completed
$270.0 million in business acquisitions and $43.9
million in investments in associates and purchased
$23.4 million of real estate, property and
equipment.
Cash Flow from Financing Activities
For the year ended December 31, 2014, cash flow
from financing activities was a net inflow of $295.2
million as compared to $86.6 million in the same
period of 2013. The increase was due primarily to
the net proceeds from issuance of treasury shares
of $191.3 million and proceeds from the senior
unsecured notes of $146.4 million. Net repayments
of long-term indebtedness during 2014 of $17.5
million slightly offset the proceeds from the
common shares and notes offerings.
Credit Facilities and Floorplan Financing
On May 22, 2014, the Company amended the
existing credit agreement (the “Credit
Agreement”) with HSBC Bank Canada (“HSBC”),
Alberta Treasury Branches (“ATB”), and Royal
Bank of Canada (“RBC”), with HSBC acting as
administrative agent to the Credit Agreement. The
Page 30 Š AutoCanada Š 2014 Annual Report
Credit Agreement provides the Company with a
$200.0 million revolving operating facility that may
be used for general corporate purposes, including
repayment of existing indebtedness, funding
working capital requirements, capital expenditures,
and financing acquisitions. Fees and interest on
borrowings under the Credit Agreement are
subject to a pricing grid whereby the pricing level
is determined by the leverage ratio. Based on the
Company’s Leverage Ratio, as defined by the
Lender, the interest rate on the loan ranges from
HSBC’s prime rate plus 0.75% to HSBC’s prime rate
plus 2.00%. As at December 31, 2014, the Company
is in the second of five tiers of the pricing grid, with
the second tier providing interest rates of HSBC’s
prime rate plus 1.50% (4.50% at December 31,
2014). Amounts drawn under the Credit
Agreement as at December 31, 2014 are due
May 22, 2018 and may be extended annually for an
additional 365 days at the request of the Company
and upon approval by the lenders. The Credit
Agreement is collateralized by all of the present
and future assets of AutoCanada Holdings Inc., a
subsidiary of AutoCanada Inc., and all of its
subsidiaries. As part of a priority agreement signed
by HSBC, Scotiabank, VCCI, BMW Financial, CIBC,
and the Company, the collateral for the Credit
Agreement excludes all new, used and demo
inventory financed with Scotiabank, VCCI, RBC and
BMW Financial revolving floorplan facilities.
VW Credit Canada Inc. provides the Company with
a mortgage (the “VCCI Mortgage”), which bears a
floating rate of interest per annum equal to the
Royal Bank of Canada’s prime rate plus 0.50%
(3.50% at December 31, 2014). The VCCI Mortgage
is repayable with fifty-nine equal blended monthly
payments of $0.08 million amortized over a twenty
year period with term expiring in April 2019. The
VCCI Mortgage has certain reporting requirements
and financial covenants and is collateralized by a
general security agreement consisting of a first
fixed charge over the property. At December 31,
2014, the carrying amount of the property was $1.8
million.
BMW Financial provides the Company with a
mortgage (the “BMW Mortgage”), which bears a
fixed rate of interest per annum of 3.80%. The
BMW Mortgage is repayable with sixty equal
blended monthly payments of $124, amortized over
a twenty year period with term expiring on
December 31, 2019. The BMW Mortgage has certain
reporting requirements and is collateralized by the
property and any other present and future
property, rights and assets, movable or immovable,
and a general security agreement consisting of a
first fixed charge over the property. At
December 31, 2014, the carrying amount of the
property was $31.2 million.
In 2012, the Company arranged a mortgage
agreement with Servus Credit Union (“Servus”),
whereby Servus would provide the Company a
$6.25 million commercial mortgage to facilitate the
purchase of land and building to be used for the
operations of the Kia open point dealership. The
mortgage bears an annual interest rate of 3.90%,
fixed, payable and calculated monthly in arrears,
originally amortized over a 20 year period with
term expiring 5 years after the fund date. The
Servus Mortgage requires certain reporting
requirements and is collateralized by general
security agreement consisting of a first fixed
charge over the land and building. With respect to
financial covenants, a subsidiary of the Company is
required to maintain a minimum annual Debt
Service Coverage ratio of 1.25:1.
RBC provides financing for the lease vehicles of
two of the Company’s GM dealerships (the “RBC
lease financing”). The RBC lease financing bear
interest rates of RBC’s CF Rate (1.92% at
December 31, 2014) and provide a maximum
amount of financing of $11.0 million, repayable over
the terms of the contract in varying amounts of
principal. The RBC lease financing are
collateralized by the lease vehicles under the
related lease agreements.
Revolving Floorplan Facilities
On April 23, 2014, the Company announced that it
had increased its existing syndicated floorplan
facility (“Floorplan Facility”) with The Bank of Nova
Scotia (“Scotiabank”) and The Canadian Imperial
Bank of Commerce (“CIBC”) by $200.0 million,
bringing total availability to $550.0 million. All
significant terms and conditions of the previous
facility remain unchanged. The Floorplan Facility
bears a rate of Bankers’ Acceptance plus 1.15%
(2.63% as at December 31, 2014) per annum. The
Facility is collateralized by each individual
dealership’s inventories that are directly financed
by Scotiabank, a general security agreement with
each dealership financed, and a guarantee from
AutoCanada Holdings Inc., a subsidiary of the
Company. The facility has been provided to 34 of
the 48 dealerships in which AutoCanada operates.
The terms and conditions of the facility apply only
to the collective group of 34 dealerships which are
to be funded.
Additional information relating to the Credit
Agreement, including a copy of the agreement can
be obtained on SEDAR at www.sedar.com.
VW Credit Canada Inc. provides revolving floorplan
facilities (“VCCI facilities”) to finance new and used
vehicles for the Company’s Volkswagen and Audi
dealerships. The VCCI facilities bear interest at the
Royal Bank of Canada (“RBC”) prime rate for new
vehicles and RBC prime rate plus 0.25-1.00% for
used vehicles (RBC prime rate was 3.00% at
December 31, 2014). The maximum amount of
financing provided by the VCCI facilities is $45.0
million. The VCCI facilities are collateralized by all
of the dealerships’ assets financed by VCCI and all
cash and other collateral in the possession of VCCI
and a general security agreement from the
Company’s Volkswagen and Audi dealerships. The
individual notes payable of the VCCI facilities are
due when the related vehicle is sold, as outlined in
the agreement with VW Credit Canada, Inc. The
VCCI Facilities require maintenance of financial
covenants which require all dealerships to maintain
minimum cash and equity balances. At
December 31, 2014 the financial covenants had
been met.
The Company signed Inventory Financing and
Security Agreements (the “BMW facilities”) with
BMW Financial Services Canada (“BMW Financial”),
a division of BMW Canada Inc., to finance new and
used vehicles for the Company’s BMW and MINI
dealerships. The BMW facilities has a current
advance limit of $100.9 million. The BMW Facilities
bears a variable interest rate of prime minus
0.40% per 360-day annum (2.63% at December 31,
2014). The BMW facilities are collateralized by the
dealerships’ movable and immovable property. The
agreements require the Company to maintain
certain working capital ratios which were
maintained throughout the period.
In conjunction with the combination of entities
under common control completed on July 11, 2014,
the Company consolidated the financial results of
AutoCanada Š 2014 Annual Report Š Page 31
its investments in associates. The Royal Bank of
Canada (“RBC”) provides floorplan financing for
new and used vehicles for six of the Company’s
General Motors dealerships (the “RBC Facilities”).
The RBC Facilities bear interest rates of RBC’s Cost
of Funds Rate (1.920% as at December 31, 2014)
plus 0.0-1.35% and provide a maximum amount of
financing of $109.4 million. The RBC Facilities are
collateralized by the new, used, and demo
inventory financed by RBC and a general security
agreement from the Company’s GM dealerships
financed by RBC.
In conjunction with the combination of entities
under common control completed on July 11, 2014,
the Company consolidated the financial results of
its investments in associates. Scotiabank provides
floorplan financing for new and used vehicles for
two of the Company’s General Motors dealerships
(the “Scotiabank Facilities”). The Scotiabank
Facilities bear interest rates of Scotia Fixed
Flooring Rate (1.35% at December 31, 2014) plus
0.93-1.70% and provide a maximum amount of
financing of $32.4 million. The Scotiabank Facilities
are collateralized by the new, used, and demo
Key Financial Covenants
inventory financed by Scotiabank and a general
security agreement from the Company’s GM
dealerships financed by Scotiabank.
RBC provides financing for the lease vehicles of
two of the Company’s GM dealerships (the “RBC
lease financing”). The RBC lease financing bear
interest rates of RBC’s CF Rate (1.920% at
December 31, 2014) and provide a maximum
amount of financing of $11.0 million repayable over
the terms of the contract in varying amounts of
principal. The RBC lease financing are
collateralized by the lease vehicles under the
related lease agreements.
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 future results.
The Company is required by its debt agreements to comply with several financial covenants. The following
is a summary of the Company’s actual performance against its key financial covenants as at December 31,
2014:
Key Financial Covenants
Requirement
Actual Calculation
Syndicated Revolver:
Senior Secured Leverage Ratio
Adjusted Total Leverage Ratio
Fixed Charge Coverage Ratio
Current Ratio
Syndicated Floorplan:
Current Ratio
Tangible Net Worth
Debt to Tangible Net Worth
Shall not exceed 2.25
Shall not exceed 4.75
Shall not be less than 1.20
Shall not be less than 1.05
Shall not be less than 1.10
Shall not be less than $40 million
Shall not exceed 7.50
0.76
3.95
3.09
1.18
1.14
$86.3 million
4.55
The covenants above are based on consolidated
financial statements of the dealerships that are
financed directly by Scotiabank. As a result, the
actual performance to covenant does not reflect
the actual performance to covenant of
AutoCanada. The Company is required to comply
with other covenants under the terms of its
remaining credit agreements.
As at December 31, 2014, the Company is in
compliance with all of its financial covenants.
Financial Instruments
Details of the Company’s financial instruments,
including risks and uncertainties are included in
Note 23 of the annual audited consolidated
financial statements for the year ended
December 31, 2014.
Page 32 Š AutoCanada Š 2014 Annual Report
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.
Additional details on the components of non-growth property and equipment purchases are as follows:
(in thousands of dollars)
Computer equipment
Furniture and fixtures
Machinery and equipment
Company & lease vehicles
Leasehold improvements
October 1, 2014
to December 31,
2014
January 1, 2014
to December 31,
2014
681
195
321
94
712
2,003
1,297
544
1,398
303
1,238
4,780
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, 2014, growth
capital expenditures of $63.9 million were incurred.
These expenditures related primarily to land that
was purchased for future dealership operations
during the second quarter of 2013 for $5.2 million
and the real estate purchased completed in the last
quarter of 2013 for $58.7 million. 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, 2014
to December 31,
2014
January 1, 2014
to December 31,
2014
10,073
(8,070)
2,003
23,441
(18,661)
4,780
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
months and year ended December 31, 2014, were
$1.1 million and $3.5 million (2013 - $0.8 million and
$2.8 million), respectively.
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.
Planned Capital Expenditures
Our capital expenditures consist primarily of
leasehold improvements, the purchase of furniture
For further information regarding planned capital
expenditures, see “GROWTH, ACQUISITIONS,
RELOCATIONS AND REAL ESTATE”.
AutoCanada Š 2014 Annual Report Š Page 33
Financial Position
The following table shows selected audited balances of the Company (in thousands) for December 31,
2014 and December 31, 2013, as well as unaudited balances of the Company at September 30, 2014,
June 30, 2014, March 31, 2014, September 30, 2013, June 30, 2013, and March 31, 2013:
(in thousands of
dollars)
December 31,
2014
September 30,
2014
June 30,
2014
March 31,
2014
December 31,
2013
September 30,
2013
June 30,
2013
March 31,
2013
Cash and cash
equivalents
Trade and other
receivables
Inventories
Assets
Revolving floorplan
facilities
Non-current debt and
lease obligations
72,462
64,559
91,622
41,541
35,113
37,940
35,058
41,991
92,138
563,277
1,354,755
115,074
471,664
121,152
85,837
324,077
910,715
69,747
261,764
667,016
57,771
278,091
619,078
62,105
236,351
530,406
69,656
232,319
504,374
57,663
217,268
454,889
527,780
437,935
313,752
261,263
264,178
228,526
246,325
225,387
223,009
179,434
294,289
123,811
83,580
33,647
8,744
40,340
Net Working Capital
Off Balance Sheet Arrangements
The automobile manufacturers represented by the
Company require the Company to maintain net
working capital for each individual dealership. At
December 31, 2014, the aggregate of net working
capital requirements was approximately
$84.1 million. At December 31, 2014, 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 presented in the annual consolidated
financial statements. At December 31, 2014, the
Company had aggregate working capital of
approximately $100.4 million.
The net working capital requirements above
restrict the Company’s ability to transfer funds up
from its subsidiaries, as each subsidiary dealership
is required to be appropriately capitalized as
explained above. In addition, our VCCI Facilities
required the VW and Audi dealerships to maintain
minimum cash and equity, which also restricts our
ability to transfer funds.
Page 34 Š AutoCanada Š 2014 Annual Report
The Company has operating lease commitments,
with varying terms through 2037, to lease premises
and equipment used for business purposes.
The minimum lease payments over the upcoming
fiscal years will be as follows:
(in thousands of dollars)
2015
2016
2017
2018
2019
Thereafter
Total
$
16,785
16,401
15,104
12,605
10,596
107,235
178,726
At December 31, 2014, the Company is committed
to capital expenditure obligations in the amount of
$39.7 million.
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 23 –
Financial Instruments of the Company’s annual
consolidated financial statements.
Related Party Transactions
Note 32 of the annual consolidated financial
statements of the Company for the period ended
December 31, 2014 summarize the transactions
between the Company and its related parties.
Administrative support fees
The Company currently earns $1.1 million
(2013 – $0.8 million) of annual administrative
support fees from companies controlled by the
Executive Chairman of AutoCanada. The
administrative support fees consist of a portion of
human resource and fixed costs associated with
providing technological and accounting support to
these companies. The Company believes that
providing support services to these companies
provides value to both the companies supported
and AutoCanada. By providing support,
AutoCanada is able to reduce its overall fixed costs
associated with accounting and information
technology.
Related party transactions are measured based on
the proportionate allocation of actual costs
incurred multiplied by the number of resources
and/or hours provided to or used by the related
party. There are no ongoing or continuing
obligations of the Company to provide these
services or for the related parties to utilize these
services.
OUTSTANDING SHARES
As at December 31, 2014, the Company had
24,509,683 common shares outstanding. Basic and
diluted weighted average number of shares
outstanding for the year ended December 31, 2014
were 23,018,588 (2013 – 20,868,726) and
23,159,553 (2013 – 20,868,726), respectively. As at
December 31, 2014, the value of the shares held in
trust was $3.3 million (2013 – $1.3 million) which
was comprised of 100,027 in shares (2013 – 82,841)
with a nil aggregate cost (2013 – nil). As at
March 19, 2015, there were 24,509,683 shares
issued and outstanding.
DIVIDENDS
Dividends to Shareholders
Management reviews the Company’s financial results on a monthly basis. The Board of Directors reviews
the financial results periodically to determine whether a dividend shall be paid based on a number of
factors.
The following table summarizes the dividends declared by the Company in 2014 (in thousands of dollars):
Record date
February 28, 2014
May 30, 2014
August 29, 2014
November 28, 2014
Payment date
March 17, 2014
June 16, 2014
September 15, 2014
December 15, 2014
Per Share
$
0.22
0.23
0.24
0.25
0.94
Total
$
4,760
5,022
5,858
6,105
21,745
On February 17, 2015, the Board declared a
quarterly eligible dividend of $0.25 per common
share on AutoCanada’s outstanding shares,
payable on March 16, 2015 to shareholders of
record at the close of business on February 28,
2015. The quarterly eligible dividend of $0.25
represents an annual dividend rate of $1.00 per
share.
As per the terms of the HSBC facility, we are
restricted from declaring dividends and
distributing cash if we are in breach of 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, and as such, Management does not
believe that a restriction from declaring dividends
is likely in the foreseeable future.
AutoCanada Š 2014 Annual Report Š Page 35
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 dollars,
except share and per share
amounts)
Cash provided by operating
activities
Deduct:
Purchase of property and
equipment
Free cash flow (1)
Weighted average shares
outstanding at end of period
Free cash flow per share
Free cash flow – 12 month
trailing
Q4
2014
Q3
2014
Q2
2014
Q1
2014
Q4
2013
Q3
2013
Q2
2013
Q1
2013
42,276
9,093
10,918
8,850
9,674
7,787
14,391
6,125
(2,454)
39,822
(2,834)
(1,057)
(1,069)
6,259
9,861
7,781
(1,319)
8,355
(608)
7,179
(892)
13,499
(590)
5,535
24,410,169 24,103,670 21,832,777 21,685,876 21,638,433 21,638,882 20,346,713 19,802,048
0.280
0.359
0.386
0.260
0.452
1.631
0.663
0.332
63,723
32,256
33,176
36,814
34,568
27,115
28,660
21,320
1
This financial measure is 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 (decrease) in cash due to changes in non-cash working
capital for the years ended:
(in thousands of dollars)
Trade and other receivables
Inventories
Finance lease receivables
Other current assets
Trade and other payables
Vehicle repurchase obligations
Revolving floorplan facilities
December 31,
2014
December 31,
2013
(2,735)
(45,065)
(4,587)
(1,317)
8,179
126
49,738
4,339
(7,092)
(43,205)
–
88
11,023
144
29,074
(9,968)
Page 36 Š AutoCanada Š 2014 Annual Report
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.
(in thousands of dollars,
except share and per share
amounts)
Cash provided by operating
activities before changes in
non-cash working capital
Deduct:
Purchase of non-growth
property and equipment
Adjusted free cash flow (1)
Weighted average shares
outstanding at end of period
Adjusted free cash flow per
share
Adjusted free cash flow - 12
month trailing
Q4
2014
Q3
2014
Q2
2014
Q1
2014
Q4
2013
Q3
2013
Q2
2013
Q1
2013
19,125
23,192
16,497
7,984
12,894
15,234
14,258
5,564
(2,003)
17,122
(1,079)
22,113
(996)
15,501
(638)
7,346
(963)
(608)
(892)
11,931
14,626
13,366
(573)
4,991
24,410,169 24,103,670 21,832,777 21,685,876 21,638,433 21,638,882 20,346,713 19,802,048
0.701
0.917
0.710
0.339
0.551
0.676
0.657
0.252
62,082
56,891
49,404
47,269
44,914
41,961
36,853
32,730
1
This financial measure is 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.
In the year ending December 31, 2014, the
Company paid approximately $16.7 million in
corporate income taxes and tax installments.
Accordingly, this reduced our adjusted free cash
flow by this amount. Due to the tax deferral and
subsequent addition of deferred tax to future
years’ taxes payable, investors are cautioned that
the effective tax rate may exceed the historical
rates experiences by the Company, and future cash
flow from operating activities will be reduced due
to this treatment. See “RESULTS FROM
OPERATIONS – Fourth Quarter Operating
Results – Income Taxes” for further detail
regarding the impact of corporate income taxes on
cash flow.
AutoCanada Š 2014 Annual Report Š Page 37
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 dollars, except share
and per share amounts)
Q4
2014
Q3
2014
Q2
2014
Q1
2014
Q4
2013
Q3
2013
Q2
2013
Q1
2013
EBITDA(1,2)
26,043
32,136
21,702
14,453
14,754
16,607
16,463
10,511
Deduct:
Depreciation of property and equipment
(4,423)
(4,139)
(2,550)
(2,512)
(2,069)
(1,599)
(1,489)
(1,186)
EBIT(1,2)
Average long-term debt
Average shareholder’s equity
Average capital employed(1)
Return on capital
21,620
208,465
440,513
648,978
3.3%
27,997
11,941
19,152
244,105 214,438 108,120
326,410 205,613 196,608
570,515 420,051 304,728
3.9%
4.9%
4.6%
12,685
62,959
187,652
250,611
5.1%
15,008
25,725
9,325
14,974
36,293
28,871
181,576 152,983 126,188
207,301 181,854 162,481
5.7%
8.2%
7.2%
Comparative adjustment(3)
(17,264)
(15,951)
(15,951)
(15,951)
(15,951)
(15,542)
(15,542)
(15,542)
Adjusted average capital employed(1)
632,369
554,564 404,100 288,777
234,864
191,759 166,312 146,939
Adjusted return on capital employed(1)
3.4%
5.0%
4.7%
4.1%
5.4%
7.8%
9.0%
6.3%
Adjusted return on capital employed – 12
month trailing
18.6%
19.2% 20.6% 25.1%
27.9%
29.7% 29.4% 27.6%
1
2
3
These financial measures are identified and defined under the section “NON-GAAP MEASURES”.
EBITDA and EBIT used in the calculation of Adjusted Return on Capital Employed is calculated using the financial
results including non-controlling interests.
A 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.
Page 38 Š AutoCanada Š 2014 Annual Report
CRITICAL ACCOUNTING
ESTIMATES AND
ACCOUNTING POLICY
DEVELOPMENTS
DISCLOSURE CONTROLS
AND INTERNAL
CONTROLS OVER
FINANCIAL REPORTING
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, 2014.
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 period
ended December 31, 2014. The standards impacted
that are applicable to the Company are as follows:
Š 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, 2018, with earlier adoption
permitted.
Š IFRS 15, Revenue from Contracts with
Customers – in May 2014, the IASB issued
IFRS 15, which supersedes IAS 18,
Revenue, IAS 11, Construction Contracts,
and other interpretive guidance
associated with revenue recognition. IFRS
15 provides a single model to determine
how and when an entity should recognize
revenue, as well as requiring entities to
provide more informative, relevant
disclosures in respect of its revenue
recognition criteria. IFRS 15 is to be
applied prospectively and is effective for
annual periods beginning on or after
January 1, 2017, with earlier application
permitted.
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 Chief Executive Office
(“CEO”) and Chief Financial Officer (“CFO”), as
appropriate, to allow timely decisions regarding
required disclosure.
As of December 31, 2014, the Company’s
management, with participation of the CEO and
CFO, evaluated the effectiveness of the design and
operation of its disclosure controls and procedures,
as defined in National Instrument 52-109 of the
Canadian Securities Administrators, and have
concluded that the Company’s disclosure controls
and procedures are effective.
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 (1) 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.
AutoCanada Š 2014 Annual Report Š Page 39
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, under the supervision of and with the
participation of the Company’s CEO and CFO,
evaluated the effectiveness of the Corporation’s
internal controls over financial reporting (as
defined under national Instrument 52–109 –
Certification of Disclosure in Issuers’ Annual and
Interim Filings). In making this evaluation,
management used the criteria set forth by the
Committee of Sponsoring Organizations of the
Treadway Commissions (“COSO”) in Internal
Control – Integrated Framework (2013). Based on
that evaluation, management and the CEO and
CFO have concluded that, as at December 31, 2014,
the Corporation’s internal controls over financial
reporting were effective. This evaluation took into
consideration the Corporation’s Corporate
Disclosure Policy and the functioning of its
Disclosure Policy Committee.
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, 2014.
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
Page 40 Š AutoCanada Š 2014 Annual Report
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 2014 Annual Information
Form dated March 19, 2015 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:
Š the belief that, as the Company continues
to grow, operating expenses as a
percentage of gross profit should
continue to improve as the Company
achieves greater economies of scale;
Š the impact of income taxes on future cash
flow;
Š the impact of an increase or decrease of
one new retail vehicle sold on estimated
free cash flow;
Š expectations to incur additional selling
and administrative costs in the future to
successfully integrate new dealerships;
Š the belief that, if the Company can
continue to perform well, it will be able to
build upon its current brand portfolios
and hopefully gain the acceptance of
other new manufacturers over time;
Š commitments regarding future
investments in additional GM dealerships;
Š expectations to incur additional selling,
general, and administrative costs in the
future to facilitate the growth anticipated
by the Company due to increased
acquisition activity;
Š estimates, intentions, and expectations
regarding the capital plan, potential
relocation of certain dealerships,
dealership expansion needs, and open
point opportunities;
Š 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;
Š the impact of dealership real estate
relocations and purchases and its impact
on liquidity, financial performance and the
Company’s capital requirements;
Š our belief that under a high growth scenario,
cash from operating activities may not be
sufficient to meet future capital needs and
the potential need to seek additional capital
in the form of debt or equity;
Š our belief that our available liquidity is
sufficient to complete our current capital
expenditure commitments and to execute
on additional dealership acquisitions;
Š the impact of a significant decline in sales
as a result of the inability to procure
adequate supply of vehicles and/or lower
consumer demand on cash flows from
operations and our ability to fund capital
expenditures;
Š our expectation to incur annual non-growth
capital expenditures in an amount
approximating our amortization of property
and equipment reported in each period;
Š our expectation that growth expenditures
will provide additional future cash flows
and future benefit;
Š our expectation to increase annual capital
expenditures and the reasons for this
expected increase;
Š the impact of working capital
requirements and its impact on future
liquidity;
Š the belief that a restriction from declaring
dividends is not likely in the foreseeable
future;
Š our belief that free cash flow can fluctuate
significantly and the impact of these
fluctuations on our operations and
performance;
Š our belief that maintenance capital
expenditures should be funded by cash
flow provided by operating activities;
Š our potential use of Adjusted Return on
Capital Employed as a measure for
comparison and analysis;
Š guidance with respect to future
acquisition and open point opportunities;
Š our assumption on the amount of time it
may take for an acquisition or open point
to achieve normal operating results;
Š expectations and estimates regarding
income taxes and their effect on cash flow
and dividends;
Š assumptions over non-GAAP measures
and their impact on the Company;
AutoCanada Š 2014 Annual Report Š Page 41
Š management’s assumptions and
expectations over the future economic
and general outlook;
Š the impact of economic stress on our
compensation costs;
Š belief that the recession experienced
during fiscal 2008 and 2009 should not
be used as a proxy to forecast an impact
in 2015;
Š the impact of economic uncertainty on
the Company’s acquisition opportunities;
Š the impact of seasonality on financial
performance;
Š outlook regarding vehicle sales in Canada
in 2015;
Š the impact of the decline in the exchange
rate of the Canadian dollar to the US
dollar;
Š expectations to incur operating losses
over the first year of operations at North
Edmonton Kia and the reasons for this;
Š expectations to continue to drive higher
volume over the coming months at North
Edmonton Kia;
Š expectations of capital costs related to
currently awarded open points;
Š expectations that re-imaging will attract
more customers to its dealerships;
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:
Š no significant adverse changes to the
automotive market, competitive
conditions, the supply and demand of
vehicles, parts and service, and finance
and insurance products;
Š no significant construction delays that
may adversely affect the timing of
dealership relocations and renovations;
Š no significant disruption of our operations
such as may result from harsh weather,
natural disaster, accident, civil unrest, or
other calamitous event;
Š no significant unexpected technological
event or commercial difficulties that
adversely affect our operations;
Š continuing availability of economical
capital resources; demand for our
products and our cost of operations;
Š our belief that improvements in
Š no significant adverse legislative and
technology and process in its parts and
service departments will continue to
produce results;
Š estimates regarding additional legal and
administration expense for each
acquisition; and
Š the impact on the Company as a result of
the lower oil prices and any related
expectations.
regulatory changes;
Š stability of general domestic economic,
market, and business conditions;
Š assumptions regarding other automobile
manufacturer agreements; and
Š assumptions regarding provincial
government regulations in jurisdictions in
which we do not operate.
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
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
Page 42 Š AutoCanada Š 2014 Annual Report
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:
Š rapid appreciation or depreciation of the
Canadian dollar relative to the U.S. dollar;
Š a sustained downturn in consumer
demand and economic conditions in key
geographic markets;
Š adverse conditions affecting one or more
of our automobile manufacturers;
Š the ability of consumers to access
automotive loans and leases;
Š competitive actions of other companies
and generally within the automotive
industry;
Š our dependence on sales of new vehicles
to achieve sustained profitability;
Š levels of unemployment in our markets
and other macroeconomic factors;
Š our suppliers ability to provide a desirable
mix of popular new vehicles;
Š the ability to continue financing inventory
under similar interest rates;
Š our suppliers ability to continue to
provide manufacturer incentive programs;
Š the loss of key personnel and limited
management and personnel resources;
Š the ability to refinance credit agreements
in the future;
Š changes in applicable environmental,
taxation and other laws and regulations as
well as how such laws and regulations are
interpreted and enforced
Š risks inherent in the ability to generate
sufficient cash flow from operations to
meet current and future obligations; and
Š the ability to obtain automotive
manufacturers’ approval for acquisitions.
The Company’s most recent 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.
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 recoveries
which are non-cash in nature and can vary
significantly depending upon accounting methods
or non-operating factors such as historical cost.
AutoCanada Š 2014 Annual Report Š Page 43
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.
Adjusted EBITDA
Adjusted EBITDA is an indicator of a company’s
operating performance and ability to incur and
service debt prior to recognizing the portion of
share-based compensation related to changes in
the share price and its impact on the Company’s
cash-settled portions of its share-based
compensation programs. The Company considers
this expense to be non-cash in nature as we
maintain a share purchase trust in which we
purchase shares on the open market as these units
are granted to reduce the cash flow risk associated
with fluctuations in the share price. Share-based
compensation, a component of employee
remuneration, can vary significantly with changes
in the price of the Company’s common shares. The
Company believes adjusted EBITDA provides
improved continuity with respect to the
comparison of our operating results over a period
of time.
Adjusted net earnings and Adjusted net earnings
per share
Adjusted net earnings and adjusted net earnings
per share are measures of our profitability.
Adjusted net earnings is calculated by adding back
the after-tax effect of impairment or reversals of
impairment of intangible assets, impairments of
goodwill, and the portion of share-based
compensation related to changes in the share price
and its impact on the Company’s cash-settled
portions of its share-based compensation
programs. The Company considers this expense to
be non-cash in nature as we maintain a share
purchase trust in which we purchase shares on the
open market as these units are granted to reduce
the cash flow risk associated with fluctuations in
the share price. Share-based compensation, a
component of employee remuneration, can vary
significantly with changes in the price of the
Company’s common shares. Adding back these
amounts to net earnings allows management to
assess the net earnings of the Company from
ongoing operations. Adjusted net earnings per
Page 44 Š AutoCanada Š 2014 Annual Report
share is calculated by dividing adjusted net
earnings by the weighted-average number of
shares outstanding.
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.
Adjusted pre-tax earnings
Adjusted pre-tax earnings are calculated by adding
back the impairment or reversals of impairment of
intangible assets and impairments of goodwill.
Adding back these non-cash charges to pre-tax net
earnings allows management to assess the pre-tax
net earnings of the Company from ongoing
operations.
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, reinvestment
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 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
floorplan 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
AutoCanada Š 2014 Annual Report Š Page 45
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.
Page 46 Š AutoCanada Š 2014 Annual Report
AutoCanada Inc.
Consolidated Financial Statements
December 31, 2014
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, 2014 and
December 31, 2013 and the consolidated statements of comprehensive income, changes in equity and cash
flows for the years then ended, 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 audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide
a basis for our audit opinion.
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, 2014 and December 31, 2013 and their
financial performance and their cash flows for the years then ended in accordance with International
Financial Reporting Standards.
Chartered Accountants
March 19, 2015
Edmonton, Canada
Page 48 Š AutoCanada Š 2014 Annual Report
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 7)
Cost of sales (Note 8)
Gross profit
Operating expenses (Note 9)
Operating profit before other income (expense)
Lease and other income, net
Loss on disposal of assets, net
Recovery of impairment of intangible assets (Note 22)
Income from investments in associates (Note 15)
Operating profit
Finance costs (Note 11)
Finance income (Note 11)
Net income for the year before taxation
Income tax (Note 12)
Net and comprehensive income for the year
Net and comprehensive income for the year attributable to:
AutoCanada shareholders
Non-controlling interests
Net earnings per share attributable to AutoCanada shareholders
Basic
Diluted
Weighted average shares
Basic
Diluted
December 31,
2014
$
December 31,
2013
$
2,214,778
(1,841,629)
373,149
(290,904)
1,409,040
(1,163,005)
246,035
(188,519)
82,245
5,524
(183)
1,767
3,490
92,843
(20,363)
2,147
74,627
18,335
56,292
53,132
3,160
56,292
2.31
2.30
57,516
–
(210)
746
2,241
60,293
(9,618)
1,187
51,862
13,696
38,166
38,166
–
38,166
1.83
1.83
23,018,588
20,868,726
23,139,403
20,934,828
The accompanying notes are an integral part of these consolidated financial statements.
Approved on behalf of the Company:
Gordon R. Barefoot, Director
Michael Ross, Director
AutoCanada Š 2014 Annual Report Š Page 49
AutoCanada Inc.
Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
ASSETS
Current assets
Cash and cash equivalents (Note 17)
Trade and other receivables (Note 18)
Inventories (Note 19)
Current portion of finance lease receivables (Note 20)
Other current assets
Property and equipment (Note 21)
Investments in associates (Note 15)
Intangible assets (Note 22)
Goodwill (Note 22)
Long-term portion of finance lease receivables (Note 20)
Other long-term assets (Note 24)
LIABILITIES
Current liabilities
Bank indebtedness (Note 17)
Trade and other payables (Note 25)
Revolving floorplan facilities (Note 26)
Current tax payable
Vehicle repurchase obligations (Note 27)
Current indebtedness (Note 26)
Current portion of redemption liabilities (Notes 13 & 14)
Long-term indebtedness (Note 26)
Deferred income tax (Note 12)
Redemption liabilities (Notes 13 & 14)
EQUITY
Attributable to AutoCanada shareholders
Attributable to Non-controlling interests
December 31,
2014
$
December 31,
2013
$
72,462
92,138
563,277
3,537
5,166
736,580
214,938
–
356,612
29,620
10,292
6,713
1,354,755
2,181
82,670
527,780
9,708
1,539
4,651
7,665
636,194
223,009
24,963
34,133
918,299
381,428
55,028
436,456
1,354,755
35,113
57,771
278,091
–
1,603
372,578
122,915
13,131
96,985
6,672
–
6,797
619,078
–
50,428
264,178
4,906
1,398
2,866
–
323,776
83,580
21,480
–
428,836
190,242
–
190,242
619,078
Commitments and contingencies (Note 28)
The accompanying notes are an integral part of these consolidated financial statements.
Page 50 Š AutoCanada Š 2014 Annual Report
AutoCanada Inc.
Consolidated Statements of Changes in Equity
For the Years Ended
(in thousands of Canadian dollars)
Attributable to AutoCanada shareholders
Share
capital
$
232,938
–
Contributed
surplus
$
Accumulated
deficit
$
Total
$
Non-
controlling
interests
$
Total
Equity
$
4,758
–
(47,454) 190,242
53,132
53,132
– 190,242
56,292
3,160
Balance, January 1, 2014
Net and comprehensive income
Dividends declared on common
shares (Note 30)
Non-controlling interests arising on
business combinations and
acquisitions (Notes 13 & 14)
Recognition of redemption liability
granted to non-controlling
interests (Notes 13 & 14)
–
–
–
Dividends declared by subsidiaries to
non-controlling interests (Note 16)
Common shares issued (Note 30)
Treasury shares acquired (Note 30)
Shares settled from treasury
(Note 30)
Share-based compensation
–
203,655
(2,776)
755
–
Balance, December 31, 2014
434,572
–
–
–
–
–
–
(760)
723
4,721
(21,745)
(21,745)
–
(21,745)
–
–
52,309
52,309
(41,798)
(41,798)
–
(41,798)
–
–
– 203,655
(2,776)
–
–
–
(5)
723
(441)
(441)
– 203,655
(2,776)
–
–
–
(5)
723
(57,865) 381,428
55,028 436,456
Attributable to AutoCanada shareholders
Balance, January 1, 2013
Net and comprehensive income
Dividends declared on common
shares (Note 30)
Common shares issued (Note 30)
Treasury shares acquired (Note 30)
Shares settled from treasury
(Note 30)
Share-based compensation
Share
capital
$
189,500
–
–
43,811
(579)
206
–
Balance, December 31, 2013
232,938
Contributed
surplus
$
Accumulated
deficit
$
Total
capital
$
4,423
–
(69,423) 124,500
38,166
38,166
–
–
–
(240)
575
4,758
(16,197)
–
–
(16,197)
43,811
(579)
–
–
(34)
575
Non-
controlling
interests
$
Equity
$
– 124,500
38,166
–
–
–
–
–
–
(16,197)
43,811
(579)
(34)
575
(47,454) 190,242
– 190,242
The accompanying notes are an integral part of these consolidated financial statements.
AutoCanada Š 2014 Annual Report Š Page 51
AutoCanada Inc.
Consolidated Statements of Cash Flows
For the Years Ended
(in thousands of Canadian dollars)
Cash provided by (used in):
Operating activities
Net and comprehensive income
Income taxes (Note 12)
Amortization of prepaid rent
Depreciation of property and equipment (Note 21)
Loss on disposal of assets
Recovery of impairment of intangible assets (Note 22)
Share-based compensation – equity-settled
Share-based compensation – cash-settled
Income from investment in associates (Note 15)
Income taxes paid
Gain on embedded derivative
Net change in non-cash working capital (Note 33)
Investing activities
Business acquisitions, net of cash acquired (Note 13)
Investments in associates (Note 15)
Dividends received from investments in associates (Note 15)
Combination of entities under common control (Note 14)
Purchases of property and equipment (Note 21)
Proceeds on sale of property and equipment
Proceeds on divestiture of dealership
Reduction in restricted cash
Financing activities
Proceeds from long-term indebtedness
Repayment of long-term indebtedness
Common shares repurchased (Note 30)
Dividends paid (Note 30)
Dividends paid to non-controlling interests by subsidiaries (Note 16)
Proceeds from issuance of common shares (Note 30)
Proceeds from senior unsecured notes (Note 26)
Increase in cash
Cash and cash equivalents at beginning of year (Note 17)
Cash and cash equivalents at end of year (Note 17)
December 31,
2014
$
December 31,
2013
$
56,292
18,335
452
13,624
183
(1,767)
723
(487)
(3,490)
(16,824)
(243)
4,339
71,137
(269,983)
(43,900)
1,458
4,699
(23,441)
32
–
–
(331,135)
770,449
(787,945)
(2,776)
(21,745)
(441)
191,262
146,362
295,166
35,168
35,113
70,281
38,166
13,696
452
6,346
210
(746)
575
2,054
(2,241)
(10,559)
–
(9,968)
37,985
(65,368)
(7,057)
897
–
(67,105)
3,304
1,354
10,000
(123,975)
241,287
(181,757)
(513)
(16,197)
–
43,811
–
86,631
641
34,472
35,113
The accompanying notes are an integral part of these consolidated financial statements.
Page 52 Š AutoCanada Š 2014 Annual Report
AutoCanada Inc.
Notes to the Financial Statements
For the Years Ended December 31, 2014 and 2013
(in thousands of Canadian dollars except for share and per share amounts)
1
General Information
3
Significant Accounting Policies
AutoCanada Inc. (“AutoCanada” or the
“Company”) is incorporated in 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, Saskatchewan, Manitoba, Ontario,
Quebec, 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
These consolidated financial statements have
been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as
issued by International Accounting Standards
Board (“IASB”) and Canadian Generally
Accepted Accounting Principles (“GAAP”) as
set out in the CPA Canada Handbook –
Accounting (“CPA Handbook”).
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 for
issue by the Board of Directors on March 19,
2015.
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 all
financial assets and financial liabilities to fair
value, including derivative instruments,
redemption liabilities and liabilities for
cash-settled share-based payment
arrangements.
Principles of consolidation
The consolidated financial statements
comprise the financial statements of
AutoCanada and its subsidiaries. Subsidiaries
are all entities over which the Company has
control. For accounting purposes, control is
established by an investor when it is exposed
to, or has rights to, variable returns from its
involvement with the entity and has the ability
to affect those returns through its power over
the entity. Subsidiaries are fully consolidated
from the date control is transferred to the
Company, and are no longer consolidated on
the date control ceases.
Non-controlling interests represent equity
interests in subsidiaries owned by outside
parties. The share of net assets of subsidiaries
attributable to non-controlling interests is
generally presented as a component of equity;
in situations where the non-controlling interest
holder has a contractual right to require the
Company to repurchase the interest, it is
presented as a liability.
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.
AutoCanada Š 2014 Annual Report Š Page 53
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 consolidated
statement of comprehensive income.
Transaction costs are expensed as incurred.
Investments in associates
An associate is an entity over which the
Company has significant influence, but not
control, generally accompanying a
shareholding of between 20% and 50% of the
voting rights, but with considerations over the
relationships between the investors and the
investees. Investments in associates are
accounted for using the equity method of
accounting. Under the equity method, the
investment is initially recognized at cost, and
the carrying amount is increased or decreased
to recognize the investor’s share of the profit
or loss of the investee after the date of
acquisition. The Company’s investment in
associates includes goodwill identified on
acquisition.
If the ownership interest in an associate is
reduced but significant influence is retained,
only a proportionate share of the amounts
previously recognized in other comprehensive
income is reclassified to profit or loss, where
appropriate.
The Company’s share of post-acquisition profit
or loss is recognized in the income statement,
and its share of post-acquisition movements in
other comprehensive income is recognized in
other comprehensive income with a
corresponding adjustment to the carrying
amount of the investment. When the Company’s
share of losses in an associate equals or exceeds
its interest in the associate, including any other
Page 54 Š AutoCanada Š 2014 Annual Report
unsecured receivables, the Company does not
recognize further losses, unless it has incurred
legal or constructive obligations or made
payments on behalf of the associate.
The Company determines at each reporting
date whether there is any objective evidence
that the investment in associate is impaired. If
this is the case, the Company calculates the
amount of impairment as the difference
between the recoverable amount of the
associate and its carrying value and recognizes
the amount adjacent to its share of profit or
loss of the associate in the consolidated
statement of comprehensive income.
Profits and losses resulting from upstream and
downstream transactions between the
Company and its associate are recognized in
the Company’s financial statements only to the
extent of unrelated investors’ interests in the
associate. Unrealized losses are eliminated
unless the transaction provides evidence of an
impairment of the assets transferred.
Accounting policies of associates have been
changed where necessary to ensure
consistency with the policies adopted by the
Company. Dilution gains and losses arising
from the investment in the associate are
recognized in the consolidated statement of
comprehensive income.
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. It
excludes sales related taxes and
intercompany transactions.
Revenue is recognized when the risks and
rewards of ownership have been
transferred to the customer, 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.
(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.
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 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:
Š are generally recognized for all
taxable temporary differences; and
Š are not recognized on temporary
differences that arise from goodwill
which is not deductible for tax
purposes.
Deferred tax assets:
Š are recognized to the extent it is
probable that taxable profits will be
available against which the deductible
temporary differences can be utilized;
and
Š 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.
(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.
Manufacturer incentives and other rebates
Various incentives from manufacturers are
received based on achieving certain objectives,
AutoCanada Š 2014 Annual Report Š Page 55
such as specified sales volume targets. These
incentives are typically based upon units sold
to retail or fleet customers. These
manufacturer incentives are recognized as a
reduction of new vehicle cost of sales when
earned, generally at the latter of the time the
related vehicles are sold or upon attainment of
the particular program goals.
Manufacturer rebates to our dealerships and
assistance for floorplan interest are reflected as
a reduction in the carrying value of each
vehicle purchased by us. These incentives are
recognized as a reduction to the cost of sales
as the related vehicles are sold.
Advertising
Manufacturer advertising rebates that are
reimbursements of costs associated with
specific advertising expenses are earned in
accordance with the respective manufacturers’
reimbursement-based advertising assistance
programs, which is typically after the
corresponding advertising expenses have been
incurred, and are reflected as a reduction in
advertising expense included in administrative
costs as an operating expense in the
consolidated Statement of Comprehensive
Income.
Financial instruments
Financial assets and financial liabilities are
recognized on the consolidated Statement of
Financial Position when the Company becomes
a party to the contractual provisions of the
financial instrument. All financial instruments
are required to be measured at fair value on
initial recognition. The Company’s own credit
risk and the credit risk of the counter-party are
taken into consideration in determining the fair
value of financial assets and financial liabilities.
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.
Page 56 Š AutoCanada Š 2014 Annual Report
Cash and cash equivalents
Cash and cash equivalents include amounts on
deposit with financial institutions and amounts
with the Bank of Nova Scotia (“Scotiabank”)
that are readily available to the Company (See
Note 23 – Financial instruments – Credit risk for
explanation of credit risk associated with
amounts held with Scotiabank).
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 consolidated Statement of
Comprehensive Income 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 consolidated
Statement of Comprehensive Income.
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 carried 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 depreciation 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 depreciation are reviewed, and
adjusted if appropriate, at each financial year
end. Land is not depreciated. Other than as
noted below, depreciation 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:
Machinery and equipment
Furniture, fixtures and other
Company & lease vehicles
Computer hardware
20%
20%
30%
30%
Buildings are depreciated on a straight-line
basis over the estimated useful lives of the
buildings. Useful lives are determined based on
independent appraisals.
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
depreciated using the straight-line method
over the life of the lease.
Depreciation of leased vehicles is based on a
straight line depreciation 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 determine whether
depreciation rates are reasonable.
Intangible assets and goodwill
(a) 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:
Š Certain of our dealer agreements
continue indefinitely by their terms;
and
Š 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
accumulated 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.
(b) Goodwill
Goodwill represents the excess of the
consideration transferred, the amount of
any non-controlling interest in the acquiree
and the acquisition date fair value of any
previous equity interest in the acquiree
over the fair value of the identifiable net
assets of the acquired subsidiary at the
date of acquisition. Goodwill is tested
annually for impairment, or more
frequently if events or changes in
circumstances indicate a potential
impairment, and is carried at cost less
AutoCanada Š 2014 Annual Report Š Page 57
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.
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:
Š Our dealer agreements with indefinite
lives are subject to an annual
impairment assessment. For purposes
of impairment testing, the fair value of
our dealer agreements is determined
using a combination of a discounted
cash flow approach and earnings
multiple approach.
Š 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
Page 58 Š AutoCanada Š 2014 Annual Report
an operating segment before
aggregation. Goodwill is allocated to
those CGU’s that are expected to
benefit from the business combination
in which the goodwill arose.
Trade and other payables
Trade and other payables are obligations to
pay for goods or services that have been
acquired in the ordinary course of business.
Trade and other 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 represent liabilities 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
Lease obligations 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 leases
Leases in which substantially all the risks
and rewards of ownership are transferred
are classified as finance leases.
The Company as a lessor:
When assets are leased out under a finance
lease, the present value of the lease
payments is recognised as a receivable.
The difference between the gross
receivable and the present value of the
receivable is recognised as unearned
finance income.
The method for allocating gross earnings
to accounting periods is referred to as the
“actuarial method”. The actuarial method
allocates rentals between finance income
and repayment of capital in each
accounting period in such a way that
finance income will emerge as a constant
rate of return on the lessor’s net
investment in the lease.
The Company as a lessee:
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 leases
Leases in which a significant portion of the
risks and rewards of ownership are
retained by the lessor are classified as
operating leases.
The Company as a lessor:
When assets are leased out under an
operating lease, the asset is included in the
balance sheet based on the nature of the
asset. Lease income on operating leases is
recognised over the term of the lease on a
straight-line basis.
The Company as a lessee:
Payments under an operating lease (net of
any incentives received from the lessor)
are recognized on a straight-line basis over
the period of the lease.
Redemption liabilities
The potential cash payments related to put
options issued by the Company over the equity
of subsidiary companies are accounted for as
financial liabilities when such options may only
be settled other than by exchange of a fixed
amount of cash, or another financial asset, or
for a fixed number of shares in the subsidiary.
The amount that may become payable under
the option on exercise is initially recognised at
fair value within redemption liabilities with a
corresponding charge directly to equity
attributable to AutoCanada shareholders.
Subsequently, if the Company revises its
estimates, the carrying amount of the
redemption liability is adjusted and the
adjustment will be recognised as income or
expenses in the consolidated statement of
comprehensive income. Options that are not
exercisable for at least one year from the
balance sheet date are presented as non-
current liabilities.
Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the
issue of new ordinary shares or options are
shown in equity as a deduction, net of tax,
from the proceeds. Where any group company
purchases the Company’s equity share capital
(treasury shares), the consideration paid,
including any directly attributable incremental
costs (net of income taxes) is deducted from
equity attributable to the Company’s
shareholders until the shares are cancelled or
reissued. Where such ordinary shares are
subsequently reissued, any consideration
received, net of any directly attributable
incremental transaction costs and the related
income tax effects, is included in equity
attributable to the Company’s shareholders.
Dividends
Dividends on common shares are recognized in
the Company’s consolidated financial
statements in the period the dividends are
declared by the Company’s board of directors.
AutoCanada Š 2014 Annual Report Š Page 59
Earnings per share
Basic earnings per share is computed based on
the weighted average number of common
shares outstanding during the period. Diluted
earnings per share is computed using the
treasury stock method, which assumes that the
cash that would be received on the exercise of
options is applied to purchase shares at the
average price during the period and that the
difference between the number of shares
issued on the exercise of options and the
number of shares obtainable under this
computation, on a weighted average basis, is
added to the number of shares outstanding.
Antidilutive options are not considered in
computing diluted earnings per share.
Changes in accounting policies
The Company has adopted the following
interpretation, along with any consequential
amendments, effective January 1, 2014. These
changes were made in accordance with the
applicable transitional provisions:
Š IFRIC 21, Levies, requires the Company to
consider certain government imposed
payments, or levies, such as property tax,
to determine whether the obligating
event requiring recognition of a liability
arises at a point in time, or over a period
of time. The adoption of IFRIC 21 did not
require any current or retrospective
adjustments at January 1, 2014.
New accounting policies
During the year ended December 31, 2014 the
Company adopted the following accounting
policies:
Š Acquisition of entities under common
control. There is currently no guidance in
IFRS on the accounting treatment for
business combinations among entities
under common control. The Company has
elected to apply the predecessor values
method upon the date of acquisition. As
such, all assets and liabilities of the
acquiree are incorporated by the acquirer
at their predecessor carrying values and
no fair value adjustments are recorded.
No goodwill arises from the transaction. In
the financial statements the acquired
entities’ financial results and balance
sheets are consolidated on the date of
acquisition, with prospective application.
The critical judgments as it pertains to
this policy is further described in Note 5.
Š IFRS 17, Leases, requires lessors to
recognize assets held under a finance
lease in their statements of financial
position and present them as a receivable
at an amount equal to the net investment
in the lease. They are initially recognized
at amounts equal to the present value of
the minimum lease payments receivable.
Payments considered to be part of the
leasing arrangement are apportioned
between a reduction in the finance lease
receivable and finance lease income.
Finance lease income is recognized in a
manner that produces a constant rate of
return on the Company’s investment in
the lease and is included in revenue.
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, 2014. The standards issued that
are applicable to the Company are as follows:
Š 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, 2018, with earlier adoption
permitted.
Š IFRS 15, Revenue from Contracts with
Customers – in May 2014, the IASB issued
IFRS 15, which supersedes IAS 18,
Revenue, IAS 11, Construction Contracts,
and other interpretive guidance
associated with revenue recognition.
Page 60 Š AutoCanada Š 2014 Annual Report
IFRS 15 provides a single model to
determine how and when an entity should
recognize revenue, as well as requiring
entities to provide more informative,
relevant disclosures in respect of its
revenue recognition criteria. IFRS 15 is to
be applied prospectively and is effective
for annual periods beginning on or after
January 1, 2017, with earlier application
permitted.
The Company is in the process of evaluating
the impact that the new standards may have
on the financial statements.
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.
Company may record impairment charges
in the future.
The Company tests, at least annually,
whether intangible assets and goodwill
have 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 (see Note 22).
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.
Critical estimates and assumptions in
determining the value of assets and liabilities:
Redemption liabilities
Intangible assets and goodwill
Intangible assets and goodwill generally
arise from 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
Redemption liabilities arise during business
combinations where non-controlling
interest shareholders have the right to
require the Company to redeem their
equity interests in certain non-wholly
owned subsidiaries (See Note 16). The
redemption amounts are determined with
reference to the future profitability
generated by those subsidiaries and their
operating businesses. The Company will
initially recognise a financial liability at the
present value of the estimated redemption
amount, and at the end of each subsequent
reporting period, the Company will revisit
their estimates. If the Company revises its
estimates, the Company will adjust the
carrying amount of the financial liability to
reflect revised estimated profitability and
the adjustments will be recognised as
income or expenses in the consolidated
statement of comprehensive income.
AutoCanada Š 2014 Annual Report Š Page 61
Prior to the secondary offering, the CEO
was considered to have de facto control
over AutoCanada, which was considered
an overarching factor in concluding that he
also controlled the investees. The loss of
de facto control over AutoCanada changed
the Company’s assessment with respect to
a number of factors, including those listed
above. As a result of its assessment,
management has concluded that, as of
July 11, 2014, the Company has power over
its investees, and has consolidated the
results of its investees on a common
control basis using the predecessor values
method. (See Note 14).
Effective January 1, 2015, Priestner
transitioned out of the role of CEO and into
the role of Executive Chair and remains an
employee of the Company. The Company
has assessed that this change does not
change the nature of his relationship with
the Company. Should the nature of the
relationship and/or the relevant
agreements between Priestner and the
Company change in the future, this
assessment would need to be further
evaluated.
Combinations with entities under common
control
There is currently no guidance in IFRS on
the accounting treatment for business
combinations among entities under
common control. As such, the Company
has elected to consolidate the assets and
liabilities of the investees using the
predecessor values method on a
prospective basis. The application of this
method applies the concept of IAS 8
Accounting Policies, Changes in Estimates,
and Errors whereby if no applicable
standard or interpretation exists, then
management must develop a policy that is
relevant to the decision-making needs of
the users, and that is reliable.
Critical judgments in applying accounting
policies:
Investments in associates
When assessing control over an investee,
an investor considers the nature of its
relationship with other parties and whether
those other parties are acting on the
investor’s behalf; that is, acting as a de
facto agent. The determination of whether
other parties are acting as de facto agents
requires judgment, considering not only
the nature of the relationship but also how
those parties interact with each other and
the investor.
On July 11, 2014, Canada One Auto Group
Ltd. (“COAG”), a company controlled by
Mr. Patrick Priestner (“Priestner”), the Chief
Executive Officer (“CEO”) of the Company,
completed a secondary offering of shares
in AutoCanada held by COAG and its
subsidiaries. As a result of the transaction,
COAG reduced its ownership interest in
AutoCanada to 9.6% of the outstanding
common voting shares. This caused the
Company to re-evaluate its significant
judgment dealing with the accounting for
its investments in associates (the
“investees”). Since the Company does not
hold voting shares in the investees, the
Company evaluated whether it exercised
power over the investees through a de
facto agency relationship with its then
CEO.
The following facts were considered to
assess the relationship between
AutoCanada and its then CEO:
Š The Company has the ability to
control the decision making of the
CEO by virtue of the employment
agreement with the CEO. Should the
CEO no longer be employed by the
Company, this assessment would need
to be further evaluated.
Š The directors and officers of the
investees are related parties to the
Company; and
Š The Company is involved in the
operational decision making of its
investees.
Page 62 Š AutoCanada Š 2014 Annual Report
6
Segment information
9 Operating expenses
Operating segments are reported in a manner
consistent with the internal reporting provided
to the Chief Operating Decision Maker
(“CODM”), the Company’s CEO, 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.
7 Revenue
New vehicles
Used vehicles
Finance, insurance and other
Parts, service and collision
repair
8 Cost of sales
New vehicles
Used vehicles
Finance, insurance and other
Parts, service and collision
repair
2014
$
1,342,346
495,352
121,373
2013
$
882,858
300,881
82,958
255,707
142,343
2,214,778 1,409,040
2014
$
1,236,344
465,851
12,293
2013
$
807,023
280,608
6,786
127,141
68,588
1,841,629 1,163,005
Employee costs (Note 10)
Administrative costs (1)
Facility lease costs
Depreciation of property and
equipment (Note 21)
2014
$
2013
$
186,161 121,854
48,571
11,748
77,478
13,641
13,624
6,346
290,904 188,519
(1) Administrative costs include professional fees,
consulting services, technology-related expenses,
selling and marketing, and other general and
administrative costs.
10 Employees
Operating expenses incurred in respect of
employees were:
Wages, salaries and commissions
Withholding taxes and insurance
Employee benefits
Other benefits
2014
$
2013
$
170,804 113,417
5,196
3,241
–
8,040
6,677
640
186,161 121,854
11 Finance costs and finance income
Finance costs:
Interest on long-term indebtedness
Unrealized gain on embedded
derivative
Floorplan financing
Other interest expense
2014
$
2013
$
7,850
1,007
(243)
10,452
2,304
20,363
–
7,353
1,258
9,618
Finance income:
Short-term bank deposits
(2,147)
(1,187)
Cash interest paid during the year ended
December 31, 2014 was $20,605
(2013 – $9,556).
AutoCanada Š 2014 Annual Report Š Page 63
12 Taxation
Components of income tax expense were as follows:
Current tax
Deferred tax
Total income tax expense
Factors affecting tax expense for the year:
Comprehensive income before taxes
Comprehensive income before tax multiplied by the standard rate of Canadian corporate tax of
25.8% (2013 – 25.7%)
Effects of:
Impact of non-deductible (non-taxable) items
Change in deferred tax rate
Difference between future and current rate
Reversal of deferred tax on outside basis of equity investments
Other, net
Total income tax expense
2014
$
2013
$
21,610 11,478
2,218
(3,275)
18,335 13,696
2014
$
2013
$
74,627 51,863
19,276 13,329
(259)
60
16
(754)
(4)
209
(91)
(52)
–
301
18,335 13,696
Page 64 Š AutoCanada Š 2014 Annual Report
The movements of deferred tax assets and liabilities are shown below:
Deferred tax assets (liabilities)
January 1, 2013
(Expense) benefit to consolidated
statement of comprehensive
income
Deferred tax acquired on acquisition
December 31, 2013
Benefit (expense) to consolidated
statement of comprehensive
income
Deferred tax acquired on acquisition
Deferred tax acquired on combination
of entities under common control
Measurement period adjustment
Deferred tax on share issuance costs
Other
Deferred
income from
partnerships
$
Property and
equipment
$
Goodwill and
intangible
assets
$
Restricted
partnership
losses
$
Other
$
Total
$
(8,309)
203
(6,637)
–
(66)
(14,809)
(981)
–
(9,290)
2,702
–
–
–
–
–
(928)
–
(725)
2,886
–
–
–
–
–
(11)
(4,453)
(11,101)
(2,473)
(5,090)
(5,920)
2,416
–
–
(321)
–
(321)
23
–
(2,218)
(4,453)
(43)
(21,480)
321
–
(161)
–
3,275
(5,090)
–
–
–
–
–
–
–
1,820
16
(5,920)
2,416
1,820
16
1,632 (24,963)
December 31, 2014
(6,588)
2,161
(22,168)
Changes in the deferred income tax components are adjusted through deferred tax expense. Of the
above components of deferred income taxes, $6,588 of the deferred tax liabilities are expected to be
recovered within 12 months. The increase in standard rate of Canadian corporate tax is due to the
expansion of the Company to a new jurisdiction with a higher tax rate, and a small increases in the
corporate tax rate in one jurisdiction in which the Company operates. The Company applies a blended
rate in determining its overall income tax expense.
13 Business acquisitions
Dodge City
During the year ended December 31, 2014, the
Company completed eight business
acquisitions comprising thirteen automotive
dealerships, including fifteen franchises. All
acquisitions have been accounted for using the
acquisition method. Acquisitions completed
during this period are as follows:
BMW Canbec and MINI Mont Royal
On June 1, 2014, the Company purchased 100%
of the voting shares of Automobile Canbec Inc.
(“BMW Canbec”), which owns and operates a
BMW franchise and a MINI franchise, both
located in Montreal, Quebec, for total cash
consideration of $27,000. The acquisition was
funded by drawing on the Company’s
revolving term facility. The purchase of this
business is the Company’s first BMW and MINI
franchises and first dealership in Quebec.
On June 16, 2014, the Company purchased
substantially all of the operating and fixed
assets of Dodge City Auto 1984 Ltd. (“Dodge
City”), in Saskatoon, Saskatchewan, for total
cash consideration of $34,229. The acquisition
was financed by drawing on the Company’s
revolving term facility. The purchase of this
business complements the Company’s other
Chrysler dealerships and further expands its
presence in Saskatoon, Saskatchewan.
Hyatt Group of Dealerships
Between the period of June 23, 2014 and July 1,
2014, the Company purchased all of the
operating and fixed assets of 678938 Alberta
Ltd. (“Calgary Hyundai”), 1446691 Alberta Ltd.
(“Crowfoot Hyundai”), 998699 Alberta Ltd.
(“Hyatt Mitsubishi”), 588338 Alberta Ltd.
AutoCanada Š 2014 Annual Report Š Page 65
(“Northland Volkswagen”), 969642 Alberta
Ltd. (“Fish Creek Nissan”), and 1791109 Alberta
Ltd. (“Hyatt Infiniti”), herein referred to as (the
“Hyatt Group”), located in Calgary, Alberta, for
total cash consideration of $91,389. The initial
purchase price of the Hyatt Group was
financed by drawing on the Company’s
revolving term facility. In addition, the
Company issued 18,753 common shares at a
deemed price of $79.99 per share (for total
consideration of $1,500) on July 1, 2014 as
consideration for the purchase of the exclusive
right to build and operate a Nissan motor
vehicle franchise on a designated property in
southeast Calgary. The purchase of the Hyatt
Group complements the Company’s existing
and open point brands and expands its
presence in Calgary, Alberta.
Tower Chrysler
On August 18, 2014, the Company purchased
substantially all of the operating and fixed
assets of Tower Chrysler Plymouth Ltd.
(“Tower Chrysler”), in Calgary, Alberta, for total
cash consideration of $20,438. The acquisition
was financed by drawing on the Company’s
revolving term facility. The purchase of this
business complements the Company’s other
Chrysler dealerships and further expands its
presence in Calgary, Alberta.
Lakewood Chevrolet
On September 2, 2014, the Company
purchased a 75% non-voting equity interest in
the shares of Lakewood Chevrolet
(“Lakewood”), a Chevrolet dealership located
in Edmonton, Alberta, for total cash
consideration of $19,800. The acquisition was
financed with cash from operations. To comply
with GM Canada’s approval, Priestner is
required to have 100% voting control of
Lakewood.
In accordance with the terms of the ownership
structure for GM dealerships approved by GM
Canada, the Company purchased a 75%
non-voting equity interest, with Priestner being
named Dealer Operator, personally holding a
15% equity interest and 100% voting control of
the dealership. The remaining 10% equity
interest is held by the dealership’s general
Page 66 Š AutoCanada Š 2014 Annual Report
manager. The transaction was reviewed and
approved by the Company’s independent
members of its Board of Directors. The
purchase of this business complements the
Company’s other General Motors dealerships
and further expands its presence in Edmonton,
Alberta.
As part of the acquisition agreement, the
non-controlling interest has an option to put
the shares back to Lakewood at any time
following the expiry of 36 months from the
acquisition date. As a result, this interest has
been recorded as a liability carried at fair value.
The Company also purchased the dealership
land and facility through a wholly-owned
subsidiary, Lakewood Properties Inc., for
$19,000. Of the $1,200 goodwill purchased on
the acquisition of the land and building, 17%, or
$204, was purchased by Priestner.
Toronto Chrysler
On October 20, 2014, the Company purchased
substantially all of the operating and fixed
assets of Toronto Dodge Chrysler Ltd.
(“Toronto Chrysler”), in Toronto, Ontario, for
total cash consideration of $2,159. The
acquisition was financed with cash from
operations. The purchase of this business
complements the Company’s other Chrysler
dealerships and further expands its presence in
the greater Toronto area.
Bridges Chevrolet
On November 24, 2014, the Company, through
an 80% owned subsidiary, NBFG Holdings Inc.
(“NBFG”), purchased the assets of Bridges
Chevrolet Buick GMC Ltd. (“Bridges
Chevrolet”), a Chevrolet dealership located in
North Battleford, Saskatchewan, for total cash
consideration of $4,577. The acquisition was
financed with cash from operations. To comply
with GM Canada’s approval, Priestner is
required to have 100% voting control of
Bridges Chevrolet.
In accordance with the terms of the ownership
structure for GM dealerships approved by GM
Canada, the Company purchased an 80%
non-voting equity interest, with Priestner,
being named Dealer Operator, personally
holding a 15% equity interest and 100% voting
control of the dealership. The remaining 5%
equity interest is held by minority shareholders.
The transaction was reviewed and approved
by the Company’s independent members of its
Board of Directors. The purchase of this
business complements the Company’s other
General Motors dealerships and further
expands its presence in Saskatchewan.
The Company also purchased the dealership
land and facility through a wholly-owned
subsidiary, NBFG Properties Inc., for $3,000.
BMW Laval and MINI Laval
On December 15, 2014, the Company, through
an 85% owned subsidiary, AutoCanada B
Holdings Inc., purchased the assets of Auto
Boulevard St. Martin Inc. (“BMW Laval”) which
owns and operates a BMW franchise and a
MINI franchise, both located in Laval, Quebec,
for total cash consideration of $22,516 and
contingent consideration with a present value
of $2,353. The acquisition was financed with
cash from operations. The purchase of this
business complements the Company’s other
BMW/MINI franchises and further expands its
presence in Quebec.
As part of the transaction, the Company
entered into an agreement with the former
majority owner of BMW Laval, whereby he
retained the remaining ownership interest in
the two Laval franchises as well as acquired a
15% ownership interest in BMW Canbec from
the Company for cash consideration. The
non-controlling interest in BMW Canbec at the
date of the transaction was equal to $2,729.
In addition to the business, the Company also
purchased the land and a building used for
business operations through a wholly-owned
subsidiary, LMB Properties Inc., for $31,233.
Recognition of redemption liabilities
During the year $8,687 of redemption liabilities
were recognized in connection with the
business acquisitions completed. These
liabilities relate to put options held by certain
non-controlling interests.
AutoCanada Š 2014 Annual Report Š Page 67
The business acquisitions completed during the year ended December 31, 2014 are summarized as
follows:
BMW
Canbec
$
Dodge
City
$
Hyatt
Group
$
Tower
Chrysler
$
Lakewood
Chevrolet
$
Toronto
Chrysler
$
Bridges
Chevrolet
$
BMW
Laval
$
Total
$
–
3
2
2
2,350
–
1
2
2,360
2,187
12,216
53
16,806
18,115
25,417
–
60,338
–
2,887
11,460
14,347
–
3,314
17,661
42,677
2,723
(6,804)
38,596
64
2,031
67
2,162
148
1,643
–
3,953
–
–
1,867
1,867
–
–
1,867
2,086
73
–
2,159
71
14,091
3,729
1,576 36,386 158,411
839
14
12
1,660 40,131 175,701
3,236 32,890
68,757
3,625 18,042 185,373
435
423
–
8,521 91,486 430,266
–
175
–
3,112
1,435
9,611
– 31,191 138,587
175 34,303 149,633
–
–
415
–
415
5,090
175 34,718 155,138
8,346 56,768 275,128
14,700
3,724
(12,338)
(4,390)
375
(1,144)
7,577 56,102 277,490
Goodwill arose on these acquisitions due to the
potential future revenue growth and synergies
expected to occur. Goodwill generated on the
acquisitions of BMW Canbec and Lakewood
Chevrolet is not deductible for tax purposes.
The Company used the fair value method to
measure the non-controlling interest, resulting
in goodwill including both the non-controlling
interests’ share and the parent’s share of
goodwill.
Current assets
Cash and cash equivalents
Trade and other
receivables
Inventories
Other current assets
Long term assets
Property and equipment
Intangible assets
Other long-term assets
6,715
512
25,504 16,075
121
312
693
48,448
223
120
16,175
37
32,531 16,711
49,366
16,334
4,096
6,489
15,078 24,494
–
12
1,439
82,415
–
2,344
14,659
–
Total assets
51,717 47,694 133,220
33,337
Current liabilities
Bank indebtedness
Trade and other payables
Revolving floorplan facility
Long term liabilities
Long-term indebtedness
Deferred income tax
1,435
2,113
–
658
22,092 13,313
–
348
44,569
–
318
14,095
25,640 13,971
44,917
14,413
–
1,776
–
–
–
–
–
–
Total liabilities
27,416 13,971
44,917
14,413
Net assets acquired
Goodwill
Non-controlling interest
24,301 33,723
506
–
2,699
–
88,303
3,086
–
18,924
1,514
–
Total net assets acquired
27,000 34,229
91,389
20,438
Acquisitions completed during the year ended
December 31, 2014 generated revenue and net
earnings of $329,775 and $11,270, respectively,
since the time of acquisition. The purchase
prices allocated, as presented above, are
estimates and subject to change due to
finalization of the associated allocations.
Acquisition related costs of $1,629 have been
charged to administrative expenses in the
consolidated statement of comprehensive
income for the year ended December 31, 2014.
The full amount of acquired receivables is
expected to be collected.
Page 68 Š AutoCanada Š 2014 Annual Report
The following table summarizes the
consideration paid for the Company’s business
acquisitions for the year ended December 31,
2014:
Consideration
Cash
Equity instruments (18,753 Class A common
shares)
Contingent consideration
Total consideration
273,637
1,500
2,353
277,490
Prior year business acquisitions
During the year ended December 31, 2013, the
Company completed four business acquisitions
comprising five automotive dealerships,
including five franchises. All acquisitions have
been accounted for using the acquisition
method. Acquisitions completed during this
period are as follows:
Grande Prairie Volkswagen
On January 4, 2013, the Company purchased
substantially all of the operating and fixed
assets of People’s Automotive Ltd. (“Grande
Prairie Volkswagen”) for total cash
consideration of $1,981. The acquisition was
funded by drawing on the Company’s VCCI
facilities in the amount of $1,413 and the
remaining $568 was financed with cash from
operations. The purchase of this business
complements the Company’s other dealerships
in Grande Prairie. In addition to the business,
the Company also purchased land and a
building used for business operations for
$1,800.
St. James Audi and Volkswagen
On April 1, 2013, the Company purchased the
shares of The St. James Group of Companies
(“St. James”), which owns and operates an
Audi and a Volkswagen franchise in Winnipeg,
Manitoba, for total cash consideration of
$22,831, which includes $9,307 paid for real
estate assets. The acquisition was financed
with cash from operations and the revolving
term facility. The purchase of this business
complements the Company’s other
Volkswagen franchises and is the Company’s
first Audi franchise.
Courtesy Chrysler
On July 1, 2013, the Company purchased
substantially all of the operating and fixed
assets, except real estate, of Courtesy Chrysler
Dodge (1987) (“Courtesy Chrysler”) for total
cash consideration of $17,167. The acquisition
was financed with cash from operations and
the revolving term facility. The purchase of this
business complements the Company’s other
Chrysler franchises and is the Company’s first
dealership in Calgary, Alberta.
Eastern Chrysler
On September 9, 2013, the Company
purchased substantially all of the operating
and fixed assets of Eastern Chrysler Plymouth
Inc. (“Eastern Chrysler”) for total cash
consideration of $15,349. The acquisition was
financed with cash from operations. The
purchase of this business complements the
Company’s other Chrysler franchises and
further expands its presence in Winnipeg,
Manitoba. In addition to the business, the
Company also purchased land and a building
used for business operations for $6,560.
AutoCanada Š 2014 Annual Report Š Page 69
The business acquisitions completed during the year ended December 31, 2013 are summarized as
follows:
Grande Prairie
Volkswagen
$
St. James Audi
and Volkswagen
$
Courtesy
Chrysler
$
Eastern
Chrysler
$
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Long term assets
Property and equipment
Intangible assets
Total assets
Current liabilities
Trade and other payables
Revolving floorplan facility
Long term liabilities
Deferred income tax
Total liabilities
Net assets acquired
Goodwill
Total net assets acquired
–
16
1,777
–
1,793
1,897
100
3,790
9
–
9
–
9
3,781
–
3,781
316
1,779
9,323
138
11,556
10,668
8,602
30,826
1,214
8,147
9,361
3,185
12,546
18,280
4,551
22,831
2
581
21,065
4
21,652
731
15,520
37,903
351
20,558
20,909
995
21,904
15,999
1,168
17,167
Total
$
320
2,851
40,263
144
43,578
2
475
8,098
2
8,577
13,527
5,799
26,823
30,021
27,903 100,422
225
5,970
6,195
372
6,567
21,336
573
21,909
1,799
34,675
36,474
4,552
41,026
59,396
6,292
65,688
Acquisitions completed during the year ended December 31, 2013 generated revenue and net earnings
of $113,879 and $4,496, respectively, during the year of acquisition. The purchase prices allocated, as
presented above, are the original estimates and subject to change due to finalization of the associated
allocations. During 2014 an adjustment of $2,416 to the purchase price was recorded to reflect a
reduction in deferred tax liability acquired. As a result Goodwill related to the 2013 acquisitions has
decreased by $2,416 and is reflected in Note 22. Acquisition related costs of $453 were charged to
administrative expenses in the consolidated statement of comprehensive income for the year ended
December 31, 2013.
Goodwill arose on these acquisitions due to the potential future revenue growth and synergies
expected to occur. Goodwill generated on these acquisitions is not deductible for tax purposes.
14 Business combination under common control
Subsequent to the secondary offering
completed on July 11, 2014 (see Note 30), the
Company has consolidated its investments in
associates, comprising six automotive
dealerships (see Note 15), as a common control
business combination using the predecessor
values method (see Note 5).
The combining entities are ultimately
controlled by the same parties prior and
subsequent to the business combination, which
is considered a transaction under common
control. The Company elected to apply
predecessor accounting to the transaction and,
as such, all assets and liabilities are
incorporated by the Company at their
predecessor carrying values and no fair value
adjustments are recorded. No goodwill arose
as a result of the transaction. The combination
was applied on a prospective basis. The
Company used the fair value method to
measure the non-controlling interests, as a
result goodwill recorded includes both the
non-controlling interests’ share and the
parent’s share of the goodwill which was
created on the date of the initial investment.
Page 70 Š AutoCanada Š 2014 Annual Report
The business combination under common
control as at July 11, 2014 is summarized as
follows:
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Long term assets
Property and equipment
Intangible assets
Finance lease receivables
Goodwill
Other long-term assets
Total assets
Current liabilities
Trade and other payables
Revolving floorplan facility
Due to related parties
Long term liabilities
Long-term indebtedness
Provisions and other non-current liabilities
Deferred income tax
Total liabilities
Net assets acquired
Non-controlling interest
Total net assets acquired
Total
$
4,699
17,541
82,454
700
105,394
12,920
72,487
9,242
10,664
640
211,347
11,966
75,277
2,968
90,211
9,823
15
5,920
105,969
105,378
(37,242)
68,136
Business combinations under common control
during the year ended December 31, 2014
generated revenue and net earnings of $250,866
and $10,273, respectively, since the time of
acquisition.
Recognition of redemption liabilities
During the year $33,111 of redemption liabilities
were recognized in connection with the business
combination under common control. These
liabilities relate to put options held by certain
non-controlling interests.
15 Investments in associates
Dealer Holdings Ltd.
During 2012, the Company acquired a 60.8%
participating, non-voting common share
interest in Dealer Holdings Ltd. (“DHL”). DHL is
an entity formed between a subsidiary of
AutoCanada and Priestner. DHL was formed to
acquire General Motors of Canada (“GM
Canada”) franchised dealerships, whereby
Priestner is required to maintain voting control
of the dealerships, in accordance with the
agreement with GM Canada. All shareholders
participate equally in the equity and economic
risks and rewards of DHL and its interests,
based on the percentage of ownership. The
investment in DHL was reviewed and approved
by the independent members of AutoCanada’s
Board of Directors. DHL’s principal place of
business is Alberta, Canada.
During 2012, DHL acquired a 51% voting equity
interest in Nicholson Chevrolet (now operating
as Sherwood Park Chevrolet) and a 51% voting
equity interest in Petersen Buick GMC (now
operating as Sherwood Buick GMC), both
dealerships are located in Sherwood Park,
Alberta. As part of the acquisition agreement,
the non-controlling interest has an option to
put the shares back to Sherwood Park
Chevrolet, Sherwood Park GMC commencing
January 1, 2017. As a result of DHL’s
investments, the Company indirectly acquired
a 31% interest in Sherwood Park Chevrolet and
a 31% interest in Sherwood Park GMC.
Green Isle G Auto Holdings Inc.
On March 1, 2013, the Company invested a total
of $7,057 to acquire an 80.0% participating,
non-voting common share interest in Green Isle
G Auto Holdings Inc. (“Green Isle”). Green Isle
is an entity formed between a subsidiary of
AutoCanada and Priestner. Green Isle was
formed to acquire General Motors of Canada
(“GM Canada”) franchised dealerships,
whereby Priestner is required to maintain
voting control of the dealerships, in
accordance with the agreement with GM
Canada. All shareholders participate equally in
the equity and economic risks and rewards of
AutoCanada Š 2014 Annual Report Š Page 71
Green Isle and its interests, based on the
percentage of ownership. The investment in
Green Isle was reviewed and approved by the
independent members of AutoCanada’s Board
of Directors. Green Isle’s principal place of
business is British Columbia, Canada.
On March 1, 2013, a subsidiary of Green Isle
acquired 100% of the operating assets of Peter
Baljet Chevrolet Buick GMC (“Peter Baljet”) in
Duncan, British Columbia.
Prairie Auto Holdings Ltd.
On March 10, 2014, the Company invested a
total of $41,651, consisting of $32,578 in cash
and 205,000 common shares of AutoCanada
issued (at a value of $9,073) to acquire an
82.353% equity interest in Prairie Auto
Holdings Ltd. (“PAH”). PAH is an entity formed
between a subsidiary of AutoCanada and
Priestner. PAH was formed to acquire General
Motors of Canada (“GM Canada”) franchised
dealerships, whereby Priestner is required to
maintain voting control of the dealerships, in
accordance with the agreement with GM
Canada. All shareholders participate equally in
the equity and economic risks and rewards of
PAH and its interests, based on the percentage
of ownership. The investment in PAH was
reviewed and approved by the independent
members of AutoCanada’s Board of Directors.
PAH’s principal place of business is
Saskatchewan, Canada.
On March 10, 2014, PAH acquired an 85%
equity interest in the shares of Saskatoon
Carrying value of Investments in Associates
Motor Products Ltd. (“SMP”), a Chevrolet
dealership in Saskatoon, Saskatchewan, and
Mann-Northway Auto Source (“MNAS”), a
Chevrolet Buick GMC Cadillac dealership in
Prince Albert, Saskatchewan. As part of the
acquisition agreement, the non-controlling
interest has an option to put the shares back to
SMP and MNAS at any time following the
expiry of 36 months from the acquisition date.
To comply with GM Canada’s approval,
Priestner is required to have 100% voting
control of PAH.
Waverley BG Holdings Ltd.
On April 1, 2014, the Company invested a total
of $11,322 to acquire an 80.0% participating,
non-voting common share interest in Waverley
BG Holdings Inc. (“WBG”). WBG is an entity
formed between a subsidiary of AutoCanada
and Priestner. WBG was formed to acquire
General Motors of Canada (“GM Canada”)
franchised dealerships, whereby Priestner is
required to maintain voting control of the
dealerships, in accordance with the agreement
with GM Canada. All shareholders participate
equally in the equity and economic risks and
rewards of WBG and its interests, based on the
percentage of ownership. The investment in
WBG was reviewed and approved by the
independent members of AutoCanada’s Board
of Directors. WBG’s principal place of business
is Manitoba, Canada.
On April 1, 2014, WBG acquired 100% of the
operating assets of McNaught Buick Cadillac
GMC (“McNaught”) in Winnipeg, Manitoba.
The following table summarizes the Company’s consolidated carrying value of its investments in
associates as at December 31, 2014:
Balance, beginning of the year
Investments during the year
Income from investment in associate
Dividends received
Combination of entities under common control (Note 14)
Balance, end of period
Page 72 Š AutoCanada Š 2014 Annual Report
DHL
$
5,361
–
835
(458)
(5,738)
Green
Isle
$
7,770
–
892
(1,000)
(7,662)
PAH
$
WBG
$
Total
$
–
41,651
1,317
–
(42,968)
–
11,322
446
–
(11,768)
13,131
52,973
3,490
(1,458)
(68,136)
–
–
–
–
–
The following table summarizes the Company’s consolidated carrying value of its investments in
associates as at December 31, 2013:
Balance, beginning of the year
Investment during the year
Income from investment in associate
Dividends received
Balance, end of period
Summarized financial information
DHL
$
Green Isle
$
4,730
–
1,224
(593)
–
7,057
1,017
(304)
Total
$
4,730
7,057
2,241
(897)
5,361
7,770
13,131
There are no investments in associates as at December 31, 2014. The following table summarizes the
financial information of the associates as at December 31, 2013:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Carrying
amount DHL
$
Carrying
amount
Green Isle
$
54,518
7,400
43,283
8,320
9,555
16,975
6,825
–
For the year ended December 31, 2013, on a consolidated basis, DHL generated revenue of $173,708
and total net income of $3,948. From the date of acquisition to December 31 2013, on a consolidated
basis, Green Isle generated revenue of $33,868 and total net comprehensive income of $1,271.
16 Interests in subsidiaries
The Company owns 100% of most subsidiaries, but also has a controlling interest in certain subsidiaries
that also have non-controlling interests held by other parties. The interests in these subsidiaries are
summarized as follows:
Subsidiary
Dealer Holdings Ltd.
Green Isle G Auto Holdings Inc.
Prairie Auto Holdings Ltd.
Waverley BG Holdings Inc.
LWD Holdings Ltd.
NBFG Holdings Inc.
AutoCanada B Holdings Inc.
Principal place of
business
Alberta
British Columbia
Saskatchewan
Manitoba
Alberta
Saskatchewan
Quebec
Proportion of
ownership
interests held by
non-controlling
interests
Proportion of
voting rights
held by non-
controlling
interests
Dividends paid
to non-
controlling
interests
$
69%
20%
30%
20%
25%
20%
15%
100%
100%
100%
100%
100%
100%
15%
385
56
–
–
–
–
–
AutoCanada Š 2014 Annual Report Š Page 73
DHL, Green Isle, WBG, NBFG and AutoCanada
B Holdings Inc. also have put options whereby
the non-controlling shareholders are able to
sell their shares back to the Company. These
put options are recognized as redemption
liabilities and measured at their fair value on
the statement of financial position as $41,798
(2013 – nil). The fair value is determined based
on the dealership equity value of the related
subsidiary (Note 34).
The underlying nature of the subsidiaries are
holding companies which hold automotive
dealerships. For purposes of disclosures, the
non-controlling interest profit and loss, and
accumulated non-controlling interest of the
subsidiaries at the end of the reporting period
are reported in aggregate as the subsidiaires
are similar in nature and risk based on
assessment of the interest and industry
classification.
17 Cash and cash equivalents
Cash at bank and on hand
Short-term deposits
Cash and cash equivalents (excluding bank indebtedness)
Bank indebtedness
Cash and cash equivalents
December 31,
2014
$
December 31,
2013
$
65,244
7,218
72,462
(2,181)
70,281
27,975
7,138
35,113
–
35,113
Short-term deposits includes cash held with Scotiabank. The Company’s revolving floorplan facility
agreements allow the Company to hold excess cash in accounts with Scotiabank, which is used to
offset finance costs on revolving floorplan facilities. The Company has immediate access to this cash
unless in default of the facilities, in which case the cash may be used by Scotiabank in repayment of
the facilities. See Note 23 for further detail regarding cash balances held with Scotiabank. The
remaining short-term deposits are term deposits that bear interest at 0.55%.
18 Trade and other receivables
Trade receivables
Less: Allowance for doubtful accounts
Net trade receivables
Other receivables
Trade and other receivables
December 31,
2014
$
December 31,
2013
$
87,336
(968)
86,368
5,770
92,138
55,707
(518)
55,189
2,582
57,771
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
Page 74 Š AutoCanada Š 2014 Annual Report
December 31,
2014
$
December 31,
2013
$
78,266
8,421
3,679
623
1,149
92,138
49,386
5,458
1,917
678
332
57,771
Included in the amounts greater than 120 days are amounts considered to be collectible. 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 no significant exposure to
any single customer and because customer creditworthiness is evaluated before credit is extended.
19 Inventories
New vehicles
Demonstrator vehicles
Used vehicles
Parts and accessories
December 31,
2014
$
December 31,
2013
$
427,341
26,452
84,349
25,135
563,277
224,373
9,375
33,454
10,889
278,091
During the year ended December 31, 2014,
$1,829,337 of inventory (2013 – $1,156,219) was
expensed as cost of sales which included
write-downs on used vehicles of $901
(2013 – $151). During the year ended
December 31, 2014, $3,176 of demonstrator
expense (2013 – $1,314) was included in
administrative costs. During the year ended
December 31, 2014, demonstrator reserves
increased by $1,984 (2013 – $740). As at
December 31, 2014, the Company had recorded
reserves for inventory write downs of $4,896
(2013 – $2,011).
20 Finance lease receivables
Current portion of finance lease receivables
Finance lease receivables
Unearned finance income – current
Long-term portion of finance lease receivables
Finance lease receivables
Unearned finance income – long-term
Gross receivables from finance leases:
No later than 1 year
Later than 1 year and no later than 5 years
Later than 5 years
Unearned future finance income on finance leases
Net investment in finance leases
Net investment in finance leases:
No later than 1 year
Later than 1 year and no later than 5 years
Later than 5 years
December 31,
2014
$
December 31,
2013
$
4,308
(771)
3,537
11,153
(861)
10,292
4,308
11,153
–
15,461
(1,632)
13,829
3,537
10,292
–
13,829
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
AutoCanada Š 2014 Annual Report Š Page 75
21 Property and equipment
Cost:
January 1, 2013
Capital expenditures
Acquisitions of dealership
assets
Acquisitions of real estate
Disposals
Transfers out of inventory, net
December 31, 2013
Capital expenditures
Acquisitions of dealership
assets
Acquisitions of real estate
Disposals
Transfers out of inventory, net
December 31, 2014
Accumulated
depreciation:
January 1, 2013
Depreciation
Disposals
Transfers out of inventory
December 31, 2013
Depreciation
Disposals
Transfers out of inventory
December 31, 2014
Carrying amount:
December 31, 2013
December 31, 2014
Company &
lease vehicles
$
Leasehold
Improvements
$
Machinery &
Equipment
$
Land &
buildings
$
Furniture,
fixtures &
other
$
Computer
hardware
$
Total
$
5,177
348
6,458
–
–
(1,164)
10,819
280
12,641
–
–
(4,825)
18,915
(1,521)
(1,729)
–
1,350
(1,900)
(4,168)
–
5,390
(678)
8,919
18,237
6,640
802
384
–
(586)
–
7,240
2,084
7,767
–
(35)
–
11,570
1,003
24,154
–
1,684
–
(459)
–
17,637
63,947
(3,248)
–
13,798 102,490
–
1,709
4,434
–
(209)
–
53,533
16,824
–
–
17,056
19,732 172,847
5,262
125
653
–
(158)
–
5,882
953
2,025
–
(294)
–
8,566
4,007 56,810
3,158
880
7 26,823
– 63,947
(4,629)
(1,164)
(178)
–
4,716 144,945
6,617
1,591
1,277 81,677
– 16,824
(783)
(4,825)
(245)
–
7,339 244,455
(2,532)
(695)
576
–
(2,651)
(1,310)
34
–
(3,927)
4,589
13,129
(6,845)
(1,376)
455
–
(7,766)
(1,735)
189
–
(1,699)
(1,410)
–
–
(3,109)
(4,852)
–
–
(3,046)
(559)
141
–
(3,464)
(733)
259
–
(2,654) (18,297)
(6,346)
1,263
1,350
(577)
91
–
(3,140) (22,030)
(826) (13,624)
747
5,390
265
–
(9,312)
(7,961)
(3,938)
(3,701) (29,517)
6,032
99,381
10,420 164,886
2,418
4,628
1,576 122,915
3,638 214,938
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.
Land and buildings with a carrying value of $42,575 (2013 – $6,960) are pledged as collateral against
bank borrowings.
Page 76 Š AutoCanada Š 2014 Annual Report
22 Intangible assets and goodwill
Intangible assets consist of rights under franchise agreements with automobile manufacturers
(“dealer agreements”).
Cost:
January 1, 2013
Acquisitions
Divestitures
December 31, 2013
Acquisitions
Business combination under common control
Measurement period adjustment
December 31, 2014
Accumulated impairment:
January 1, 2013
Recovery of impairment of intangible assets
Divestitures
December 31, 2013
Recovery of impairment of intangible assets
December 31, 2014
Carrying amount:
December 31, 2013
December 31, 2014
Intangible
assets
$
Goodwill
$
Total
$
74,004
30,021
(1,828)
102,197
185,373
72,487
–
380
6,292
–
6,672
14,700
10,664
(2,416)
74,384
36,313
(1,828)
108,869
200,073
83,151
(2,416)
360,057
29,620
389,677
7,600
(746)
(1,642)
5,212
(1,767)
3,445
–
–
–
–
–
–
7,600
(746)
(1,642)
5,212
(1,767)
3,445
96,985
356,612
6,672
29,620
103,657
386,232
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:
Cash
Generating Unit
December 31,
2014
$
December 31,
2013
$
Cash Generating
Unit
December 31,
2014
$
December 31,
2013
$
AJ
AE
AN
Y
AI
A
AF
AQ
V
Z
AM
AC
AA
27,807
25,733
25,417
24,494
21,809
21,687
20,384
18,044
15,520
15,077
14,658
12,496
11,431
– D
– B
– AG
– AB
– U
E
– AH
– W
15,520 AL
21,687
– C
– AP
–
– Other CGUs less
than $3,000
F
9,626
9,431
9,263
8,824
8,602
8,497
6,591
5,799
5,273
4,634
3,625
3,258
18,632
356,612
9,626
9,431
–
–
8,602
8,497
–
5,799
–
3,420
–
3,258
11,145
96,985
AutoCanada Š 2014 Annual Report Š Page 77
The following table shows the impairments
(recoveries) of impairment of indefinite-lived
identifiable intangible assets by cash
generating unit.
The valuation techniques, significant
assumptions and sensitivities applied in the
intangible assets impairment test are described
as follows:
Cash Generating Unit
December 31,
2014
$
December 31,
2013
$
C
J
L
R
X
Net recovery
(1,215)
–
–
(531)
(21)
(1,767)
250
955
(1,951)
–
–
(746)
The valuation methodology used to assess the
recoverable value of the CGUs uses level 2
inputs, indirectly derived from the market,
where possible, for key assumptions such as
the discount rate. Where level 2 inputs are not
available, as is the case with the growth rate,
the Company uses level 3 inputs, which are
unobservable to the market, but reflect
management’s best estimates from historical
performance and expectations for the future.
The following table shows the recoverable
amounts of CGUs with impairments or
recoveries of impairments recorded in either
the current year or prior year:
Cash Generating Unit
December 31,
2014
$
December 31,
2013
$
C
J
L
R
X
5,302
–
2,514
1,678
3,769
4,145
133
4,391
123
1,773
Impairment test of indefinite life intangible
assets
The Company performed its annual test for
impairment at December 31, 2014. As a result
of the test performed, the Company recorded
a recovery of previous impairment in the
amount of $1,767 for the year ended
December 31, 2014 (2013 – $746).
Page 78 Š AutoCanada Š 2014 Annual Report
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.
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 5.5 to
8.0 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 applied 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.
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 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 2.5%
of the estimated purchase price in
developing an estimate of costs to sell,
based on historical transactions.
AutoCanada Š 2014 Annual Report Š Page 79
Additional Assumptions
The key assumptions used in performing the impairment test, by CGU, were as follows:
A
B
C
D
E
F
J
U
V
W
Y
Z
AA
AB
AC
AE
AF
AG
AH
AI
AJ
AL
AM
AN
AP
AQ
CGUs less than 3,000, combined
Basis of
Recoverable
Amount
Discount
Rate
Perpetual
Growth Rate
FVLCS
FVLCS
VIU
FVLCS
FVLCS
FVLCS
FVLCS
FVLCS
FVLCS
FVLCS
FVLCS
VIU
FVLCS
FVLCS
VIU
FVLCS
VIU
VIU
FVLCS
FVLCS
VIU
FVLCS
FVLCS
FVLCS
VIU
FVLCS
11.63%
11.93%
11.33%
12.23%
12.53%
11.63%
11.33%
11.03%
11.63%
11.33%
11.93%
11.03%
11.33%
11.63%
11.63%
11.03%
11.63%
11.63%
11.63%
11.63%
11.63%
11.93%
11.93%
11.93%
11.63%
11.03%
FVLCS/VIU 10.88-12.53%
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
2.00
Sensitivity
The recoverable amount for the CGUs that
were in excess of their carrying values was
212% of the carrying values of the applicable
CGUs based on a weighted average. As there
are CGUs that have intangible assets with
original costs that exceed their current year
carrying values, the Company expects future
impairments and recoveries of impairments to
occur as market conditions change and risk
premiums used in developing the discount rate
change.
Based on sensitivity analysis, no reasonably
possible change in key assumptions would
cause the recoverable amount of any CGU to
have a significant change from its current
valuation. 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.
Page 80 Š AutoCanada Š 2014 Annual Report
23 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
Current portion of finance lease receivables
Long-term portion of finance lease receivables
Financial liabilities
Current indebtedness
Long-term indebtedness
Revolving floorplan facilities
Trade and other payables
Current portion of redemption liabilities
Redemption liabilities
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.
Foreign Currency Risk
Foreign currency risk arises from
fluctuations in foreign exchange rates and
December 31,
2014
$
December 31,
2013
$
72,462
92,138
3,537
10,292
4,651
223,009
527,780
82,670
7,665
34,133
35,113
57,771
–
–
2,866
83,580
264,178
50,428
–
–
the degree of volatility of these rates
relative to the Canadian dollar. The
Company is not significantly exposed to
foreign currency risk with respect to its
financial instruments as it engages in
minimal transactions denominated in
currencies other than the Canadian dollar.
Interest Rate Risk
The Company’s exposures to interest rates
on financial assets and financial liabilities
are detailed in the liquidity risk
management section of this note as well as
the indebtedness note (see Note 26). 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 the absolute
change to the reported account, an
increase in the basis point would result in a
positive amount and a decrease in the basis
point would result in a negative amount. A
100 basis point change and 200 basis point
change is used when reporting interest risk
AutoCanada Š 2014 Annual Report Š Page 81
internally to key management personnel
and represents management’s assessment
of the possible change in interest rates.
+/- 200 Basis Point +/- 100 Basis Point
2014
$
Finance costs
Finance income
11,544
143
Credit Risk
2013
$
6,899
135
2014
$
5,772
72
2013
$
3,450
68
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. 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 disclosed in
Note 18.
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 doubtful accounts, details of which are
disclosed in Note 18.
Concentration of cash and cash equivalents
exist due to the significant amount of cash held
with Scotiabank (see Note 17 for further
discussion of the Company’s concentration of
cash held on deposit with Scotiabank). The
syndicated revolving floorplan facility (see
Note 26) allows our dealerships to hold excess
cash (used to satisfy working capital
requirements of our various OEM partners) in
an account with Scotiabank which bears
interest at 2.43% at December 31, 2014. 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 facility. As a result,
there is a concentration of cash balances risk
to the Company in the event of a default under
the facility.
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.
Page 82 Š AutoCanada Š 2014 Annual Report
The following tables detail the Company’s remaining contractual maturity for its financial liabilities. The
amounts below have been determined 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.
December 31, 2014
Trade and other payables
Revolving floorplan facilities
Redemption liabilities
Senior unsecured notes
HSBC revolving term facility
Vehicle repurchase obligations
RBC lease financing
Scotiabank lease financing
BMO lease financing
Servus mortgage
VCCI mortgage
BMW mortgage
Other long-term debt
Contractual interest payable
December 31, 2013
Trade and other payables
Revolving floorplan facilities
HSBC revolving term facility
HSBC ATB syndicated facility
HSBC fixed rate term loan
BMO fixed rate term loan
Vehicle repurchase obligations
Servus mortgage
Contractual interest payable
2015
$
2016
$
2017
$
2018
$
Thereafter
$
Total
$
82,670
527,780
7,665
–
–
1,539
2,690
422
352
230
56
742
159
–
–
–
–
–
–
–
– 34,133
–
–
–
– 38,925
–
–
–
–
2,454
2,690
2,690
63
197
364
45
352
352
258
248
239
56
56
56
797
768
737
16
1,439
1,556
11,739 11,614 11,491 10,240
–
–
–
149,739
–
–
–
–
–
4,811
869
17,879
–
34,306
82,670
527,780
41,798
149,739
38,925
1,539
10,524
1,046
1,101
5,786
1,093
20,923
3,170
79,390
636,044 17,608 51,374 52,854
207,604
965,484
2014
$
2015
$
2016
$
2017
$
Thereafter
$
Total
$
50,428
264,178
–
–
– 40,124
– 35,251
2,764
–
–
230
1,696
176
2,469
1,398
221
2,649
–
–
–
–
–
–
–
239
830
–
–
–
–
–
–
–
248
785
–
50,428
– 264,178
40,124
–
35,251
–
2,940
–
2,469
–
1,398
–
6,006
5,068
12,093
6,133
321,519 80,065
1,069
1,033
11,201 414,887
AutoCanada Š 2014 Annual Report Š Page 83
24 Other long-term assets
Prepaid rent
Other assets
25 Trade and other payables
Trade payables
Accruals and provisions
Sales tax payable
Wages and withholding taxes payable
December 31,
2014
$
December 31,
2013
$
6,205
508
6,713
6,742
55
6,797
December 31,
2014
$
December 31,
2013
$
42,378
9,983
4,413
25,896
82,670
26,479
7,008
1,354
15,587
50,428
The following table provides a continuity schedule of all recorded provisions:
January 1, 2013
Provisions arising during the year
Amounts expired or disbursed
December 31, 2013
Provisions arising during the year
Amounts expired or disbursed
December 31, 2014
Finance
and
insurance(a)
$
1,053
1,131
(636)
1,548
1,374
(921)
2,001
Other
$
551
689
(273)
967
228
(784)
Total
$
1,604
1,820
(909)
2,515
1,602
(1,705)
411
2,412
(a) Represents an estimated chargeback reserve provided by the Company’s third party underwriter of finance and
insurance products.
Page 84 Š AutoCanada Š 2014 Annual Report
26 Indebtedness
This note provides information about the contractual terms of the Company’s interest-
bearing debt, which is measured at amortized cost. For more information about the
Company’s exposure to interest rate, foreign currency and liquidity risk, see Note 23.
Revolving floorplan facilities
Revolving floorplan facilities – Syndicate (i)
Revolving floorplan facilities – VCCI (ii)
Revolving floorplan facilities – BMW Financial (iii)
Revolving floorplan facilities – RBC (iv)
Revolving floorplan facilities – Scotiabank (v)
Indebtedness
Senior unsecured notes (vi)
Senior unsecured notes
Embedded derivative
Unamortized deferred financing costs
HSBC revolving term facility (vii)
HSBC revolving term facility
Unamortized deferred financing costs
Other long-term debt:
HSBC non-revolving fixed term loan
HSBC non-revolving term facility
Lease financing – RBC (viii)
Lease financing – Scotiabank (ix)
Lease financing – BMO (x)
Servus mortgage (xi)
VCCI mortgage (xii)
BMW mortgage (xiii)
Other long-term debt
Total indebtedness
Current indebtedness
Long-term indebtedness
December 31,
2014
$
December 31,
2013
$
340,829
27,625
66,017
78,431
14,878
527,780
149,739
18
(3,444)
146,313
38,925
(1,221)
37,704
–
–
10,524
1,046
1,101
5,786
1,093
20,923
3,170
227,660
4,651
223,009
248,329
15,849
–
–
–
264,178
–
–
–
–
40,124
(344)
39,780
2,940
35,251
–
–
–
6,006
–
–
2,469
86,446
2,866
83,580
Terms and conditions of outstanding loans are
as follows:
i
On April 23, 2014, the Company increased
its existing syndicated floorplan credit
facility (the “Facility”) with Scotiabank and
the Canadian Imperial Bank of Commerce
(“CIBC”) with Scotiabank serving as
administrative agent to the Facility, by
$200,000. The availability of the facility is
now $550,000. All significant terms and
conditions of the previous facility remain
unchanged. The Facility bears a rate of
Bankers’ Acceptance plus 1.15% (2.63% as
at December 31, 2014) per annum. The
Facility is collateralized by each individual
dealership’s inventories that are directly
financed by Scotiabank, a general security
agreement with each dealership financed,
and a guarantee from AutoCanada
Holdings Inc., a subsidiary of the Company.
The financial covenants and repayment
AutoCanada Š 2014 Annual Report Š Page 85
ii
terms of the Facility remain consistent with
the Company’s previous floorplan facility
with Scotiabank.
The revolving floorplan facilities (“VCCI
facilities”) are available from VW Credit
Canada, Inc. (“VCCI”) to finance new and
used vehicles for all of the Volkswagen and
Audi dealerships. The VCCI facilities bear
interest at the greater of Royal Bank of
Canada (“RBC”) prime rate for new
vehicles and RBC prime rate plus
0.25-1.00% for used vehicles (RBC prime
rate was 3.00% at December 31, 2014). The
maximum amount of financing provided by
the VCCI facilities is $44,980. The VCCI
facilities are collateralized by all of the
dealerships’ assets financed by VCCI and
all cash and other collateral in the
possession of VCCI and a general security
agreement over the Volkswagen and Audi
dealerships. The individual notes payable
of the VCCI facilities are due when the
related vehicle is sold.
iii The Company signed Inventory Financing
and Security Agreements (the “BMW
Facilities”) with BMW Financial Services
Canada (“BMW Financial”), a division of
BMW Canada Inc., to finance new, used,
demo and mobility vehicles for the BMW
and MINI dealerships. The BMW Facilities
have a current advance limit of $100,850.
The BMW Facilities bear a variable interest
rate of prime minus 0.40% per 360-day
annum (2.60% at December 31, 2014). The
BMW Facilities are collateralized by the
dealerships’ movable and immovable
property. The agreements require the
Company to maintain certain working
capital ratios.
iv The Royal Bank of Canada (“RBC”)
provides floorplan financing for new, used
and demo vehicles for six of the
Company’s General Motors dealerships
(the “RBC Facilities”). The RBC Facilities
bear interest rates of RBC’s Cost of Funds
Rate (1.920% as at December 31, 2014) plus
0.00%-1.35% and provide a maximum
amount of financing of $115,746. The RBC
Facilities are collateralized by the new,
used, and demo inventory financed by RBC
Page 86 Š AutoCanada Š 2014 Annual Report
v
and a general security agreement from the
General Motors dealerships financed by
RBC.
Scotiabank provides floorplan financing for
new, used and demo vehicles for two of
the Company’s General Motors dealerships
(the “Scotiabank Facilities”). The
Scotiabank Facilities bear interest rates of
Scotia Fixed Flooring Rate (1.35% at
December 31, 2014) plus 0.93%-1.70% and
provide a maximum amount of financing of
$32,400. The Scotiabank Facilities are
collateralized by the new, used, and demo
inventory financed by Scotiabank and a
general security agreement from the
Company’s General Motors dealerships
financed by Scotiabank.
vi On May 22, 2014 the Company completed
a private offering of $150,000 5.625%
Senior Unsecured Notes due May 25, 2021
(the “Notes”). The Notes were issued at
par. Interest is payable semi-annually on
May 15 and November 15 of each year the
Notes are outstanding. In connection with
the issuance of the Notes, the Company
incurred issue costs of $3,638 which were
recorded as a deduction from the carrying
amount of the long-term debt. The
proceeds from the Notes were used to
repay the Company’s revolving term
facility. The Notes agreement contains
certain redemption options whereby the
Company can redeem all or part of the
Notes at prices set forth in the agreement
from proceeds of equity offering or
following certain dates specified in the
agreement. In addition, the Note holders
have the right to require the Company to
redeem the Notes or a portion thereof, at
the redemption prices set forth in the
agreement in the event of change in
control or in the event certain asset sale
proceeds are not re-invested in the time
and manner specified in the agreement.
These redemption features constitute
embedded derivatives that are required to
be separated from the Notes and
measured at fair value. The embedded
derivative components of these compound
financial instruments are measured at fair
value at each reporting date with gains or
losses in fair value recognized through
profit or loss.
vii On May 22, 2014, the Company amended
the existing Credit Agreement with HSBC
Bank Canada (“HSBC”) Alberta Treasury
Branches (“ATB”), and RBC, with HSBC
acting as administrative agent to the Credit
Agreement. The revised Credit Agreement
provides the Company with a $200,000
revolving operating facility that may be
used for general corporate purposes,
including repayment of existing
indebtedness, funding working capital
requirements, capital expenditures and
financing acquisitions.
Fees and interest on borrowings under the
Credit Agreement are subject to a pricing
grid whereby the pricing level is
determined by the leverage ratio. Based on
the Company’s Leverage Ratio, as defined
by the Lender, the interest rate on the loan
ranges from HSBC’s prime rate plus 0.75%
to HSBC’s prime rate plus 2.00%. As at
December 31, 2014, the Company is in the
second of five tiers of the pricing grid, with
the second tier providing interest rates of
HSBC’s prime rate plus 1.50% (4.50% at
December 31, 2014). Amounts drawn under
the Credit Agreement as at December 31,
2014 are due May 22, 2018 and may be
extended annually for an additional 364
days at the request of the Company and
upon approval by the lenders. The Credit
Agreement is collateralized by all of the
present and future assets of AutoCanada
Holdings Inc., a subsidiary of AutoCanada
Inc., and all of its subsidiaries. As part of a
priority agreement signed by HSBC,
Scotiabank, VCCI, BMW Financial, and the
Company, the collateral for the Credit
Agreement excludes all new, used and
demo inventory financed with Scotiabank,
VCCI, RBC and BMW Financial revolving
floorplan facilities.
viii RBC provides financing for the lease
vehicles of two of the Company’s GM
dealerships (the “RBC lease financing”).
The RBC lease financing bear interest rates
of RBC’s CF Rate (1.920% at December 31,
2014) and provide a maximum amount of
financing of $13,000 repayable over the
terms of the contract in varying amounts
of principal. The RBC lease financing are
collateralized by the lease vehicles under
the related lease agreements.
ix Scotiabank provides financing for the lease
x
vehicles of one of the Company’s GM
dealerships (the “Scotiabank lease
financing”). The Scotiabank lease financing
bear interest rates of Scotiabank’s Cost of
Funds Rate plus 1.25% (4.18% at
December 31, 2014) and provide a
maximum amount of financing of $2,000
repayable over the terms of the contract in
varying amounts of principal. The
Scotiabank lease financing is collateralized
by the lease vehicles under the related
lease agreement.
The Bank of Montreal (“BMO”) provides
financing for the lease vehicles of one of
the Company’s GM dealerships (the “BMO
lease financing”). The BMO lease financing
bear interest rates of BMO’s Dealership
Finance Base Rate plus 1.65%
(3.32%-3.80%, depending on term, at
December 31, 2014) and provides financing
of $1,101 repayable over the terms of the
contract in varying amounts of principal.
The BMO lease financing is collateralized
by a general security agreement, a
standard fixed rate prepayment
agreement, and a priority agreement with
General Motors Acceptance Corporation
and other secured lenders.
xi Servus Credit Union provides the Company
with a mortgage (the “Servus Mortgage”).
The Servus Mortgage bears a fixed annual
rate of 3.90% and is repayable with
monthly blended installments of $38,
originally amortized over a 20 year period
with term expiring September 27, 2017.
The Servus Mortgage requires certain
reporting requirements and financial
covenants and is collateralized by a
general security agreement consisting of a
first fixed charge over the property. At
December 31, 2014, the carrying amount of
the property was $9,579.
xii VCCI provides the Company with a
mortgage (the “VCCI Mortgage”), which
AutoCanada Š 2014 Annual Report Š Page 87
bears interest at a floating rate of interest
per annum equal to the Royal Bank of
Canada’s prime rate plus 0.50% (3.50% at
December 31, 2014). The VCCI Mortgage is
repayable with fifty-nine equal blended
monthly payments of $8 amortized over a
twenty year period with term expiring in
April 2019. The VCCI Mortgage has certain
reporting requirements and financial
covenants and is collateralized by a
general security agreement consisting of a
first fixed charge over the property. At
December 31, 2014, the carrying amount of
the property was $1,815.
xiii BMW Financial provides the Company with
a mortgage (the “BMW Mortgage”), which
bears a fixed rate of interest per annum of
3.80%. The BMW Mortgage is repayable
with sixty equal blended monthly
payments of $124, amortized over a twenty
year period with term expiring on
December 31, 2019. The BMW Mortgage
has certain reporting requirements and is
collateralized by the property and any
other present and future property, rights
and assets, movable or immovable, and a
general security agreement consisting of a
first fixed charge over the property. At
December 31, 2014, the carrying amount of
the property was $31,181.
27 Vehicle repurchase obligations
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.
28 Commitments and contingencies
Commitments
The Company has operating lease
commitments, with varying terms through
Page 88 Š AutoCanada Š 2014 Annual Report
2037, to lease premises used for business
purposes. The Company leases certain lands
and buildings used in its franchised automobile
dealership operations from related parties
(Note 32) and other third parties. The future
aggregate minimum lease payments under
non-cancelable operating leases are as follows:
2015
2016
2017
2018
2019
Thereafter
December 31,
2014
$
16,785
16,401
15,104
12,605
10,596
107,235
178,726
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.
Letters of guarantee
The Company has outstanding letters of
guarantee totaling $470 as at December 31,
2014 (2013 – $510) with various due dates. The
Company will settle obligations as they arise
for which these letters have been issued as
security and it is not the Company’s intent that
draws will be made on these letters.
Capital Commitments
At December 31, 2014, the Company is
committed to capital expenditure obligations
in the amount of $39,691 (2013 – nil).
29 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 grants RSUs 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. The RSUs granted
are scheduled to vest evenly over three years
conditional upon continued employment with
the Company.
The following table shows the change in the number of RSUs for the years ended:
Outstanding, beginning of the year
Settled – equity
Settled – cash
Granted
Dividends reinvested
Outstanding, end of the year
2014
Number of
RSUs
2014
Amount
$
2013
Number of
RSUs
2013
Amount
$
107,680
(26,222)
(22,026)
23,823
1,517
84,772
2,559
(1,345)
(1,106)
1,148
68
1,324
92,710
(16,131)
(19,344)
47,608
2,837
107,680
1,599
(281)
(302)
1,413
130
2,559
Deferred Share Units (DSUs)
Independent members of the Board of
Directors are paid a portion of their annual
retainer in the form of DSUs. They may also
elect to receive up to 100% of their remaining
cash remuneration in the form of DSUs. The
underlying security of DSUs are the Company’s
common shares and are valued based on the
Company’s average share price for the five
business days prior to the date on which
Directors’ fees are paid. The DSUs are also
entitled to earn additional units based on
dividend payments made by the Company and
the share price on date of payment. The DSUs
granted are scheduled to vest upon the
termination date of the Director, at which time,
the DSUs will be settled in cash no earlier than
the termination date and no later than
December 15 of the calendar year following the
Director’s termination date.
AutoCanada Š 2014 Annual Report Š Page 89
The following table shows the change in the number of DSUs:
Outstanding, beginning of the year
Settled
Granted
Dividends reinvested
Impact of movements in share price
Outstanding, end of the year
30 Share capital
2014
Number of
DSUs
2014
Amount
$
2013
Number of
DSUs
2013
Amount
$
12,184
(838)
5,017
249
–
16,612
559
(37)
223
11
(17)
739
3,435
–
8,515
234
–
12,184
53
–
391
11
104
559
Common shares of the Company are voting shares and have no par value. The authorized common
share capital is an unlimited number of shares.
The following table shows the common shares issued from January 1, 2014 to December 31, 2014:
Acquisition of Prairie Auto Holdings Ltd. (Note 15)
Acquisition of Hyatt Group (Note 13)
Public offering(a)
March 10, 2014
July 1, 2014
July 11, 2014
Number $/share Amount
205,000
18,753
2,565,000
2,788,753
44.26
79.99
78.00
9,073
1,500
193,082
203,655
(a) Share issuance amount is net of issuance costs of $8,808 and future income tax on the issuance costs of $1,820.
The following table shows the common shares issued from January 1, 2013 to December 31, 2013:
Public offering(b)
(b) Share issuance amount is net of issuance costs of $2,189.
Number $/share Amount
June 3, 2013 1,840,000
25.00
43,811
Restricted Share Unit Trust
In June 2012, the Company established a trust
(“Trust”) to hedge the risk of future share price
increases from the time the Restricted Share
Units (“RSU”) and Deferred Share Units
(“DSU”) (see Note 29) are granted to when
they are fully vested and can be exercised. The
beneficiaries of the Trust are members of the
Executive and Senior Management Team who
participate in the long-term incentive
compensation plan called the Restricted Share
Unit Plan (the “Plan”) and independent
members of the Board of Directors who
participate in the Deferred Share Unit Plan.
Under the Trust Agreement, the third party
trustee will administer the distribution of cash
and shares to the beneficiaries upon vesting, as
directed by the Company. Dividends earned
during the twelve month period ended
December 31, 2014 on the shares held in trust
of $98 are reinvested to purchase additional
shares. The shares held in the Trust are
accounted for as treasury shares and have
been deducted from the Company’s
consolidated equity as at December 31, 2014.
As the Company controls the Trust, it has
included the Trust in its consolidated financial
statements for the year ended December 31,
2014.
Page 90 Š AutoCanada Š 2014 Annual Report
The following table shows the change in shareholders’ capital:
Outstanding, beginning of the year
Common shares issued
Treasury shares acquired
Dividends reinvested
Treasury shares settled
Outstanding, end of the year
2014
Number
21,638,089
2,788,753
(41,833)
(1,574)
26,221
2014
Amount
$
2013
Number
232,938 19,802,149
1,840,000
201,866
(17,925)
(2,687)
(2,266)
(89)
16,131
755
2013
Amount
$
189,500
43,811
(513)
(66)
206
24,409,656
432,783 21,638,089
232,938
As at December 31, 2014, 100,027 (2013 – 82,841) common shares were held in trust for the Restricted
Share Unit Plan, resulting in a total of 24,509,683 (2013 – 21,720,930) common shares issued.
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, 2014, eligible dividends
totaling $0.94 per common share were declared and paid, resulting in total payments of $21,745 (2013
– $16,197).
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. Basic earnings per
share are adjusted by the dilutive impact of the RSUs to calculate the diluted earnings per share.
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:
Basic
Adjustment for RSUs
Diluted
31 Capital disclosures
2014
$
2013
$
53,132 38,166
2014
2013
23,018,588 20,868,726
66,102
120,815
23,139,403 20,934,828
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. No specific targets or ratios are set by the
Company. The Company views its capital as the combination of long-term indebtedness, long-term
lease obligations and equity.
AutoCanada Š 2014 Annual Report Š Page 91
The calculation of the Company’s capital is summarized below:
Long-term indebtedness (Note 26)
Equity
December 31,
2014
$
December 31,
2013
$
223,009
436,456
659,465
83,580
190,242
273,822
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.
32 Related party transactions
Transactions with Companies Controlled by
the CEO of AutoCanada
During the year ended December 31, 2014, the
Company had financial transactions with entities
controlled by the Company’s CEO. Priestner is
the controlling shareholder of Canada One Auto
Company (“COAG”) and its subsidiaries, which
beneficially own approximately 9.6% of the
Company’s shares. In addition to COAG,
Priestner is the controlling shareholder of other
companies in which AutoCanada earns
administrative fees. These transactions are
measured at the exchange amount, which is the
amount of consideration established and agreed
to by the related parties. All significant
transactions between AutoCanada and
companies controlled by Priestner are approved
by the Company’s independent members of the
Board of Directors.
a Rent paid to companies with common
directors
properties were at fair market value rates
when the leases were entered into.
b Administrative support fees
During the year ended December 31, 2014,
total administrative support fees received
from companies controlled by Priestner
amount to $848 (2013 – $766).
Commitments with Companies controlled by
the CEO of AutoCanada
The Company has operating lease
commitments, with varying terms through
2029, to lease the lands and buildings used in
certain of its franchised automobile dealerships
from COAG, a Company controlled by
Priestner. The future aggregate minimum lease
payments under non-cancelable operating
leases with COAG are as follows:
During the year ended December 31, 2014,
total rent paid to companies controlled by
Priestner amounted to $2,853 (2013 –
$7,061). The Company currently leases two
of its leased facilities 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
2015
2016
2017
2018
2019
Thereafter
Page 92 Š AutoCanada Š 2014 Annual Report
December 31,
2014
$
2,458
2,458
2,458
2,457
2,457
22,720
35,008
Key management personnel compensation
Payable to related parties
Key management personnel consists of the
Company’s executive officers and directors.
Key management personnel compensation is
as follows:
Included in trade and other payables at
December 31, 2014 is $2,327 (December 31,
2013 – $nil) payable to non-controlling
interests. Theses amounts are unsecured and
non interest bearing.
Employee costs (including Directors)
Short-term employee benefits
Share-based payments
2014
$
2013
$
4,451 4,484
165
374
209
1,181
5,841 5,023
The following table summarizes the net increase in cash due to changes in non-cash working capital
for the years ended:
Trade and other receivables
Inventories
Finance lease receivables
Other current assets
Trade and other payables
Vehicle repurchase obligations
Revolving floorplan facilities
December 31,
2014
$
December 31,
2013
$
(2,735)
(45,065)
(4,587)
(1,317)
8,179
126
49,738
4,339
(7,092)
(43,205)
–
88
11,023
144
29,074
(9,968)
33 Net change in non-cash working capital
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.
34 Fair value of financial instruments
The Company’s financial instruments at
December 31, 2014 are represented by cash and
cash equivalents, trade and other receivables,
finance lease receivables, trade and other
payables, revolving floorplan facilities, vehicle
repurchase obligations, long-term indebtedness
and redemption liabilities.
The fair values of cash equivalents, trade and
other receivables, finance lease receivables,
trade and other payables, and revolving
floorplan facilities approximate their carrying
values due to their short-term nature.
The long-term indebtedness has a carrying
value that approximates the fair value due to
the floating rate nature of the debt, While there
is a portion that has a fixed rate, the long-term
indebtedness has a carrying value that is not
materially different from its fair value.
Embedded derivatives (Level 2) and
redemption liabilities (Level 3) are remeasured
at fair value each reporting period with the gain
or loss being recognized through profit or loss.
The fair value was determined based on the
prevailing and comparable market interest
rates.
AutoCanada Š 2014 Annual Report Š Page 93
The fair value hierarchy categorizes fair value
measurement into three levels based upon the
inputs to valuation technique, which are
defined as follows:
Š Level 1 – Quoted prices (unadjusted) in
active markets for identical assets or
liabilities.
Š Level 2 – Inputs other than quoted prices
included within Level 1 that are
observable for the asset or liability, either
directly (that is, as prices) or indirectly
(that is, derived from prices).
Š Level 3 – Inputs for the asset or liability
that are not based on observable market
data (that is, unobservable inputs). There
were no transfers between the levels of
the fair value hierarchy during the year.
35 Subsequent events
Dividends
On February 17, 2015, the Board of Directors of
the Company declared a quarterly eligible
dividend of $0.25 per common share on the
Company’s outstanding Class A common
shares, payable on March 16, 2015 to
shareholders of record at the close of business
on February 28, 2015.
Normal course issuer bid
On February 20, 2015, the Company
commenced a normal course issuer bid to
repurchase a maximum of 490,193 common
shares, being 2% of the issued and outstanding
common shares of the Company. The normal
course issuer bid will be in effect until
February 19, 2016 or such earlier time as the
bid is completed or terminated at the option of
the Company. To date no purchases have been
made.
Kia Open Point
On March 16, 2015 the Company announced
that it had signed a Letter of Intent with Kia
Canada Inc. (“Kia”) which, subject to the
completion of requirements and conditions
contained in the Letter of Intent, will award
AutoCanada an Open Point Kia dealership in
Winnipeg, Manitoba. AutoCanada intends to
operate the dealership out of a new facility,
designed to Kia image standards, with
construction anticipated to commence in Q4,
2015 or Q1, 2016.
Page 94 Š AutoCanada Š 2014 Annual Report
CORPORATE
INFORMATION
Shareholder Information
AutoCanada Inc.
Senior Management
Patrick Priestner,
Executive Chairman
Thomas Orysiuk,
President and Chief Executive Officer
Stephen Rose,
Chief Operating Officer
Christopher Burrows,
Chief Financial Officer
Erin Oor,
Vice-President Corporate Development and
Administration
Jeffery Christie,
Vice-President, Operations
Board of Directors
Gordon Barefoot, Lead Director
Michael Ross
Dennis DesRosiers
Barry James
Maryann Keller
Patrick Priestner
Thomas Orysiuk
AUTOCANADA INC.
Head Office
#200 – 15505 Yellowhead Trail
Edmonton, Alberta
T5V 1E5
www.autocan.ca
Investor Relations
ir@autocan.ca
Auditors
PricewaterhouseCoopers LLP
Edmonton, Alberta
Shares Listed
Toronto Stock Exchange
Trading Symbol: ACQ
Transfer Agent
Valiant Trust Company
Annual General Meeting
Friday May 8, 2015
9:30 a.m. Mountain Time
Hilton Doubletree West Edmonton Hotel
Room SBCC6
16615 – 109 Avenue
Edmonton, Alberta
AutoCanada Š 2014 Annual Report Š Page 95
AutoCanada Inc.
200 - 15505 Yellowhead Trail NW
Edmonton, AB T5V 1E5
autocan.ca