2016ANNUALREPORT
WHAT’SINSIDE
5
6
WHO WE ARE
WHERE WE OPERATE
8
9
2016 BY THE NUMBERS
2016 HIGHLIGHTS
10
OUR STRATEGY
12
ACQUISITIONS & GROWTH
14
OUR LATEST ACQUISITIONS
16
LETTER FROM THE FOUNDER & CHAIR
18
LETTER FROM THE PRESIDENT & CEO
22
OUR OPERATIONS
24
NEW VEHICLE SALES
25
USED VEHICLE SALES
26
PARTS, SERVICE & COLLISION REPAIR
27
FINANCE, INSURANCE & OTHER
28
DEALER SUPPORT SERVICES
30
FIVE YEAR FINANCIALS
31
FIVE YEAR SHAREHOLDER RETURN
32
2016 GOALS & ACCOMPLISHMENTS
M1
MANAGEMENT’S DISCUSSION & ANALYSIS
F1
CONSOLIDATED FINANCIAL STATEMENTS
S1
SHAREHOLDER INFORMATION
AUTOCANADA
(TSX:ACQ)
AutoCanada is Canada’s largest, and only publicly-listed, multi-location automobile dealership group,
currently operating 56 dealerships, comprised of 64 franchises, which represent 19 brands, in British
Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick and Nova Scotia. Our
dealerships generate revenue from the following four inter-related business operations:
• New vehicle sales;
• Used vehicle sales;
• Parts, service &
collision repair; and
• Finance and insurance.
Our current multi-location automobile
dealership model enables us to serve
a diversified geographic customer
base and enjoy benefits not available
to single location dealerships.
5
WHERE WE
OPERATE
ALBERTA
Airdrie Dodge
Calgary Hyundai
Fish Creek Nissan
Grove Dodge
Sherwood Buick GMC
Grande Prairie Chrysler
Hyatt Infiniti
Sherwood Park Chevrolet
Capital Jeep Dodge
Grande Prairie Hyundai
Lakewood Chevrolet
Sherwood Park Volkswagen
Courtesy Chrysler
Grande Prairie Mitsubishi
North Edmonton Kia
Tower Chrysler
Courtesy Mitsubishi
Grande Prairie Nissan
Northland Volkswagen
Crosstown Auto Centre
Grande Prairie Subaru
Ponoka Chrysler
Crowfoot Hyundai
Grande Prairie Volkswagen
Sherwood Park Hyundai
MANITOBA
Audi Winnipeg
Eastern Chrysler
McNaught Cadillac
St. James Volkswagen
QUÉBEC
BMW Canbec
BMW Laval
MINI Mont Royal
MINI Laval
BRITISH COLUMBIA
Abbotsford Volkswagen
Chilliwack Volkswagen
Kelowna Chevrolet
Island GM
Maple Ridge Chrysler
Maple Ridge Volkswagen
Northland Dodge
Northland Hyundai
Northland Nissan
Okanagan Dodge
Victoria Hyundai
SASKATCHEWAN
Dodge City Auto
Mann-Northway
Bridges GM
Saskatoon Motor
Products
ONTARIO
401 Dixie Hyundai
417 Infiniti
417 Nissan
Cambridge Hyundai
Guelph Hyundai
Hunt Club Nissan
Toronto Chrysler
Wellington Motors
NOVA SCOTIA
NEW BRUNSWICK
Dartmouth Dodge
Moncton Chrysler
WHERE
WE’RE
LOCATED
British Columbia › 11
Alberta › 26
Abbotsford
Chilliwack
Duncan
Kelowna
Maple Ridge
Prince George
Victoria
Airdrie
Calgary
Edmonton
Grande Prairie
Ponoka
Sherwood Park
Spruce Grove
Saskatchewan › 4
North Battleford
Prince Albert
Saskatoon
Manitoba › 4
Winnipeg
Ontario › 8
Cambridge
Guelph
Mississauga
Ottawa
Toronto
Quebec › 4
Laval
Montreal
New Brunswick › 1
Moncton
Nova Scotia › 1
Dartmouth
6
7
DEALERSHIPS
55
FRANCHISES
63
ADJUSTED EPS
$1.46
EMPLOYEES
3,879
UNITS SOLD (000s)
59,593
EBITDA (000s)
$94,486
FREE CASH FLOW (000s)
$96,220
GROSS PROFIT (000s)
$486,133
REVENUE (000s)
$2,891,581
2
0
1
6
N
U
M
B
E
R
S
8
I
2
0
1
6
H
G
H
L
I
G
H
T
S
REVENUE
$1,102
$1,409
$2,215
$2,904
$2,892
2012
2013
2014
2015
2016
C$M
REVENUE
GROSS
PROFIT
$190
$246
$373
$488
$486
2012
2013
2014
2015
2016
C$M
GROSS PROFIT
NET
INCOME
$24.2
$38.2
$56.3
$27.3
$8.6
2012
2013
2014
2015
2016
C$M
NET INCOME
EBITDA
4.1
4.0
3.4
3.3
3.1
$37.9
$58.5
$89.4
$89.8
$94.5
2012
2013
2014
2015
2016
%
EBITDA MARGIN
C$M
EBITDA
FREE
CASH
FLOW
$18.9
$34.6
$63.7
$38.7
$96.3
2012
2013
2014
2015
2016
C$M
FREE CASH FLOW
9
STRATEGY
We seek to create long-term value
for our shareholders by maintaining
operational excellence, continuously
managing costs, and capturing market
share through accretive acquisitions.
To achieve these objectives, we have
committed to a three part strategy
for our business comprising of
operational excellence, cost control,
and acquisitions and growth, as
described below.
OPERATIONAL EXCELLENCE
IMPLEMENTING STRATEGIC PROCESSES & BEST PRACTICES
AutoCanada is dedicated to providing the highest level of customer service at our dealerships.
We recognize that doing so means meeting the needs of a discerning and increasingly informed
automotive consumer. From the beginning, job number one at AutoCanada has been to establish lasting
relationships with customers that result in repeat business, additional business for our other service
offerings and referrals to friends and families. We pride ourselves on encouraging our dealerships
to engage in friendly follow-ups to develop long-term relationships, and train sales staff to meet
customer needs. We continually evaluate opportunities, and implement new technologies to improve
the buying experience for our customers. We also believe that our ability to share best practices
across our national platform gives us an advantage over smaller independent dealerships. In 2016 our
commitment to excellence was demonstrated by focus on providing our dealerships with greater:
1. Awareness of trends and changes in consumer purchasing patterns
2. Focus on digital marketing strategies
3. Ability to capture and use sales data locally
4. Sales process technology
New vehicle and used vehicles sales are critical to drawing new and returning customers to
our dealerships. However, parts, service and collision repair along with financing and insurance
sales historically deliver higher profit margins and account for a significant portion of our gross
profit. In order to maximize the growth of these higher margin businesses, management teams
at both the Dealer Support Services (DSS), and dealership levels focus on increasing the use of
these services and expanding the scope and accessibility of our offerings to customers. Through
the implementation of best practices, the continuous refinement, training technology solutions,
our DSS team leverages successes across our entire dealership network. We believe our parts,
service and collision business provides us with a significant opportunity for future revenue growth
by fostering ongoing relationships and improving customer loyalty especially with the growing
technical complexity of new vehicles and the increasing number of vehicles on the road.
10
ECONOMIES OF SCALE
ATTRACTING & EMPLOYING
TALENTED INDIVIDUALS
We take advantage of our scale to reduce costs
related to purchasing certain equipment, supplies,
We believe our employees are the foundation of
and services such as insurance, advertising, benefit
our business and crucial to our future success.
plans and information systems. We are also a
We strive to ensure compensation packages are
preferred provider for retail services and warranty
effective and competitive within the industry and
contracts which results in higher commissions on
continuously research new retention initiatives to
finance and insurance activities.
help attract and retain high quality employees.
Training programs, supportive peer groups, and
advancement opportunities are developed for
employees to prepare them for future growth.
COST CONTROL
MANAGING VARIABLE OPERATING EXPENSES
We leverage our size to generate competitive
operating margins by centralizing and
streamlining various back-office functions without
adversely impacting sales. We are able to improve
financial controls and lower servicing costs by
maintaining many dealership accounting and
1. Continuing to centralize functional tasks
such as financial & information processing
systems;
2. Deploying information technology and best
practices across our dealership network;
administrative activities in our central Edmonton,
3. Negotiating and evaluating supplier contracts
Alberta location. We are continually evaluating
our expenses and cost structures at our
dealerships and believe we are well positioned to
improve on these functions in the future by:
with vendors on a national basis; and
4. Maintaining a performance-based
compensation structure
MAINTAIN WORKING CAPITAL AND ADEQUATE CASH FLOW
We prudently analyze our cash flow to ensure we meet working capital requirements contracted by our
manufacturer partners, while capitalizing on areas of profitability, capital expenditures and investments.
As our business grows in 2017 and beyond, we intend to manage our costs carefully and to look for
opportunities to further improve our operating efficiencies.
11
ACQUISITIONS
& GROWTH
We believe our financial position, cost of
capital relative to domestic competitors,
centralized shared services, information
technology systems, management structure,
and experience, position us to effectively
complete, integrate, and benefit from small or
large dealership group acquisitions. We evaluate
dealership acquisition opportunities based on
their ability to:
1. Expand into geographic areas we
don’t currently serve;
2. Grow our brand representation,
product, and service offerings in our
existing markets;
3. Raise the quality and experience of key
personnel; and/or
4.
Increase operating efficiency and cost
savings in areas such as used vehicle
sourcing, advertising, purchasing,
data processing, personnel utilization,
and floorplan financing.
We also evaluate the financial and operating
results of our dealerships, as well as each
dealership’s geographical location and, based
on various financial and strategic rationales,
may dispose of dealerships to refine or
strengthen our overall portfolio.
ORGANIC GROWTH:
We continually focus on areas of our business
that increase same store gross profits by
controlling expenses and expanding margins.
Based on our currently contemplated capital
projects we anticipate spending of approximately
$145 million before 2020. Our capital plan
includes spending on dealership relocations,
expansions and Open Point opportunities.
•
Relocations to provide long-term
earnings sustainability and significant
improvements in overall profitability;
•
Expansions of current dealerships to
meet the floor space needs of a
growing location.
AutoCanada is currently the holder of rights to
two Open Point dealerships in Canada:
1. Nissan dealership in Calgary; and
2. Nissan dealership in Ottawa
Management regularly reviews Open Point
opportunities; if successful in having them
awarded, additional costs may arise to construct
suitable facilities for the Open Points. We are
committed to closely monitoring our capital
plans and making the appropriate adjustments
based on company performance, manufacturer
requirements and the needs of our individual
dealerships.
12
ACQUISITIONS
AutoCanada is a publically traded growth
company in a fragmented largely private
industry that is positioned for significant
consolidation. We are well positioned to
partner with private dealer groups to offer
an attractive solution to their succession
planning, and automobile manufacturers
who are looking for a well- capitalized
and trusted partner to help grow their
dealership network in Canada.
Our growth depends in large part on the
ability to acquire additional franchised
automobile dealerships, manage expansion,
co n t ro l cos t s a n d i n te g ra te a cq u i re d
franchised automobile dealerships. The
m ult iple we will pay d epen d s on ou r
assessment of the existing business; our
belief in the ability to grow the business, the
long-term sustainability of the business, and
our assessment of existing risk factors.
We continue to seek oppor tunities in
Quebec, Ontario, and British Columbia in
an effort to further diversify our flagship
dealership base in large metropolitan
centres. This strategy was demonstrated
by the acquisitions of two dealerships
i n G u e l p h O n t a r i o d u r i n g 2 0 1 6 . We
h ave excellent relat io n s hips wit h ou r
manufacturer partners and believe we can
build upon our current brand portfolios
and gain the acceptance of other new
manufacturers over time.
13
GUELPHHYUNDAI
Constructed in 2014, this new facility was the first Hyundai dealership in
Canada to reflect the new Global Dealership Space Identity of Hyundai.
FACILITY
30,000ft2
SERVICE BAYS
14 TOTAL
SHOWROOM
14 VEHICLES
RETAIL UNITS
846
REPAIR ORDERS
10,880
2015 ANNUAL REVENUE (000s)
$31,000
14
WELLINGTONMOTORS
Wellington motors recently celebrated its 75th anniversary
as a flagship Chrysler Dodge Jeep Ram Fiat dealership.
FACILITY
41,000ft2
SERVICE BAYS
16 TOTAL
SHOWROOM
12 VEHICLES
RETAIL UNITS
1,370
REPAIR ORDERS
20,794
2015 ANNUAL REVENUE (000s)
$61,000
15
LETTER FROM
THE CHAIR
Since that time we have grown AutoCanada into
Canada’s largest and only publicly-listed, multi-
location automobile dealership group, with 56
dealerships, comprised of 64 franchises, in British
Columbia, Alberta, Saskatchewan, Manitoba,
Ontario, Quebec, New Brunswick and Nova Scotia.
Given our size, we also had the great fortune of
attracting and retaining the most highly skilled and
experienced employees both at the dealership level
and at our head office. It is because of them that
we have developed into the company we are today.
While 2016 was another tough year, we continued
to focus on managing our business while
never losing sight of the reason we founded
AutoCanada; to be a trusted and respected partner
to manufacturers, our loyal customers, and to
create meaningful value for our shareholders.
As a Board, we have undertaken a number of
important measures to ensure that AutoCanada is
well positioned for future success as the economic
conditions in key markets begin to improve.
PAT PRIESTNER
Dear Shareholder,
The last ten years have been an extraordinary
period of growth for our company. When we
Firstly, and most importantly, we appointed
introduced AutoCanada as an Income Fund
Steven Landry as CEO to lead the Company
in 2006, we set out to create the first publicly
into our next phase of growth. Steven brings a
traded, multi-location, franchised auto dealership
wealth of industry experience and knowledge
group in Canada. Our vision was to create value
as well as a strong vision to the executive team
for our shareholders by delivering economies of
and Board. As a Board, we are very pleased with
scale by leveraging cost and revenue synergies.
Steven’s leadership this year and are confident
We also recognized that by running a centralized
he will successfully drive AutoCanada forward.
operation we could provide informed market
specific responses to sales, service, marketing
Secondly, we have continued to stress the
and inventory needs to our dealerships and
importance of discipline and managing the “fine
franchises. AutoCanada is able to benchmark the
details” as they are the hallmarks of selling cars.
success of our dealership operations against each
Making wise decisions means maintaining a strong
other, by sharing market information amongst our
balance sheet while weighing the opportunity
dealerships, quickly identify changes in consumer
for new growth. Earlier this year, with a robust
buying patterns; and implementing innovative
pipeline of potential acquisitions in front of us,
ideas quickly to take advantage of those trends.
the Board made the tough decision to reduce
16
our dividend to allow us to redeploy capital
I would again like to thank all who have
into the opportunities in front of us. Providing
supported us through the years; our shareholders
a meaningful yield to shareholders has always
and bondholders, the Board of Directors for
been a key priority, and we believe this decision
their guidance and support; the executive
balances the need to provide income as well
management team for their tireless efforts
as responsibly invest in new opportunities.
and our employees. Because without them,
Lastly, I believe a fresh perspective and diverse
customers who put their trust in us every day.
set of skills will enable AutoCanada to move
I have every confidence that AutoCanada will
forward even more aggressively. So, it is with no
continue to deliver to exceed expectations.
we would not be here today, and of course our
small amount of sadness I will be stepping down
as Chairman of this great company in May. I am
Sincerely,
grateful to have had the opportunity to be a part
of this exciting organization, and to have worked
with such a talented team. Together our Board,
management team and employees have built
Pat Priestner
an extraordinary organization. It has been their
Founder & Chair, Board of Directors
dedication and perseverance that has made this
possible and it fills me with tremendous pride that
AutoCanada is a strong company and ready to lead.
We have grown
AutoCanada into
Canada’s largest
and only publicly-
listed, multi-location
automobile dealership
group
17
LETTER FROM
THE PRESIDENT
& CEO
in 2016 from the $39 million delivered during the
prior year. The increase was due to improvements
in working capital management, measured usage
of floorplan facilities to finance inventory, inventory
management, and a tax refund in the third quarter.
Reflecting on the events of 2016, it is clear that
it was one of both challenges and opportunities.
Our core markets in Alberta, Saskatchewan, and
Northern British Columbia, where nearly 60%
of our dealerships are located, and 56% of our
total gross profits are generated, continued to
experience a downturned energy economy, rising
unemployment, and market uncertainty. The
combination of these factors played a significant
role in our performance and may continue to be
an influencing element in 2017. However, despite
a fiscal year that may be remembered more
for its challenges than successes, AutoCanada
increased used vehicle gross profit by 16.2%
over 2015, and delivered almost $2.9 billion
STEVEN LANDRY
In April 2016, I assumed the position of Chief
in revenue and $486 million in gross profit,
Executive Officer of our company, AutoCanada,
which were essentially flat year over year.
Canada’s largest, and only publicly-traded,
automobile dealership group. We proudly operate
While the economies in our core markets
56 dealerships, comprised of 64 franchises which
struggled, there are areas in our business
represent 19 individual brands, comprising 2.1%
where we can improve. Although we made
of the overall Canadian new vehicle market. Our
positive strides, operating expenditures still
current multi-location model enables us to serve a
represented 82.4% of our gross profit in 2016.
diversified customer base and enjoy benefits not
Our goal is to reduce this to below 80%.
available to single location dealerships. As such,
in 2016, our locations sold over 59 thousand new
and used vehicles accounting for a 125% increase
over our sales five years ago in 2011. We also
increased free cash flow to $96 million or 149%
18
LETTER FROM
THE PRESIDENT
& CEO
During the past 12 months, we have
made some noteworthy changes at
AutoCanada. First, we have implemented
a centralized purchasing and shared
resources strategy to reduce costs for
individual dealerships on everything
from payroll to tires. By leveraging our
size and geographic diversity, we are in a
unique position to realize opportunities
across our entire network.
Secondly, we have developed a new
strategy for our sales operations and
marketing teams. Our new structure
realigns dealership support into three
distinct brand team platforms that are
better positioned to meet the needs
of individual dealers and OEMs. We
introduced the new structure in early
2017, and so far the feedback from
d e a l e r s h a s b e e n ove r w h e l m i n g l y
p o s i t i ve . B y r e d u c i n g t h e d e a l e r
oversig ht rat io, we h ave im p roved
communications allowing us to identify
c h a l l e n g e s s o o n e r a n d i m p l e m e n t
solutions faster. I am confident that
this structure is better aligned with our
current size and helps us to integrate
new acquisitions more efficiently.
T h i r d , w e ex p a n d e d o u r b u s i n e s s
planning processes and refined goals
related to expense control and meeting
vehicle delivery targets. We created
a dealer council to discuss industry
trends and decisions. By providing a
forum to generate feedback and address
questions from our exceptional dealer
staff, we can better leverage successes
across our entire network.
Finally, we took a meticulous look at
our capital budget. Looking to 2021 we
have established a budget of $145.3
million which will position us to grow
while providing customers with the
positive experience they have come to
expect when purchasing a vehicle from
one of our stores. The major focus for
the company over the next five years
will be allocating capital to constructing
new Open Point locations; implementing
dealership relocations; and providing
maintenance capital to ensure our stores
are kept up to date for our customers.
19
ACQUISITIONS
Our efforts to diversify sales across other provinces is picking up steam. During 2016, we acquired two
new stores in Guelph, increasing our store count in Ontario to eight. The additions of Wellington Motors
and Guelph Hyundai are excellent examples of our acquisition strategy in action on a number of fronts.
First, the acquisition of multiple dealerships, or clusters, in a single market provides greater overall
geographic diversification, adds flagship metropolitan locations, and provides scale opportunities.
Wellington Motors is an established FCA operation with over 75 years of history, and Guelph Hyundai,
constructed in 2014, was the first Hyundai dealership in Canada to reflect the new Global Dealership
Space Identity of Hyundai. In 2015 these two stores combined retailed 1,641 new and 575 used vehicles,
with annual revenues of approximately $92 million. We look forward to their continued success and to the
contributions they will provide in 2017.
OPEN POINTS
FOCUS FOR 2017
The retail automotive industry is mature, and rights
While we have come a long way since our
to open new franchised dealerships are rarely
inception, we still have enormous opportunity to
awarded. Generally, a new franchised dealership
grow. In 2017 our team will focus on:
is fully performing within one to three years,
depending on the manufacturer and location. In
February of 2017, AutoCanada opened its new
Sherwood Park Volkswagen dealership. Originally
awarded to us in 2014, the site is comprised
of a 45,000 square foot facility designed to
Volkswagen Canada image standards. We are
•
•
Refining and improving store integration
Evaluating how to better invest in data
integration & information technologies
•
Improving marketing efforts
• Cultivating dealer accountability
excited by the opportunity this dealership provides
•
Strengthening internal audit processes
us, and within two to three years, we estimate
its potential at approximately 800 new vehicles
annually.
Also, we have been awarded two Open Point
Opportunities; one which will begin construction,
and one that will open for business within the year.
These opportunities include opening a new Nissan
franchise in southwest Ottawa and constructing a
Nissan location in Calgary, Alberta.
We are continuously working to maintain the
relationships with our established manufacturing
partners as well as making new inroads with
those that we have not represented to date.
As a company, we deliver value to automobile
manufacturers to grow their markets for
new vehicles and provide exceptional buying
experiences to our shared customers. We’re a
transparent and credit worthy partner that can
reduce the burden of dealing with multiple small
independent dealers. This public dealership model
works in numerous countries around the world, and
I am committed in 2017 to establishing relationships
that will lead to expanding our brand mix.
20
3 STRATEGIC LEVERS
We’ve seen significant changes to the senior
leadership team at AutoCanada over the past
nine months. Most notably, we witnessed
the decision by our founder Pat Priestner, to
step down from the board in May 2017; the
retirement of Steve Rose as our Chief Operating
Officer in October 2016; my appointment as
CEO in April 2016; and Tom Orysiuk’s departure
as President in March 2017. Leadership
changes, no matter how well executed and
communicated, can be a source of concern
for employees and investors. While it is true
that the make-up of the executive group looks
different today, I want to assure you that our
strategy remains focused. Moving forward, our
executive team is concentrating on these three
strategic levers:
OUR FOCUS
ON GROWTH
The Canadian auto industry is poised for
consolidation. Currently, the Canadian dealer
market is fragmented, with approximately 3,300
dealerships owned by roughly 2,000 owners.
AutoCanada is well positioned to capitalize on
an industry that is poised for consolidation, by
providing an attractive solution to privately-
owned dealerships looking for a partner to aid
with their succession plans. During and after
the acquisition process, we work to serve their
customers, care for their employees, and grow
the business. We are motivated to expand our
geographic reach to limit our exposure to any
one regional economic zone as well as to grow to
better reflect the national brand mix. With that
in mind, we are actively pursuing import, luxury,
and domestic flagship store acquisitions in large
metropolitan centres with a focus on Quebec,
Ontario and British Columbia. By virtue of being
public, our largest advantage in sales processes
is our access to capital. In order to make these
1. Operational Excellence – delivering
exceptional customer service, and
continuously improving, and maximizing
efficiency at our dealerships
2. Cost Control – Aggressively managing
our fixed and variable costs throughout
the company, and ensuring we are running
our business efficiently and responsibly
3. Acquisitions and Growth - Approaching
new acquisitions and implementing our
growth strategy to ensure we are allocating
capital where it has the highest rate of return
We continue to remain steadfast and enthusiastic
in growing AutoCanada in a way that provides
value to you, our shareholder. The playing field for
new acquisitions is robust, and we are pursuing
them across the country. To support our growth
strategy, we rely strongly on the diverse and
collective experiences presented to us through
our Board. I want to thank our Board members for
their unwavering efforts. I’d also like to thank the
visionary leadership of our founder Pat Priestner,
who has overseen AutoCanada’s growth to become
one of the largest dealership groups in Canada.
We plan to carry on Pat’s vision of growing
AutoCanada’s scope and scale
Together, we have the opportunity to further
consolidate the Canadian automotive retail
landscape. In the process, we will continue to
create value for you, by growing our business,
delivering industry leading customer service, and
providing leadership that is fair, respectful, and
transparent to our employees. AutoCanda’s ability
to serve a nationwide customer base has never
been better. And our ability to achieve economies
of scale and greater efficiency has never been
stronger. I am excited by the opportunities ahead
of us, and I am looking forward to demonstrating
the results of our strategy in 2017.
acquisitions accretive to our shareholders, we are
committed to only paying competitive multiples,
Sincerely,
and thus bypassing some opportunities. We
plan to finance new growth through a prudent
combination of free cash flow, equity, and debt.
Steven J. Landry
President & Chief Executive Officer
21
OPERATIONS
Our multi-location automobile dealership model
Our franchised automobile dealerships operate as
is comprised of 64 new vehicle franchises,
distinct profit centres where the dealer principals
representing 19 brands at 56 dealership
locations across Canada. We serve a diversified
are given significant autonomy within overall
operating guidelines. This autonomy, combined
geographic customer base and enjoy benefits
with the dealer principals’ understanding of their
not available to single location dealerships. Our
local markets, enables the dealer principals to
operations provide a diverse revenue base that
effectively run day-to-day operations, market
we believe mitigates the impact of fluctuations
to customers, recruit new employees and gauge
in new vehicle sales volumes and gross profit
new opportunities in their local markets.
margins. In addition, our geographic footprint is
increasingly lowering our exposure to regional
Our dealer principals are required to take an
economic downturns and our brand diversification
active, hands-on approach to operating their
decreases our exposure to manufacturer-specific
respective dealerships. Each dealer principal is
risks such as brand perception or production
supported by a complete management team
disruptions. By operating multiple dealerships in
that provides oversight and management over
certain metropolitan areas we are able to gain
every facet of the business. While each member
the advantages associated with a “platform”
of a dealership’s management team, other than
of dealerships in a single geographic area.
the dealership controllers, report directly to
the dealer principal, they also report to one
While new vehicle sales generate approximately
or more members of our head office senior
57% of our revenue, used vehicles, parts
management team. The dealership controllers
and service, and finance and insurance
report directly to the head office finance group.
provide higher profit margins and collectively
Our reporting structure is designed to facilitate
account for approximately 76% of our gross
the sharing of ideas and market intelligence
profit, and have been historically more
in an efficient and effective manner.
stable throughout economic cycles.
22
2016REVENUE
%
%
%
%
NEWVEHICLE
SALES
USEDVEHICLE
SALES
PARTSSERVICE
&COLLISION
FINANCE&
INSURANCE
2016GROSSPROFIT
%
%
%
%
NEWVEHICLE
SALES
USEDVEHICLE
SALES
PARTSSERVICE
&COLLISION
FINANCE&
INSURANCE
23
NEW
VEHICLE
SALES
New vehicle sales are the driving force behind
AutoCanada’s business. While all four revenue
streams contribute to gross profit, new vehicle
sales is still the primary focus. In 2016, 57% of our
revenue was generated from new vehicle sales. In
addition to the profit from the sale itself, a typical
new vehicle sale (or lease transaction) creates other
profit opportunities for our dealerships including
the resale of trade-in vehicles, sale of third party
finance products, the sale of vehicle service and
insurance contracts in connection with the retail
sale, and the service and repair of the vehicle
during and after the warranty period.
New vehicle revenues include new vehicle sales and
lease transactions arranged by our dealerships with
third-party financial institutions which generally
have shorter terms than finance transactions. This
results in customers returning to a dealership
more frequently than in the case of financed
purchases. We believe that leasing provides a
number of benefits to our other business lines,
BY THE
NUMBERS
42.5
40.2
36.4
28.0
21.5
$683
$883
$1342
$1668
$1653
2012
2013
2014
2015
2016
000s
UNITS SOLD
C$M
REVENUE
TOTAL REVENUE
including customer loyalty to the leasing dealership
8.5
8.6
for repairs and maintenance. In addition, leases
provide us with a source of late-model, off-lease
vehicles for our used vehicle inventory. Generally,
leased vehicles remain under factory warranty
for the term of the lease, allowing franchised
automobile dealers to provide repairs and service
to the customer throughout the lease term.
7.9
7.3
7.2
$58
2012
$76
2013
$106
$122
2014
2015
$118
2016
%
GROSS MARGIN
C$M
GROSS PROFIT
GROSS PROFIT
24
USED
VEHICLE
SALES
Used vehicle sales are a key contributor to the
overall success of AutoCanada. Our new vehicle
operations provide our used vehicle operations
with a large supply of high quality trade-ins and
off-lease vehicles, which are the best sources of
attractive used vehicle inventory. Our dealers
supplement their used vehicle inventory with
purchases from auctions, daily rental companies,
and wholesalers. Used vehicle sales give us an
opportunity to further increase our revenues by
aggressively pursuing customer trade-in vehicles,
increase service contract sales, provide parts and
services required in the maintenance of the vehicle,
perform reconditioning work on trade-ins and
provide financing to used vehicle purchasers.
We actively manage the quality and age of
our used vehicle inventory and monitor our
used inventory appraisal values, reconditioning
costs, pricing, online marketing, stocking levels,
turnover, and return on investment. We believe
that monitoring these various processes results
in greater sales volumes, higher turnover, and
ultimately a greater return on investment.
Manufacturer certified pre-owned vehicles
typically sell at a premium compared to other
used vehicles and are available only at franchised
automobile dealerships. We believe that the
manufacturer’s warranty that comes with these
certified vehicles increases our potential to
retain the purchaser as a future parts and service
customer since certified warranty work can only be
performed at franchised automobile dealerships.
BY THE
NUMBERS
20.3
19.5
15.7
9.5
10.4
$243
$301
$495
$705
$725
2012
2013
2014
2015
2016
000s
UNITS SOLD
C$M
REVENUE
TOTAL REVENUE
6.7
6.7
6.0
$16
2012
$20
2013
$30
2014
6.5
$47
2016
5.8
$41
2015
%
GROSS MARGIN
C$M
GROSS PROFIT
GROSS PROFIT
25
PARTS
SERVICE &
COLLISION
REPAIR
Parts, Service and Collision Repair is an important
part of our overall business. It not only provides
high-margin revenue but also supports our overall
approach to customer service, leading to customer
retention and vehicle sales. Parts and service
activity is generally considered counter-cyclical.
In a downturn, consumers buy fewer new vehicles,
but their older vehicles require more service.
A significant number of our customers return
to our dealerships for other services after the
vehicle warranty expires. Each dealership has
systems in place to track customer maintenance
records and notify owners of vehicles purchased
at the dealerships when their vehicles are due for
periodic services. Parts are either used in repairs
made in the service department, sold at retail to
customers, or sold at wholesale to independent
repair shops and other dealerships.
Our profitability in parts, service and collision
repair can be attributed to our comprehensive
management system, including the use of variable
rate pricing structures, cultivation of strong
customer relationships through an emphasis
on preventive maintenance, and the efficient
management of inventory. We manage our parts
inventories to a target of 45 days’ supply on hand
in order to be responsive to our customers’ needs
while managing our working capital.
26
BY THE
NUMBERS
847.7
839.0
601.6
364.4
309.5
$114
2012
$142
$256
$388
$383
2013
2014
2015
2016
000s
SERVICE ORDERS
C$M
REVENUE
TOTAL REVENUE
52.4
51.8
52.6
50.3
50.0
$60
2012
$74
2013
$129
$194
$201
2014
2015
2016
%
GROSS MARGIN
C$M
GROSS PROFIT
GROSS PROFIT
FINANCE
INSURANCE
& OTHER
Every vehicle sale presents us with an
opportunity to increase profits through the
sale of additional products such as third
party financing or lease arrangements,
extended warranties, service contracts
and insurance products.
The finance and insurance products our
dealerships currently offer are generally
underwritten and administered by independent
third parties, including the automobile
manufacturers’ captive finance companies. In
return for arranging third party purchase and
lease financing for our customers, we receive a
fee from the third party lender upon completion
of the financing. These third party lenders include
the automobile manufacturers’ captive finance
companies and warranty divisions, selected
commercial banks and a variety of other third
party lenders, including credit unions and regional
auto finance lenders. Under our arrangements
with the providers of these products, we either
sell these products on a straight commission basis
or participate in future profits, if any, pursuant
to a retrospective commission arrangement.
We arranged customer financing on a significant
portion of the retail vehicles we sold in 2016. In
addition to finance commissions, opportunities are
created to sell other profitable products, such as
warranty and extended protection products with
purchases of new and used vehicles, including:
service contracts; auto protection insurance;
life, disability and dismemberment insurance,
as well as lease “wear and tear insurance”; and
theft protection. Our size and volume capabilities
enable us to acquire these products at reduced
fees compared to the industry average,
which results in competitive advantages.
BY THE
NUMBERS
62.8
59.7
52.1
38.4
$83
2013
31.0
$61
2012
$121
2014
$143
$130
2015
2016
000s
UNITS SOLD
C$M
REVENUE
TOTAL REVENUE
92.1
91.8
91.2
91.5
89.9
$56
2012
$76
2013
$109
2014
$131
2015
$119
2016
%
GROSS MARGIN
C$M
GROSS PROFIT
GROSS PROFIT
27
DEALER
SUPPORT
SERVICES
I n 2 01 4 , A u t o C a n a d a r e - o r g a n i z e d t h e
corporate head office to form Dealers Support
Services (DSS) in order to 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.
DSS’ role is to create and foster a retail
automobile organization that marries the
entrepreneurial strengths and advantages
of the classic dealer/owner model with the
discipline and process adherence of a public
company model, all within a culture that values
and promotes mutual respect, support and
assistance.
DSS mandate is to empower the very best
General Managers/Dealer Principals to make
the key dealership operating decisions on a day
to day basis, within a financial and governance
framework. DSS is dedicated to providing
advice, services and support to our dealer
partners.
We strongly believe in the “power of the
group” and its ability to provide cost saving
initiatives, marketing expertise, shared support
services such as IT support, legal, HR and
benefits support, as well as operational support
through its Sales and Inventory Operations,
Fixed Operations and Marketing teams.
DEALERSHIP TEAMS
The success of AutoCanada is attributed to
our people on the ground at each dealership.
AutoCanada continuously aims to hire the best
individuals in the retail automotive industry at our
dealerships as these individuals drive our day-to-
day operations and are the face of the Company to
our customers.
Our franchised automobile dealerships operate
relatively independently of one another and are
granted a significant amount of flexibility to make
decisions within AutoCanada’s overall operating
guidelines. The Dealer Principal at each of our
locations oversees the operations, personnel,
and financial performance of their respective
dealership. We recognize that our dealership teams
are best positioned within their respective markets
to effectively run day-to-day operations, market
to customers, and recruit new employees. Our
dealership management teams characteristically
have multiple years of experience in the automotive
retail industry and, in most cases, include a
new vehicle sales manager, a used vehicle sales
manager, a finance and insurance manager, a parts
manager, and a service manager. This structure is
complemented by support from our centralized
Dealership Support Services that provide
technology solutions, centralized processes,
marketing support, and financial oversight.
While each member of a dealership’s management
team, other than the dealership controllers, report
directly to the dealer principal, they also report to
one or more members of our head office senior
management team. The dealership controllers
report directly to the head office finance group.
Our reporting structure is designed to facilitate
the sharing of ideas and market intelligence in an
efficient and effective manner.
Dealer Principals are compensated, to a significant
extent, based on the financial performance of the
franchised automobile dealership for which they
are responsible. Our Dealer Principals participate
in an incentive plan that provides for the payment
to them of a percentage of the profit of the Dealer
Principal’s franchised automobile dealership.
29
FIVE YEAR
FINANCIALS
(In thousands of dollars, unless otherwise specified)
2016
2015
2014
2013
2012
INCOME STATEMENT DATA
New Vehicles
Used Vehicles
1,652,795
1,668,237
1,342,346
882,858
683,375
725,430
704,569
495,352
300,881
243,351
Parts, Service, & Collision Repair
382,933
387,614
255,707
142,343
114,600
Finance, Insurance, & Other
130,423
143,383
121,373
82,958
62,587
REVENUE
2,891,581
2,903,803
2,214,778
1,409,040
1,103,913
New Vehicles
Used Vehicles
118,297
122,408
106,002
75,835
57,575
47,192
40,629
29,501
20,273
16,311
Parts, Service, & Collision Repair
201,259
193,868
128,566
73,755
59,643
Finance, Insurance, & Other
119,385
130,804
109,080
76,172
56,836
GROSS PROFIT
486,133
487,709
373,149
246,035
190,365
Gross Profit %
Operating Expenses
Operating Expenses
as a % of Gross Profit
Income From Investments
in Associates
Net Earnings Attributable to
AutoCanada Shareholders 1
Adjusted Net Earnings Attributable
to AutoCanada Shareholders 1
EBITDA1
Free Cash Flow1
SHARE INFORMATION
Basic Earnings Per Share
Diluted Earnings Per Share
Adjusted Net Earnings Per Share1
16.8%
16.8%
16.8%
17.5%
17.2%
400,417
395,877
290,904
188,519
149,140
82.4%
81.2%
78.0%
76.6%
78.3%
-
-
3,490
2,241
468
2,596
22,821
53,132
38,166
24,236
39,926
40,343
51,624
37,960
24,068
94,486
89,838
89,434
58,469
37,885
96,288
38,675
63,723
34,568
18,932
$0.09
$0.09
$1.46
$0.93
$0.92
$1.64
$2.31
$2.30
$2.24
$1.83
$1.83
$1.82
$1.22
$1.22
$1.22
Basic Weighted Average Shares (Units)
27,350,555
24,574,022
23,018,588
20,868,726
19,840,802
Diluted Weighted Average Shares (Units)
27,455,686
24,674,083
23,139,403
20,934,828
19,840,802
Annual Dividend Rate Per Share
$0.55
$1.00
$0.94
$0.88
$0.72
1These financial measures are identified and defined in the Management’s
Discussion and Analysis under the section “NON-GAAP MEASURES”
30
FIVE YEAR
SHAREHOLDER
RETURN
PERFORMANCE GRAPH
The Board recognizes that in a cyclical
industry such as the retail automotive industry,
AutoCanada’s focus is on long-term shareholder
value growth. The following chart compares the
cumulative total shareholder return, including the
reinvestment of distributions, from January 1, 2012
to the end of the most recently completed financial
year on December 31, 2016 for $100 invested in ACI
Shares with the cumulative total return from the
S&P/TSX Composite Index (Total Return).
$800
$600
$400
$200
746
739
257
107
121
134
437
123
429
149
2012
2013
2014
2015
2016
$
AUTOCANADA
$
SP TSX
PERFORMANCE
GRAPH VALUES
2016
2015
2014
2013
2012
AutoCanada Inc.
$429.22
$436.72
$739.06
$746.09
$256.72
S&P/TSX Composite Index
$148.64
$122.76
$133.90
$121.11
$107.19
ACTUAL VALUES
2016
2015
2014
2013
2012
AutoCanada Inc.
$23.12
$24.15
$44.50
$45.89
$15.35
S&P/TSX Composite Index
15,287.59
13,009.95
14,632.44
13,621.55
12,433.53
31
GOALS &
ACCOMPLISHMENTS
CONSOLIDATE DEALER
BODY GROUP
To acquire an additional four to six
dealerships by May, 2016.
LIQUIDITY
To maintain working capital in excess
of manufacturer requirements and
adequate cash flow
S
HIP
S
R
E
L
A
E
4 D
5
S
HIP
S
R
E
L
A
E
6 D
5
015
2
016
2
N
LIO
6 MIL
2
$
N
LIO
6 MIL
5
$
015
2
016
2
INCREASE GROSS
PROFIT MARGINS
To increase gross profit margins in all
revenue streams.
DECREASE VARIABLE
OPERATING EXPENSES
To reduce variable operating expenses
as a percentage of gross profit.
2015
2016
2015
2016
16.8%
16.8%
68.2%
68.6%
32
33
MANAGEMENT’S DISCUSSION
& ANALYSIS
For the year ended December 31, 2016
Table of Contents
1.
2.
READER ADVISORIES ....................................................................................................................................................................... 3
EXECUTIVE SUMMARY ..................................................................................................................................................................... 4
3. OUTLOOK ............................................................................................................................................................................................... 7
4. MARKET ................................................................................................................................................................................................... 8
5.
6.
7.
8.
SELECTED ANNUAL FINANCIAL INFORMATION ................................................................................................................ 11
SELECTED QUARTERLY FINANCIAL INFORMATION ....................................................................................................... 12
RESULTS OF OPERATIONS ........................................................................................................................................................... 13
SAME STORES RESULTS ................................................................................................................................................................ 21
9. ACQUISITIONS, RELOCATIONS AND REAL ESTATE ....................................................................................................... 25
10. LIQUIDITY AND CAPITAL RESOURCES .................................................................................................................................. 28
11. OUTSTANDING SHARES ................................................................................................................................................................ 32
12. DIVIDENDS ........................................................................................................................................................................................... 32
13. FREE CASH FLOW ............................................................................................................................................................................ 33
14. CRITICAL ACCOUNTING ESTIMATES AND ACCOUNTING POLICY DEVELOPMENTS ..................................... 36
15. DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING................................ 36
16. RISK FACTORS ................................................................................................................................................................................... 37
17. FORWARD LOOKING STATEMENTS........................................................................................................................................ 37
18. NON-GAAP MEASURES ................................................................................................................................................................. 38
AutoCanada
2016 Annual Report
Page M2
1. READER ADVISORIES
This Management’s Discussion & Analysis (“MD&A”)
was prepared as of March 16, 2017 to assist readers
in understanding AutoCanada Inc.’s (the “Company”
or “AutoCanada”) consolidated financial
performance for the year ended December 31, 2016
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, 2016. Results are
reported in Canadian dollars. Certain dollars have
been rounded to the nearest thousand dollars,
unless otherwise stated. Reference to the 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, 2016 of
the Company, and compares these to the operating
results of the Company for the three month period
and year ended December 31, 2015. 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 prior to Q3 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.
This MD&A contains forward-looking statements.
Please see the section “FORWARD-LOOKING
STATEMENTS” for a discussion of the risks,
uncertainties and assumptions used to develop our
forward-looking information. This MD&A also makes
reference to certain non-GAAP measures to assist
users in assessing AutoCanada’s performance.
Non-GAAP measures do not have any standard
meaning prescribed by GAAP and are therefore
unlikely to be comparable to similar measures
presented by other issuers. These measures are
identified and described under the section
“NON-GAAP MEASURES”.
Additional information regarding our Company,
including our 2016 Annual Information Form, dated
March 16, 2017, is available on SEDAR at
www.sedar.com and our website at www.autocan.ca.
Such additional information is not incorporated by
reference herein, unless otherwise specified, and
should not be deemed to be made part of this MD&A.
Page M3
AutoCanada
2016 Annual Report
2. EXECUTIVE SUMMARY
Performance vs. the Fourth Quarter of Prior Year
The following table summarizes the Company's operations for the quarter as well as year to date results:
Consolidated Operational Data
2016
2015
% Change
2016
2015 % Change
Three months ended December 31
Year ended December 31
EBITDA attributable to
AutoCanada shareholders
Adjusted EBITDA attributable to
AutoCanada shareholders
Net earnings attributable to
AutoCanada shareholders
Adjusted net earnings
attributable to AutoCanada
shareholders
Basic EPS
Adjusted diluted EPS
Weighted average number of
shares - Basic
Weighted average number of
shares - Diluted
New retail vehicles sold (units)
New fleet vehicles sold (units)
Used retail vehicles sold (units)
Total vehicles sold
Revenue
Gross Profit
Gross Profit %
Operating expenses
Operating expenses % of Gross
Profit
Free cash flow
Adjusted free cash flow
Same Store New retail vehicles
sold (units)
Same Store New fleet vehicles
sold (units)
Same store Used retail vehicles
sold (units)
Same Store Total vehicles sold
Same Store Revenue
Same Store Gross Profit
Same Store Gross Profit %
25,260
23,353
8.2%
94,486
89,838
5.2%
19,038
26,030
(26.9)%
88,809
94,002
(5.5)%
13,785
(7,361)
287.3%
2,596
22,821
(88.6)%
7,536
0.50
0.27
8,610
(0.29)
0.34
(12.5)%
272.4%
(20.6)%
39,926
40,343
(1.0)%
0.09
1.45
0.93
1.64
(90.3)%
(11.0)%
27,353,431
25,016,637
9.3%
27,350,555
24,574,022
11.3%
27,469,439
25,110,033
7,590
859
4,463
12,912
8,016
1,194
4,940
14,150
629,274
672,314
116,785
123,922
18.6%
18.4%
97,397
101,310
9.4%
(5.3)%
(28.1)%
(9.7)%
(8.8)%
(6.4)%
(5.8)%
1.1%
(3.9)%
27,455,686
24,674,083
32,991
7,041
19,561
59,593
35,323
7,134
20,342
62,799
2,891,581
2,903,803
486,133
487,709
16.8%
16.8%
400,417
395,877
11.3%
(6.6)%
(1.3)%
(3.8)%
(5.1)%
(0.4)%
(0.3)%
0.0%
1.1%
83.4%
81.8%
2.0%
82.4%
81.2%
1.5%
23,424
13,133
9,066
8,078
158.4%
62.6%
96,288
68,566
38,675
38,796
149.0%
76.7%
5,924
6,621
(10.5)%
26,333
30,437
(13.5)%
730
1,016
(28.1)%
6,415
6,688
(4.1)%
3,791
10,445
4,287
11,924
500,968
556,722
94,584
100,404
18.9%
18.0%
(11.6)%
(12.4)%
(10.0)%
(5.8)%
5.0%
16,840
49,588
18,238
(7.7)%
55,363
(10.4)%
2,369,549
2,509,677
402,166
425,255
17.0%
16.9%
(5.6)%
(5.4)%
0.6%
AutoCanada
2016 Annual Report
Page M4
Industry
margin to increase.
The Canadian automotive retail sector increased
2.7% compared to the prior year to 1.9 million unit
sales. Although retail Canadian auto sales rose 2.7%
from 2015, AutoCanada’s performance reflects the
heavy weighting of our store count in provinces
where new auto sales have declined. During 2016,
51% of our stores were located in Alberta and
Saskatchewan, where new vehicle demand declined
by 7.1% and 5.4% respectively. By contrast we only
generated approximately 7% of our revenue in
Ontario where unit sales were up by 6.0% year over
year.
For the twelve months ended December 31, 2016,
new light vehicle sales in Alberta were down 7.1%
year-over-year, while sales in British Columbia were
up 5.3%. Our unit sales and financial results in these
provinces did not reflect the overall performance of
the automotive sector as a whole for several
reasons, including the locations of the stores and low
store counts in provinces experiencing growth.
Our Performance
Sales
The Company experienced a 6.4% decline in total
revenue of $629.3 million for the three month period
ended December 31, 2016, as compared to the prior
year of $672.3 million. For the year, revenue
remained essentially flat decreasing by less than half
of a percent to $2,891.6 million. The most significant
impact on revenues was the decline in new vehicle
sales in Alberta, as our concentration of 24
dealerships in the province represented 40% of our
total revenue. Of these dealerships, 11 are domestic
brands which are generally our larger volume stores.
Domestic brands have experienced a
disproportionate amount of downward pressure on
sales compared to import brands. Further
complicating the sale of new units is the continued
difficulty in securing adequate inventories of light
duty trucks.
Gross Profit
Management considers gross profit to be a key
measure of store sales effectiveness and mix. Our
gross profit margin varies with our revenue mix. The
sale of new vehicles and used vehicles generally
results in lower gross profit margin than sales of
parts, service and collision repair, and sales of
finance, insurance and other products. As a result,
when, parts and service, and finance, insurance and
other products revenue increase as a percentage of
total revenue, we expect our overall gross profit
Page M5
AutoCanada
2016 Annual Report
Gross profit from the sale of used vehicles depends
largely on the ability of our dealerships to effectively
manage inventory. Revenues in both new and used
vehicles can vary significantly year-over-year as a
result of fluctuations in vehicle sales mix. Total gross
profit earned decreased by 5.8% and 0.3% for the
three months ended December 31, 2016 and full year
respectively as a result of lower sales revenues.
In response to the slow economy in our core
geographic areas, we have heightened our focus on
areas that we can control, by monitoring, improving,
and adapting to the trends in the market. During the
year, we have reduced used inventory days on hand
by reducing the length of time that less desirable
used vehicle inventory is held, thereby freeing up
additional space for more desirable used vehicles.
Cost Reduction Strategy
In 2016 management undertook a review of
headquarters and store operating expenses. We
implemented initiatives that have produced savings
in the range of $15.0 million, however, these were
offset by higher expenses due to the addition of two
stores, increased space requirements and temporary
increase in executive compensation due to
retirement and leadership changes. Management
remains focused on improving the efficiency of our
store operations, dealer support services and
administrative staff.
Intangible Assets and Goodwill Impairment
As a result of the vehicle industry deterioration in
2016, correlated with a decrease in gross profits
within dealerships operating in resource based
markets, management determined it was prudent to
re-evaluate the carrying value of dealerships.
Through specific valuation procedures and stress
tests, an impairment charge of $54.1 million to
intangible assets and goodwill was recorded during
the third quarter, relating to 11 dealerships. This
charge is non cash in nature and $45.0 million is
eligible to be recovered should the results from
these dealerships return to previous levels.
Free Cash Flow & Working Capital Management
Free cash flow increased by 158.4% and 149.0% in
the fourth quarter and full year respectively over the
same periods in 2015. A tax refund of $7.5 million in
the third quarter accounted for 19.4% of the year-
over-year improvement with a reduced use of our
floorplan facilities for the remainder. Our goal is to
turn inventory faster by matching inventory to
current market trends while managing our floorplan
interest expense. Diligent inventory management is
especially important in used cars where aged
inventory can create a valuation risk and lower
margins.
Growth
We continuously monitor our capital plan and have
maintained the revised five year capital plan at
$145.3 million, from January 1, 2017 through to the
end of fiscal 2021. Dealership relocations, renovation
projects, and open point opportunities are prudently
considered against our growth strategy. We allocate
capital to improve existing stores in conjunction with
automakers brand image programs and our ability to
maximize vehicle sales and service in our market
areas.
In 2016 we spent $73.3 million on relocations,
renovations and Open Point opportunities. We
intend to continue to acquire dealerships that
broaden our brand representations as well as meet
our goal of greater geographic diversification.
Acquisitions
Our acquisition strategy continues to focus on
diversifying across Canada through the acquisition
of flagship stores in major markets. Our target
acquisitions are not only evaluated in terms of
accretion but also for how they will advance our
Company, unit sales volumes, and market share. Our
ability to generate strong cash flow is a key element
in our acquisition plan. Although our pace of
acquisitions slowed in 2016, we acquired Wellington
Motors and Guelph Hyundai, both in Guelph, Ontario,
which is consistent with our goal of providing
greater geographic diversification. We believe that
we will be able to increase acquisition activity in
2017.
AutoCanada
2016 Annual Report
Page M6
3. OUTLOOK
The outlook regarding new retail vehicle sales in
Canada is predicted by independent forecasters to
be down 1% - 2%. In Canada, factors contributing
to new vehicle sales will vary widely by province
and brands.
While new automobile sales in our core Alberta
market continued to decline in 2016, AutoCanada
is cautiously optimistic that renewed activity in the
energy sector will slowly begin to translate
favourably into improvements in year-over-year
sales figures in the latter half of the year or early
2018. We will remain focused on delivering better
financial performance irrespective of the impact of
oil prices.
Of the 17 dealerships that became same store in
2016, 11 of these are located in Alberta. As a result,
we anticipate same-store sales results will
continue to be impacted in 2017 by the depressed
Alberta economy. We will continue to dedicate
significant resources to newly acquired dealerships
to integrate acquisitions and position them to be
successful in their respective markets.
We are committed to delivering meaningful
returns to our shareholders. Although we continue
to confront headwinds in key markets, we believe
that we can generate better results by improving
employee productivity, realizing the benefits of
our scale and continuing to grow our brand and
geographic footprints with accretive acquisitions.
AutoCanada plans to spend approximately $30.9
million in 2017 on dealership relocations and
undertaking expansions. We are under
construction on the relocation of Audi Winnipeg,
which we anticipate will lead to increased
customer traffic and sales. We also plan to begin
construction on two new open point locations in
Calgary and Ottawa, Ontario.
AutoCanada's five-year capital spending outlook is
approximately $145.3 million. This level of
spending, along with the Company's current
dividend commitments, are expected to be
balanced with internally generated cash flow.
Page M7
AutoCanada
2016 Annual Report
4. MARKET
The Company’s geographical profile is illustrated below by number of dealerships and revenues and gross
profit by province for the years ended December 31, 2016 and December 31, 2015.
Location of Dealerships
British Columbia
Alberta
Saskatchewan
Manitoba
Ontario
Quebec
Atlantic
Total
Number of
Franchises1
Number of
Dealerships1
December 31, 2016
Revenue
Revenue
% of Total Gross Profit
Gross Profit
% of Total
13
27
4
4
9
4
2
63
11
24
4
4
8
2
2
55
578,938
1,168,334
236,354
182,282
215,954
334,255
175,464
2,891,581
20%
40%
8%
6%
8%
12%
6%
92,404
213,108
44,977
33,789
31,879
47,441
22,535
19%
44%
9%
7%
6%
10%
5%
100%
486,133
100%
1)
“Dealerships" refers to each physical storefront while "Franchises" refers to each separate franchise agreement.
Location of Dealerships
British Columbia
Alberta
Saskatchewan
Manitoba
Ontario
Quebec
Atlantic
Total
Number of
Franchises1
Number of
Dealerships1
13
27
4
4
8
4
2
62
11
24
4
4
7
2
2
54
December 31, 2015
Revenue
558,717
1,270,901
246,477
181,265
156,680
333,990
155,773
2,903,803
Revenue
% of Total
Gross
Profit
Gross Profit
% of Total
19%
44%
8%
7%
5%
12%
5%
100%
87,465
222,806
47,239
33,706
22,580
50,869
23,044
487,709
18%
46%
10%
7%
5%
10%
4%
100%
1)
"Dealerships" refers to each physical storefront while "Franchises" refers to each separate franchise agreement.
The Company’s manufacturers profile is illustrated below by number of dealerships and revenues by
manufacturer for the years ended December 31, 2016 and December 31, 2015.
Manufacturer
FCA
General Motors
Hyundai
Nissan / Infiniti
Volkswagen /
Audi
BMW / MINI
Other
Total
23
9
9
7
7
4
4
63
Number of
Franchises1
December 31, 2016
Number of
Dealerships1
Revenue
December 31, 2015
Number of
Franchises1
Number of
Dealerships1
Revenue
Revenue
% of
Total
44%
20%
8%
8%
6%
12%
2%
17
9
9
7
7
2
4
1,285,894
579,337
218,403
241,186
187,911
334,254
44,596
22
9
8
8
7
4
4
62
Revenue
% of
Total
44%
19%
8%
7%
6%
12%
4%
16
9
8
8
7
2
4
1,275,689
551,800
224,163
208,288
193,459
333,990
116,414
55
2,891,581
100%
54 2,903,803
100%
1)
"Dealerships" refers to each physical storefront while "Franchises" refers to each separate franchise agreement.
AutoCanada
2016 Annual Report
Page M8
Performance vs. the Canadian New Vehicle
Market
The Canadian automotive retail sector year to date
has slightly increased compared to the prior year
at 1.9 million unit sales. New light vehicle sales in
Alberta for the year ended December 31, 2016
were down 7.1%, and up 5.3% in British Columbia
when compared to the same period in 2015.
Alberta continues to show declining unit sales in
the Canadian automotive retail sector.
The Company's same store unit sales of new
vehicles decreased by 10.5% during the three
month period ended December 31, 2016, and
decreased by 13.5% during the year ended
December 31, 2016. The fourth quarter of 2016
continued to be a challenging period for the
western Canadian market as well as the Company.
Our concentration of dealerships located within
Alberta and the resource based economies caused
our performance to fall below that of the Canadian
average change in light vehicle sales.
The following table summarizes Canadian new light vehicle sales for the years ended December 31, 2016 and
December 31, 2015 by Province:
Canadian New Vehicle Sales by Province1,2
British Columbia
Alberta
Saskatchewan
Manitoba
Ontario
Quebec
Atlantic
Total
2016
218,235
219,421
50,888
55,654
806,500
458,287
139,914
1,948,899
2015
Percent Change
Unit Change
207,163
236,208
53,793
55,820
760,521
444,557
140,423
1,898,485
5.3%
(7.1)%
(5.4)%
(0.3)%
6.0%
3.1%
(0.4)%
2.7%
11,072
(16,787)
(2,905)
(166)
45,979
13,730
(509)
50,414
1) DesRosiers Automotive Consultants Inc.
2) Readers are cautioned that the above table includes sales channels that the Company does not fully participate in such as daily rentals, and
small and medium size leasing companies that are not part of the franchise dealership network.
List of Dealerships
The following table sets forth the dealerships that we currently own and operate and the date opened or
acquired by the Company or its predecessors, organized by location.
Location
Operating Name
Franchise
Wholly-Owned Dealerships:
Abbotsford, BC
Chilliwack, BC
Abbotsford Volkswagen
Volkswagen
Chilliwack Volkswagen
Volkswagen
Kelowna, BC
Okanagan Chrysler Jeep Dodge FIAT
Maple Ridge, BC
Maple Ridge Chrysler Jeep Dodge FIAT
FCA
FCA
Maple Ridge, BC
Prince George, BC
Prince George, BC
Prince George, BC
Victoria, BC
Airdrie, AB
Calgary, AB
Calgary, AB
Calgary, AB
Calgary, AB
Calgary, AB
Maple Ridge Volkswagen
Volkswagen
Northland Chrysler Jeep Dodge
Northland Hyundai
Northland Nissan
Victoria Hyundai
Airdrie Chrysler Jeep Dodge Ram
Courtesy Chrysler Dodge
Calgary Hyundai
Crowfoot Hyundai
FCA
Hyundai
Nissan
Hyundai
FCA
FCA
Hyundai
Hyundai
Courtesy Mitsubishi
Mitsubishi
Northland Volkswagen
Volkswagen
Year
Opened or
Acquired
Same
Store1
Owned or
Leased5
2011
2011
2003
2005
2008
2002
2005
2007
2006
2015
2013
2014
2014
2014
2014
Y
Y
Y
Y
Y
Y
Y
Y
Y
Q3 2017
Y
Y
Y
Y
Y
Leased
Owned
Leased
Leased
Leased
Owned
Owned
Owned
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Page M9
AutoCanada
2016 Annual Report
Nissan
Infiniti
FCA
FCA
FCA
Kia
FCA
Hyundai
Subaru
FCA
Hyundai
FCA
Audi
FCA
Hyundai
Hyundai
Hyundai
FCA
FCA
FCA
FCA
Calgary, AB
Calgary, AB
Calgary, AB
Fish Creek Nissan
Hyatt Infiniti
Tower Chrysler Jeep Dodge Ram
Edmonton, AB
Crosstown Chrysler Jeep Dodge FIAT
Edmonton, AB
Edmonton, AB
Capital Chrysler Jeep Dodge FIAT
North Edmonton Kia
Grande Prairie, AB Grande Prairie Chrysler Jeep Dodge FIAT
Grande Prairie, AB
Grande Prairie, AB
Grande Prairie, AB
Grande Prairie, AB
Grande Prairie, AB
Grande Prairie Hyundai
Grande Prairie Subaru
Grande Prairie Mitsubishi
Mitsubishi
Grande Prairie Nissan
Nissan
Grande Prairie Volkswagen
Volkswagen
Ponoka, AB
Ponoka Chrysler Jeep Dodge
Sherwood Park, AB
Sherwood Park, AB
Sherwood Park Hyundai
Sherwood Park Volkswagen7
Volkswagen
Saskatoon, SK
Dodge City Chrysler Jeep Dodge Ram
Audi Winnipeg
St. James Volkswagen
Volkswagen
Winnipeg, MB
Winnipeg, MB
Winnipeg, MB
Cambridge, ON
Mississauga, ON
Guelph, ON
Guelph, ON
Toronto, ON
Moncton, NB
Eastern Chrysler Jeep Dodge
Cambridge Hyundai
401 Dixie Hyundai
Guelph Hyundai6
Wellington Motors4
Toronto Chrysler Jeep Dodge Ram
Moncton Chrysler Jeep Dodge
Dartmouth, NS
Dartmouth Chrysler Jeep Dodge
Equity Investments:
Duncan, BC
Kelowna, BC
Edmonton, AB
Sherwood Park, AB
Sherwood Park, AB
Spruce Grove, AB
Island Chevrolet Buick GMC General Motors
Kelowna Chevrolet General Motors
Lakewood Chevrolet General Motors
Sherwood Park Chevrolet General Motors
Sherwood Buick GMC General Motors
Grove Dodge Chrysler Jeep
FCA
North Battleford, SK
Bridges Chevrolet Buick GMC General Motors
Prince Albert, SK
Mann-Northway Auto Source General Motors
Saskatoon, SK
Winnipeg, MB
Laval, QB
Saskatoon Motor Products General Motors
McNaught Cadillac Buick GMC General Motors
BMW Laval and MINI Laval
BMW / MINI
Montreal, QB
BMW Canbec and MINI Mont Royal
BMW / MINI
Ottawa, ON
Ottawa, ON
Ottawa, ON
Dealership Loan Financing:
Edmonton, AB
Whitby, ON
Hunt Club Nissan
417 Nissan
417 Infiniti
Southview Acura2,3
Whitby Honda
Nissan
Nissan
Infiniti
Acura
Honda
2014
2014
2014
1994
2003
2014
1998
2005
1998
2007
2007
2013
1998
2006
2017
2014
2013
2013
2014
2008
2008
2016
2016
2014
2001
2006
2013
2015
2014
2012
2012
2015
2014
2014
2014
2014
2014
2014
2015
2015
2015
2016
2015
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Q2 2019
Y
Y
Y
Y
Y
Y
Q1 2019
Q4 2018
Q1 2017
Y
Y
Y
Q4 2017
Y
Y
Y
Q1 2018
Q1 2017
Y
Y
Y
Q1 2017
Y
Q1 2018
Q1 2018
Q1 2018
Leased
Leased
Leased
Leased
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Leased
Owned
Owned
Owned
Owned
Leased
Leased
Leased
Leased
Owned
Leased
Leased
Owned
Owned
Leased
Leased
Leased
Owned
Leased
Leased
Owned
Owned
Leased
Leased
Leased
Leased
N/A
N/A
N/A
N/A
1) Same store (indicated with the letter “Y” in the table above) means the franchised automobile dealership has been owned for at least 2 full
years since acquisition. The dealership is then included in the quarter thereafter, for same store analysis.
2) See “ACQUISITIONS, RELOCATIONS AND REAL ESTATE” for more information related to this dealership loan financing arrangement.
3) On May 1, 2016, the Company provided financing for Southview Acura in Edmonton, Alberta.
4) Effective October 1, 2016, the Company purchased 100% of the voting shares of Wellington Motors in Guelph, Ontario. See “ACQUISITIONS,
RELOCATIONS AND REAL ESTATE” for more information on this acquisition.
5) This column summarizes whether the dealership property is owned or leased
6) On December 19, 2016, the Company purchased substantially all of the operating and fixed assets of Guelph Imported Cars Ltd. in Guelph,
Ontario. See “ ACQUISITIONS RELOCATIONS AND REAL ESTATE” for more information on this acquisition
7) On February 1, 2017, Sherwood Park Volkswagen open point opened for operations.
AutoCanada
2016 Annual Report
Page M10
5. SELECTED ANNUAL FINANCIAL INFORMATION
The following table shows the results of the Company for the years ended December 31, 2016, December 31,
2015 and December 31, 2014. The results of operations for these years are not necessarily indicative of the
results of operations to be expected in any given comparable period.
AutoCanada
(in thousands of dollars, except Gross Profit %, Earnings per share, and
Operating Data)
Income Statement Data
2016
2015
2014(4)
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 loans to associates
Income from investments in associates
Impairment (recovery) of intangible assets and goodwill
Net earnings attributable to AutoCanada shareholders
Adjusted net earnings attributable to AutoCanada shareholders
EBITDA attributable to AutoCanada shareholders(2)
EBITDA % of Sales(2)
Free cash flow
Adjusted free cash flow
Basic earnings per share
Diluted earnings per share
Basic adjusted earnings per share
Diluted adjusted earnings per share
Dividends declared per share
Operating Data
Vehicles (new and used) sold
New vehicles sold(3)
New retail vehicles sold(3)
New fleet vehicles sold(3)
Used retail vehicles sold(3)
# of service & collision repair orders completed(3)
Absorption rate(2)
# of dealerships at year end
# of same store dealerships
# of service bays at year end
Same store revenue growth(1)
Same store gross profit growth(1)
1,652,795
725,430
382,933
130,423
2,891,581
118,297
47,192
201,259
119,385
486,133
16.8%
400,417
82.4%
1,165
-
54,096
2,596
39,926
94,486
3.3%
96,288
68,566
0.09
0.09
1.46
1.45
0.55
59,593
40,032
32,991
7,041
19,561
863,970
86%
55
44
928
(5.6)%
(5.4)%
1,668,237
704,569
387,614
143,383
2,903,803
122,408
40,629
193,868
130,804
487,709
16.8%
395,877
81.2%
49
-
18,757
22,821
40,343
89,838
3.1%
38,675
38,796
0.93
0.92
1.64
1.64
1.00
62,799
42,457
35,323
7,134
20,342
847,702
91%
54
28
912
(5.9)%
(11.7)%
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
(1,767)
53,132
51,624
89,434
4.0%
63,723
62,082
2.31
2.30
2.24
2.23
0.94
52,147
36,422
30,346
6,076
15,725
601,597
85%
48
23
822
8.9%
7.9%
1) Same store revenue growth and same store gross profit growth is calculated using franchised automobile dealerships that we have owned
for at least 2 full years, which includes the GM stores, as these stores have been treated as acquisitions as at July 11, 2014. Same store growth
is in comparison with the same quarter in the prior year.
2) EBITDA and absorption rate have been calculated as described under “NON-GAAP MEASURES”.
3)
This number includes 100% of vehicles and service and collision repair orders sold by dealerships in which we have less than 100%
investment.
In conjunction with the business combination under common control completed on July 11, 2014, the Selected Annual Financial Information of
2014 includes the consolidated results of the Company's GM stores from July 11, 2014.
4)
Page M11
AutoCanada
2016 Annual Report
6. 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)
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
(Loss) Income from loans to associates
Impairment of intangible assets and
goodwill
Net earnings (loss) attributable to
AutoCanada shareholders
Adjusted net earnings attributable to
AutoCanada shareholders
EBITDA attributable to AutoCanada
shareholders(2)
EBITDA % of Sales(2)
Free cash flow
Adjusted free cash flow
Basic earnings per share
Diluted earnings per share
Basic adjusted earnings per share
Dividends declared per share
Operating Data
Vehicles (new and used) sold(3)
New vehicles sold(3)
New retail vehicles sold(3)
New fleet vehicles sold(3)
Used retail vehicles sold(3)
# of service and collision repair orders
completed(3)
Absorption rate(2)
# of dealerships at period end
# of same store dealerships
# of service bays at period end
Same store revenue growth(1)
Same store gross profit growth(1)
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Q4
2015
Q3
2015
Q2
2015
Q1
2015
363,181 368,242 471,018 483,435 345,542
348,107 444,482 497,025
163,243
179,270
180,108
167,100
179,582 208,016
157,724
92,951
93,139
94,721
102,220
100,317
95,585
92,310
33,529
31,133
31,671
37,778
28,862
34,752
36,899
753,178 842,257 666,872 672,314 781,205 816,877 633,407
629,274
25,765
27,482
25,042
8,354
10,326
10,064
43,913
51,760
52,957
27,407
34,354
28,722
105,439
123,922
116,785
16.6%
18.4%
18.6%
93,175
101,310
97,397
34,300
10,949
48,336
35,088
128,673
16.5%
100,824
34,861
11,000
49,859
33,955
129,675
15.9%
100,568
34,410
13,758
52,957
33,577
134,702
16.0%
107,932
31,578
12,950
47,676
30,733
122,937
16.3%
99,041
27,267
10,420
47,669
26,353
111,709
16.8%
96,047
194,956
99,304
39,182
83.4%
(367)
80.6%
607
80.1%
610
86.0%
315
81.8%
49
78.4%
-
77.6%
-
88.4%
-
-
54,096
-
-
18,757
-
-
-
13,785
(32,619)
14,158
7,272
(7,361)
11,690
13,523
4,969
7,536
10,327
13,466
8,597
8,610
12,535
13,957
5,261
25,260
4.0%
23,424
13,133
0.50
0.50
0.28
0.10
12,912
8,449
7,590
859
4,463
23,842
3.2%
30,897
27,766
(1.19)
(1.19)
0.38
0.10
15,955
10,983
8,949
2,034
4,972
27,072
3.7%
37,922
21,632
0.53
0.53
0.49
0.10
17,425
12,098
9,374
2,724
5,327
18,312
3.2%
4,045
6,035
0.27
0.27
0.31
0.25
13,301
8,502
7,078
1,424
4,799
23,353
3.5%
9,066
8,078
(0.29)
(0.29)
0.34
0.25
14,150
9,210
8,016
1,194
4,940
26,379
3.8%
14,995
18,951
0.48
0.47
0.51
0.25
17,086
12,018
9,985
2,033
5,068
217,418 209,912 227,446 209,194 230,772 202,692
91%
50
26
862
(6.9)%
(14.1)%
93%
54
28
912
(12.1)%
(14.3)%
86%
55
44
928
(10.0)%
(5.8)%
89%
53
33
898
(9.2)%
(11.0)%
90%
53
27
898
(3.2)%
(5.3)%
83%
53
27
898
(3.1)%
(5.5)%
27,397
3.8%
17,776
19,187
0.56
0.56
0.56
0.25
17,739
12,296
9,929
2,367
5,443
215,142
94%
49
24
842
(2.8)%
(11.0)%
12,687
2.2%
(3,162)
(7,420)
0.20
0.20
0.22
0.25
13,824
8,933
7,393
1,540
4,891
199,096
85%
48
23
822
(3.5)%
(8.5)%
1) Same store revenue growth and same store gross profit growth is calculated using franchised automobile dealerships that we have owned
for at least 2 full years, which includes the GM stores, as these stores have been treated as acquisitions as at July 11, 2014. Same store growth
is in comparison with the same quarter in the prior year.
2) EBITDA and absorption rate have been calculated as described under "NON-GAAP MEASURES".
3) This number includes 100% of vehicles and service and collision repair orders sold by dealerships in which we have less than 100%
investment.
4) 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.
AutoCanada
2016 Annual Report
Page M12
7. RESULTS OF OPERATIONS
Fourth Quarter Operating Results
EBITDA attributable to AutoCanada shareholders
for the quarter increased by $1.9 million or 8.2% to
$25.3 million, from $23.4 million when compared
to the results of the Company for the same period
in the prior year. The increase in EBITDA
attributable to AutoCanada shareholders for the
quarter is due to increased momentum in the retail
automotive sector. Adjusted EBITDA attributable
to AutoCanada shareholders for the quarter ended
December 31, 2016 decreased by $7.0 million or
26.9% from $26.0 million to $19.0 million when
compared to the results of the Company for the
same quarter in the prior year.
The following table illustrates EBITDA and adjusted EBITDA attributable to AutoCanada shareholders for the
three month period ended December 31, for the last three years of operations:
(in thousands of dollars)
2016
2015
2014
Period from October 1 to December 31
Net earnings (loss) attributable to AutoCanada shareholders
Impairment (recovery) of intangible assets and goodwill
Income taxes
Depreciation of property and equipment
Interest on long-term indebtedness
EBITDA attributable to AutoCanada shareholders1
Add back:
Share-based compensation attributed to changes in share price
Revaluation of redemption liabilities
Revaluation of contingent consideration
Unrealized gain on embedded derivative
Adjusted EBITDA attributable to AutoCanada shareholders1
13,785
-
2,531
4,634
4,310
25,260
105
(1,470)
(4,840)
(17)
19,038
(7,361)
18,126
3,474
4,866
4,248
23,353
(30)
2,566
149
(8)
26,030
14,240
(1,767)
4,998
4,179
2,995
24,645
(447)
-
-
(3)
24,195
1) This financial measure is identified and defined under the section “NON-GAAP MEASURES”.
Pre-tax earnings attributable to AutoCanada
shareholders increased by $20.2 million to $16.3
million for the quarter from net loss $3.9 million in
the same period of the prior year. Net earnings
attributable to AutoCanada shareholders
increased by $21.2 million to $13.8 million in the
fourth quarter of 2016 from net loss $7.4 million
when compared to the prior year. Income tax
expense attributable to AutoCanada shareholders
decreased by $1.0 million to $2.5
million in the fourth quarter of 2016 from $3.5
million in the same period of 2015.
Adjusted net earnings attributable to AutoCanada
shareholders decreased by $1.1 million or 12.5% to
$7.5 million for the quarter from $8.6 million in the
same period of the prior year.
Page M13
AutoCanada
2016 Annual Report
The following table reconciles net earnings to adjusted net earnings for the three month period ended
December 31:
(in thousands of dollars)
Net earnings (loss) attributable to AutoCanada shareholders
Add back:
Impairment (recovery) of intangible assets and goodwill, net of tax
Share-based compensation attributed to changes in share price, net of tax
Revaluation of redemption liabilities
Revaluation of contingent consideration
Unrealized gain on embedded derivative
Adjusted net earnings attributable to AutoCanada shareholders 1
Weighted average number of shares - Basic
Weighted average number of shares - Diluted
Adjusted net earnings per share attributable to AutoCanada
shareholders - Basic1
Adjusted net earnings per share attributable to AutoCanada
shareholders - Diluted1
1) This financial measure is identified and defined under the section “NON-GAAP MEASURES”.
2016
2015
2014
13,785
(7,361)
14,240
-
78
(1,470)
(4,840)
(17)
7,536
13,286
(22)
2,566
149
(8)
8,610
(1,310)
(332)
-
-
(3)
12,595
27,353,431
27,469,439
24,410,169
25,016,637
25,110,033 25,190,000
0.28
0.27
0.34
0.52
0.34
0.50
Annual Operating Results
EBITDA attributable to AutoCanada shareholders
for the year ended December 31, 2016 increased
by $4.7 million or 5.2% to $94.5 million, from $89.8
million when compared to the results of the
Company for the same period in the prior year.
The increase in EBITDA attributable to
AutoCanada shareholders for the year is due to
increased momentum in the second half of 2016
compared to the economic decline experienced in
the prior year. Adjusted EBITDA attributable to
AutoCanada shareholders for the year ended
December 31, 2016 decreased by $5.2 million or
5.5% from $94.0 million to $88.8 million when
compared to the results of the Company in the
prior year.
AutoCanada
2016 Annual Report
Page M14
The following table illustrates EBITDA and adjusted EBITDA attributable to AutoCanada shareholders for the
year ended December 31, for the last three years:
(in thousands of dollars)
2016
2015
2014
Period from January 1 to December 31
Net earnings attributable to AutoCanada shareholders
Impairment (recovery) of intangible assets and goodwill
Income taxes
Depreciation of property and equipment
Interest on long-term indebtedness
EBITDA attributable to AutoCanada shareholders1
Add back:
Share-based compensation attributed to changes in share price
Revaluation of redemption liabilities
Revaluation of contingent consideration
Unrealized loss (gain) on embedded derivative
Adjusted EBITDA attributable to AutoCanada shareholder1
2,596
51,180
5,826
18,432
16,452
94,486
(75)
(765)
(4,840)
3
88,809
22,821
18,126
16,171
17,863
14,857
89,838
(272)
4,329
149
(42)
94,002
53,132
(1,767)
17,162
13,072
7,835
89,434
(291)
-
-
18
89,161
1) This financial measure is identified and defined under the section “NON-GAAP MEASURES”.
For the year ended December 31, 2016, pre-tax
earnings attributable to AutoCanada shareholders
declined by $30.6 million or 78.4% to $8.4 million
from $39.0 million in the same period of the prior
year. Net earnings attributable to AutoCanada
shareholders decreased by $20.2 million or 88.6%
to $2.6 million in the year ended December 31,
2016 from $22.8 million when compared to the
prior year due to the impairment of intangible
assets and goodwill recognized during the year.
Income tax expense attributable to AutoCanada
shareholders dropped by $10.4 million to $5.8
million in the year ended December 31, 2016 from
$16.2 million in the same period of 2015.
Adjusted net earnings attributable to AutoCanada
shareholders declined by $0.4 million or 1.0% to
$39.9 million in 2016 from $40.3 million in the prior
year.
The following table reconciles net earnings to adjusted net earnings for the year ended December 31:
(in thousands of dollars)
Net earnings attributable to AutoCanada shareholders
Add back:
Impairment (recovery) of intangible assets and goodwill, net of tax
Share-based compensation attributed to changes in share price, net of tax
Revaluation of redemption liabilities
Revaluation of contingent consideration
Unrealized loss (gain) on embedded derivative
Adjusted net earnings attributable to AutoCanada shareholders 1
Weighted average number of shares - Basic
Weighted average number of shares - Diluted
Adjusted net earnings per share attributable to AutoCanada
shareholders - Basic1
Adjusted net earnings per share attributable to AutoCanada
shareholders - Diluted1
1) This financial measure is identified and defined under the section “NON-GAAP MEASURES”.
2016
2,596
42,987
(55)
(765)
(4,840)
3
39,926
2015
22,821
13,286
(200)
4,329
149
(42)
40,343
2014
53,132
(1,310)
(216)
-
-
18
51,624
27,350,555
27,455,686
24,574,022 23,018,588
23,149,776
24,674,083
1.46
1.45
1.64
1.64
2.24
2.23
Page M15
AutoCanada
2016 Annual Report
Revenues
The following table summarizes revenue for the three months and year ended December 31:
New vehicles
Used vehicles
Finance, insurance and other
Parts, service and collision repair
Three Months Ended December 31
Year Ended December 31
2016
2015
Change
$
$
$
348,107
157,724
31,133
92,310
368,242
167,100
34,752
102,220
(20,135)
(9,376)
(3,619)
(9,910)
2016
$
1,652,795
725,430
130,423
382,933
2015
Change
$
$
1,668,237
704,569
143,383
387,614
(15,442)
20,861
(12,960)
(4,681)
629,274
672,314
(43,040)
2,891,581
2,903,803
(12,222)
New vehicles
Used vehicles
New vehicle revenue declined by 5.5% due to a 761
unit or 8.3% drop in volume which was partly
offset by a $1,218 or 3.0% increase in revenue per
unit for the quarter compared to Q4 2015. New
vehicle revenue for the year decreased by 0.9% to
$1,652.8 million, despite selling 2,425 fewer new
units in 2016. The decreased volume was offset by
a $1,995 or 5.1% increase in revenue per unit. The
challenging economic environment in our markets
in western Canada was largely responsible for the
weakness in new vehicle demand. Further
complicating the sale of new units is the difficulty
in securing adequate inventories of light duty
trucks.
Used vehicle unit sales decreased by 9.7% or 477
units in the fourth quarter compared to the same
period in 2015 resulting in a decline of 5.6% in used
vehicle revenue. Used vehicle revenue for the year
increased by 3.0% to $725.4 million, despite selling
781 fewer units in 2016. Used vehicle revenue for
the quarter and the year benefited from increases
in per unit revenue of $1,514 and $2,450
respectively.
AutoCanada
2016 Annual Report
Page M16
Finance, insurance and other
Parts, service and collision repair
Finance, insurance and other revenue is dependent
on unit sales, especially new vehicles. Lower new
and used car unit sales reduced finance, insurance
and other revenue by 10.4% for the quarter
compared to Q4 2015, and 9.0% for the year
compared to same period of the prior year.
Year-over-year finance, insurance and other
revenue decreased by 9.0% in conjunction with a
new retail vehicle unit sales decline of 5.5%.
The decrease in revenue in the quarter from parts,
service and collision repair is due to a quarterly
decline in repair orders of 13,354, and a decrease in
revenue per order of $18 compared to Q4, 2015.
The decrease in revenue in the year from parts,
service and collision repair is due to a decrease in
revenue per order of $14 offset by an increase in
repair orders of 16,268, when compared to the
same period of the prior year.
Gross Profit
The following table summarizes gross profit for the three months and year ended December 31:
New vehicles
Used vehicles
Finance, insurance and other
Parts, service and collision repair
Three Months Ended December 31
Year Ended December 31
2016
$
25,042
10,064
28,722
52,957
116,785
2015
Change
2016
2015
Change
$
27,482
10,326
34,354
51,760
123,922
$
(2,440)
(262)
(5,632)
1,197
(7,137)
$
$
118,297
47,192
119,385
201,259
122,408
40,629
130,804
193,868
486,133
487,709
$
(4,111)
6,563
(11,419)
7,391
(1,576)
New vehicles
Used vehicles
The decrease in gross profit in the quarter from
new vehicles is due to a quarterly decline in new
vehicles sold of 761, and decreased gross profit
per unit of $20 compared to Q4, 2015.
The decrease in gross profit in the quarter from
used vehicles is due to a quarterly decline in used
vehicles sold of 477, offset by an increase in gross
profit per unit of $165 compared to Q4, 2015.
The decline in gross profit in the year from new
vehicles is due to a decline in new vehicles sold of
2,425, offset by an increase in gross profit per unit
of $72 compared to the same period of the prior
year. The decrease in units sold is a result of
continued weakness in our key markets of Alberta
and the interior of British Columbia.
The increase in gross profit in the year from used
vehicles is due to an increase in gross profit per
unit of $416, offset by a decline in used vehicles
sold of 781 compared to the same period of the
prior year. Used vehicle gross profits increased
year to date, as a result of increased gross profit
per vehicle. This stems from management’s focus
Page M17
AutoCanada
2016 Annual Report
on tightening inventory, decreasing the length of
time that inventory is on hand and increasing
turnover. By decreasing the length of time used
inventory is available for sale and selling
slow-moving inventory at wholesale auctions
earlier, we are able to make room on dealership
lots to focus on higher quality inventory.
Finance, insurance and other
Administrative costs
Administrative costs comprise the remaining costs
of running our dealerships. Advertising, utilities,
service shop consumables, information processing,
insurance, and consulting costs comprise a
significant portion of the administrative costs.
Administrative costs can be either fixed or variable
in nature.
Finance, insurance and other revenue is dependent
on unit sales, especially new vehicles. Lower new
and used car unit sales reduced finance, insurance
and other gross profit by 16.4% for the quarter
compared to Q4 2015, and 8.7% for the year
compared to same period of the prior year.
The Company operates a centralized marketing
department and information technology
departments, 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.
Year-over-year finance, insurance and other gross
profit dropped by 8.7% in conjunction with a new
retail vehicle unit sales decrease of 5.5%.
Parts, service and collision repair
The increase in revenue in the quarter from parts,
service and collision repair is due to an increase in
revenue per order of $20, offset by a quarterly
decline in repair orders of 13,354 compared to Q4,
2015.
The increase in revenue in the year from parts,
service and collision repair is due to an increase in
revenue per order of $4 and an increase in repair
orders of 16,268 compared to the same period of
the prior year.
Operating Expenses
Operating costs consist of four major categories:
Employee costs
Employee costs are the costs associated with
employing staff both at the dealerships and at
AutoCanada’s head office. Dealership employees
are largely commission based, resulting in
employee costs being largely variable in nature.
Our dealership pay structures are tied to meeting
sales objectives, maintaining customer satisfaction
indices, as well as improving gross profit and net
income. There is a balance between reducing
staffing levels as a result of business contraction,
and maintaining high-performing staff. Due to the
competitive nature of the retail automotive
industry, additional measures are employed to
ensure that the high performing staff are
maintained during downtimes. As a result, any
drop in gross profit may not be met with a
matched decrease in employee costs.
Facility lease costs
Facility lease costs relate to the cost of leasing
dealership facilities not owned by AutoCanada.
Facility lease costs are fixed in nature as lease
contracts are based on the market value of the
property and are long-term.
Depreciation of property and equipment
Depreciation of property and equipment relates to
the depreciation of the dealership assets including
buildings, machinery and equipment, leasehold
improvements, company and lease vehicles,
furniture, and computer hardware. Depreciation
rates vary based on the nature of the asset.
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. The following tables
summarize operating expenses as a percentage of
gross profit. When evaluated, operating expenses
are broken into their fixed and variable
components. Fixed expenses are costs that do not
fluctuate with changes in sales volume while
variable expenses are costs that vary depending
on sales volume.
AutoCanada
2016 Annual Report
Page M18
Operating expenses as a % of Gross Profit
Employee costs before management
transition costs
Management transition costs
Administrative costs - Variable
Total Variable Expenses
Administrative costs - Fixed
Facility lease costs
Depreciation of property and equipment
Total fixed expenses
Total operating expenses
Three Months Ended December 31
Change
2015
2016
Year Ended December 31
2015
Change
2016
51.1%
-%
18.0%
69.1%
5.0%
5.1%
4.2%
14.3%
83.4%
49.4%
-%
18.8%
68.2%
4.3%
5.1%
4.2%
13.6%
81.8%
1.7%
-%
(0.8)%
0.9%
0.7%
-%
-%
0.7%
1.6%
50.7%
0.5%
17.4%
68.6%
4.9%
4.8%
4.1%
13.8%
82.4%
50.4%
-%
17.8%
68.2%
4.6%
4.5%
3.9%
13.0%
81.2%
0.3%
0.5%
(0.4)%
0.4%
0.3%
0.3%
0.2%
0.8%
1.2%
Variable Expenses
Impairment of intangible assets and goodwill
Employee costs have increased in the quarter due
to the additional costs of three dealerships which
were acquired in Q4 2015. Management transition
costs relate to the management transition
announced on March 17, 2016 which occurred in
Q2, 2016.
Variable administrative costs declined for both the
quarter and the year ended December 31, 2016, as
a percentage of gross profit. The decline is a result
of our increased focus on cost control over the
year.
Fixed Expenses
Fixed administrative costs increased, for both the
quarter and year to date, as a percentage of gross
profit. The increase is mainly attributable to the
increase in property taxes on new property
ownership during the year due to two dealership
acquisitions in Q4 2016. Facility lease costs and
depreciation of property and equipment remained
constant for the quarter and year to date, as a
percentage of gross profit.
The Company has a number of franchise
agreements for its individual dealerships which it
classifies as intangible assets. These intangible
assets are tested for impairment at least annually,
or more frequently if events or changes in
circumstances indicate that they may be impaired.
During the third quarter, the Company concluded
that an interim test for certain cash generating
units (dealerships) was required. As a result of the
test performed, the Company recorded an
impairment of $54.1 million of intangible assets
and goodwill (December 31, 2015 - $18.8 million),
as certain cash generating units had actual results
that fell short of previous estimates and the
outlook for these markets is less robust. Of total
impairment, $45.0 million was related to intangible
assets impairment and $9.1 million was related to
goodwill impairment.
Under IFRS, previously recognized impairment
charges, with the exception of impairment charges
related to goodwill, may be reversed if the
circumstances causing the impairment have
improved or are no longer present. If such
circumstances change, a new recoverable amount
will be calculated and all or part of the impairment
charge will be reversed to the extent the
recoverable amount exceeds carrying value.
The Company performed a test for all cash
generating units for the year ended December 31,
2016. As a result of the test, the Company did not
identify any further impairments or recoveries of
impairment for the year ended December 31, 2016.
Page M19
AutoCanada
2016 Annual Report
Income Taxes
The following table summarizes income taxes for the three months and year ended December 31:
Current tax
Deferred (Recovery of) tax
Income tax expense
Three Months Ended December 31 Year Ended December 31
2016
2015
Change
2016
2015
Change
$
$
$
$
$
$
(6,157)
9,144
(28,279)
17,025
22,122
(7,881)
12,316
(3,741)
19,290
(1,499)
2,987
(11,254)
(8,267)
8,575
17,791
(6,974)
(2,242)
(9,216)
Income tax expense is recognized based on
management's best estimate of the weighted
average annual income tax rate expected for the
full financial year. The estimated average annual
rates used for the year ended December 31, 2016
was 27.2% (December 31, 2015 - 28.2%).
In the year ending December 31, 2016, the
Company paid approximately $9.4 million in
2016corporate income taxes and 2017 tax
installments. The impairment charge recorded
Finance Costs
The Company incurs finance costs on its revolving
floorplan facilities, long term indebtedness and
banking arrangements.
For the quarter ended December 31, 2016, finance
costs on our revolving floorplan facilities increased
by 9.8% to $3.2 million from $3.0 million compared
to Q4 2015, mainly due to increased inventory as a
result of two dealership acquisitions completed in
the fourth quarter of 2016 along with dealerships
acquired mid-way through 2015.
For the year ended December 31, 2016, finance
costs on our revolving floorplan facilities
decreased by 5.7% to $12.4 million from $13.2
million in the same period of the prior year.
Finance costs on long term indebtedness
increased by 10.7% compared to the prior year.
during the year resulted in $9,479 in deferred tax
recoveries for the year ended December 31, 2016.
The impairment of these assets are non-tax
deductible expenses, causing a variance between
net income for tax purposes and net income as
reported on the Consolidated Statement of
Comprehensive Income.
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.
Accounting standards require the floorplan credits
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.
Management believes that a comparison of
floorplan financing costs to floorplan credits can
be used to evaluate the efficiency of our new
vehicle sales relative to stocking levels.
The following table details the carrying cost of vehicles based on floorplan interest net of floorplan assistance
earned:
Three Months Ended December 31
Year Ended December 31
(in thousands of dollars)
Floorplan financing
Floorplan credits earned
2016
3,247
(3,860)
2,956
(3,607)
2015
Change
2015
Change
291
(253)
38
2016
12,408
(14,634)
13,160
(14,853)
(752)
219
(533)
Net carrying cost of vehicle inventory
(613)
(651)
(2,226)
(1,693)
AutoCanada
2016 Annual Report
Page M20
8. SAME STORES RESULTS
Same store is defined as a franchised automobile
dealership that has been owned for at least two
full years since acquisition. The dealership is then
included in the quarter thereafter, for same store
analysis. The Company believes that it takes two
years for an acquired dealership or Open Point to
achieve normal operating results.
The dealerships which have been acquired over
the past two years are integrating well into their
respective platforms and within the Company.
Eleven dealerships have been added to same
stores in the fourth quarter of 2016. While
management is satisfied with the integration of
dealerships, 11 of 17 dealerships that have been
added to same store in 2016 are located in
Alberta. As a result same store sales will be further
impacted by the depressed economy Alberta is
currently experiencing.
The following table summarizes the number of same stores for the period ended December 31, 2016 by
Province:
Number of Same Stores by Province
FCA
Hyundai
Volkswagen
Nissan/Infiniti
Audi
Mitsubishi
General Motors
Subaru
KIA
BMW
Total
British
Columbia
Alberta Saskatchewan Manitoba
Ontario
Quebec
Atlantic
Total
3
2
3
1
-
-
1
-
-
-
6
4
2
3
-
2
3
1
1
-
10
22
1
-
-
-
-
-
2
-
-
-
3
1
-
1
-
1
-
1
-
-
-
4
-
2
-
-
-
-
-
-
-
-
2
-
-
-
-
-
-
-
-
-
1
1
2
-
-
-
-
-
-
-
-
-
2
13
8
6
4
1
2
7
1
1
1
44
(in thousands of dollars)
Revenue Source
New vehicles - Retail
New vehicles - Fleet
Total New vehicles
Used vehicles - Retail
Used vehicles - Wholesale
Total 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
Same Store Revenue and Vehicles Sold
Three Months Ended December 31
Year Ended December 31
2016
2015 % Change
2016
2015 % Change
244,096
26,656
270,752
93,480
37,223
130,703
27,240
428,695
72,273
500,968
5,924
730
3,791
10,445
9,715
269,056
27,764
296,820
109,899
39,347
149,246
28,345
474,411
82,311
556,722
6,621
1,016
4,287
11,924
10,908
(9.3)%
(4.0)%
(8.8)%
(14.9)%
(5.4)%
(12.4)%
(3.9)%
(9.6)%
(12.2)%
(10.0)%
(10.5)%
(28.1)%
(11.6)%
(12.4)%
(10.9)%
1,106,413
228,812
1,335,225
411,122
204,470
615,592
112,961
2,063,778
305,771
2,369,549
26,333
6,415
16,840
49,588
43,173
1,214,938
213,173
1,428,111
460,237
164,747
624,984
128,270
2,181,365
328,312
2,509,677
30,437
6,688
18,238
55,363
48,675
(8.9)%
7.3%
(6.5)%
(10.7)%
24.1%
(1.5)%
(11.9)%
(5.4)%
(6.9)%
(5.6)%
(13.5)%
(4.1)%
(7.7)%
(10.4)%
(11.3)%
Page M21
AutoCanada
2016 Annual Report
Revenues - Same Store Analysis
Same store revenue declined by $55.8 million or
10.0%, and $140.1 million or 5.6%, for the three
month period and the year ended December 31,
2016 respectively when compared to the same
period in the prior year.
Same store new vehicle revenues decreased by
$26.1 million or 8.8% for the fourth quarter of 2016
over the prior year due to a drop in new vehicle
sales of 983 units or 12.9% offset by an increase in
the average revenue per new vehicle sold of
$1,824 or 4.7%. Same store new vehicle revenues
decreased by $92.9 million or 6.5% for the year
ended December 31, 2016 over the same period in
the prior year due to a decrease in new vehicle
sales of 4,377 units or 11.8% offset by an increase in
the average revenue per new vehicle sold of
$2,305 or 6.0%.
Same store used vehicle revenues decreased by
$18.5 million or 12.4% for the three month period
ended December 31, 2016 over the same period in
the prior year due to a decrease in used sales of
496 units or 11.6% and a decrease in the average
revenue per used vehicle sold of $337 or 1.0%. For
the year ended December 31, 2016, used vehicle
revenues decreased by $9.4 million or 1.5% due to
a decrease in used vehicle sales of 1,398 units or
7.7%, offset by an increase in the average revenue
per used vehicle sold of $2,287 or 6.7%.
Same store parts, service and collision repair
revenue decreased by $10.0 million or 12.2% for
the fourth quarter of 2016 compared to the prior
period and was primarily a result of a decrease in
overall repair orders completed of 10,231 and a $31
or 7.1% decrease in the average revenue per repair
order completed. For the year ended December 31,
2016, parts, service and collision repair revenue
decreased by $22.5 million or 6.9%, mainly due to
a $18 or 4.0% decrease in the average revenue per
repair order completed and a decrease in overall
repair orders completed of 21,577.
Same store finance, insurance and other revenue
decreased by $1.1 million or 3.9% for the three
month period ended December 31, 2016 over the
same period in 2015. This was due to a drop in the
number of new and used vehicles retailed of 1,193
units, offset by an increase in the average revenue
per unit retailed of $614 or 24.6%. For the year
ended December 31, 2016, same store finance,
insurance and other revenue dropped by $15.3
million or 11.9% over the same period in 2015
mainly due to a decrease in the number of new
and used vehicles retailed of 5,502 units, offset by
an increase in the average revenue per unit
retailed of $31 or 1.2%.
AutoCanada
2016 Annual Report
Page M22
Same Store Gross Profit and Gross Profit Percentage
(in thousands of dollars)
Revenue Source
New vehicles - Retail
New vehicles - Fleet
Total New vehicles
Used vehicles - Retail
Used vehicles - Wholesale
Total Used vehicles
Finance, insurance and other
Subtotal
Parts, service and collision repair
Total
(in thousands of dollars)
Revenue Source
New vehicles - Retail
New vehicles - Fleet
Total New vehicles
Used vehicles - Retail
Used vehicles - Wholesale
Total Used vehicles
Finance, insurance and other
Subtotal
Parts, service and collision repair
Total
Gross Profit Same Store Analysis
Same store gross profit decreased by $5.8 million
or 5.8% and $23.1 million or 5.4% for the three
month period and the year ended December 31,
2016 respectively when compared to the same
period in the prior year.
Same store new vehicle gross profit declined by
$2.7 million or 11.8% in the three month period
ended December 31, 2016 when compared to 2015
as a result of a decrease in new vehicle sales of
983 units or 12.9%, offset by an increase in the
average gross profit per new vehicle sold of $36
or 1.2%. For the year ended December 31, 2016,
new vehicle gross profit decreased by $8.7 million
or 8.3% which can be mainly attributed to a
decrease in new vehicle sales of 4,377 units or
11.8% offset by an increase in the average gross
profit per new vehicle sold of $114 or 4.0%.
Same store used vehicle gross profit dropped by
$0.7 million or 7.9% in the three month period
ended December 31, 2016 over the prior year. This
was due to a decrease in the number of used
vehicles sold of 496 units offset by an increase in
Page M23
AutoCanada
2016 Annual Report
Three Months Ended December 31
Gross Profit
Gross Profit %
2015 % Change
2016
2015
20,947
1,760
22,707
8,090
814
8,904
26,712
58,323
42,081
100,404
(14.8)%
23.9%
(11.8)%
(8.5)%
(2.1)%
(7.9)%
(6.3)%
(8.7)%
(1.8)%
(5.8)%
7.3%
8.2%
7.4%
7.9%
2.1%
6.3%
91.9%
12.4%
57.2%
18.9%
7.8%
6.3%
7.7%
7.4%
2.1%
6.0%
94.2%
12.3%
51.1%
18.0%
Year Ended December 31
Gross Profit
Gross Profit %
2015 % Change
2016
2015
98,492
6,763
105,255
34,072
2,073
36,145
117,634
259,034
166,221
425,255
(8.6)%
(2.9)%
(8.3)%
4.6%
88.8%
9.5%
(12.2)%
(7.6)%
(2.1)%
(5.4)%
8.1%
2.9%
7.2%
8.7%
1.9%
6.4%
91.5%
11.6%
53.2%
17.0%
8.1%
3.2%
7.4%
7.4%
1.3%
5.8%
91.7%
11.9%
50.6%
16.9%
2016
17,844
2,181
20,025
7,404
797
8,201
25,030
53,256
41,328
94,584
2016
89,997
6,566
96,563
35,650
3,914
39,564
103,311
239,438
162,728
402,166
the average gross profit per used vehicle retailed
of $86 or 4.1%. For the year ended December 31,
2016, same store used vehicle gross profits
increased by $3.4 million or 9.5% which was mainly
due to an increase in the average gross profit per
vehicle retailed of $367 or 18.5% offset by a
decrease in the number of vehicles retailed of
1,398 units.
Same store parts, service and collision repair gross
profit decreased by $0.8 million or 1.8% in the
three month period ended December 31, 2016
when compared to the same period in the prior
year as a result of a decrease in the number of
repair orders completed of 10,231, offset by an
increase in the average gross profit per repair
order completed of $9 or 4.0%. For the year
ended December 31, 2016, parts, service and
collision repair gross profit decreased by $3.5
million or 2.1% which can be mainly attributed to a
decrease in the number of repair orders
completed of 21,577, offset by an increase in the
average gross profit per repair order completed of
$2 or 0.9%.
Same store finance, insurance and other gross
profit decreased by $1.7 million or 6.3% in the
three month period ended December 31, 2016
when compared to the prior year as a result a
decrease in units retailed of 1,193, offset by an
increase in the average gross profit per unit sold
of $340. For the year ended December 31, 2016,
finance and insurance gross profit decreased by
$14.3 million or 12.2% and can be attributed to a
decrease in units retailed of 5,502, offset by an
increase in the average gross profit per unit sold
of $22.
The following table summarizes same store total revenue for the three months and year ended December 31,
2016 by Province:
Three Months Ended December 31
Year Ended December 31
(in thousands of dollars)
British Columbia
Alberta
Manitoba
Ontario
Other
Total
2016
105,839
120,575
226,407 271,453
41,512
14,057
109,125
2015 % Change
(12.2)%
(16.6)%
2.7%
3.5%
2.2%
42,626
14,555
111,541
2016
533,986
1,068,598
182,282
67,293
517,390
2015 % Change
(2.1)%
(11.4)%
0.6%
10.2%
0.4%
545,182
1,206,605
181,265
61,075
515,550
500,968 556,722
(10.0)%
2,369,549 2,509,677
(5.6)%
The following table summarizes same store total gross profit for the three months and year ended December
31, 2016 by Province:
(in thousands of dollars)
British Columbia
Alberta
Manitoba
Ontario
Other
Total
Three Months Ended December 31
Year Ended December 31
2015 % Change
2016
(1.9)%
18,842
19,213
(5.7)%
46,599 49,409
(7.1)%
8,250
6.1%
2,325
(10.4)%
21,207
7,664
2,467
19,012
2016
84,370
192,859
33,789
9,845
81,303
2015 % Change
(1.0)%
(8.4)%
0.2%
14.6%
(6.7)%
85,214
210,644
33,706
8,591
87,100
94,584
100,404
(5.8)%
402,166
425,255
(5.4)%
AutoCanada
2016 Annual Report
Page M24
9. ACQUISITIONS, RELOCATIONS AND REAL ESTATE
Dealership Operations and Expansion
AutoCanada’s goals are to maximize the profit
potential of every store and to generate
incremental growth through accretive acquisitions.
In 2016 we acquired two stores, and opened a
Volkswagen open point in early 2017, bringing the
total number of dealerships we operate to 56,
representing 64 franchises.
Wellington Motors
Effective October 1, 2016, the Company purchased
100% of the voting shares of Wellington Motors
Limited ("Wellington Motors"), which owns and
operates a Chrysler Dodge Jeep RAM FIAT
dealership in Guelph, Ontario, for total cash
consideration of $23,880. On October 14, 2016, the
Company also purchased the dealership land and
facilities through a wholly-owned subsidiary, WMG
Properties Inc., for $6,799. The acquisition was
funded by drawing on the Company's revolving
term facility. In 2015, the dealership retailed 968
new vehicles and 402 used vehicles.
Guelph Hyundai
On December 19, 2016, the Company purchased
substantially all of the operating and fixed assets
of Guelph Imported Cars Ltd. ("Guelph Hyundai"),
in Guelph, Ontario, for total cash consideration of
$4,521. The Company also purchased the
dealership land and facilities through a
wholly-owned subsidiary, GHM Properties Inc., for
$9,548. The acquisition was funded by drawing on
the Company's revolving term facility. In 2015, the
dealership retailed 673 new vehicles and 173 used
vehicles.
History has shown that within two years a newly
acquired store adopts AutoCanada processes and
culture. As we expand our presence into eastern
Canada we are establishing regional and brand
specialists whose role it is to ensure that every
store in our portfolio meets not only our volume
and profit targets but also every automaker sales
and customer satisfaction objectives.
AutoCanada continues to diligently evaluate
acquisition opportunities. We believe that we have
sufficient capital to be able to acquire stores that
meet our specific criteria in 2017. While our focus
remains on flagship stores in each market, we are
also targeting smaller stores that offer both
Page M25
AutoCanada
2016 Annual Report
organic growth as well as synergies with our other
local stores.
Dealership divestiture
On February 25, 2016, the Company sold
substantially all of the operating and fixed assets,
including the land and facilities, of Newmarket
Infiniti Nissan, located in Newmarket, Ontario for
cash consideration. Net proceeds of $10,077
resulted in a pre-tax gain on divesture of $3,206.
Dealership Loan Financing – Southview
Acura
On May 1, 2016, the Company made a second loan,
for $3,120, to PPH Holdings Ltd. ("PPH") to acquire
Southview Acura (“Southview”). The Company
holds no ownership interest in PPH, which is a
company controlled, and formed, by Mr. Patrick
Priestner ("Priestner"). The Company has no
participation in the equity of PPH or Southview
Acura. PPH’s principal place of business is Alberta,
Canada. Although the Company holds no voting
rights in PPH, the Company exercises significant
influence by virtue of the existence of its loan and
the provision of essential technical information
required for operations, as well as through the
relationship with Priestner, as AutoCanada’s Chair
of the Board of Directors. However, the Company
does not have the power to make or block key
decisions under the terms of the underlying
agreements. As a result, the Company accounts
for its loan to PPH under the effective interest
method and it is carried at amortized cost.
Dealership Open Points
The retail automotive industry is a mature industry
and rights to open new franchised automobile
dealerships are rarely awarded by the automobile
manufacturers. However, from time to time
automobile manufacturers may seek to establish
new dealerships in attractive markets. The right to
open a new franchised automobile dealership in a
specific location granted by an automobile
manufacturer to a dealer is referred to in the
industry as an Open Point. Generally, a new
franchised automobile dealership is fully
performing within one to three years depending
on the manufacturer and location.
The Company will review on a case-by-case basis
whether to own or lease a particular dealership
facility. In either case, the Company would incur
the costs of equipping and furnishing these
facilities, including the costs relating to the
integration of our management information
systems into the new dealerships. Costs relating to
open points are significant, and vary by dealership
depending upon size and location.
Letter of Intent, will award AutoCanada an Open
Point Kia dealership in Winnipeg, Manitoba. After
thorough review, AutoCanada has elected not to
proceed with this Open Point dealership.
Capital Plan
The Company maintains a capital plan for
contemplated future capital projects. Details of the
capital plan are described below:
Volkswagen – Sherwood Park, Alberta
Dealership Relocations
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 has constructed an approximately
45,000 square foot facility in Sherwood Park,
designed to Volkswagen Canada image standards.
The dealership opened on February 1, 2017. 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
construction is expected to begin late 2017 with
anticipated opening in mid 2018. The dealership
will be constructed by a third party and
subsequently leased by the Company.
Nissan - Ottawa, Ontario
On November 1, 2015, as part of the purchase of
Hunt Club Nissan, the Company acquired the
exclusive right to build and operate a Nissan
motor vehicle franchise on a designated property
in southwest Ottawa. AutoCanada intends to
operate the dealership out of a new facility,
designed to Nissan image standards, with
construction commenced and anticipated opening
in late 2017.
KIA - Winnipeg, Manitoba
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
Management estimates the total capital
requirements of currently planned dealership
relocations to be approximately $70.6 million to
the end of 2020. 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 $56.4
million in capital costs that it may incur in order to
expand or renovate various current locations
through to the end of 2021. The Company is
required by its manufacturers to 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 currently estimates approximately $18.3
million in capital by the first quarter of 2020
related to awarded Open Points. If awarded in the
future, Management will provide additional cost
estimates and further information regarding the
proposed 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.
AutoCanada
2016 Annual Report
Page M26
The following summarizes the capital plan for contemplated future capital projects:
(in millions of dollars)
Same Store
Dealership Relocations
Current Dealership Expansion and Imaging
Requirements
Capital Plan
Cash Outlay1
Non Same Store
Dealership Relocations
Current Dealership Expansion and Imaging
Requirements
Open Point Opportunities
Capital Plan
Cash Outlay1
Total Capital Plan
Total Cash Outlay1
2017
2018
2019
2020
2021
Total
22.3
3.3
25.6
17.3
0.1
5.2
8.1
13.4
13.4
39.0
30.7
13.3
10.6
23.9
11.8
33.1
-
33.1
21.1
-
-
5.0
6.4
11.4
11.4
35.3
23.2
4.0
2.1
6.1
6.1
39.2
27.2
1.8
3.0
4.8
4.8
-
8.0
1.7
9.7
9.7
14.5
14.5
-
70.5
9.5
9.5
9.5
26.4
96.9
64.5
-
0.1
7.8
-
7.8
7.8
17.3
17.3
30.0
18.3
48.4
48.4
145.3
112.9
1) Refers to amount expected to be funded by internal Company cash flow.
During the year, the Company re-examined its
planned capital expenditures and has reduced its
capital budget. At December 31, 2015, the four
year capital plan was $193.8 million. As a result of
increased focus on reducing capital expenditures,
the five year capital plan at December 31, 2016 is
$145.3 million.
Notwithstanding the capital plan laid out above,
expected capital expenditures are subject to
deferral due to issues in obtaining permits,
construction delays, changes in re-imaging
requirements, economic factors, or other delays
that are normal to the construction process. The
above is considered to be a guide for when the
Company expects to perform capital expenditures,
however, significant deferral may occur in the
future. Management closely monitors the capital
plan and adjusts as appropriate based on
Company performance, manufacturer
requirements, expected economic conditions, and
individual dealership needs. Management performs
a robust analysis on all future expenditures prior to
the allocation of funds. Timing of dealership
relocations is determined based on the
dealership’s current performance, the market, and
expected return on invested capital. It is expected
that a dealership relocation will result in improved
performance and increased profitability.
Page M27
AutoCanada
2016 Annual Report
10. LIQUIDITY AND CAPITAL RESOURCES
Our principal uses of funds are for capital
expenditures, repayment of debt, funding the
future growth of the Company and paying
dividends to Shareholders. We have historically
met these requirements by using cash generated
from operating activities and through short-term
and long-term indebtedness.
Under our franchise agreements, manufacturers
require us to maintain a minimum level of working
capital. We maintain 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, 2016 is as follows:
The Company had drawn $151.1 million on
its $250.0 million revolving term facility.
As a result of the above, as at December 31, 2016,
the Company currently has approximately $98.9
million in readily available liquidity, not including
future retained cash from operations that it may
deploy for growth expenditures including
acquisitions.
Cash Flow from Operating Activities
Cash flow from operating activities (including
changes in non-cash working capital) of the
Company for the year ended was $104.7 million
(cash provided by operating activities of $76.1
million plus net change in non-cash working
capital of $28.6 million) compared to $52.8 million
(cash provided by operating activities of $51.5
million plus net change in non-cash working
capital of $1.3 million) in the same period of the
prior year.
Cash Flow from Investing Activities
For the year ended December 31, 2016, cash flow
from investing activities of the Company was a net
outflow of $100.9 million as compared to a net
outflow of $165.7 million in the same period of the
prior year. This is tied to the decreased acquisition
activity in 2016 compared to 2015 resulting in less
payments for property and equipment, and
business acquisition costs.
Cash Flow from Financing Activities
For the year ended December 31, 2016, cash flow
from financing activities was a net inflow of $37.8
million as compared to a net inflow of $104.0
million in the same period of 2015. This is primarily
due to proceeds from issuance of common shares
in 2015 that did not occur in 2016.
Credit Facilities and Floor Plan Financing
Details of the Company's credit facilities and
floorplan financing are included in Note 28 of the
annual audited consolidated financial statements
for the year ended December 31, 2016.
Key Financial Covenants
The Company is required by its debt agreements
to comply with several financial covenants. As a
result of the amendment to the revolving term
facility, the calculation of the financial covenants
for our senior secured leverage ratio, adjusted
total leverage ratio, and our fixed charge coverage
ratio on our syndicated revolver have changed in
the year. These changes have resulted in the
expansion of the number and type of items that
are included in the definition of EBITDA which has
improved the Company’s covenants. With
additional EBITDA included in the calculations, the
Company has additional room compared to the
previous definition of EBITDA.
AutoCanada
2016 Annual Report
Page M28
The following is a summary of the Company’s actual performance against its financial covenants as at
December 31, 2016:
Financial Covenant
Requirement
Syndicated Revolver:
Senior Secured Leverage Ratio
Shall not exceed 2.75
Adjusted Total Leverage Ratio
Shall not exceed 5.00
Fixed Charge Coverage Ratio
Current Ratio
Syndicated Floorplan:
Current Ratio
Shall not be less than 1.20
Shall not be less than 1.05
Shall not be less than 1.10
Tangible Net Worth (millions)
Shall not be less than $40 million
Debt to Tangible Net Worth
Shall not exceed 7.50
Q4 2016
Q3 2016
New1
Actual
Calculation
Prior1
Actual
Calculation
New1
Actual
Calculation
Prior1
Actual
Calculation
1.77
4.28
2.96
1.13
1.16
$121.9
3.31
1.98
4.69
2.62
1.13
1.16
$121.9
3.31
1.38
4.12
2.55
1.12
1.17
$90.9
4.48
1.60
4.62
2.17
1.12
1.17
$90.9
4.48
1) The column "New" shows the calculation based on the Company's amended revolving term facility made in the third quarter of 2016 versus
"Prior" which shows the calculation prior to the amendment.
The covenants above are based on consolidated
financial statements of the dealerships that are
financed directly by the lender. As a result, the
actual performance against the covenant does not
necessarily reflect the actual performance of
AutoCanada. The Company is required to comply
with other covenants under the terms of its
remaining credit agreements. The Company stress
tests all covenants on a monthly and quarterly
basis and notes that a significant further drop in
performance would be necessary to breach the
covenants.
As at December 31, 2016, 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 25 of the annual audited consolidated
financial statements for the year ended December
31, 2016.
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)
Leasehold improvements
Machinery and equipment
Furniture and fixtures
Computer equipment
Company and lease vehicles
October 1, 2016
to December 31, 2016
January 1, 2016
to December 31, 2016
261
644
158
148
-
1,211
3,713
1,661
1,288
908
9
7,579
Page M29
AutoCanada
2016 Annual Report
Amounts relating to the expansion of sales and
service capacity are considered growth
expenditures. Growth expenditures are
discretionary, and represent cash outlays intended
to provide additional future cash flows benefit
future periods. During the three month period and
the year ended December 31, 2016, growth capital
expenditures of $9.5 million and $56.0 million
were incurred, respectively. These expenditures
related primarily to land and buildings that were
purchased for future dealership operations during
the second and fourth quarter of 2016. 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
Purchase of property and equipment from business acquisitions
Less: Amounts related to the expansion of sales and service capacity
October 1, 2016
to December
31, 2016
10,812
17,189
(26,790)
January 1, 2016
to December 31,
2016
63,702
17,189
(73,312)
Purchase of non-growth property and equipment
1,211
7,579
Repairs and maintenance expenditures are expensed as incurred and have been deducted from earnings for
the period. Repairs and maintenance expense incurred during the three month period and the year ended
December 31, 2016, were $1.7 million and $6.2 million (2015 - $1.7 million and $6.2 million), respectively.
Planned Capital Expenditures
Our capital expenditures consist primarily of
leasehold improvements, the purchase of furniture
and fixtures, machinery and equipment, service
vehicles, computer hardware and computer
software. Management expects that our annual
capital expenditures will increase in the future, as a
function of increases in the number of locations
Financial Position
requiring maintenance capital expenditures, the
cost of opening new locations and increased
spending on information systems.
For further information regarding planned capital
expenditures, see “ACQUISITIONS, RELOCATIONS
AND REAL ESTATE”.
The following table shows selected audited balances of the Company (in thousands) for December 31, 2016
and December 31, 2015, as well as unaudited balances of the Company at September 30, 2016, June 30, 2016,
March 31, 2016, September 30, 2015, June 30, 2015, and March 31, 2015:
(in thousands of dollars)
Cash and cash equivalents
Trade and other
receivables
Inventories
Total Assets
Revolving floorplan
facilities
Non-current debt and lease
obligations
Dec. 31,
2016
103,221
Sep. 30,
2016
96,368
Jun. 30,
2016
Mar. 31,
2016
Dec. 31,
2015
77,582
72,878
62,274
Sep. 30,
2015
77,071
Jun.
30,
2015
77,676
Mar. 31,
2015
66,351
85,587
619,718
1,600,615
108,363
597,831
1,547,344
115,427
555,957
1,548,879
116,092
628,641
1,578,225
90,821
596,542
1,532,182
118,853
581,258
1,508,028
124,683
620,837
1,517,978
104,753
625,779
1,449,213
582,695
569,581
532,283
600,578
548,322
550,857
607,694
601,432
330,351
291,408
295,922
293,273
285,759
313,073
287,202
241,929
AutoCanada
2016 Annual Report
Page M30
Net Working Capital
The automobile manufacturers represented by the
Company require the Company to maintain net
working capital targets for each individual
dealership. At December 31, 2016, the aggregate of
the net working capital requirements was
approximately $102.4 million. At December 31,
2016, 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
consolidated financial statements. 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 require the VW and
Audi dealerships to maintain minimum cash and
equity, which also restricts our ability to transfer
funds up.
Off Balance Sheet Arrangements
The Company has operating lease commitments,
with varying terms through 2037, to lease
premises and equipment used for business
purposes. The Company leases the majority of the
lands and buildings used in its franchised
automobile dealership operations from related
parties and other third parties.
The minimum lease payments over the upcoming fiscal years will be as follows:
(in thousands of dollars)
2017
2018
2019
2020
2021
Thereafter
Total
$
19,051
16,912
14,486
12,520
12,288
123,489
198,746
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 25 of
the Company’s annual consolidated financial
statements.
Related Party Transactions
Note 34 of the annual consolidated financial
statements of the Company for the year ended
December 31, 2016 summarizes the transactions
between the Company and its related parties.
Administrative support fees
The Company currently earns administrative
support fees from companies controlled by the
Chair of the Board of Directors 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.
Page M31
AutoCanada
2016 Annual Report
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.
Loan to related parties
The Company structured the loans to PPH with the
associated terms and conditions in order to satisfy
the requirements of the manufacturer. It is the
Company’s belief that these loan investments will
provide future opportunities to finance further
acquisitions thereby acquiring additional revenue
and income streams from this manufacturer.
11. OUTSTANDING SHARES
As at December 31, 2016, the Company had
27,459,683 common shares outstanding. Basic and
diluted weighted average number of shares
outstanding for the year ended December 31, 2016
were 27,350,555 and 27,455,686, respectively. As
at December 31, 2016, the value of the shares held
12. DIVIDENDS
in trust was $1.8 million (2015 – $1.3 million) which
was comprised of 103,244 (2015 - 70,933) in
shares with a nil aggregate cost. As at March 16,
2017, there were 27,459,683 shares issued and
outstanding.
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 2016:
Record date
February 29, 2016
May 31, 2016
August 31, 2016
November 30, 2016
Payment date
March 15, 2016
June 15, 2016
September 15, 2016
December 15, 2016
Per Share $
0.25
0.10
0.10
0.10
0.55
Total $
6,840
2,735
2,735
2,736
15,046
On February 21, 2017 the Board declared a
quarterly eligible dividend of $0.10 per common
share on AutoCanada’s outstanding Class A
shares, payable on March 15, 2017 to shareholders
of record at the close of business on February 28,
2017.
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 within
these covenants.
As per the terms of the HSBC facility, we are
restricted from declaring dividends and
AutoCanada
2016 Annual Report
Page M32
13. 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 unit
and per unit amounts)
Cash provided by
operating activities
Deduct:
Purchase of
property and
equipment
Free cash flow 1
Weighted average
shares outstanding
at end of period
Free cash flow per
share
Free cash flow - 12
month trailing
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Q4
2015
Q3
2015
Q2
2015
Q1
2015
24,930
32,594
40,374
6,831
12,420
20,139
21,004
(810)
(1,506)
23,424
(1,697)
30,897
(2,452)
37,922
(2,786)
(3,354)
4,045
9,066
(5,144)
14,995
(3,228)
17,776
(2,352)
(3,162)
27,353,431 27,347,585 27,338,767 27,362,440 25,016,637 24,440,080 24,424,598 24,409,574
0.86
1.13
1.39
0.15
0.36
0.61
0.73
(0.13)
96,288
81,930
66,028
45,882
38,675
69,431
60,695
52,780
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, finance lease receivables,
other current assets, trade and other payables,
vehicle repurchase obligations 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.
(in thousands of dollars)
Trade and other receivables
Inventories
Finance lease receivables
Other current assets
Trade and other payables
Revolving floorplan facilities
Vehicle repurchase obligations
January 1, 2016 to
December 31, 2016
January 1, 2015 to
December 31, 2015
8,031
(8,765)
1,014
150
2,670
20,535
4,948
28,583
1,939
(3,584)
3,271
(1,761)
3,959
(2,867)
307
1,264
Page M33
AutoCanada
2016 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 unit
and per unit amounts)
Cash provided by
operating activities
before changes in
non-cash working
capital
Deduct:
Purchase of
non-growth
property and
equipment
Adjusted free cash
flow 1
Weighted average
shares outstanding
at end of period
Adjusted free cash
flow per share
Adjusted free cash
flow - 12 month
trailing
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Q4
2015
Q3
2015
Q2
2015
Q1
2015
14,344 28,996
24,050
8,754
11,242
23,082
22,386
(5,221)
(1,211)
(1,230)
(2,418)
(2,719)
(3,164)
(4,131)
(3,199)
(2,199)
13,133
27,766
21,632
6,035
8,078
18,951
19,187
(7,420)
27,353,431 27,347,585 27,338,767 27,362,440 25,016,637 24,440,080 24,424,598 24,409,574
0.48
1.02
0.79
0.22
0.32
0.78
0.79
(0.30)
68,566
63,511
54,696
52,251
38,796
47,840
51,002
47,316
1) This financial measure is identified and defined under the section "NON-GAAP MEASURES".
In the year ending December 31, 2016, the
Company paid approximately $9.4 million in 2016
corporate income taxes and 2017 tax installments,
which reduced our adjusted free cash flow by this
amount. The Company expects the payment of
corporate income taxes to have a more significant
negative affect on free cash flow and adjusted free
cash flow. See “RESULTS FROM OPERATIONS –
Income Taxes” for further detail regarding the
impact of corporate income taxes on cash flow.
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.
AutoCanada
2016 Annual Report
Page M34
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 of property and equipment) 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
unit and per unit amounts)
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Q4
2015
Q3
2015
Q2
2015
Q1
2015
EBITDA1,2
Deduct:
Depreciation of property and
equipment
28,536
26,915
30,845
21,010
23,524
29,487
30,730
13,890
(4,921)
(4,860)
(4,822)
(4,954)
(5,176)
(5,063)
(4,461)
(4,160)
EBIT1,2
23,615
22,055
26,023
16,056
18,348
24,424
26,269
9,730
Average long-term debt
Average shareholder's equity
Average capital employed1
Return on capital
Comparative adjustment3
Adjusted average capital
employed1
Adjusted return on capital
employed1
Adjusted return on capital
employed - 12 month trailing
333,310 315,678
491,026 503,163
824,336 818,841
2.7%
(13,191)
2.9%
25,959
310,281
516,513
826,794
3.1%
(13,191)
300,520
510,595
312,471
314,443
481,112 447,774
277,571
239,251
439,711 436,262
811,115 793,583
2.3%
(13,191)
2.0%
(13,191)
762,217
3.2%
(17,264)
717,282 675,513
1.4%
(17,264)
3.7%
(17,264)
830,720 805,650
813,603
797,924 778,354
744,953
700,018 658,249
2.8%
2.7%
3.2%
2.0%
2.4%
3.3%
3.8%
1.5%
10.9%
10.6%
11.2%
11.7%
11.2%
12.7%
15.5%
16.5%
1) These financial measures are identified and defined under the section "NON-GAAP MEASURES".
2) EBITDA and EBIT used in the calculation of Adjusted Return on Capital Employed is calculated using the financial results including
non-controlling interests.
3) 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 is expected to 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 M35
AutoCanada
2016 Annual Report
14. CRITICAL ACCOUNTING ESTIMATES AND
ACCOUNTING POLICY DEVELOPMENTS
A complete listing of critical accounting policies,
estimates, judgments and measurement
uncertainty can be found in Notes 3 and 5 of the
annual consolidated financial statements for the
year ended December 31, 2016.
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, 2016. A listing of the
standards issued which are applicable to the
Company can be found in Note 4 of the annual
consolidated financial statements for the year
ended December 31, 2016.
15. DISCLOSURE CONTROLS AND INTERNAL
CONTROLS OVER FINANCIAL REPORTING
Disclosure Controls & Procedures
Disclosure controls and procedures are designed
to ensure that information required to be
disclosed by the Company in reports filed with
securities regulatory authorities is recorded,
processed, summarized, and reported on a timely
basis, and is accumulated and communicated to
the Company's management, including the Chief
Executive Office ("CEO") and Chief Financial
Officer ("CFO"), as appropriate, to allow timely
decisions regarding required disclosure.
As of December 31, 2016, 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.
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,
2016, 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.
AutoCanada
2016 Annual Report
Page M36
Changes in Internal Control over Financial
Reporting
There have been no changes in the Company's
internal control over financial reporting that have
16. 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,
materially affected, or are reasonably likely to
materially affect, the Company's internal control
over financial reporting during the year ended
December 31, 2016.
cash flows or prospects could be materially
adversely affected. In such case, the trading price
of our shares could decline. Additional risks and
uncertainties not presently known to us or that we
currently deem immaterial may also adversely
affect our business and operations. A
comprehensive discussion of the known risk
factors of AutoCanada and additional business
risks is available in our 2016 Annual Information
Form dated March 17, 2016 available on the SEDAR
website at www.sedar.com.
17. FORWARD LOOKING STATEMENTS
Certain statements contained in the MD&A 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", "plan", "seek", "may",
"intend", "likely", "will", "believe", "shall" 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.
Details of the Company's material forward-looking
statements are included in the Company's most
recent Annual Information Form. 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.
Page M37
AutoCanada
2016 Annual Report
18. NON-GAAP MEASURES
Our MD&A contains certain financial measures
that do not have any standardized meaning
prescribed by Canadian GAAP. Therefore, these
financial measures may not be comparable to
similar measures presented by other issuers.
Investors are cautioned these measures should
not be construed as an alternative to net earnings
(loss) or to cash provided by (used in) operating,
investing, and financing activities determined in
accordance with Canadian GAAP, as indicators of
our performance. We provide these measures to
assist investors in determining our ability to
generate earnings and cash provided by (used in)
operating activities and to provide additional
information on how these cash resources are
used. We list and define these "NON-GAAP
MEASURES" below:
EBITDA
EBITDA is a measure commonly reported and
widely used by investors as an indicator of a
company’s operating performance and ability to
incur and service debt, and as a valuation metric.
The Company believes EBITDA assists investors in
comparing a company’s performance on a
consistent basis without regard to depreciation
and amortization and asset impairment charges
which are non-cash in nature and can vary
significantly depending upon accounting methods
or non-operating factors such as historical cost.
References to "EBITDA" are to earnings before
interest expense (other than interest expense on
floorplan financing and other interest), income
taxes, depreciation, amortization and asset
impairment charges. EBITDA attributable to
AutoCanada shareholders refers to the parent
portion of consolidated financial results. Non-
controlling interest (the portion of ownership not
attributable to the parent) is excluded.
considers these expenses to be non-cash in
nature. The Company believes adjusted EBITDA
provides improved continuity with respect to the
comparison of our operating results over a period
of time. Adjusted EBITDA attributable to
AutoCanada shareholders refers to the parent
portion of consolidated financial results. Non-
controlling interest (the portion of ownership not
attributable to the parent) is excluded.
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, the revaluation of
redemption liabilities, the unrealized gain or loss
on embedded derivatives, 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. Adding
back these amounts to net earnings allows
Management to assess the net earnings of the
Company from ongoing operations. Adjusted net
earnings per 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 EBITDA
Free Cash Flow
Adjusted EBITDA is an indicator of a company's
operating performance and ability to incur and
service debt. 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 revaluation of
redemption liabilities, and the unrealized gain or
loss on embedded derivatives are added back to
EBITDA to get to adjusted EBITDA. The Company
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
AutoCanada
2016 Annual Report
Page M38
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.
Adjusted free cash flow is considered relevant
because it provides an indication of how much
cash generated by operations before changes in
non-cash working capital is available after
deducting expenditures for non-growth capital
assets. It shall be noted that although we consider
this measure to be adjusted free cash flow,
financial and non-financial covenants in our credit
facilities and dealer agreements may restrict cash
from being available for distributions,
re-investment in the Company, potential
acquisitions, or other purposes. Investors should
be cautioned that adjusted free cash flow may not
actually be available for growth or distribution of
the Company. References to “Adjusted free cash
flow” are to cash provided by (used in) operating
activities (before changes in non-cash working
capital balances) less non-growth capital
expenditures.
Absorption Rate
Absorption rate is an operating measure
commonly used in the retail automotive industry
as an indicator of the performance of the 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
Page M39
AutoCanada
2016 Annual Report
purpose, fixed operating costs include fixed
salaries and benefits, administration costs,
occupancy costs, insurance expense, utilities
expense and interest expense (other than interest
expense relating to floor plan financing) of the
dealerships only.
Average Capital Employed
Average capital employed is a measure used by
Management to determine the amount of capital
invested in AutoCanada and is used in the
measure of Return on Capital Employed
(described below). Average capital employed is
calculated as the average balance of interest
bearing debt for the period (including current
portion of long term debt, excluding revolving
floorplan facilities) and the average balance of
shareholders equity for the period. Management
does not include future income tax, non-interest
bearing debt, or revolving floorplan facilities in the
calculation of average capital employed as it does
not consider these items to be capital, but rather
debt incurred to finance the operating activities of
the Company.
Adjusted Average Capital Employed
Adjusted average capital employed is a measure
used by Management to determine the amount of
capital invested in AutoCanada and is used in the
measure of Adjusted Return on Capital Employed
(described below). Adjusted average capital
employed is calculated as the average balance of
interest bearing debt for the period (including
current portion of long term debt, excluding
revolving floorplan facilities) and the average
balance of shareholders equity for the period,
adjusted for impairments of intangible assets, net
of deferred tax. Management does not include
future income tax, non-interest bearing debt, or
revolving floorplan facilities in the calculation of
adjusted average capital employed as it does not
consider these items to be capital, but rather debt
incurred to finance the operating activities of the
Company.
Return on Capital Employed
Return on capital employed is a measure used by
Management to evaluate the profitability of our
invested capital. As a corporation, Management of
AutoCanada may use this measure to compare
potential acquisitions and other capital
investments against our internally computed cost
of capital to determine whether the investment
shall create value for our shareholders.
Management may also use this measure to look at
past acquisitions, capital investments and the
Company as a whole in order to ensure
shareholder value is being achieved by these
capital investments. Return on capital employed is
calculated as EBIT (defined above) divided by
Average Capital Employed (defined above).
Adjusted Return on Capital Employed
Adjusted return on capital employed is a measure
used by Management to evaluate the profitability
of our invested capital. As a corporation,
management of AutoCanada may use this
measure to compare potential acquisitions and
other capital investments against our internally
computed cost of capital to determine whether
the investment shall create value for our
shareholders. Management may also use this
measure to look at past acquisitions, capital
investments and the Company as a whole in order
to ensure shareholder value is being achieved by
these capital investments. Adjusted return on
capital employed is calculated as EBIT (defined
above) divided by Adjusted Average Capital
Employed (defined above).
Cautionary Note Regarding Non-GAAP
Measures
EBITDA, EBIT, Free Cash Flow, Absorption Rate,
Average Capital Employed, Return on Capital
Employed, Adjusted Average Capital Employed
and Adjusted Return on Capital Employed are not
earnings measures recognized by GAAP and do
not have standardized meanings prescribed by
GAAP. Investors are cautioned that these
non-GAAP measures should not replace net
earnings or loss (as determined in accordance
with GAAP) as an indicator of the Company's
performance, of its cash flows from operating,
investing and financing activities or as a measure
of its liquidity and cash flows. The Company's
methods of calculating EBITDA, EBIT, Free Cash
Flow, Absorption Rate, Average Capital
Employed, Return on Capital Employed. Adjusted
Average Capital Employed and Adjusted Return
on Capital Employed may differ from the methods
used by other issuers. Therefore, the Company's
EBITDA, EBIT, Free Cash Flow, Absorption Rate,
Average Capital Employed, Return on Capital
Employed, Adjusted Average Capital Employed
and Adjusted Return on Capital Employed may
not be comparable to similar measures presented
by other issuers.
AutoCanada
2016 Annual Report
Page M40
CONSOLIDATED FINANCIAL
STATEMENTS
For the year ended December 31, 2016
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, 2016 and December 31,
2015 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, 2016 and December 31, 2015 and their financial
performance and their cash flows for the years then ended in accordance with International Financial Reporting
Standards.
Chartered Professional Accountants
March 16, 2017
Edmonton, Canada
Page F2 • AutoCanada • 2016 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
Gain on disposal of assets, net
Impairment of intangible assets, net (Note 24)
Income from loans to associate (Note 23)
Operating profit
Finance costs (Note 11)
Finance income (Note 11)
Other gains and (losses) (Note 12)
Net income for the year before taxes
Income taxes (Note 13)
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 (Note 32)
Basic
Diluted
Weighted average shares (Note 32)
Basic
Diluted
December 31,
2016
$
December 31,
2015
$
2,891,581
2,903,803
(2,405,448)
(2,416,094)
486,133
487,709
(400,417)
(395,877)
85,716
5,171
2,956
91,832
5,546
249
(54,096)
(18,757)
1,165
40,912
(31,664)
2,121
5,785
17,154
8,575
8,579
2,596
5,983
8,579
0.09
0.09
49
78,919
(31,628)
2,292
(4,478)
45,105
17,791
27,314
22,821
4,493
27,314
0.93
0.92
27,350,555
24,574,022
27,455,686
24,674,083
The accompanying notes are an integral part of these consolidated financial statements.
Approved on behalf of the Company:
Gordon R. Barefoot, Director
Barry L. James, Director
AutoCanada • 2016 Annual Report • Page F3
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 tax recoverable
Current portion of finance lease receivables (Note 20)
Other current assets
Assets held for sale (Note 21)
Restricted cash (Note 17)
Property and equipment (Note 22)
Loans to associate (Note 23)
Long-term portion of finance lease receivables (Note 20)
Other long-term assets (Note 26)
Intangible assets (Note 24)
Goodwill (Note 24)
LIABILITIES
Current liabilities
Bank indebtedness (Note 17)
Trade and other payables (Note 27)
Revolving floorplan facilities (Note 28)
Vehicle repurchase obligations (Note 29)
Current indebtedness (Note 28)
Current portion of redemption liabilities (Note 16)
Liabilities held for sale
Long-term indebtedness (Note 28)
Deferred income tax (Note 13)
Redemption liabilities (Note 16)
EQUITY
Attributable to AutoCanada shareholders
Attributable to Non-controlling interests
December 31,
2016
$
December 31,
2015
$
103,221
85,587
619,718
2,262
3,797
4,219
1,556
820,360
6,558
342,768
14,726
5,747
7,110
378,982
24,364
1,600,615
226
90,131
582,695
6,794
21,679
22,752
-
724,277
330,351
24,683
23,712
62,274
90,821
596,542
6,920
4,012
4,760
27,482
792,811
6,288
278,385
8,470
6,546
7,078
399,648
32,956
1,532,182
898
86,284
548,322
1,846
11,484
6,338
14,493
669,665
285,759
25,838
40,891
1,103,023
1,022,153
440,081
57,511
497,592
1,600,615
451,945
58,084
510,029
1,532,182
Commitments and contingencies (Note 30)
The accompanying notes are an integral part of these consolidated financial statements.
Page F4 • AutoCanada • 2016 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
$
Contributed
surplus
$
Accumulated
deficit
$
Non-controlling
interests
$
Total
$
Total
Equity
$
Balance, January 1, 2016
508,237
4,286
(60,578)
451,945
58,084 510,029
Net and comprehensive income
Dividends declared on common shares
(Note 32)
Dividends declared by subsidiaries to
non-controlling interests (Note 16)
-
-
-
Treasury shares acquired (Note 32)
(1,301)
Shares settled from treasury (Note 32)
Share-based compensation (Note 10)
950
-
Balance, December 31, 2016
507,886
-
-
-
-
(950)
1,887
5,223
2,596
2,596
5,983
8,579
(15,046)
(15,046)
- (15,046)
-
-
-
-
-
(6,556)
(6,556)
(1,301)
-
1,887
-
-
-
(1,301)
-
1,887
(73,028)
440,081
57,511 497,592
Attributable to AutoCanada shareholders
Share
capital
$
Contributed
surplus
$
Accumulated
deficit
$
Non-controlling
interests
$
Total
Equity
$
Total
$
Balance, January 1, 2015
434,572
4,721
(57,865)
381,428
55,028 436,456
Net and comprehensive income
Dividends declared on common shares
(Note 32)
Non-controlling interests arising on
acquisitions (Note 14)
Recognition of redemption liability
granted to non-controlling interests
(Note 14)
Dividends declared by subsidiaries to
non-controlling interests (Note 16)
-
-
-
-
-
Common shares issued (Note 32)
72,702
Treasury shares acquired (Note 32)
Shares settled from treasury (Note 32)
Share-based compensation (Note 10)
(89)
1,052
-
Balance, December 31, 2015
508,237
-
-
-
-
-
-
-
(1,052)
617
4,286
22,821
22,821
4,493
27,314
(24,432)
(24,432)
- (24,432)
-
-
5,847
5,847
(1,102)
(1,102)
-
(1,102)
-
-
-
-
-
-
(7,284)
(7,284)
72,702
(89)
-
617
-
-
-
-
72,702
(89)
-
617
(60,578)
451,945
58,084 510,029
The accompanying notes are an integral part of these consolidated financial statements.
AutoCanada • 2016 Annual Report • Page F5
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 13)
Amortization of prepaid rent
Depreciation of property and equipment (Note 22)
Gain on disposal of assets
Impairment of intangible assets (Note 24)
Share-based compensation - equity-settled (Note 10)
Share-based compensation - cash-settled
Loss (gain) on embedded derivative (Note 11)
Revaluation of redemption liabilities (Note 16)
Revaluation of contingent consideration (Note 12)
Income taxes paid
Net change in non-cash working capital (Note 35)
Investing activities
Additions to restricted cash (Note 17)
Business acquisitions, net of cash acquired (Note 14)
Proceeds on divesture of dealership (Note 15)
Purchases of property and equipment (Note 22)
Proceeds on sale of property and equipment
Loans to associate (Note 23)
Financing activities
Proceeds from long-term indebtedness
Repayment of long-term indebtedness
Common shares repurchased, net of settled
Dividends paid (Note 32)
Dividends paid to non-controlling interests by subsidiaries (Note 16)
Proceeds from issuance of common shares (Note 32)
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year (Note 17)
Cash and cash equivalents at end of year (Note 17)
December 31,
2016
$
December 31,
2015
$
8,579
8,575
452
19,557
(2,956)
54,096
1,887
(452)
3
(765)
(5,020)
(7,810)
28,583
104,729
(270)
(40,859)
10,077
(63,702)
121
(6,256)
(100,889)
251,282
(191,550)
(351)
(15,046)
(6,556)
-
37,779
41,619
61,376
102,995
27,314
17,791
452
18,860
(249)
18,757
617
(490)
(42)
4,329
149
(35,999)
1,264
52,753
(6,288)
(76,480)
-
(74,606)
143
(8,470)
(165,701)
338,730
(274,670)
(89)
(24,432)
(7,284)
71,788
104,043
(8,905)
70,281
61,376
The accompanying notes are an integral part of these consolidated financial statements.
Page F6 • AutoCanada • 2016 Annual Report
AutoCanada Inc.
Notes to the Financial Statements
for the Year Ended December 31, 2016 and 2015
(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 leasing,
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, 15511 123
Avenue NW, Edmonton, Alberta, Canada, T5V 0C3.
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 16, 2017.
The significant accounting policies used in the
preparation of these consolidated financial
statements are as follows:
Basis of measurement
The consolidated financial statements have been
prepared under the historical cost convention,
except for the revaluation of certain financial assets
and financial liabilities to fair value, including
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 presented as a
component of equity.
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 • 2016 Annual Report • Page F7
Business combinations
Business combinations are accounted for using the
acquisition method of accounting. This involves
recognizing identifiable assets (including intangible
assets not previously recognized 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. Any subsequent change to the
fair value of contingent consideration liabilities is
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.
Page F8 • AutoCanada • 2016 Annual Report
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:
• are generally recognized for all taxable
temporary differences; and
• are not recognized on temporary differences
that arise from goodwill which is not deductible
for tax purposes.
Deferred tax assets:
• are recognized to the extent it is probable that
taxable profits will be available against which
the deductible temporary differences can be
utilized; and
• are reviewed at the end of the reporting period
and reduced to the extent that it is no longer
probable that sufficient taxable profits will be
available to allow all or part of the asset to be
recovered.
Deferred tax assets and liabilities are not
recognized in respect of temporary differences
that arise on initial recognition of assets and
liabilities acquired other than in a business
combination.
(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, 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 the Company. These incentives are
recognized as a reduction to the cost of sales as the
related vehicles are sold.
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.
Financial assets are recognized on the settlement
date, which is the date on which the asset is
delivered to or by the Company. Financial assets are
derecognized when the rights to receive cash flows
from the instruments have expired or were
transferred and the Company has transferred
substantially all risks and rewards of ownership.
The Company's financial assets, including cash and
cash equivalents, trade and other receivables and
loans to associates, are classified as loans and
receivables. 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.
The Company's financial liabilities include trade and
other payables, revolving floorplan facilities, vehicle
repurchase obligations, long-term indebtedness,
contingent consideration, and redemption liabilities.
Financial liabilities are measured at amortized cost,
except for redemption liabilities and contingent
consideration which are carried at fair value through
profit or loss.
Cash and cash equivalents
Cash and cash equivalents include amounts on
deposit with financial institutions and amounts with
Scotiabank that are readily available to the Company
(See Note 25 - Financial instruments - Credit risk for
explanation of credit risk associated with amounts
held with Scotiabank).
AutoCanada • 2016 Annual Report • Page F9
Trade and other receivables
Assets held for sale
Non-current assets and associated liabilities are
classified as assets held for sale when their carrying
amount is to be recovered principally through a sale
transaction, rather than continuing use, and a sale is
highly probable.
Assets designated as for sale are recorded at the
lower of carrying amount at designation and fair
value less costs to sell.
Depreciation is not charged against property and
equipment classified as held for sale.
Property and equipment
Property and equipment are stated at cost less
accumulated depreciation and any accumulated
impairment losses. Cost includes expenditures that
are 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 and lease vehicles
Computer equipment
20%
20%
30%
30%
Buildings are depreciated on a straight-line basis
over the estimated useful lives of the buildings
ranging from ten to forty-five years. 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 useful life of the asset.
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.
Trade and other receivables are amounts due from
customers, financial institutions and suppliers that
arise 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.
Page F10 • AutoCanada • 2016 Annual Report
Intangible assets and goodwill
(a) Non-financial assets
The carrying values of non-financial assets with
finite lives, such as property and equipment, are
assessed for impairment whenever events or
changes in circumstances indicate that their
carrying amounts may not be recoverable. For
the purposes of assessing impairment, assets are
grouped at the lowest levels for which there are
separately identifiable cash flows.
(b) Intangible assets and goodwill
The carrying values of all intangible assets are
reviewed for impairment whenever events or
changes in circumstances indicate that their
carrying amounts may not be recoverable.
Additionally, the carrying values of identifiable
intangible assets with indefinite lives and
goodwill are tested annually for impairment.
Specifically:
• Our 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.
• For the purpose of impairment testing,
goodwill is allocated to CGU based on the level
at which management monitors it, which is not
higher than an operating segment before
aggregation. Goodwill is allocated to those
CGUs that are expected to benefit from the
business combination in which the goodwill
arose.
(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:
• Certain of our dealer agreements continue
indefinitely by their terms; and
• Certain of our dealer agreements have limited
terms, but are routinely renewed without
substantial cost to the Company.
Intangible assets are carried at cost less
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
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.
AutoCanada • 2016 Annual Report • Page F11
Trade and other payables
The Company as a lessee:
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
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 recognized 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.
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
recognized as a receivable. The difference
between the gross receivable and the present
value of the receivable is recognized 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.
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 recognized 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 recognized as income or expense
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.
Page F12 • AutoCanada • 2016 Annual Report
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.
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.
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,
2016.
The standards issued that are applicable to the
Company are as follows:
•
•
•
•
IAS 7, Statement of Cash Flows - in January
2016, the IASB issued amendments to IAS 7,
Statement of Cash Flows to require a
reconciliation of opening and closing liabilities
that form part of an entity’s financing activities,
including both changes arising from cash flows
and non-cash changes. The amendments are
effective for reporting periods beginning on or
after January 1, 2017 and may be applied
prospectively.
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.
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, 2018, with earlier application
permitted.
IFRS 16, Leases - in January 2016, the IASB
issued IFRS 16, which replaces IAS 17, Leases,
and its associate interpretative guidance. IFRS
16 applies a control model to the identification
of leases, distinguishing between a lease and a
service contract on the basis of whether the
customer controls the asset being leased. For
those assets determined to meet the definition
of a lease, IFRS 16 introduces significant
changes to the accounting by lessees,
introducing a single, on-balance sheet
accounting model that is similar to current
finance lease accounting, with limited
exceptions for short-term leases or leases of
low value assets. Lessor accounting remains
similar to current accounting practice. The
AutoCanada • 2016 Annual Report • Page F13
standard is effective for annual periods
beginning on or after January 1, 2019, with early
application permitted for entities that apply
IFRS 15.
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.
Critical estimates and assumptions in determining
the value of assets and 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 Company may record
impairment charges in the future.
The Company tests, at least annually or more
frequently if events or changes in circumstances
indicate that they may be impaired, in accordance
with its accounting policies. The recoverable amounts
of CGUs have been estimated based on the greater of
fair value less costs to dispose and value-in-use
calculations (see Note 24).
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.
Redemption liabilities
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
recognize 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
recognized as income or expenses in the
Consolidated Statement of Comprehensive Income.
Loans to associate
The loans to associate are carried at amortized cost
using the effective interest method. This method
applies the effective interest rate to the estimated
future cash flows in order to calculate the carrying
value of the loans each period. The effective interest
rate is calculated at inception of the loans using an
estimate of future cash flows. The cash flows related
to the loans are tied to both the base interest rate as
well as the related licensing fees, the licensing fees
are determined based on gross margins of the
associate.
Key estimates and assumptions involved in
determining the effective interest rate and the
carrying value are the cash flow projections,
specifically the gross margins of the associate.
Refer to Note 36 for further information about
methods and assumptions used in determining the
carrying value.
Page F14 • AutoCanada • 2016 Annual Report
Critical judgments in applying accounting policies:
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.
(a) Investments in subsidiaries
On May 6, 2016, Mr. Patrick Priestner ("Priestner"),
then Executive Chair of the Company,
transitioned from his role as an employee and
assumed the role of non-executive Chair of the
Board of Directors ("Chair"). Priestner also signed
an agreement effective May 6, 2016 (the
"Agreement") giving the Company certain rights
as it relates to its investments in subsidiaries (the
"investees"). The Agreement is for a 14 month
term, automatically renewable for successive one
year terms, and cancellable by either party
subject to a one year notice period. These events
caused the Company to re-evaluate its significant
judgment dealing with the accounting for its
investees. Since the Company does not hold
voting shares in the investees, the Company
evaluated whether it continued to exercise power
over the investees through a de facto agency
relationship with Priestner, or any other
substantive means.
The following facts were considered to assess the
relationship between AutoCanada and Priestner:
Factors indicative of Priestner controlling the
investees:
• As a function of owning 100% of the voting
shares of the investees, and in the absence of
other contractual arrangements, Priestner
possesses the legal right to control decisions as
they pertain to the investees;
• Priestner has not relied on any financial support
from the Company in making his investments,
and therefore the risk of loss and reward to
Priestner personally is significant; and
• Priestner’s level of expertise and knowledge in
operating the investees.
Factors indicative of the Company controlling
the investees:
• The Company has contractual rights to
participate in any issuance or sale of securities
that would impact its proportionate interest in
the investees, as well as a right of first refusal
to purchase Priestner’s shares in applicable
circumstances;
• The Company has retained effective control of
the relevant activities that will impact its
investment returns through execution of the
Agreement, which provides the Company with,
among other things, the ability to hire, manage
and terminate the general managers of the
relevant dealerships;
• The directors and officers of the investees are
related parties of the Company; and
• The Company is involved in the operational
decision making of its investees in a fashion
consistent with its wholly-owned dealerships.
Prior to the change in employment status, the
Company concluded that it had power over its
investees through a de facto agency relationship
with Priestner in respect of these investments. As a
result of the signing of the Agreement, management
has concluded that it continues to have power over
the relevant activities and therefore control of the
investees. As a result, the financial results of the
investees continue to be consolidated in the
Company’s financial statements.
Should the nature of the relationship and/or the
relevant agreements between Priestner and the
Company change, or should a termination notice be
received in the future, this assessment would need to
be further evaluated.
(b) Loans to associate
AutoCanada has provided loans to PPH Holdings Ltd.
("PPH") for which the voting interests are held 100%
by Priestner, the Chair, as described in Note 23.
When assessing whether the Company has control of
PPH, management has considered the nature of the
loans, the Company’s relationship with Priestner and
whether the Company has the ability to direct
decision-making rights of Priestner pertaining to its
loan to PPH. In making this assessment, the
prevailing considerations are that the loans to PPH
are repayable at any time without recourse, and
grant the Company no power to control PPH.
AutoCanada’s returns from PPH are derived from
AutoCanada • 2016 Annual Report • Page F15
6 Segment information
Operating segments are reported in a manner
consistent with the internal reporting provided to the
Chief Operating Decision Maker ("CODM"), the
Company’s 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.
Additionally, these dealerships have similar expected
long-term growth rates and similar average gross
margins. 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.
interest on the loans and license fees based on gross
profit, as such, operating decisions made by Priestner
impacting operating profit or net income will impact
his returns but will not affect AutoCanada’s returns.
Priestner is not considered to be a de facto agent of
AutoCanada as it relates to PPH. The following facts
were also considered to assess the relationship
between AutoCanada and Priestner as it relates to
PPH:
• Regardless of employment at AutoCanada,
Priestner’s interest in PPH would remain with full
ability to control decisions as they pertain to
PPH;
• The loan agreements stipulate that the loans'
performance, repayment or prepayment will not
in any way have any consequences in relation to
the position of Priestner at AutoCanada;
• Priestner has not relied on any financial support
from AutoCanada in making his investment in
PPH, and therefore the risk of loss and reward to
Priestner personally is significant;
• There are no contractual rights providing
AutoCanada with decision making power over
Priestner, additionally the Company is not
involved in the operational decision making of
PPH;
• Priestner’s level of expertise and knowledge in
operating PPH;
• Priestner has the ability to prepay or repay the
loans at any time and AutoCanada has no ability
to block such a transaction.
When combining these considerations with the fact
that Priestner is the sole director of the Board of
PPH, and therefore governs relevant activities of the
investee, management has concluded that
AutoCanada does not have power over PPH, and
therefore has not consolidated this associate.
As a result of Priestner’s change in employment from
Executive Chair to non-executive Chair of the Board
of Directors, the Company has assessed the
relationship between Priestner and the Company as it
relates to PPH. As a result of the reassessment, it was
concluded that Priestner continues not to be
considered a de facto agent of AutoCanada as it
relates to PPH. 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.
Page F16 • AutoCanada • 2016 Annual Report
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
9 Operating expenses
Employee costs (Note 10)
Administrative costs (1)
Facility lease costs
Depreciation of property and equipment (Note 22)
2016
$
1,652,795
725,430
130,423
382,933
2,891,581
2016
$
1,534,498
678,238
11,038
181,674
2,405,448
2016
$
248,976
108,363
23,521
19,557
2015
$
1,668,237
704,569
143,383
387,614
2,903,803
2015
$
1,545,829
663,940
12,579
193,746
2,416,094
2015
$
245,703
109,593
21,721
18,860
400,417
395,877
(1) Administrative costs include professional fees, consulting services, technology-related expenses, 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
Share-based compensation
Other benefits
2016
$
223,536
12,797
10,696
1,887
60
2015
$
221,106
13,112
10,854
617
14
248,976
245,703
AutoCanada • 2016 Annual Report • Page F17
11 Finance costs and finance income
Finance costs:
Interest on long-term indebtedness
Unrealized loss (gain) on embedded derivative (Note 28)
Floorplan financing
Other interest expense
Finance income:
Short-term bank deposits
2016
$
16,500
3
12,408
2,753
31,664
2015
$
14,909
(42)
13,160
3,601
31,628
(2,121)
(2,292)
Cash interest paid during the year ended December 31, 2016 was $31,548 (2015 - $31,463).
12 Other gains and (losses)
Revaluation of redemption liabilities (Note 16)
Revaluation of contingent consideration
13 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
2016
$
765
5,020
5,785
2016
$
12,316
(3,741)
8,575
2015
$
(4,329)
(149)
(4,478)
2015
$
19,290
(1,499)
17,791
2016
$
17,154
2015
$
45,105
Comprehensive income before tax multiplied by the standard rate of
Canadian corporate tax of 27.2% (2015 - 28.2%)
4,667
12,719
Effects of:
Impact of non-deductible items
Difference between future and current rate
Adjustment in respect of prior years
Other, net
Total income tax expense
Page F18 • AutoCanada • 2016 Annual Report
4,553
(39)
(556)
(50)
8,575
2,646
1,276
934
216
17,791
The movements of deferred tax assets and liabilities are shown below:
Deferred tax assets (liabilities)
$
$
$
$
Deferred
Goodwill and
income from
partnerships
Property and
equipment
intangible
assets
Lease
receivables
Other
$
Total
$
January 1, 2015
(6,588)
2,161
(22,168)
(3,532)
1,932
(28,195)
(Expense) benefit to Consolidated
Statement of Comprehensive Income
5,383
48
(4,457)
696
-
-
-
-
-
-
-
-
(171)
914
(56)
1,499
914
(56)
(1,205)
2,209
(26,625)
(2,836)
2,619
(25,838)
Deferred tax on share issuance costs
Other
December 31, 2015
(Expense) benefit to Consolidated
Statement of Comprehensive Income
(473)
(320)
Acquisition of subsidiary (Note 14)
Other
-
-
-
-
4,837
(2,738)
-
317
(649)
-
-
-
181
3,712
(2,738)
181
December 31, 2016
(1,678)
1,889
(24,526)
(2,519)
2,151
(24,683)
Income tax expense is recognized based on
management's best estimate of the weighted
average annual income tax rate expected for the
full financial year. The impairment charge
recorded during the year resulted in $9,479 in
deferred tax recoveries for the year ended
December 31, 2016. The estimated average annual
statutory rates used for the year ended December
31, 2016 was 27.2% (2015 - 28.2%).
14 Business acquisitions
During the year ended December 31, 2016, the
Company completed two business acquisitions
comprising two automotive dealerships,
representing two franchises. All acquisitions have
been accounted for using the acquisition method.
Acquisitions completed during the year are as
follows:
Wellington Motors
Effective October 1, 2016, the Company
purchased 100% of the voting shares of
Wellington Motors Limited ("Wellington Motors"),
which owns and operates a Chrysler Dodge Jeep
RAM FIAT dealership in Guelph, Ontario, for total
cash consideration of $23,880. On October 14,
.
Changes in the deferred income tax components
are adjusted through deferred tax expense. Of the
above components of deferred income taxes,
$2,703 (2015 - $6,588) of the deferred tax
liabilities are expected to be recovered within 12
months.
2016, the Company also purchased the dealership
land and facilities through a wholly-owned
subsidiary, WMG Properties Inc., for $6,799. The
acquisition was funded by drawing on the
Company's revolving term facility.
Guelph Hyundai
On December 19, 2016, the Company purchased
substantially all of the operating and fixed assets
of Guelph Imported Cars Ltd. ("Guelph Hyundai"),
in Guelph, Ontario, for total cash consideration of
$4,521. The Company also purchased the
dealership land and facilities through a
wholly-owned subsidiary, GHM Properties Inc., for
$9,548. The acquisition was funded by drawing
on the Company's revolving term facility.
AutoCanada • 2016 Annual Report • Page F19
The business acquisitions completed during the year ended December 31, 2016 are summarized as follows:
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Long-term assets
Property and equipment
Other long-term assets
Intangible assets
Total assets
Current liabilities
Trade and other payables
Revolving floorplan facilities
Long-term liabilities
Long-term indebtedness
Deferred income tax
Total liabilities
Net assets acquired
Goodwill
Total net assets acquired
Cash consideration
Wellington Motors
$
Guelph Hyundai
$
3,889
2,700
11,112
59
17,760
7,082
-
20,780
45,622
1,633
10,958
12,591
72
2,738
15,401
30,221
458
30,679
30,679
-
80
3,193
20
3,293
10,107
14
3,550
16,964
65
2,880
2,945
-
-
2,945
14,019
50
14,069
14,069
Total
$
3,889
2,780
14,305
79
21,053
17,189
14
24,330
62,586
1,698
13,838
15,536
72
2,738
18,346
44,240
508
44,748
44,748
assets acquired and liabilities assumed, the excess
is treated as goodwill for tax purposes. For share
purchases, the tax base of the identifiable assets
and liabilities of the acquired entity passes over
to the Company at pre-acquisition amounts, and
no new tax goodwill is created (Note 3).
Acquisitions completed during the year ended
December 31, 2016 generated revenue and net
earnings of $14,251 and $355, 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 $142 have been charged to administrative
expenses in the consolidated statement of
comprehensive income for the year ended
December 31, 2016. The full amount of acquired
receivables is expected to be collected.
Goodwill arose on these acquisitions due to the
potential future revenue growth and synergies
expected to occur. For asset purchases, the tax
basis equals the price paid for the acquired assets
and liabilities. Where the acquisition price
exceeds the aggregate fair value of identifiable
Page F20 • AutoCanada • 2016 Annual Report
Prior year business acquisitions
During the year ended December 31, 2015, the
Company completed five business acquisitions
comprising six automotive dealerships,
representing six franchises. All acquisitions have
been accounted for using the acquisition method.
Acquisitions completed during this period are as
follows:
Airdrie Chrysler
On May 11, 2015, the Company purchased
substantially all of the operating and fixed assets
of North Hill Motors (1975) Ltd. ("Airdrie
Chrysler"), in Airdrie, Alberta, for total cash
consideration of $21,595 and contingent
consideration with a fair value of $3,608. The
acquisition was financed by drawing on the
Company's revolving term facility.
The contingent consideration arrangement
requires the Company to pay, in cash, to the
former owners of Airdrie Chrysler, an amount up
to $4,000 based on the achievement of certain
targets. The full amount will be paid if either the
cumulative net income before tax exceeds a
predefined level or if cumulative Chrysler new
vehicle sales in Alberta exceeds a specified
threshold. If neither target is met the amount paid
is reduced by the lessor of the equivalent
percentage to the percentage shortfall of each
target.
The potential undiscounted amount of all future
payments that the Company could be required to
make under this arrangement is between $0 and
$4,000. The maximum amount of future
payments has been put into a trust account to be
paid out upon achievement or cancellation of the
contingent consideration arrangement. This
amount is recorded as restricted cash (see Note
17).
The fair value of the contingent consideration
arrangement of $3,608 was estimated by
assessing the probability of the above targets
being met and the potential percentage shortfall.
This is a level 3 fair value measurement (Note 36).
Don Folk Chevrolet
On September 14, 2015, the Company, through an
80% owned subsidiary, DFC Holdings Inc.,
purchased substantially all of the operating and
fixed assets of Don Folk Chevrolet Inc., a
Chevrolet dealership, and 399573 B.C. Ltd., an
auto body shop, (together "Don Folk Chevrolet"),
located in Kelowna, British Columbia, for total
cash consideration of $9,175. The acquisition was
financed by drawing on the Company's revolving
term facility. To comply with GM Canada's
approval, Priestner, the Chairman of the
Company, is required to have 100% voting control
of Don Folk Chevrolet.
In accordance with the terms of the ownership
structure for GM dealerships approved by GM
Canada, the Company holds an 80% non-voting
equity interest in Don Folk Chevrolet, with
Priestner, being named Dealer Operator,
personally holding a 15% equity interest and 100%
voting control of Don Folk Chevrolet. 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 Company also purchased the land and
facilities through a wholly-owned subsidiary, DFC
Properties Inc., for $13,250.
Grove Dodge
On October 5, 2015, the Company, through GRV C
Holdings Inc., purchased substantially all of the
operating and fixed assets of Grove Dodge
Chrysler Jeep Ltd. ("Grove Dodge"), in Spruce
Grove, Alberta, for total cash consideration of
$19,083 and contingent consideration with a fair
value of $1,808. The acquisition was financed by
drawing on the Company’s revolving term facility.
As part of the transaction, the Company entered
into an agreement with a former minority owner
of Grove Dodge, whereby he acquired a 10%
ownership interest in GRV C Holdings LP from the
Company for cash consideration of $2,088.
The contingent consideration arrangement
requires GRV C Holdings LP to pay, in cash, to the
former owners of Grove Dodge, an amount up to
$2,500, based on the achievement of certain
targets. The full amount will be paid if the
cumulative net income before tax exceeds a
predefined level. If the target is not met, the
amount paid is reduced by the equivalent
percentage to the percentage of the shortfall of
the target.
The potential undiscounted amount of all future
payments that the Company could be required to
make under this arrangement is between $0 and
$2,500. The maximum amount of future
AutoCanada • 2016 Annual Report • Page F21
417 Nissan and 417 Infiniti
On December 7, 2015, the Company, through a
90% owned subsidiary, AutoCanada HCN
Holdings Inc., purchased substantially all of the
operating and fixed assets of 417 Infiniti Nissan
Limited ("417 Nissan and 417 Infiniti"), in Ottawa,
Ontario, for total cash consideration of $5,408.
The acquisition was financed by drawing on the
Company’s revolving term facility.
Recognition of redemption liabilities
During the year ended December 31, 2015, $1,102
of redemption liabilities were recognized in
connection with the business acquisitions
completed. These liabilities relate to put options
held by certain non-controlling interests.
payments has been put into a trust account to be
paid out upon achievement or cancellation of the
contingent consideration arrangement. The
Company's share of this amount is $2,250 and is
recorded as restricted cash (Note 17).
The fair value of the continent consideration
arrangement of $1,808 was estimated by
assessing the probability of the above targets
being met and the potential percentage shortfall.
This is a level 3 fair value measurement (Note 36).
Hunt Club Nissan and Ottawa Open Point
On November 1, 2015, the Company, through
AutoCanada HCN Holdings Inc., purchased
substantially all of the operating and fixed assets
of Hunt Club Nissan Ltd. ("Hunt Club Nissan"), in
Ottawa, Ontario, for total cash consideration of
$13,725. In addition, the Company purchased the
exclusive right to build and operate a Nissan
motor vehicle franchise on a designated property
in southwest Ottawa for total cash consideration
of $100. The acquisition was financed by drawing
on the Company’s revolving term facility.
As part of the transaction, the Company entered
into an agreement with the former owner of Hunt
Club Nissan, whereby he acquired a 10%
ownership interest in AutoCanada HCN Holdings
Inc. from the Company for cash consideration of
$1,383.
Page F22 • AutoCanada • 2016 Annual Report
The business acquisitions completed during the year ended December 31, 2015 are 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
Total assets
Current liabilities
Trade and other payables
Revolving floorplan facilities
Long-term liabilities
Deferred income tax
Total liabilities
Net assets acquired
Goodwill
Non-controlling interest
Total net assets acquired
Cash consideration
Contingent consideration
Total consideration
Airdrie
Chrysler
$
Don Folk
Chevrolet
$
Grove
Dodge
$
Hunt Club
Nissan
$
417 Nissan
and 417
Infiniti
$
Total
$
2
313
20,074
6
1
201
962
56
1
398
4
113
1
9
1,597
2,622
9,930
7,890
6,123
44,979
59
15
53
189
20,395
1,220
10,388
8,022
7,774
47,799
642
14,074
360
18,196
7,395
17,298
404
9,353
207
15,687
3,464
55,706
39,233
22,689
28,046
17,779
11,445
119,192
20
17,672
17,692
269
-
269
277
9,535
9,812
-
-
-
17,692
269
9,812
21,541
22,420
18,234
3,662
5
2,657
196
4,005
4,201
137
4,338
13,441
384
398
1,160
5,675
36,887
6,073
38,047
-
137
6,073
38,184
5,372
81,008
36
6,744
-
(1,835)
(2,088)
(1,383)
(541)
(5,847)
25,203
20,590
18,803
21,595
20,590
16,995
3,608
-
1,808
12,442
12,442
-
4,867
81,905
4,867
76,489
-
5,416
25,203
20,590
18,803
12,442
4,867
81,905
AutoCanada • 2016 Annual Report • Page F23
15 Dealership divesture
On February 25, 2016, the Company sold
substantially all of the operating and fixed assets,
including the land and facilities, of Newmarket
Infiniti Nissan, located in Newmarket, Ontario for
cash consideration. Net proceeds of $10,077
resulted in a pre-tax gain on divesture of $3,206
included in gain on disposal of assets in the
Statement of Comprehensive Income. The
break-down of the transaction was as follows:
Trade and other receivables
Inventories
Property and equipment
Intangible assets
Total Assets
Trade and other payables
Revolving floorplan facilities
Total Liabilities
Net assets disposed of
Net proceeds on divesture
Net gain on divesture
16 Interests in subsidiaries
$
76
9,858
4,800
2,053
16,787
165
9,751
9,916
6,871
10,077
3,206
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.
Principal
place of
business
Alberta
Green Isle G Auto Holdings Inc.
British Columbia
Prairie Auto Holdings Ltd.
Saskatchewan
Waverley BG Holdings Inc.
Manitoba
LWD Holdings Ltd.
Alberta
NBFG Holdings Inc.
Saskatchewan
DFC Holdings Inc.
British Columbia
AutoCanada B Holdings Inc.
Quebec
AutoCanada HCN Holdings Inc. Ontario
GRV C Holdings LP
Alberta
Proportion of
ownership
Proportion of
voting rights
interests held by
non-controlling
held by
non-controlling
interests
interests
69%
20%
30%
20%
25%
20%
20%
15%
10%
10%
100%
100%
100%
100%
100%
100%
100%
15%
10%
10%
Dividends
Dividends
paid to
paid to
non-controlling
interests
non-controlling
interests
2016
$
3,854
40
1,137
286
922
132
185
-
-
-
2015
$
3,485
300
1,950
359
275
165
-
750
-
-
6,556
7,284
Page F24 • AutoCanada • 2016 Annual Report
Dealer Holdings Ltd., Green Isle G Auto Holdings
Inc., Prairie Auto Holdings Ltd., Waverly BG
Holdings Inc., LWD Holdings Ltd., NBFG Holdings
Inc., AutoCanada B Holdings Inc., and
AutoCanada HCN 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
Consolidated Statement of Financial Position as
$46,464 (2015 - $47,229). The decrease in fair
value of $765 (2015 - increase of $4,329) is
recorded in other gains and losses on the
Consolidated Statement of Comprehensive
17 Cash and cash equivalents
Income (Note 12). The fair value is determined
based on the dealership equity value of the
related subsidiary (Note 36). Those options
eligible to be executed in the next fiscal year are
presented as current liabilities.
The subsidiaries are holding companies which
own 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 subsidiaries are
similar in nature and risk based on assessment of
the interest and industry classification.
Cash at bank and on hand
Short-term deposits
Cash and cash equivalents (excluding bank indebtedness)
Bank indebtedness
Cash and cash equivalents
Restricted cash
Cash and cash equivalents and restricted cash
December 31,
2016
$
December 31,
2015
$
79,168
24,053
103,221
(226)
102,995
6,558
109,553
52,936
9,338
62,274
(898)
61,376
6,288
67,664
Short-term deposits include 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 our finance costs on revolving
floorplan facilities. The Company has immediate
access to this cash unless we are in default of our
facilities, in which case the cash may be used by
Scotiabank in repayment of our facilities.
See Note 25 for further detail regarding cash
balances held with Scotiabank. The remaining
short-term deposits are term deposits that bear
interest at 0.10% (2015 - 0.55%). Restricted cash is
held in a trust account and earns interest at
0.95%-2.06% (2015 - 0.95%-2.06%). Interest
earned on restricted cash during the year ended
December 31, 2016 was $89 (2015 - $38).
AutoCanada • 2016 Annual Report • Page F25
18
Trade and other receivables
Trade receivables
Less: Allowance for doubtful accounts
Net trade receivables
Other receivables
Trade and other receivables
December 31,
2016
$
December 31,
2015
$
81,511
(2,810)
78,701
6,886
85,587
83,166
(1,885)
81,281
9,540
90,821
The aging of trade and other receivables at each reporting date were as follows:
Current
Past due 31 - 60 days
Past due 61 - 90 days
Past due 91 - 120 days
Past due > 120 days
Less: Allowance for doubtful accounts
Trade and other receivables
December 31,
2016
$
December 31,
2015
$
71,711
9,483
3,079
1,218
2,906
88,397
(2,810)
85,587
78,908
7,121
2,908
1,039
2,730
92,706
(1,885)
90,821
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
During the year ended December 31, 2016,
$2,370,492 of inventory (2015 - $2,403,515) was
expensed as cost of sales which included net
write-downs on used vehicles of $232 (2015 -
$2,250). As at December 31, 2016, the Company
had recorded reserves for inventory write downs
Page F26 • AutoCanada • 2016 Annual Report
December 31,
2016
$
December 31,
2015
$
471,610
50,757
69,009
28,342
619,718
441,764
35,830
91,144
27,804
596,542
of $5,136 (2015 - $6,786). During the year ended
December 31, 2016, $5,842 of demo expense
(2015 - $5,795) was included in administrative
costs and demo reserves decreased by $1,350
(2015 - $428).
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
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
December 31,
2016
$
December 31,
2015
$
4,256
(459)
3,797
6,217
(470)
5,747
4,256
6,217
10,473
(929)
9,544
3,797
5,747
9,544
4,556
(544)
4,012
7,081
(535)
6,546
4,556
7,081
11,637
(1,079)
10,558
4,012
6,546
10,558
21 Assets held for sale
The Company has committed to a plan to sell a
parcel of land held in Winnipeg, Manitoba. The
carrying cost of the land is $1,556 at December 31,
2016 (2015 - $1,556). No decommissioning liability
has been recognized on the land. Efforts to sell
the land have commenced and the sale is
expected to be completed within the next year.
A parcel of land in Newmarket, Ontario, with a
carrying amount of $3,485 at December 31, 2016
(2015 - $3,485) was classified as held for sale at
December 31, 2015. The Company had a change in
plan with regards to this land and it has been
reclassed to property and equipment in 2016, as it
is held for future development.
AutoCanada • 2016 Annual Report • Page F27
22 Property and equipment
Cost:
January 1, 2015
Capital expenditures
Acquisitions of dealership assets (Note 14)
Acquisitions of real estate
Disposals
Transfers to asset held for sale
Transfers to inventory, net
December 31, 2015
Capital expenditures
Acquisitions of dealership assets (Note 14)
Acquisitions of real estate
Disposals
Transfer from asset held for sale (Note 21)
Transfers to inventory, net
December 31, 2016
Accumulated depreciation:
January 1, 2015
Depreciation
Disposals
Transfers to asset held for sale
Transfers to inventory, net
December 31, 2015
Depreciation
Acquisition of dealership assets (Note 14)
Disposals
Transfers to inventory, net
Company
Machinery
Furniture,
& lease
vehicles
Leasehold
improvements
&
equipment
Land &
buildings
fixtures &
other
Computer
hardware
$
$
$
$
$
$
Total
$
25,200
22,606
25,964
174,142
10,713
9,941
268,566
34
509
-
-
(26)
(3,083)
22,634
24
42
-
-
-
(3,669)
19,031
(6,963)
(4,405)
-
5
5,147
(6,216)
(3,760)
(3)
-
3,604
7,238
202
-
2,435
-
965
13,250
-
60,500
(646)
(555)
-
-
-
(116)
(11,130)
-
-
2,165
479
-
(228)
(70)
-
2,234
14,106
282
15,687
-
60,500
(577)
(2,006)
(172)
(11,514)
-
(3,083)
29,400
28,693
236,762
13,059
11,708
342,256
7,687
1,711
-
199
-
1,723
16,347
-
51,537
1,429
566
-
1,314
12,165
355
19,232
-
51,537
(2,274)
(795)
-
-
-
-
(145)
3,485
-
(187)
(553)
(3,954)
-
-
-
-
3,485
(3,669)
35,012
31,332
307,986
14,867
12,824
421,052
(9,477)
(15,544)
(9,256)
(6,085)
(6,303)
(53,628)
(2,204)
(2,449)
(7,076)
(1,179)
(1,547)
(18,860)
637
-
-
421
79
-
-
1,435
-
170
40
-
548
135
-
1,776
1,694
5,147
(11,044)
(17,493)
(14,897)
(7,054)
(7,167)
(63,871)
(2,842)
(2,425)
(7,556)
(1,470)
(1,504)
(19,557)
(154)
2,274
-
(1,277)
717
-
-
31
-
(352)
(257)
(2,043)
171
-
390
3,583
-
3,604
December 31, 2016
(6,375)
(11,766)
(20,478)
(22,422)
(8,705)
(8,538)
(78,284)
Carrying amount:
December 31, 2015
December 31, 2016
16,418
12,656
18,356
23,246
11,200
221,865
6,005
4,541
278,385
10,854
285,564
6,162
4,286
342,768
Page F28 • AutoCanada • 2016 Annual Report
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 Consolidated Statement of Comprehensive
Income.
Land and building additions are used for open
point dealerships as well as dealership
relocations, dealership re-imagings, and also
includes the purchase of a previously leased
dealership property.
Land and buildings with a carrying value of
$73,552 (2015 - $51,495) are pledged as collateral
against bank borrowings.
23 Loans to associate
PPH Holdings Ltd.
On November 30, 2015, the Company loaned
$8,421 to PPH, which is a company controlled, and
formed, by Priestner. The loan was used by PPH
to acquire Whitby Oshawa Honda ("Whitby"). On
May 1, 2016, the Company loaned $3,120 to PPH
to acquire Southview Acura ("Southview"). The
Company has no participation in the equity of
PPH, Whitby, or Southview.
The loans are due on November 30, 2035 and
May 1, 2036 and carry interest at a variable rate
(2016 – 5%, 2015 - 5%). The interest rates on the
loans are adjusted annually by way of mutual
agreement and are intended to approximate
market rates of interest available under arms-
length agreements. The loan agreements also
provide licensing fees to the Company
benchmarked to approximate a total return to the
Company equal to 80% of PPH's net income.
During the year ended December 31, 2016,
additional advances of $1,971 were loaned to PPH
due to adjustments in the initial purchase price of
the dealerships and funding for working capital
requirements.
The carrying value approximates the fair value of
the loans to associate at December 31, 2016 at
$14,726 (2015 - $8,470).
Although the Company holds no voting rights in
PPH the Company exercises significant influence
by virtue of the existence of its loan and the
provision of essential technical information
required for operations, as well as through the
relationship with Priestner, as AutoCanada’s
Chair. However, the Company does not have the
power to make or block key decisions under the
terms of the underlying agreements. As a result,
the Company has accounted for its loan to PPH
under the effective interest method and it is
carried at amortized cost. PPH’s principal place of
business is Alberta, Canada. Refer to Note 34 for
disclosure over related parties.
Summarized financial information – PPH Holdings Ltd.
The following table summarizes the consolidated financial information of PPH for the years ended:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
December 31,
2016
$
December 31,
2015
$
26,979
748
20,938
17,484
10,199
9,667
7,336
9,409
For the year ended December 31, 2016, on a consolidated basis, PPH generated revenue of $104,188
(2015 - $5,601) and total net comprehensive income of $1,561 (2015 - $61).
AutoCanada • 2016 Annual Report • Page F29
For the year ended December 31, 2016, transactions relating to the Company’s loans to PPH are as follows:
December 31,
2016
$
December 31,
2015
$
8,470
3,120
603
562
1,971
14,726
-
8,421
35
14
-
8,470
CGUs had actual results that fell short of previous
estimates and the outlook for these markets is
less robust. The Company also performed its
annual test for impairment at December 31, 2016.
As a result of the test performed, the Company
did not identify any further indication of
impairment or recovery of impairment for the
year ended December 31, 2016.
Outstanding, beginning of year
Issuance of loan
Accrued interest income
Accrued licensing fees
Additional advances
Outstanding, end of year
24 Intangible assets and goodwill
Intangible assets consist of rights under franchise
agreements with automobile manufacturers
("dealer agreements"). Intangible assets and
goodwill are tested for impairment annually as at
December 31 or more frequently if events or
changes in circumstances indicate that they may
be impaired. During the quarter ended September
30, 2016, the Company concluded that an interim
test for impairment of certain cash generating
units ("CGUs") was required. As a result of the
test performed, the Company recorded an
impairment in the amount of $54,096 in the
quarter ended September 30, 2016, as certain
The changes in the book value of intangible assets and goodwill for the year ended December 31, 2016 were as
follows:
Cost:
January 1, 2015
Acquisitions (Note 14)
Measurement period adjustment
Transfer to assets held for sale
December 31, 2015
Acquisitions (Note 14)
December 31, 2016
Accumulated impairment:
January 1, 2015
Impairment, net of recovery of impairment
December 31, 2015
Impairment
December 31, 2016
Carrying amount:
December 31, 2015
December 31, 2016
Page F30 • AutoCanada • 2016 Annual Report
Intangible assets
$
Goodwill
$
360,057
55,706
-
(2,053)
413,710
24,330
438,040
3,445
10,617
14,062
44,996
59,058
399,648
378,982
32,852
6,744
1,500
-
41,096
508
41,604
-
8,140
8,140
9,100
17,240
32,956
24,364
Total
$
392,909
62,450
1,500
(2,053)
454,806
24,838
479,644
3,445
18,757
22,202
54,096
76,298
432,604
403,346
CGUs have been determined to be individual dealerships. The following table shows the carrying amount of
indefinite-lived identifiable intangible assets and goodwill by cash generating unit:
December 31, 2016
$
December 31, 2015
$
Cash Generating
Unit
Intangible
Goodwill
AJ
AN
Y
AX
AQ
A
AI
AF
AM
AV
AS
AC
AE
U
V
AG
D
B
Z
AL
AU
AH
E
W
AA
AT
C
27,807
25,417
24,494
20,780
18,044
21,687
20,617
20,181
14,659
14,791
13,508
12,496
12,208
8,602
10,630
9,263
9,626
9,431
8,507
5,273
7,395
6,591
6,498
5,799
5,369
4,099
1,440
6,135
381
506
458
3,724
-
-
-
1,514
-
-
941
-
3,441
-
950
-
-
-
2,176
5
409
-
201
-
-
-
Total
33,942
25,798
25,000
21,238
21,768
21,687
20,617
20,181
16,173
14,791
13,508
13,437
12,208
12,043
10,630
10,213
9,626
9,431
8,507
7,449
7,400
7,000
6,498
6,000
5,369
4,099
1,440
Intangible
Goodwill
27,807
25,417
24,494
-
18,044
21,687
21,809
20,384
14,659
17,298
18,196
12,496
22,802
8,602
15,520
9,263
9,626
9,431
15,078
5,273
7,395
6,591
8,497
5,799
5,369
9,253
5,828
6,135
381
506
-
3,724
-
428
992
1,514
2,657
1,669
941
-
3,441
236
950
-
-
2,699
2,176
5
409
-
201
-
384
-
Total
33,942
25,798
25,000
-
21,768
21,687
22,237
21,376
16,173
19,955
19,865
13,437
22,802
12,043
15,756
10,213
9,626
9,431
17,777
7,449
7,400
7,000
8,497
6,000
5,369
9,637
5,828
Other CGUs less
33,770
3,523
37,293
33,030
3,508
36,538
than $5,000
378,982
24,364
403,346
399,648
32,956
432,604
AutoCanada • 2016 Annual Report • Page F31
The following table shows the impairments (recoveries of impairment) of indefinite-lived identifiable intangible
assets and goodwill by CGU:
December 31, 2016
$
December 31, 2015
$
Cash
Generating Unit Intangible
4,388
C
1,999
E
-
J
4,890
V
6,571
Z
-
AA
-
AB
AD
-
10,594
AE
204
AF
1,192
AI
-
AN
4,688
AS
5,154
AT
2,507
AV
AW
2,809
44,996
Net impairment
Goodwill
Total
-
-
-
236
2,699
-
-
-
-
991
428
-
1,669
384
2,657
36
9,100
4,388
1,999
-
5,126
9,270
-
-
-
10,594
1,195
1,620
-
6,357
5,538
5,164
2,845
54,096
Intangible
(1,193)
-
(2,053)
-
-
6,061
4,205
666
2,931
-
-
-
-
-
-
-
10,617
Goodwill
Total
-
-
-
-
-
784
337
89
1,444
-
1,152
2,341
1,993
-
-
-
8,140
(1,193)
-
(2,053)
-
-
6,845
4,542
755
4,375
-
1,152
2,341
1,993
-
-
-
18,757
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
C
E
J
R
V
X
Z
AA
AB
AD
AE
AF
AI
AN
AS
AT
AV
AW
Page F32 • AutoCanada • 2016 Annual Report
December 31, 2016
$
1,774
9,973
-
2,245
14,838
2,359
16,546
8,340
8,650
4,271
13,497
22,455
23,523
30,709
16,557
8,417
17,816
3,451
December 31, 2015
$
6,736
15,638
2,053
2,339
32,644
2,361
29,542
6,682
5,550
2,104
25,778
28,305
25,200
32,421
20,036
13,825
20,891
5,669
Impairment test of indefinite life intangible
assets
The valuation techniques, significant assumptions,
and sensitivities applied in the intangible assets
impairment test are described as follows:
Valuation Techniques
The Company did not make any changes to the
valuation methodology used to assess
impairment in the current year. The recoverable
amount of each CGU was based on the greater of
fair value less cost to dispose 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 dispose
Fair value less costs to dispose ("FVLCD")
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 Earnings before
interest, taxes, depreciation and amortization
("EBITDA") 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 5.3 to 10.9 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. Management applied a
discount rate between 11.02% and 12.97% in its
projections.
Significant Assumptions for Fair Value Less
Costs to Dispose
EBITDA
The Company's assumptions for EBITDA were
based on the Company's internal budget which is
approved by the Board of Directors. As noted
above, data for EBITDA multiples was based on
recent comparable transactions and management
estimates.
Costs to dispose
Management applied a percentage of 1.0% of the
estimated purchase price in developing an
estimate of costs to dispose, based on historical
transactions.
AutoCanada • 2016 Annual Report • Page F33
Sensitivity
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.
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. 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
except for the CGUs identified below.
CGUs, which use VIU as the basis of recoverable amount, for which a reasonably possible change in key
assumptions would cause an impairment, along with the change required for an impairment to occur:
Cash Generating Unit
Change in
Discount Rate
Change in
Growth Rate
Recoverable
amount
Carrying
amount
AA
AB
AD
AO
L
Y
0.12%
0.41%
0.32%
0.68%
0.05%
0.57%
0.48%
1.47%
1.37%
2.54%
0.18%
1.58%
7,228
9,785
3,330
3,538
3,901
34,344
6,314
6,165
2,837
3,195
3,610
30,935
Recoverable
amount exceeds
carrying amount
914
3,620
493
343
291
3,409
CGUs, which use FVLCTD as the basis of recoverable amount, for which a reasonably possible change in key
assumptions would cause an impairment, along with the change required for an impairment to occur:
Cash Generating Unit
AJ
AN
Change in
Multiple
1.6
1.3
Recoverable
amount
51,375
32,617
Carrying
amount
41,357
27,389
Recoverable
amount exceeds
carrying amount
10,018
5,228
Page F34 • AutoCanada • 2016 Annual Report
25 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 recognized, 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. The carrying values of financial instruments approximate their fair values, excluding the
senior unsecured notes. The fair value of the senior unsecured notes is $151,313 (2015 - $139,125). 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
Restricted cash
Loans to associate
Long-term portion of finance lease receivables
Financial liabilities
Bank indebtedness
Trade and other payables
Revolving floorplan facilities
Current indebtedness
Current portion of redemption liabilities
Long-term indebtedness
Redemption liabilities
December 31,
2016
$
December 31,
2015
$
103,221
85,587
3,797
6,558
14,726
5,747
226
90,131
582,695
21,679
22,752
330,351
23,712
62,274
90,821
4,012
6,288
8,470
6,546
898
86,284
548,322
11,484
6,338
285,759
40,891
Financial Risk Management Objectives
Market Risk
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 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 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.
AutoCanada • 2016 Annual Report • Page F35
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
28). 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 internally to key
management personnel and represents
management’s assessment of the possible change
in interest rates.
+/- 200 Basis Point
+/- 100 Basis Point
2016
$
15,200
41
2015
$
13,295
146
2016
$
7,600
20
2015
$
6,647
73
Finance costs
Finance income
Credit Risk
The Company’s exposure to credit risk associated
with its accounts receivable is the risk that a
customer will be unable to pay amounts due to
the Company. 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 28) allows
Page F36 • AutoCanada • 2016 Annual Report
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, 2016 (2015 - 2.43%). 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.
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.
December 31, 2016
Bank indebtedness
Trade and other payables
Revolving floorplan facilities
Vehicle repurchase obligations
Redemption liabilities
Senior unsecured notes
HSBC revolving term facility
Lease financing - RBC
Lease financing - Scotiabank
Servus mortgage
VCCI mortgages
BMW mortgage
Other long-term debt
Contractual interest payable
December 31, 2015
Bank indebtedness
Trade and other payables
Revolving floorplan facilities
Vehicle repurchase obligations
Redemption liabilities
Senior unsecured notes
HSBC revolving term facility
Lease financing - RBC
Lease financing - Scotiabank
Lease financing - BMO
Servus mortgage
VCCI mortgages
BMW mortgage
2017
$
2018
$
2019
$
2020
Thereafter
-
-
-
-
-
-
-
-
-
226
90,131
582,695
6,794
22,752
-
-
8,079
394
248
10,284
768
1,906
16,152
740,429
-
-
-
-
23,712
-
151,121
-
267
257
406
797
785
12,219
189,564
2016
$
2017
$
2018
$
898
86,284
548,322
1,846
6,337
-
-
7,797
435
346
239
213
737
-
-
-
-
39,790
-
-
-
456
-
248
213
768
-
-
-
-
1,102
-
103,591
-
24
-
258
213
797
268
1,216
828
153
9,484
11,949
278
2,563
860
185
9,357
13,243
2019
Thereafter
$
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
269
213
757
1,808
9,390
149,739
149,739
-
-
-
4,268
2,962
16,191
-
14,107
151,121
8,079
661
5,319
17,431
19,444
3,029
61,319
187,267
1,142,452
Total
$
226
90,131
582,695
6,794
46,464
Total
$
898
86,284
548,322
1,846
47,229
$
-
-
-
-
-
$
-
-
-
-
-
149,739
149,739
-
-
-
-
4,543
3,180
17,122
-
25,358
103,591
7,797
915
346
5,557
4,032
20,181
8,704
75,177
669,764
57,382
121,093
12,437
199,942
1,060,618
AutoCanada • 2016 Annual Report • Page F37
Other long-term debt
Contractual interest payable
1,717
1,537
14,593
14,370
3,642
11,466
26 Other long-term assets
Prepaid rent
Other assets
27 Trade and other payables
Trade payables
Accruals and provisions
Sales tax payable
Wages and withholding taxes payable
December 31,
2016
$
December 31,
2015
$
5,386
1,724
7,110
5,838
1,240
7,078
December 31,
2016
$
December 31,
2015
$
45,783
14,681
5,339
24,328
90,131
Other
$
411
257
(129)
539
826
(577)
788
46,443
11,974
4,710
23,157
86,284
Total
$
2,412
1,502
(1,463)
2,451
1,641
(1,876)
2,216
The following table provides a continuity schedule of all recorded provisions:
January 1, 2015
Provisions arising during the year
Amounts expired or disbursed
December 31, 2015
Provisions arising during the year
Amounts expired or disbursed
December 31, 2016
Finance and
insurance (a)
$
2,001
1,245
(1,334)
1,912
815
(1,299)
1,428
(a) Represents an estimated chargeback reserve provided by the Company's third party underwriter of finance and insurance
products.
Page F38 • AutoCanada • 2016 Annual Report
28 Indebtedness
This note provides information about the contractual terms of the Company's interest-bearing debt, which are
measured at amortized cost. For more information about the Company's exposure to interest rate, foreign
currency and liquidity risk, see Note 25.
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)
Revolving floorplan facilities - Toronto-Dominion Bank (vi)
Indebtedness
Senior unsecured notes (vii)
Senior unsecured notes
Embedded derivative
Unamortized deferred financing costs
HSBC revolving term facility (viii)
HSBC revolving term facility
Unamortized deferred financing costs
Other debt:
Lease financing - RBC (ix)
Lease financing - Scotiabank (x)
Lease financing - BMO (xi)
Servus mortgage (xii)
VCCI mortgages (xiii)
BMW mortgage (xiv)
Other long-term debt
Total indebtedness
Current indebtedness
Long-term indebtedness
December 31,
2016
$
December 31,
2015
$
354,774
348,840
37,418
65,036
84,374
30,824
10,269
33,086
72,111
70,790
23,495
-
582,695
548,322
149,739
(21)
(2,370)
147,348
151,121
(402)
150,719
8,079
661
-
5,319
17,431
19,444
3,029
352,030
21,679
330,351
149,739
(24)
(2,907)
146,808
103,591
(688)
102,903
7,797
915
346
5,557
4,032
20,181
8,704
297,243
11,484
285,759
AutoCanada • 2016 Annual Report • Page F39
Terms and conditions of outstanding loans are as
follows:
i Scotiabank and the Canadian Imperial Bank
of Commerce ("CIBC") provide the
Company’s syndicated floorplan credit
facility (the "Facility"). The availability of the
Facility is $550,000 (2015 - $550,000) and it
bears a rate of Bankers' Acceptance plus
1.15% (2015 - 1.15%) per annum for a total of
2.03% at December 31, 2016 (2015 - 2.17%).
The Facility has certain reporting
requirements and financial covenants and is
collateralized by each individual dealership's
inventories that are directly financed by the
Facility, a general security agreement with
each dealership financed, and a guarantee
from AutoCanada Holdings Inc., a subsidiary
of the Company.
ii VW Credit Canada, Inc. ("VCCI") provides
floorplan financing for new, used and
demonstrator vehicles for all of the
Company’s Volkswagen and Audi dealerships
(the "VCCI facilities"). The VCCI facilities bear
interest at Royal Bank of Canada ("RBC")
prime rate plus 0.00%-1.25% (2015 -
0.00%-1.25%). The RBC prime rate was 2.70%
at December 31, 2016 (2015 - 2.70%). The
combined total interest rates were
2.70%-3.95% at December 31, 2016 (2015 –
2.70%-3.95%). The maximum amount of
financing provided by the VCCI facilities is
$52,845 (2015 - $46,930). The VCCI facilities
have certain reporting requirements and
financial covenants and 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 financed by VCCI. The individual
notes payable of the VCCI facilities are due
when the related vehicle is sold.
iii BMW Financial Services Canada ("BMW
Financial"), a division of BMW Canada Inc.,
provides floorplan financing for new, used
and demonstrator vehicles for all of the
Company's BMW dealerships (the "BMW
Facilities"). The BMW Facilities bear a
variable interest rate of prime minus 0.40%
(2015 - 0.40%) per 360 day annum for a total
of 2.30% at December 31, 2016 (2015 -
2.30%). The BMW Facilities have a current
advance limit of $93,550 (2015 - $103,150).
Page F40 • AutoCanada • 2016 Annual Report
The BMW Facilities have certain reporting
requirements and financial covenants and are
collateralized by the dealerships' movable
and immovable property.
iv The Royal Bank of Canada ("RBC") provides
floorplan financing for new, used and
demonstrator vehicles for eight of the
Company's dealerships (the "RBC Facilities").
The RBC Facilities bear interest rates of
RBC's Cost of Funds Rate plus 0.40%-0.75%
(2015 - 0.40%-1.35%). The RBC’s Cost of
Funds Rate was 1.78% at December 31, 2016
(2015 - 1.63%). The combined total interest
rates were 2.18%-2.53% as at December 31,
2016 (2015 - 2.03%-2.98%). The maximum
amount of financing provided by the RBC
facilities is $134,300 (2015 - $136,500). The
RBC Facilities have certain reporting
requirements and financial covenants and are
collateralized by the new, used, and
demonstrator inventory financed by RBC and
a general security agreement from the
General Motors dealerships financed by RBC.
v Scotiabank provides floorplan financing for
new, used and demonstrator vehicles for
three of the Company's dealerships (the
"Scotiabank Facilities"). The Scotiabank
Facilities bear interest rates of Scotia Fixed
Flooring Rate plus 0.93% (2015 - 1.25%). The
Scotia Fixed Flooring rate was 0.97% at
December 31, 2016 (2015 - 0.93%). The
combined total interest rate was 1.90% at
December 31, 2016 (2015 - 2.18%). The
maximum amount of financing provided by
Scotiabank Facilities is $50,400 (2015 -
$50,400). The Scotiabank Facilities have
certain reporting requirements and financial
covenants and are collateralized by the new,
used, and demonstrator inventory financed
by Scotiabank and a general security
agreement from the Company's three
dealerships financed by Scotiabank.
vi On October 14, 2016, the Company entered
into an agreement with Toronto Dominion
Bank ("TD") to provide floorplan financing for
new, used and demonstrator vehicles for one
of the Company's dealerships (the "TD
Facilities"). The TD Facilities bear interest
rates of TD prime rate (2.70% at December
31, 2016) minus 0.75% per annum and provide
a maximum amount of financing of $21,500.
The TD Facilities have certain reporting
requirements and financial covenants and are
collateralized by the new, used and
demonstrator inventory financed by TD and a
general security agreement from the
Company's dealership financed by TD.
vii The Company has $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 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 an equity offering or
following certain dates specified in the
agreement. In addition, the Noteholders 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
reinvested 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 this compound
financial instrument is measured at fair value
at each reporting date with gains or losses in
fair value recognized through profit or loss.
viii On November 18, 2015, 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
$250,000 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,
2016, the Company is in the first of five tiers
of the pricing grid, with the first tier
providing interest rates of HSBC's prime rate
plus 2.00% for a total of 4.70% at December
31, 2016 (2015 - 4.70%). Amounts drawn
under the Credit Agreement as at December
31, 2016 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 has certain reporting
requirements and financial covenants and 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 priority agreements
signed by HSBC, Scotiabank, VCCI, BMW
Financial, TD, and the Company, the
collateral for the Credit Agreement excludes
all new, used and demonstrator inventory
financed with Scotiabank, VCCI, BMW
Financial, RBC, and TD revolving floorplan
facilities.
ix RBC provides financing for the lease vehicles
of two of the Company's dealerships (the
"RBC lease financing"). The RBC lease
financing bears interest rates of RBC's Costs
of Funds Rate plus 0.90% (2015 -
0.90%-1.50%). The RBC’s Cost of Funds Rate
was 1.78% at December 31, 2016 (2015 -
1.63%). The combined total interest rates
were 2.68% at December 31, 2016 (2015 -
2.53%-3.13%). The maximum amount of
financing provided by RBC lease financing is
$16,000 (2015 - $15,000) repayable over the
terms of the contract in varying amounts of
principal. The RBC lease financing has certain
reporting requirements and financial
covenants and is collateralized by the lease
vehicles under the related lease agreements.
The RBC lease financing is due on demand.
x Scotiabank provides financing for the lease
vehicles of two of the Company's dealerships
(the "Scotiabank lease financing"). The
Scotiabank lease financing bears interest
rates of Scotiabank's Cost of Funds Rate
plus 1.25% (2015 - 1.25%) for a total of 3.47%
at December 31, 2016 (2015 - 3.78%). The
maximum amount of financing provided by
the Scotia lease financing is $2,500 (2015 -
$2,500) repayable over the terms of the
AutoCanada • 2016 Annual Report • Page F41
December 31, 2016, the carrying amount of
the properties was $34,334 (2015 - $11,268).
xiv 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 financial covenants 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,
2016, the carrying amount of the property
was $30,390 (2015 - $31,023).
29 Vehicle repurchase obligations
The Company operates service loaner programs
and provides vehicles to a third party vehicle
rental company with individual terms not to
exceed twelve months, at which time the
Company has an obligation to repurchase each
vehicle at a predetermined amount. As a result,
the Company has recorded the contractual
repurchase amounts as outstanding vehicle
repurchase obligations and has classified the
liability as current due to the short term nature of
the obligation.
contract in varying amounts of principal. The
Scotiabank lease financing has certain
reporting requirements and financial
covenants and is collateralized by the lease
vehicles under the related lease agreement.
The Scotiabank lease financing is due on
demand.
xi The Bank of Montreal ("BMO") provided
financing for the lease vehicles of one of the
Company's dealerships (the "BMO lease
financing"). The BMO lease financing bears
interest rates of BMO's Dealership Finance
Base Rate plus 1.65% (2015 - 1.65%) for a total
of 3.11%-3.59%, depending on term, at
December 31, 2016 (2015 - 2.93%-3.59%). 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. The
balance has been fully repaid in 2016.
xii Servus Credit Union provides the Company
with a mortgage (the "Servus Mortgage").
The Servus Mortgage bears a fixed annual
rate of 3.90% (2015 - 3.90%) and is repayable
with monthly blended installments of $38
(2015 - $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,
2016, the carrying amount of the property
was $8,829 (2015 - $9,204).
xiii VCCI provides the Company with mortgages
(the "VCCI Mortgages"), which bear interest
at a floating rate of interest per annum equal
to the Royal Bank of Canada’s prime rate plus
0.15%-0.50% (2015 - 0.15%-0.50%). The RBC
prime rate was 2.70% at December 31, 2016
(2015 - 2.70%). The combined total interest
rates were 2.85%-3.20% at December 31, 2016
(2015 - 2.85%-3.20%). The VCCI Mortgages
are repayable with blended monthly
payments of $51 amortized over a 20 year
period with terms expiring in between April
2019 and April 2021. The VCCI Mortgages
have certain reporting requirements and
financial covenants and are collateralized by
a general security agreement consisting of a
first fixed charge over the properties. At
Page F42 • AutoCanada • 2016 Annual Report
30 Commitments and contingencies
Commitments
The Company has operating lease commitments,
with varying terms through 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 34) and other third
parties. The future aggregate minimum lease
payments under non-cancellable operating leases
are as follows:
2017
2018
2019
2020
2021
Thereafter
December 31,
2016
$
19,051
16,912
14,486
12,520
12,288
123,489
198,746
Lawsuits and legal claims
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
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. Note 27
includes provisions to account for information
known to the Company and based on estimates
of probable resolutions.
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 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.
Letters of guarantee
The Company has outstanding letters of
guarantee totaling $1,223 as at December 31, 2016
(2015 - $1,015) 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, 2016, the Company is committed
to capital expenditure obligations in the amount
of $15,856 (2015 - $35,484) related to dealership
relocations, dealership re-imagings, and
dealership open points with expected completion
of these commitments in 2017.
AutoCanada • 2016 Annual Report • Page F43
31 Share-based payments
Restricted Share Units (RSUs)
The Company operates a combination of cash
and equity-settled compensation plan under
which it receives services from employees as
consideration for share-based payments. The
plans are as follows:
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
Forfeited units
Dividends reinvested
Impact of movements in share price
Outstanding, end of the year
2016
Number of
RSUs
2016
Amount
$
2015
Number of
RSUs
64,835
(40,019)
(26,679)
45,586
(11,539)
1,492
-
33,676
1,566
(784)
(522)
875
(235)
29
(150)
779
84,772
(31,558)
(21,039)
30,452
-
2,208
-
64,835
2015
Amount
$
3,772
(1,211)
(808)
1,302
-
69
(1,558)
1,566
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.
The following table shows the change in the number of DSUs for the years ended:
Outstanding, beginning of the year
Settled
Granted
Dividends reinvested
Impact of movements in share price
Outstanding, end of the year
Page F44 • AutoCanada • 2016 Annual Report
2016
Number of
DSUs
2016
Amount
$
2015
Number of
DSUs
2015
Amount
$
25,659
(6,362)
14,519
915
-
34,731
620
(152)
293
19
45
824
16,612
-
8,481
566
-
25,659
739
-
304
19
(442)
620
Stock Option Plan
The Stock Option Plan (the "Plan") is designed to
provide long-term incentives to designated
management to deliver long-term shareholder
returns. Under the Plan, participants are granted
options which only vest if certain service
conditions are met. The terms of the Plan specify
that following retirement an employee may
exercise vested options with the rights to exercise
continuing for 120 days following the retirement
date.
Options are granted under the Plan for no
consideration and carry no dividend or voting
rights. When exercisable, each option is
convertible into one ordinary share. The exercise
price of options is determined by the Board and
shall not be lower than the closing price of the
AutoCanada shares on the Toronto Stock
Exchange immediately preceding the date of
grant.
The following table shows the change in the number of stock options for the year ended December 31, 2016:
Outstanding, beginning of the year
Granted
Outstanding, end of the year
Vested and exercisable at end of the year
Average exercise
price per share
option
$
Share options
#
-
18.68
18.68
-
520,000
520,000
18.68
10,000
During the year ended December 31, 2016, no options have been exercised, forfeited, or expired.
The following table shows the expiry date and exercise prices for stock options outstanding for the year ended
December 31, 2016:
Grant date
April 1, 2016
Total
Weighted average remaining contractual life of options
outstanding at end of the year
The assessed fair value at grant date of options
granted on April 1, 2016 was $6.03 per option. The
fair value at grant date is determined using an
adjusted form of the Black Scholes Model that
takes into account the exercise price, the
expected life of the option, the share price at
grant date, the expected price volatility of the
underlying share, the expected dividend yield of
the underlying share, and the risk free interest
rate for the term of the option.
Exercise
price
$
Share options
December 31,
2016
#
Expiry date
March 31, 2026
18.68
520,000
520,000
9.25 years
AutoCanada • 2016 Annual Report • Page F45
Expected price volatility was determined at the
time of grant using the AutoCanada share price
on a historical basis. It reflects the assumption
that the historical volatility is indicative of future
trends, which may not necessarily be the actual
outcome.
During the year ended December 31, 2016, total
expenses of $1,306 arose as a result of options
issued under the Plan.
The model inputs for options granted include:
a) Options are granted for no consideration and
vest based on varying terms over a four year
period. Vested options are exercisable for a
period of ten years after grant date.
b) Exercise price: $18.68
c) Grant date: April 1, 2016
d) Expected life of option: five years
e) Share price at grant date: $18.18
f) Expected price volatility of the Company’s
shares: 45.52%
g) Expected dividend yield: 2.20%
h) Risk-free interest rate: 1.50%
32 Share capital
Common shares of the Company are voting shares and have no par value. The authorized common share capital
is an unlimited number of shares.
There were no common shares issued during the year ended December 31, 2016. The following table shows the
common shares issued during the year ended December 31, 2015:
Public offering (a)
December 14, 2015
2,950,000
25.50
72,702
Number
$/share
Amount
(a) Share issuance amount is net of issuance costs of $3,437 and future income tax on the issuance costs of $914.
Restricted Share Unit Trust
A trust ("Trust") was formed to hedge the risk of
future share price increases from the time the
RSUs and DSUs (see Note 31) 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 RSU Plan and
independent members of the Board of Directors
who participate in the DSU 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, 2016 on the
shares held in trust of $57 (2015 - $89) 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, 2016. As the Company controls the Trust, it
has included the Trust in its consolidated financial
statements for the year ended December 31, 2016.
Page F46 • AutoCanada • 2016 Annual Report
The following table shows the change in shareholders' capital for the years ended:
2016
Number of
shares
2016
Amount
$
2015
Number of
shares
Outstanding, beginning of the year
27,388,750
508,237
24,409,656
Common shares issued
Treasury shares acquired
Dividends reinvested
Treasury shares settled
-
-
2,950,000
(60,824)
(1,244)
(2,832)
31,345
(57)
950
-
(2,463)
31,557
2015
Amount
$
434,572
72,702
-
(89)
1,052
Outstanding, end of the year
27,356,439
507,886
27,388,750
508,237
As at December 31, 2016, 103,244 (2015 - 70,933)
common shares were held in trust for the
Restricted Share Unit Plan, resulting in a total of
27,459,683 (2015 - 27,459,683) 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, 2016, eligible
dividends totaling $0.55 (2015 – $1.00) per
common share were declared and paid, resulting
in total payments of $15,046 (2015 - $24,432).
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 attributable to common shares
2016
$
2,596
2015
$
22,821
The following table shows the weighted-average number of shares outstanding for the years ended:
Basic
Effect of dilution from RSUs
Effect of dilution from stock options
Diluted
33 Capital disclosures
The Company's objective when managing its
capital is to safeguard the Company's assets and
its ability to continue as a going concern while at
the same time maximize the growth of the
business, returns to shareholders, and benefits for
other stakeholders. No specific targets or ratios
2016
2015
27,350,555
24,574,022
50,334
54,797
100,061
-
27,455,686
24,674,083
are set by the Company. The Company views its
capital as the combination of long-term
indebtedness, long-term lease obligations and
equity.
AutoCanada • 2016 Annual Report • Page F47
The calculation of the Company's capital is summarized below:
December 31,
2016
$
December 31,
2015
$
330,351
497,592
827,943
285,759
510,029
795,788
The Company's independent Board of
Directors has received advice from a national
real estate appraisal Company that the
market rents at each of the COAG properties
were at fair market value rates at inception.
(b) Administrative support fees
During the year ended December 31, 2016,
total administrative support fees received
from companies controlled by Priestner
amount to $1,384 (2015 - $977).
(c) Loans to related parties
During the year ended December 31, 2016,
interest only, unsecured loans of $3,120
(2015 - $8,421) and additional advances of
$1,971 were made to a company controlled by
Priestner (Note 23). Total interest charged
relating to the loans were $603 (2015 - $35)
and the total licensing fees were $562
(2015 - $14). As at December 31, 2016 there
were $638 (2015 - $35) of interest receivable
and $576 (2015 - $14) of licensing fees
receivable related to the loans (Note 23).
Long-term indebtedness (Note 28)
Equity
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. The Company was in
compliance with its debt covenants at
December 31, 2016.
34 Related party transactions
Transactions with Companies Controlled by the
Chair of AutoCanada
During the year ended December 31, 2016, the
Company had financial transactions with entities
controlled by the Company's Chair. Priestner is
the controlling shareholder of Canada One Auto
Company ("COAG") and its subsidiaries, which
beneficially own approximately 8.6% (2015 - 8.6%)
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
During the year ended December 31, 2016,
total rent paid to companies controlled by
Priestner amounted to $2,822 (2015 - 2,846).
The Company currently leases two of its
dealership facilities from affiliates of COAG.
Page F48 • AutoCanada • 2016 Annual Report
Commitments with Companies controlled by the Chair 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:
December 31,
2016
$
2017
2018
2019
2020
2021
Thereafter
Key management personnel compensation
Key management personnel consists of the Company's executive officers and directors. Key management
personnel compensation are as follows:
Employee costs (including Directors)
Short-term employee benefits
Share-based compensation
Payable to related parties
2016
$
5,636
455
1,887
7,978
2,458
2,458
2,458
2,458
2,273
17,990
30,095
2015
$
3,106
222
1,997
5,325
Included in trade and other payables at December 31, 2016 is $2,527 (2015 - $465) payable to related parties.
These amounts are unsecured and non-interest bearing.
AutoCanada • 2016 Annual Report • Page F49
35 Net change in non-cash working capital
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
Revolving floorplan facilities
Vehicle repurchase obligations
December 31,
2016
$
December 31,
2015
$
8,031
(8,765)
1,014
150
2,670
20,535
4,948
28,583
1,939
(3,584)
3,271
(1,761)
3,959
(2,867)
307
1,264
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.
36 Fair value of financial instruments
The Company’s financial instruments at December
31, 2016 are represented by cash and cash
equivalents, trade and other receivables, loans to
associate, finance lease receivables, trade and
other payables, revolving floorplan facilities,
vehicle repurchase obligations, long-term
indebtedness, contingent consideration, 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. Senior
unsecured notes have a fair value that is different
than the carry value, refer to Note 25.
Embedded derivatives (Level 2), contingent
consideration (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.
Page F50 • AutoCanada • 2016 Annual Report
The fair value of financial instruments was
determined based on the prevailing and
comparable market interest rates.
The fair value hierarchy categorizes fair value
measurement into three levels based upon the
inputs to valuation technique, which are defined
as follows:
• Level 1 - Quoted prices (unadjusted) in
active markets for identical assets or
liabilities.
• 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).
• 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.
The following table summarizes the remeasurements at fair value with the gain or loss being recognized through
profit or loss for the years ended:
Redemption
liabilities
$
Contingent
consideration
$
(41,798)
(1,102)
(4,329)
(47,229)
765
-
(46,464)
(2,775)
(5,416)
(149)
(8,340)
5,020
1,500
(1,820)
Total
$
(44,573)
(6,518)
(4,478)
(55,569)
5,785
1,500
(48,284)
Opening balance, January 1, 2015
Acquisitions (Note 14)
(Loss) gain recognized in net income (Note 12)
Closing balance, December 31, 2015
Gain recognized in net income (Note 12)
Settlement of contingent consideration
Closing balance, December 31, 2016
37 Subsequent events
Dividends
On February 21, 2017, the Board of Directors of the Company declared a quarterly eligible dividend of $0.10 per
common share on the Company's outstanding Class A common shares, payable on March 15, 2017 to
shareholders of record at the close of business on February 28, 2017.
AutoCanada • 2016 Annual Report • Page F51
CORPORATE INFORMATION
AUTOCANADA INC.
Shareholder Information
Head Office
AutoCanada Inc.
Senior Management
Steven Landry,
President and Chief Executive Officer
Christopher Burrows,
Senior Vice-President and Chief Financial
Officer
Mark Warsaba
Senior Vice-President and Chief Operations
Officer
Erin Oor,
Vice-President Corporate Development and
Administration
Board of Directors
Patrick Priestner – Chair
Gordon Barefoot – Lead Director
Michael Ross
Dennis DesRosiers
Barry James
Maryann Keller
Steven Landry
#200 – 15511 123 Avenue NW
Edmonton, Alberta
T5V 0C3
www.autocan.ca
Investor Relations
ir@autocan.ca
Auditors
PricewaterhouseCoopers LLP
Edmonton, Alberta
Legal Counsel
Borden Ladner Gervais LLP
Calgary, Alberta
Shares Listed
Toronto Stock Exchange
Trading Symbol: ACQ
Transfer Agent
Computershare
Annual General Meeting
Friday May 5, 2017
10:00 a.m. Mountain Time
Hilton Doubletree West Edmonton Hotel
Room SBCC #7
16615-109 Avenue
Edmonton, Alberta
AutoCanada • 2016 Annual Report • Page S1
AutoCanada Inc.
AutoCanada Inc.
200 - 15511 123 Avenue NW
200 - 15511 123 Avenue NW
Edmonton, AB T5V 0C3
Edmonton, AB T5V 0C3
www.autocan.ca
www.autocan.ca