AutoCanada Inc.
Annual Report 2018

Plain-text annual report

2018 Annual Financial Statements Consolidated Financial Statements For the year ended December 31, 2018 Independent Auditor's Report To the Shareholders of AutoCanada Inc. Our Opinion In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of AutoCanada Inc. and its subsidiaries (together, the Company) as at December 31, 2018 and 2017, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS). What we have audited The Company's consolidated financial statements comprise: • • • • • the consolidated statements of comprehensive (loss) income for the years ended December 31, 2018 and 2017; the consolidated statements of financial position as at December 31, 2018 and 2017; the consolidated statements of changes in equity for the years then ended; the consolidated statements of cash flows for the years then ended; and the notes to the consolidated financial statements, which include a summary of significant accounting policies. Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements. Other Information Management is responsible for the other information. The other information comprises the Management's Discussion and Analysis, which we obtained prior to the date of this auditor's report and the information, other than the consolidated financial statements and our auditor's report thereon, included in the annual report, which is expected to be made available to us after that date. Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express an opinion or any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the information, other than the consolidated financial statements and our auditor's report thereon, included in the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance. Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, 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. In preparing the consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. Auditor's responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • • • • • • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit 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 Company’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. The engagement partner on the audit resulting in this independent auditor’s report is Steven Hollinger. (Signed) "PricewaterhouseCoopers LLP" Chartered Professional Accountants Edmonton, Alberta March 14, 2019 AutoCanada Inc. Consolidated Statements of Comprehensive (Loss) Income For the Years Ended (in thousands of Canadian dollars except for share and per share amounts) Revenue (Note 8) Cost of sales (Note 9) Gross profit Operating expenses (Note 10) Operating profit before other income (expense) Lease and other income, net (Note 12) Gain on disposal of assets, net (Note 12) (Impairment) recovery of non-financial assets (Note 25) Income from loans to associates (Note 24) Operating (loss) profit Finance costs (Note 13) Finance income (Note 13) Other gains (Note 14) Net (loss) income for the year before taxation Income taxes (recovery) (Note 15) Net (loss) income for the year Other comprehensive (loss) income Items that may be reclassified to profit or loss Foreign operations currency translation Change in fair value of cash flow hedge Income tax relating to these items Other comprehensive income for the year, net of tax Comprehensive (loss) income for the year Net (loss) income for the year attributable to: AutoCanada shareholders Non-controlling interest Comprehensive (loss) income for the year attributable to: AutoCanada shareholders Non-controlling interest Net (loss) income per share attributable to AutoCanada shareholders: Basic Diluted Weighted average shares Basic (Note 33) Diluted (Note 33) The accompanying notes are an integral part of these consolidated financial statements. Approved on behalf of the Company December 31, 2018 $ December 31, 2017 $ 3,150,781 (2,642,818) 507,963 (474,804) 33,159 7,919 21,480 (95,500) 294 (32,648) (47,193) 1,289 950 (77,602) (174) (77,428) 6,136 (3,762) 1,015 3,389 3,101,560 (2,582,931) 518,629 (426,253) 92,376 21,431 1,345 816 3,001 118,969 (36,038) 2,294 3,285 88,510 22,713 65,797 — — — — (74,039) 65,797 (78,083) 655 (77,428) (74,694) 655 (74,039) (2.85) (2.85) 57,844 7,953 65,797 57,844 7,953 65,797 2.11 2.11 27,399,117 27,399,117 27,379,193 27,473,995 Paul W. Antony, Director Barry L. James, Director AutoCanada • Page 1 AutoCanada Inc. Consolidated Statements of Financial Position (In thousands of Canadian dollars) ASSETS Current assets Cash and cash equivalents (Note 19) Trade and other receivables (Note 20) Inventories (Note 21) Current tax recoverable Other current assets (Note 27) Assets held for sale (Notes 22 and 35) Restricted cash (Note 19) Property and equipment (Note 23) Loans to associate (Note 24) Other long-term assets (Note 27) Deferred income tax (Note 15) Intangible assets (Note 25) Goodwill (Note 25) LIABILITIES Current liabilities Bank indebtedness (Note 19) Trade and other payables (Note 28) Revolving floorplan facilities (Note 29) Current tax payable Vehicle repurchase obligations (Note 30) Current indebtedness (Note 29) Redemption liabilities (Note 18) Current intangible liabilities (Notes 16 and 31) Liabilities held for sale (Notes 22 and 35) Long-term intangible liabilities (Notes 16 and 31) Long-term indebtedness (Note 29) Derivative financial instruments (Note 39) Deferred income tax (Note 15) EQUITY Attributable to AutoCanada shareholders Attributable to Non-controlling interests December 31, 2018 $ December 31, 2017 $ 25,324 131,152 760,865 10,685 6,513 54,313 988,852 — 237,141 — 10,448 13,642 412,353 58,132 1,720,568 — 101,280 748,353 — 7,654 1,654 14,948 5,049 5,281 884,219 31,112 326,998 3,762 27,170 1,273,261 428,568 18,739 447,307 1,720,568 94,660 79,931 659,593 — 3,593 163,642 1,001,419 4,106 350,354 18,100 5,080 — 359,996 21,991 1,761,046 136 63,295 634,655 9,033 6,511 2,666 16,300 — 132,683 865,279 — 332,450 — 25,710 1,223,439 488,272 49,335 537,607 1,761,046 Commitments and contingencies (Note 31) The accompanying notes are an integral part of these consolidated financial statements. Page 2 • AutoCanada 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 $ Cumulative translation adjustment $ OCI - hedge reserve $ Accumulated deficit $ Non- controlling interests $ Total $ Total equity $ Balance at December 31, 2017 as originally presented Change in accounting policy, net of tax (Note 4) 508,768 5,389 — — Balance, January 1, 2018 508,768 5,389 Net (loss) income Other comprehensive income Dividends declared on common shares (Note 33) Dividends declared by subsidiaries to non- controlling interests (Note 18) Sale of non-controlling interest (Note 35) Acquisition of non-controlling interest (Note 35) Divestiture of subsidiaries (Note 35) Derecognition of redemption liability upon divestiture of subsidiary (Note 35) Derecognition of redemption liability granted to non- controlling interests (Note 35) Treasury shares acquired (Note 33) Shares settled from treasury (Note 33) Share-based compensation — — — — — — — — — (29) 799 — Balance, December 31, 2018 509,538 — — — — — — — — — — (799) 519 5,109 — — — — — — — — (25,885) 488,272 49,335 537,607 367 367 — 367 (25,518) 488,639 49,335 537,974 (78,083) (78,083) 655 (77,428) 6,136 (2,746) — 3,390 (10,956) (10,956) — — 3,390 (10,956) — — — — — — — — — — — — — — — — — — — — — — — — (1,650) (1,650) 5,847 5,847 (2,675) (2,675) (14,674) (17,349) — — (20,774) (20,774) 26,404 26,404 — 26,404 1,359 1,359 — — — (29) — 519 — — — — 1,359 (29) — 519 6,136 (2,746) (89,469) 428,568 18,739 447,307 AutoCanada • Page 3 Attributable to AutoCanada shareholders Share capital $ Contributed surplus $ Cumulative translation adjustment $ OCI - hedge reserve $ Accumulated deficit $ Non- controlling interests $ Total $ Total equity $ Balance, January 1, 2017 507,886 5,223 Net and comprehensive income Dividends declared on common shares (Note 33) Dividends declared by subsidiaries to non- controlling interests (Note 18) Transactions with non- controlling interests (Note 35) Non-controlling interests arising on acquisitions Derecognition of redemption liability granted to non- controlling interests Recognition of redemption liability granted to non- controlling interests Treasury shares acquired (Note 33) Shares settled from treasury (Note 33) Share-based compensation — — — — — — — (31) 913 – Balance, December 31, 2017 508,768 — — — — — — — — (913) 1,079 5,389 — — — — — — — — — — — — — — — — — — — — — — — — (73,028) 440,081 57,511 497,592 57,844 57,844 7,953 65,797 (10,952) (10,952) — (10,952) — — (12,300) (12,300) (640) (640) (4,133) (4,773) — — 304 304 1,197 1,197 (306) (306) — — — (31) — 1,079 — — — — — 1,197 (306) (31) — 1,079 (25,885) 488,272 49,335 537,607 The accompanying notes are an integral part of these consolidated financial statements. Page 4 • AutoCanada AutoCanada Inc. Consolidated Statements of Cash Flows For the Years Ended (in thousands of Canadian dollars) Cash provided by (used in): Operating activities Net (loss) income for the year Income taxes (recovery) (Note 15) Amortization of prepaid rent Depreciation of property and equipment (Note 23) Gain on disposal of assets Share-based compensation - equity-settled Share-based compensation - cash-settled Revaluation of contingent consideration Income taxes (paid) recovered Net change in non-cash working capital (Note 37) Revaluation of redemption liabilities Impairment (recovery) of non-financial assets Investing activities Withdrawals from restricted cash (Note 19) Business acquisition, net of cash acquired (Note 16) Purchases of property and equipment (Note 23) Proceeds on sale of property and equipment Income from loans to associates (Note 24) Proceeds from loans to associates (Note 24) Proceeds on divestiture of dealerships (Note 17) Proceeds from divestiture of investments in subsidiaries (Note 35) Financing activities Proceeds from indebtedness Repayment of indebtedness Common shares settled, net (Note 33) Dividends paid on common shares (Note 33) Distributions paid to non-controlling interests by subsidiaries Loans to non-controlling interest Effect of exchange rate changes on cash and cash equivalents Net (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year (Note 19) Cash and cash equivalents at end of year (Note 19) The accompanying notes are an integral part of these consolidated financial statements. December 31, 2018 $ December 31, 2017 $ (77,428) (174) 452 19,947 (21,480) (279) 371 15 (2,773) (31,115) 7 95,500 (16,957) 4,106 (176,569) (26,574) 123,798 (294) 18,394 3,320 41,017 65,797 22,713 452 20,444 (1,345) 1,079 (503) (401) (9,919) (22,512) (2,869) (816) 72,120 2,390 (20,961) (24,831) 4,267 (3,374) — — — (12,802) (42,509) 293,872 (302,213) 770 (10,956) (20,359) — (38,886) (555) (69,200) 94,524 25,324 121,846 (133,485) 882 (10,952) (12,300) (4,073) (38,082) — (8,471) 102,995 94,524 AutoCanada • Page 5 AutoCanada Inc. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2018 and 2017 (In thousands of Canadian dollars except for share and per share amounts) 1 General Information 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 the Provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Nova Scotia and New Brunswick, and in the State of Illinois in the United States. 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 Notes 6 and 7. The Company adopted IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers effective January 1, 2018. The adoption of these standards resulted in certain updates to accounting policies, described in Note 3, and certain retrospective adjustments, described in Note 4. These financial statements were approved by the Board of Directors on March 14, 2019. 3 Significant Accounting Policies The significant accounting policies used in the preparation of these consolidated financial statements are as follows: Basis of measurement The consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial assets and financial liabilities to fair value, including 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. Page 6 • AutoCanada Business combinations Business combinations are accounted for using the acquisition method of accounting. This involves recognizing identifiable assets (including intangible assets not previously recognised by the acquiree) and liabilities (including contingent liabilities) of acquired businesses at fair value at the acquisition date. The excess of acquisition cost over the fair value of the identifiable net assets acquired is recorded as goodwill. If the acquisition cost is less than the fair value of the net assets acquired, the fair value of the net assets is re- assessed and any remaining difference is recognized directly in the Consolidated Statement of Comprehensive (Loss) 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 (Loss) Income. Revenue recognition Policy applicable from January 1, 2018 As described in Note 4, the Company adopted IFRS 15 Revenue from Contracts with Customers, effective January 1, 2018. Adoption of the standard did not result in any adjustments, however the Company has updated its accounting policies in accordance the framework prescribed by the standard. (a) New and Used Vehicles The Company sells new and used vehicles at our franchised dealerships. The transaction price for a vehicle sale is determined with the customer at the time of sale. Customers often trade in their own vehicle and apply the value against the purchase price of a new or used vehicle. The trade-in vehicle is considered non- cash consideration and is measured at fair value, based on external and internal market data, and applied toward the contract price for the purchased vehicle. When a vehicle is sold, control is transferred at a point in time upon delivery of the vehicle to the customer, which is generally at time of sale. The Company does not directly finance customers’ vehicle purchases or leases however in many cases, third-party financing is arranged for the sale or lease of vehicles to our customers in exchange for a fee paid to us by the third-party financial institution. The Company receives payment directly from the customer at the time of sale or from the third-party financial institution (referred to as contracts-in-transit or vehicle receivables, which are part of our receivables from contracts with customers) within a short period of time following the sale. (b) Parts, service and collision repair The Company sells parts and services related to customer-paid repairs and maintenance, repairs and maintenance under manufacturer warranties and extended service contracts, and collision-related repairs. Each automotive repair and maintenance service is a single performance obligation that includes both the parts and labour associated with the service. Payment for automotive service work is typically due upon completion of the service, which is generally completed within a short period of time from contract inception. The transaction price for automotive repair and maintenance services is based on the parts used, the number of labour hours applied, and standardized hourly labour rates. We satisfy our performance obligations, transfer control, and recognize revenue over time for repair and maintenance services because we are creating an asset with no alternative use and we have an enforceable right to payment for performance completed to date. The transaction price for retail counter parts sales is determined at the time of sale based on the quantity and price of each product purchased. Payment is typically due at the time of sale, or within a short period of time following the sale. Control is generally considered to transfer at the point of sale or when the products are shipped, which typically occurs the same day as or within a few days of the sale. (c) Finance and insurance The Company arranges financing for customers through various financial institutions and receives a commission from the lender based on the difference between the interest rate charged to the customer and the interest rate set by the financing institution, or a flat fee. The Company also receives commissions for facilitating the sale of third-party insurance products to customers, including credit and life insurance policies and extended service contracts. These commissions are recorded as revenue at the time the customer enters into the contract and the Company is entitled to the commission. The Company is not the obligor under any of these contracts. In the case of finance contracts, a customer may prepay or fail to pay their contract, thereby terminating the contract. Customers may also terminate extended service contracts, which are fully paid at purchase, and become eligible for refunds of unused premiums. In these circumstances, a portion of the commissions the Company receives may be charged back to the Company based on the terms of the contracts. These chargebacks are a form of AutoCanada • Page 7 variable consideration and the Company only recognizes commission revenue at the estimated amount of consideration to which it ultimately expects to be entitled. 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. For the majority of finance and insurance product sales, the Company’s performance obligation is to arrange for the provision of goods or services by another party. This performance obligation is satisfied when the finance and insurance product is delivered to the end-customer, generally at the time of the vehicle sale. As an agent, revenue is recognized as the net amount retained after paying the third-party provider for the goods or services that party is responsible for fulfilling. Policy applicable before January 1, 2018 (a) Vehicles, parts, service and collision repair Revenue from the sale of goods and services is measured at the fair value of the consideration receivable, net of rebates. It excludes sales related taxes and intercompany transactions. Revenue is recognized when the risks and rewards of ownership have been transferred to the customer, the revenue and costs can be reliably measured and it is probable that economic benefits will flow to the Company. In practice, this means that revenue is recognized when vehicles are invoiced and physically delivered to the customer and payment has been received or credit approval has been obtained by the customer. Revenue for parts, service and collision repair is recognized when the service has been performed. (b) Finance and insurance The Company arranges financing for customers through various financial institutions and receives a commission from the lender based on the difference between the interest rate charged to the customer and the interest rate set by the financing institution, or a flat fee. The Company also receives commissions for facilitating the sale of third-party insurance products to customers, including credit and life insurance policies and extended service contracts. These commissions are recorded as revenue at the time the customer enters into the contract and the Company is entitled to the commission. The Company is not the obligor under any of these contracts. In the case of finance contracts, a customer may prepay or fail to pay their contract, thereby terminating the contract. Customers may also terminate extended service contracts, which are fully paid at purchase, and become eligible for refunds of unused premiums. In these circumstances, a portion of the commissions the Company receives may be charged back to the Company based on the terms of the contracts. The revenue the Company records relating to commissions is net of an estimate of the amount of chargebacks the Company will be required to pay. This estimate is based upon historical chargeback experience arising from similar contracts, including the impact of refinance and default rates on retail finance contracts and cancellation rates on extended service contracts and other insurance products. Taxation (a) Deferred tax Deferred tax is recognized on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the statement of financial position. Deferred tax is calculated using tax rates and laws that have been enacted or substantively enacted at the end of the reporting period, and which are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred tax liabilities: 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 Page 8 • AutoCanada  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 (Loss) 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, finance lease receivables, restricted cash and loans to associates, are measured at amortized cost. The contractual cash flows received from the financial assets are solely payments of principal and interest and are held within a business model whose objective is to collect contractual cash flows. The financial assets 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 bank indebtedness, trade and other payables, revolving floorplan facilities, vehicle repurchase obligations, long-term indebtedness, derivative financial instruments, 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 (Refer to Note 26 – Financial instruments – Credit risk for explanation of credit risk associated with amounts held with Scotiabank). Trade and other receivables Trade and other receivables are amounts due from customers, financial institutions and suppliers 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. The Company applies the simplified approach to measuring expected credit losses, which uses a AutoCanada • Page 9 lifetime expected credit loss allowance for all trade receivables. 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 (Loss) 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 (Loss) 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. 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 held for sale are held 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 expenditure that is directly attributable to the acquisition of the asset. Residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each financial year end. Land is not depreciated. Other than as noted below, depreciation of property and equipment is provided for over the estimated useful life of the assets on the declining balance basis at the following annual rates: Machinery and equipment Furniture, fixtures and other Company 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. Intangible assets and goodwill (a) Intangible assets Intangible assets consist of rights under franchise agreements with automobile manufacturers (“dealer agreements”). The Company has determined that dealer agreements will continue to contribute to cash flows indefinitely and, therefore, have indefinite lives due to the following reasons: Specific dealer agreements continue indefinitely by their terms; and Page 10 • AutoCanada  Specific 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 carried at cost less accumulated impairment losses. Impairment Impairments are recorded when the recoverable amount of assets are less than their carrying amounts. The recoverable amount is the higher of an asset’s fair value less cost to sell or its value in use. Impairment losses, other than those relating to goodwill, are evaluated for potential reversals of impairment when events or changes in circumstances warrant such consideration. (a) Non-financial assets The carrying values of non-financial assets with finite lives, such as property and equipment, are assessed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. (b) Intangible assets and goodwill The carrying values of all intangible assets with indefinite lives and goodwill 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 CGUs 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. Trade and other payables Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business. Trade and other payables are recognized initially at fair value and subsequently measured at amortized cost, and are classified as current liabilities if payment is due within one year. Provisions represent liabilities for which the amount or timing is uncertain. Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are not recognized for future operating losses. Provisions are measured at the present value of the expected expenditures to settle the obligation using a discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in provision due to passage of time is recognized as interest expense. Leases Lease obligations are classified as either operating or finance, based on the substance of the transaction at inception of the lease. Classification is re-assessed if the terms of the lease are changed. (a) Finance leases Leases in which substantially all the risks and rewards of ownership are transferred are classified as finance leases. AutoCanada • Page 11 The Company as a lessor: When assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. The method for allocating gross earnings to accounting periods is referred to as the “actuarial method”. The actuarial method allocates rentals between finance income and repayment of capital in each accounting period in such a way that finance income will emerge as a constant rate of return on the lessor’s net investment in the lease. The Company as a lessee: Assets meeting finance lease criteria are capitalized at the lower of the present value of the related lease payments or the fair value of the leased asset at the inception of the lease. Minimum lease payments are apportioned between the finance charge and the liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. (b) Operating leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. The Company as a lessor: When assets are leased out under an operating lease, the asset is included in the Consolidated Statement of Financial Position based on the nature of the asset. Lease income on operating leases is recognised over the term of the lease on a straight-line basis. The Company as a lessee: Payments under an operating lease (net of any incentives received from the lessor) are recognized on a straight-line basis over the period of the lease. Redemption liabilities The potential cash payments related to put options issued by the Company over the equity of subsidiary companies are accounted for as financial liabilities when such options may only be settled other than by exchange of a fixed amount of cash, or another financial asset, or for a fixed number of shares in the subsidiary. The amount that may become payable under the option on exercise is initially recognised at fair value within redemption liabilities with a corresponding charge directly to equity attributable to AutoCanada shareholders. Subsequently, if the Company revises its estimates, the carrying amount of the redemption liability is adjusted and the adjustment will be recognised as income or expenses in the Consolidated Statement of Comprehensive (Loss) Income. Options that are not exercisable for at least one year from the balance sheet date are presented as non-current liabilities. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds. Where any group company purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s shareholders until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s shareholders. Dividends Dividends on common shares are recognized in the Company’s consolidated financial statements in the period the dividends are declared by the Company’s Board of Directors. 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. Page 12 • AutoCanada Shared-Based Payments The Company operates a number of share-based compensation plans for the benefit of certain employees and Company directors, as described in Note 32. The accounting for a share-based payment plan is based on whether the arrangement is classified as equity- settled or cash settled. Equity-settled arrangements are those in which the Company receives services as consideration for its own equity instruments. Cash-settled arrangements arise where the Company pays the employee cash amounts based on the value of the Company’s shares. The fair value of equity settled awards is recognized as an expense over the vesting period with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the options at the grant date. The fair value of cash-settled awards is also recognized as an expense over the vesting period, however since the award gives rise a cash obligation, a corresponding liability is recognized. The fair value of the liability is re- measured at each reporting date, with changes in fair value recognized in profit or loss for the period. Foreign Currency Translation On April 9, 2018, the Company acquired the Grossinger Auto Group in the Chicago, Illinois metropolitan area. The expansion of the Company into the United States requires the company to translate the financial results of these dealerships from the functional currency (USD) into the reporting currency (CAD) upon consolidation. Assets and liabilities have been translated to the reporting currency (CAD) using the exchange rates in effect on the consolidated balance sheet dates. Revenue and expense accounts are translated using the average exchange rate during the period. The cumulative translation adjustments associated with the net assets of foreign subsidiaries are recorded in accumulated other comprehensive income in the accompanying Consolidated Statement of Changes in Equity. Goodwill and fair value adjustments arising on the acquisition of foreign operations are treated as assets and liabilities of the foreign operation and translated at the closing rate. Derivative financial instruments Derivatives are recognized initially at fair value on the date of contract inception and are subsequently re- measured to current fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the instrument is designated as a hedging instrument, and if so, the nature of the item being hedged. The Company currently designates certain derivatives as hedges of the interest rate cash flow risk associated with the cash flows of variable rate loans, and does not hold any derivatives for trading or speculative purposes. At the inception of the hedge relationship, the Company documents the economic relationship between the hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. The effective portion of changes in the fair value of qualifying hedging derivatives is recognized as a reserve within equity. The gain or loss relating to any ineffective portion is recognized immediately in profit or loss. The periodic net settlement of the interest rate swap is recognized in profit or loss within finance costs at the same time as the interest expense on the hedged borrowings. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is greater than one year. Further information on the Company’s risk management and hedge accounting is presented in Note 39. Segment Reporting Operating Segments are components of an entity that engage in business activities from which they earn revenues and incur expenses, the operations for which can be clearly distinguished and for which the operating results are regularly reviewed by a chief operating decision maker to make resource allocation decisions and to assess performance. Previously, the Company’s Chief Operating Decision Maker (CODM) was identified as the Executive Team and the Executive Chair. During the quarter ended September 30, 2018, the Company underwent a management shift and the CODM was reassessed. Going forward, the Chief Executive Officer (CEO) will serve as the function of the CODM and the CEO is responsible for allocating resources and assessing the performance of each dealership. In the absence of the CEO, the Executive Chair will serve the function of the CODM. Supporting the CODM will be the President, Canadian Operations and the President, U.S. Operations, both of whom report to the CODM. As each of these individuals, with support from their respective management teams, report to the CODM, the Company will report segmented information by Canadian Operations and U.S. Operations. Each AutoCanada • Page 13 reportable operating segment is comprised of retail automobile dealerships, which have been aggregated based on their economic similarities. Our CODM measures the performance of each operating segment based on operating profit, which is defined as income before income taxes, net finance costs and other income (expense). The segmented information is set out in Note 40. 4 New accounting standards adopted in 2018 IFRS 9 Financial Instruments IFRS 9 replaces the provisions of lAS 39 that relates to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. The standard was adopted on January 1, 2018, with the only impact being with respect to revising the Company’s impairment methodology for its trade and other receivables. The Company applies the simplified approach to measuring expected credit losses, which uses a lifetime expected credit loss allowance for all trade receivables. In accordance with the transitional provisions of IFRS 9, comparative figures have not been restated and the cumulative impact of adoption has been reflected in opening retained earnings of the current year. This has resulted in an increase to retained earnings as at January 1, 2018 of $367. IFRS 15 Revenue from Contracts with Customers The Company adopted IFRS 15 Revenue from Contracts with Customers, effective January 1, 2018. The Company has considered factors such as customer contracts with unique revenue recognition considerations, the nature and type of goods and services the Company offers, the degree to which contracts include multiple performance obligations or variable consideration, and the pattern in which revenue is currently recognized, among other things. The adoption of IFRS 15 resulted in certain procedural changes in our accounting for revenue, however the accounting policies and the timing of revenue recognition for all revenue streams remains the same. 5 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, 2018. The standards issued that are applicable to the Company are as follows: IFRS 16 - Leases IFRS 16 was issued in January 2016. It will result in almost all leases being recognized on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right- to-use the leased item) and a financial liability to pay rentals are recognized. The only exceptions are short-term and low-value leases. The standard will affect primarily the accounting for the Company’s operating leases. This will result in additional right-to-use assets, as well as lease liabilities, for which management is in the process of finalizing the valuation. The standard is mandatory and will be adopted by the Company commencing with the interim period beginning January 1, 2019. The Company intends to apply the simplified transition approach and will not restate comparative amounts for the year prior to first adoption. Right-of-use assets for property leases, which comprise substantially all of the Company's right-of-use assets, will be measured on transition as if the new rules had always been applied. 6 Critical accounting estimates The preparation of financial statements requires management to make estimates about the future. Estimates 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 were used to determine the value of the following assets and liabilities: Page 14 • AutoCanada 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 (refer to Note 25). 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 (refer to Note 18). 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 recognised as income or expenses in the Consolidated Statement of Comprehensive (Loss) Income. 7 Critical judgments and measurement uncertainty The preparation of financial statements also requires management to make judgments about the future. 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. The critical judgments were applied to the following 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 was for a 14 month term, automatically renewable for successive one year terms, and cancellable by either party subject to a one year notice period. 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 possessed the legal right to control decisions as they pertained to the investees; AutoCanada • Page 15  Priestner had not relied on any financial support from the Company in making his investments, and therefore the risk of loss and reward to Priestner personally was significant; and Priestner’s level of expertise and knowledge in operating the investees Factors indicative of the Company controlling the investees: The Company had 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 had retained effective control of the relevant activities that would impact its investment returns through execution of the Agreement, which provided 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 were related parties of the Company; and The Company was 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 had concluded that it continued to have power over the relevant activities and therefore control of the investees. As a result, the financial results of the investees continued to be consolidated in the Company’s financial statements. On May 5, 2017, Priestner retired from his position as Chair. As a result of this change, the Company had updated its assessment of the relationship between Priestner and the Company as it related to its investments in these investees. As a result of the reassessment, it was concluded that the Company continued to control these investees, through an agreement, giving the Company control over the activities that would impact its investment returns. On January 2, 2018, the Company reorganized its ownership interest in its investees acquiring the majority of the voting shares of certain investees, as described in Note 35. The Company has updated its assessment of the relationship between Mr. Patrick Priestner (“Priestner”) and the Company as it relates to its investment in these investees. As a result of the reassessment, it was concluded that the Company continues to control these investees as a result of owning the majority of the voting shares. The details of this transaction are described in Note 18 and Note 35. (b) Loans to associate On March 31, 2018, the Company terminated its loans to PPH Holdings Ltd. (“PPH”) and all amounts outstanding under the loans were repaid in full. The Company has updated its assessment of the relationship between Priestner and the Company, as it relates to PPH. It was concluded that AutoCanada does not control and should not consolidate PPH, as these loans have been terminated as described in Note 24. AutoCanada had provided loans to PPH Holdings Ltd. (“PPH”) for which the voting interests were held 100% by Priestner, as described in Note 24. When assessing whether the Company had control of PPH, management had considered the nature of the loans, the Company’s relationship with Priestner and whether the Company had the ability to direct decision-making rights of Priestner pertaining to its loan to PPH. In making this assessment, the prevailing considerations were that the loans to PPH were repayable at any time without recourse, and grant the Company no power to control PPH. AutoCanada’s returns from PPH were derived from interest on the loans and license fees based on gross profit, as such, operating decisions made by Priestner impacting operating profit or net income impacted his returns but did not affect AutoCanada’s returns. 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; AutoCanada • Page 16  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 was significant; There were no contractual rights providing AutoCanada with decision making power over Priestner, additionally the Company was not involved in the operational decision making of PPH; Priestner’s level of expertise and knowledge in operating PPH; and Priestner had the ability to prepay or repay the loans at any time and AutoCanada had no ability to block such a transaction. When combining these considerations with the fact that Priestner was the sole director of the Board of PPH, and therefore governs relevant activities of the investee, management had concluded that AutoCanada did not have power over PPH, and therefore had not consolidated PPH. As a result of Priestner’s change in employment from Executive Chair to non-executive Chair of the Board of Directors, then to retirement, the Company had assessed the relationship between Priestner and the Company as it relates to PPH. As a result of the reassessment, it was concluded that AutoCanada did not control and should not consolidate PPH. 8 Revenue New vehicles Used vehicles Parts, service and collision repair Finance, insurance and other The Company has no material contract assets or liabilities as at December 31, 2018. 9 Cost of sales New vehicles Used vehicles Parts, service and collision repair Finance, insurance and other 10 Operating expenses Employee costs1 (Note 11) Administrative costs2 Facility lease costs Depreciation of property and equipment (Note 23) 2018 $ 1,802,203 756,154 451,760 140,664 3,150,781 2017 $ 1,827,559 716,045 416,690 141,266 3,101,560 2018 $ 1,693,071 712,826 227,774 9,147 2,642,818 2017 $ 1,696,575 672,307 202,380 11,669 2,582,931 2018 $ 277,891 148,098 28,868 19,947 474,804 2017 $ 264,768 116,605 24,436 20,444 426,253 1 Employee costs includes management transition expenses. 2 Administrative costs include professional fees, consulting services, technology-related expenses, marketing, and other general and administrative costs. AutoCanada • Page 17 11 Employee costs Operating expenses incurred in respect of employees were: Wages, salaries and commissions Withholding taxes and insurance Employee benefits Share-based compensation Other benefits1 1 Includes management transition costs. 12 Lease, other income and gain on disposal of assets, net Lease and other income, net Non-recurring settlement income1 Lease and rental income Other income Gain on disposal of assets, net Gain on dealership divestiture (Note 17) Sale and leaseback transactions (Note 23) Transactions with non-controlling interests (Note 35) Disposals of property and equipment, net 2018 $ 235,041 15,601 15,938 1,116 10,195 277,891 2017 $ 235,573 13,599 12,582 1,079 1,935 264,768 2018 $ 2017 $ 1,603 3,056 3,260 7,919 757 13,882 5,984 857 21,480 14,846 3,914 2,671 21,431 — — — 1,345 1,345 1 The non-recurring settlement is from an automobile manufacturer and has been recognized net of estimated related expenses. 13 Finance costs and finance income Finance costs: Interest on long-term indebtedness Floorplan financing Other finance costs Finance income: Short-term bank deposits Cash interest paid during the year ended December 31, 2018 is $46,952 (2017 - $35,274). 14 Other gains (losses) Gain on foreign currency Revaluation of redemption liabilities (Note 18) Revaluation of contingent consideration 2018 $ 2017 $ (20,447) (21,440) (5,306) (47,193) (17,949) (14,515) (3,574) (36,038) 1,289 2,294 2018 $ 972 (7) (15) 950 2017 $ — 2,869 416 3,285 AutoCanada • Page 18 15 Income Taxes Components of income tax are as follows: Current tax Deferred tax Total income tax (recovery) expense Segmented components of income tax are as follows: Canada U.S. Current income tax expense Canada U.S. Deferred income tax (recovery) expense Total income tax (recovery) expense Factors affecting tax expense for the year ended December 31: Net (loss) income for the year before taxation Net (loss) income for the year before taxation multiplied by the blended rate of Canadian corporate tax of 26.9% (2017 - 26.8%) Effects of: Impact of non-deductible items Difference between future and current tax rate Income tax rates differential of foreign subsidiaries Deferred tax recognized on sale of subsidiaries Adjustment in respect of prior years Tax losses and deductible temporary differences not recognized Other, net Income taxes (recovery) 2018 $ 3,354 (3,528) (174) 2017 $ 20,901 1,812 22,713 2018 $ 3,354 — 3,354 (1,292) (2,236) (3,528) (174) 2017 $ 20,901 — 20,901 1,812 — 1,812 22,713 2018 $ 2017 $ (77,602) 88,510 (20,866) 23,721 1,447 1,136 254 3,851 1,326 11,196 1,482 (174) (90) 1,554 — — (2,333) — (139) 22,713 AutoCanada • Page 19 The movements of deferred tax assets and liabilities are shown below: Deferred tax assets (liabilities) Deferred income from partnerships $ Property and equipment $ Goodwill and intangible assets $ Lease receivables $ Other $ Total $ January 1, 2017 (1,678) 1,889 (24,526) (2,519) 2,151 (24,683) (Expense) benefit to consolidated statement of comprehensive (loss) income Acquisition of subsidiary (Note 16) Held for sale (Note 23) December 31, 2017 (Expense) benefit to consolidated statement of comprehensive (loss) income Acquisition of subsidiary (Note 16) Other December 31, 2018 Deferred tax asset Deferred tax liability Net deferred tax liability 1,567 — — (111) 5,669 — — 5,558 846 — (1,470) 1,265 174 58 279 1,776 (4,707) (2,747) 3,192 (28,788) (2,481) 5,414 1,654 (24,201) 512 — 57 — (1,725) (2,747) 2,007 (284) 3,445 — — — — — 1,924 (25,710) 166 — 1,249 3,339 3,528 5,472 3,182 (13,528) 2018 $ 13,642 27,170 13,528 2017 $ — 25,710 25,710 Income tax (recovery) 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 blended rate used for the year ended December 31, 2018 was 26.9% (2017 - 26.8%). Changes in the deferred income tax components are adjusted through deferred tax expense. Of the above components of deferred income taxes, $5,558 (2017 - $413) of the deferred tax liabilities are expected to be recovered within 12 months. Unused tax losses and deductible temporary differences for which no deferred tax asset has been recognized are as follows: U.S. deductible temporary differences U.S. tax losses Total unrecognized temporary differences 2018 $ 17,251 24,922 42,173 The Company's U.S. Operations have state and federal net operating losses of $24,922, as well as deductible temporary differences of $66,504 available to reduce future taxable income. The federal losses can be carried forward indefinitely, while the state losses expire in 2030. The losses arose following the acquisition of the Grossinger Auto Group (Note 16) in April of 2018 and relate to certain under-performing dealerships, along with costs incurred related to integrating the operations. The deductible temporary differences arose primarily from impairment charges recorded against the goodwill and intangible assets of the acquired dealerships. The Company has recognized the benefit of $49,253 of the deductible temporary differences as a deferred tax asset at December 31, 2018. The Company has concluded that the deferred tax assets are more likely than not to be recovered using estimated future taxable income, based on approved business plans and budgets for the segment. This estimate will be updated in future periods, which may result in increases or decreases in the amount of deferred tax assets recognized based on the amount judged more likely than not to be recoverable. Page 20 • AutoCanada The Company also has Canadian non-capital losses $4,752 (2017 - $18,956) available to reduce future taxable income, until their expiry between 2032 and 2038. The benefit of these losses has been recognized as an offset to Canadian taxable temporary differences. 16 Business Acquisitions During the year ended December 31, 2018, the Company completed three business acquisition transactions: one comprising fifteen franchises in eight locations (Grossinger Auto Group) and two consisting of stand-alone automobile dealerships, representing two franchises. These acquisitions have been accounted for using the acquisition method. The acquisitions are as follows: Grossinger Auto Group Between the period of April 9, 2018 and April 23, 2018, the Company closed transactions to purchase substantially all of the operating and fixed assets of Grossinger City Autocorp Inc. (“Grossinger City Toyota”), Grossinger City Autoplex Inc. (“Grossinger City Chevrolet” and “Grossinger City Cadillac”), Grossinger Imports Inc. (“Grossinger Honda”), Grossinger North Autocorp Inc. (“Grossinger Toyota North”), Grossinger Autoplex Inc. (“Grossinger Hyundai North” and “Grossinger Kia”), Grossinger Chevrolet Inc. (“Grossinger Chevrolet Palatine”), Grossinger Hyundai of Palatine Inc. (“Grossinger Hyundai Palatine”) and Grossinger Motors Inc. (“Audi Bloomington-Normal”, “Lincoln Bloomington-Normal”, “Mercedes Bloomington-Normal”, “Subaru Bloomington- Normal”, “Volvo Bloomington-Normal” and “Volkswagen Bloomington-Normal”), herein referred to as the “Grossinger Auto Group”, located in Chicago, Illinois and Bloomington-Normal, Illinois for total cash consideration of $131,887. In addition, the Company assumed liabilities under a number of contracts with an acquisition date fair value of $39,803. The Company did not acquire the land and buildings associated with the dealerships, other than with respect to Grossinger Honda, which was allocated a value of $10,031. The Company entered into lease arrangements for the balance of the facilities. The purchase price of the Grossinger Auto Group was financed through a combination of funds drawn on the Scotiabank revolving term facility, proceeds from the repayment of loans to associate and proceeds from the Company’s divestiture of dealerships in Canada. Concurrent with this transaction, the Company purchased $81,950 of vehicle inventory through floorplan financing provided by Bank of America (Note 29). As a result of entity-wide and business unit level impairment indicators identified as at June 30, 2018, all of the Company’s CGU’s were tested for impairment at that time and further testing was performed at December 31, 2018, which resulted in impairment charges against certain CGUs within the Grossinger Auto Group. Refer to Note 25. Since the acquisition date and during the measurement period, additional information was obtained with respect to the value of certain assets acquired and liabilities assumed, resulting in adjustments to the fair values recorded. The following table shows the revised purchase price allocation balances as at June 30, 2018 accounting for the fair value changes during the measurement period, including (i) the changes to fair values of identifiable assets acquired and liabilities assumed; and (ii) the impact on the associated balances resulting from changes in fair value. The business acquisition has been accounted for as if the fair value changes to the net identifiable assets had been completed as of the acquisition date. Inventories1 Intangible assets2 Deferred income tax asset3 Other liabilities1 Intangible liabilities4 Goodwill5 As reported June 30, 2018 Fair value adjustments Restated June 30, 2018 13,128 67,177 — — — 16,845 (1,513) (27,958) 10,560 2,610 37,193 58,714 11,615 39,219 10,560 2,610 37,193 75,559 1 Certain adjustments to working capital balances for new information received during the measurement period were made. 2 Intangible assets relate to indefinite-life franchise rights associated with the respective dealerships. The fair value adjustments resulted from finalization of the related valuation models. AutoCanada • Page 21 3 A deferred income tax asset has been recorded as a result of the fair market adjustments that create future differences between 4 accounting and taxable income Intangible liabilities have been recorded as a result of off market lease obligations that were taken on by the Company as part of the acquisition. 5 The fair value adjustment to goodwill was the result of the net change in the other assets and liabilities. Mercedes-Benz Heritage Valley On October 1, 2018, the Company, through a wholly owned subsidiary, AutoCanada M LP, purchased all of the issued and outstanding shares of Ericksen M-B Ltd., which owns and operates a Mercedes-Benz dealership in Edmonton, Alberta, for total cash consideration of $23,901. The acquisition was funded through net proceeds of the sale and leaseback transactions with Automotive Properties Real Estate Investment Trust (Note 23). Rose City Ford On December 1, 2018, the Company, through a wholly owned subsidiary, 2667465 Ontario Inc., purchased all of the issued and outstanding shares of Rose City Ford Sales Limited, which owns and operates a Ford dealership in Windsor, Ontario, for total cash consideration of $24,753. At the time of acquisition, Rose City Ford Sales Limited had net working capital of $6,887. The acquisition was funded by drawing on the Company's revolving term facility. The business acquisitions completed during the year ended December 31, 2018 are summarized as follows: Current assets Cash and cash equivalents Trade and other receivables Inventories 1 Other current assets Long-term assets Property and equipment Other long term assets Intangible assets Deferred income tax Total assets Current liabilities Trade and other payables Other liabilities Intangible liabilities Current indebtedness Revolving floorplan facility 1 Long-term liabilities Long-term indebtedness Other liabilities Intangible liabilities Deferred income tax Total liabilities Net assets acquired Goodwill Total net assets acquired Total consideration Grossinger Auto Group $ Mercedes-Benz Heritage Valley $ Rose City Ford $ 21 84 11,615 516 12,236 34,218 — 39,219 10,560 96,233 102 167 4,656 — — 4,925 — 2,443 32,537 — 39,905 56,328 75,559 131,887 131,887 274 3,592 18,725 887 23,478 1,268 3,456 21,250 — 49,452 1,887 — — 4,330 18,449 24,666 1,862 — — 2,674 29,202 20,250 3,651 23,901 23,901 3,677 4,094 14,909 205 22,885 248 10 18,599 — 41,742 1,510 — — — 14,369 15,879 — — — 2,413 18,292 23,450 1,303 24,753 24,753 Total $ 3,972 7,770 45,249 1,608 58,599 35,734 3,466 79,068 10,560 187,427 3,499 167 4,656 4,330 32,818 45,470 1,862 2,443 32,537 5,087 87,399 100,028 80,513 180,541 180,541 1 Concurrent with this transaction, the Company purchased $81,950 of vehicle inventory through floorplan financing provided by Bank of America. Refer to Note 29. Page 22 • AutoCanada Acquisitions completed during the year ended December 31, 2018 generated revenue and net earnings (excluding impairment charges) of $393,235 and $9,707, respectively, since the time of acquisition. The purchase prices allocated, as presented above, are estimates and subject to change due to finalization of the associated allocations. Acquisition related costs of $1,751 have been charged to administrative expenses in the Consolidated Statement of Comprehensive (Loss) Income and operating activities in the Consolidated Statement of Cash Flows for the year ended December 31, 2018. 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 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 goodwill is created for tax purposes (Note 3). If the acquisitions had occurred on January 1, 2018, consolidated pro forma revenue for the year ended December 31, 2018 from the acquired businesses would have been $614,435. These results have been calculated using the subsidiary’s internal financial reports and adjusting them for differences in the accounting policies between the subsidiary and AutoCanada. Prior year business acquisitions During the year ended December 31, 2017, 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: Mercedes-Benz Rive-Sud On May 1, 2017, the Company purchased all of the voting shares of 8421722 Canada Inc., which owns and operates a Mercedes-Benz dealership in Montreal, Quebec, along with all of the operating and fixed assets of 9343091 Canada Inc. which owns and operates the dealership’s collision centre (together “Mercedes-Benz Rive- Sud”), for total cash consideration of $16,133. The acquisition was funded by drawing on the Company’s revolving term facility. Planete Mazda On December 1, 2017, the Company, through a wholly owned subsidiary, AutoCanada M Holdings Inc., purchased 95% of the issued and outstanding participating shares; and 90% of the non-participating voting shares of 156023 Canada Inc. (“Planete Mazda”), which owns and operates a Mazda dealership in Montreal, Quebec, for total cash consideration of $5,799. The acquisition was funded by drawing on the Company's revolving term facility. AutoCanada • Page 23 The business acquisitions completed during the year ended December 31, 2017 are summarized as follows: Mercedes- Benz Rive Sud $ Planete Mazda $ 520 5,150 16,530 140 22,340 2,750 — 11,549 36,639 1,345 18,038 19,383 2,071 2,140 23,594 13,045 3,088 — 16,133 16,133 431 216 6,982 117 7,746 500 13 4,128 12,387 742 5,234 5,976 — 607 6,583 5,804 279 (304) 5,779 5,779 Total $ 951 5,366 23,512 257 30,086 3,250 13 15,677 49,026 2,087 23,272 25,359 2,071 2,747 30,177 18,849 3,367 (304) 21,912 21,912 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 Non-controlling interest Total net assets acquired Total consideration Page 24 • AutoCanada 17 Dealership divestitures North Edmonton Kia On November 19, 2018, the Company sold substantially all of the operating and fixed assets, including the land and facilities, of North Edmonton Kia located in Edmonton, Alberta for cash consideration. Net proceeds of $10,202 resulted in a pre-tax gain on divestiture of $787 included in gain on disposal of assets in the Consolidated Statement of Comprehensive (Loss) Income. Courtesy Mitsubishi On December 17, 2018, the Company sold substantially all of the operating and fixed assets of Courtesy Mitsubishi located in Calgary, Alberta for cash consideration. Net proceeds of $2,455 resulted in a pre-tax loss on divestiture of $30 included in gain on disposal of assets in the Consolidated Statement of Comprehensive (Loss) Income. The dealership divestitures completed during the year ended December 31, 2018 are summarized as follows: Trade and other receivables Inventories Property and equipment Intangible assets Other assets Total Assets Trade and other payables Revolving floorplan facilities Total Liabilities Net assets disposed of Net proceeds on divestiture Net gain (loss) on divestiture North Edmonton Kia $ Courtesy Mitsubishi $ — 5,832 8,445 — — 14,277 19 4,843 4,862 9,415 10,202 787 121 3,972 135 1,382 16 5,626 61 3,080 3,141 2,485 2,455 (30) Total $ 121 9,804 8,580 1,382 16 19,903 80 7,923 8,003 11,900 12,657 757 Prior year dealership divestitures There were no dealership divestitures during the year ended December 31, 2017. AutoCanada • Page 25 18 Interest in subsidiaries The Company owns 100% of most subsidiaries, but also has a controlling interest in certain subsidiaries that also have non-controlling interests ("NCI") held by other parties. The interests in these subsidiaries are summarized as follows: Subsidiary Proportion of ownership interests held by non- controlling interests Proportion of voting rights held by non- controlling interests Dividends paid to non- controlling interests 2018 $ Dividends paid to non- controlling interests 2017 $ Principal place of business Green Isle G Auto Holdings Inc.1 British Columbia Prairie Auto Holdings Ltd.1 Saskatchewan Waverley BG Holdings Inc.1 Manitoba NBFG Holdings Inc.1 Saskatchewan Quebec AutoCanada B Holdings Inc. Quebec AutoCanada M Holdings Inc. RS M Motors LP.4 Quebec Dealer Holdings Ltd.2 Alberta DFC Holdings Inc.2 British Columbia LWD Holdings Ltd.2 Alberta AutoCanada HCN Holdings Inc.3 Ontario GRV C Holdings LP3 Alberta 10% 15% 10% 5% 15% 5% 10% —% —% —% —% —% 10% 15% 10% 5% 15% 10% 10% —% —% —% —% —% — 900 — — 750 — — — — — — — 1,650 576 2,477 630 270 — — — 6,780 305 831 6 425 12,300 1 During the year ended December 31, 2018, the Company acquired the remaining NCI portion of these subsidiaries and subsequently sold non-controlling interests, between 5% and 15%, to the respective dealer principals, as described in Note 35 (Prairie Auto Holdings Ltd. holds interest in two operating dealerships where the dealer principal retained a 15% ownership interest). 2 On January 2, 2018, the Company sold its remaining interests in these subsidiaries, as described in Note 35. 3 During the year ended December 31, 2017, the Company acquired the remaining NCI portion of these subsidiaries, as described in Note 35. 4 Non-controlling interests of 10% were sold to the respective dealer principal, as described in Note 35. Prairie Auto Holdings Ltd., AutoCanada B Holdings Inc., and AutoCanada M 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, measured at their fair value on the Consolidated Statement of Financial Position. The continuity of the redemption liabilities is summarized as follows: Balance, January 1, 2017 Decrease in fair value (Note 14) Recognition on business acquisition (Note 16) Derecognition on settlement (Note 35) Total Less: Held for sale (Note 22) Carrying amount Balance, December 31, 2017 Increase in fair value (Note 14) Derecognition on settlement (Note 35) Balance, December 31, 2018 Redemption Liability $ 46,464 (2,869) 306 (1,197) 42,704 26,404 16,300 42,704 7 (27,763) 14,948 AutoCanada • Page 26 The change in fair value is recorded in other gains and losses on the Consolidated Statement of Comprehensive (Loss) Income (Note 14). The fair value is determined based on the dealership equity value of the related subsidiary (Note 38). 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 disclosure, 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. 19 Cash and cash equivalents Cash at bank and on hand Short-term deposits Cash and cash equivalents (excluding bank indebtedness) Bank indebtedness Cash and cash equivalents Restricted cash Cash and cash equivalents and restricted cash December 31, 2018 $ 23,061 2,263 25,324 — 25,324 — 25,324 December 31, 2017 $ 61,167 33,493 94,660 (136) 94,524 4,106 98,630 Short-term deposits includes cash held with Scotiabank. The Company's revolving floorplan facility agreements allow the Company to hold excess cash in accounts with Scotiabank, which is used to offset 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. Refer to Note 26 for further detail regarding cash balances held with Scotiabank. The remaining short-term deposits are term deposits that bear interest at 3.2% (2017 - 0.10%). Restricted cash is held in a trust account and earns interest at 0.95% - 2.06% ( 2017 - 0.95% - 2.06%). Interest earned on restricted cash during the year ended December 31, 2018 was $21 (2017 - $62). 20 Trade and other receivables Trade receivables Less: Expected loss allowance Net trade receivables Other receivables Trade and other receivables The aging of trade and other receivables at each reporting date is as follows: Current 31 - 60 days 61 - 90 days 91 - 120 days > 120 days1 Less: Expected loss allowance Trade and other receivables Includes $nil (2017 - $6,283) relating to a non-recurring settlement (Note 12). 1 December 31, 2018 $ December 31, 2017 $ 129,338 (3,208) 126,130 5,022 131,152 77,851 (2,545) 75,306 4,625 79,931 December 31, 2018 $ December 31, 2017 $ 97,074 15,950 8,631 2,282 10,423 134,360 (3,208) 131,152 56,056 10,655 4,019 1,522 10,224 82,476 (2,545) 79,931 AutoCanada • Page 27 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. 21 Inventories New vehicles Demonstrator vehicles Used vehicles Parts and accessories December 31, 2018 $ 580,216 48,856 98,109 33,684 760,865 December 31, 2017 $ 513,237 47,873 70,544 27,939 659,593 During the year ended December 31, 2018, $2,577 of inventory (2017 - $2,545) was expensed as cost of goods sold which included net write-downs on used vehicles of $185 (2017 - $34). During the year ended December 31, 2018, $9,982 of demonstrator expense (2017 - $8,415) was included in administration costs. During the year ended December 31, 2018, inventory reserves increased by $3,146 (2017 - increased by $2,275). As at December 31, 2018, the Company had recorded reserves for inventory write-downs of $10,777 (2017 - $7,445). 22 Assets and Liabilities Held for Sale Land and buildings The Company has committed to a plan and entered into various agreements to sell specific land and buildings. The agreements are subject to customary closing conditions. The assets have been reclassified as held for sale as at the Consolidated Statement of Financial Position date. Dealerships The Company has committed to a plan to sell three of its dealerships and has entered into agreements to sell the operating assets of two of these dealerships. The agreements are subject to customary closing conditions. The assets and liabilities have been reclassified as held for sale as at the Consolidated Statement of Financial Position date. The assets and liabilities held for sale are included in the Canadian Operations segment and summarized as follows: Net cash and cash equivalents Trade and other receivables Inventories Property and equipment Intangible assets Other assets Net assets held for sale Trade and other payables Revolving floorplan liabilities Net liabilities held for sale Land and buildings $ Dealerships $ December 31, 2018 $ — — — 31,915 — — 31,915 — — — 1,421 482 16,824 920 2,690 61 22,398 997 4,284 5,281 1,421 482 16,824 32,835 2,690 61 54,313 997 4,284 5,281 The carrying costs of the land and building reclassified to held for sale exceeded the expected net proceeds. As a result, the Company recorded an impairment charge of $2,092, as described in Note 25. Assets and liabilities held for sale as at December 31, 2017 included land of $1,556, net assets of $162,086 and net liabilities of $132,683 (Note 35). Page 28 • AutoCanada 23 Property and equipment Company & lease vehicles $ Leasehold improvements $ Machinery & equipment $ Land & buildings1 $ Furniture, fixtures & other $ Computer equipment $ Total $ Cost: January 1, 2017 Capital expenditures Acquisitions of dealerships assets (Note 16) Acquisitions of real estate Disposals Transfers to assets held for sale Transfers in from inventory, net December 31, 2017 Capital expenditures Acquisitions of dealerships assets (Note 16) Acquisitions of real estate Disposals Impairment losses recognized Transfers to assets held for sale Transfers from inventory, net Foreign currency translation December 31, 2018 Accumulated depreciation: January 1, 2017 Depreciation Disposals Transfers to assets held for sale Transfers in from inventory, net December 31, 2017 Depreciation Disposals Transfers to assets held for sale Transfers in from inventory, net Foreign exchange December 31, 2018 Carrying amount: December 31, 2017 December 31, 2018 19,028 27 25 — — 34,858 765 105 — (1,291) (1,203) (1,085) (3,184) 30,055 307,986 2,866 631 — (232) — 30,136 4,020 2,915 — — — 17,751 (2,624) — — 323,113 — 10,031 10,918 (2,575) (115,845) 14,515 2,217 2,468 — (176) 12,567 419,009 1,205 7,080 21 — 3,250 17,751 (785) (5,108) (1,495) (1,535) (8,502) — 17,529 2,229 1,998 — (1,955) — 1,402 11,473 434,882 2,237 15,656 323 35,734 — 10,918 (1,541) (123,251) — 33,352 7,170 20,467 — (1,335) (11,612) (2,798) 837 730 — (12,843) (2,966) 1,163 (19,330) (19) — (7) (5) (19,361) (714) — 1,169 (494) (33,789) (447) (249) (36,061) — 141 — — — 111 — 14 3,950 1,435 40,779 34,124 194,428 19,458 12,252 323,902 (19,201) (2,633) 196 (22,422) (8,398) 376 (8,353) (1,954) 161 (8,281) (76,241) (1,283) (20,444) 716 2,286 2,273 — — — (19,365) (30,444) (2,891) 2,324 (6,576) 6,502 299 376 1,339 — (15) — (19) — — 1,154 1,072 5,684 — (8,992) (2,032) 817 337 — (12) — 4,187 (7,776) (84,528) (1,548) (19,947) 1,385 12,191 176 2,680 — (3) 2,894 (51) (14,362) (19,575) (29,179) (9,882) (7,766) (86,761) 20,509 26,417 10,771 14,549 292,669 165,249 8,537 9,576 3,697 350,354 4,486 237,141 1,402 19,279 — — — — — (368) 3,950 — 22,861 (6,372) (3,378) — 455 4,187 (5,108) (3,934) — 153 2,894 (2) (5,997) 14,171 16,864 1 As at December 31, 2018, the Company owns land of $94,882 (2017 - $124,155). AutoCanada • Page 29 Fully depreciated assets are retained in cost and accumulated depreciated accounts until such assets are removed from service. Proceeds from disposal are netted against the related assets and the accumulated depreciation and included in the Consolidated Statement of Comprehensive (Loss) Income. Land and building additions are used for Open Point opportunities as well as dealership relocations, dealership re-imagings, and also includes the purchase of a previously leased dealership property. Sale and Leaseback Transactions During the year, the Company entered into multiple sale-leaseback transactions as follows: Laval BMW and Sherwood Park Volkswagen dealership facilities were sold to Automotive Properties Real Estate Investment Trust and the properties were leased back to the Company. The Company received net proceeds of $55,500 for the sale, which resulted in a $4,645 pre-tax gain. The minimum annual lease payments under the operating leases are $3,750; Four of its dealership properties were sold to Capital Automotive Real Estate Services Inc. ("Capital Automotive"). The Company received net proceeds of $54,737 for the sale. The Company realized a pre-tax gain of $9,237 on the sale of dealership properties. Net proceeds of $2,176 related to the sale of leasehold interests on a property it did not own which reduced impairment charges recorded at June 30, 2018. In addition, Capital Automotive agreed to fund building improvements and construction. Management expects to incur approximately $32,575 in Canada and $20,463 in the U.S. ($15,000 USD) for capital requirements in respect of the properties. The minimum annual lease payments under the operating leases are $4,090. Upon completion of the capital requirements the minimum annual lease payments will be amended for the capital requirements funding. 24 Loans to associate PPH Holdings Ltd. The Company loaned funds to PPH to acquire Whitby Oshawa Honda and Southview Acura. The Company holds no ownership interest in PPH. The Company has no participation in the equity of PPH, Whitby, or Southview. The transactions relating to the Company’s loans to PPH were as follows: Outstanding, beginning of year Accrued interest income Accrued licensing fees Additional advances Loan repayments Outstanding, end of year December 31, 2018 $ December 31, 2017 $ 18,100 124 170 – (18,394) — 14,726 674 2,327 373 – 18,100 As of March 31, 2018, the PPH Loan was terminated and all associated interest and licensing fees ceased as of the same date. 25 Impairment of non-financial assets 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 quarters ended June 30, 2018 and September 30, 2018, the Company concluded that an interim test for impairment of certain cash generating units (“CGUs”) was required. These tests were updated for the Company's annual impairment test as of December 31, 2018. As a result of the tests performed, the Company recorded a net impairment in the amount of $93,408 for the year ended December 31, 2018 (2017 - net recovery of $816), as certain CGUs had actual results that fell short of previous estimates and the outlook for these markets is less robust. An impairment charge of $2,092 (Note 22) was also recorded in respect of assets classified as held for sale at December 31, 2018. Page 30 • AutoCanada The impairment charges were allocated to the assets of the respective CGU’s as follows: Leasehold improvements Land and buildings (Note 22) Intangible assets Goodwill Year ended December 31, 2018 $ 19,330 2,092 25,788 48,290 95,500 The changes in the book value of intangible assets and goodwill for the year ended December 31, 2018 were as follows: Intangible assets $ Goodwill $ Total $ Cost: January 1, 2017 Acquisitions (Note 16) Sale of Open Point asset Transfer to assets and liabilities held for sale (Note 22) December 31, 2017 Acquisitions (Note 16) Transfer to assets and liabilities held for sale (Note 22) Effect of foreign currency translation December 31, 2018 Accumulated impairment: January 1, 2017 Impairment (recovery) Transfer to assets and liabilities held for sale (Note 22) December 31, 2017 Impairment Transfer to assets and liabilities held for sale (Note 22) Effect of foreign currency translation December 31, 2018 Carrying amount: December 31, 2017 December 31, 2018 438,040 15,677 (100) (39,829) 413,788 79,068 (2,690) 3,303 493,469 59,058 (1,729) (3,537) 53,792 25,788 — 1,536 81,116 359,996 412,353 41,604 3,367 — (6,349) 38,622 80,513 — 3,924 123,059 17,240 913 (1,522) 16,631 48,290 — 6 64,927 21,991 58,132 The impairment for the year ended December 31, 2018 relates to our reportable segments as follows: Leasehold improvements Land and buildings Intangible assets Goodwill Canadian Operations $ U.S. Operations $ — 2,092 25,520 6,441 34,053 19,330 — 268 41,849 61,447 479,644 19,044 (100) (46,178) 452,410 159,581 (2,690) 7,227 616,528 76,298 (816) (5,059) 70,423 74,078 — 1,542 146,043 381,987 470,485 Total $ 19,330 2,092 25,788 48,290 95,500 AutoCanada • Page 31 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: Cash Generating Unit Intangible Goodwill Total Intangible Goodwill Total December 31, 2018 $ December 31, 2017 $ AX A AQ C AD BL2 BC AB D P AH T AJ BI AY X L W AZ BD AC AG V BM2 BK2 U K Z1 AI2 Other CGUs less than $5,0001 Held for sale (Note 22) Carrying amount 27,807 24,228 24,494 21,250 16,848 — 18,044 21,687 18,599 15,400 14,791 13,836 13,700 12,496 13,148 12,930 11,549 11,498 10,516 9,263 9,626 9,431 9,592 — — 7,795 6,591 4,684 5,217 50,023 6,135 11,790 506 3,651 7,770 — 3,724 — 1,303 — — — — 941 — — 459 — — 950 — — — — — — 409 1,343 — 19,151 33,942 36,018 25,000 24,901 24,618 — 21,768 21,687 19,902 15,400 14,791 13,836 13,700 13,437 13,148 12,930 12,008 11,498 10,516 10,213 9,626 9,431 9,592 — — 7,795 7,000 6,027 5,217 69,174 27,807 — 24,494 — 6,135 — 506 — — — 21,880 18,044 21,687 — 20,181 14,791 16,148 14,801 12,496 13,148 17,724 11,549 14,273 14,659 9,263 9,626 9,431 8,507 5,273 7,395 8,497 6,591 4,685 6,532 56,806 — 3,724 — — — — — — 941 — — 3,088 0 1,514 950 — — — 2,176 5 — 409 1,874 — 5,496 33,942 — 25,000 — — 21,880 21,768 21,687 — 20,181 14,791 16,148 14,801 13,437 13,148 17,724 14,637 14,273 16,173 10,213 9,626 9,431 8,507 7,449 7,400 8,497 7,000 6,559 6,532 62,302 415,043 2,690 412,353 58,132 — 58,132 473,175 2,690 470,485 396,288 36,292 359,996 26,818 4,827 21,991 423,106 41,119 381,987 1 The original CGU was split into two CGUs (dealerships), as an Open Point began operations in 2018. 2 The CGU was sold during the year and therefore, has no CGU carrying amount. Refer to Notes 17 and 35. Page 32 • AutoCanada The following table shows the impairments (recoveries of impairment) of indefinite-lived identifiable intangible assets and goodwill by CGU: Canadian dealerships Cash Generating Unit Intangible December 31, 2018 $ Total Goodwill Intangible December 31, 2017 $ Total Goodwill E H L M P S T U V W X Z AI AJ AR AS AY AZ BE BJ BL BN Net impairment (recovery) (1,023) — — 260 — — 4,469 (1,999) — (765) 3,514 — (1,913) (2,593) 1,086 558 (2,518) — (3,811) — 3,919 — (816) 1 The original CGU impairment was assessed prior to the two CGU splits and the impairment was split in the same manner as the intangible and goodwill split. Additional assessment was performed as at December 31, 2018, to ensure there was no further impairment of either CGU. (1,788) — — — 4,782 84 2,312 702 (1,085) 2,776 4,794 — 1,315 1,101 2,109 903 — 4,142 1,063 810 — 1,500 25,520 (1,023) — — 187 — — 4,469 (1,999) — (765) 3,056 — (1,913) (2,593) 1,086 558 (2,518) — (3,811) — 3,537 — (1,729) (1,788) 1,567 2,629 — 4,782 84 2,312 702 (1,085) 2,776 4,794 531 1,315 1,101 2,109 903 — 5,656 1,063 1,010 — 1,500 31,961 — 1,567 2,629 — — — — — — — — 531 — — — — — 1,514 — 200 — — 6,441 — — — 73 — — — — — — 458 — — — — — — — — — 382 — 913 U.S. dealerships Cash Generating Unit Intangible December 31, 2018 $ Total Goodwill Intangible December 31, 2017 $ Total Goodwill A B F N AA AD G AF AT Net impairment (recovery) — — — — 132 — — 136 — 268 2,661 2,622 6,179 10,155 4,959 472 2,265 12,372 164 41,849 2,661 2,622 6,179 10,155 5,091 472 2,265 12,508 164 42,117 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 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. AutoCanada • Page 33 The following table shows the recoverable amounts of CGUs with impairments or recoveries of impairments recorded in either the current year or prior year: Canadian dealerships FVLCTD or VIU Cash Generating Unit December 31, 2018 $ 5,490 9,549 16,753 — 17,807 — 17,967 11,126 16,318 15,667 15,550 10,583 — 15,771 4,283 5,207 17,035 15,667 4,942 8,847 — — 1 The CGU was sold during the year and therefore, has no CGU recoverable amount. Refer to Notes 17 and 35. FVLCTD FVLCTD FVLCTD N/A VIU N/A VIU VIU VIU VIU VIU VIU N/A VIU VIU FVLCTD VIU VIU VIU VIU N/A FVLCTD E H L M1 P S1 T U V W X Z AI1 AJ AR AS AY AZ BE BJ BL1 BN December 31, 2017 $ 4,691 14,441 — 3,047 25,841 2,436 18,730 14,216 16,692 21,425 20,777 17,270 8,010 18,999 5,617 8,928 17,961 22,538 5,852 10,991 22,551 1,500 U.S. dealerships Cash Generating Unit A B F N AA AD G AF AT FVLCTD or VIU FVLCTD FVLCTD FVLCTD FVLCTD FVLCTD FVLCTD FVLCTD FVLCTD FVLCTD December 31, 2018 $ 41,444 7,016 9,562 8,642 2,251 26,755 4,577 3,363 8,024 December 31, 2017 $ — — — — — — — — Impairment test of indefinite life intangible assets The 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. Page 34 • AutoCanada 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 EBITDA (“Earnings before interest, taxes, depreciation and amortization”) multiples comparable to the businesses in each CGU. Data for EBITDA multiples was based on recent comparable transactions and management estimates. Multiples used in the test for impairment for each CGU were in the range of 3.5 to 8.8 times forecasted EBITDA (2017 - 3.6 to 8.1 times). 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. In arriving at its forecasts, the Company considered past experience, economic trends and inflation as well as industry and market trends. During the second quarter, due to an unforeseen decline in the performance of certain of the CGU’s based in the US, as well as revised expectations for the timeline of U.S. operational profitability, the Company’s assumptions for U.S. operations were based on wholly revised forecasts for all individual U.S. CGU’s. These forecasts were reviewed and approved by members of the Company’s Executive Management and provided the revised basis for U.S. CGU earnings and growth. During the third quarter, it became apparent that the performance of certain Canadian CGUs were sufficiently below expectations such that a re-forecast was warranted. Revised forecasts were approved by Executive Management and used in the third quarter impairment test. The second and third quarter estimates were updated in the Company's annual impairment test, which is based on the 2019 Board approved budget. 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 10.18% and 13.45% in its projections (2017 - 11.36% and 12.86%). 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, market comparatives and management estimates. As noted above, due to the unforeseen decline in the performance of certain of the CGU’s based in the U.S. in the second quarter, as well as revised expectations for the timeline of U.S. operational profitability, the Company’s assumptions for U.S. operations were based on wholly revised forecasts for all individual U.S. CGU’s. These forecasts were reviewed and approved by members of the Company’s Executive Management and provide the revised basis for U.S. CGU earnings and growth. AutoCanada • Page 35 During the third quarter, it became apparent that the performance of certain Canadian CGUs were sufficiently below expectations such that a re-forecast was warranted. Revised forecasts were approved by Executive Management and used in the third quarter impairment test. The second and third quarter estimates were updated in the Company's annual impairment test, which is based on the 2019 Board approved budget. 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. 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 are as follows: Cash Generating Unit V AH AY Change In Discount Rate 0.02% 0.02% 0.02% Change In Growth Rate Recoverable amount Carrying amount Recoverable amount exceeds carrying amount 0.52% 0.58% 0.58% 16,318 16,519 17,035 15,463 16,208 16,544 855 311 491 CGUs, which use FVLCD 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 are as follows: Cash Generating Unit E AS 26 Financial instruments Change In Multiple Recoverable amount Carrying amount Recoverable amount exceeds carrying amount 0.1 0.5 5,490 5,207 5,407 5,207 83 — 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 are measured at amortized cost. The Company’s financial liabilities are measured at amortized cost except for redemption liabilities and contingent consideration which are carried at fair value through profit or loss. The carrying values of financial instruments approximate their fair values, excluding the senior unsecured notes. The fair value of the senior unsecured notes is $147,000 ( 2017 – $154,125). Financial Risk Management Objectives The Company’s activities are exposed to a variety of financial risks of varying degrees of significance which could affect the Company’s ability to achieve its strategic objectives. AutoCanada’s overall risk management program focuses on the unpredictability of financial and economic markets and seeks to reduce potential adverse effects on the Company’s financial performance. Risk management is carried out by financial Page 36 • AutoCanada management in conjunction with overall corporate governance. The principal financial risks to which the Company is exposed are described below. Market Risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign currency and interest rates. Foreign Currency Risk The Company has operations in Canada and the United States. Foreign exchange risk arises from future commercial transactions and recognized assets and liabilities denominated in a currency that is not the functional currency of the relevant Company entity. The Company is not currently exposed to significant foreign exchange risk because its Canadian and U.S. operations engage in limited transactions denominated in a currency other than their respective functional currency. 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, the indebtedness note (refer to Note 29), and the hedge accounting note (refer to Note 39). 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. Finance costs Finance income Credit Risk +/- 200 Basis Point +/- 100 Basis Point 2018 $ 18,656 26 2017 $ 16,082 46 2018 $ 9,328 13 2017 $ 8,041 23 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 20. The Company applies the simplified approach to measuring expected credit losses, which uses a lifetime expected credit loss allowance for all trade receivables. The expected loss rates are based on the payment profiles of sales over the 12 month periods prior to December 31, 2018 and January 1, 2018 and the corresponding historical credit losses experienced within these periods. AutoCanada • Page 37 The loss allowance for trade receivables as at December 31, 2018 and January 1, 2018 (at the adoption of IFRS 9) was determined as follows: December 31, 2018 Expected loss rate % Gross carrying amount - Trade receivables $ Loss Allowance $ Expected loss rate % January 1, 2018 Gross carrying amount - Trade receivables $ Loss Allowance $ Current 31 - 60 days 61 - 90 days 91 - 120 days > 120 days Total 0.07% 1.99% 8.42% 11.69% 17.55% 97,074 15,950 8,631 2,282 10,423 134,360 68 317 727 267 1,829 3,208 0.01% 1.05% 4.11% 7.98% 16.05% 56,056 10,655 4,019 1,522 10,224 82,476 The closing loss allowance for trade receivables as at December 31, 2018 reconciles to the opening loss allowances as follows: December 31, 2017 - calculated under IAS 39 Amounts restated through opening retained earnings (Note 4) Opening loss allowance at January 1, 2018 - calculated under IFRS 9 Increase in loan loss allowance recognized in profit or loss during the year Receivables written off during the year as uncollectible Unused amount reversed As at December 31, 2018 6 112 165 121 1,641 2,045 2018 2,545 (500) 2,045 3,450 (2,213) (74) 3,208 The amounts disclosed on the balance sheet for accounts receivable are net of the expected loss allowance, details of which are disclosed in Note 20. 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 (Loss) Income. Previous accounting policy for impairment of trade receivables In the prior year, the Company evaluated receivables for collectability based on the age of the receivable, the credit history of the customer and past collection experience. An expected loss allowance was provided for potential losses that had been incurred at the balance sheet date. Concentration of cash and cash equivalents exist due to the significant amount of cash held with Scotiabank (refer to Note 19 for further discussion of the Company’s concentration of cash held on deposit with Scotiabank). The syndicated revolving floorplan facility (Note 29) allows our dealerships to hold excess cash (used to satisfy working capital requirements of our various OEM partners) in an account with Scotiabank which bears interest at 3.348% at December 31, 2018 (2017 – 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. AutoCanada • Page 38 As at December 31, 2018, the Company has $240,747 (2017 - $106,170) in readily available liquidity from its revolving term facility. However, the Company's ability to borrow under this facility requires it to comply with its financial covenants. 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, 2018 Bank indebtedness Trade and other payables Revolving floorplan facilities Vehicle repurchase obligations Senior unsecured notes Scotiabank revolving term facility VCCI mortgages BMW mortgage Other long-term debt Contractual interest payable Derivative financial instruments December 31, 2017 Bank indebtedness Trade and other payables Revolving floorplan facilities Vehicle repurchase obligations Senior unsecured notes HSBC revolving term facility Lease financing - Scotiabank Demand term loan Servus mortgage VCCI mortgages BMW mortgage Other long-term debt Contractual interest payable 27 Other assets Prepaid rent Finance lease receivables Other assets1 2019 $ 2020 $ 2021 $ 2022 $ Thereafter $ Total $ — 101,280 748,353 7,654 — — 52 — 1,601 17,125 752 876,817 — — — — — — 53 — 97 17,065 752 17,967 — — — — 149,739 179,253 805 — — 6,387 752 336,936 — — — — — — — — — — 752 752 — — — — — — — — — — 754 754 — 101,280 748,353 7,654 149,739 179,253 910 — 1,698 40,577 3,762 1,233,226 2018 $ 2019 $ 2020 $ 2021 $ Thereafter $ Total $ 136 63,295 634,655 6,511 — — 365 196 257 955 797 95 16,655 723,917 — — — — — — 693 214 268 1,766 828 116 16,340 20,225 — — — — — 143,830 — 214 278 3,112 859 89 12,431 160,813 — — — — 149,739 — — 214 289 3,511 894 — 4,716 159,363 — — — — — — — 178 3,979 8,518 15,299 — 9,430 37,404 136 63,295 634,655 6,511 149,739 143,830 1,058 1,016 5,071 17,862 18,677 300 59,572 1,101,722 December 31, 2018 $ Long-term 4,482 19 5,947 10,448 Current 6,474 39 — 6,513 December 31, 2017 $ Long-term 4,934 51 95 5,080 Current 3,505 88 — 3,593 1 $5,847 (2017 - $nil) relates to long-term loans receivable from the respective non-controlling interests (refer to Note 35). AutoCanada • Page 39 24,561 11,365 4,833 22,536 63,295 Total $ 2,216 1,173 (1,069) 2,320 3,641 (1,119) 4,842 28 Trade and other payables Trade payables Accruals and provisions Sales tax payable Wages and withholding taxes payable The following table provides a continuity schedule of all recorded provisions: December 31, 2018 $ December 31, 2017 $ 49,805 22,751 5,852 22,872 101,280 January 1, 2017 Provisions arising during the year Amounts expired or disbursed December 31, 2017 Provisions arising during the year Amounts expired or disbursed December 31, 2018 Finance and insurance1 $ Other2 $ 1,428 957 (754) 1,631 405 (765) 1,271 788 216 (315) 689 3,236 (354) 3,571 1 Represents an estimated chargeback reserve provided by the Company's third party underwriter of finance and insurance products. 2 During the year the company recorded a non-recurring legal and loss provision of $2,000 associated with the fraud that occurred at Capital Chrysler in Q2 2018 related to the wholesaling of new and used vehicles. Page 40 • AutoCanada 29 Indebtedness This note provides information about the contractual terms of the Company’s interest-bearing debt, which is measured at amortized cost. For more information about the Company’s exposure to interest rate, foreign currency and liquidity risk, refer to Note 26. Revolving floorplan facilities1 Revolving floorplan facilities - Syndicate (i) Revolving floorplan facilities - BoA (ii) Revolving floorplan facilities - VCCI (iii) Revolving floorplan facilities - BMW Financial (iv) Revolving floorplan facilities - RBC (v) Revolving floorplan facilities - Scotiabank (vi) Revolving floorplan facilities - Toronto-Dominion Bank (vii) Revolving floorplan facilities - Mercedes-Benz Financial (viii) Held for sale Carrying value Indebtedness Senior unsecured notes (ix) Senior unsecured notes Unamortized deferred financing costs Revolving term facilities (x) HSBC revolving term facility Scotiabank revolving term facility Unamortized deferred financing costs Other debt Lease financing - RBC (xi) Lease financing - Scotiabank (xii) Servus mortgage (xiii) VCCI mortgage (xiv and xv) BMW mortgage (xv) Other long-term debt Total indebtedness Held for sale Carrying value Current indebtedness Long-term indebtedness December 31, 2018 $ December 31, 2017 $ 384,954 122,950 51,784 82,810 30,534 23,664 9,068 46,873 752,637 4,284 748,353 149,739 (1,297) 148,442 — 179,253 (1,651) 177,602 — — — 910 — 1,698 328,652 — 328,652 1,654 326,998 428,862 — 50,759 62,885 112,011 35,594 11,580 17,378 719,069 84,414 634,655 149,739 (1,840) 147,899 143,830 — (598) 143,232 6,689 1,058 5,071 17,863 18,677 1,510 341,999 6,883 335,116 2,666 332,450 1 Certain re-classifications were made to these balances for the year ended December 31, 2017. AutoCanada • Page 41 Terms and conditions of outstanding loans are as follows: i. During the second quarter of 2018, the Company completed a $1,080,000 syndicated credit agreement with the Bank of Nova Scotia (“Scotiabank”), the Canadian Imperial Bank of Commerce (“CIBC”), the Royal Bank of Canada (“RBC”), HSBC and Alberta Treasury Branches (“ATB”), with Scotiabank serving as the administrative agent for the Facility. The three-year credit agreement provides the Company with a $660,000 facility for floorplan and lease financing of new, used and demonstrator vehicles, a $350,000 facility for the financing of acquisitions and capital expenditures and a $70,000 facility for general corporate purposes. The floorplan facilities bear interest rates of Canadian Dollar Offered Rate (“CDOR”) plus 1.05% per annum for a total of 3.348% at December 31, 2018. Interest on borrowings under the general operating and acquisition facilities 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 CDOR plus 1.75% to CDOR plus 2.75%. During the third quarter of 2018, the three-year credit agreement was amended whereby the Company is now provided with a $680,000 facility for floorplan and lease financing of new, used and demonstrator vehicles, a $330,000 facility for the financing of acquisitions and capital expenditures and a $70,000 facility for general corporate purposes. The amendment increased the Total Funded Debt to EBITDA Ratio covenant to 4.50:1.00 for the period commencing on September 1, 2018 and ending on June 30, 2019. As at December 31, 2018, the Company is in the fourth of five tiers of the pricing grid, with the fourth tier providing interest rates of CDOR plus 2.50% for a total of 4.798% at December 31, 2018. The agreement has certain reporting requirements and financial covenants. The floorplan facility is collateralized by each individual dealership’s inventories that are directly financed by the facility. The general operating and acquisition facilities are collateralized by certain of the Company’s real property and fixed assets, as well as, certain current receivable and inventory assets not otherwise pledged as collateral. ii. Bank of America (“BoA”) provides floorplan financing for new, used and demonstrator vehicles for all of the Company's U.S. dealerships. The BOA facilities for New and Demonstrator vehicles bear interest rates of London Interbank Offered Rate (“LIBOR”) plus 1.15% per annum for a total of 3.67% at December 31, 2018. The maximum amount of financing provided by BoA for New and Demonstrator vehicle financing is $106,500. The floorplan facilities for Used vehicles bear interest rates of London Interbank Offered Rate (“LIBOR”) plus 1.40% per annum for a total of 3.92% at December 31, 2018. The maximum amount of financing provided by BoA for Used vehicle financing is $25,000. The floorplan facility has certain reporting requirements and financial covenants and is collateralized by each individual dealership’s inventories that are directly financed by the facility. iii. 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% – 0.75% (2017 - 0.00% - 1.25%). The RBC prime rate was 3.95% at December 31, 2018 (2017 – 3.20%). The combined total interest rates were 3.95% – 4.70% at December 31, 2018 (2017 – 3.20% – 4.45%). The maximum amount of financing provided by the VCCI facilities is $77,935 (2017 – $77,480). The VCCI facilities have certain reporting requirements and financial covenants and are collateralized by all of the dealerships’ assets financed by VCCI. The individual notes payable of the VCCI facilities are due when the related vehicle is sold. iv. 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% (2017 - 0.40%) per 360 day annum for a total of 3.55% at December 31, 2018 (2017 - 2.80%). The BMW Facilities have a current advance limit of $98,806 (2017 - $94,461). The BMW Facilities have certain reporting requirements and financial covenants and are collateralized by the dealerships’ movable and immovable property. v. The Royal Bank of Canada (“RBC”) provides floorplan financing for new, used and demonstrator vehicles for three of the Company’s dealerships (the “RBC Facilities”). The RBC Facilities bear interest rates of RBC’s Cost of Funds Rate plus 0.25% – 0.65% (2017 – 0.25% – 0.75%). The RBC’s Cost of Funds Rate was 3.04% at December 31, 2018 (2017 – 2.31%). The combined total interest rates were 3.29% – 3.69% as at December 31, 2018 (2017 – 2.56% – 3.06%). The maximum amount of financing provided by the RBC facilities is $45,800 (2017 – $147,300). 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. vi. Scotiabank provides floorplan financing for new, used and demonstrator vehicles for two of the Company’s dealerships (the “Scotiabank Facilities”). The Scotiabank Facilities bear interest rates of Scotia Fixed Flooring Page 42 • AutoCanada Rate plus 0.93% (2017 - 0.93% - 1.40%). The Scotia Fixed Flooring rate was 2.27% at December 31, 2018 (2017 - 1.54%). The combined total interest rate was 3.20% at December 31, 2018 (2017 – 2.47% - 2.94%). The maximum amount of financing provided by Scotiabank Facilities is $47,800 (2017 - $74,200). 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 two dealerships financed by Scotiabank. vii. Toronto Dominion Bank (“TD”) provides 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 minus 0.75% ( 2017 – 0.75%) per annum and provide a maximum amount of financing of $23,500. The TD prime rate was 3.95% at December 31, 2018 (2017 – 3.20%). The combined total interest rate was 3.20% at December 31, 2018 (2017 – 2.45%). 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. viii. Mercedes-Benz Financial provides floorplan financing for new, used and demonstrator vehicles for two of the Company’s dealerships (the “Mercedes-Benz Facilities”). The Mercedes-Benz Facilities bear interest rates of Canadian Dollar Offered Rate (“CDOR”) plus 1.80% (2017 - 1.80%) per annum for a total of 4.10% at December 31, 2018 (2017 - 3.24%) and provide a maximum amount of financing of $46,500 (2017 - $23,500). The Mercedes- Benz Facilities have certain reporting requirements and financial covenants and are collateralized by the new, used, and demonstrator inventory financed by Mercedes-Benz Financial and a general security agreement from the Company’s dealership financed by Mercedes-Benz Financial. ix. 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 Note holders have the right to require the Company to redeem the Notes or a portion thereof, at the redemption prices set forth in the agreement in the event of change in control or in the event certain asset sale proceeds are not reinvested in the time and manner specified in the agreement. x. During the second quarter of 2018, the Company completed an extinguishment of the HSBC revolving term facility loan for a lump sum payment of $232,398. The carrying amount of the loan at the time of payment was $232,125. Expensed during the period as a result of the extinguishment were direct fees of $273 and $475 in unamortized deferred financing costs related to the HSBC facility. The result is a net loss on settlement of $748 which is included in finance expenses in the Consolidated Statements of Comprehensive (Loss) Income. The Scotiabank revolving term facility provides the Company with a $350,000 facility for the financing of acquisitions and capital expenditures and a $70,000 facility for general corporate purposes. Interest on borrowings under the general operating and acquisition facilities 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 CDOR plus 1.75% to CDOR plus 2.75%. During the third quarter of 2018, the three-year credit agreement was amended whereby the Company is now provided with a $330,000 facility for the financing of acquisitions and capital expenditures and a $70,000 facility for general corporate purposes. The amendment increased the Total Funded Debt to EBITDA Ratio covenant to 4.50:1.00 for the period commencing on September 1, 2018 and ending on June 30, 2019. As at December 31, 2018, the Company is in the fourth of five tiers of the pricing grid, with the fourth tier providing interest rates of CDOR plus 2.50% for a total of 4.798%. The agreement has certain reporting requirements and financial covenants. The general operating and acquisition facilities are collateralized by certain of the Company’s real property and fixed assets, as well as certain current receivable and inventory assets not otherwise pledged as collateral. xi. RBC provided financing for the lease vehicles of two of the Company’s GM dealerships (the “RBC lease financing”). The RBC lease financing had interest rates of RBC’s Costs of Funds Rate plus 0.90% ( 2017 – 0.90%). The RBC’s Cost of Funds Rate was 2.31% at December 31, 2018 (2017 – 2.31%). The combined total interest rate was 3.21% at December 31, 2018 (2017 – 3.21%). The maximum amount of financing provided by RBC lease financing was $17,331 ( 2017 – $17,331) repayable over the terms of the contract in varying amounts of principal. The RBC lease financing was extinguished during the second quarter of 2018. AutoCanada • Page 43  xii. Scotiabank provided financing for the lease vehicles to two of the Company’s dealerships (the “Scotiabank lease financing”). The Scotiabank lease financing had interest rates of Scotiabank’s Cost of Funds Rate plus 1.25% (2017 – 1.25%) for a total of 5.35% during the year ended December 31, 2018 (2017 – 5.35%). The maximum amount of financing provided by the Scotia lease financing was $2,500 (2017 – $2,500) which was repayable over the terms of the contract in varying amounts of principal. The Scotiabank lease financing was extinguished during the second quarter of 2018. xiii. Servus Credit Union provided the Company with a mortgage (the “Servus Mortgage”). The Servus Mortgage had a fixed annual rate of 3.80% (2017 – 3.80%) and was repayable with monthly blended installments of $37 (2017 – $37), originally amortized over a 20 year period with term expiring September 30, 2018. The Servus Mortgage required certain reporting requirements and financial covenants and was collateralized by a general security agreement consisting of a first fixed charge over the property. The Servus Mortgage was extinguished during the second quarter of 2018. xiv. During the period, the Company repaid one of its mortgages as part of the sale leaseback transaction (Note 23). VCCI provides the Company with a mortgage (the “VCCI Mortgage”), which bears interest at a floating rate of interest per annum equal to the Royal Bank of Canada’s prime rate plus 0.15% ( 2017 – 0.15% – 0.50%). The RBC prime rate was 3.95% at December 31, 2018 (2017 – 3.20%). The total interest rate was 4.10% at December 31, 2018 (2017 – 2.85% – 3.70%). The VCCI Mortgage is repayable with blended monthly payments of $120 amortized over a 20 year period with the term expiring in 2021. The VCCI Mortgage has certain reporting requirements and financial covenants and is collateralized by a general security agreement consisting of a first fixed charge over the property. At December 31, 2018, the carrying amount of the property was $1,540 (2017 – $48,268). xv. During the period, the Company completed a sale leaseback transaction for six of its dealership properties and repaid those related mortgages (Note 23). The following table shows the movement of indebtedness during the year ended December 31: Balance, beginning of year Amortization of deferred finance charges Draws and additions Repayments Reclassification to held for sale Balance, end of year 30 Vehicle repurchase obligations 2018 $ 335,116 1,658 294,085 (302,207) — 328,652 2017 $ 352,030 989 123,439 (134,459) (6,883) 335,116 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. 31 Commitments and contingencies Commitments The Company has operating lease commitments, with varying terms through 2038, to lease premises used for business purposes. The Company leases certain lands and buildings used in its franchised automobile dealership operations from third parties. The future aggregate minimum lease payments under non-cancelable operating leases are as follows: Page 44 • AutoCanada 2019 2020 2021 2022 2023 Thereafter December 31, 2018 $ 35,007 32,698 30,230 28,896 27,881 287,296 442,008 As at December 31, 2018, the Company has recorded an intangible liability of $36,161 (2017 - $nil) related to the acquisition of unfavourable leases (Note 16), which will be amortized against lease expense in future years. 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 28 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 $1,293 as at December 31, 2018 (2017 – $935) 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, 2018, the Company is committed to capital expenditure obligations in the amount of $11,215 (2017 – $4,225) related to dealership relocations, dealership re-imagings, and dealership Open Points with expected completion of these commitments in 2019. 32 Share-based payments The Company operates a combination of cash and equity-settled compensation plan under which it receives services from employees as consideration for share-based payments. The plans are as follows: Restricted Share Units (RSUs) The Company grants RSUs to designated management employees. Prior to August 11, 2018, it was the Company's practice to settle RSU awards partially in cash and partially in shares. Effective August 11, 2018, the RSU Plan was modified such that awards are intended to be settled in shares. As no other modifications were made to the value of awards at the time of Plan modification, the value of vested awards was transferred from a liability to equity. The RSU plan settles by way of common shares, based on the Company's share price at each vesting date. If the Board of Director's Governance and Compensation Committee determines it is not prudent to settle in shares, the settlement may be made in cash. The RSUs are also entitled to earn additional units AutoCanada • Page 45 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 and value of RSUs for the years ended: Outstanding, beginning of the year Settled - equity Settled - cash Granted Dividends reinvested Impact of movements in share price Outstanding, end of the year Deferred Share Units (DSUs) 2018 2017 Number of RSUs 20,032 (29,732) (17,017) 80,910 596 – 54,789 Amount $ 454 (464) (279) 693 9 209 622 Number of RSUs 33,676 (27,075) (18,050) 31,044 437 – 20,032 Amount $ 779 (643) (428) 738 6 2 454 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 granted. 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. Prior to January 1, 2018, it was the Company's practice to settle DSU awards in cash. Effective January 2018 the DSU Plan was modified such that awards are intended to be settled in shares. As no other modifications were made to the value of awards at the time of Plan modification, the value of vested awards was transferred from a liability to equity. The DSUs granted are scheduled to vest upon the termination date of the Director, at which time, the DSUs will be settled in common shares no earlier than the termination date and no later than December 15 of the calendar year following the Director’s termination date. If the Board of Director's Governance and Compensation Committee determines it is not prudent to settle in shares, the settlement may be made in cash. The following table shows the change in the number and value of DSUs for the years ended: Outstanding, beginning of the year Granted Dividends reinvested Impact of movements in share price Outstanding, end of the year Stock Option Plan 2018 2017 Number of DSUs 49,716 28,490 1,412 – 79,618 Amount $ 1,126 394 20 (636) 904 Number of DSUs 34,731 14,168 817 – 49,716 Amount $ 825 316 17 (32) 1,126 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 and market 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 exercisable to acquire one common 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. Page 46 • AutoCanada The following table shows the change in the number of stock options for the years ended: Outstanding, beginning of the period Granted Exercised Forfeited Outstanding, end of the period Vested and exercisable, end of the period 2018 2017 Average exercise price per share option $ 18.68 10.05 — 18.68 10.72 18.68 Share options # 420,000 2,530,000 — (206,668) 2,743,332 213,332 Average exercise price per share option $ Share options # 18.68 — 18.68 18.68 18.68 18.68 520,000 — (10,000) (90,000) 420,000 106,666 During the year ended December 31, 2018, no options were exercised or expired. The following table shows the expiry date and exercise price for the share options outstanding for the year ended December 31, 2018: Grant date April 1, 2016 August 14, 2018 Total Weighted average remaining contractual life of options outstanding, end of the period Expiry date March 31, 20261 August 14, 2028 Exercise price $ 18.68 10.05 Share options # 213,332 2,530,000 2,743,332 9.44 years 1 These options were granted to individuals who have retired from AutoCanada. If these stock options are not exercised, 200,000 will terminate on March 6, 2019 and 13,332 will terminate on March 11, 2019. The weighted average remaining contractual life for the share options outstanding as at December 31, 2017 was 8.25 years. The assessed weighted average fair value at grant date of options granted during the year ended December 31, 2018 was $2.49 per option. The fair value at grant date is determined using an adjusted form of the Black- Scholes Model that takes into account probabilities using the Monte Carlo simulation as well as 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. The model inputs for options granted during the year ended December 31, 2018 include: a) Options are granted for no consideration and vest based on varying service and market price conditions over a three year period. For example, a portion of the options vest on the later of 2 years from the date of grant and the share price hitting at least $15.08 and another portion only vests at the later of three years and the share price hitting at least $20.10. Vested options are exercisable for a period of ten years after grant date. b) Exercise price: $10.05 c) Grant date: August 14, 2018 d) Expected life of option: 10 years e) Share price at grant date: $10.05 f) Expected price volatility of the company's shares: 29.43% g) Expected dividend yield: 3.96% h) Risk-free interest rate: 2.70% Expected price volatility was determined at the time of grant using the AutoCanada share price on a historical basis, adjusted for any expected changes to future volatility due to publicly available information. It reflects the AutoCanada • Page 47 assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome. The market price condition was factored into the fair value of the options granted using the Monte Carlo simulation to determine the probability that the options will vest based on the market price vesting condition. An additional 370,000 stock options will be granted when room becomes available under the Plan. Alternative compensation will be provided for these stock options if the Grant price is above $10.05 or if the stock options are not able to be granted prior to the expiry date of August 14, 2028. During the period, the Company modified the alternative compensation from being cash-settled to equity-settled. As a result of the modification, the liability accrued in the third quarter for these ungranted options has been derecognized and expenses of $18 has arisen. The fair value at modification date has been determined using an adjusted form of the Black-Scholes Model that takes into account probabilities using the Monte Carlo simulation. The assessed weighted average fair values of the alternative compensation is $0.62 per option. The model inputs for the alternative compensation as at the modification date were as follows: Exercise price: $10.05 Expected life of option: 10 years Share price at valuation date: $11.35 Expected volatility of the company's shares: 31.77% Expected dividend yield: 3.65% Risk-free interest rate: 2.47% Expected price volatility was determined at the time of grant using the AutoCanada share price on a historical basis, adjusted for any expected changes to future volatility due to publicly available information. 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, 2018, expenses of $1,630 (2017 - $848) and recoveries of $735 (2017 - $249) arose as a result of options issued in 2016. Share Appreciation Rights The share appreciation rights been designed to advance the Go-Forward Plan of the Corporation by enabling those granted options under the plan to participate in the growth and profitability of the Company. All of the options are time-based and vest over a maximum period of three years. Vested options are exercisable for a maximum period of five years after grant date. In connection with the grant of share appreciation rights, annual variable profit share bonuses of some participants will be reduced annually by amounts pre-determined by the Company over a maximum of three compensation years. Each share appreciation right that is exercised entitles the employee to receive a number of common shares that is equal to (i) the amount by which the fair market value of one common share exceeds the notional exercise price of the vested share appreciation right; divided by (ii) the fair market value of one common share. If the Company determines that it is not prudent to acquire such common shares, the Company may, in lieu of the payment through Common Shares, pay an amount in cash equal to the appreciation of the common shares. The following table shows the change in the number of share appreciation rights for the year ended December 31, 2018: Outstanding, beginning of the period Granted Outstanding, end of the period Vested and exercisable, end of the period Weighted average exercise price per share appreciation right $ — 11.18 11.18 — Share appreciation rights # — 1,043,950 1,043,950 — During the year ended December 31, 2018, no share appreciation rights were exercised, forfeited or expired. Page 48 • AutoCanada The weighted average contractual life remaining for these share appreciation rights as at December 31, 2018 is 4.59 years. The assessed weighted average fair value at grant date of the share appreciation rights granted during the year ended December 31, 2018 was $2.14 per option. The fair value at grant date has been determined using the Black-Scholes Model. The weighted average model inputs for the share appreciation rights granted during the year ended December 31, 2018 include: Exercise price: $11.18 Expected life of option: 3.89 years Share price at grant date: $11.14 Expected price volatility of the company's shares: 30.03% Expected dividend yield: 3.61% Risk-free interest rate: 2.12% Expected price volatility was determined at the time of grant using the AutoCanada share price on a historical basis, adjusted for any expected changes to future volatility due to publicly available information. It reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome. Total expenses net of recoveries arising from share-based payment transactions recognized during the year included in employee benefits expense are as follows: Stock options Share appreciation rights 33 Share capital 2018 $ 896 220 1,116 2017 $ 600 — 600 Common shares of the Company are voting shares and have no par value. The authorized share capital is an unlimited number of shares. Restricted Share Unit Trust Shares are held in trust to mitigate the risk of future share price increases from the time the RSUs and DSUs (refer to Note 32) are granted to when they are fully vested and can be exercised. The beneficiaries 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 year-ended December 31, 2018 on the shares held in trust of $(29) (2017 – $31) are reinvested to purchase additional shares. The shares held in trust are accounted for as treasury shares and have been deducted from the Company’s consolidated equity as at December 31, 2018. The following table shows the change in shareholders’ capital for the years ended: Outstanding, beginning of the year Dividends reinvested Treasury shares settled 2018 2017 Number of shares 27,388,900 (1,567) 29,729 $ Number of shares $ 508,768 27,356,439 507,886 (29) 799 (1,431) 33,892 (31) 913 Outstanding, end of the year 27,417,062 509,538 27,388,900 508,768 AutoCanada • Page 49 As at December 31, 2018, 42,621 (2017 - 70,783) common shares were held in trust for the Restricted Share Unit Plan, resulting in a total of 27,459,683 (2017 - 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 twelve month period ended December 31, 2018, eligible dividends totaling $0.40 (2017 - $0.40) per common share were declared and paid, resulting in total payments of $10,956 (2017 - $10,952). 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 and stock options to calculate the diluted earnings per share. (Loss) earnings attributable to common shares 2018 $ (78,083) 2017 $ 57,844 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 2018 27,399,117 — — 27,399,117 2017 27,379,193 22,526 72,276 27,473,995 For the year ended December 31, 2018, 29,645 potential common shares related to RSU's and 869,139 related to stock options were excluded from the computation of diluted earnings per share because they were anti- dilutive. 34 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 maximizing the growth of the business, returns to shareholders, and benefits for other stakeholders. No specific targets or ratios are set by the Company. The Company views its capital as the combination of long-term indebtedness, long-term leases and equity. The calculation of the Company’s capital is summarized below: Long-term indebtedness (Note 29) Equity December 31, 2018 $ December 31, 2017 $ 326,998 447,307 774,305 332,450 537,607 870,057 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, 2018. Page 50 • AutoCanada 35 Transactions with non-controlling interests Acquisition of non-controlling interest On January 2, 2018, the Company acquired a 100% ownership interest in certain subsidiaries by acquiring the remaining 20% of issued shares of Green Isle G Auto Holdings Inc., 20% of issued shares of Waverley BG Holdings Inc., 20% of issued shares of NBFG Holdings Inc., and 17.6% of issued shares in Prairie Auto Holdings Ltd. (Prairie Auto Holdings Ltd. holds interest in two operating dealerships where the dealer principal retained a 15% ownership interest) for cash consideration of $18,708. Immediately prior to the purchase, the carrying amount of the existing non-controlling interest of Green Isle G Auto Holdings Inc., Waverly BG Holdings Inc., NBFG Holdings Inc., and Prairie Auto Holdings Ltd. was $14,674. The Company recognized a decrease in non- controlling interests of $14,674 and a decrease in equity attributable to owners of the company of $2,675. The effect on the equity attributable to the owners of AutoCanada during the period is summarized as follows: Carrying amount of non-controlling interests Total consideration paid to non-controlling interests Decrease in equity attributable to AutoCanada shareholders January 2, 2018 $ 14,674 (17,349) (2,675) In combination with the above transaction, redemption liabilities in the amount of $1,359 were settled during the year. Divestiture of subsidiaries On January 2, 2018, the Company sold its 31% interest in Dealer Holdings Ltd., its 80% interest in DFC Holdings Inc., and its 75% interest in LWD Holdings Ltd. for cash consideration of $41,017. Immediately prior to the divestiture, the carrying amount of the existing non-controlling interests in Dealer Holdings Ltd., DFC Holdings., and LWD Holdings Ltd. was $20,774. The Company recognized a decrease in non-controlling interest of $20,774 and a pre-tax gain attributable to AutoCanada Shareholders of $5,984. The breakdown of the transaction was as follows: Assets held for sale Liabilities held for sale Derecognition of redemption liability Derecognition of non-controlling interests Net assets disposed of Net proceeds on divestiture Net gain on divestiture January 2, 2018 $ 162,086 (132,683) 26,404 (20,774) 35,033 41,017 5,984 Since the divestiture date, adjustments have been made to the previously disclosed assets and liabilities part of the transaction, resulting in the changes noted below: Assets held for sale Net gain on divestiture As reported March 31, 2018 163,228 4,842 Post-close adjustments Final Balances (1,142) 1,142 162,086 5,984 The net gain on divestiture is included in the gain on disposal of assets, net on the Consolidated Statements of Comprehensive (Loss) Income. AutoCanada • Page 51 Sale of non-controlling interest During the year ended December 31, 2018, the Company sold non-controlling interests, between 5% and 10%, in four of its dealerships to the respective dealer principals for consideration of $5,847. The Company retained the balance of the ownership interests and therefore continues to control and consolidate the dealerships. Prior year transactions with non-controlling interests On August 1, 2017, the Company acquired the remaining 10% of the issued shares of AutoCanada HCN Holdings Inc. for cash consideration of $1,700 and the extinguishment of loans of $700, for total consideration of $2,400. Immediately prior to the purchase, the carrying amount of the existing 10% non-controlling interest in AutoCanada HCN Holdings Inc. was $1,970. The group recognized a decrease in non-controlling interest of $1,970 and a decrease in equity attributable to owners of the Company of $430. On December 31, 2017, the Company acquired the remaining 10% of the issued shares of GRV C Holdings LP, for cash consideration of $2,284. Immediately prior to the purchase, the carrying amount of the existing 10% non- controlling interest in GRV C Holdings LP was $2,163. The group recognized a decrease in non-controlling interest of$2,163 and a decrease in equity attributable to owners of the Company of $121. The effect on the equity attributable to the owners of AutoCanada during the year is summarized as follows: Carrying amount of non-controlling interests acquired Total consideration paid to non-controlling interests Contingent settlement on sale of property Excess of consideration paid recognized in the transactions with non-controlling interests within equity AutoCanada HCN Holdings Inc. GRV C Holdings LP 1,970 (2,400) (89) 2,163 (2,284) — Total 4,133 (4,684) (89) (519) (121) (640) 36 Related party transactions Transactions with Companies controlled by Directors During the year there were transactions with companies that are related to directors of the Company. All significant transactions between AutoCanada and companies related to directors were approved by the Company’s independent members of the Board of Directors. A summary of those transactions are as follows: Consulting services Rent Administrative and other support fees Loans to associate 2018 $ 135 — 307 — 442 2017 $ — 979 428 7,590 8,997 Key management personnel compensation Key management personnel consists of the Company's executive officers and directors. Key management personnel compensation is as follows: Employee costs (including Directors) Short-term employee benefits Share-based compensation Page 52 • AutoCanada 2018 $ 12,508 165 741 13,414 2017 $ 7,606 222 1,079 8,907 37 Net change in non-cash working capital The following table summarizes the net increase (decrease) in cash due to changes in non-cash working capital for the years ended: Trade and other receivables Inventories Finance lease receivables Current tax recoverable/payable Other current assets Trade and other payables Other liabilities Vehicle repurchase obligations Revolving floorplan facilities December 31, 2018 $ December 31, 2017 $ (42,448) 3,236 3,566 (22,830) (2,269) 23,583 1,359 3,545 1,143 (31,115) (10,176) (104,383) 1,978 — 2,418 (18,496) — 113,102 (283) (15,840) 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. 38 Fair value of financial instruments The Company’s financial instruments at December 31, 2018 are represented by cash and cash equivalents, trade and other receivables, trade and other payables, revolving floorplan facilities, vehicle repurchase obligations, long-term indebtedness, restricted cash, bank indebtedness, contingent consideration, redemption liabilities and hedging derivatives. The fair values of cash and cash equivalents, trade and other 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 26. Derivative financial instruments are made up of interest-rate swaps (Level 2). The fair value of interest-rate swaps are calculated as the present value of the future cash flows. Both contractually agreed payments and forward interest rates are used to calculate the cash flows, which are then discounted on the basis of a yield curve that is observable in the market. 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. The fair value 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. AutoCanada • Page 53 The following table summarizes the remeasurements at fair value with the gain or loss being recognized through profit or loss for the years ended: Opening balance, January 1, 2017 Acquisitions Gain (loss) recognized in net income (Note 14) Settlement of redemption liabilities Settlement of contingent consideration Closing balance, December 31, 2017 Gain (loss) recognized in net income (Note 14) Settlement of redemption liabilities Closing balance, December 31, 2018 39 Hedge accounting Hedging of interest-rate risk Redemption Liabilities $ Contingent Consideration $ Total $ (46,464) (1,820) (48,284) (306) 2,869 1,197 — (42,704) (7) 27,764 (14,947) — 416 — 1,500 96 (15) — 81 (306) 3,285 1,197 1,500 (42,608) (22) 27,764 (14,866) The Company uses cash flow hedge accounting in connection with the hedging of interest-rate risk. It hedged the interest-rate risk arising on the variable-rate debt of the syndicated floorplan by entering into a number of interest-rate swaps, thereby, transforming the variable interest-rate exposure into fixed-rate obligations. In total, $200 million of variable-rate debt, which has a weighted-average hedge rate of 2.98%, was hedged and designated as hedged items — the $200 million notional amount relates to cash flows that are expected in 2019 to 2023. Hedge ineffectiveness Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument. The Company enters into interest rate swaps that have similar critical terms as the hedged item, such as interest rate, payment dates, maturities and notional amount. The group does not hedge 100% of its loans, therefore the hedged item is identified as a proportion of the outstanding loans up to the notional amount of the swaps. As all critical terms matched during the year, the economic relationship was 100% effective. The Company performs a qualitative assessment of hedge ineffectiveness for interest rate swaps which may occur due to: The credit value/debit value adjustment on the interest rate swaps which is not matched by the loan; and Differences in critical terms between the interest rate swaps and loans. The associated derivative financial instrument was valued at $3.76 million at December 31 (2017 - $nil). There was no ineffectiveness during 2018 and the Company did not have any interest-rate swaps in 2017. 40 Segmented reporting During the year the Executive Chair served as the function of the CODM. The Executive Chair is responsible for allocating resources and assessing the performance of the following segments: Canadian Operations and U.S. Operations. Each reportable operating segment is comprised of retail automobile dealerships. AutoCanada • Page 54 Transactions between reportable segments are accounted for in accordance with the accounting policies described in the summary of significant accounting policies. Our CODM measures the performance of each operating segment based on Operating (loss) profit, which is defined as income before Finance costs, Finance income, Other (losses) gains and Income taxes (recovery). The segmented information is set out in the following tables: Revenues External revenues Inter-segment revenue Total Revenues Year Ended December 31, 2018 Canada1 $ 2,778,820 — 2,778,820 U.S.2 $ 371,961 — 371,961 Eliminations and Adjustments $ Total $ — — — 3,150,781 — 3,150,781 1 AutoCanada's corporate office has been included with the Canadian operating segment, as it is located in Canada. 2 Grossinger Auto Group was acquired in April 2018; refer to Note 16. Year Ended December 31, 2018 U.S.2 $ Eliminations and Adjustments $ Operating profit before other income (expense) Lease and other income, net Gain on disposal assets, net Canada1 $ 43,503 7,197 17,484 (10,344) 722 3,996 (Impairment) recovery of non-financial assets (34,053) (61,447) Income from loans to associates Operating (loss) profit 294 34,425 — (67,073) Finance costs Finance income Other gains — — — — — — Total $ 33,159 7,919 21,480 (95,500) 294 (32,647) (47,193) 1,289 950 (77,602) Net (loss) income for the year before taxation 1 AutoCanada's corporate office has been included with the Canadian operating segment, as it is located in Canada. 2 Grossinger Auto Group was acquired in April 2018; refer to Note 16. Assets held for sale Segment Assets Capital expenditure Segment Liabilities As at December 31, 2018 Canada1 $ 54,313 1,473,856 23,247 996,947 U.S.2 $ — 246,712 3,327 276,313 Eliminations and Adjustments $ — — — — Total $ 54,313 1,720,568 26,574 1,273,260 1 AutoCanada's corporate office has been included with the Canadian operating segment, as it is located in Canada. 2 Grossinger Auto Group was acquired in April 2018; refer to Note 16. AutoCanada • Page 55 Disaggregation of Revenue The significant majority of our revenue is from contracts with customers. Taxes assessed by governmental authorities that are directly imposed on revenue transactions are excluded from revenue. In the following table, revenue is disaggregated by major lines of goods and services and timing of transfer of goods and services. We have determined that these categories depict how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors. The table below also includes a reconciliation of the disaggregated revenue with our reportable segments: New vehicles Used vehicles Parts, service and collision repair Finance, insurance and other Total Revenue Canada1 $ 1,587,047 664,163 403,759 123,851 2,778,820 U.S.2 $ 215,156 91,991 48,001 16,813 371,961 Total $ 1,802,203 756,154 451,760 140,664 3,150,781 1 AutoCanada's corporate office has been included with the Canadian operating segment, as it is located in Canada. 2 Grossinger Auto Group was acquired in April 2018; refer to Note 16. 41 Subsequent events Dividends On February 22, 2019, 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, 2019 to shareholders of record at the close of business on March 1, 2019. Toronto Dodge Divestiture On March 6, 2019, the Company closed the sale of Toronto Dodge for cash considerations of $5.0 million, which was presented as held for sale at December 31, 2018. The agreement is subject to customary closing adjustments. AutoCanada • Page 56 AutoCanada Inc. 200 - 15511 123 Avenue NW Edmonton, AB • T5V 0C3 www.autocan.ca 

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