AutoCanada Inc.
Annual Report 2019

Plain-text annual report

2019 Annual Financial Statements Consolidated Financial Statements For the year ended December 31, 2019 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, 2019 and 2018, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS). What we have audited The Company's consolidated financial statements comprise: • • • • • the consolidated statements of comprehensive loss for the years ended December 31, 2019 and 2018; the consolidated statements of financial position as at December 31, 2019 and 2018; 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. Our opinion on the consolidated financial statements does not cover the other information and we do not express 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, 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. 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 12, 2020 AutoCanada Inc. Consolidated Statements of Comprehensive Loss For the Years Ended (in thousands of Canadian dollars except for share and per share amounts) Revenue (Note 6) Cost of sales (Note 7) Gross profit Operating expenses (Note 8) Operating profit before other income (expense) Lease and other income, net (Note 10) Gain on disposal of assets, net (Note 10) Impairment of non-financial assets (Note 22) Restructuring charges (Note 37) Operating profit (loss) Finance costs (Note 11) Finance income (Note 11) Other (losses) gains (Note 12) Net loss for the year before tax Income taxes (Note 13) Net loss for the year Other comprehensive loss 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 (loss) income for the year, net of tax Comprehensive loss for the year Net (loss) income for the year attributable to: AutoCanada shareholders Non-controlling interests Comprehensive (loss) income for the year attributable to: AutoCanada shareholders Non-controlling interests Net loss per share attributable to AutoCanada shareholders: Basic Diluted Weighted average shares Basic (Note 31) Diluted (Note 31) December 31, 2019 $ December 31, 2018 Restated (Note 14) $ 3,476,111 (2,905,616) 570,495 (499,768) 70,727 10,701 11,014 (36,575) (13,393) 42,474 (68,784) 912 (900) (26,298) 775 (27,073) (7,083) (2,424) 635 (8,872) (35,945) (28,353) 1,280 (27,073) (37,225) 1,280 (35,945) (1.03) (1.03) 3,150,781 (2,642,818) 507,963 (474,804) 33,159 8,213 21,480 (101,494) — (38,642) (47,193) 1,289 950 (83,596) 1,846 (85,442) 6,136 (3,762) 1,015 3,389 (82,053) (86,097) 655 (85,442) (82,708) 655 (82,053) (3.14) (3.14) 27,420,483 27,420,483 27,399,117 27,399,117 The accompanying notes are an integral part of these consolidated financial statements. Approved on behalf of the Company Paul W. Antony, Director Barry L. James, Director Page 1 • AutoCanada AutoCanada Inc. Consolidated Statements of Financial Position (in thousands of Canadian dollars) ASSETS Current assets Cash and cash equivalents (Note 17) Trade and other receivables (Note 18) Inventories (Note 19) Current tax recoverable Other current assets (Note 24) Assets held for sale (Note 20) Property and equipment (Note 21) Right-of-use assets (Note 27) Other long-term assets (Note 24) Deferred income tax (Note 13) Intangible assets (Note 22) Goodwill (Note 22) LIABILITIES Current liabilities Trade and other payables (Note 25) Revolving floorplan facilities (Note 26) Vehicle repurchase obligations (Note 28) Indebtedness (Note 26) Redemption liabilities (Note 16) Intangible liabilities (Note 14) Lease liabilities (Note 27) Other liabilities (Note 37) Liabilities held for sale (Note 20) Long-term indebtedness (Note 26) Long-term lease liabilities (Note 27) Derivative financial instruments (Note 37) Long-term intangible liabilities (Note 14) Other long-term liabilities (Note 37) Deferred income tax (Note 13) EQUITY Attributable to AutoCanada shareholders Attributable to Non-controlling interests December 31, 2019 $ December 31, 2018 Restated (Note 14) $ 55,555 132,625 821,455 4,162 8,502 14,193 1,036,492 197,410 303,536 5,042 13,029 410,293 24,115 1,989,917 134,971 832,158 7,802 127 15,498 — 21,208 1,240 — 1,013,004 213,305 359,255 6,186 — 9,767 20,301 1,621,818 353,607 14,492 368,099 1,989,917 25,324 131,152 760,865 10,685 6,513 54,313 988,852 237,141 — 10,148 13,642 412,353 58,432 1,720,568 101,280 748,353 7,654 1,654 14,948 5,049 — — 5,281 884,219 326,998 — 3,762 39,126 — 27,170 1,281,275 420,554 18,739 439,293 1,720,568 Commitments and contingencies (Note 29) 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 $ 509,538 5,109 6,136 (2,746) (89,469) 428,568 18,739 447,307 — — — — — — — — (8,014) (8,014) (20,460) (20,460) — — (8,014) (20,460) 509,538 5,109 6,136 (2,746) (117,943) 400,094 18,739 418,833 — — — — — — (17) 369 — — — — — — (3,466) — 15 4,805 — — (28,353) (28,353) 1,280 (27,073) (7,083) (1,789) — (8,872) — — — — — — — — — — — — — — (10,968) (10,968) — — — — — — — — (3,466) (17) 384 4,805 — — (8,872) (10,968) (1,350) (1,350) (4,177) (4,177) — — — — (3,466) (17) 384 4,805 509,890 6,463 (947) (4,535) (157,264) 353,607 14,492 368,099 Balance, December 31, 2018 as originally presented Measurement period adjustments, net of tax (Note 14) Change in accounting policy, net of tax (Note 4) Balance, January 1, 2019 Restated Net (loss) income Other comprehensive loss Dividends declared on common shares (Note 31) Dividends declared by subsidiaries to non- controlling interests (Note 16) Acquisition of non-controlling interest Forward share purchase (Note 37) Treasury shares acquired (Note 31) Shares settled from treasury (Note 31) Share-based compensation (Note 30) Balance, December 31, 2019 Page 3 • AutoCanada Attributable to AutoCanada shareholders Share capital $ Contributed surplus $ Cumulative translation adjustment $ OCI - hedge reserve $ Accumulated deficit $ Non- controlling interests $ Total $ Total equity $ Balance, December 31, 2017 as originally presented Change in accounting policy Balance, January 1, 2018 Net (loss) income Other comprehensive income Dividends declared on common shares (Note 31) Dividends declared by subsidiaries to non- controlling interests (Note 16) Sale of non-controlling interest Acquisition of non- controlling interest Divestiture of subsidiaries Derecognition of redemption liability upon divestiture of subsidiary (Note 33) Derecognition of redemption liability granted to non- controlling interests (Note 33) Treasury shares acquired (Note 31) Shares settled from treasury (Note 31) Share-based compensation Balance, December 31, 2018 508,768 5,389 — — 508,768 5,389 — — — — — — — — — (29) 799 — — — — — — — — — — — (799) 519 — — — — — — — — (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) — 519 509,538 5,109 6,136 (2,746) (89,469) 428,568 18,739 447,307 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 for the year Income taxes (Note 13) Amortization of prepaid rent Amortization of deferred financing costs (Note 26) Depreciation of property and equipment (Note 21) Depreciation of right-of-use assets (Note 27) Gain on disposal of assets (Note 10) Share-based compensation - equity-settled Share-based compensation - cash-settled Revaluation of contingent consideration (Note 12) Revaluation of redemption liabilities (Note 12) Income taxes recovered (paid) Impairment of non-financial assets (Note 22) Restructuring charges (Note 37) Net change in non-cash working capital (Note 35) Investing activities Withdrawals from restricted cash Business acquisition, net of cash acquired (Note 14) Purchases of property and equipment (Note 21) Proceeds on sale of property and equipment Income from loans to associates Proceeds from loans to associates Proceeds on divestiture of dealerships (Note 15) Proceeds from divestiture of investments in subsidiaries (Note 33) Financing activities Proceeds from indebtedness (Note 26) Repayment of indebtedness (Note 26) Common shares settled, net (Note 31) Dividends paid on common shares (Note 31) Distributions paid to non-controlling interests by subsidiaries Principal elements of lease payments Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year (Note 17) Cash and cash equivalents at end of year (Note 17) The accompanying notes are an integral part of these consolidated financial statements. December 31, 2019 $ December 31, 2018 Restated (Note 14) $ (27,073) 775 — 760 19,823 23,404 (11,014) 4,805 — — 550 5,018 36,575 13,393 40,073 107,089 — — (30,634) 88,129 — — 14,297 — 71,792 45,052 (161,032) 352 (10,968) (1,350) (20,288) (148,234) (416) 30,231 25,324 55,555 (85,442) 1,846 452 1,658 19,947 — (21,480) (279) 371 15 7 (2,773) 101,494 — (32,992) (17,176) 4,106 (176,569) (26,574) 123,798 (294) 18,394 3,320 41,017 (12,802) 294,085 (302,207) 770 (10,956) (20,359) — (38,667) (555) (69,200) 94,524 25,324 Page 5 • AutoCanada AutoCanada Inc. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2019 and 2018 (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 the 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 consolidated financial statements in accordance with IFRS requires the use of certain critical accounting estimates. The areas where assumptions and estimates are significant to the consolidated financial statements are described in Note 5. The Company adopted IFRS 16 Leases effective January 1, 2019. The adoption of this standard resulted in certain updates to accounting policies, described in Note 3. These consolidated financial statements were approved by the Board of Directors on March 12, 2020. 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 Statements of Comprehensive Loss. Transaction costs are expensed as incurred. Any subsequent change to the fair value of contingent consideration liabilities is recognized in the Consolidated Statements of Comprehensive Loss. Revenue recognition (a) New and Used Vehicles The Company sells new and used vehicles at its 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 its customers in exchange for a fee paid to the Company 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 the Company's 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. The Company satisfies its performance obligations, transfers control, and recognizes revenue over time for repair and maintenance services because it is creating an asset with no alternative use and has 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 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 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. Page 7 • AutoCanada 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. 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 consolidated statements of financial position. Deferred tax is calculated using tax rates and laws that have been enacted or substantively enacted at the end of the reporting period, and which are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred tax liabilities: are generally recognized for all taxable temporary differences; and are not recognized on temporary differences that arise from goodwill which is not deductible for tax purposes. Deferred tax assets: are recognized to the extent it is probable that taxable profits will be available against which the deductible temporary differences can be utilized; and are reviewed at the end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are not recognized in respect of temporary differences that arise on initial recognition of assets and liabilities acquired other than in a business combination. (b) Current tax Current tax expense is based on the results for the period as adjusted for items that are not taxable or not deductible. Current tax is calculated using tax rates and laws that were enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities. Manufacturer incentives and other rebates Various incentives from manufacturers are received based on achieving certain objectives, such as specified sales volume targets. These incentives are typically based upon units sold to retail or fleet customers. These manufacturer incentives are recognized as a reduction of new vehicle cost of sales when earned, generally at the latter of the time the related vehicles are sold or upon attainment of the particular program goals. Manufacturer rebates to the Company's 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 Statements of Comprehensive Loss. 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 Page 8 • AutoCanada have expired or were transferred and the Company has transferred substantially all risks and rewards of ownership. The Company’s financial assets, including cash and cash equivalents and trade and other receivables, are 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 trade and other payables, revolving floorplan facilities, vehicle repurchase obligations, current and long-term indebtedness, derivative financial instruments, redemption liabilities and lease 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 cash on hand, highly liquid investment grade short-term investments with maturities of three months or less, and other liquid deposits held with financial institutions. 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 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 Statements of Comprehensive Loss 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 Statements of Comprehensive Loss. 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: Page 9 • AutoCanada 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 10 to 45 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 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 amounts 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 and right-of-use assets, 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 as cash-generating units (CGUs), 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 the Company's dealer agreements is determined using a combination of a discounted cash flow approach and earnings multiple approach. Page 10 • AutoCanada  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 provisions due to passage of time is recognized as interest expense. Leases Effective January 1, 2019, the Company adopted IFRS 16 Leases and changed its accounting policy for leases as a lessee. Refer to Note 4 for the adoption impact. There was no impact for leases in which the Company is a lessor. The Company as a lessee: The Company leases various properties. Lease agreements range from 1 to 20 years but may have extension options as described below. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The Company recognizes a right-of-use asset and a corresponding lease liability at the date at which the leased asset is available for use by the Company. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight- line basis. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that are based on an index or a rate, amounts expected to be payable by the lessee under residual value guarantees, the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and payments of penalties for terminating the lease if the lease term reflects the lessee exercising that option. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be determined, or the Company’s incremental borrowing rate. Right-of-use assets are measured at cost comprising the amount of the initial measurement of lease liability and any lease payments made at or before the commencement date less any lease incentives received, any initial direct costs and restoration costs. Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low value assets comprise IT-equipment and office furniture. The Company as a lessor: Lease obligations are classified as either operating or finance, based on the substance of the transaction at inception of the lease. Classification is reassessed 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. 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. Page 11 • AutoCanada 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. (b) Operating leases Leases in which a significant portion of the risks and rewards of ownership is retained by the lessor are classified as operating leases. 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. Policy applicable before January 1, 2019 for the Company as a lessee: Lease obligations were classified as either operating or finance, based on the substance of the transaction at inception of the lease. Classification was reassessed if the terms of the lease changed. (a) Finance leases Leases in which substantially all the risks and rewards of ownership are transferred are classified as finance leases. Assets meeting finance lease criteria were 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 were apportioned between the finance charge and the liability. The finance charge was 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 is retained by the lessor were classified as operating leases. Payments under an operating lease (net of any incentives received from the lessor) were 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 Statements of Comprehensive Loss. 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. Page 12 • AutoCanada 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. Share-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 30. 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. 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 37. Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognized immediately in profit or loss and are included in other gains/(losses), as disclosed in Note 36. 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. Page 13 • AutoCanada 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 reportable operating segment is comprised of retail automobile dealerships, which have been aggregated based on their economic similarities. The Company's 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 38. 4 New and amended accounting standards adopted in 2019 IFRS 16 Leases The Company adopted IFRS 16 retrospectively on January 1, 2019, but has not restated comparatives for the 2018 reporting period, as permitted under the specific transition provisions in the new standard. The cumulative effect of initially applying the new standard is recognized on January 1, 2019. On adoption of IFRS 16, the Company recognized lease liabilities in relation to leases, which had previously been classified as ‘operating leases’ under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as at January 1, 2019. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on January 1, 2019 was 6.18% and 5.27% for the Canadian Operations segment and U.S. Operations segment leases, respectively. There was no impact to lessor accounting from the adoption of IFRS 16. Operating lease commitments disclosed as at December 31, 2018 Add: Adjustments as a result of a different treatment of extension and termination option (Less): Short-term leases recognized on a straight-line basis as an expense (Less): Low-value leases recognized on a straight-line basis as an expense Canadian Operations $ U.S. Operations $ Total $ 342,728 99,280 442,008 4,025 422 4,447 (235) — — (52) (235) (52) Total adjusted operating lease commitments as at January 1, 2019 346,518 99,650 446,168 Discounted using the lessee's incremental borrowing rate as at January 1, 2019 (Less): Prepaid rent expense Total lease liability recognized under IFRS 16 Current lease liabilities Non-current lease liabilities Total lease liability recognized as at January 1, 2019 263,188 82,602 345,790 (4,894) 258,294 15,192 243,102 258,294 — 82,602 4,274 78,328 82,602 (4,894) 340,896 19,466 321,430 340,896 The associated right-of-use assets for property leases were measured on a retrospective basis as if the new rules had always been applied, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognized in the balance sheet as at December 31, 2018. Off-market lease contracts related to intangible liabilities resulted in an adjustment to the right-of-use assets at the date of initial application for the Company's U.S. Operations segment. The recognized right-of-use assets relate entirely to properties. Page 14 • AutoCanada The impacts of adopting IFRS 16 as at January 1, 2019 are as follows: Assets Other current assets Total current assets Right-of-use assets Other long-term assets Deferred income tax (Note 13) Total assets Liabilities and shareholders' equity Current lease liabilities Current intangible liabilities Total current liabilities Lease liabilities Long-term intangible liabilities Total liabilities Equity attributable to AutoCanada shareholders Total liabilities and shareholders' equity December 31, 2018 Restated (Note 14) $ IFRS 16 Adjustments $ January 1, 2019 $ 6,513 6,513 — 10,448 13,642 30,603 — 5,049 5,049 — 39,126 44,175 420,554 464,729 (452) (452) 275,814 (4,442) 5,197 276,117 19,466 (5,049) 14,417 321,429 (39,126) 296,720 (20,460) 276,260 6,061 6,061 275,814 6,006 18,839 306,720 19,466 — 19,466 321,429 — 340,895 400,094 740,989 Certain leases contain future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. The lease liability is reassessed and adjusted against the right-of-use asset when the adjustments to lease payments based on an index or rate take effect. The impacts on segment assets and segment liabilities as at January 1, 2019 are as follows: Other current assets Right-of-use assets Other long-term assets Deferred income tax Current lease liabilities Current intangible liabilities Lease liabilities Long-term intangible liabilities Equity attributable to AutoCanada shareholders Canadian Operations $ U.S. Operations $ IFRS 16 Adjustments $ (452) 239,098 (4,442) 5,197 15,192 — 243,101 — (18,892) — 36,716 — — 4,274 (5,049) 78,328 (39,126) (1,568) (452) 275,814 (4,442) 5,197 19,466 (5,049) 321,429 (39,126) (20,460) In applying IFRS 16 for the first time, the Company has used the following practical expedients permitted by the standard: The use of a single discount rate to a portfolio of leases with reasonably similar characteristics; Reliance on previous assessments on whether leases are onerous; The accounting for operating leases with a remaining lease term of less than 12 months as at January 1, 2019, as short-term leases; The exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application; and Page 15 • AutoCanada  The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease. The Company has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date, the Company relied on its assessment made applying IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease. During the course of the year, differences were noted on the opening transition adjustment as a result of finalizing the transition. The balances presented have been updated from amounts previously disclosed. Amendments to IAS 39 and IFRS 7 Interest Rate Benchmark Reform AutoCanada has elected to early adopt the 'Amendments to IAS 39 and IFRS 7 Interest Rate Benchmark Reform' issued in September 2019. In accordance with the transition provisions, the amendments have been adopted retrospectively to hedging relationships that existed at the start of the reporting period or were designated thereafter, and to the amount accumulated in the cash flow hedge reserve at that date. The amendments provide temporary relief from applying specific hedging accounting requirements to hedging relationships directly affected by Interbank Offered Rate (IBOR) reform. The reliefs have the effect that IBOR reform should not generally cause hedge accounting to terminate. However, any hedge ineffectiveness continues to be recorded in the Consolidated Statements of Comprehensive Loss. Furthermore, the amendments set out triggers for when the reliefs will end, which include the uncertainty arising from interest rate benchmark reform no longer being present. In summary, the reliefs provided by the amendments that apply are: When considering the 'highly probable' requirement, AutoCanada has assumed that the Canadian Dollar Offered Rate (CDOR) interest rate on which its hedged debts are based does not change as a result of the IBOR reform In assessing whether the hedge is expected to be highly effective on a forward-looking basis, AutoCanada has assumed that the CDOR interest rate on which the cash flows of the hedged debt and the interest rate swap that hedges it are based is not altered by the IBOR reform AutoCanada will not discontinue hedge accounting during the period of IBOR-related uncertainty solely because the retrospective effectiveness falls outside the required 80–125% range. AutoCanada has not recycled the cash flow hedge reserve relating to the period after the reforms are expected to take effect. Note 37 provides the required disclosures of the uncertainty arising from the IBOR reform for hedging relationships for which AutoCanada applied the reliefs. 5 Critical accounting estimates The preparation of consolidated 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. 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 Page 16 • AutoCanada estimated based on the greater of fair value less costs to dispose and value in use calculations (refer to Note 22). Inventories Inventories are recorded at the lower of cost and net realizable value with cost determined on a specific item basis for new and used vehicles. In determining net realizable value for new vehicles, the Company primarily considers the age of the vehicles along with the timing of annual and model changeovers. For used vehicles, the Company considers recent market data and trends such as loss histories along with the current age of the inventory. The determination of net realizable value for inventories involves the use of estimates. 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 16). The redemption amounts are determined with reference to the future profitability generated by those subsidiaries and their operating businesses. The Company will initially recognize a financial liability at the present value of the estimated redemption amount, and at the end of each subsequent reporting period, the Company will revisit its 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 Statements of Comprehensive Loss. Leases i. Critical judgments in determining the lease term Extension and termination options are included in a number of property leases held by the Company. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). Potential future cash outflows have not been included in the lease liability if it is not reasonably certain that the leases will be extended. The assessment is reviewed if a significant event or a significant change in circumstances occurs that affects this assessment and that is within the control of the lessee. ii. Estimation uncertainty arising from variable lease payments Certain leases contain variable payment terms that are linked to the consumer price index. Restructuring Charges The Company has assumed it will not be able to sublet or otherwise realize any economic benefit from specific vacated premises. Should these circumstances change, some or all of the provision pertaining to the committed premises costs could be reversed in a future period. Page 17 • AutoCanada 6 Revenue New vehicles Used vehicles Parts, service and collision repair Finance, insurance and other 2019 $ 1,939,614 891,237 479,727 165,533 3,476,111 2018 $ 1,802,203 756,154 451,760 140,664 3,150,781 The Company has no material contract assets or liabilities as at December 31, 2019 or 2018. 7 Cost of sales New vehicles Used vehicles Parts, service and collision repair Finance, insurance and other 8 Operating expenses Employee costs 1 (Note 9) Administrative costs 2 Facility lease and storage costs 3 Depreciation of right-of-use assets 3 (Note 27) Depreciation of property and equipment (Note 21) 2019 $ 1,809,117 841,782 241,061 13,656 2,905,616 2018 $ 1,693,071 712,826 227,774 9,147 2,642,818 2019 $ 291,315 160,718 4,508 23,404 19,823 499,768 2018 $ 277,891 148,098 28,868 — 19,947 474,804 Employee costs include management transition expenses. 1 2 Administrative costs include professional fees, consulting services, technology-related expenses, marketing, and other general and administrative costs. 3 Facility lease costs and depreciation of right-of-use assets have been affected by the adoption of IFRS 16 - Refer to Note 4. 9 Employee costs Operating expenses incurred in respect of employees were: Wages, salaries and commissions Withholding taxes and insurance Employee benefits Share-based compensation Other benefits 1 1 Includes management transition costs. Page 18 • AutoCanada 2019 $ 249,397 16,571 18,894 4,805 1,648 291,315 2018 $ 235,041 15,601 15,938 1,116 10,195 277,891 10 Lease and other income and gain on disposal of assets, net Lease and other income, net Non-recurring settlement income 1 Lease and rental income Other income Gain (loss) on disposal of assets, net Gain on dealership divestiture (Note 15) Sale and leaseback transactions (Note 21) Transactions with non-controlling interests (Note 33) Disposals of property and equipment, net 2019 $ 2018 $ — 6,418 4,283 10,701 8,442 2,935 — (363) 11,014 1,603 3,056 3,554 8,213 757 13,882 5,984 857 21,480 1 The non-recurring settlement is from an automobile manufacturer and has been recognized net of estimated related expenses. 11 Finance costs and finance income Finance costs: Interest on long-term indebtedness Interest on lease liabilities 1 (Note 27) Floorplan financing Other finance costs Finance income: Short-term bank deposits 2019 $ 2018 $ (17,163) (21,673) (38,836) (23,977) (5,971) (68,784) (20,447) — (20,447) (21,440) (5,306) (47,193) 912 1,289 1 Interest on lease liabilities relates to the adoption of IFRS 16 - Refer to Note 4. Cash interest paid during the year ended December 31, 2019 is $68,442 (2018 - $46,952), which includes $21,673 (2018 - $nil) of cash interest paid related to interest on lease liabilities. 12 Other (losses) gains (Loss) gain on foreign currency Revaluation of redemption liabilities (Note 16) Revaluation of contingent consideration 2019 $ (350) (550) — (900) 2018 $ 972 (7) (15) 950 Page 19 • AutoCanada 2019 $ (26,298) Restated 2018 $ (83,596) (7,127) (22,487) 12,928 (9,218) 5,325 (464) 389 — (1,058) 775 14,828 1,326 1,447 1,136 254 3,851 1,491 1,846 2019 $ 1,747 (972) 775 Restated 2018 $ 3,354 (1,508) 1,846 2019 $ 1,747 — 1,747 (972) — (972) 775 Restated 2018 $ 3,354 — 3,354 (1,292) (216) (1,508) 1,846 13 Income taxes Reconciliation of effective tax rate for the year ended December 31: Net loss for the year before tax Net loss for the year before tax multiplied by the blended rate of Canadian corporate tax of 27.1% (2018 - 26.9%) Effects of: Tax losses and deductible temporary differences not recognized Adjustment in respect of prior years Impact of non-deductible items Impact of substantively enacted rates Income tax rates differential of foreign subsidiaries Deferred tax recognized on sale of subsidiaries Other, net Income tax expense Components of income tax: Current income tax expense Deferred income tax recovery Total income tax expense Segmented components of income tax: Canada U.S. Current income tax expense Canada U.S. Deferred income tax recovery Total income tax expense Page 20 • AutoCanada The movements of deferred tax assets and liabilities are shown below: Deferred tax assets (liabilities) January 1, 2018 (Expense) benefit charged to income taxes Amounts charged to other comprehensive income Acquisition of subsidiary (Note 14) Held for sale (Note 20) December 31, 2018 Adoption of IFRS 16 - initial deferred tax recognition (Note 4) December 31, 2018 - restated (Expense) benefit charged to income taxes Amounts charged to other comprehensive income Other Deferred income from partnerships $ Property and equipment $ Goodwill and intangible assets $ (111) 1,265 (28,788) Right-of- use assets net of lease liabilities $ — 5,669 — — — 5,558 174 — 58 279 1,776 (4,501) — 7,434 1,654 (24,201) — — — — — Derivative financial instruments $ Other $ Total $ — 1,924 (25,710) — (849) 493 1,015 — — — — 1,249 1,015 7,492 3,182 1,015 2,324 (13,528) — — — 5,197 — — 5,197 5,558 1,776 (24,201) 5,197 1,015 2,324 (8,331) (9,350) 554 1,598 3,607 — 4,563 972 — 1 — — — (620) — — 635 — — 71 635 (548) December 31, 2019 (3,791) 2,330 (23,223) 8,804 1,650 6,958 (7,272) Deferred tax asset Deferred tax liability Net deferred tax liability 2019 $ 13,029 (20,301) (7,272) 2018 $ 13,642 (27,170) (13,528) Income tax expense is recognized based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual blended rate used for the year ended December 31, 2019 was 27.1% (2018 - 26.9%). Changes in the deferred income tax components are adjusted through deferred tax expense. Of the above components of the deferred income tax (liability) asset, $(3,791) (2018 - $5,558) is expected to be recovered within 12 months. Page 21 • AutoCanada 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 2019 $ 58,341 42,879 101,220 2018 $ 17,251 24,922 42,173 The Company's U.S. Operations have state and federal net operating losses of $42,879 (2018 - $24,922), as well as deductible temporary differences of $107,297 (2018 - $66,504) available to reduce future taxable income. The federal losses can be carried forward indefinitely, while the state losses expire between 2030 and 2031. The deductible temporary differences arose primarily from impairment charges recorded against the goodwill and intangible assets of the Grossinger dealerships acquired in 2018 (Note 14). At December 31, 2019 the Company has recognized the benefit of $48,956 (2018 - $49,253) of the deductible temporary differences as a deferred tax asset. 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. The Company also has Canadian non-capital losses of $25,258 (2018 - $4,752) available to reduce future taxable income, until their expiry between 2032 and 2039. The benefit of these losses has been recognized as an offset to Canadian taxable temporary differences. Page 22 • AutoCanada  14 Business Acquisitions During the year ended December 31, 2019, no business acquisition transactions were completed. Prior year 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 a U.S. financial institution ( Note 26). 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 22. 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. Restated December 31, 2018 figures During the quarter ended March 31, 2019, new information was obtained about circumstances that existed at the acquisition date, which resulted in certain adjustments to the fair value of the net identifiable assets acquired. Specifically, an intangible liability related to the extension of an off-market lease was recognized in the amount of $7,614, which gave rise to an additional goodwill of $5,994 and an increase in deferred tax assets of $2,020. The Company determined the impact of these adjustments on its post-acquisition earnings in 2018, which resulted in an increase in goodwill impairment and future tax expense in the fourth quarter totaling an increase in the reported net loss for the year of $8,014. This amount is reflected as the measurement period adjustment in and has been restated as at December 31, 2018 within these consolidated financial statement figures. The following table shows the revised purchase price allocation balances, 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. Page 23 • AutoCanada 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) 12,580 2,610 44,805 64,306 11,615 39,219 12,580 2,610 44,805 81,151 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. 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 21). 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 December 31, 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. Other long term assets1 Goodwill2 As reported December 31, 2018 Fair value adjustments Restated December 31, 2018 3,456 3,651 (300) 300 3,156 3,951 1 Certain adjustments to working capital balances for new information received during the measurement period were made. 2 The fair value adjustment to goodwill was the result of the net change in the other long term assets. 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. Page 24 • AutoCanada The business acquisitions completed during the year ended December 31, 2018 and incorporated measurement period adjustments described above 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 12,580 98,253 102 167 4,656 — — 4,925 — 2,443 40,149 — 47,517 50,736 81,151 131,887 131,887 274 3,592 18,725 887 23,478 1,268 3,156 21,250 — 49,152 1,887 — — 4,330 18,449 24,666 1,862 — — 2,674 29,202 19,950 3,951 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 3,166 79,068 12,580 189,147 3,499 167 4,656 4,330 32,818 45,470 1,862 2,443 40,149 5,087 95,011 94,136 86,405 180,541 180,541 1 Concurrent with this transaction, the Company purchased $81,950 of vehicle inventory through floorplan financing provided by Bank of America. Refer to Note 26. Page 25 • AutoCanada 15 Dealership divestitures Toronto Dodge On March 3, 2019, the Company sold substantially all of the operating and fixed assets of Toronto Dodge, located in Toronto, Ontario, for cash consideration. Net proceeds of $6,785 resulted in a pre-tax gain on divestiture of $4,320, included in gain (loss) on disposal of assets, net in the Canadian Operations segment. Victoria Hyundai On June 1, 2019, the Company sold substantially all of the operating and fixed assets of Victoria Hyundai, located in Victoria, British Columbia, for cash consideration. Net proceeds of $5,550 resulted in a pre-tax gain on divestiture of $3,772, included in gain (loss) on disposal of assets, net in the Canadian Operations segment. Calgary Hyundai On July 2, 2019, the Company sold substantially all of the operating and fixed assets of Calgary Hyundai, located in Calgary, Alberta, for cash consideration. Net proceeds of $1,962 resulted in a net pre-tax gain on divestiture of $350, included in gain (loss) on disposal of assets, in the Canadian Operations segment. The dealership divestitures completed during the year ended December 31, 2019 are summarized as follows: Inventories Property and equipment Right-of-use assets Other current assets Intangible assets Total assets Trade and other payables Revolving floorplan facilities Lease liabilities Total liabilities Net assets disposed of Net proceeds on divestiture Net pre-tax gain on divestiture Toronto Dodge $ 11,845 615 — — 1,456 13,916 124 11,327 — 11,451 2,465 6,785 4,320 Victoria Hyundai $ Calgary Hyundai $ 4,444 226 — 72 1,234 5,976 193 4,005 — 4,198 1,778 5,550 3,772 3,223 273 2,684 53 1,500 7,733 87 2,864 3,170 6,121 1,612 1,962 350 Total $ 19,512 1,114 2,684 125 4,190 27,625 404 18,196 3,170 21,770 5,855 14,297 8,442 Page 26 • AutoCanada 16 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 2019 $ Dividends paid to non- controlling interests 2018 $ Principal place of business Green Isle G Auto Holdings Inc. Prairie Auto Holdings Ltd. NBFG Holdings Inc. AutoCanada B Holdings Inc. AutoCanada M Holdings Inc. British Columbia Saskatchewan Saskatchewan Quebec Quebec 10% 15% 5% 15% 5% 10% 15% 5% 15% 10% — 900 — 450 — 1,350 — 900 — 750 — 1,650 The Company provides long-term loans to specific NCI parties and these are presented as other assets. Refer to Note 24. 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: January 1, 2018 Adjustment to fair value (Note 12) Derecognition on settlement (Note 33) December 31, 2018 Adjustment to fair value (Note 12) December 31, 2019 Redemption liabilities $ 42,704 7 (27,763) 14,948 550 15,498 The change in fair value is recorded in other gains and losses on the Consolidated Statements of Comprehensive Loss (Note 12). The fair value is determined based on the dealership equity value of the related subsidiary (Note 36). Those options eligible to be executed in the next fiscal year are presented as current liabilities. The subsidiaries are holding companies that 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. Page 27 • AutoCanada 17 Cash and cash equivalents Cash at bank and on hand Short-term deposits December 31, 2019 $ 52,535 3,020 55,555 December 31, 2018 $ 23,061 2,263 25,324 Short-term deposits include cash held with a national Canadian financial institution. The Company's revolving floorplan facility agreements allow the Company to hold excess cash in accounts with the financial institution, which is used to offset its finance costs on revolving floorplan facilities. The Company has immediate access to this cash unless it is in default of its facilities, in which case the cash may be used by the financial institution in repayment of its facilities. Refer to Note 23 for further detail regarding cash balances held with the financial institution. The remaining short-term deposits are term deposits that bear interest at 3.0% (2018 - 3.2%). 18 Trade and other receivables Trade receivables Less: Expected loss allowance (Note 23) Other receivables December 31, 2019 $ December 31, 2018 $ 129,733 (1,869) 127,864 4,761 132,625 129,338 (3,208) 126,130 5,022 131,152 The Company is exposed to normal credit risk with respect to its accounts receivable and maintains provisions for potential credit losses. Potential for such losses is mitigated because there is no significant exposure to any single customer and because customer creditworthiness is evaluated before credit is extended. 19 Inventories New vehicles Demonstrator vehicles Used vehicles Parts and accessories Amounts recognized in the Consolidated Statements of Comprehensive Loss: Inventory expensed as cost of sales Net writedowns on used vehicles included in cost of sales Change in inventory reserves recognized in cost of sales Demonstrator expenses included in administrative costs Page 28 • AutoCanada December 31, 2019 $ 610,406 41,051 134,407 35,591 821,455 December 31, 2018 $ 580,216 48,856 98,109 33,684 760,865 December 31, 2019 $ 2,769,581 1,489 (1,406) 9,298 December 31, 2018 $ 2,577,465 185 3,146 9,982 20 Assets and liabilities held for sale Land and buildings The Company has committed to a plan to sell specific non-core Canadian land and buildings. The agreements are subject to customary closing conditions. The net assets have been reclassified as held for sale as at the Consolidated Statement of Financial Position date. During the year ended December 31, 2019, the Company sold five properties: During the three-month period ended March 31, 2019, the Company disposed of two properties in the Canadian Operations segment that were previously held for sale as at December 31, 2018 for proceeds of $6,048, which resulted in a net loss of $(152). During the three-month period ended June 30, 2019, the Company disposed of two properties in the Canadian Operations segment that were previously held for sale as at December 31, 2018 for proceeds of $4,365, which resulted in a net loss of $(628). During the three-month period ended December 31, 2019, the Company disposed of one property in the Canadian Operations segment that were previously held for sale as at December 31, 2018 for proceeds of $2,650, which resulted in a net loss of $(227). The net losses related to the disposal of land and buildings are included in gain on disposal of assets, net in the Consolidated Statements of Comprehensive Loss. As at December 31, 2019, assets held for sale in the Canadian Operations segment, include land and buildings of $14,193 . During the three-month period ended December 31, 2019, the Company recorded an impairment charge of $6,016 related to the the non-core Canadian land and buildings classified as held for sale. During the three-month period ended June 30, 2019, the Company recorded an impairment charge of $674 related to a dealership classified as held for sale in the Canadian Operations segment Assets and liabilities held for sale in the Canadian Operations segment, as at December 31, 2018, included land and buildings of $31,915, dealership net assets of $22,398 and net liabilities of $5,281. U.S. dealerships The net assets and liabilities related to four dealerships in the U.S. Operations segment were classified as held for sale during the second quarter of 2019. During the three-month period ended June 30, 2019, the carrying amount of the dealerships reclassified to held for sale exceeded the fair value less costs to sell. As a result, the Company recorded an impairment charge of $11,900 related to the four dealerships in the U.S. Operations segment. The four dealerships have been reclassified out of held for sale as at December 31, 2019 as the Company no longer has intentions to actively market the stores for sale. This decision was made subsequent to reviewing the September 30, 2019 results which showed improved operational performance. Page 29 • AutoCanada 21 Property and equipment Company & lease vehicles $ Leasehold improvements $ Machinery & equipment $ Land & buildings1 $ Furniture, fixtures & other $ Computer equipment $ Total $ Cost: January 1, 2018 Capital expenditures Acquisitions of dealership assets (Note 14) Acquisitions of real estate Disposals Impairment losses recognized Transfers to assets held for sale Transfers in from inventory, net Foreign currency translation December 31, 2018 Capital expenditures Disposals Impairment losses recognized Transfers to assets held for sale Transfer from assets held for sale Transfers from inventory, net Foreign currency translation December 31, 2019 Accumulated depreciation: January 1, 2018 Depreciation Disposals Transfers to assets held for sale Transfers in from inventory, net Foreign exchange December 31, 2018 Depreciation Disposals Impairment losses recognized Transfers to assets held for sale Transfer from assets held for sale Transfers in from inventory, net Foreign exchange December 31, 2019 Carrying amount: December 31, 2018 December 31, 2019 19,279 — — — — — (368) 3,950 — 22,861 — — (68) — 88 10,975 (36) 33,820 (5,108) (3,934) — 153 2,894 (2) (5,997) (4,022) — 30 — (22) 3,244 13 33,352 7,170 20,467 — (1,335) (19,330) (714) — 1,169 40,779 13,987 (931) — — 71 — 30,136 4,020 2,915 — 323,113 — 10,031 10,918 (2,575) (115,845) (19) — (494) (33,789) — — 17,529 2,229 1,998 — (1,955) (7) (447) — 111 11,473 434,882 2,237 15,656 323 — 35,734 10,918 (1,541) (123,251) (5) (19,361) (249) (36,061) — 14 3,950 1,435 194,428 19,458 12,252 323,902 8,975 (71,014) — (1,800) — — — 526 (932) (41) — 82 — (108) 3,296 30,634 (567) (93) — — — (75,155) (563) (1,800) 250 10,975 (43) (632) — 141 34,124 3,850 (1,711) (361) — 9 — (269) (176) 53,637 35,735 130,589 18,985 14,845 287,611 (12,843) (2,966) 1,163 299 — (15) (14,362) (2,735) 367 — — (58) — 20 (19,365) (30,444) (2,891) 2,324 376 — (19) (19,575) (3,402) 1,546 107 — (1) — 38 (6,576) 6,502 1,339 — — (29,179) (5,589) 9,304 — 732 — — — (8,992) (2,032) 817 337 — (12) (9,882) (1,921) 931 12 — (66) — 21 (7,776) (1,548) 1,385 176 — (3) (7,766) (2,154) 134 20 — — — 11 (84,528) (19,947) 12,191 2,680 2,894 (51) (86,761) (19,823) 12,282 169 732 (147) 3,244 103 (6,754) (16,768) (21,287) (24,732) (10,905) (9,755) (90,201) 16,864 27,066 26,417 36,869 14,549 14,448 165,249 105,857 9,576 8,080 4,486 237,141 5,090 197,410 1 As at December 31, 2019, the Company owns land of $39,515 (2018 - $94,882). Page 30 • AutoCanada Construction-in-progress additions of $15,102 are included in land and buildings, as well as leasehold improvements, and are not subject to depreciation until the assets are available for use. 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 Statements of Comprehensive Loss. 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 ended December 31, 2019, the Company entered into multiple sale-leaseback transactions as follows: On March 26, 2019, the Company sold two dealership facilities to Automotive Properties Real Estate Investment Trust and the properties were leased back to the Company. The Company received proceeds of $23,950 for the sale, which resulted in a pre-tax gain of $2,716 recognized in the first quarter. The minimum annual lease payments under the respective leases are $1,665. On June 25, 2019, the Company sold three dealership facilities to Automotive Properties Real Estate Investment Trust and the properties were leased back to the Company. The Company received proceeds of $30,400 for the sale, which resulted in a pre-tax loss of $360 recognized in the second quarter. The minimum annual lease payments under the respective leases are $2,204. On August 23, 2019, the Company sold two dealership facilities to Capital Automotive Real Estate Services Inc. and the properties were leased back to the Company. The Company received proceeds of $20,000 for the sale, which resulted in a pre-tax gain of $579 recognized in the third quarter. The minimum annual lease payments under the respective leases are $1,550. During the year ended December 31, 2018, the Company entered into multiple sale-leaseback transactions as follows: Two 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 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. The minimum annual lease payments under the operating leases are $4,090. 22 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. The Company performed its annual test for impairment as at December 31, 2019. As a result of the test performed, the Company recorded $36,575 for the year ended December 31, 2019 (2018 - $101,494). Page 31 • AutoCanada The impairment charges were allocated to the assets of the respective CGU’s as follows: Leasehold improvements Land and buildings (Note 20) Intangible assets Goodwill Year ended December 31, 2019 $ — 6,016 (1,527) 32,086 36,575 Year ended December 31, 2018 Restated (Note 14) $ 19,330 2,092 25,788 54,284 101,494 The changes in the book value of intangible assets and goodwill for the year ended December 31, 2019 were as follows: Cost: January 1, 2018 Acquisitions (Note 14) Transfer to assets and liabilities held for sale Effect of foreign currency translation December 31, 2018 Divestitures Effect of foreign currency translation December 31, 2019 Accumulated impairment: January 1, 2018 Impairment Effect of foreign currency translation December 31, 2018 Impairment (recovery) Divestitures Effect of foreign currency translation December 31, 2019 Carrying amount: December 31, 2018 December 31, 2019 Intangible assets $ 413,788 79,068 (2,690) 3,303 493,469 (11,431) (2,100) 479,938 53,792 25,788 1,536 81,116 (1,527) (9,931) (13) 69,645 412,353 410,293 Goodwill $ Total $ 38,622 86,405 — 4,326 129,353 (783) (3,889) 124,681 16,631 54,284 6 70,921 32,086 (783) (1,658) 100,566 452,410 165,473 (2,690) 7,629 622,822 (12,214) (5,989) 604,619 70,423 80,072 1,542 152,037 30,559 (10,714) (1,671) 170,211 58,432 24,115 470,785 434,408 The impairment for the year ended December 31, 2019 relates to the Company's reportable segments as follows: Land and buildings (Note 20) Intangible assets Goodwill Canadian Operations $ U.S. Operations $ 6,016 (1,917) 2,421 6,520 — 390 29,665 30,055 Total $ 6,016 (1,527) 32,086 36,575 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: Page 32 • AutoCanada Cash Generating Unit Intangible assets December 31, 2019 $ Goodwill Total Restated December 31, 2018 $ Intangible assets Goodwill Total AD AI C AM AA X T AC AH K E AE U F AK P O D AN Z Q I R AF 1 S B V Other CGUs less than $5,0001 Held for sale Carrying amount 27,807 23,067 21,250 24,494 21,806 18,044 21,687 18,198 17,641 16,040 14,872 13,908 12,496 12,930 12,041 11,656 10,690 9,263 9,626 9,431 8,698 8,495 8,048 4,684 5,799 5,790 5,590 36,242 410,293 — 410,293 6,135 3,923 3,951 506 — 3,724 — — — 644 — — 941 — — — — 950 — — — — — 1,343 — — — 1,998 24,115 — 24,115 33,942 26,990 25,201 25,000 21,806 21,768 21,687 18,198 17,641 16,684 14,872 13,908 13,437 12,930 12,041 11,656 10,690 10,213 9,626 9,431 8,698 8,495 8,048 6,027 5,799 5,790 5,590 38,240 27,807 24,228 21,250 24,494 13,836 18,044 21,687 11,498 18,599 16,848 9,592 13,148 12,496 12,930 14,791 10,516 15,400 9,263 9,626 9,431 2,638 7,795 11,549 4,684 4,989 6,591 13,700 47,613 6,135 11,790 3,951 506 — 3,724 — — 1,303 7,770 — — 941 — — — — 950 — — — — 459 1,343 — 409 — 19,151 33,942 36,018 25,201 25,000 13,836 21,768 21,687 11,498 19,902 24,618 9,592 13,148 13,437 12,930 14,791 10,516 15,400 10,213 9,626 9,431 2,638 7,795 12,008 6,027 4,989 7,000 13,700 66,764 434,408 — 434,408 415,043 2,690 412,353 58,432 — 58,432 473,475 2,690 470,785 1 The original CGU was split into two CGUs (dealerships), as an Open Point began operations in 2018. Page 33 • 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 December 31, 2019 $ Goodwill Total December 31, 2018 $ Goodwill Total Intangible assets — (7,970) 8,110 1,130 (6,700) (1,140) 2,900 801 — — — 2,750 4,710 957 — 1,970 (810) (700) — (6,060) 3,501 (760) 674 (5,280) (1,917) AL AA V AB AC P G B F A 1 AF AK O AH AP Y S I BA Q R AE AO E Net impairment (recovery) 1,063 2,312 1,101 (1,788) 2,776 5,656 — — 4,794 1,567 531 — 4,782 — 84 1,315 1,010 702 1,500 903 2,629 — 2,109 (1,085) 31,961 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. — (7,970) 8,110 1,130 (6,700) (1,140) 3,150 1,210 — — — 2,750 4,710 2,260 — 1,970 (810) (700) — (6,060) 3,960 (760) 674 (5,280) 504 — — — — — 1,514 — — — 1,567 531 — — — — — 200 — — — 2,629 — — — 6,441 — — — — — — 250 409 — — — — — 1,303 — — — — — — 459 — — — 2,421 Intangible assets 1,063 2,312 1,101 (1,788) 2,776 4,142 — — 4,794 — — — 4,782 — 84 1,315 810 702 1,500 903 — — 2,109 (1,085) 25,520 U.S. dealerships December 31, 2019 $ Restated December 31, 2018 $ Cash Generating Unit N M AG K L H J AI W Net impairment Intangible assets — — 65 — — — — — 325 390 Goodwill 1,724 3,679 3,860 6,754 3,532 — — 6,520 3,596 29,665 Total 1,724 3,679 3,925 6,754 3,532 — — 6,520 3,921 30,055 Intangible assets — — — — — 136 132 — — 268 Goodwill 2,265 2,622 164 472 6,179 15,369 7,956 2,661 10,155 47,843 Total 2,265 2,622 164 472 6,179 15,505 8,088 2,661 10,155 48,111 Page 34 • AutoCanada The valuation methodology used to assess the recoverable value of the CGUs uses level 2 inputs, indirectly derived from the market, where possible, for key assumptions such as the discount rate. Where level 2 inputs are not available, as is the case with the growth rate, the Company uses level 3 inputs, which are unobservable to the market, but reflect management’s best estimates from historical performance and expectations for the future. The following table shows the recoverable amounts of CGUs with impairments or recoveries of impairments recorded in either the current year or prior year: Canadian dealerships Cash Generating Unit AL AA V AB AC P G B F A AK O AH Y S I Q R AE AO 1 E Z FVLCD or VIU VIU VIU VIU VIU 2 VIU VIU VIU VIU VIU FVLCD VIU VIU VIU VIU VIU VIU VIU 2 FVLCD VIU N/A FVLCD 3 VIU December 31, 2019 $ 4,731 28,763 6,782 4,085 21,725 15,395 705 9,526 14,910 — 13,309 12,903 19,612 4,421 15,600 19,001 11,045 6,945 15,176 — 11,343 — December 31, 2018 $ 4,942 17,967 15,771 5,490 15,667 15,667 — — 15,550 9,549 — 17,807 — — 8,847 11,126 5,207 16,753 17,035 4,283 16,318 10,583 1 The CGU was sold during the year and therefore, has no CGU recoverable amount. Refer to Note 15. 2 The CGU was valued using the FVLCD technique in the prior year. 3 The CGU was valued using the VIU technique in the prior year. U.S. dealerships Cash Generating Unit N M AG K L H J 1 AI W FVLCD or VIU VIU 2 VIU 2 FVLCD VIU 2 VIU 2 VIU 2 N/A VIU 2 FVLCD December 31, 2019 $ 231 5,177 — 23,891 4,008 21,229 — 29,111 — December 31, 2018 $ 4,577 7,016 8,024 26,755 9,562 3,363 2,251 41,444 8,642 1 The CGU ceased operations during the year and therefore, has no CGU recoverable amount. 2 The CGU was valued using the FVLCD technique in the prior year. Page 35 • AutoCanada  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. 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 the Company's 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 2.5 to 7.9 times forecasted EBITDA ( 2018 - 3.5 to 8.8 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. 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 10.14% and 11.72% in its projections ( 2018 - 10.18% and 13.45%). 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. 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. Page 36 • AutoCanada Sensitivity As there are CGUs that have intangible assets with original costs that exceed their current year carrying amounts, 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 F Change In discount rate Change In growth rate Carrying amount Recoverable amount exceeds carrying amount 0.01% 0.01% 14,931 — 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 X 23 Financial instruments Change In multiple Recoverable amount 0.1 20,330 Carrying amount 20,130 Recoverable amount exceeds carrying amount 200 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 (Note 3). The Company’s financial assets are measured at amortized cost. The Company’s financial liabilities are measured at amortized cost except for redemption liabilities, 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 $149,580 ( 2018 – $147,000). Financial Risk Management Objectives The Company’s activities are exposed to a variety of financial risks of varying degrees of significance which could affect the Company’s ability to achieve its strategic objectives. AutoCanada’s overall risk management program focuses on the unpredictability of financial and economic markets and seeks to reduce potential adverse effects on the Company’s financial performance. Risk management is carried out by financial management in conjunction with overall corporate governance. The principal financial risks to which the Company is exposed are described below. Market Risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign currency and interest rates. Foreign Currency Risk 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 entity. The Company is exposed to foreign exchange risk because its Canadian and U.S. operations engage in transactions denominated in a currency other than their respective functional currency. Risk arises as a result of specific transfers associated with working capital between Page 37 • AutoCanada Canadian and U.S. operations as well as wholesale used vehicle transactions where Canadian operations will participate in disciplined cross-border sales when arbitrage opportunities are present. 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 26), and the hedge accounting note (refer to Note 37). 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 2019 $ 17,957 19 2018 $ 18,656 26 2019 $ 8,978 9 2018 $ 9,328 13 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 the Company's customer base. Details of the aging of the Company’s trade and other receivables are disclosed in the table below. 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, 2019 and December 31, 2018 and the corresponding historical credit losses experienced within these periods. The loss allowance for trade receivables as at December 31, 2019 and December 31, 2018 was determined as follows: December 31, 2019 December 31, 2018 Gross carrying amount - Trade receivables $ Expected loss allowance (Note 18) $ Expected loss rate % Expected loss rate % Gross carrying amount - Trade receivables $ 0.01% 1.15% 3.71% 5.37% 7.01% 86,921 18,777 9,365 4,414 15,062 134,539 12 216 348 237 1,056 1,869 0.07% 1.99% 8.42% 11.69% 17.55% 97,074 15,950 8,631 2,282 10,423 134,360 Expected loss allowance (Note 18) $ 68 317 727 267 1,829 3,208 Current 31 - 60 days 61 - 90 days 91 - 120 days > 120 days Total Page 38 • AutoCanada The closing loss allowance for trade receivables as at December 31, 2019 reconciles to the opening loss allowance as follows: As at January 1, 2019 Loan loss allowance recognized in profit or loss during the year Receivables allowed for during the year Additional amount recorded As at December 31, 2019 2019 3,208 (611) (1,134) 406 1,869 The amounts disclosed on the balance sheet for accounts receivable are net of the expected loss allowance, details of which are disclosed in Note 18. 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 Statements of Comprehensive Loss. Concentration of cash and cash equivalents exist due to the significant amount of cash held with a Canadian financial institution (refer to Note 17 for further discussion of the Company’s concentration of cash held on deposit with the financial institution). The syndicated revolving floorplan facility (Note 26) allows the Company's dealerships to hold excess cash (used to satisfy working capital requirements of the Company's various OEM partners) in an account with the financial institution which bears interest at 3.128% at December 31, 2019 (2018 – 3.348%). These cash balances are fully accessible by the Company's 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. As at December 31, 2019, the Company has $185,125 (2018 - $240,747) 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. December 31, 2019 Trade and other payables Revolving floorplan facilities Vehicle repurchase obligations Indebtedness Lease liabilities Derivative financial instruments 2020 $ 2021 $ 2022 $ 2023 $ Thereafter $ Total $ 134,971 832,158 7,802 11,560 45,529 1,709 1,033,729 — — — 219,947 45,587 1,702 267,236 — — — — 44,720 1,443 46,163 — — — — 43,241 1,325 44,566 — — — — 425,674 7 425,681 134,971 832,158 7,802 231,507 604,751 6,186 1,817,375 Page 39 • AutoCanada December 31, 2018 Trade and other payables Revolving floorplan facilities Vehicle repurchase obligations Indebtedness Derivative financial instruments 2019 $ 2020 $ 2021 $ 2022 $ Thereafter $ Total $ 101,280 748,353 7,654 18,778 752 876,817 — — — 17,215 752 17,967 — — — 336,184 752 336,936 — — — — 752 752 — — — — 754 754 101,280 748,353 7,654 372,177 3,762 1,233,226 24 Other assets Prepaid expenses Other assets1 December 31, 2019 $ Long-term — 5,042 5,042 Current 8,468 34 8,502 December 31, 2018 $ Long-term 4,482 5,666 10,148 Current 6,513 — 6,513 1 $1,670 (2018 - $5,847) relates to long-term loans receivable from the respective non-controlling interests (refer to Note 33). 25 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: 84,774 22,165 5,743 22,289 134,971 December 31, 2019 $ December 31, 2018 $ January 1, 2018 Provisions made during the year Amounts expired or disbursed December 31, 2018 Provisions made during the year Amounts expired or disbursed December 31, 2019 Finance and insurance 1 $ Legal and other $ 1,631 405 (765) 1,271 — (1,200) 71 689 3,236 (354) 3,571 1,125 (942) 3,754 1 Represents an estimated chargeback reserve provided by the Company's third party underwrite of finance and insurance products. Page 40 • AutoCanada 49,805 22,751 5,852 22,872 101,280 Total $ 2,320 3,641 (1,119) 4,842 1,125 (2,142) 3,825 26 Indebtedness This note provides information about the contractual terms of the Company’s interest-bearing debt, which is measured at amortized cost. For more information about the Company’s exposure to interest rate, foreign currency and liquidity risk, refer to Note 23. December 31, 2019 $ December 31, 2018 $ Revolving floorplan facilities Revolving floorplan facilities - Syndicate (i) (Note 39) Revolving floorplan facilities - Bank of America (ii) Revolving floorplan facilities - VW Credit Canada, Inc. (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) (Note 39) Senior unsecured notes Unamortized deferred financing costs Revolving term facilities (i) Revolving term facility Unamortized deferred financing costs Other debt Mortgage (x) Other long-term debt Total indebtedness Current indebtedness Long-term indebtedness 480,662 91,903 65,864 75,783 28,355 26,474 18,396 44,721 832,158 — 832,158 149,739 (537) 149,202 64,875 (1,594) 63,281 858 91 213,432 127 213,305 The following table shows the movement of indebtedness during the year ended December 31: Balance, December 31, 2018 Amortization of deferred financing costs Draws and additions Repayments Balance, December 31, 2019 2019 $ 328,652 760 45,052 (161,032) 213,432 384,954 122,950 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 1,654 326,998 2018 $ 335,116 1,658 294,085 (302,207) 328,652 Page 41 • AutoCanada Terms and conditions of outstanding loans are as follows: i. The three-year syndicate credit agreement provides the Company with a facility for floorplan, lease financing for new, used, and demonstrator vehicles, financing for acquisitions and capital expenditures and a facility for general corporate purposes. During the second, third, and fourth quarters of 2019, the Company executed Second, Third, Fourth, and Fifth Amendments to the syndicate 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. Floorplan and lease financing of new, used and demonstrator vehicles 1 Acquisitions and capital expenditures 2 General corporate purposes 2 Facility limits Interest rate Q4 2019 Q3 2019 Q2 2019 Q1 2019 2018 2019 2018 680 180 70 930 680 180 70 930 680 230 70 980 660 660 3.13% 3.35% 350 70 1,080 350 70 1,080 4.58% 4.58% 4.80% 4.80% 1 2 The floorplan facility bears interest rates of Canadian Dollar Offered Rate ("CDOR") plus 1.050% (2018 - CDOR plus 1.050%) Interest on borrowings under these facilities are subject to a pricing grid, whereby the pricing level is determined on a leverage ratio. Based on the Company's Leverage Ratio, as defined by the Lender, the interest rate ranges from CDOR plus 1.75% to 2.75% (2018 - CDOR plus 1.75% to 2.75%). As at December 31, 2019, the Company is in the second of five tiers of the pricing grid providing interest rates of 2.500%. 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. During the fourth quarter, an amendment was made to the pricing grid, whereby the interest rate is contingent on the net income and the Fixed Charge Coverage Ratio ("FCCR"). As at December 31, 2019, the Company is in the fourth of the four tiers of the pricing grid, whereby the BoA facilities for New and Demonstrator vehicles bear interest rates of London Interbank Offered Rate (“LIBOR”) plus 2.00% (2018 - 1.15%) per annum for a total of 3.76% (2018 - 3.67%). The maximum amount of financing provided by BoA for New and Demonstrator vehicle financing is $106,500 (2018 - $106,500). The floorplan facilities for used vehicles bear interest rates of LIBOR plus 2.10% (2018 - 1.40%) for a total of 3.86% (2018 - 3.92%). The maximum amount of financing provided by BoA for Used vehicle financing is $25,000 (2018 - $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”). During the second, third and fourth quarters of 2019, amendments were made to the maximum amount of financing provided to $76,765, $79,365, and $ 81,835, respectively. As at December 31, 2019, the maximum amount of financing is $81,835 (2018 - $77,935). The VCCI facilities bear interest at RBC prime rate plus 0.00% - 0.75% (2018 - 0.00% - 0.75%). The RBC prime rate was 3.95% at December 31, 2019 (2018 - 3.95%). The combined total interest rates were 3.95% - 4.70% (2018 - 3.95% - 4.70%). 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, 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”). During the first and second quarters of 2019, amendments were made to the maximum advance limit to $99,936 and $101,705, respectively. As at December 31, 2019, the maximum advance limit is $101,705 (2018 - $98,806). The BMW Facilities bear a variable interest rate of prime minus 0.40% (2018 - 0.40%) per 360 day annum for a total of 3.55% at December 31, 2019 Page 42 • AutoCanada (2018 - 3.55%). The BMW Facilities have certain reporting requirements and financial covenants and are collateralized by the dealerships’ movable and immovable property. v. RBC provides floorplan financing for new, used and demonstrator vehicles for three of the Company’s dealerships (the “RBC Facilities”). During the third quarter of 2019, an amendment was made to the maximum amount of financing to $47,800. As at December 31, 2019, the maximum advance limit is $47,800 (2018 - $45,800). The RBC Facilities bear interest rates of RBC’s Cost of Funds Rate plus 0.25% - 0.50% (2018 - 0.25% - 0.65%). RBC’s Cost of Funds Rate was 2.84% at December 31, 2019 (2018 - 3.04%). The combined total interest rates were 3.09% - 3.34% as at December 31, 2019 (2018 - 3.29% - 3.69%). 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 Rate plus 0.93% (2018 - 0.93%). The Scotia Fixed Flooring rate was 2.08% at December 31, 2019 (2018 - 2.27%). The combined total interest rate was 3.01% at December 31, 2019 (2018 – 3.20%). The maximum amount of financing provided by Scotiabank Facilities is $47,800 (2018 - $47,800). 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% ( 2018 – 0.75%) per annum and provide a maximum amount of financing of $23,500 (2018 - $23,500). The TD prime rate was 3.95% at December 31, 2019 (2018 – 3.95%). The combined total interest rate was 3.20% at December 31, 2019 (2018 – 3.20%). 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”) of 2.08% (2018 - 2.30%) plus 1.80% (2018 - 1.80%) per annum for a total of 3.88% at December 31, 2019 (2018 - 4.10%) and provide a maximum amount of financing of $58,000 (2018 - $46,500). 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. VCCI provides the Company with a mortgage (the “VCCI Mortgage”), which bears interest at a floating rate of interest per annum equal to the RBC prime rate plus 0.15% (2018 - 0.15%). The RBC prime rate was 3.95% at December 31, 2019 (2018 - 3.95%). The total interest rate was 4.10% at December 31, 2019 (2018 - 4.10%). The VCCI Mortgage is repayable with blended monthly payments of $4 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, 2019, the carrying amount of the property was $1,278 (2018 - $1,540). Page 43 • AutoCanada 27 Leases Right-of-use asset balance, January 1, 2019 Additions Transfers from assets held for sale Depreciation (Note 8) Disposals Effect of foreign currency translation Right of use asset balance, December 31, 2019 Lease liability balance, January 1, 2019 Additions Transfers from liabilities held for sale Repayments Interest expense (Note 11) Disposals Effect of foreign currency translation Lease liability balance, December 31, 2019 Current lease liabilities Lease liabilities Other than depreciation, the following amounts have been recognized in income: Expenses related to short-term leases (included in Operating expenses) Expenses related to leases of low-value assets that are not shown above as short-term leases (included in Operating expenses) Income from sub-leasing right-of-use assets (included in Lease and other income, net) Total $ 275,814 56,068 545 (23,404) (3,832) (1,655) 303,536 Total $ 340,896 66,096 599 (41,961) 21,673 (3,170) (3,670) 380,463 21,208 359,255 2019 $ 235 119 394 As at December 31, 2019, potential cash outflows of $474,475 (undiscounted) have not been included in the lease liability as it is not reasonably certain the extension options will be exercised. The financial effect of including reasonably certain extension options in leases liabilities and right-of-use assets is $56,124. As at December 31, 2019, estimated commitments associated with low-value and short-term leases are insigificant. 28 Vehicle repurchase obligations The Company operates service loaner programs and provides vehicles to a third party vehicle rental company with individual terms not to exceed twelve months, at which time the Company has an obligation to repurchase each vehicle at a predetermined amount. As a result, the Company has recorded the contractual repurchase amounts as outstanding vehicle repurchase obligations and has classified the liability as current due to the short-term nature of the obligation. Page 44 • AutoCanada  29 Commitments and contingencies 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 25 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 $2,314 as at December 31, 2019 (2018 – $1,293) 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, 2019, the Company is committed to capital expenditure obligations in the amount of $17,959 (2018 – $11,215) related to dealership relocations, dealership re-imagings, and dealership Open Points with expected completion of these commitments in 2022. 30 Share-based payments The Company operates an 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. Effective in 2018, the RSU Plan was modified such that awards are intended to be settled in shares. The RSU plan settles by way of common shares, based on the Company's share price at each vesting date. The RSUs are also entitled to earn additional units based on dividend payments made by the Company and the share price on date of payment. The RSUs granted are scheduled to vest at different intervals 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 Forfeited units Dividends reinvested Impact of movements in share price Outstanding, end of the year 2019 2018 Number of RSUs 54,789 (6,071) – 89,904 (14,631) 3,666 – 127,657 Amount $ 622 (65) – 962 (153) 40 – 1,406 Number of RSUs 20,032 (29,732) (17,017) 80,910 – 596 – 54,789 Amount $ 454 (464) (279) 693 – 9 209 622 Page 45 • AutoCanada During the year ended December 31, 2019, 28,959 RSU's were vested but not settled. Deferred Share Units (DSUs) Independent members of the Board of Directors are paid a portion of their annual retainer in the form of DSUs. They may also elect to receive up to 100% of their remaining cash remuneration in the form of DSUs. Effective in 2018, the DSU Plan was modified such that awards are intended to be settled in shares. 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. 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. The following table shows the change in the number and value of DSUs for the years ended December 31: Outstanding, beginning of the year Settled Granted Dividends reinvested Impact of movements in share price Outstanding, end of the year Stock Option Plan 2019 2018 Number of DSUs 79,618 (24,063) 47,414 4,234 – 107,203 Amount $ 904 (429) 498 47 – 1,020 Number of DSUs 49,716 – 28,490 1,412 – 79,618 Amount $ 1,126 – 394 20 (636) 904 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. The following table shows the change in the number of stock options for the years ended December 31: Outstanding, beginning of the year Granted Exercised Expired Forfeited Outstanding, end of the year Vested and exercisable, end of the year 2019 2018 Average exercise price per share option $ 10.72 11.11 — 18.68 10.05 10.26 10.05 Share options # 2,743,332 470,000 — (213,332) (600,000) 2,400,000 850,000 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 During the year ended December 31, 2019, no options were exercised. Page 46 • AutoCanada The following table shows the expiry date and exercise price for the share options outstanding as at December 31, 2019: Grant date August 14, 2018 March 19, 2019 August 14, 2019 Total Weighted average remaining contractual life of options outstanding, end of the period Expiry date August 14, 2028 August 14, 2028 August 14, 2024 Exercise price $ Share options # 10.05 11.49 9.72 1,930,000 370,000 100,000 2,400,000 8.46 years The weighted average remaining contractual life for the share options outstanding as at December 31, 2018 was 9.44 years. For the year ended December 31, 2019, the assessed weighted average fair value at grant date of options granted was $3.05 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, 2019 include: March 19, 2019 Grant 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 two years from the date of grant and the share price reaching at least $15.08 and another portion only vests at the later of three years and the share price reaching at least $20.10. Vested options are exercisable until August 14, 2028. Exercise price: $11.49 Grant date: March 19, 2019 Life of option: 9.4 years Share price at grant date: $11.49 Expected price volatility of the Company's shares: 32.8% Expected dividend yield: 3.62% Risk-free interest rate: 2.18% August 14, 2019 Grant Options are granted for no consideration and vest evenly on each of the first, second and third anniversaries of the grant date. Vested options are exercisable until August 14, 2024. Exercise price: $9.72 Grant date: August 14, 2019 Life of option: 4 years Share price at grant date: $9.61 Expected price volatility of the Company's shares: 43.38% Expected dividend yield: 4.16% Risk-free interest rate: 1.19% Page 47 • AutoCanada Expected price volatility was determined at the time of grant using the AutoCanada share price on a historical basis. It reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome. 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. During the year ended December 31, 2019, expenses of $3,413 (2018 - $1,630) and recoveries of $1,823 (2018 - $735) arose as a result of options issued in 2016 and 2018. Share Appreciation Rights (SARs) The share appreciation rights are designed to advance the Go-Forward Plan of the Corporation by enabling those granted rights under the plan to participate in the growth and profitability of the Company. All of the rights are time-based and vest over a maximum period of three years. Vested rights 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. The following table shows the change in the number of share appreciation rights for the year ended December 31, 2019: Outstanding, beginning of the year Granted Forfeited Outstanding, end of the year Vested and exercisable, end of the year Weighted average exercise price per share appreciation right $ 11.18 10.60 12.00 10.86 11.38 Share appreciation rights # 1,043,950 250,500 (135,000) 1,159,450 51,000 During the year ended December 31, 2019, no share appreciation rights were exercised or expired. The weighted average contractual life remaining for these share appreciation rights as at December 31, 2019 is 3.68 years. The assessed weighted average fair value at grant date of the share appreciation rights granted during the year ended December 31, 2019 was $1.81 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, 2019 include: Exercise price: $10.60 Expected life of option: 3.60 years Share price at grant date: $10.30 Expected price volatility of the Company's shares: 31.77% Expected dividend yield: 3.98% Risk-free interest rate: 1.81% 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. Page 48 • AutoCanada Total expenses net of recoveries arising from share-based payment transactions recognized during the year included in employee costs are as follows: Stock options Restricted share units Deferred share units Share appreciation rights 31 Share capital 2019 $ 2,876 663 543 723 4,805 2018 $ 896 (265) 415 220 1,266 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 30) 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, 2019 on the shares held in trust of $17 (2018 – $29) 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, 2019. The following table shows the change in shareholders’ capital for the years ended: 2019 Number of shares 2018 $ Number of shares $ Outstanding, beginning of the year 27,417,062 509,538 27,388,900 508,768 Dividends reinvested Treasury shares settled (1,368) 15,215 (17) 369 (1,567) 29,729 (29) 799 Outstanding, end of the year 27,430,909 509,890 27,417,062 509,538 As at December 31, 2019, 28,774 (2018 - 42,621) common shares were held in trust for the RSU Plan, resulting in a total of 27,459,683 (2018 - 27,459,683) common shares issued. Dividends Dividends are discretionary and are determined based on a number of factors. Dividends are subject to approval of the Board of Directors. During the year ended December 31, 2019, eligible dividends totaling $0.40 (2018 - $0.40) per common share were declared and paid, resulting in total payments of $10,968 (2018 - $10,956). 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, DSUs, SARs, and stock options to calculate the diluted earnings per share. Net loss for the year attributable to common shares 2019 $ 2018 $ (28,353) (86,097) Page 49 • AutoCanada 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 Effect of dilution from DSUs Effect of dilution from SARs Diluted 2019 27,420,483 — — — — 27,420,483 2018 27,399,117 — — — — 27,399,117 For the year ended December 31, 2019, potential common shares related to RSUs (69,980), stock options (94,929), DSUs (89,368) and SARs (11,398) were excluded from the computation of diluted earnings per share because they were anti-dilutive. 32 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 and equity. The calculation of the Company’s capital is summarized below: Long-term indebtedness (Note 26) Equity December 31, 2019 $ December 31, 2018 $ 213,305 368,099 581,404 326,998 439,293 766,291 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, 2019. 33 Transactions with non-controlling interests During the year ended December 31, 2019 no transactions with non-controlling interests were completed. Prior year 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. Page 50 • AutoCanada 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. 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. Page 51 • AutoCanada 34 Related party transactions Transactions with companies controlled by Directors During the year, there were transactions whose partners or senior officers are Directors of the Company or related to Directors of the Company. These counterparties are: Business associates of the Executive Chair who provide consulting services; A firm, whose controlling partner is the Executive Chair, that provides administrative, limited transportation, and other support services; and A company that is controlled by a family member of the President of Canadian Operations, which provides the sourcing of customer leads. All significant transactions between AutoCanada and companies related to Directors were approved by the Company's Board of Directors. A summary of these transactions are as follows: Consulting services Administrative and other support fees 2019 $ 670 722 1,392 2018 $ 135 307 442 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 2019 $ 6,183 61 47 6,291 2018 $ 12,508 165 741 13,414 35 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 assets Trade and other payables Vehicle repurchase obligations Other liabilities Revolving floorplan facilities December 31, 2019 $ (2,495) (83,411) — (1,686) (5,343) 33,190 148 (3,942) 103,612 40,073 December 31, 2018 Restated $ (42,448) 3,236 3,566 (22,830) (2,269) 21,706 3,545 1,359 1,143 (32,992) 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 cut-offs occur. Page 52 • AutoCanada 36 Fair value of financial instruments The Company’s financial instruments at December 31, 2019 are represented by cash and cash equivalents, trade and other receivables, trade and other payables, revolving floorplan facilities, vehicle repurchase obligations, long-term indebtedness, 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 carrying value, refer to Note 23. 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. 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 measurements into three levels based upon the inputs to valuation technique, which are defined as follows: Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). Level 3 – Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). There were no transfers between the levels of the fair value hierarchy during the year. The following table summarizes the remeasurements at fair value with the gain or loss being recognized through profit or loss for the years ended: Opening balance, January 1, 2018 Gain (loss) recognized in net income (Note 12) Settlement of redemption liabilities Closing balance, December 31, 2018 Gain (loss) recognized in net income (Note 12) Closing balance, December 31, 2019 Redemption Liabilities $ (42,704) (7) 27,763 (14,948) (550) (15,498) Page 53 • AutoCanada 37 Other liabilities and derivative financial instruments Other liabilities Equity forward liability The Company has entered into a equity forward purchase agreement with a major Canadian financial institution to reduce its cash and income exposure to fluctuations in its share price relating to the RSUs, DSUs, and SARs. Pursuant to the agreement, the Company receives the economic benefit of share price appreciation and suffers the economic loss of share price depreciation, while providing payments to the financial institution for the institution's cost of funds minus dividends. As the agreement requires settlement in shares, the liability has been recorded as the present value of the settlement and is not subject to remeasurement. As at December 31, 2019, the equity forward agreement covered 329,000 ( 2018 - nil) common shares of the Company and the associated long-term liability was valued at $3,466 (2018 - $nil). Restructuring charges During the three-month period ended September 30, 2019, the Company recognized a non-cash restructuring charge of $13,393, related to the voluntary termination of two franchises in the fourth quarter of 2019. Components of the restructuring charge were an impairment to the associated committed right-of-use asset of $1,148, write-down of assets of $3,719 and provisions for closing costs of $732. The remaining provision of $7,794 relates to the operating costs of the related leased facility. Equity forward $ 3,466 — — 3,466 — 3,466 Restructuring Charges Assets $ 3,719 (3,648) (71) — — — Closing costs $ Operating costs $ 732 (718) (14) — — — 7,794 (103) (150) 7,541 1,240 6,301 Total $ 15,711 (4,469) (235) 11,007 1,240 9,767 September 30, 2019 Amounts recorded against provision Effect of foreign currency translation December 31, 2019 Current other liability Long-term other liability Derivative financial instruments Hedging of interest-rate risk 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, $400 million of variable-rate debt (2018 - $200 million), which has a weighted-average hedge rate of 2.62% (2018 - 2.98%), was hedged and designated as hedged items — the $400 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. Page 54 • AutoCanada Effect of IBOR reform Following the financial crisis, the reform and replacement of benchmark interest rates such as CDOR and other interbank offered rates ('IBORs') has become a priority for global regulators. The Canadian Alternative Reference Rate Working Group (CARR) was created to identify and seek to develop a new risk-free Canadian dollar interest rate benchmark. Although there are no plans to immediately discontinue CDOR rates, an enhanced Canadian Oversight Repo Rate Average (CORRA) has been designed to comply with recommendations of the Financial Stability Board as part of a global effort to reform benchmark interest rates. As a result, there is uncertainty about how the Canadian dollar benchmark rates will evolve and the speed at which CORRA will become a dominant benchmark for Canadian dollar borrowings. 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; Differences in critical terms between the interest rate swaps and loans; and The effects of the forthcoming reforms to CDOR because these may take effect at a different time and have a different impact on the hedged item (the floating-rate debt) and the hedging instrument (the interest rate swap used to hedge the debt). The associated derivative financial instruments were valued at $6,186 at December 31, 2019 (2018 - $3,762). There was no ineffectiveness during 2019 and in 2018. 38 Segmented reporting During the year ended December 31, 2019, the Executive Chair served as the function of the Chief Operating Decision Maker (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. Transactions between reportable segments are accounted for in accordance with the accounting policies described in the summary of significant accounting policies. The Company's CODM measures the performance of each operating segment based on operating profit (loss). The segmented information is set out in the following tables: Year ended December 31, 2019 Canada 1 $ U.S. $ Total $ Year ended December 31, 2018 Canada 1 $ U.S. 2 $ Total $ Revenues External revenues 3,094,062 441,483 3,535,545 2,778,820 371,961 3,150,781 Inter-segment revenue (59,434) — Total revenues 3,034,628 441,483 (59,434) 3,476,111 — — — 2,778,820 371,961 3,150,781 1 AutoCanada's corporate office has been included with the Canadian Operations segment, as it is located in Canada. 2 Grossinger Auto Group was acquired in April 2018. Page 55 • AutoCanada Year ended December 31, 2019 Year ended December 31, 2018 Restated (Note 14) Canada 1 $ U.S. $ Total $ Canada 1 $ U.S. 2 $ Total $ Operating profit (loss) before other income 79,877 (9,149) 70,728 43,503 (10,344) 33,159 Lease and other income, net (Note 10) Gain on disposal of assets, net (Note 10) 8,866 11,014 1,835 — 10,701 11,014 7,491 17,484 722 8,213 3,996 21,480 Impairment of non-financial assets (Note 22) (6,520) (30,055) (36,575) (34,053) (67,441) (101,494) Restructuring charges (Note 37) — (13,393) (13,393) — — — Operating profit (loss) 93,237 (50,763) 42,474 34,425 (73,067) (38,642) Finance costs Finance income Other (losses) gains Net (loss) for the period before tax (68,784) 912 (900) (26,298) (47,193) 1,289 950 (83,596) 1 AutoCanada's corporate office has been included with the Canadian Operations segment, as it is located in Canada. 2 Grossinger Auto Group was acquired in April 2018. As at December 31, 2019 As at December 31, 2018 Restated (Note 14) Assets held for sale Segment assets Capital expenditures Segment liabilities Canada 1 $ 14,193 1,752,151 29,882 U.S. $ — Total $ 14,193 Canada 1 $ 54,313 U.S. $ — Total $ 54,313 237,766 1,989,917 1,473,856 246,712 1,720,568 752 30,634 1,371,460 250,358 1,621,818 23,247 996,947 3,327 26,574 284,328 1,281,275 1 AutoCanada's corporate office has been included with the Canadian Operations segment, as it is located in Canada. Disaggregation of Revenue The significant majority of the Company's 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. The Company has determined that these categories depict how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors. The table below also includes a reconciliation of the disaggregated revenue with the Company's reportable segments: New vehicles Used vehicles Parts, service and collision repair Finance, insurance and other Total revenue Canada1 $ 1,682,205 788,819 417,971 145,633 3,034,628 U.S.2 $ 257,409 102,418 61,756 19,900 441,483 Total $ 1,939,614 891,237 479,727 165,533 3,476,111 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 14. Page 56 • AutoCanada 39 Subsequent events Senior Unsecured Notes The Company issued $125 million 8.75% Senior Unsecured Notes (the "New Notes") on February 11, 2020 to fund the Tender Offer for all the outstanding $150 million Notes. Through the Tender Offer, the Company redeemed $124 million of the outstanding $150 million Notes on February 13, 2020. Subsequent to the settlement of the Tender Offer, the Company issued a call notice for the remaining $26 million outstanding Notes with an expected settlement date of March 13, 2020 at which point the Company will extinguish the outstanding Notes using proceeds from the New Credit Facility. The New Notes hold a term of five years and mature on February 11, 2025. The New Notes were issued at a discounted issue price of $990.11 per $1,000 principal amount of notes (99.011%) for an issue yield of 9.00%. Interest is payable semi-annually on February 11 and August 11 of each year the Notes are outstanding. The initial interest payment date for the New Notes will be August 11, 2020. Amended and Restated Credit Facilities On February 11, 2020, the Company entered into an amended and restated $950 million syndicated credit agreement ("New Credit Facility") with Scotiabank, CIBC, RBC, HSBC, ATB and the Bank of Montreal. The New Credit Facility has specified-use tranches and provides the Company with revolving credit capacity for operational and growth purposes as well as floorplan financing to assist with the purchasing of inventory. The maturity of the New Credit Facility is February 11, 2023. Dividends On February 21, 2020, 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 16, 2020 to shareholders of record at the close of business on March 2, 2020. Page 57 • AutoCanada AutoCanada Inc. 200 - 15511 123 Avenue NW Edmonton, AB • T5V 0C3 www.autocan.ca 

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