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